As filed with the U.S. Securities and Exchange Commission on April 29, 2020 File Nos. 811-07763 333-10015

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM N-1A

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

[X]

Pre-Effective Amendment No.

 

 

 

[ ]

Post-Effective Amendment No.

 

92

 

[X]

 

and/or

 

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

[X]

Amendment No.

 

93

 

[X]

(Check appropriate box or boxes)

LITMAN GREGORY FUNDS TRUST

(Exact Name of Registrant as Specified in Charter)

1676 N. California Blvd., Suite 500, Walnut Creek, California 94596

(Address of Principal Executive Offices) (Zip Code)

(925) 254-8999

(Registrant's Telephone Number, including Area Code)

Jeremy L. DeGroot

Copies of Communications to:

1676 N. California Blvd., Suite 500

David A. Hearth, Esq.

Walnut Creek, California 94596

Paul Hastings LLP

(Name and Address of Agent for Service)

101 California Street, 48th Floor

 

San Francisco, California 94111

Approximate Date of Proposed Public Offering: As soon as practicable following effectiveness.

It is proposed that this filing will become effective (check appropriate box)

[X]immediately upon filing pursuant to paragraph (b)

[

]

on

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:

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]

this post-effective amendment designates a new effective date for a previously filed post-effective amendment.

Table of Contents

LITMAN GREGORY FUNDS TRUST

 

LOGO

 

Prospectus

(Share Class – Ticker Symbol)

Litman Gregory Masters Equity Fund - Institutional Class - MSEFX

Litman Gregory Masters International Fund - Institutional Class - MSILX

Litman Gregory Masters Smaller Companies Fund - Institutional Class - MSSFX

Litman Gregory Masters Alternative Strategies Fund - Institutional Class - MASFX

Investor Class - MASNX

Litman Gregory Masters High Income Alternatives Fund - Institutional Class - MAHIX

Investor Class - MAHNX

April 29, 2020

 

LOGO

 

As with all mutual funds, the U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities, nor has the SEC judged whether the information in this Prospectus is accurate or adequate. 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 Litman Gregory Funds Trust’s (the “Trust”) shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Trust or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on the Trust’s website at www.mastersfunds.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 Trust or your financial intermediary electronically by notifying your financial intermediary directly or, if you are a direct investor, by calling 1-800-960-0188.

You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your reports. If you invest directly with the Trust, you can call 1-800-960-0188. Your election to receive reports in paper will apply to all Funds in the Trust or held with your financial intermediary.


Table of Contents

Table of Contents

 

Summary Section

   2

Litman Gregory Masters Equity Fund

   2

Litman Gregory Masters International Fund

   7

Litman Gregory Masters Smaller Companies Fund

   12

Litman Gregory Masters Alternative Strategies Fund

   16

Litman Gregory Masters High Income Alternatives Fund

   23

Summary of Other Important Information Regarding the Funds

   32

Transaction Policies – All Funds

   32

Tax Information – All Funds

   32

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

   32

Description of Principal Investment Risks

   33

Fund Management and Investment Styles

   51

The Advisor

   51

Litman Gregory Masters Equity Fund – Sub-Advisors

   55

Litman Gregory Masters International Fund – Sub-Advisors

   61

Litman Gregory Masters Smaller Companies Fund – Sub-Advisors

   65

Litman Gregory Masters Alternative Strategies Fund – Sub-Advisors

   68

Litman Gregory Masters High Income Alternatives Fund – Sub-Advisors

   76

Shareholder Services

   82

Index Descriptions

   89

Financial Highlights

   90

For More Information

   Back Cover

 


Table of Contents

Litman Gregory Masters Equity Fund

 

Summary Section

Investment Objective

 

The Litman Gregory Masters Equity Fund (the “Equity Fund”) seeks long-term growth of capital; that is, the increase in the value of your investment over the long term.

Fees and Expenses of the Equity Fund

 

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

Shareholder Fees (fees paid directly from your investment)

 

     Institutional
Class
 
    None  

Annual Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)

 

     Institutional
Class
 

Management Fees

    1.10%  

Other Expenses

    0.22%  

Interest and Dividend Expenses

    0.03%  
 

 

 

 

Total Other Expenses

    0.25%  
 

 

 

 

Total Annual Fund Operating Expenses

    1.35%  

Fee Waiver and/or Expense Reimbursement(1)

    -0.11%  

 

 

 

 

 

Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement(1)

    1.24%  
 

 

 

 

 

(1)

Litman Gregory Fund Advisors, LLC (“Litman Gregory”), the advisor to the Equity Fund, has contractually agreed, through April 30, 2021, to waive a portion of its advisory fees so that after paying all of the sub-advisory fees, the net advisory fee as a percentage of the Equity Fund’s daily net assets retained by Litman Gregory is 0.40%. This agreement may be terminated at any time by the Board of Trustees of the Litman Gregory Funds Trust (the “Trust”) upon sixty (60) days’ written notice to Litman Gregory, and Litman Gregory may decline to renew this agreement by written notice to the Trust at least thirty (30) days before the agreement’s annual expiration date. Litman Gregory has waived its right to receive reimbursement of the portion of its advisory fees waived pursuant to this agreement.

Example

This example is intended to help you compare the cost of investing in the Equity Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Equity 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 Equity Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 

     One Year     Three Years     Five Years     Ten Years  

Institutional Class

  $ 137     $ 428     $ 739     $ 1,624  

Portfolio Turnover

 

The Equity Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares of the Equity Fund are held in a taxable account as compared to shares of investment companies that hold investments for a longer period. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Equity Fund’s performance. During the most recent fiscal year, the Equity Fund’s portfolio turnover rate was 25.02% of the average value of its portfolio.

Principal Strategies

 

Litman Gregory Fund Advisors, LLC, the advisor to the Equity Fund, believes that it is possible to identify investment managers to serve as sub-advisors who, over a market cycle, have a greater potential to deliver superior returns for a Fund relative to their peer groups. Litman Gregory also believes it can identify sub-advisors whose portfolio managers are skilled stock pickers and who, within the investment portfolios they manage separately from the Fund (their “proprietary funds”), have higher confidence in the return potential of some stocks than others. Litman Gregory believes a portfolio comprised only of these portfolio managers’ “higher confidence” stocks should outperform their proprietary funds over a market cycle.

Based on these beliefs, the Equity Fund’s strategy is to engage a number of proven managers as sub-advisors (each, a “manager” or “sub-advisor”), with each manager investing in the securities of companies that it believes have strong appreciation potential. Under normal conditions, each sub-advisor manages a portion of the Equity Fund’s assets by independently managing a portfolio typically composed of at least 5, but not more than 15, stocks. There is no minimum or maximum allocation of the Fund’s portfolio assets to each sub-advisor. Under normal market conditions, the Equity Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities. Equity securities in which the Equity Fund may invest include common stocks, preferred stocks and convertible debt securities, which may be converted on specified terms into stock of the issuer. Concentration of investments in certain sectors – including, but not limited to, the communications services, consumer discretionary, financial, healthcare, industrial and technology sectors – may occur from time to time as a result of the implementation of the Equity Fund’s investment strategy by the sub-advisors. The Fund invests primarily in the securities of large-, mid- and small-sized U.S. companies, as measured by market capitalization at the time of acquisition, although the managers also have flexibility to invest in the securities of foreign companies. Up to 50% of the Equity Fund’s net assets may be invested in foreign equity securities, which may include

 

 

 
2       Litman Gregory Funds Trust


Table of Contents

emerging markets. Litman Gregory defines an emerging market country as any country that is included in the MSCI Emerging Markets Index.

Each sub-advisor uses its own discretion to invest in any sized company it deems appropriate. By executing its investment strategy, the Equity Fund seeks to:

 

  combine the efforts of several experienced, high quality managers;

 

  access the favorite stock-picking ideas of each manager at any point in time;

 

  deliver a portfolio that is prudently diversified in terms of stocks (typically 60 to 100) and industries while allowing each manager to run a portion of the portfolio focused on only its favorite stocks; and

 

  further diversify across different-sized companies and stock-picking styles by incorporating managers with a variety of stock-picking disciplines.

Generally, a security may be sold: (1) if the manager believes the security’s market price exceeds the manager’s estimate of intrinsic value; (2) if the manager’s view of the business fundamentals or management of the underlying company changes; (3) if a more attractive investment opportunity is found; (4) if general market conditions trigger a change in the manager’s assessment criteria; or (5) for other portfolio management reasons.

Principal Risks

 

Investment in stocks exposes shareholders of the Equity Fund to the risk of losing money if the value of the stocks held by the Equity Fund declines during the period an investor owns shares in the Equity Fund. The following risks could affect the value of your investment. Each risk summarized below is considered a “principal risk” of investing in the Equity Fund, regardless of the order in which it appears. Some or all of these risks may adversely affect the Equity Fund’s net asset value per share, total return and/or ability to meet its objective.

 

  Market Risk and Recent Market Volatility Associated with COVID-19. As with all mutual funds that invest in common stocks, the value of an individual’s investment will fluctuate daily in response to the performance of the individual stocks held in the Equity Fund. The stock market has been subject to significant volatility recently, which has increased the risks associated with an investment in the Equity Fund. In particular, the financial markets have recently been impacted by the outbreak of an infectious respiratory illness caused by a novel coronavirus known as COVID-19, which was first detected in China in December 2019 and has spread internationally. This coronavirus has resulted in international border closings, enhanced health screenings, expanded healthcare services and expenses, quarantines and other restrictions on business and personal activities, cancellations, disruptions to supply chains and consumer activity, as well as general public concern and uncertainty. The impact of this outbreak has negatively affected the worldwide economy, as
 

well as the economies of individual countries, the financial health of individual companies and the market in general in significant and unforeseen ways. The future impact of COVID-19 is currently unknown and it may exacerbate other risks that apply to the Fund, including political, social and economic risks. Any such impact could adversely affect the Fund’s performance, the performance of the securities in which the Fund invests and may lead to losses on your investment in the Fund.

 

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

 

  Smaller Companies Risk. The Equity Fund may invest a portion of its assets in the securities of small- and mid-sized companies. Securities of small and mid-cap companies are generally more volatile and less liquid than the securities of large-cap companies. This is because smaller companies may be more reliant on a few products, services or key personnel, which can make it riskier than investing in larger companies with more diverse product lines and structured management.

 

  Foreign Investment Risk. This is the risk that an investment in foreign (non-U.S.) securities may cause the Fund to experience more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies, due to factors such as currency conversion rate fluctuations, and the political and economic climates and differences in financial reporting, accounting and auditing standards in the foreign countries where the Fund invests or has exposure.

 

  Emerging Markets Risk: This is the risk that the value of the Fund’s emerging markets investments will decline due to the greater degree of economic, political and social instability of emerging or developing countries as compared to developed countries.

 

  Currency Risk: This is the risk that foreign currencies will decline in value relative to the U.S. dollar and affect the Fund’s investments in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, or in derivatives that provide exposure to, foreign (non-U.S.) currencies.

 

  Multi-Style Management Risk. Because portions of the Equity Fund’s assets are managed by different portfolio managers using different styles, the Equity Fund could experience overlapping security transactions. Certain portfolio managers may be purchasing securities at the same time other portfolio managers may be selling those same securities, which may lead to higher transaction expenses compared to a Fund using a single investment management style.

 

 

Large Shareholder Purchase and Redemption Risk. The Fund may experience adverse effects when certain large shareholders purchase or redeem large amounts of shares of the Fund. Such large shareholder redemptions may cause the Fund to sell its securities at times when it would not otherwise

 

 

 
Fund Summary         3


Table of Contents

Litman Gregory Masters Equity Fund — (Continued)

 

    do so, which may negatively impact the Fund’s net asset value and liquidity. Similarly, large share purchases may adversely affect the Fund’s performance to the extent that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. In addition, a large redemption could result in the Fund’s current expenses being allocated over a smaller asset base, leading to an increase in the Fund’s expense ratio.

 

  Sector Weightings Risk. To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sectors described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.

 

  ¡    Communications Services Sector Risk. The Fund may invest a portion of its assets in the communications services sector. Media and communications companies may be significantly affected by product and service obsolescence due to technological advancement or development, competitive pressures, substantial capital requirements, fluctuating demand and changes in regulation.

 

  ¡    Consumer Discretionary Sector Risk. The Fund may invest a portion of its assets in the consumer discretionary sector. The success of consumer product manufacturers and retailers is tied closely to the performance of the overall domestic and international economy, interest rates, competition and consumer confidence. Success depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer products and services in the marketplace.

 

  ¡    Financial Sector Risk. The Fund may invest a portion of its assets in the financial services sector and, therefore, the performance of the Fund could be negatively impacted by events affecting this sector, including changes in interest rates, government regulation, the rate of defaults on corporate, consumer and government debt and the availability and cost of capital.

 

  ¡    Healthcare Sector Risk. The Fund may invest a portion of its assets in the healthcare sector. The profitability of companies in the healthcare sector may be adversely affected by government regulations and government healthcare programs, increases or decreases in the cost of medical products and services and product liability claims, among other factors. Many healthcare companies are heavily dependent on patent protection, and the expiration of a company’s patent may adversely affect that company’s profitability. Healthcare companies are subject to competitive forces that may result in price discounting, and may be thinly capitalized and susceptible to product obsolescence.
  ¡    Industrial Sector Risk. The Fund may invest a portion of its assets in the industrial sector. Companies in the industrial sector could be affected by, among other things, government regulation, world events and global economic conditions, insurance costs, and labor relations issues.

 

  ¡    Technology Sector Risk. The Fund may invest a portion of its assets in the technology sector, which is a very volatile segment of the market. The nature of technology is that it is rapidly changing. Therefore, products or services that may initially look promising may subsequently fail or become obsolete. In addition, many technology companies are younger, smaller and unseasoned companies which may not have established products, an experienced management team, or earnings history.

 

  Investment Selection Risk. The specific investments held in the Fund’s investment portfolio may underperform other funds in the same asset class or benchmarks that are representative of the general performance of the asset class because of a portfolio manager’s choice of securities.

 

  Portfolio Turnover Risk. High portfolio turnover involves correspondingly greater expenses to the Equity Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities, which may result in adverse tax consequences to the Equity Fund’s shareholders as compared to shareholders of investment companies that hold investments for a longer period.
 

 

 
4       Litman Gregory Funds Trust


Table of Contents

Performance

 

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

Litman Gregory Masters Equity Fund -

Institutional Class Calendar Year Total Returns

as of December 31

LOGO

During the period shown above, the highest and lowest quarterly returns earned by the Equity Fund were:

 

Highest:

    14.05%      Quarter ended March 31, 2019

Lowest:

    -18.23%      Quarter ended September 30, 2011

Average Annual Total Returns

(for the periods ended December 31, 2019)

 

 

     One Year     Five Years     Ten Years  

Litman Gregory Masters Equity Fund

 

Institutional Class

     

Return Before Taxes

    27.55%       8.87%       11.56%  

Return After Taxes on Distributions

    25.00%       6.62%       9.94%  

Return After Taxes on Distributions and Sale of Fund Shares

    18.09%       6.64%       9.25%  

Russell 3000® Index

     

(reflects no deduction for fees, expenses or taxes)

    31.02%       11.24%       13.42%  

Morningstar Large Blend Category

     

(reflects net performance of funds in this group)

    28.59%       9.53%       11.47%  

The Equity Fund’s after-tax returns as shown in the above table are calculated using the historical highest applicable individual federal marginal income tax rates for the period and do not reflect the impact of state and local taxes. Your actual after-tax returns depend on your tax situation and may differ from those shown. If you own shares of the Equity Fund in a tax-deferred account, such as a 401(k) plan or an individual retirement account, after-tax returns shown are not relevant to your investment. The after-tax returns on distributions and sale of Fund shares may be higher than returns before taxes due to the effect of a tax benefit an investor may receive from the realization of capital losses that would have been incurred on the sale of Fund shares.

 

 

 
Fund Summary         5


Table of Contents

Litman Gregory Masters Equity Fund — (Continued)

 

Management

 

 

INVESTMENT ADVISOR   PORTFOLIO MANAGER   

MANAGED THE

EQUITY FUND SINCE:

Litman Gregory Fund Advisors, LLC   Jeremy DeGroot, CFA, President of the Trust, Principal, Chief Investment Officer and Co-Portfolio Manager        2005  
  Jack Chee, Principal, Senior Research Analyst and Co-Portfolio Manager        2014  
    Rajat Jain, CFA, Principal, Senior Research Analyst and Co-Portfolio Manager        2014  
SUB-ADVISOR   PORTFOLIO MANAGER   

MANAGED THE

EQUITY FUND SINCE:

Davis Selected Advisers, L.P.   Christopher C. Davis, Chairman        1999  
    Danton Goei, Portfolio Manager        2016  
Fiduciary Management, Inc.   Patrick J. English, CFA, Chairman, Chief Executive Officer, Chief Investment Officer        2013  
    Jonathan T. Bloom, CFA, Director of Research        2017  
Harris Associates L.P.   Clyde S. McGregor, CFA, Vice President and Portfolio Manager        2008  
    William C. Nygren, CFA, Vice President, Chief Investment Officer – U.S. Equity, Portfolio Manager and Investment Analyst        2013  
Nuance Investments, LLC   Scott Moore, CFA, President, Co-Chief Investment Officer and Portfolio Manager        2014  
    Chad Baumler, CFA, Vice President, Co-Chief Investment Officer and Portfolio Manager        2020  
Sands Capital Management, LLC   Frank M. Sands, CFA, Chief Investment Officer and Chief Executive Officer        2008  
    A. Michael Sramek, CFA, Senior Portfolio Manager, Research Analyst, Managing Director        2008  
Wells Capital Management, Inc.   Richard T. Weiss, CFA, Managing Director, Senior Portfolio Manager        1996  

For important information about the purchase and sale of fund shares, tax information and financial intermediary compensation, please turn to the “Summary of Other Important Information Regarding the Funds” section on page 32 of this Prospectus.

 

 
6       Litman Gregory Funds Trust


Table of Contents

Litman Gregory Masters International Fund

 

Summary Section

Investment Objective

 

The Litman Gregory Masters International Fund (the “International Fund”) seeks long-term growth of capital; that is, the increase in the value of your investment over the long term.

Fees and Expenses of the International Fund

 

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

Shareholder Fees (fees paid directly from your investment)

 

     Institutional
Class
 
    None  

Annual Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)

 

     Institutional
Class
 

Management Fees

    1.10%  

Other Expenses

    0.25%  

Interest and Dividend Expense

    0.01%  
 

 

 

 

Total Other Expenses

    0.26%  
 

 

 

 

Total Annual Fund Operating Expenses

    1.36%  

Fee Waiver and/or Expense Reimbursement(1)

    -0.24%  

 

 

 

 

 

Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement(1)

    1.12%  
 

 

 

 

 

(1)

Litman Gregory Fund Advisors, LLC (“Litman Gregory”), the advisor to the International Fund, has contractually agreed, through April 30, 2021, to waive a portion of its advisory fees so that after paying all of the sub-advisory fees, the net advisory fee as a percentage of the International Fund’s daily net assets retained by Litman Gregory is 0.40% on the first $1 billion of the International Fund’s assets and 0.30% on assets over $1 billion. This agreement may be terminated at any time by the Board of Trustees (the “Board”) of the Litman Gregory Funds Trust (the “Trust”) upon sixty (60) days’ written notice to Litman Gregory, and Litman Gregory may decline to renew this agreement by written notice to the Trust at least thirty (30) days before the agreement’s annual expiration date. Litman Gregory has waived its right to receive reimbursement of the portion of its advisory fees waived pursuant to this agreement.

Example

This example is intended to help you compare the cost of investing in the International Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the International 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 International Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 

     One Year     Three Years     Five Years     Ten Years  

Institutional Class

  $ 138     $ 431     $ 745     $ 1,635  

Portfolio Turnover

 

The International Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares of the International Fund are held in a taxable account as compared to shares in investment companies that hold investments for a longer period. These costs, which are not reflected in annual fund operating expenses or in the example, affect the International Fund’s performance. During the most recent fiscal year, the International Fund’s portfolio turnover rate was 45.48% of the average value of its portfolio.

Principal Strategies

 

Litman Gregory Fund Advisors, LLC, the advisor to the International Fund, believes that it is possible to identify international investment managers to serve as sub-advisors who, over a market cycle, have a greater potential to deliver superior returns for a Fund relative to their peer groups. Litman Gregory also believes it can identify sub-advisors whose portfolio managers are skilled stock pickers and who, within the investment portfolios they manage separately from the Fund (their “proprietary funds”), have higher confidence in the return potential of some stocks than others. Litman Gregory believes a portfolio comprised only of these portfolio managers’ “higher confidence” stocks should outperform their proprietary funds over a market cycle.

Based on these beliefs, the International Fund’s strategy is to engage a number of proven managers as sub-advisors (each a “manager” or “sub-advisor”), with each manager investing in the securities of companies that it believes have strong appreciation potential. Under normal conditions, each sub-advisor manages a portion of the International Fund’s assets by independently managing a portfolio typically composed of between 8 and 15 stocks. There is no minimum or maximum allocation of the Fund’s portfolio assets to each sub-advisor. Under normal market conditions, the International Fund will invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the securities of companies organized or located outside of the United States, including large-, mid-, and small-cap companies and companies located in emerging markets, as measured by market capitalization at the time of acquisition. Litman Gregory defines an emerging market country as any country that is included in the MSCI Emerging Markets Index. The International Fund ordinarily invests in the securities markets of at least five countries outside of the United States. Concentration of investments in certain sectors – including, but not limited to, the communications services, consumer discretionary, financial and industrial sectors – may occur from time to time as a result of the implementation of the International Fund’s investment strategy by the sub-advisors.

 

 

 
Fund Summary         7


Table of Contents

Litman Gregory Masters International Fund — (Continued)

 

Each sub-advisor uses its own discretion to invest in any sized company it deems appropriate. The managers have limited flexibility to invest in the securities of U.S. companies. By executing its investment strategy, the International Fund seeks to:

 

  combine the efforts of several experienced, high quality international managers;

 

  access the favorite stock-picking ideas of each manager at any point in time;

 

  deliver a portfolio that is prudently diversified in terms of stocks (typically 32 to 60) and industries while still allowing each manager to run portfolio segments focused on only his favorite stocks; and

 

  further diversify across different sized companies, countries, and stock-picking styles by including managers with a variety of stock-picking disciplines.

Generally, a security may be sold: (1) if the manager believes the security’s market price exceeds the manager’s estimate of intrinsic value; (2) if the manager’s view of the business fundamentals or management of the underlying company changes; (3) if a more attractive investment opportunity is found; (4) if general market conditions trigger a change in the manager’s assessment criteria; or (5) for other portfolio management reasons. The International Fund’s managers may trade its portfolio frequently.

Principal Risks

 

Investment in stocks exposes shareholders of the International Fund to the risk of losing money if the value of the stocks held by the International Fund declines during the period an investor owns shares in the International Fund. The following risks could affect the value of your investment. The following risks could affect the value of your investment. Each risk summarized below is considered a “principal risk” of investing in the International Fund, regardless of the order in which it appears. Some or all of these risks may adversely affect the International Fund’s net asset value per share, total return and/or ability to meet its objective.

 

  Foreign Investment Risk. This is the risk that an investment in foreign (non-U.S.) securities may cause the Fund to experience more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies, due to factors such as currency conversion rate fluctuations, and the political and economic climates and differences in financial reporting, accounting and auditing standards in the foreign countries where the Fund invests or has exposure.

 

  Risks Associated with Europe. The Fund may invest a significant portion of its assets in issuers based in Western Europe and the United Kingdom (“UK”). The economies of countries in Europe are often closely connected and interdependent, and events in one country in Europe can have an adverse impact on other European countries. Efforts by the member countries of the European Union (“EU”) to continue to unify their economic and monetary policies may increase
   

the potential for similarities in the movements of European markets and reduce the potential investment benefits of diversification within the region. However, the substance of these policies may not address the needs of all European economies. European financial markets have in recent years experienced increased volatility due to concerns with some countries’ high levels of sovereign debt, budget deficits and unemployment. Markets have also been affected by the decision by the UK to withdraw from the EU (an event commonly known as “Brexit”). There is uncertainty surrounding the impact of Brexit on the UK, the EU and the broader global economy. An exit by any member countries from the EU or the Economic and Monetary Union of the EU, or even the prospect of such an exit, could lead to increased volatility in European markets and negatively affect investments both in issuers in the exiting country and throughout Europe.

 

  Emerging Markets Risk. This is the risk that the value of the Fund’s emerging markets investments will decline due to the greater degree of economic, political and social instability of emerging or developing countries as compared to developed countries.

 

  Currency Risk: This is the risk that foreign currencies will decline in value relative to the U.S. dollar and affect the Fund’s investments in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, or in derivatives that provide exposure to, foreign (non-U.S.) currencies.

 

  Market Risk and Recent Market Volatility Associated with COVID-19. As with all mutual funds that invest in common stocks, the value of an individual’s investment will fluctuate daily in response to the performance of the individual stocks held in the International Fund. The stock market has been subject to significant volatility recently, which has increased the risks associated with an investment in the International Fund. In particular, the financial markets have recently been impacted by the outbreak of an infectious respiratory illness caused by a novel coronavirus known as COVID-19, which was first detected in China in December 2019 and has spread internationally. This coronavirus has resulted in international border closings, enhanced health screenings, expanded healthcare services and expenses, quarantines and other restrictions on business and personal activities, cancellations, disruptions to supply chains and consumer activity, as well as general public concern and uncertainty. The impact of this outbreak has negatively affected the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market in general in significant and unforeseen ways. The future impact of COVID-19 is currently unknown and it may exacerbate other risks that apply to the Fund, including political, social and economic risks. Any such impact could adversely affect the Fund’s performance, the performance of the securities in which the Fund invests and may lead to losses on your investment in the Fund.

 

 

Smaller Companies Risk. The International Fund may invest a portion of its assets in the securities of small- and mid-sized companies. Securities of small- and mid-cap companies are

 

 

 
8       Litman Gregory Funds Trust


Table of Contents
   

generally more volatile and less liquid than the securities of large-cap companies. This is because smaller companies may be more reliant on a few products, services or key personnel, which can make it riskier than investing in larger companies with more diverse product lines and structured management.

 

  Multi-Style Management Risk. Because portions of the International Fund’s assets are managed by different portfolio managers using different styles, the International Fund could experience overlapping security transactions. Certain portfolio managers may be purchasing securities at the same time other portfolio managers may be selling those same securities, which may lead to higher transaction expenses compared to a Fund using a single investment management style.

 

  Large Shareholder Purchase and Redemption Risk. The Fund may experience adverse effects when certain large shareholders purchase or redeem large amounts of shares of the Fund. Such large shareholder redemptions may cause the Fund to sell its securities at times when it would not otherwise do so, which may negatively impact the Fund’s net asset value and liquidity. Similarly, large share purchases may adversely affect the Fund’s performance to the extent that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. In addition, a large redemption could result in the Fund’s current expenses being allocated over a smaller asset base, leading to an increase in the Fund’s expense ratio.

 

  Special Situations Risk. Investments in special situations (undervalued equities, merger arbitrage situations, distressed companies, etc.) may involve greater risks when compared to other investments the Fund may make due to a variety of factors. For example, mergers, acquisitions, reorganizations, liquidations or recapitalizations may fail or not be completed on the terms originally contemplated, and expected developments may not occur in a timely manner, if at all.

 

  Value Stock Risk. Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the opinion of the manager, undervalued. The value of a security believed by the manager to be undervalued may never reach what is believed to be its full (intrinsic) value, or such security’s value may decrease.

 

  Sector Weightings Risk. To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sectors described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.

 

  ¡    Communications Services Sector Risk. The Fund may invest a portion of its assets in the communications services sector. Media and communications companies may be
   

significantly affected by product and service obsolescence due to technological advancement or development, competitive pressures, substantial capital requirements, fluctuating demand and changes in regulation.

 

  ¡    Consumer Discretionary Sector Risk. The Fund may invest a portion of its assets in the consumer discretionary sector. The success of consumer product manufacturers and retailers is tied closely to the performance of the overall domestic and international economy, interest rates, competition and consumer confidence. Success depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer products and services in the marketplace.

 

  ¡    Financial Sector Risk. The Fund may invest a portion of its assets in the financial services sector and, therefore, the performance of the Fund could be negatively impacted by events affecting this sector, including changes in interest rates, government regulation, the rate of defaults on corporate, consumer and government debt and the availability and cost of capital.

 

  ¡    Industrial Sector Risk. The Fund may invest a portion of its assets in the industrial sector. Companies in the industrial sector could be affected by, among other things, government regulation, world events and global economic conditions, insurance costs, and labor relations issues.

 

  Investment Selection Risk. The specific investments held in the Fund’s investment portfolio may underperform other funds in the same asset class or benchmarks that are representative of the general performance of the asset class because of a portfolio manager’s choice of securities.

 

  Portfolio Turnover Risk. High portfolio turnover involves correspondingly greater expenses to the International Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities, which may result in adverse tax consequences to the International Fund’s shareholders as compared to shareholders of investment companies that hold investments for a longer period.
 

 

 
Fund Summary         9


Table of Contents

Litman Gregory Masters International Fund — (Continued)

 

Performance

 

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

Litman Gregory Masters International Fund -

Institutional Class Calendar Year Total Returns

as of December 31

 

LOGO

During the period shown above, the highest and lowest quarterly returns earned by the International Fund were:

 

Highest:

    19.18%      Quarter ended September 30, 2010

Lowest:

    -22.16%      Quarter ended September 30, 2011

Average Annual Total Returns

(for the periods ended December 31, 2019)

 

 

     One Year     Five Years     Ten Years  

Litman Gregory Masters International Fund

 

Institutional Class

     

Return Before Taxes

    30.45%       2.85%       4.70%  

Return After Taxes on Distributions

    29.77%       2.32%       4.42%  

Return After Taxes on Distributions and Sale of Fund Shares

    18.89%       2.21%       3.82%  

MSCI ACWI ex-U.S. Index

     

(reflects no deduction for fees, expenses or taxes)

    21.51%       5.51%       4.97%  

MSCI EAFE Index

     

(reflects no deduction of fees, expenses or taxes)

    22.01%       5.67%       5.50%  

Morningstar Foreign Large Blend Category

     

(reflects net performance of funds in this group)

    21.40%       5.18%       5.07%  

The International Fund’s after-tax returns as shown in the above table are calculated using the historical highest applicable individual federal marginal income tax rates for the period and do not reflect the impact of state and local taxes. Your actual after-tax returns depend on your tax situation and may differ from those shown. If you own shares of the International Fund in a tax-deferred account, such as a 401(k) plan or an individual retirement account, after-tax returns shown are not relevant to your investment. The after-tax returns on distributions and sale of Fund shares may be higher than returns before taxes due to the effect of a tax benefit an investor may receive from the realization of capital losses that would have been incurred on the sale of Fund shares.

 

 

 
10       Litman Gregory Funds Trust


Table of Contents

Management

 

 

INVESTMENT ADVISOR   PORTFOLIO MANAGER    MANAGED THE
INTERNATIONAL
FUND SINCE:
Litman Gregory Fund Advisors, LLC   Jeremy DeGroot, CFA, President of the Trust, Principal, Chief Investment Officer and Co-Portfolio Manager        2005  
    Rajat Jain, Principal, CFA, Senior Research Analyst and Co-Portfolio Manager        2014  
SUB-ADVISOR   PORTFOLIO MANAGER    MANAGED THE
INTERNATIONAL
FUND SINCE:
Evermore Global Advisors, LLC   David E. Marcus, Chief Investment Officer and Portfolio Manager        2017  
Harris Associates L.P.   David G. Herro, CFA, Deputy Chairman, Portfolio Manager and Chief Investment Officer, International Equity        1997  
Lazard Asset Management LLC   Mark Little, Portfolio Manager/Analyst        2013  
Pictet Asset Management, Ltd.   Fabio Paolini, CFA, Portfolio Manager, Co-Lead of EAFE Equities        2016  
    Benjamin (Ben) Beneche, CFA, Portfolio Manager, Co-Lead of EAFE Equities        2016  

For important information about the purchase and sale of fund shares, tax information and financial intermediary compensation, please turn to the “Summary of Other Important Information Regarding the Funds” section on page 32 of this Prospectus.

 

 
Fund Summary         11


Table of Contents

Litman Gregory Masters Smaller Companies Fund

 

Summary Section

Investment Objective

 

The Litman Gregory Masters Smaller Companies Fund (the “Smaller Companies Fund”) seeks long-term growth of capital; that is, the increase in the value of your investment over the long term.

Fees and Expenses of the Smaller Companies Fund

 

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

Shareholder Fees (paid directly from your investment)

 

     Institutional
Class
 
    None  

Annual Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)

 

     Institutional
Class
 

Management Fees

    1.14%  

Other Expenses

    0.74%  
 

 

 

 

Total Annual Fund Operating Expenses

    1.88%  

Fee Waiver and/or Expense Reimbursement(1)

    -0.42%  

 

 

 

 

 

Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement(1)

    1.46%  
 

 

 

 

 

(1)

Litman Gregory Fund Advisors, LLC (“Litman Gregory”), the advisor to the Smaller Companies Fund, has contractually agreed, through April 30, 2021, to waive a portion of its advisory fees so that after paying all of the sub-advisory fees, the net advisory fee as a percentage of the Smaller Companies Fund’s daily net assets retained by Litman Gregory is 0.26%. This agreement may be terminated at any time by the Board of Trustees of the Litman Gregory Funds Trust (the “Trust”) upon sixty (60) days’ written notice to Litman Gregory, and Litman Gregory may decline to renew this agreement by written notice to the Trust at least thirty (30) days before the agreement’s annual expiration date. Litman Gregory has waived its right to receive reimbursement of the portion of its advisory fees waived pursuant to this agreement.

Example

This example is intended to help you compare the cost of investing in the Smaller Companies Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Smaller Companies 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 Smaller Companies Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 

     One Year     Three Years     Five Years     Ten Years  

Institutional Class

  $ 191     $ 591     $ 1,016     $ 2,201  

Portfolio Turnover

 

The Smaller Companies Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares of the Smaller Companies Fund are held in a taxable account as compared to shares in investment companies that hold investments for a longer period. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Smaller Companies Fund’s performance. During the most recent fiscal year, the Smaller Companies Fund’s portfolio turnover rate was 64.88% of the average value of its portfolio.

Principal Strategies

 

Litman Gregory Fund Advisors, LLC, the advisor to the Smaller Companies Fund, believes that it is possible to identify investment managers to serve as sub-advisors who, over a market cycle, have a greater potential to deliver superior returns for a Fund relative to their peer groups. Litman Gregory also believes it can identify sub-advisors whose portfolio managers are skilled stock pickers and who, within the investment portfolios they manage separately from the Fund (their “proprietary funds”), have higher confidence in the return potential of some stocks than others. Litman Gregory believes a portfolio comprised only of these portfolio managers’ “higher confidence” stocks should outperform their proprietary funds over a market cycle.

Based on these beliefs, the Smaller Companies Fund’s strategy is to engage a number of proven managers as sub-advisors (each a “manager” or “sub-advisor’), with each manager investing in the securities of smaller companies that it believes have strong appreciation potential. Under normal conditions, each sub-advisor manages a portion of the Smaller Companies Fund’s assets by independently managing a portfolio typically composed of between 8 and 15 stocks. There is no minimum or maximum allocation of the Fund’s portfolio assets to each sub-advisor. Under normal market conditions, the Smaller Companies Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in securities of small- and mid-sized U.S. companies, as measured by market capitalization at the time of acquisition. Concentration of investments in certain sectors – including, but not limited to, the industrial, materials and technology sectors – may occur from time to time as a result of the implementation of the Smaller Companies Fund’s investment strategy by the sub-advisors.

The managers have limited flexibility to invest in the securities of foreign companies, including emerging markets (up to 15% of the Smaller Companies Fund’s net assets may be invested in foreign securities). Litman Gregory defines an emerging market country as any country that is included in the MSCI Emerging Markets Index.

 

 

 
12       Litman Gregory Funds Trust


Table of Contents

By executing its investment strategy, the Smaller Companies Fund seeks to:

 

  combine the efforts of several experienced, high quality managers;

 

  access the favorite stock-picking ideas of each manager at any point in time;

 

  deliver a portfolio that is prudently diversified in terms of stocks (typically 24 to 45) and industries while still allowing each manager to run portfolio segments focused on only his favorite stocks; and

 

  further diversify across stock-picking styles by including managers with a variety of stock-picking disciplines.

Litman Gregory defines a “smaller company” as one whose market capitalization falls below the market capitalization of the largest company in the Russell 2500® Index, which, as of March 31, 2020, was $24.5 billion. The Russell 2500® Index measures the performance of 2,500 small- and mid-sized companies with market capitalizations averaging $4.8 billion as of March 31, 2020. Generally, Litman Gregory believes the majority of the Smaller Companies Fund’s holdings will typically fall within the range of the Russell 2000® Index, but the Smaller Companies Fund has the flexibility to hold mid-sized companies if the managers believe that holding these companies will lead to higher overall returns. As of March 31, 2020, the largest company in the Russell 2000® Index had a market capitalization of $11.2 billion.

Generally, a security may be sold: (1) if the manager believes the security’s market price exceeds the manager’s estimate of intrinsic value; (2) if the manager’s view of the business fundamentals or management of the underlying company changes; (3) if a more attractive investment opportunity is found; (4) if general market conditions trigger a change in the manager’s assessment criteria; or (5) for other portfolio management reasons. The Smaller Companies Fund’s investment managers may trade its portfolio frequently.

Principal Risks

 

Investment in stocks exposes shareholders of the Smaller Companies Fund to the risk of losing money if the value of the stocks held by the Smaller Companies Fund declines during the period an investor owns shares in the Smaller Companies Fund. The following risks could affect the value of your investment:

 

  Smaller Companies Risk. The Smaller Companies Fund may invest a portion of its assets in the securities of small- and, at times, mid-sized companies. Securities of small-cap companies are generally more volatile and less liquid than the securities of large-cap companies. This is because small companies may be more reliant on a few products, services or key personnel, which can make it riskier than investing in larger companies with more diverse product lines and structured management.
  Market Risk and Recent Market Volatility Associated with COVID-19. As with all mutual funds that invest in common stocks, the value of an individual’s investment will fluctuate daily in response to the performance of the individual stocks held in the Smaller Companies Fund. The stock market has been subject to significant volatility recently, which has increased the risks associated with an investment in the Smaller Companies Fund. In particular, the financial markets have recently been impacted by the outbreak of an infectious respiratory illness caused by a novel coronavirus known as COVID-19, which was first detected in China in December 2019 and has spread internationally. This coronavirus has resulted in international border closings, enhanced health screenings, expanded healthcare services and expenses, quarantines and other restrictions on business and personal activities, cancellations, disruptions to supply chains and consumer activity, as well as general public concern and uncertainty. The impact of this outbreak has negatively affected the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market in general in significant and unforeseen ways. The future impact of COVID-19 is currently unknown and it may exacerbate other risks that apply to the Fund, including political, social and economic risks. Any such impact could adversely affect the Fund’s performance, the performance of the securities in which the Fund invests and may lead to losses on your investment in the Fund.

 

  Multi-Style Management Risk. Because portions of the Smaller Companies Fund’s assets are managed by different portfolio managers using different styles, the Smaller Companies Fund could experience overlapping security transactions. Certain portfolio managers may be purchasing securities at the same time other portfolio managers may be selling those same securities, which may lead to higher transaction expenses compared to a fund using a single investment management style.

 

  Large Shareholder Purchase and Redemption Risk. The Fund may experience adverse effects when certain large shareholders purchase or redeem large amounts of shares of the Fund. Such large shareholder redemptions may cause the Fund to sell its securities at times when it would not otherwise do so, which may negatively impact the Fund’s net asset value and liquidity. Similarly, large share purchases may adversely affect the Fund’s performance to the extent that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. In addition, a large redemption could result in the Fund’s current expenses being allocated over a smaller asset base, leading to an increase in the Fund’s expense ratio.

 

 

Sector Weightings Risk. To the extent that the Fund emphasizes, from time to time, investments in a particular sector, the Fund will be subject to a greater degree to the risks particular to that sector, including the sectors described below. Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect

 

 

 
Fund Summary         13


Table of Contents

Litman Gregory Masters Smaller Companies Fund — (Continued)

 

    a single sector. By focusing its investments in a particular sector, the Fund may face more risks than if it were diversified broadly over numerous sectors.

 

  ¡    Industrial Sector Risk. The Fund may invest a portion of its assets in the industrial sector. Companies in the industrial sector could be affected by, among other things, government regulation, world events and global economic conditions, insurance costs, and labor relations issues.

 

  ¡    Materials Sector Risk. The Fund may invest a portion of its assets in the materials sector. Many companies in this sector are significantly affected by the level and volatility of commodity prices, the exchange value of the U.S. dollar, import controls, worldwide competition, environmental policies and consumer demand. At times, worldwide production of industrial materials has exceeded demand as a result of over-building or economic downturns, leading to poor investment returns or losses. Other risks may include liabilities for environmental damage and general civil liabilities, depletion of resources, and mandated expenditures for safety and pollution control. The materials sector may also be affected by economic cycles, technical progress, labor relations, and government regulations.

 

  ¡    Technology Sector Risk. The Fund may invest a portion of its assets in the technology sector, which is a very volatile segment of the market. The nature of technology is that it is rapidly changing. Therefore, products or services that may initially look promising may subsequently fail or become obsolete. In addition, many technology companies are younger, smaller and unseasoned companies which may not have established products, an experienced management team, or earnings history.

 

  Investment Selection Risk. The specific investments held in the Fund’s investment portfolio may underperform other funds in the same asset class or benchmarks that are representative of the general performance of the asset class because of a portfolio manager’s choice of securities.

 

  Portfolio Turnover Risk. High portfolio turnover involves correspondingly greater expenses to the Smaller Companies Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities, which may result in adverse tax consequences to the Smaller Companies Fund’s shareholders as compared to shareholders in investment companies that hold investments for a longer period.

Performance

 

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

Litman Gregory Masters Smaller Companies Fund -

Institutional Class Calendar Year Total Returns

as of December 31

 

LOGO

During the period shown above, the highest and lowest quarterly returns earned by the Smaller Companies Fund were:

 

Highest:

    17.11%      Quarter ended March 31, 2019

Lowest:

    -23.37%      Quarter ended September 30, 2011
 

 

 
14       Litman Gregory Funds Trust


Table of Contents

Average Annual Total Returns

(for the periods ended December 31, 2019)

 

 

     One Year     Five Years     Ten Years  

Litman Gregory Masters Smaller Companies Fund

 

Institutional Class

     

Return Before Taxes

    23.72%       5.49%       9.58%  

Return After Taxes on Distributions

    19.75%       4.80%       9.22%  

Return After Taxes on Distributions and Sale of Fund Shares

    14.95%       4.08%       7.79%  

Russell 2000® Index

     

(reflects no deduction for fees, expenses or taxes)

    25.52%       8.23%       11.83%  

Morningstar Small Blend Category

     

(reflects net performance of funds in this group)

    23.33%       6.67%       10.59%  

The Smaller Companies Fund’s after-tax returns as shown in the above table are calculated using the historical highest applicable individual federal marginal income tax rates for the period and do not reflect the impact of state and local taxes. Your actual after-tax returns depend on your tax situation and may differ from those shown. If you own shares of the Smaller Companies Fund in a tax-deferred account, such as a 401(k) plan or an individual retirement account, after-tax returns shown are not relevant to your investment. The after-tax returns on distributions and sale of Fund shares may be higher than returns before taxes due to the effect of a tax benefit an investor may receive from the realization of capital losses that would have been incurred on the sale of Fund shares.

 

Management

 

 

INVESTMENT ADVISOR   PORTFOLIO MANAGER    MANAGED THE
SMALLER COMPANIES
FUND SINCE:
Litman Gregory Fund Advisors, LLC   Jeremy DeGroot, CFA, President of the Trust, Principal, Chief Investment Officer and Co-Portfolio Manager        2005  
    Jack Chee, Principal, Senior Research Analyst and Co-Portfolio Manager        2014  
SUB-ADVISOR   PORTFOLIO MANAGER    MANAGED THE
SMALLER COMPANIES
FUND SINCE:
Cove Street Capital, LLC   Jeffrey Bronchick, CFA, Managing Member, Portfolio Manager        2011  
Segall Bryant & Hamill, LLC   Mark T. Dickherber, CFA, CPA, Principal and Senior Portfolio Manager        2017  
    Shaun P. Nicholson, Senior Portfolio Manager        2017  
Wells Capital Management, Inc.   Richard T. Weiss, CFA, Managing Director and Senior Portfolio Manager        2003  

For important information about the purchase and sale of fund shares, tax information and financial intermediary compensation, please turn to the “Summary of Other Important Information Regarding the Funds” section on page 32 of this Prospectus.

 

 
Fund Summary         15


Table of Contents

Litman Gregory Masters Alternative Strategies Fund

 

Summary Section

Investment Objective

 

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

Fees and Expenses of the Alternative Strategies Fund

 

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

Shareholder Fees (fees paid directly from your investment)

 

     Institutional
Class
   

Investor

Class

 
    None       None  

Annual Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)

 

     Institutional
Class
   

Investor

Class

 

Management Fees

    1.40%       1.40%  

Distribution and or Service (12b-1) Fees

    None       0.25%  

Other Expenses Not Including Dividend or Interest Expense

    0.18%       0.18%  

Dividend and Interest Expense

    0.05%       0.05%  
 

 

 

   

 

 

 

Total Other Expenses

    0.23%       0.23%  
 

 

 

   

 

 

 

Total Annual Fund Operating Expenses

    1.63%       1.88%  

Fee Waiver and/or Expense Reimbursement(1)

    -0.28%       -0.28%  

 

 

 

 

   

 

 

 

Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement(1)

    1.35%       1.60%  
 

 

 

   

 

 

 

 

(1)

Litman Gregory Fund Advisors, LLC (“Litman Gregory”), the advisor to the Alternative Strategies Fund, has contractually agreed, through April 30, 2021, to waive a portion of its advisory fees so that after paying all of the sub-advisory fees, the net advisory fee as a percentage of the Alternative Strategies Fund’s daily net assets retained by Litman Gregory is 0.50% on the first $2 billion of the Alternative Strategies Fund’s assets, 0.40% of the next $1 billion of the Alternative Strategies Fund’s assets, 0.35% of the next $1 billion of the Alternative Strategies Fund’s assets and 0.30% on assets over $4 billion. This agreement may be terminated at any time by the Board of Trustees (the “Board”) of the Litman Gregory Funds Trust (the “Trust”) upon sixty (60) days’ written notice to Litman Gregory, and Litman Gregory may decline to renew this agreement by written notice to the Trust at least thirty (30) days before the agreement’s annual expiration date. Litman Gregory has waived its right to receive reimbursement of the portion of its advisory fees waived pursuant to this agreement.

Example

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

 

     One Year     Three Years     Five Years     Ten Years  

Institutional Class

  $ 166     $ 514     $ 886     $ 1,933  

Investor Class

  $ 191     $ 591     $ 1,016     $ 2,201  

Portfolio Turnover

 

The Alternative Strategies Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares of the Alternative Strategies Fund are held in a taxable account as compared to shares in investment companies that hold investments for a longer period. These costs, which are not reflected in the annual fund operating expenses or in the example, will affect the Alternative Strategies Fund’s performance. During the most recent fiscal year, the Alternative Strategies Fund’s portfolio turnover rate was 190.21% of the average value of its portfolio.

Principal Strategies

 

Litman Gregory Fund Advisors, LLC, the advisor to the Alternative Strategies Fund, believes that it is possible to identify highly skilled and experienced investment managers to serve as sub-advisors who can successfully execute various investment approaches that target materially lower volatility than the stock market or that have a low correlation or low sensitivity to traditional investment strategies, or both, so that the overall performance of the Alternative Strategies Fund is not heavily dependent on steadily rising stock or bond market to earn its return over a market cycle. Furthermore, Litman Gregory believes that by allocating assets among multiple investment managers with different but complementary strategies it can further enhance the risk-adjusted return potential of an overall fund portfolio over a full market cycle. Over the long term, Litman Gregory’s goal is to achieve an annualized return of LIBOR plus a range of 4% to 8%. (LIBOR is short for the London Interbank Offered Rate, an interest rate used by banks for short-term loans to each other.) Litman Gregory has established this goal to emphasize the importance of preserving and increasing shareholders’ capital investment rather than simply beating an index, and we use it to select managers and allocate assets among them. Of course there are no guarantees that we will achieve this goal, and investors may experience losses, especially over shorter time periods.

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

Allocations among sub-advisors are based on a number of factors, including Litman Gregory’s expectation for the risk-adjusted return potential of each sub-advisor’s strategy and the impact on overall portfolio risk, with the objective of maximizing return subject to the goals of low volatility and relatively low correlation with broad financial markets, especially the stock

 

 

 
16       Litman Gregory Funds Trust


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market. Litman Gregory may at times adjust the allocations of capital to sub-advisors if it believes there is a highly compelling tactical opportunity in a particular sub-advisor’s strategy. A tactical opportunity could represent the potential for an exceptional risk-adjusted return opportunity relative to the other strategies, or it may represent a superior risk reduction opportunity that could benefit the Alternative Strategies Fund’s overall portfolio. Portfolio assets will be tactically allocated to the sub-advisors in accordance with the target allocation range for each sub-advisor as measured at the time of allocation. It is possible that additional managers and strategies will be added to the Alternative Strategies Fund in the future.

Sub-advisor strategies may seek to benefit from: opportunities to combine securities with differing risk characteristics; market inefficiencies; arbitrage opportunities; opportunities to provide liquidity; tactical opportunities in asset classes or securities; special situations such as spin offs; as well as other opportunities in areas such as real estate or managed futures. In the aggregate, the managers can invest globally in stocks of companies of any size, domicile or market capitalization, government and corporate bonds and other fixed income securities and currencies, including short positions of any of the foregoing, within their respective segments of the Alternative Strategies Fund. They may also invest in derivatives, including, without limitation, options, futures contracts, participatory notes (“P-Notes”) and swaps, to manage risk or enhance return and can also borrow amounts up to one third of the value of the Fund’s total assets (except that the Fund may exceed this limit to satisfy redemption requests or for other temporary purposes). Each of the managers may invest in illiquid securities; however, the Alternative Strategies Fund as a whole may not hold more than 15% of its net assets in illiquid securities. In some cases, the sub-advisors may seek to replicate strategies they employ in their private (hedge) funds. In other cases, the sub-advisors may seek to enhance strategies they run in other public funds by focusing on their highest conviction ideas to a greater extent or by pursuing certain aspects of their strategies with greater flexibility. However, the Alternative Strategies Fund will only invest directly in portfolio securities selected by the sub-advisors and will not invest in any pooled investment vehicles or accounts managed by the sub-advisors.

Each sub-advisor will have an investment approach that generally focuses on a particular asset class or specific strategies. Currently, the strategies the sub-advisors focus on are as follows: (1) an arbitrage oriented strategy, (2) an opportunistic income strategy which will often focus on mortgage related securities, (3) a contrarian opportunity strategy that allows tactical investments throughout the capital structure (stocks and bonds), asset classes, market capitalization, industries and geographies, (4) a long/short credit strategy, and (5) a strategic alpha strategy that focuses on the tactical allocation of long and short global fixed income opportunities and currencies. Litman Gregory may hire sub-advisors that focus on other strategies in the future, and not all strategies that may be appropriate will be represented in the Alternative Strategies Fund’s portfolio at all times.

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

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

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

The sub-advisor that manages the long-short credit strategy employs a systematic portfolio construction process underpinned by a proprietary, fundamental model of credit risk and valuation. The sub-advisor’s investment process is designed to exploit information gaps between credit and equity markets and other market inefficiencies to identify and capture mispricing at the individual asset level. The strategy is expected to generate returns from idiosyncratic credit selection, as the strategy systematically curtails rate duration and credit beta exposure. Correlations to systematic market risks including high yield and equity market returns are expected to be minimal, and strategy returns are not expected to be correlated to the returns of other active strategies. The portfolio is managed with the intention that the sensitivity of the long portfolio to market-wide credit spread movements will be offset in part by the sensitivities

 

 

 
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Litman Gregory Masters Alternative Strategies Fund — (Continued)

 

of the short portfolio to such market-wide movements. The sub-advisor may invest in corporate bonds issued by domestic and non-U.S. based companies, U.S. Treasury securities and long (sold protection) single name credit default swaps (CDS), interest rate futures and swaps and foreign exchange forwards (for hedging and currency conversion purposes). The short portfolio may be invested in short (bought protection) single name Credit Default Swap (CDS), short positions in Credit Default Indices (CDX Indices), and short positions in Total Return Swaps (TRS).

The sub-advisor that manages the strategic alpha strategy seeks to achieve positive total returns over a full market cycle with relatively low volatility. The sub-advisor intends to pursue its objective by utilizing a flexible investment approach that allocates investments across a global range of investment opportunities related to credit, currencies and interest rates, while employing risk management strategies designed to mitigate downside risk. Under normal market conditions, the sub-advisor may invest (1) up to 75% of the total assets allocated to it in below investment-grade fixed income securities and related derivatives; (2) up to 75% of the total assets allocated to it in investments denominated in non-U.S. currencies and related derivatives, including up to 50% in investments denominated in emerging market currencies and related derivatives; and (3) up to 20% of the total assets allocated to it in equity related securities and derivatives as measured at time of allocation. A “related derivative” of a financial instrument means any derivative whose value is based upon or derived from that financial instrument or a related derivative of that financial instrument. The sub-advisor incorporates systematic and quantitative models into its investment process.

Principal Risks

 

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

 

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

 

  Debt Securities Risk. This is the risk that the value and liquidity of debt securities may be reduced under certain circumstances. The value of debt securities can fluctuate in
   

response to issuer activity and changes in general economic and credit market conditions, including changes in interest rates. It is likely there will be less governmental action in the near future to maintain low interest rates. The negative impact on debt securities from the resulting rate increases for that and other reasons could be swift and significant. In recent years, dealer capacity in the debt and fixed income markets appears to have undergone fundamental changes, including a reduction in dealer market-making capacity. These changes have the potential to decrease substantially liquidity and increase volatility in the debt and fixed income markets.

 

  Market Volatility Associated with COVID-19. The financial markets have recently been impacted by the outbreak of an infectious respiratory illness caused by a novel coronavirus known as COVID-19, which was first detected in China in December 2019 and has spread internationally. This coronavirus has resulted in international border closings, enhanced health screenings, expanded healthcare services and expenses, quarantines and other restrictions on business and personal activities, cancellations, disruptions to supply chains and consumer activity, as well as general public concern and uncertainty. The impact of this outbreak has negatively affected the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market in general in significant and unforeseen ways. The future impact of COVID-19 is currently unknown and it may exacerbate other risks that apply to the Fund, including political, social and economic risks. Any such impact could adversely affect the Fund’s performance, the performance of the securities in which the Fund invests and may lead to losses on your investment in the Fund.

 

  Below Investment-Grade Fixed Income Securities Risk. This is the risk of investing in below investment-grade fixed income securities (also known as “junk bonds”), which may be greater than that of higher rated fixed income securities. These securities are rated Ba1 through C by Moody’s Investors Service (“Moody’s”) or BB+ through D by Standard & Poor’s Rating Group (“S&P”) (or comparably rated by another nationally recognized statistical rating organization), or, if not rated by Moody’s or S&P, are considered by the sub-advisors to be of similar quality. These securities have greater risk of default than higher rated securities. The market value of these securities is more sensitive to corporate developments and economic conditions and can be volatile. Market conditions can diminish liquidity and make accurate valuations difficult to obtain. There is no limit to the Alternative Strategies Fund’s ability to invest in below investment-grade fixed income securities; however, under normal market conditions, it does not expect to invest more than 50% of its total assets in below investment-grade fixed income securities.

 

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

 

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

 

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

 

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

 

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

 

  Event-Driven Risk. Event-driven investments involve the risk that certain of the events driving the investment may not happen or the market may react differently than expected to the anticipated transaction. In addition, although an event may occur or is announced, it may be renegotiated, terminated or involve a longer time frame than originally contemplated. Event-driven investment transactions are also subject to the risk of overall market movements. Any one of these risks could cause the Fund to experience investment losses, impacting its shares negatively.

 

  Asset-Backed Securities Risk. This is the risk that the impairment of the value of the collateral underlying a security in which the Fund invests, such as the non-payment of loans, will result in a reduction in the value of the security. The value of these securities may also fluctuate in response to the market’s perception of the value of issuers or collateral.

 

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

 

  Foreign Investment Risk. This is the risk that an investment in foreign (non-U.S.) securities may cause the Fund to experience more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies, due to factors such as currency conversion rate fluctuations, and the political and economic climates and differences in financial reporting, accounting and auditing standards in the foreign countries where the Fund invests or has exposure.
  Emerging Markets Risk: This is the risk that the value of the Fund’s emerging markets investments will decline due to the greater degree of economic, political and social instability of emerging or developing countries as compared to developed countries. Litman Gregory defines an emerging market country as any country that is included in the MSCI Emerging Markets Index.

 

  Currency Risk: This is the risk that foreign currencies will decline in value relative to the U.S. dollar and affect the Fund’s investments in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, or in derivatives that provide exposure to, foreign (non-U.S.) currencies.

 

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

 

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

 

  ¡    Options Risk. This is the risk that an investment in options may be subject to greater fluctuation than an investment in the underlying instruments themselves and may be subject to a complete loss of the amounts paid as premiums to purchase the options.

 

  ¡    Futures Contracts Risk. This is the risk that an investment in futures contracts may be subject to losses that exceed the amount of the premiums paid and may subject the Alternative Strategies Fund’s net asset value to greater volatility.

 

  ¡    P-Notes Risk. This is the risk that the performance results of P-Notes will not replicate exactly the performance of the issuers or markets that the P-Notes seek to replicate. Investments in P-Notes involve risks normally associated with a direct investment in the underlying securities as well as additional risks, such as counterparty risk.

 

  ¡    Swaps Risk. Risks inherent in the use of swaps include: (1) swap contracts may not be assigned without the consent of the counterparty; (2) potential default of the counterparty to the swap; (3) absence of a liquid secondary market for any particular swap at any time; and (4) possible inability of the Alternative Strategies Fund to close out the swap transaction at a time that otherwise would be favorable for it to do so.

 

 

Short Sale Risk. This is the risk that the value of a security the Alternative Strategies Fund sells short does not go down as expected. The risk of loss is theoretically unlimited if the value of the security sold short continues to increase. In addition, short sales may cause the Alternative Strategies Fund to be compelled, at a time disadvantageous to it, to buy the security previously sold short, thus resulting in a loss. To

 

 

 
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Litman Gregory Masters Alternative Strategies Fund — (Continued)

 

    meet current margin requirements, the Alternative Strategies Fund is required to deposit with the broker additional cash or securities so that the total deposit with the broker is maintained daily at 150% of the current market value of the securities sold short.

 

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

 

  Models and Data Risk. This is the risk that that one or all of the proprietary systematic and quantitative models may fail to identify profitable opportunities at any time. Furthermore, the models may incorrectly identify opportunities and these misidentified opportunities may lead to substantial losses for the Fund. Models may be predictive in nature and such models may result in an incorrect assessment of future events. Data used in the construction of models may prove to be inaccurate or stale, which may result in losses for the Fund.

 

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

 

  Investment Selection Risk. The specific investments held in the Fund’s investment portfolio may underperform other funds in the same asset class or benchmarks that are representative of the general performance of the asset class because of a portfolio manager’s choice of securities.

 

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

 

  Unfavorable Tax Treatment Risk. This is the risk that a material portion of the Alternative Strategies Fund’s return could be in the form of net investment income or short-term capital gains, some of which may be distributed to shareholders and taxed at ordinary income tax rates. Therefore, shareholders may have a greater need to pay regular taxes than compared to other investment strategies that hold investments longer. Due to this investment strategy, it may be preferable for certain shareholders to invest in the Fund through pre-tax or tax-deferred accounts as compared to investment through currently taxable accounts. Potential shareholders are encouraged to consult their tax advisors in this regard.

Performance

 

The following performance information provides some indication of the risks of investing in the Alternative Strategies Fund. The bar chart shows changes in the performance of the Alternative Strategies Fund’s Institutional Class shares from year to year. The table below shows how the Alternative Strategies Fund’s average annual total returns of the Institutional Class and Investor Class for the 1-, 5-year and since inception periods compare to those of the 3-month LIBOR, two secondary market indexes as well as an index of peer group mutual funds. Past performance, before and after taxes, does not necessarily indicate how the Alternative Strategies Fund will perform in the future. Updated performance information is available on the Alternative Strategies Fund’s website at www.mastersfunds.com.

Litman Gregory Masters Alternative Strategies Fund -

Institutional Class Calendar Year Total Returns

as of December 31

 

LOGO

During the period shown above, the highest and lowest quarterly returns earned by the Alternative Strategies Fund were:

 

Highest:

    4.07%      Quarter ended March 31, 2012

Lowest:

    -2.81%      Quarter ended December 31, 2018
 

 

 
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Average Annual Total Returns

(for the periods ended December 31, 2019)

 

 

     One Year     Five Years    

Since Fund
Inception

(9/30/2011)

 

Litman Gregory Masters Alternative Strategies Fund

 

Institutional Class

     

Return Before Taxes

    8.52%       3.33%       4.76%  

Return After Taxes on Distributions

    7.38%       2.18%       3.68%  

Return After Taxes on Distributions and Sale of Fund Shares

    5.13%       2.07%       3.28%  

Investor Class

     

Return Before Taxes

    8.22%       3.07%       4.50%  

3-Month LIBOR

     

(reflects no deduction for fees, expenses or taxes)

    2.61%       1.33%       0.94%  

Bloomberg Barclays U.S. Aggregate Bond Index

     

(reflects no deduction for fees, expenses or taxes)

    8.72%       3.05%       2.95%  

Morningstar Multialternative Category

     

(reflects net performance of funds in this group)

    7.48%       1.22%       1.92%  

HFRX Global Hedge Fund Index

     

(reflects no deduction for fees, expenses or taxes)

    8.68%       1.20%       1.82%  

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

 

 

 
Fund Summary         21


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Litman Gregory Masters Alternative Strategies Fund — (Continued)

 

Management

 

 

INVESTMENT ADVISOR   PORTFOLIO MANAGER    MANAGED THE
ALTERNATIVE STRATEGIES
FUND SINCE:
Litman Gregory Fund Advisors, LLC   Jeremy DeGroot, CFA, President of the Trust, Principal, Chief Investment Officer and Portfolio Manager        2011  
    Jason Steuerwalt, CFA, Principal, Senior Research Analyst and Co-Portfolio Manager        2019  
SUB-ADVISOR   PORTFOLIO MANAGER    MANAGED THE
ALTERNATIVE STRATEGIES
FUND SINCE:
DCI, LLC   Stephen Kealhofer, Head of Research and Portfolio Manager        2017  
  Paul Harrison, Chief Investment Officer and Portfolio Manager        2017  
    Adam Dwinells, Head of Portfolio Management and Portfolio Manager        2017  
DoubleLine Capital LP   Jeffrey Gundlach, Chief Executive Officer, Chief Investment Officer and Portfolio Manager        2011  
    Jeffrey Sherman, CFA, Deputy Chief Investment Officer and Portfolio Manager        2017  
First Pacific Advisors, LP   Steven Romick, CFA, Managing Partner and Portfolio Manager        2011  
  Brian Selmo, CFA, Partner and Portfolio Manager        2011  
    Mark Landecker, CFA, Partner and Portfolio Manager        2011  
Loomis, Sayles & Company, L.P.   Matthew Eagan, CFA, Executive Vice President and Portfolio Manager        2011  
  Kevin Kearns, Vice President and Portfolio Manager        2011  
    Todd Vandam, CFA, Vice President and Portfolio Manager        2011  
Water Island Capital, LLC   John Orrico, CFA, President, Chief Investment Officer and Portfolio Manager        2011  
  Todd Munn, Portfolio Manager        2011  
  Roger Foltynowicz, CFA, CAIA, Portfolio Manager        2011  
    Gregg Loprete, Portfolio Manager        2011  

For important information about the purchase and sale of fund shares, tax information and financial intermediary compensation, please turn to the “Summary of Other Important Information Regarding the Funds” section on page 32 of this Prospectus.

 

 
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Litman Gregory Masters High Income Alternatives Fund

 

Summary Section

Investment Objectives

 

The Litman Gregory Masters High Income Alternatives Fund (the “High Income Alternatives Fund”) seeks to generate a high level of current income from diverse sources, consistent with the goal of capital preservation over time. Capital appreciation is a secondary objective.

Fees and Expenses of the High Income Alternatives Fund

 

This table describes the fees and expenses that you may pay if you buy and hold shares of the High Income Alternatives Fund.

Shareholder Fees (fees paid directly from your investment)

 

     Institutional
Class
   

Investor

Class

 
    None       None  

Annual Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)

 

     Institutional
Class
   

Investor

Class

 

Management Fees

    0.95%       0.95%  

Distribution and or Service (12b-1) Fees

    None       0.25%  

Other Expenses

    0.44%       0.47%  

Acquired Fund Fees and Expenses(1)

    0.50%       0.50%  
 

 

 

   

 

 

 

Total Annual Fund Operating Expenses(1)

    1.89%       2.17%  

Fee Waiver and/or Expense Reimbursement(2),(3)

    -0.41%       -0.44%  

 

 

 

 

   

 

 

 

Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement(2)

    1.48%       1.73%  
 

 

 

   

 

 

 

 

(1)

Total Annual Fund Operating Expenses shown in the table above may not correspond to the ratio of operating expenses to average net assets in the “Financial Highlights” section of this Prospectus to the extent that Acquired Fund Fees and Expenses are included in the table above.

 

(2)

Litman Gregory Fund Advisors, LLC (“Litman Gregory”), the advisor to the High Income Alternatives Fund, has contractually agreed to limit the High Income Alternatives Fund’s operating expenses (excluding any taxes, interest, brokerage commissions, borrowing costs, dividend expenses, acquired fund fees and expenses and extraordinary expenses such as but not limited to litigation costs) through April 30, 2021 to an annual rate of 0.98% for the Institutional Class and 1.23% for the Investor Class (the “Operating Expense Limitation”). Because operating expenses do not include dividend and interest expense, which fluctuates depending on the portfolio composition, the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement disclosed in this table may exceed the Operating Expense Limitation. This agreement may be renewed for additional periods not exceeding one (1) year and may be terminated by the Board of Trustees (the “Board”) of Litman Gregory Funds Trust (the “Trust”) upon sixty (60) days’ written notice to Litman Gregory. Litman Gregory may also decline to renew this agreement by written notice to the Trust at least thirty (30) days before the renewal date. Pursuant to this agreement, Litman Gregory may recoup reduced fees and expenses only within three years, provided that the recoupment does not cause the High Income Alternatives Fund’s annual expense ratio to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment.

 

(3)

Litman Gregory Fund Advisors LLC has separately contractually agreed through April 30, 2021, to waive a portion of its advisory fees so that after paying all of the sub-advisory fees, the net advisory fee as a percentage of the High Income Alternatives Fund’s daily net assets retained by Litman Gregory is 0.40% on the first $1 billion of assets, 0.375% on the next $1 billion of assets, 0.35% on the next $1 billion of assets, 0.325% on the next $1 billion of assets and 0.30% on assets in excess of $4 billion. This agreement may be terminated at any time by the Board of Trustees of the Litman Gregory Funds Trust (the “Trust”) upon sixty (60) days’ written notice to Litman Gregory, and Litman Gregory may decline to renew this agreement at its expiration on April 30, 2021 by written notice to the Trust at least thirty (30) days before the agreement’s annual expiration date. Litman Gregory has waived its right to receive reimbursement of the portion of its advisory fees waived pursuant to this advisory fee waiver agreement.

Example

This example is intended to help you compare the cost of investing in the High Income Alternatives Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the High Income Alternatives 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 High Income Alternatives Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 

     One Year     Three Years     Five Years     Ten Years  

Institutional Class

  $ 151     $ 540     $ 970     $ 2,166  

Investor Class

  $ 176     $ 622     $ 1,110     $ 2,457  

Portfolio Turnover

 

The High Income Alternatives Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares of the High Income Alternatives Fund are held in a taxable account as compared to shares in investment companies that hold investments for a longer period. These costs, which are not reflected in the annual fund operating expenses or in the example, will affect the High Income Alternatives Fund’s performance. During the most recent fiscal year, the High Income Alternatives Fund’s portfolio turnover rate was 90.51%.

Principal Strategies

 

Litman Gregory Fund Advisors, LLC, the advisor to the High Income Alternatives Fund, believes that it is possible to identify highly skilled and experienced investment managers to serve as sub-advisors who can successfully execute various investment approaches that can provide high current income relative to investment-grade fixed income portfolios, with low to moderate volatility relative to the stock market and volatility typically less than high yield credit indexes. Furthermore, Litman Gregory believes that by allocating assets among multiple investment managers with different but complementary strategies it can further enhance the risk-adjusted return potential of an overall fund portfolio over a full market cycle.

Based on these beliefs, the High Income Alternatives Fund’s strategy is to engage several established investment managers as sub-advisors (each a “sub-advisor” or “manager”) to offer investors a mix of strategies that Litman Gregory believes offer risk-return characteristics that are attractive individually and even more compelling collectively. The High Income Alternatives Fund is intended to be used by investors seeking high current income consistent with capital preservation over time, and with long-term capital appreciation a secondary objective.

 

 

 
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Litman Gregory Masters High Income Alternatives Fund — (Continued)

 

Litman Gregory is responsible for hiring and firing investment managers and carefully chooses the sub-advisors. Before hiring a sub-advisor, Litman Gregory performs extensive due diligence. This includes quantitative and qualitative analysis including, but not limited to, evaluation of: the investment process; the consistency of its execution and discipline; portfolio construction; individual holdings; strategies employed; past mistakes; risk controls; team depth and quality; operations and compliance; and business focus and vision. Litman Gregory’s evaluation process includes review of literature and documents, detailed quantitative historical performance evaluation, extensive discussions with members of the investment team, and firm management and background checks through industry contacts. Each sub-advisor’s management fee is also an important consideration. It is Litman Gregory’s objective to hire sub-advisors who it believes are skilled and will deliver strong portfolio income relative to investment-grade fixed income portfolios, with low to moderate volatility relative to the stock market and volatility typically less than the high yield credit indexes. Litman Gregory prefers managers who it believes will add value by flexibly responding to evolving market conditions by adjusting duration and credit exposure, among other factors.

Allocations among sub-advisors are based on several factors, including Litman Gregory’s expectation for the risk-adjusted return potential of each sub-advisor’s strategy and the impact on overall portfolio risk, with the objective of maximizing return subject to the goal of high income relative to investment-grade fixed income portfolios without taking undue risk. Litman Gregory may at times adjust the allocations of capital to sub-advisors if it believes there is a highly compelling tactical opportunity in a particular sub-advisor’s strategy. A tactical opportunity could represent the potential for an exceptional risk-adjusted return opportunity relative to the other strategies, or it may represent a superior risk reduction opportunity that could benefit the High Income Alternatives Fund’s overall portfolio. No strategy will be allocated less than 10% of portfolio assets or more than 60% of portfolio assets as measured at the time of allocation. It is possible that additional managers and strategies will be added to (or removed from) the High Income Alternatives Fund in the future and/or there may be adjustments in the allocation ranges.

Sub-advisor strategies may seek to benefit from: opportunities to combine securities with differing risk characteristics; market inefficiencies; opportunities to provide liquidity; tactical opportunities in asset classes or securities; special situations such as spin-offs; as well as other opportunities in other areas. In the aggregate, the managers can invest globally in debt and equity securities of companies of any size, domicile or market capitalization, government and corporate bonds, loans, loan participation interests, mortgage or other asset-backed securities and other fixed income securities and currencies, including short positions of any of the foregoing, within their respective segments of the High Income Alternatives Fund. The managers may invest without limitation in below investment grade fixed income securities. Under normal market conditions, the Fund does not expect to invest more than 25% of its total

assets in emerging market securities Litman Gregory defines an emerging market country as any country that is included in the MSCI Emerging Markets Index.

The managers may also write options, invest in derivatives, including, without limitation, options, futures contracts, participatory notes (“P-Notes”) and swaps, to manage risk or enhance return and can also borrow amounts up to one third of the value of the High Income Alternatives Fund’s total assets (except that the Fund may exceed this limit to satisfy redemption requests or for other temporary purposes). Each of the managers may invest in illiquid securities; however, the High Income Alternatives Fund as a whole may not hold more than 15% of its net assets in illiquid securities.

Each sub-advisor will have an investment approach that generally focuses on a particular asset class or specific strategies. Currently, the strategies the sub-advisors focus on are as follows: (1) an equity income strategy, (2) a credit value strategy, (3) a multi credit strategy, and (4) an option income strategy. Litman Gregory may hire sub-advisors that focus on other strategies in the future, and not all strategies that may be appropriate will be represented in the High Income Alternatives Fund’s portfolio at all times.

The sub-advisor that manages the equity income strategy invests across a variety of publicly-traded income producing asset classes where it has specific expertise. Targeted investments include publicly traded business development companies (“BDCs”), mortgage real estate investment trusts (“mREITS”), master limited partnerships (“MLPs”), and selectively, credit-based closed-end funds (“CEFs”) and other opportunistic income investments. The team actively seeks to add value by finding positions with capital appreciation potential and adjusting capital allocation across sectors based on relative value. A central tenet of this strategy is the targeting of mainly long-term sustainable value (through the focus on quality management and strong franchises), and to the extent that companies do not exhibit these traits, the portfolio management team would take a near-term view and demand a steep discount in price as a means to help mitigate risk. Risk management on a position and portfolio level is designed to avoid significant losses from individual company developments, as well as from negative sector or macro events.

The sub-advisor that manages the credit value strategy seeks to achieve the fund’s investment objectives by primarily investing its segment of the Fund in fixed income securities it believes to have the potential for excess return. The sub-advisor’s investment strategy will be to invest in fixed income securities from a wide variety of sectors, asset-backed securities, commercial mortgage-backed securities, corporate bonds, floating-rate loans and municipal bonds. The sub-advisor expects to invest in structured and corporate securities. The sub-advisor’s emphasis is expected to be on A/BBB-rated asset backed securities and BBB/BB-rated corporate securities, as these ratings segments have historically offered attractive risk-adjusted returns, along with low default rates. The sub-advisor will also invest in U.S. Treasury futures to manage duration of the portfolio, which allows individual security selection to be

 

 

 
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managed without regard to portfolio duration. Duration is a measure of the expected life of a fixed income security that is used to determine the sensitivity of a security to changes in interest rates. Fixed income securities and portfolios with longer durations are subject to more volatility than those with shorter durations. The sub-advisor will not typically own CCC rated or distressed securities.

The sub-advisor that manages the multi credit strategy seeks to preserve invested capital and maximize total return through a combination of current income and capital appreciation. The team seeks to achieve its investment objective by investing in a wide range of fixed income and other instruments selected from a variety of credit qualities, and sectors, including, but not limited to, corporate bonds, loans and loan participations, structured finance investments, U.S. government and agency, mezzanine and preferred securities and convertible securities. The team seeks opportunities across fixed income market sectors – especially in non-index-eligible securities – and they aim to take advantage of downturns/inefficiencies that occur during times of uncertainty. The strategy is flexible and is not constrained by duration, sector, issuer, or credit quality.

The sub-advisor that manages the option income strategy seeks to achieve its goal primarily through a strategy of writing collateralized put options on both U.S. indices, including the S&P 500® Index and the Russell 2000® Index, and exchange traded funds (“ETFs”). The manager attempts to generate returns through the receipt of option premiums from selling puts, as well as through investments in fixed income instruments, which collectively are intended to reduce volatility relative to what it would be if the Fund held the underlying equity index on which the options are written. The portfolio’s investments in fixed income instruments may be of any duration, may include variable and floating rate instruments, and may include U.S. Treasury securities and other securities issued by the U.S. government and its agencies and instrumentalities, debt securities issued by corporations or trust entities, cash and cash equivalents, mortgage-backed securities and asset-backed securities. The manager also may invest in money market mutual funds and ETFs.

Principal Risks

 

As with all mutual funds, it is possible to lose money on an investment in the High Income Alternatives Fund. An investment in the High Income Alternatives Fund is not a deposit of any bank and is not guaranteed, endorsed or insured by any financial institution, government authority or the Federal Deposit Insurance Corporation (FDIC). The following risks could affect the value of your investment. Each risk summarized below is considered a “principal risk” of investing in the High Income Alternatives Fund, regardless of the order in which it appears. Some or all of these risks may adversely affect the High Income Alternatives Fund’s net asset value per share, total return and/or ability to meet its objective.

 

  Market Volatility Associated with COVID-19. The financial markets have recently been impacted by the outbreak of an infectious respiratory illness caused by a novel coronavirus
   

known as COVID-19, which was first detected in China in December 2019 and has spread internationally. This coronavirus has resulted in international border closings, enhanced health screenings, expanded healthcare services and expenses, quarantines and other restrictions on business and personal activities, cancellations, disruptions to supply chains and consumer activity, as well as general public concern and uncertainty. The impact of this outbreak has negatively affected the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market in general in significant and unforeseen ways. The future impact of COVID-19 is currently unknown and it may exacerbate other risks that apply to the Fund, including political, social and economic risks. Any such impact could adversely affect the Fund’s performance, the performance of the securities in which the Fund invests and may lead to losses on your investment in the Fund.

 

  Asset-Backed Securities Risk. This is the risk that the impairment of the value of the collateral underlying a security in which the Fund invests, such as the non-payment of loans, will result in a reduction in the value of the security. The value of these securities may also fluctuate in response to the market’s perception of the value of issuers or collateral.

 

  Below Investment-Grade Fixed Income Securities Risk. This is the risk of investing in below investment-grade fixed income securities (also known as “junk bonds”), which may be greater than that of higher rated fixed income securities. These securities are rated Ba1 through C by Moody’s Investors Service (“Moody’s”) or BB+ through D by Standard & Poor’s Rating Group (“S&P”) (or comparably rated by another nationally recognized statistical rating organization), or, if not rated by Moody’s or S&P, are considered by the sub-advisors to be of similar quality. These securities are regarded by the rating organizations as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation and therefore have greater risk of default than higher rated securities. The market value of these securities is more sensitive to corporate developments and economic conditions and can be volatile. Market conditions can diminish liquidity and make accurate valuations difficult to obtain.

 

 

Collateral Risk. If the Fund’s financial instruments are secured by collateral, the issuer may have difficulty liquidating the collateral and/or the Fund may have difficulty enforcing its rights under the terms of the securities if an issuer defaults. Collateral may be insufficient or the Fund’s right to the collateral may be set aside by a court. Collateral will generally consist of assets that may not be readily liquidated, including for example, equipment, inventory, work in the process of manufacture, real property and payments to become due under contracts or other receivable obligations. There is no assurance that the liquidation of those assets would satisfy an issuer’s obligations under a financial instrument. Non-affiliates and affiliates of issuers of financial instruments may provide collateral in the form of secured and unsecured guarantees

 

 

 
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Litman Gregory Masters High Income Alternatives Fund — (Continued)

 

    and/or security interests in assets that they own, which may also be insufficient to satisfy an issuer’s obligations under a financial instrument.

 

  Collateralized Loan Obligations and Collateralized Debt Obligations Risk. Collateralized loan obligations (“CLOs”) bear many of the same risks as other forms of asset-backed securities, including interest rate risk, credit risk and default risk. As they are backed by pools of loans, CLOs also bear similar risks to investing in loans directly. CLOs issue classes or “tranches” that vary in risk and yield. CLOs may experience substantial losses attributable to loan defaults. Losses caused by defaults on underlying assets are borne first by the holders of subordinate tranches. The Fund’s investment in CLOs may decrease in market value when the CLO experiences loan defaults or credit impairment, the disappearance of a subordinate tranche, or market anticipation of defaults and investor aversion to CLO securities as a class.

Collateralized debt obligations (“CDOs”) are structured similarly to CLOs and bear the same risks as CLOs including interest rate risk, credit risk and default risk. CDOs are subject to additional risks because they are backed by pools of assets other than loans including securities (such as other asset-backed securities), synthetic instruments or bonds and may be highly leveraged. Like CLOs, losses incurred by a CDO are borne first by holders of subordinate tranches. Accordingly, the risks of CDOs depend largely on the type of underlying collateral and the tranche of CDOs in which the Fund invests. For example, CDOs that obtain their exposure through synthetic investments entail the risks associated with derivative instruments.

 

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

 

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

 

  Currency Risk. This is the risk that investing in foreign currencies may expose the High Income Alternatives Fund to fluctuations in currency exchange rates and that such fluctuations in the exchange rates may negatively affect an investment related to a currency or denominated in a foreign currency.

 

  Debt Securities Risk. This is the risk that the value and liquidity of debt securities may be reduced under certain circumstances. The value of debt securities can fluctuate in response to issuer activity and changes in general economic and credit market conditions, including changes in interest rates. It is likely there will be less governmental action in the near future to maintain low interest rates. The negative impact
   

on debt securities from the resulting rate increases for that and other reasons could be swift and significant. In recent years, dealer capacity in the debt and fixed income markets appears to have undergone fundamental changes, including a reduction in dealer market-making capacity. These changes have the potential to decrease substantially liquidity and increase volatility in the debt and fixed income markets.

 

  ¡    Corporate Debt Obligations Risk. Corporate debt obligations are subject to the risk of an issuer’s inability to meet principal and interest payments on the obligations. Therefore, the High Income Alternatives Fund may be indirectly exposed to such risks associated with corporate debt obligations.

 

  Derivatives Risk. Use of derivatives, such as options, is a highly specialized activity that can involve investment techniques and risks different from, and in some respects greater than, those associated with investing in more traditional investments, such as stocks and bonds. Derivatives can be highly complex and highly volatile and may perform in unanticipated ways. Derivatives can create leverage, and the Fund could lose more than the amount it invests; some derivatives can have the potential for unlimited losses. Derivatives may at times be highly illiquid, and the Fund may not be able to close out or sell a derivative at a particular time or at an anticipated price. Derivatives can be difficult to value and valuation may be more difficult in times of market turmoil. There may be imperfect correlation between the behavior of a derivative and that of the reference instrument underlying the derivative. Derivatives may involve risks different from, and possibly greater than, the risks associated with investing directly in the reference instrument. Suitable derivatives may not be available in all circumstances, and there can be no assurance that the Fund will use derivatives to reduce exposure to other risks when that might have been beneficial. Derivatives involve counterparty risk, which is the risk that the other party to the derivative will fail to make required payments or otherwise comply with the terms of the derivative. When the Fund uses derivatives, it will likely be required to provide margin or collateral and/or segregate cash or other liquid assets; these practices are intended to satisfy contractual undertakings and regulatory requirements and will not prevent the Fund from incurring losses on derivatives. The need to provide margin or collateral and/or segregated assets could limit the Fund’s ability to pursue other opportunities as they arise. Ongoing changes to regulation of the derivatives markets and potential changes in the regulation of funds using derivative instruments could limit the Fund’s ability to pursue its investment strategies. New regulation of derivatives may make them more costly, or may otherwise adversely affect their liquidity, value or performance.

 

  ¡   

Options Risk. The use of options involves investment strategies and risks different from those associated with ordinary portfolio securities transactions. The prices of options are volatile and are influenced by, among other things, actual and anticipated changes in the value of the underlying instrument, or in interest or currency exchange rates, including the anticipated volatility of the underlying

 

 

 
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instrument (known as implied volatility), which in turn are affected by fiscal and monetary policies and by national and international political and economic events. As such, prior to the exercise or expiration of the option, the Fund is exposed to implied volatility risk, meaning the value, as based on implied volatility, of an option may increase due to market and economic conditions or views based on the sector or industry in which issuers of the underlying instrument participate, including company-specific factors. By writing call and put option spreads on underlying instruments, the Fund’s returns from that strategy will be determined by the performance of the underlying instrument. If the underlying instrument appreciates or depreciates sufficiently over the period to offset the net premium received, the Fund may incur losses. Changes in the volatility of the underlying stock or instrument can constrain returns from this strategy. By writing put options, the Fund takes on the risk of declines in the value of the underlying instrument, including the possibility of a loss up to the entire strike price of each option it sells, but without the corresponding opportunity to benefit from potential increases in the value of the underlying instrument. When the Fund writes a put option, it assumes the risk that it must purchase the underlying instrument at a strike price that may be higher than the market price of the instrument. If there is a broad market decline and the Fund is not able to close out its written put options, it may result in substantial losses to the Fund. By writing a call option, the Fund may be obligated to deliver instruments underlying an option at less than the market price. In the case of an uncovered call option, there is a risk of unlimited loss. When an uncovered call is exercised, the Fund must purchase the underlying instrument to meet its call obligations and the necessary instruments may be unavailable for purchase. The Fund will receive a premium from writing options, but the premium received may not be sufficient to offset any losses sustained from exercised options. If an option that the Fund has purchased is never exercised or closed out, the Fund will lose the amount of the premium it paid and the use of those funds.

 

  ¡    Futures Contracts Risk. This is the risk that an investment in futures contracts may be subject to losses that exceed the amount of the premiums paid and may subject the High Income Alternatives Fund’s net asset value to greater volatility.

 

  ¡    Forward Contracts Risk. There are no limitations on daily price movements of forward contracts. Changes in foreign exchange regulations by governmental authorities might limit the trading of forward contracts. To the extent the Fund enters into non-U.S. currency forward contracts with banks, the Fund is subject to the risk of bank failure or the inability of or refusal by a bank to perform such contracts. There have been periods during which certain banks have refused to continue to quote prices for forward contracts or have quoted prices with an unusually wide spread (the difference between the price at which the bank is prepared to buy and the price at which it is prepared to sell).
  ¡    P-Notes Risk. This is the risk that the performance results of P-Notes will not replicate exactly the performance of the issuers or markets that the P-Notes seek to replicate. Investments in P-Notes involve risks normally associated with a direct investment in the underlying securities as well as additional risks, such as counterparty risk.

 

  ¡    Swaps Risk. Risks inherent in the use of swaps include: (1) swap contracts may not be assigned without the consent of the counterparty; (2) potential default of the counterparty to the swap; (3) absence of a liquid secondary market for any particular swap at any time; and (4) possible inability of the High Income Alternatives Fund to close out the swap transaction at a time that otherwise would be favorable for it to do so.

 

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

 

  ¡    Preferred Stock Risk. In the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of preferred stocks to decline.

 

  Foreign Investment Risk. This is the risk that an investment in foreign (non-U.S.) securities may cause the High Income Alternatives Fund to experience more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies, due to factors such as currency conversion rate fluctuations, and the political and economic climates and differences in financial reporting, accounting and auditing standards in the foreign countries where the Fund invests or has exposure.

 

  Emerging Markets Risk. This is the risk that the value of the Fund’s emerging markets investments will decline due to the greater degree of economic, political and social instability of emerging or developing countries as compared to developed countries.

 

  Currency Risk. This is the risk that foreign currencies will decline in value relative to the U.S. dollar and affect the Fund’s investments in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, or in derivatives that provide exposure to, foreign (non-U.S.) currencies.

 

 

Interest Rate Risk. This is the risk that debt securities will decline in value because of changes in interest rates. Generally, the value of debt securities rise when prevailing interest rates fall, and fall when prevailing interest rates rise. A

 

 

 
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Litman Gregory Masters High Income Alternatives Fund — (Continued)

 

    fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with a shorter average portfolio duration.

 

  Investment Companies Risk. This is the risk that investing in other investment companies, including ETFs, CEFs, BDCs, unit investment trusts and open-end funds, subjects the Fund to those risks affecting the investment vehicle, including the possibility that the value of the underlying securities held by the investment vehicle could decrease or the portfolio becomes illiquid. Moreover, the Fund and its shareholders will incur its pro rata share of the underlying vehicles’ expenses, which will reduce the Fund’s performance. In addition, investments in an ETF are subject to, among other risks, the risk that the ETF’s shares may trade at a discount or premium relative to the net asset value of the shares and the listing exchange may halt trading of the ETF’s shares. BDCs may carry risks similar to those of a private equity or venture capital fund. BDC company securities are not redeemable at the option of the shareholder and they may trade in the market at a discount to their net asset value. BDCs usually trade at a discount to their net asset value because they invest in unlisted securities and have limited access to capital markets. Shares of CEFs also frequently trade at a discount to their net asset value for those and other reasons.

 

  Investments in Loans Risk. Investments in loans, including loan syndicates and other direct lending opportunities, involve special types of risks, including credit risk, interest rate risk, counterparty risk and prepayment risk. Loans may offer a fixed or floating interest rate. Loans are often generally below investment grade and may be unrated. The Fund’s investments in loans can also be difficult to value accurately and may be more susceptible to liquidity risk than fixed-income instruments of similar credit quality and/or maturity. The Fund is also subject to the risk that the value of the collateral for the loan may be insufficient or unavailable to cover the borrower’s obligations should the borrower fail to make payments or become insolvent. Participations in loans may subject the Fund to the credit risk of both the borrower and the issuer of the participation and may make enforcement of loan covenants, if any, more difficult for the Fund as legal action may have to go through the issuer of the participations. Transactions in loans are often subject to long settlement periods, thus potentially limiting the ability of the Fund to invest sale proceeds in other investments and to use proceeds to meet its current redemption obligations. In addition, many banks have been weakened by the recent financial crisis, and it may be difficult for the Fund to obtain an accurate picture of a lending bank’s financial condition.

 

  Large Shareholder Purchase and Redemption Risk. The Fund may experience adverse effects when certain large shareholders purchase or redeem large amounts of shares of the Fund. Such large shareholder redemptions may cause the Fund to sell its securities at times when it would not otherwise do so, which may negatively impact the Fund’s net asset value and liquidity. Similarly, large share purchases may adversely affect the Fund’s performance to the extent that the Fund is delayed in investing new cash and is required to
   

maintain a larger cash position than it ordinarily would. In addition, a large redemption could result in the Fund’s current expenses being allocated over a smaller asset base, leading to an increase in the Fund’s expense ratio.

 

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

 

  Liquidity and Valuation Risk. It may be difficult for the Fund to purchase and sell particular investments within a reasonable time at a fair price, or the price at which it has been valued by the Fund’s Advisor for purposes of the Fund’s net asset value, causing the Fund to be less liquid and unable to realize what the Advisor believes should be the price of the investment. Valuation of portfolio investments may be difficult, such as during periods of market turmoil or reduced liquidity, and for investments that may, for example, trade infrequently or irregularly. In these and other circumstances, an investment may be valued using fair value methodologies, which are inherently subjective, reflect good faith judgments based on available information and may not accurately estimate the price at which the Fund could sell the investment at that time. These risks may be heightened for fixed-income instruments because of the near historically low interest rate environment as of the date of this prospectus. Based on its investment strategies, a significant portion of the Fund’s investments can be difficult to value and potentially less liquid and thus particularly prone to the foregoing risks

 

  MLP Risk. Investing in MLP units involves some risks that differ from an investment in the equity securities of a company. Holders of MLP units have limited control and voting rights on matters affecting the partnership. Holders of units issued by a MLP are exposed to a remote possibility of liability for all of the obligations of that MLP in the event that a court determines that the rights of the holders of MLP units to vote to remove or replace the general partner of that MLP, to approve amendments to that MLP’s partnership agreement, or to take other action under the partnership agreement of that MLP would constitute “control” of the business of that MLP, or a court or governmental agency determines that the MLP is conducting business in a state without complying with the partnership statute of that state. Holders of MLP units are also exposed to the risk that they will be required to repay amounts to the MLP that are wrongfully distributed to them. Recent market volatility in the energy markets, including price decreases connected to the virus that causes COVID-19, has significantly affected the performance of the energy infrastructure industry, as well as the performance of the MLPs in which the Fund invests. In addition, volatility in the energy markets may affect the ability of MLPs to finance capital expenditures and new acquisitions and to maintain or increase distributions to investors due to a lack of access to capital.
 

 

 
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  MLP Tax Risk. Investments in MLP units also present special tax risks. The MLPs in which the Fund invests may fail to be treated as partnerships for U.S. federal income tax purposes. The Fund’s ability to meet its investment objectives will depend, in large measure, on the level of dividends, distributions or income it receives from the MLPs in which it invests and on the MLPs’ continued treatment as partnerships for U.S. federal income tax purposes. If a MLP does not meet current legal requirements to maintain its partnership status, or if it is unable to do so because of tax or other law changes, it would be treated as a corporation for U.S. federal income tax purposes. In that case, the MLP would be obligated to pay U.S. federal income tax (as well as state and local taxes) at the entity level on its taxable income and distributions received by the Fund would be taxable to the Fund as dividend income to the extent of the MLP’s current and accumulated earnings and profits for federal tax purposes. The classification of a MLP as a corporation for U.S. federal income tax purposes could have the effect of reducing the amount of cash available for distribution by the MLP and the value of the Fund’s investment in any such MLP. As a result, the value of the Fund’s shares and the cash available for distribution to Fund shareholders could be materially reduced.

 

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

 

  Mortgage REIT Risk. Investing in mREITs involves certain risks related to investing in real property mortgages. In addition, mREITs must satisfy highly technical and complex requirements in order to qualify for the favorable tax treatment accorded to REITs under the Internal Revenue Code of 1986 (the “Code”). No assurances can be given that a mREIT in which the Fund invests will be able to continue to qualify as a REIT or that complying with the REIT requirements under the Code will not adversely affect such REIT’s ability to execute its business plan.

 

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

 

  Investment Selection Risk. The specific investments held in the Fund’s investment portfolio may underperform other funds in the same asset class or benchmarks that are representative of the general performance of the asset class because of a portfolio manager’s choice of securities.

 

  Municipal Securities Risk. Municipal securities can be significantly affected by litigation, political or economic events, as well as uncertainties in the municipal market related to taxation, legislative changes or the rights of municipal security holders. Municipal securities backed by current or anticipated
   

revenues from specific projects or assets can be negatively affected by the inability of the issuer to collect revenues for the projects or from the assets.

 

  Portfolio Turnover Risk. This is the risk that the High Income Alternatives Fund may experience high portfolio turnover rates as a result of its investment strategies. High portfolio turnover rates may indicate higher transaction costs and may result in higher taxes when shares of the High Income Alternatives Fund are held in a taxable account as compared to shares in investment companies that hold investments for a longer period.

 

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

 

  Unfavorable Tax Treatment Risk. This is the risk that a material portion of the High Income Alternatives Fund’s return could be in the form of net investment income or short-term capital gains, some of which may be distributed to shareholders and taxed at ordinary income tax rates. Therefore, shareholders may have a greater need to pay regular taxes than compared to other investment strategies that hold investments longer. Due to this investment strategy, it may be preferable for certain shareholders to invest in the High Income Alternatives Fund through pre-tax or tax-deferred accounts as compared to investment through currently taxable accounts. Potential shareholders are encouraged to consult their tax advisors in this regard.
 

 

 
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Litman Gregory Masters High Income Alternatives Fund — (Continued)

 

Performance

 

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

Litman Gregory Masters High Income Alternatives Fund -

Institutional Class Calendar Year Total Returns

as of December 31

 

LOGO

During the period shown above, the highest and lowest quarterly returns earned by the High Income Alternatives Fund were:

 

Highest:

    4.13%      Quarter ended March 31, 2019

Lowest:

    1.07%      Quarter ended September 30, 2019

Average Annual Total Returns

(for the periods ended December 31, 2019)

 

 

     One Year     Since Fund
Inception
(9/28/2018)
 

Litman Gregory Masters High Income Alternatives Fund

 

Institutional Class

   

Return Before Taxes

    8.37%       3.98%  

Return After Taxes on Distributions

    6.82%       2.58%  

Return After Taxes on Distributions and Sale of Fund Shares

    4.99%       2.46%  

Investor Class

   

Return Before Taxes

    8.18%       3.82%  

Bloomberg Barclays U.S. Aggregate Bond Index

   

(reflects no deduction for fees, expenses or taxes)

    8.72%       8.27%  

ICE BofAML U.S. High Yield TR USD Index

   

(reflects no deduction for fees, expenses or taxes)

    14.41%       7.18%  

HFRX Fixed Income – Credit Index

   

(reflects no deduction for fees, expenses or taxes)

    6.20%       2.36%  
 

 

 
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Management

 

 

INVESTMENT ADVISOR   PORTFOLIO MANAGER    MANAGED THE
HIGH INCOME
ALTERNATIVES
FUND SINCE:
Litman Gregory Fund Advisors, LLC   Jeremy DeGroot, CFA, President of the Trust, Principal, Chief Investment Officer and Co-Portfolio Manager        2018  
  Jack Chee, Principal, Senior Research Analyst and Co-Portfolio Manager        2018  
    Jason Steuerwalt, CFA, Principal, Senior Research Analyst and Co-Portfolio Manager        2018  
SUB-ADVISOR   PORTFOLIO MANAGER    MANAGED THE
HIGH INCOME
ALTERNATIVES
FUND SINCE:
Ares Management LLC   Greg Mason, CFA, Managing Director and Portfolio Manager        2018  
    Troy Ward, Managing Director and Portfolio Manager        2018  
Brown Brothers Harriman & Co.   Andrew P. Hofer, Managing Director, Portfolio Manager and Head of Taxable Portfolio Management        2018  
  Neil Hohmann, Managing Director, Head of Structured Products and Portfolio Manager        2018  
    Paul Kunz, CFA, Senior Vice President and Portfolio Manager        2018  
Guggenheim Partners Investment Management, LLC   Scott Minerd, Chairman of Investments, Global Chief Investment Officer, Managing Partner and Portfolio Manager        2018  
  Anne Walsh, CFA, Chief Investment Officer – Fixed Income, Senior Managing Director and Portfolio Manager        2018  
  Steven Brown, CFA, Senior Managing Director and Portfolio Manager        2018  
    Adam Bloch, Managing Director and Portfolio Manager        2018  
Neuberger Berman Investment Advisers LLC   Derek Devens, CFA, Managing Director and Senior Portfolio Manager        2018  

For important information about the purchase and sale of fund shares, tax information and financial intermediary compensation, please turn to the “Summary of Other Important Information Regarding the Fund” section on page 32 of this Prospectus.

 

 
Fund Summary         31


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Summary of Other Important Information Regarding the Funds

 

Transaction Policies – All Funds

 

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

 

Fund/Type of Account  

Minimum
Initial

Investment

   

Minimum
Additional

Investment

   

Minimum

Account
Balance

 

Equity Fund, International Fund and Smaller Companies Fund

 

Regular

     

- Institutional Class

  $ 10,000     $ 250     $ 2,500  

Retirement Account

     

- Institutional Class

  $ 1,000     $ 100     $ 250  

Automatic Investment Account

     

- Institutional Class

  $ 2,500     $ 250     $ 2,500  
     
Alternative Strategies Fund and
High Income Alternatives Fund(1)
                       

Regular

     

- Institutional Class

  $ 100,000     $ 250     $ 2,500  

- Investor Class

  $ 1,000     $ 100     $ 250  

Retirement Account

     

- Institutional Class

  $ 5,000     $ 100     $ 250  

- Investor Class

  $ 500     $ 100     $ 250  

Automatic Investment Account

     

- Institutional Class

  $ 2,500     $ 250     $ 2,500  

- Investor Class

  $ 2,500     $ 250     $ 2,500  

 

(1)

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

Tax Information – All Funds

 

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

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

 

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

 

 

 
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Description of Principal Investment Risks

 

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

Investors should be aware that in light of the current uncertainty, volatility and distress in economies, financial markets, and labor and health conditions around the world, the risks described below are heightened significantly compared to normal conditions and therefore subject a Fund’s investments and a shareholder’s investment in a Fund to sudden and substantial losses.

 

Asset-Backed Securities Risk  

The Alternative Strategies Fund and the High Income Alternatives Fund may invest in asset-backed securities (“ABS”), which are debt obligations or debt securities that entitle the holders thereof to receive payments that depend primarily on the cash flow from underlying financial assets, together with rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of such securities. An ABS is typically created by the sale of assets or collateral to a conduit, generally a bankruptcy-remote vehicle such as a grantor trust or other special-purpose entity, which becomes the legal issuer of the ABS. Interests in or other securities issued by the trust or special-purpose entity, which give the holder thereof the right to certain cash flows arising from the underlying assets, are then sold to investors through an investment bank or other securities underwriter.

 

The structure of an ABS and the terms of the investors’ interest in the collateral can vary widely depending on the type of collateral, the desires of investors and the use of credit enhancements. Although the basic elements of all ABS are similar, individual transactions can differ markedly in both structure and execution. Holders of ABS bear various risks, including credit risks, liquidity risks, interest rate risks, market risks, operations risks, structural risks and legal risks.

 

Credit risk is an important issue in ABS because of the significant credit risks inherent in the underlying collateral and because issuers are primarily private entities. Credit risk arises from losses due to defaults by the borrowers in the underlying collateral or the issuer’s or servicer’s failure to perform. Market risk arises from the cash-flow characteristics of the security, which for many ABS tend to be predictable. The greatest variability in cash flows comes from credit performance, including the presence of early amortization or acceleration features designed to protect the investor if credit losses in the portfolio rise well above expected levels. Interest-rate risk arises for the issuer from the relationship between the pricing terms on the underlying collateral and the terms of the rate paid to security holders. ABS are subject to the risk that a change in interest rates may influence the pace of prepayments of the underlying securities which, in turn, affects yields on an absolute basis. Liquidity risk can arise from increased perceived credit risk. For example, liquidity can also become a significant problem if concerns regarding credit quality lead investors to avoid the securities issued by the relevant special-purpose entity. Operations risk arises through the potential for misrepresentation of asset quality or terms by the originating institution, misrepresentation of the nature and current value of the assets by the servicer and inadequate controls over disbursements and receipts by the servicer. Structural risk may arise through investments in ABS with structures (for example, the establishment of various security tranches) that are intended to reallocate the risks entailed in the underlying collateral (particularly credit risk) in ways that give certain investors less credit risk protection (i.e., a lower priority claim on the cash flows from the underlying pool of assets) than others. As a result, such securities have a higher risk of loss as a result of delinquencies or losses on the underlying assets.

 

Further, credit risk retention requirements for ABS may increase the costs to originators, securitizers and, in certain cases, asset managers of securitization vehicles in which the Alternative Strategies Fund and the High Income Alternatives Fund may invest. Although the impact of these requirements is uncertain, certain additional costs may be passed to the Fund and the Fund’s investments in ABS may be adversely affected. Many of the other changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), or foreign regulatory developments could materially impact the value of the Fund’s assets, expose the Fund to additional costs and require changes to investment practices, thereby adversely affecting the Fund’s performance.

 

 

 
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Table of Contents

Description of Principal Investment Risks — (Continued)

 

   

 

Additional risks relating to investments in ABS may arise because of the type of ABS in which the Alternative Strategies Fund and the High Income Alternatives Fund invest, defined by the assets collateralizing the ABS. For example, collateralized mortgage obligations may have complex or highly variable prepayment terms, such as companion classes, interest only or principal only payments, inverse floaters and residuals. These investments generally entail greater market, prepayment and liquidity risks than other mortgage-backed securities, and may be more volatile or less liquid than other mortgage-backed securities. In addition, ABS backed by aircraft loans and leases may provide the Fund with a less effective security interest in the related underlying collateral than do mortgage-related securities and, thus, it is possible that recovery on repossessed collateral might be unavailable or inadequate to support payments on these ABS. In addition to the risks inherent in ABS generally, risks associated with aircraft securitizations include but are not limited to risks related to commercial aircraft, the leasing of aircraft by commercial airlines and the commercial aviation industry generally. With respect to any one aircraft, the value of such aircraft can be affected by the particular maintenance and operating history for the aircraft or its components, the model and type of aircraft, the jurisdiction of registration (including legal risks, costs and delays in attempting to repossess and export such aircraft following any default under the related loan or lease) and regulatory risk. The Alternative Strategies Fund and the High Income Alternatives Fund may invest in these and other types of ABS that may be developed in the future.

 

• Residential Mortgage-Backed Securities – Home mortgage loans are typically grouped together into pools by banks and other lending institutions, and interests in these pools are then sold to investors, allowing the bank or other lending institution to have more money available to loan to home buyers. Some of these pools are guaranteed by U.S. government agencies or by government sponsored private corporations-familiarly called “Ginnie Mae,” “Fannie Mae” and “Freddie Mac.” Non-agency MBS is subject to the risk that the value of such security will decline because, among other things, the security is not issued or guaranteed as to principal or interest by the U.S. government or a government sponsored enterprise. These securities are often subject to greater credit risk than agency MBS. In addition, these securities may be less readily marketable as the market for these securities is typically smaller and less liquid than the market for agency MBS, thus these securities may be subject to greater price fluctuation than agency MBS. Home mortgage loans may also be purchased and grouped together by non-lending institutions such as investment banks and hedge funds who will sell interests in such pools to investors. Mortgage-backed securities may be particularly sensitive to changes in interest rates given that rising interest rates tend to extend the duration of fixed-rate mortgage-backed securities. As a result, a rising interest rate environment can cause the prices of mortgage-backed securities to be increasingly volatile, which may adversely affect the Alternative Strategies Fund’s and High Income Alternatives Fund’s holdings of mortgage-backed securities. In light of the current interest rate environment, the Alternative Strategies Fund’s and High Income Alternatives Fund’s investments in these securities may be subject to heightened interest rate risk. These risks are elevated given the current distressed economic, market, health and labor conditions, notably, increased levels of unemployment, delays and delinquencies in payments of mortgage and rent obligations, and uncertainty regarding the effects and extent of government intervention with respect to mortgage payments and other economic matters.

 

• Commercial Mortgage-Backed Securities – Commercial mortgage backed securities (“CMBS”) are collateralized by one or more commercial mortgage loans. Banks and other lending institutions typically group the loans into pools and interests in these pools are then sold to investors, allowing the lender to have more money available to loan to other commercial real estate owners. Commercial mortgage loans may be secured by office properties, retail properties, hotels, mixed use properties or multi-family apartment buildings. Investments in CMBS are subject to the risks of ABS generally and particularly subject to credit risk, interest rate risk, and liquidity and valuation risk. These risks are elevated given the current distressed economic, market, health and labor conditions, notably, increased levels of unemployment, delays and delinquencies in payments of mortgage and rent obligations, and uncertainty regarding the effects and extent of government intervention with respect to mortgage payments and other economic matters.

 

 
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Below Investment-Grade Fixed Income Securities Risk   Below investment-grade fixed income securities (also known as “junk bonds”) are considered speculative. These securities are rated Ba1 through C by Moody’s Investors Service (“Moody’s”) or BB+ through D by Standard & Poor’s Rating Group (“S&P”) (or comparably rated by another nationally recognized statistical rating organization), or, if not rated by Moody’s or S&P, are considered by the sub-advisors to be of similar quality. These securities may be subject to greater risks than those of higher rated fixed income securities, including greater risk of default. The market value of below investment-grade fixed income securities is more sensitive to individual corporate developments and economic changes than higher rated securities. Adverse publicity and investor perceptions, whether or not accurate, regarding below investment-grade fixed income securities may depress prices and diminish liquidity for such securities. The market for below investment-grade fixed income securities may be less active than the market for higher rated securities, which can adversely affect the price at which these securities may be sold. Less active markets may diminish the Alternative Strategies Fund’s and High Income Alternatives Fund’s ability to obtain accurate market quotations when valuing the portfolio securities and thereby giving rise to valuation risk. In addition, the Alternative Strategies Fund and the High Income Alternatives Fund may incur additional expenses if a holding defaults and the Alternative Strategies Fund and High Income Alternatives Fund has to seek recovery of its principal investment. Below investment-grade fixed income securities may also present risks based on payment expectations. For example, these securities may contain redemption or call provisions. If an issuer exercises these provisions in a declining interest rate market, the Alternative Strategies Fund and High Income Alternatives Fund would have to replace the security with a lower yielding security resulting in a decreased return for investors. There is no limit to the Alternative Strategies Fund’s and High Income Alternatives Fund’s ability to invest in below investment-grade fixed income securities; however, under normal market conditions, it does not expect to invest more than 50% of its total assets in below investment-grade fixed income securities as measured at time of purchase.
Capital Structure Arbitrage Risk   The perceived mispricing identified by the sub-adviser may not disappear or may even increase, in which case losses may be realized.
Collateral Risk   If the Fund’s financial instruments are secured by collateral, the issuer may have difficulty liquidating the collateral and/or the Fund may have difficulty enforcing its rights under the terms of the securities if an issuer defaults. Collateral may be insufficient or the Fund’s right to the collateral may be set aside by a court. Collateral will generally consist of assets that may not be readily liquidated, including for example, equipment, inventory, work in the process of manufacture, real property and payments to become due under contracts or other receivable obligations. There is no assurance that the liquidation of those assets would satisfy an issuer’s obligations under a financial instrument. Non-affiliates and affiliates of issuers of financial instruments may provide collateral in the form of secured and unsecured guarantees and/or security interests in assets that they own, which may also be insufficient to satisfy an issuer’s obligations under a financial instrument.
Collateralized Loan Obligations and Collateralized Debt Obligations Risk  

The Alternative Strategies Fund and the High Income Alternatives Fund may invest in collateralized loan obligations (“CLOs”) and collateralized debt obligations (“CDOs”). Investments in CLOs carry the same risks as investments in loans directly, such as interest rate risk, credit and liquidity and valuation risks, and the risk of default. These investments are also subject to the risks associated with a decrease of market value due to collateral defaults and disappearance of subordinate tranches, market anticipation of defaults, and investor aversion to these types of securities as a class. CLOs issue classes or “tranches” that vary in risk and yield. Losses caused by defaults on underlying assets are borne first by the holders of subordinate tranches. A CLO may experience substantial losses attributable to loan defaults. The Fund’s investment in a CLO may decrease in market value because of (i) loan defaults or credit impairment, (ii) the disappearance of subordinate tranches, (iii) market anticipation of defaults, and (iv) investor aversion to CLO securities as a class. These risks may be magnified depending on the tranche of CLO securities in which the Fund invests. For example, investments in a junior tranche of CLO securities will likely be more sensitive to loan defaults or credit impairment than investments in more senior tranches.

 

 

 
Description of Principal Investment Risks         35


Table of Contents

Description of Principal Investment Risks — (Continued)

 

   

 

CDOs are structured similarly to CLOs, but are backed by pools of assets that are debt securities rather than only loans, typically including bonds, other structured finance securities (including other ABS and other CLOs) and/or synthetic instruments. CDOs are often highly leveraged, and like CLOs, the risks of investing in CDOs may be magnified depending on the tranche of CDO securities held by the Fund. The nature of the risks of CDOs depends largely on the type and quality of the underlying collateral and the tranche of CDOs in which the Fund may invest. CDOs collateralized by pools of ABS carry the same risks as investments in ABS directly, including losses with respect to the collateral underlying those ABS. In addition, certain CDOs may not hold their underlying collateral directly, but rather, use derivatives such as swaps to create “synthetic” exposure to the collateral pool. Such CDOs entail the risks associated with derivative instruments.

Communications Services Sector Risk   Certain of the Funds, through the implementation of their respective investment strategies, may from time to time invest a significant portion of their assets in the communications services sector. Media and communications companies may be significantly affected by product and service obsolescence due to technological advancement or development, competitive pressures (including innovation by competitors and pricing competition), substantial capital requirements, research and development costs, fluctuating demand due to shifting demographics and changing consumer tastes, and changes in regulation. Certain companies in the communications sector may be particular targets of hacking and/or other cybersecurity breaches, which could adversely affect their businesses.
Consumer Discretionary Sector Risk   Certain of the Funds, through the implementation of their respective investment strategies, may from time to time invest a significant portion of their assets in the consumer discretionary sector, which includes, for example, automobile, textile and retail companies. This sector can be significantly affected by, among other factors, changes in domestic and international economies; exchange and interest rates; worldwide demand; competition; consumers’ disposable income levels, propensity to spend and consumer preferences; social trends; and marketing campaigns. Companies in the consumer discretionary sector have historically been characterized as relatively cyclical and therefore more volatile in times of change.
Convertible Arbitrage Risk   Arbitrage strategies involve engaging in transactions that attempt to exploit price differences of identical, related or similar securities on different markets or in different forms. A Fund may realize losses or reduced rate of return if underlying relationships among securities in which investment positions are taken change in an adverse manner or a transaction is unexpectedly terminated or delayed. Trading to seek short-term capital appreciation can be expected to cause the Fund’s portfolio turnover rate to be substantially higher than that of the average equity-oriented investment company, resulting in higher transaction costs and additional capital gains tax liabilities.
Convertible Securities Risk   Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. Because convertible securities are higher in an issuer’s capital structure than equity securities, convertible securities are generally not as risky as the equity securities of the same issuer. However, convertible securities may gain or lose value due to changes in, among other things, interest rates; other general economic conditions; industry fundamentals; market sentiment; and the issuer’s operating results, financial statements and credit ratings. The value of convertible securities also tends to change whenever the market value of the underlying common or preferred stock fluctuates.
Credit Risk   Credit risk is the risk that the issuer or the guarantor of a fixed income security, or the counterparty to a derivatives contract or other transaction, is unable or unwilling (or is perceived to be unable or unwilling) to make timely payments of principal and/or interest, or to otherwise honor its obligations. The Alternative Strategies Fund and High Income Alternatives Fund will be subject to credit risks with respect to the counterparties of its derivative transactions. Many of the protections afforded to participants on organized exchanges, such as the performance guarantee of an exchange clearing house, are not available in connection with over-the-counter (“OTC”) derivative transactions, such as foreign currency transactions. As a result, in instances where the Fund enters into OTC derivative transactions, the Fund will be subject to the risk that its direct counterparties will not perform their obligations under the transactions and that the Fund will sustain losses or be unable to realize gains.

 

 
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Currency Risk   The Alternative Strategies Fund and High Income Alternatives Fund may invest in foreign currencies for investment and hedging purposes. All of the Funds may invest in foreign currencies for hedging purposes. Investing in foreign currencies exposes the fund to fluctuations in currency exchange rates. Fluctuations in the exchange rates between different currencies may negatively affect an investment. Each of the Alternative Strategies Fund and High Income Alternatives Fund may be subject to currency risk because it may invest a significant portion of its assets in currency-related instruments, such as forward currency exchange contracts, foreign currency futures contracts, options on foreign currencies and foreign currency futures, cross-currency instruments (such as swaps) and direct investments in foreign currencies. The Alternative Strategies Fund and High Income Alternatives Fund also are subject to currency risk because each may invest in securities or other instruments denominated in, or receive revenues in, foreign currencies. The sub-advisors may elect not to hedge currency risk, which may cause the Alternative Strategies Fund and the High Income Alternatives Fund to incur losses that would not have been incurred had the risk been hedged.
Cybersecurity Risk   Information and technology systems relied upon by the Funds, Litman Gregory, the sub-advisors, the Funds’ service providers (including, but not limited to, Fund accountants, custodians, transfer agents, administrators, distributors and other financial intermediaries) and/or the issuers of securities in which a Fund invests may be vulnerable to damage or interruption from computer viruses, network failures, computer and telecommunication failures, infiltration by unauthorized persons, security breaches, usage errors, power outages and catastrophic events such as fires, tornadoes, floods, hurricanes and earthquakes. Although Litman Gregory has implemented measures to manage risks relating to these types of events, if these systems are compromised, become inoperable for extended periods of time or cease to function properly, significant investment may be required to fix or replace them. The failure of these systems and/or of disaster recovery plans could cause significant interruptions in the operations of the Funds, Litman Gregory, the sub-advisors, the Funds’ service providers and/or issuers of securities in which a Fund invests and may result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to investors (and the beneficial owners of investors). Such a failure could also harm the reputation of the Funds, Litman Gregory, the sub-advisors, the Funds’ service providers and/or issuers of securities in which a Fund invests, subject such entities and their respective affiliates to legal claims or otherwise affect their business and financial performance.
Debt Securities Risk   The value and liquidity of debt securities may be reduced under certain circumstances. The value of debt securities can fluctuate, sometimes rapidly, in response to issuer activity and changes in general economic and credit market conditions, including changes in interest rates. The prices of debt securities can be volatile, and there can be severe limitations in the ability to value or sell certain debt securities, including those that are of higher credit quality, during periods of reduced credit market liquidity such as the one that the market experienced in 2008 and 2009.
Derivatives Risk  

Some of the instruments in which the Alternative Strategies Fund and the High Income Alternatives Fund may invest may be referred to as “derivatives,” because their value “derives” from the value of an underlying asset, reference rate or index. Use of derivatives is a highly specialized activity that can involve investment techniques and risks different from, and in some respects greater than, those associated with investing in more traditional investments, such as stocks and bonds. Derivatives can be highly complex and highly volatile and may perform in unanticipated ways. Derivatives can create leverage, which can magnify the impact of a decline in the value of the reference instrument underlying the derivative, and each of the Alternative Strategies Fund and the High Income Alternatives Fund could lose more than the amount it invests. Derivatives can have the potential for unlimited losses, for example, where the Fund may be called upon to deliver a security it does not own. Derivatives may at times be highly illiquid, and the Fund may not be able to close out or sell a derivative at a particular time or at an anticipated price. Derivatives can be difficult to value and valuation may be more difficult in times of market turmoil. There may be imperfect correlation between the behavior of a derivative and that of the reference instrument, and the reference instrument may not perform as anticipated. Suitable derivatives may not be available in all circumstances, and there can be no assurance that the Fund will use derivatives to reduce exposure to other risks when that might

 

 

 
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Table of Contents

Description of Principal Investment Risks — (Continued)

 

   

have been beneficial. Derivatives may involve fees, commissions, or other costs that may reduce the Fund’s gains or exacerbate losses from the derivatives. In addition, the Fund’s use of derivatives may have different tax consequences for the Fund than an investment in the reference instruments, and those differences may increase the amount and affect the timing of income recognition and character of taxable distributions payable to shareholders. Certain aspects of the regulatory treatment of derivative instruments, including federal income tax, are currently unclear and may be affected by changes in legislation, regulations, or other legally binding authority.

 

Derivatives involve counterparty risk, which is the risk that the other party to the derivative will fail to make required payments or otherwise comply with the terms of the derivative. Counterparty risk may arise because of market activities and developments, the counterparty’s financial condition (including financial difficulties, bankruptcy, or insolvency), or other reasons. Not all derivative transactions require a counterparty to post collateral, which may expose the Alternative Strategies Fund and the High Income Alternatives Fund to greater losses in the event of a default by a counterparty. Counterparty risk is generally thought to be greater with OTC derivatives than with derivatives that are centrally cleared. However, derivatives that are traded on organized exchanges and/or through clearing organizations involve the possibility that the futures commission merchant or clearing organization will default in the performance of its obligations.

 

When the Alternative Strategies Fund and the High Income Alternatives Fund use derivatives, each Fund will likely be required to provide margin or collateral and/or segregate cash or other liquid assets; these practices are intended to satisfy contractual undertakings and regulatory requirements and will not prevent the Fund from incurring losses on derivatives. The need to provide margin or collateral and/or segregate assets could limit the Fund’s ability to pursue other opportunities as they arise. Segregated assets are not available to meet redemptions. The amount of assets required to be segregated will depend on the type of derivative the Fund uses and the nature of the contractual arrangement. If the Fund is required to segregate assets equal to only the current market value of its obligation under a derivative, the Fund may be able to use derivatives to a greater extent than if it were required to segregate assets equal to the full notional value of such derivative, which would increase the degree of leverage the Fund could undertake through derivatives and otherwise. Derivatives that have margin requirements involve the risk that if the Fund has insufficient cash or eligible margin securities to meet daily variation margin requirements, it may have to sell securities or other instruments from its portfolio at a time when it may be disadvantageous to do so. The Fund may remain obligated to meet margin requirements until a derivatives position is closed.

 

Although the Alternative Strategies Fund and the High Income Alternatives Fund may use derivatives to attempt to hedge against certain risks, the hedging instruments may not perform as expected and could produce losses.

 

Additional risks associated with certain types of derivatives are discussed below:

 

Options Risk. The Alternative Strategies Fund and High Income Alternatives Fund may invest in options. Options trading entails risks in addition to those resulting from trading in traditional securities. Options may be more volatile than the underlying instruments, and therefore, on a percentage basis, an investment in options may be subject to greater fluctuation than an investment in the underlying instruments themselves. An investment in options is subject to the risk of a complete loss of the amounts paid as premiums to purchase the options.

 

Forward Contracts Risk. The Alternative Strategies Fund and High Income Alternatives Fund may invest in forward contracts. There are no limitations on daily price movements of forward contracts. Changes in foreign exchange regulations by governmental authorities might limit the trading of forward contracts. To the extent the Alternative Strategies Fund and High Income Alternatives Fund enter into non-U.S. currency forward contracts with banks, the Funds are subject to the risk of bank failure or the inability of or refusal by a bank to perform such contracts. There have been periods during which certain banks have refused to continue to quote prices for forward contracts or have quoted prices with an unusually wide spread (the difference between the price at which the bank is prepared to buy and the price at which it is prepared to sell).

 

 

 
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Futures Contracts Risk. The Alternative Strategies Fund and High Income Alternatives Fund may invest in futures contracts. The loss that may be incurred by entering into futures contracts could exceed the amount of the premiums paid and may be potentially unlimited. Futures markets are highly volatile, and the use of futures may increase the volatility of the Fund’s net asset value (“NAV”). Additionally, as a result of the low collateral deposits normally involved in futures trading, a relatively small movement in the price or value of a futures contract increases the risk of losing more than the amount initially invested by the Fund. Furthermore, exchanges may limit fluctuations in futures contract prices during a trading session by imposing a maximum permissible price movement on each futures contract. The Fund may be disadvantaged if it is prohibited from executing a trade outside the daily permissible price movement. Futures contracts executed on foreign exchanges may not be provided the same protections as provided by U.S. exchanges.

 

P-Notes Risk. The International Fund, the Alternative Strategies Fund and the High Income Alternatives Fund may invest in P-Notes. P-Notes are a type of equity-linked derivative generally issued by banks or broker-dealers and are designed to replicate the performance of the underlying equity securities. P-Notes are typically utilized to obtain exposure in certain non-U.S. markets where direct investment in a company’s equity is not permitted or otherwise feasible. Even though a P-Note is intended to reflect the performance of the underlying equity securities on a one-to-one basis so that investors will not normally gain or lose more in absolute terms than they would have made or lost had they invested in the underlying securities directly, the performance results of P-Notes will not replicate exactly the performance of the issuers or markets that the P-Notes seek to replicate due to transaction costs and other expenses. P-Notes represent unsecured, unsubordinated contractual rights of the issuer and do not confer any right, title or interest in respect to the underlying equity securities or provide rights against the issuer of the underlying securities. For this reason, in addition to the risks normally associated with a direct investment in the underlying securities, P-Notes are subject to counterparty risk if the issuer of the P-Note is unable or refuses to perform under the terms of the P-Note and must rely on the creditworthiness of the counterparty for its investment returns on the P-Notes. While the holder of a P-Note is entitled to receive from the bank or broker-dealer any dividends or other distributions paid on the underlying securities, the holder is not entitled to the same rights as an owner of the underlying securities, such as voting rights. P-Notes are also not traded on exchanges, are privately issued, and may be illiquid. There can be no assurance that the trading price or value of P-Notes will equal the value of the underlying value of the equity securities they seek to replicate.

 

Credit Default Swaps Risk. The Alternative Strategies Fund and the High Income Alternatives Fund may enter into credit default swap agreements. The “buyer” in a credit default swap contract is obligated to pay the “seller” a periodic stream of payments over the term of the contract, provided no event of default has occurred. In the event of default, the seller must pay the buyer the “par value” (full notional value) of the reference obligation in exchange for the reference obligation. Each Fund may be either the buyer or seller in the transaction. If the Fund is a buyer and no event of default occurs, the Fund loses its investment and recovers nothing. However, if an event of default occurs, the buyer receives full notional value for a reference obligation that may have little or no value. As a seller, each Fund receives a fixed rate of income throughout the term of the contract, provided there is no default event. If an event of default occurs, the seller is normally obligated to pay the notional value of the reference obligation. The value of the reference obligation received by the seller, coupled with the periodic payments previously received may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Fund. Credit default swaps involve greater risks than if the Fund had invested in the reference obligation directly. In addition to general market risks, credit default swaps are subject to illiquidity risk, counterparty risk and credit risks. If the Fund writes a credit default swap, it would normally be required to segregate liquid assets equal in value to the notional value of the reference obligation.

 

Total Return Swaps Risk. The Alternative Strategies Fund and the High Income Alternatives Fund may enter into total return swap agreements. Total return swap is the generic name for any non-traditional swap where one party agrees to pay the other the “total return” of a defined underlying asset, usually in return for receiving a stream of London Interbank Offered Rate

 

 

 
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    (“LIBOR”) based cash flows. A total return swap may be applied to any underlying asset but is most commonly used with equity indices, single stocks, bonds and defined portfolios of loans and mortgages. Total return swap is a mechanism for the user to accept the economic benefits of asset ownership without utilizing the balance sheet. The other leg of the swap, usually LIBOR, is spread to reflect the non-balance sheet nature of the product. No notional amounts are exchanged with total return swaps. The total return receiver assumes the entire economic exposure – that is, both market and credit exposure – to the reference asset. The total return payer – often the owner of the reference obligation – gives up economic exposure to the performance of the reference asset and in return takes on counterparty credit exposure to the total return receiver in the event of a default or fall in value of the reference asset.
Distressed Companies Risk  

Investments in distressed companies typically involve the purchase of high-yield bonds (also known as “junk bonds”) or comparable unrated debt securities, or the purchase of direct indebtedness (or participations in the indebtedness) of such companies. Indebtedness generally represents a specific commercial loan or portion of a loan made to a company by a financial institution such as a bank or insurance company. Loan participations represent fractional interests in a company’s indebtedness and are generally made available by banks or insurance companies. By purchasing all or a part of a company’s direct indebtedness, a Fund, in effect, steps into the shoes of the lender. If the loan is secured, the Fund will have a priority claim to the assets of the company ahead of unsecured creditors and stockholders. A Fund also may purchase trade claims and other similar direct obligations or claims against companies in bankruptcy. Trade claims are generally purchased from creditors of the bankrupt company and typically represent money due to a supplier of goods or services to the company.

 

The purchase of indebtedness or loan participations of a troubled company always involves the risk as to the creditworthiness of the issuer and the possibility that principal invested may be lost. Purchasers of participations, such as a Fund, must rely on the financial institution issuing the participation to assert any rights against the borrower with respect to the underlying indebtedness. In addition, a Fund takes on the risk as to the creditworthiness of the bank or other financial intermediary issuing the participation, as well as that of the company issuing the underlying indebtedness. When a Fund purchases a trade claim, there is no guarantee that the debtor will ever be able to satisfy the obligation on the trade claim.

Emerging Markets Risk  

Emerging market countries are those with immature economic and political structures, and investing in emerging markets entails greater risk than in developed markets. Emerging markets may be under-capitalized, have less developed legal and financial systems or have less stable currencies than markets in the developed world. Emerging market securities are securities that are issued by companies with their principal place of business or principal office in an emerging market country; or securities issued by companies for which the principal securities trading market is an emerging market country. Emerging market securities typically present even greater exposure to the risks described under “Foreign Investment Risk” and may be particularly sensitive to certain economic changes. For example, emerging market countries are more often dependent on international trade and are therefore often vulnerable to recessions in other countries. Emerging markets may have obsolete financial systems and volatile currencies, and may be more sensitive than more mature markets to a variety of economic factors. Emerging market securities also may be less liquid than securities of more developed countries and could be difficult to sell, particularly during a market downturn.

 

Economies in emerging market countries may also be more susceptible to natural and man-made disasters, such as earthquakes, tsunamis, terrorist attacks, or adverse changes in climate or weather. In addition, many developing countries with less established health care systems have experienced outbreaks of pandemic or contagious diseases from time to time, including, but not limited to, COVID-19, Ebola, Zika, avian flu, severe acute respiratory syndrome, and Middle East Respiratory Syndrome. The risks of such phenomena and resulting social, political, economic and environmental damage cannot be quantified. These events can exacerbate market volatility as well as impair economic activity, which can have both short- and immediate-term effects on the valuations of the companies and issuers in which the Funds invest. The Funds define an emerging market country as any country that is included in the MSCI Emerging Markets Index.

 

 
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Equity Securities Risk   The value of equity securities may fluctuate, sometimes rapidly and unexpectedly, due to various factors, including factors affecting the general market, such as adverse changes in economic conditions, the general outlook for corporate earnings, interest rates or investor sentiment. Equity securities may also lose value because of factors affecting an entire industry or sector, such as increases in production costs, and factors directly related to a specific company, such as significant decisions made by its management. Certain equity securities may decline in value even during periods when the prices of equity securities in general are rising, or may not perform as well as the market in general. The prices of equity securities may also experience greater volatility during periods of challenging market conditions such as the one that the market recently experienced. This risk is greater for small- and medium-sized companies, which tend to be more vulnerable to adverse developments than larger companies.
Event-Driven Risk   The Alternative Strategies Fund may make event-driven investments. Event-driven strategies seek to profit from the market inefficiencies surrounding market events, such as mergers, acquisitions, asset sales, restructurings, refinancings, recapitalizations, reorganizations or other special situations. Event-driven investing involves attempting to predict the outcome of a particular transaction as well as the optimal time at which to commit capital to it. Event-driven opportunities involve difficult legal as well as financial analysis, as some of the principal impediments to the consummation of major corporate events are often legal or regulatory rather than economic. In addition, certain of the securities issued in the context of major corporate events include complex call, put and other features, and it is difficult to precisely evaluate the terms and embedded option characteristics of these securities. A Fund may take both long and short positions in a wide range of securities, derivatives and other instruments in implementing its event-driven strategies.
Financial Sector Risk   Certain of the Funds, through the implementation of their respective investment strategies, may from time to time invest a significant portion of their assets in the financial sector. The financial sector can be significantly affected by changes in interest rates, government regulation, the rate of defaults on corporate, consumer and government debt, the availability and cost of capital, and the impact of more stringent capital requirements. Financial services companies are subject to extensive governmental regulation which may limit both the amounts and types of loans and other financial commitments they can make, the interest rates and fees they can charge, the scope of their activities, the prices they can charge and the amount of capital they must maintain. Profitability is largely dependent on the availability and cost of capital funds, and can fluctuate significantly when interest rates change or due to increased competition. The Funds may be adversely affected by events or developments negatively impacting the financial sector. For example, events in the financial sector may cause an unusually high degree of volatility in the financial markets, both domestic and foreign, and cause certain financial services companies, including banks, to incur losses. If the Funds focus their investments in banks or bank-related companies, the Funds will be sensitive to adverse developments in the banking industry (domestic or foreign). Banks can be particularly susceptible to, among other things, adverse legislative, regulatory and monetary policy changes, interest rate movements, the availability of capital and cost to borrow, the rate of debt defaults, and developments in the real estate market.

Foreign Investment

Risk

 

Investing in foreign (non-U.S) securities may expose the Funds to risks not typically associated with U.S. investments. These risks include, among others, adverse fluctuations in currency conversion rate, currency blockages, and adverse political, social and economic developments affecting a foreign country. In addition, foreign securities may have less publicly available information and may be more volatile and/or less liquid. Investments in foreign securities could also be affected by factors such as differences in financial reporting, accounting and auditing standards, nationalization, expropriation or confiscatory taxation, smaller and less-strict regulation of securities markets, restrictions on receiving investment proceeds from a foreign country, and potential difficulties in enforcing contractual obligations. Economies in foreign countries may also be more susceptible to natural and man-made disasters, such as earthquakes, tsunamis, terrorist attacks, or adverse changes in climate or weather. In addition, many foreign countries with less established health care systems have experienced outbreaks of pandemic or contagious diseases from time to time, including, but not limited to, COVID-19, Ebola, Zika, avian flu, severe acute respiratory syndrome and Middle East Respiratory

 

 

 
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Syndrome. The risks of such phenomena and resulting social, political, economic and environmental damage cannot be quantified. These events can exacerbate market volatility as well as impair economic activity, which can have both short- and immediate-term effects on the valuations of the companies and issuers in which the Funds invest. These risks are greater in the emerging markets. There is no limit to the Alternative Strategies Fund’s ability to invest in emerging market securities; however, under normal market conditions, it does not expect to invest more than 50% of its total assets in emerging market securities. Additional information about the risks of emerging markets is described above under “Emerging Markets Risk.”

 

The International Fund invests a significant portion of its assets in issuers based in Western Europe and the United Kingdom (“UK”). The economies of countries in Europe are often closely connected and interdependent, and events in one country in Europe can have an adverse impact on other European countries. Efforts by the member countries of the European Union (“EU”) to continue to unify their economic and monetary policies may increase the potential for similarities in the movements of European markets and reduce the potential investment benefits of diversification within the region. However, the substance of these policies may not address the needs of all European economies. European financial markets have in recent years experienced increased volatility due to concerns with some countries’ high levels of sovereign debt, budget deficits and unemployment. Markets have also been affected by the withdrawal of the UK from the EU on January 31, 2020 (an event commonly known as “Brexit”). The future relationship between the UK and the EU remains unresolved and subject to negotiation during an 11-month transition period, and there is considerable uncertainty surrounding the impact of Brexit on the UK, the EU and the broader global economy. An exit by any member countries from the EU or the Economic and Monetary Union of the EU, or even the prospect of such an exit, could lead to increased volatility in European markets and negatively affect investments both in issuers in the exiting country and throughout Europe. Whether or not a Fund invests in securities of issuers located in Europe or with significant exposure to European issuers or countries, these events could negatively affect the value and liquidity of the Fund’s investments due to the interconnected nature of the global economy and capital markets.

Healthcare Sector Risk   Certain of the Funds, through the implementation of their respective investment strategies, may from time to time invest a significant portion of their assets in the healthcare sector. Companies in the healthcare sector may be affected by the overall economic conditions as well as by factors particular to the healthcare sector. Those factors include extensive government regulation; restrictions on government reimbursement for medical expenses; rising costs of medical products, services and facilities; pricing pressure; an increased emphasis on outpatient services; limited number of products and product obsolescence due to industry innovation; changes in technologies and other market developments. A major source of revenue for the healthcare sector is payments from Medicare and Medicaid programs. As a result, the sector is sensitive to legislative changes and reductions in governmental spending for such programs, as well as state or local healthcare reform measures. Companies in the healthcare sector depend heavily on patent protection. The process of obtaining patent approval can be long and costly, and the expiration of patents may adversely affect the profitability of companies in this sector. Healthcare companies also are subject to extensive litigation based on product liability and similar claims. Healthcare companies are subject to competitive forces that may make raising prices difficult and, at times, may result in price discounting. In addition, companies in the healthcare sector may be thinly capitalized and therefore may be more susceptible to product obsolescence.
Industrial Sector Risk  

Certain of the Funds, through the implementation of their respective investment strategies, may from time to time invest a significant portion of their assets in the industrial sector. Stock prices for the types of companies included in the industrial sector are affected by supply and demand both for their specific product or service and for industrial sector products in general. Government regulation, world events and economic conditions, technological developments and liabilities for environmental damage and general civil liabilities will likewise affect the performance of these companies. Aerospace and defense companies, a component of the industrial sector, can be significantly affected by government spending policies because companies involved in this industry rely to a significant extent on U.S. and foreign government demand for their products and services. Thus, the financial condition of, and investor interest in,

 

 

 
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    aerospace and defense companies are heavily influenced by governmental spending policies which are typically under pressure from efforts to control the U.S. (and other) government budgets. Transportation stocks, a component of the industrial sector, are cyclical and have occasional sharp price movements which may result from changes in the economy, fuel prices, labor agreements and insurance costs.
Interest Rate Risk   Changes in interest rates may cause the value of debt securities to decline. Generally, the value of debt securities rise when prevailing interest rates fall, and fall when prevailing interest rates rise. A fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with a shorter average portfolio duration.
Investment in Investment Companies Risk  

The High Income Alternatives Fund and its shareholders may incur the pro rata share of the expenses of the underlying investment companies or vehicles in which the Fund invests, such as investment advisory and other management expenses, and shareholders will incur the operating expenses of these investment vehicles. In addition, the Fund will be subject to those risks affecting the investment vehicle, including the effects of business and regulatory developments that affect an underlying investment company or vehicle or the investment company industry generally as well as the possibility that the value of the underlying securities held by the investment vehicle could decrease or the portfolio becomes illiquid. Shares of investment vehicles that trade on an exchange may trade at a discount or premium from their net asset value. The purchase of shares of some investment companies (such as CEFs and ETFs) may require the payment of substantial premiums above the value of such companies’ portfolio securities or net asset values.

 

The High Income Alternatives Fund may, from time to time, invest a portion of its assets in investment companies advised by a sub-advisor, or an affiliate of the sub-advisor.

 

An underlying investment vehicle may buy the same securities that another underlying investment vehicle sells. If this happens, an investor in the High Income Alternatives Fund would indirectly bear the costs of these trades without accomplishing any investment purpose. In addition, certain of the underlying investment vehicles may hold common portfolio positions, thereby reducing the diversification benefits of an asset allocation style. The underlying investment vehicles may engage in investment strategies or invest in specific investments in which the Fund would not engage or invest directly.

 

The performance of those underlying investment vehicles, in turn, depends upon the performance of the securities in which they invest.

 

The underlying investment companies or other investment vehicles in which the High Income Alternatives Fund invests are often institutional funds owned by a small number of shareholders and are thus also subject to the risk that shareholders redeem their shares rapidly, which may adversely affect the performance and liquidity of the underlying investment vehicles and the High Income Alternatives Fund.

 

An investment by the High Income Alternatives Fund in ETFs generally presents the same primary risks as an investment in a mutual fund. In addition, an investment in an ETF may be subject to additional risk, including: the ETF’s shares may trade at a discount or premium relative to the net asset value of the shares; an active trading market may not develop for the ETF’s shares; the listing exchange may halt trading of the ETF’s shares; the ETF may fail to correctly track the referenced asset (if any); and the ETF may hold troubled securities in the referenced index or basket of investments. Shares of CEFs frequently trade at a discount to their net asset value. Investments in CEFs that elect to be regulated as BDCs may be subject to a high degree of risk.

 

BDCs typically invest in and lend to small and medium-sized private and certain public companies that may not have access to the public equity markets or capital raising. As a result, a BDC’s portfolio typically will include a substantial amount of securities purchased in private placements, and its portfolio may carry risks similar to those of a private equity or private debt fund. Securities that are not publicly registered may be difficult to value and may be difficult to sell at a price representative of their intrinsic value. Small and medium-sized companies also may have fewer lines of business so that changes in any one line of business may have a

 

 

 
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    greater impact on the value of their stock than is the case with a larger company. Some BDCs invest substantially, or even exclusively, in one sector or industry group and therefore carry risk of that particular sector or industry group. To the extent a BDC focuses its investments in a specific sector, the BDC will be susceptible to adverse conditions and economic or regulatory occurrences affecting the specific sector or industry group, which tends to increase volatility and result in higher risk. Investments in BDCs are subject to various other risks, including management’s ability to meet the BDC’s investment objective and to manage the BDC’s portfolio when the underlying securities are redeemed or sold, during periods of market turmoil and as investors’ perceptions regarding a BDC or its underlying investments change. BDC shares are not redeemable at the option of the BDC shareholder and, as with shares of other closed-end funds, they may trade in the secondary market at a discount to their NAV.
Investment in Loans Risk  

The High Income Alternatives Fund may invest in loans, such as syndicated bank loans and other direct lending opportunities, senior floating rate loans, secured and unsecured loans, second lien or more junior loans, bridge loans, revolving credit facilities and unfunded commitments. Loans may incur some of the same risks as other debt securities, such as prepayment risk, credit risk, interest rate risk, liquidity risk and risks found with high yield securities. The terms of certain loan agreements may cause certain loans to be particularly sensitive to changes in benchmark interest rates. Although some loans are secured by collateral, the collateral may be difficult to liquidate and the value of the collateral can decline or be insufficient or unavailable to meet the obligation of the borrower. Certain loans have the benefit of restrictive covenants that limit the ability of the borrower to further encumber its assets or incur other debt obligations. To the extent a loan does not have such covenants, an investment in the loan may be particularly sensitive to the risks associated with loan investments. The Fund’s interest in a particular loan and/or in a particular collateral securing a loan may be subordinate to the interests of other creditors of the obligor. As a result, a loan may not be fully collateralized (and may be uncollateralized) and can decline significantly in value, which may result in the Fund not receiving payments to which it is entitled on a timely basis or at all. In addition, the Fund may have limited rights to exercise remedies against collateral or against an obligor when payments are delayed or missed.

 

Loans may offer a fixed rate or floating rate of interest. Loans may decline in value if their interest rates do not rise as much or as fast as interest rates in general. In addition, to the extent the High Income Alternatives Fund holds a loan through a financial intermediary, or relies on a financial intermediary to administer the loan, the Fund’s investment, including receipt of principal and interest relating to the loan, will be subject to the credit risk of the intermediary.

 

Loans are subject to the risk that the scheduled interest or principal payments will not be paid. Lower-rated loans and debt securities (those of less than investment grade quality) involve greater risk of default on interest and principal payments than higher-rated loans and securities. In the event that a non-payment occurs, the value of that obligation likely will decline. Loans and other debt instruments rated below “BBB” category by S&P or “Baa” category by Moody’s or unrated but assessed of similar quality are considered to have speculative characteristics and are commonly referred to as “junk bonds.” Junk bonds entail default and other risks greater than those associated with higher-rated securities.

 

Loans are vulnerable to market sentiment such that economic conditions or other events may reduce the demand for loans and cause their value to decline rapidly and unpredictably. Many loan interests are subject to restrictions on transfer that may limit the ability of the High Income Alternatives Fund to sell the interests at an advantageous time or price. Furthermore, while the resale, or secondary, market for loans is growing, it is currently limited. There is no organized exchange or board of trade on which loans are traded. Loans often trade in large denominations (typically $1 million and higher), and trades can be infrequent. The market has limited transparency so that information about actual trades may be difficult to obtain. Accordingly, some of the loans in which the Fund may invest will be relatively illiquid and difficult to value. Loans are often subject to restrictions on resale or assignment. The may have difficulty in disposing of loans in a favorable or timely fashion, which could result in losses to the Fund. Transactions in loans are often subject to long settlement periods (in excess of the standard T+2 days settlement cycle for most securities and often longer than seven days). As

 

 

 
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a result, sale proceeds potentially will not be available to the Fund to make additional investments or to use proceeds to meet its current redemption obligations. The Fund thus is subject to the risk of selling other investments at disadvantageous times or prices, taking other actions necessary to raise cash to meet its redemption obligations such as borrowing from a bank or holding additional cash.

 

Loans may be issued in connection with highly leveraged transactions, such as restructurings, leveraged buyouts, leveraged recapitalizations and acquisition financing. In such highly leveraged transactions, the borrower assumes large amounts of debt in order to have the financial resources to attempt to achieve its business objectives. Accordingly, such loans may be part of highly leveraged transactions and involve a significant risk that the borrower may default or go into bankruptcy or become insolvent. Bankruptcy or other court proceedings may delay, limit or negate the High Income Alternatives Fund’s ability to collect payments on its loan investments or otherwise adversely affect the Fund’s rights in collateral relating to the loan and the Fund may need to retain legal or similar counsel to help in seeking to enforce its rights. In addition, if the Fund holds certain loans, the Fund may be required to exercise its rights collectively with other creditors or through an agent or other intermediary acting on behalf of multiple creditors, and the value of the Fund’s investment may decline or otherwise be adversely affected by delays or other risks associated with such collective procedures.

 

The High Income Alternatives Fund values its assets on each business day that the New York Stock Exchange is open. However, because the secondary market for loans is limited and trading may be irregular, they may be difficult to value. Market quotations may not be readily available for some loans or may be volatile and/or subject to large spreads between bid and ask prices, and valuation may require more research than for other securities. In addition, elements of judgment may play a greater role in valuation than for securities with a more active secondary market, because there is less reliable, objective market value data available. In certain circumstances, the sub-advisor or its affiliates (including on behalf of clients other than the Fund) or the Fund may be in possession of material non-public information about a borrower as a result of its ownership of a loan and/or corporate debt security of a borrower. Because U.S. laws and regulations generally prohibit trading in securities of issuers while in possession of material, non-public information, the Fund might be unable to trade securities or other instruments issued by the borrower when it would otherwise be advantageous to do so and, as such, could incur a loss. In circumstances when the sub-advisor or the Fund determines not to receive non-public information about a borrower for loan investments, the Fund may be disadvantaged relative to other investors and the Fund may not take advantage of other investment opportunities that it may otherwise have. In addition, loans and other similar instruments may not be considered “securities” and, as a result, the Fund may not be entitled to rely on the anti-fraud protections under the federal securities laws and instead may have to resort to state law and direct claims. The sub-advisor or its affiliates may participate in the primary and secondary market for loans or other transactions with possible borrowers. As a result, the Fund may be legally restricted from acquiring some loans and from participating in a restructuring of a loan or other similar instrument.

Investment Selection Risk   The specific investments held in the Fund’s investment portfolio may underperform other funds in the same asset class or benchmarks that are representative of the general performance of the asset class because of a portfolio manager’s choice of securities.
Large Shareholder Purchase and Redemption Risk   The Equity Fund, the International Fund, the Smaller Companies Fund and the High Income Alternatives Fund are subject to the risk of large shareholder purchases and redemptions. A Fund may experience adverse effects when certain large shareholders purchase or redeem large amounts of shares of the Fund. Such large shareholder redemptions may cause the Fund to sell its securities at times when it would not otherwise do so, which may negatively impact the Fund’s net asset value and liquidity. Similarly, large share purchases may adversely affect the Fund’s performance to the extent that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. In addition, a large redemption could result in the Fund’s current expenses being allocated over a smaller asset base, leading to an increase in the Fund’s expense ratio.

 

 
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Leverage Risk   Leverage may result from certain transactions, including the use of derivatives and borrowing, particularly with respect to the Alternative Strategies Fund and the High Income Alternatives Fund. Although leverage creates an opportunity for increased income and gain, it also creates certain risks. For example, the use of leverage may cause the effect of an increase or decrease in the value of the Fund’s portfolio securities to be magnified and the Fund to be more volatile than if leverage was not used. Under normal circumstances, the Alternative Strategies Fund and the High Income Alternatives Fund may each borrow amounts up to one third of the value of its total assets except that it may exceed this limit to satisfy redemption requests or for other temporary purposes.
LIBOR Risk   LIBOR is used extensively in the U.S. and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds, bank loans, asset-backed and mortgage-related securities, interest rate swaps and other derivatives. For example, debt securities in which a Fund invests may pay interest at floating rates based on LIBOR or may be subject to interest caps or floors based on LIBOR. A Fund’s derivative investments may also reference LIBOR. In addition, issuers of instruments in which a Fund invests may obtain financing at floating rates based on LIBOR, and a Fund may use leverage or borrowings based on LIBOR. In July 2017, the head of the United Kingdom Financial Conduct Authority announced the intention to phase out the use of LIBOR by the end of 2021. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement reference rate. Abandonment of or modifications to LIBOR could have adverse impacts on newly issued financial instruments and existing financial instruments that reference LIBOR.
Market Risk and Recent Market Volatility Associated with COVID-19  

The market prices of securities owned by a Fund may go up or down, sometimes rapidly or unpredictably. Securities may decline in value or become illiquid due to factors affecting securities markets generally or particular industries represented in the securities markets. The value or liquidity of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. Securities may also decline or become illiquid due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. During a general downturn in the securities markets, multiple asset classes may decline or become illiquid in value simultaneously. Natural disasters, public health emergencies (including pandemics and epidemics), terrorism and other global unforeseeable events may lead to instability in world economies and markets, may lead to increased volatility, and may have adverse long-term effects. The Funds cannot predict the effects of such unforeseeable events in the future on the economy, the markets or the Funds’ investments.

 

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 spread globally. This coronavirus has resulted in certain travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, expanded healthcare services and expenses, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, 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.

 

 
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Materials Sector Risk   Certain of the Funds, through the implementation of their respective investment strategies, may from time to time invest a significant portion of their assets in the materials sector, which includes, for example, companies in the chemicals, metals and mining, paper and forest products, containers and packaging, and construction materials industries. Many companies in the materials sector are significantly affected by the level and volatility of commodity prices, the exchange value of the U.S. dollar, import controls, worldwide competition, environmental policies and consumer demand. At times, worldwide production of industrial materials has exceeded demand as a result of over-building or economic downturns, leading to poor investment returns or losses. Other risks may include liability for environmental damage and general civil liabilities, depletion of resources, and mandated expenditures for safety and pollution control. The basic industries sector may also be affected by economic cycles, technical progress, labor relations, and government regulations.
Merger Arbitrage Risk   The Alternative Strategies Fund is subject to merger arbitrage risk. Merger arbitrage seeks to profit from the successful completion of mergers, takeovers, tender offers, leveraged buyouts, spin offs, liquidations and other corporate reorganizations (each, a “deal”). The success of merger arbitrage depends on the discount between the deal price and the price of the target company’s stock after the deal is announced but before it is closed. If a proposed reorganization in which the Alternative Strategies Fund invests is renegotiated or terminated, the Fund may suffer a loss.
MLP Risk  

The High Income Alternatives Fund may invest in MLPs. An investment in MLP units involves some risks which differ from Equity Securities Risk. Holders of MLP units have limited control and voting rights on matters affecting the partnership. Holders of units issued by an MLP are exposed to a remote possibility of liability for all of the obligations of that MLP in the event that a court determines that the rights of the holders of MLP units to vote to remove or replace the general partner of that MLP, to approve amendments to that MLP’s partnership agreement, or to take other action under the partnership agreement of that MLP would constitute “control” of the business of that MLP, or a court or governmental agency determines that the MLP is conducting business in a state without complying with the partnership statute of that state. Holders of MLP units are also exposed to the risk that they will be required to repay amounts to the MLP that are wrongfully distributed to them. Recent market volatility in the energy markets, including price decreases connected to the virus that causes COVID-19, has significantly affected the performance of the energy infrastructure industry, as well as the performance of the MLPs in which the Fund invests. In addition, volatility in the energy markets may affect the ability of MLPs to finance capital expenditures and new acquisitions and to maintain or increase distributions to investors due to a lack of access to capital.

 

• MLP Common Units. MLP common units can be affected by macro-economic and other factors affecting the stock market in general, expectations of interest rates, investor sentiment toward MLPs or the energy sector, changes in a particular issuer’s financial condition, or unfavorable or unanticipated poor performance of a particular issuer (generally measured in terms of distributable cash flow). Prices of common units of individual MLPs also can be affected by fundamentals unique to the partnership, including earnings power and coverage ratios.

 

• MLP I-Shares. MLP I-Shares represent an ownership interest issued by an MLP affiliate, typically an LLC, which owns an interest in and manages the MLP. MLP I-Shares may be subject to illiquid securities risk because of their potentially relatively smaller size. I-Shares may trade at a discount to their related MLP units, despite having an economic value equivalent to an MLP unit and an equal claim on the cash flows underlying the investment.

 

• General partner interests in MLPs are typically retained by the original sponsors of an MLP, such as its founders, corporate partners and entities that sell assets to the MLP. The holders of a general partner interest can be liable in certain circumstances for amounts greater than the amount of the holder’s investment. General partner interests often confer direct board participation rights in, and in many cases control over the operations of, the MLP. Conflicts of interest may arise between the general partners or managing member on the one hand, and the limited partners or members on the other hand, including those arising from incentive distribution payments or corporate opportunities.

 

 
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Description of Principal Investment Risks — (Continued)

 

MLP Tax Risk   The High Income Alternatives Fund’s ability to meet its investment objectives depends, in large measure, on the level of dividends, distributions or income it receives from the MLPs in which it invests and on the MLPs’ continued treatment as partnerships for U.S. federal income tax purposes. If an MLP does not meet current legal requirements to maintain its partnership status, or if it is unable to do so because of tax or other law changes, it would be treated as a corporation for U.S. federal income tax purposes. In that case, the MLP would be obligated to pay U.S. federal income tax (as well as state and local taxes) at the entity level on its taxable income and distributions received by the Fund would be taxable to the Fund as dividend income to the extent of the MLP’s current and accumulated earnings and profits for federal tax purposes. In addition, any distributions that the Fund receives from an MLP that were treated as dividends in the hands of the Fund could materially affect the tax character of the Fund’s distributions to shareholders. Moreover, in the case of an MLP treated as a corporation for U.S. federal income tax purposes, any items of loss or deduction in excess of such MLP’s items of income or gain would not be treated as incurred directly by the Fund and would be permitted to be used only by such MLP. Therefore, in general, the classification of a MLP as a corporation for U.S. federal income tax purposes could adversely affect the Fund and its shareholders, including by (i) reducing the amount of cash available for distribution by the MLP to the Fund and, in turn, for distribution by the Fund to the Fund’s shareholders and (ii) reducing the value of the Fund’s investment in any such MLP and, in turn, the value of the Fund’s shares.
Mortgage-Backed Securities Risk   The Alternative Strategies Fund and the High Income Alternatives Fund may invest in mortgage-backed securities. Mortgage-backed securities represent participation interests in pools of residential mortgage loans purchased from individual lenders by a federal agency or originated and issued by private lenders. The values of some mortgage-backed securities may expose these Funds to a lower rate of return upon reinvestment of principal. When interest rates rise, the value of mortgage-related securities generally will decline; however, when interest rates are declining, the value of mortgage related-securities with prepayment features may not increase as much as other fixed income securities. The rate of prepayments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may shorten or extend the effective maturity of the security beyond what was anticipated at the time of purchase. If unanticipated rates of prepayment on underlying mortgages increase the effective maturity of a mortgage-related security, the volatility of the security can be expected to increase. The value of these securities may fluctuate in response to the market’s perception of the creditworthiness of the issuers. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations. Mortgage-backed securities that are collateralized by a portfolio of mortgages or mortgage-related securities depend on the payments of principal and interest made by or through the underlying assets, which may not be sufficient to meet the payment obligations of the mortgage-backed securities.
Mortgage REIT Risk   The High Income Alternatives Fund may invest in mortgage REITs (“mREITs”), which are pooled investment vehicles that invest the majority of their assets in real property mortgages and which generally derive income primarily from interest payments thereon. Investing in mREITs involves certain risks related to investing in real property mortgages. In addition, mREITs must satisfy highly technical and complex requirements in order to qualify for the favorable tax treatment accorded to REITs under the Code. No assurances can be given that a mREIT in which the Fund invests will be able to continue to qualify as a REIT or that complying with the REIT requirements under the Code will not adversely affect such REIT’s ability to execute its business plan.

 

 
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Municipal Securities Risk  

The High Income Alternatives Fund may invest in municipal securities. The municipal securities market could be significantly affected by adverse political and legislative changes or litigation at the federal or state level, as well as uncertainties related to taxation or the rights of municipal security holders. Changes in the financial health of a municipality may hinder its ability to pay interest and principal. To the extent that the Fund invests a significant portion of its assets in the municipal securities of a particular state or U.S. territory or possession, there is greater risk that political, regulatory, economic or other developments within that jurisdiction may have a significant impact on the Fund’s investment performance. The amount of public information available about municipal securities is generally less than that available about corporate securities.

 

In the case of insured municipal securities, insurance supports the commitment that interest payments will be made on time and the principal will be repaid at maturity. Insurance does not, however, protect the Fund or its shareholders against losses caused by declines in a municipal security’s market value. The sub-advisor generally looks to the credit quality of the issuer of a municipal security to determine whether the security meets the Fund’s quality restrictions, even if the security is covered by insurance. However, a downgrade in the claims-paying ability of an insurer of a municipal security could have an adverse effect on the market value of the security.

 

Municipal issuers may be adversely affected by high labor costs and increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. In addition, changes in the financial condition of one or more individual municipal issuers or insurers of municipal issuers can affect the overall municipal securities market. The secondary market for municipal securities may not be very liquid, which could limit the Fund’s ability to sell securities it is holding. Declines in real estate prices and general business activity may reduce the tax revenues of state and local governments. Municipal issuers have on occasion defaulted on obligations, been downgraded, or commenced insolvency proceedings. Financial difficulties of municipal issuers may continue or get worse.

 

Because many municipal securities are issued to finance similar types of projects, especially those related to education, health care, housing, transportation and utilities, conditions in those sectors can affect the overall municipal securities market. Interest on municipal securities paid out of current or anticipated revenues from a specific project or specific asset (so-called “private activity bonds”) may be adversely impacted by declines in revenue from the project or asset. Declines in general business activity could affect the economic viability of facilities that are the sole source of revenue to support private activity bonds.

Multi-Style Management Risk   Because portions of a Fund’s assets are managed by different portfolio managers using different styles/strategies, a Fund could experience overlapping security transactions. Certain portfolio managers may be purchasing securities at the same time that other portfolio managers may be selling those same securities, which may lead to higher transaction expenses compared to a Fund using a single investment management style. Litman Gregory’s and the sub-advisors’ judgments about the attractiveness, value and potential appreciation of a particular asset class or individual security in which a Fund invests may prove to be incorrect, and there is no guarantee that Litman Gregory’s judgment will produce the desired results. In addition, a Fund may allocate its assets so as to under- or over-emphasize certain strategies or investments under market conditions that are not optimal, in which case the Fund’s value may be adversely affected.
Portfolio Turnover Risk   High portfolio turnover involves correspondingly greater expenses, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities, which may result in adverse tax consequences to a Fund’s shareholders. Certain of a Fund’s investment strategies may result in it having higher portfolio turnover rates. Higher portfolio turnover may cause a Fund to experience increased transaction costs, dealer markups, brokerage expenses and other acquisition costs, and may cause shareholders to incur increased taxes on their investment in a Fund as compared to shareholders in investment companies that hold investments for longer periods. The portfolio managers do not consider portfolio turnover rate a limiting factor in making investment decisions on behalf of a Fund consistent with its investment objective and policies. Variations in portfolio turnover rates may be due to fluctuations in shareholder purchase, exchange and redemption transactions, market conditions or changes in the portfolio manager’s outlook.

 

 
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Description of Principal Investment Risks — (Continued)

 

Short Sale Risk   Each Fund may sell securities short. A Fund may suffer a loss if it sells a security short and the value of the security does not go down as expected. The risk of loss is theoretically unlimited if the value of the security sold short continues to increase. Short sales expose the Fund to the risk that it may be compelled to buy the security sold short (also known as “covering” the short position) at a time when the security has appreciated in value, thus resulting in a loss to the Fund. The Fund’s investment performance may also suffer if it is required to close out a short position earlier than it had intended. In addition, the Fund may be subject to expenses related to short sales that are not typically associated with investing in securities directly, such as costs of borrowing. These expenses may negatively impact the performance of the Fund. To meet current margin requirements, a Fund is required to deposit with the broker additional cash or securities so that the total deposit with the broker is maintained daily at 150% of the current market value of the securities sold short.
Smaller Companies Risk   Securities of companies with smaller market capitalizations are generally more volatile and less liquid than the securities of large-capitalization companies. Small- and mid-sized companies may be more reliant on a few products, services or key personnel, which can make it riskier than investing in larger companies with more diverse product lines and structured management. Smaller companies may have no or relatively short operating histories or may be newer public companies. Some of these companies have aggressive capital structures, including high debt levels, or are involved in rapidly growing or changing industries and/or new technologies, which pose additional risks.
Special Situations Risk   Investments in special situations (undervalued equities, merger arbitrage situations, distressed companies, etc.) may involve greater risks when compared to other investments a Fund may make due to a variety of factors. For example, mergers, acquisitions, reorganizations, liquidations or recapitalizations may fail or not be completed on the terms originally contemplated, and expected developments may not occur in a timely manner, if at all.
Technology Sector Risk   Certain of the Funds, through the implementation of their respective investment strategies, may from time to time invest a significant portion of their assets in the technology sector. The technology sector is a very volatile segment of the market. The nature of technology is that it is rapidly changing. Therefore, products or services that may initially look promising may subsequently fail or become obsolete. In addition, many technology companies are younger, smaller and unseasoned companies which may not have established products, an experienced management team, or earnings history.
Unfavorable Tax Treatment Risk   Various types of investments in which the Alternative Strategies Fund and the High Income Alternatives Fund may invest, including derivatives, mortgage related securities, and REITs, may cause the Fund’s returns to be in the form of net investment income or short-term capital gains, some of which may be distributed to shareholders and taxed at ordinary income tax rates. Therefore, shareholders may have a greater need to pay regular taxes than compared to other investment strategies that hold investments longer. Due to this investment strategy, it may be preferable for certain shareholders to invest in the Fund through pre-tax or tax-deferred accounts as compared to investment through currently taxable accounts. Potential shareholders are encouraged to consult their tax advisors in this regard.
Value Stock Risk   Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the opinion of the manager, undervalued. The value of a security believed by the manager to be undervalued may never reach what is believed to be its full (intrinsic) value, or such security’s value may decrease.

 

 
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Fund Management and Investment Styles

 

The Advisor

 

The Funds are managed by Litman Gregory Fund Advisors, LLC (“Litman Gregory”), 1676 N. California Blvd., Suite 500, Walnut Creek, California 94596. Litman Gregory has overall responsibility for assets under management, recommends the selection of managers as sub-advisors of the Funds (each, a “manager” or “sub-advisor”) to the Board of Trustees (the “Board”) of the Litman Gregory Funds Trust (the “Trust”), evaluates the performance of the managers, monitors changes at the managers’ organizations that may impact their abilities to deliver superior future performance, determines when to rebalance the managers’ assets and the amount of cash equivalents (if any) that may be held in addition to cash in each of the managers’ sub-portfolios, coordinates with the managers with respect to diversification and tax issues and oversees the operational aspects of the Funds.

Jeremy DeGroot is Chairman of the Board of Trustees and President of the Trust, the Portfolio Manager of the Alternative Strategies Fund, and a Co-Portfolio Manager of the Equity Fund, High Income Alternatives Fund, International Fund, and Smaller Companies Fund. He is also a Principal and Member of Litman Gregory Asset Management, LLC (“LGAM”), a research-oriented money management firm that wholly owns and provides research to Litman Gregory, and serves as its Chief Investment Officer. Prior to joining LGAM in 1999, DeGroot was a Manager in KPMG Peat Marwick’s Economic Consulting Services practice in 1998. From 1989 to 1997, he was a Senior Economist with the Law & Economics Consulting Group, Inc., providing economics and financial analysis to Fortune 500 clients. He has a Master’s degree in Economics from the University of California Berkeley.

Jack Chee is an Assistant Secretary of the Trust and the Co-Portfolio Manager of the Equity Fund, the Smaller Companies Fund and the High Income Alternatives Fund. He is also a Principal and Member of LGAM and serves as a Senior Research Analyst at the Advisor. Prior to joining LGAM in 2000, Chee was a Mutual Fund Analyst with Value Line Mutual Fund Survey. He has a BS degree in Mechanical Engineering from Drexel University.

Rajat Jain is an Assistant Secretary of the Trust and the Co-Portfolio Manager of the Equity Fund and the International Fund. He is also a Principal and Member of LGAM and serves as a Senior Research Analyst at the Advisor. Prior to joining LGAM in 2003, Jain was a Vice President with Montgomery Asset Management and was an Associate Director with BARRA Rogers Casey. He has a BS degree in Physics from St. Stephens College and an MBA degree from University of South Carolina.

Jason Steuerwalt is an Assistant Secretary of the Trust and a Senior Research Analyst at the Advisor and the Co-Portfolio Manager of the Alternative Strategies Fund and the High Income Alternatives Fund. He is also a Principal and Member of LGAM. Prior to joining LGAM in 2013, Steuerwalt was a Vice President with Hall Capital Partners, focusing on absolute return hedge funds and opportunistic/private credit strategies.

DeGroot, Chee, Jain and Steuerwalt are the individuals at Litman Gregory primarily responsible for monitoring the day-to-day activities of the portfolio managers at the sub-advisors and for overseeing all aspects of Litman Gregory’s responsibilities with respect to the Funds.

Asset Level Limitations

 

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

Sub-Advisor Evaluation and Selection

 

Litman Gregory is responsible for hiring and removing sub-advisors. Before hiring a sub-advisor, Litman Gregory performs extensive due diligence. This includes quantitative and qualitative analysis, including (but not limited to) an evaluation of: the investment process, the consistency of its execution and discipline; individual holdings; strategies employed, past mistakes, risk controls, team depth and quality; operations and compliance; and business focus and vision. Litman Gregory’s evaluation process includes review of literature and documents, quantitative historical performance evaluation, extensive discussions with members of the investment team and firm management and background checks through industry contacts. Each of the sub-advisor’s management fee is also an important consideration. It is Litman Gregory’s objective to hire sub-advisors who it believes are skilled and can deliver strong market cycle returns when taking risk into account. Litman Gregory defines a “market cycle” as the movement from a period of increasing prices and strong performance, or bull market, through a period of weak performance and falling prices, or bear market, and back again to new strength. A full market cycle is usually three to five years, but can vary considerably. The top of a cycle is called a peak and the bottom a trough. Litman Gregory generally assesses the long-term growth of an investment by considering the increase in the value of the investment over a period greater than five years. For the Alternative Strategies Fund and the High Income Alternatives Fund, Litman Gregory will favor managers who it believes focus on markets or investment strategies that are inherently low risk

 

 

 
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Fund Management and Investment Styles — (Continued)

 

on an absolute basis or relative to their return potential; and managers who have a clearly risk-sensitive mindset in executing their portfolio strategy. Generally, Litman Gregory prefers managers who it believes will be able to add value through security selection and from tactical allocations to securities, markets or strategies at times when it believes such allocations are compelling from a risk/return perspective. Litman Gregory is responsible for the general overall supervision of the sub-advisors along with allocating the portfolio’s assets for their investment decisions as well as rebalancing the portfolio as necessary from time to time.

Multi-Manager Issues

 

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

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

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

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

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

Temporary Defensive Positions: Under unusual market conditions or for temporary defensive purposes, a substantial part of each Fund’s total assets may be invested in cash or short-term, high-quality debt securities. To the extent that a Fund assumes a temporary defensive position, it may not achieve its investment objective during that time. Defensive positions may be initiated by the individual portfolio managers or by Litman Gregory.

Multi-Manager Exemptive Order: The Trust and Litman Gregory have obtained an exemptive order from the SEC that permits Litman Gregory, subject to certain conditions, to hire, terminate and replace managers with the approval of the Board only and without shareholder approval. Within 60 days of the hiring of any new manager or the implementation of any proposed material change in a sub-advisory agreement with an existing manager, shareholders will be furnished information about the new manager or sub-advisory agreement that would be included in a proxy statement. The order also permits a Fund to disclose sub-advisory fees only in the aggregate in its registration statement. Pursuant to the order, shareholder approval is required before Litman Gregory enters into any sub-advisory agreement with a manager that is affiliated with the Funds or Litman Gregory.

Portfolio Holdings Information

 

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

Advisory Fees

 

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

 

 

 
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Fund  

Advisory Fee

(as a percentage of net assets)

Equity Fund

  First $750 million        1.10%
    Over $750 million        1.00%

International Fund

  First $1 billion        1.10%
    Over $1 billion        1.00%

Smaller Companies Fund

  First $450 million        1.14%
    Over $450 million        1.04%

Alternative Strategies Fund

  Up to $2 billion        1.40%
  Between $2 and $3 billion        1.30%
  Between $3 and $4 billion        1.25%
    Over $4 billion        1.20%

High Income Alternatives Fund

  Up to $1 billion        0.95%
  Between $1 and $2 billion        0.925%
  Between $2 and $3 billion        0.90%
  Between $3 and $4 billion        0.875%
    Over $4 billion        0.85%

Litman Gregory, not the Funds, is responsible for payment of the sub-advisory fees to the managers, each of whom is compensated monthly on the basis of the assets committed to its individual discretion. As of March 31, 2020, based on the assets of each Fund and the asset allocation targets, Litman Gregory pays fees to the sub-advisors as follows, which may change in the future because assets and allocations will fluctuate:

 

Fund    Aggregate Annual Fee Rates
Litman Gregory Pays to  Sub-Advisors
 

Equity Fund

     0.589%  

International Fund

     0.486%  

Smaller Companies Fund

     0.464%  

Alternative Strategies Fund

     0.623%  

High Income Alternatives Fund

     0.405%  

Through April 30, 2021, pursuant to a Restated Contractual Advisory Fee Waiver Agreement, most recently amended effective as of August 28, 2018 (the “Fee Waiver Agreement”), Litman Gregory has agreed to waive a portion of its advisory fees for each Fund as follows: for the Equity Fund, Litman Gregory has agreed to waive a portion of its advisory fees so that after paying all of the sub-advisory fees, the net advisory fee as a percentage of the Equity Fund’s daily net assets retained by Litman Gregory is 0.40%; for the International Fund, Litman Gregory has agreed to waive a portion of its advisory fees so that after paying all of the sub-advisory fees, the net advisory fee as a percentage of the International Fund’s daily net assets retained by Litman Gregory is 0.40% on the first $1 billion of the International Fund’s assets and 0.30% for assets over $1 billion; for the Smaller Companies Fund, Litman Gregory has agreed to waive a portion of its advisory

fees so that after paying all of the sub-advisory fees, the net advisory fee as a percentage of the Smaller Companies Fund’s daily net assets retained by Litman Gregory is 0.26%; for the Alternative Strategies Fund, Litman Gregory has agreed to waive a portion of its advisory fees so that after paying all of the sub-advisory fees, the net advisory fee as a percentage of the Alternative Strategies Fund’s daily net assets retained by Litman Gregory is 0.50% on the first $2 billion of the Alternative Strategies Fund’s assets, 0.40% of the next $1 billion of the Alternative Strategies Fund’s assets, 0.35% of the next $1 billion of the Alternative Strategies Fund’s assets and 0.30% on assets over $4 billion; and for the High Income Alternatives Fund, Litman Gregory has agreed to waive a portion of its advisory fees so that after paying all of the sub-advisory fees, the net advisory fee as a percentage of the High Income Alternatives Fund’s daily net assets retained by Litman Gregory is 0.40% on the first $1 billion of assets, 0.375% on the next $1 billion of assets, 0.35% on the next $1 billion of assets, 0.325% on the next $1 billion of assets and 0.30% on assets in excess of $4 billion. This agreement may be terminated at any time by the Board of Trustees of the Litman Gregory Funds Trust (the “Trust”) upon sixty (60) days’ written notice to Litman Gregory, and Litman Gregory may decline to renew this agreement at its expiration on April 30, 2021 by written notice to the Trust at least thirty (30) days before the agreement’s annual expiration date. Litman Gregory has waived its right to receive reimbursement of the portion of its advisory fees waived pursuant to the Fee Waiver Agreement.

Pursuant to an Operating Expenses Limitation Agreement (the “Expenses Limitation Agreement”), Litman Gregory has separately agreed to limit the operating expenses of the High Income Alternatives Fund, through April 30, 2021 (unless otherwise sooner terminated), to an annual rate of 0.98% for the Institutional Class and 1.23% for the Investor Class. Such annual rates are expressed as a percentage of the daily net assets of the Fund attributable to the applicable class. Litman Gregory may recoup reduced fees and expenses only within three years, provided that the recoupment does not cause the High Income Alternatives Fund’s annual expense ratio to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. Operating expenses referred to in this paragraph include management fees payable to Litman Gregory but exclude any taxes, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, borrowing costs (including commitment fees), dividend expenses, acquired fund fees and expenses and extraordinary expenses such as, but not limited to, litigation costs.

 

 

 
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Fund Management and Investment Styles — (Continued)

 

In 2019, the advisory fees paid and net fees retained by Litman Gregory with respect to the Funds, after fee waivers, expense reimbursements and breakpoint adjustments (collectively, “Fee Adjustments”), were as follows:

 

Fund   2019 Advisory
Fees Paid by the
Fund after Fee
Adjustments
    2019 Aggregate
Sub-Advisory
Fees Paid by
Litman Gregory
to Sub-
Advisors
    2019 Net Advisory
Fees Retained by
Litman Gregory
after Fee Adjustments
and Payments to
Sub-Advisors
 

Equity Fund

    0.9919%       0.5922%       0.3997%  

International Fund

    0.8554%       0.4558%       0.3996%  

Smaller Companies Fund

    0.7233%       0.4634%       0.2599%  

Alternative Strategies Fund

    1.2757%       0.7757%       0.5000%  

High Income Alternatives Fund

    0.5363%       0.3453%       0.1910%  

A discussion regarding the Board’s basis for approving the Funds’ investment advisory agreements with Litman Gregory and each sub-advisor is included in the Funds’ Annual Report to Shareholders for the fiscal year ended December 31, 2019.

 

 
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Litman Gregory Masters Equity Fund – Sub-Advisors

 

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

Litman Gregory’s strategy is to allocate the portfolio’s assets among the managers who, based on Litman Gregory’s research, are judged to be among the best in their respective style groups. There is no minimum or maximum allocation of the Fund’s portfolio assets to each portfolio segment. The portfolio managers manage their individual portfolio segments by building a focused portfolio representing their highest-confidence stocks. Under normal market conditions, the Equity Fund invests at least 80% of the Equity Fund’s net assets, plus the amount of any borrowings for investment purposes, in equity securities. This investment policy may be changed by the Board

without shareholder approval, but shareholders would be given at least 60 days’ notice if any change occurs. Under normal conditions, each portfolio segment typically includes a minimum of 5 and a maximum of 15 securities. A portfolio segment may occasionally hold more than 15 securities. Though the total number of securities the Equity Fund may hold at any point in time will vary, it is generally expected that the Equity Fund will hold between 60 and 100 securities. The target allocation of assets to the portfolio segments was designed with the specific objective of maintaining significant exposure to stocks of large- and mid-sized companies with a greater emphasis on U.S. domiciled companies.

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

 

 

PORTFOLIO MANAGER(S)/SUB- ADVISOR   TARGET
ASSET
ALLOCATION
   MARKET CAPITALIZATION OF
COMPANIES IN PORTFOLIO
   STOCK-PICKING STYLE

Christopher C. Davis

Danton Goei

Davis Selected Advisers, L.P.

  15%    Mostly large companies    Blend

Patrick J. English, CFA

Jonathan T. Bloom, CFA

Fiduciary Management, Inc.

  15%    All sizes    Blend

Clyde S. McGregor, CFA

Harris Associates L.P.

  15%    All sizes, but mostly large- and mid-sized companies    Value

William C. Nygren, CFA

Harris Associates L.P.

  15%    Mostly large and mid-sized companies    Value

Scott Moore, CFA

Chaud Baumler, CFA

Nuance Investments, LLC

  10%    All sizes    Value

Frank M. Sands, CFA

A. Michael Sramek, CFA

Sands Capital Management, LLC

  17%    All sizes, but mostly large- and mid-size companies    Growth

Richard T. Weiss, CFA

Wells Capital Management, Inc.

  13%    All sizes, but mostly small- and mid-sized companies    Blend

 

Litman Gregory Masters Equity Fund Portfolio Managers

 

Christopher C. Davis

Danton Goei

Davis Selected Advisers, L.P.

2949 East Elvira Road, Suite 101

Tucson, AZ 85756

Christopher C. Davis and Danton Goei are the portfolio managers for the segment of the Equity Fund’s assets managed by Davis Selected Advisers, L.P. (“Davis Advisors”). Davis has served as a Portfolio Manager of Davis New York Venture Fund since October 1995, and also manages other equity funds advised by Davis Advisors. Davis served as

Assistant Portfolio Manager and Research Analyst working with Shelby M.C. Davis from September 1989 through September 1995. Goei has served as a Portfolio Manager of Davis New York Venture Fund since January 2014 and also manages other equity funds advised by Davis Advisors. Goei started with Davis Advisors as a Research Analyst in 1998. Davis Advisors has been a sub-advisor to the Equity Fund since 1996.

Approximately 15% of the Equity Fund’s assets are managed by Davis Advisors. Davis Advisors manages equity funds using the “Davis Investment Discipline.” Davis Advisors conducts extensive research to try to identify businesses that possess characteristics that Davis Advisors believes foster the creation of

 

 

 
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long-term value, such as proven management, a durable franchise and business model, and sustainable competitive advantages. Davis Advisors aims to invest in such businesses when they are trading at discounts to their intrinsic worth. Davis Advisors emphasizes individual stock selection and believes that the ability to evaluate management is critical. Davis Advisors routinely visits managers at their places of business in order to gain insight into the relative value of different businesses. Such research, however rigorous, involves predictions and forecasts that are inherently uncertain.

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

Competitive Advantages

 

  Non-Obsolescent products

 

  Dominant or growing market share

 

  Global presence and powerful brands

First-Class Management

 

  Proven track record

 

  Significant alignment of interests in business

 

  Intelligent allocation of capital

Financial Strength

 

  Strong balance sheet

 

  Low cost structure

 

  High returns on invested capital

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

 

 

Patrick J. English, CFA

Jonathan T. Bloom, CFA

Fiduciary Management, Inc.

100 E. Wisconsin Avenue

Milwaukee, WI 53202

Patrick J. English and Jonathan T. Bloom are co-portfolio managers for the segment of the Equity Fund’s assets managed by Fiduciary Management, Inc. (“Fiduciary” or “FMI”). English joined Fiduciary in 1986. He is the Chairman, Chief Executive Officer and Chief Investment Officer and a partner of Fiduciary and is a member of the Portfolio Management

Committee. English and Bloom serve as the co-heads of equity research, and they work with Fiduciary’s analysts in vetting new research ideas. Prior to joining Fiduciary, English was a research analyst with Dodge & Cox from 1985 to 1986. Bloom joined Fiduciary in 2010. He is the Director of Research and a partner of Fiduciary and is a member of Fiduciary’s Portfolio Management Committee. Prior to joining Fiduciary, Bloom was in the Applied Value Investing Program at Columbia Business School from 2008 to 2009. Fiduciary has been a sub-advisor to the Equity Fund since 2013.

Approximately 15% of the Equity Fund’s assets are managed by Fiduciary. Fiduciary seeks to buy companies that have durable franchises (i.e., franchises that can survive difficult times) and whose common stock is trading below FMI’s estimated intrinsic value of the company. FMI’s investment process has always focused on evaluating three attributes of a company: the quality of the business model, the valuation, and the quality of management.

Assessing the quality of a business is a primary research focus. Fiduciary defines a good business model as one that has a defensible niche and that can survive the ups and downs of a business cycle. In a defensible niche, FMI looks for companies with a high degree of recurring revenue, a well-established customer base, and/or sustainable competitive advantage. Typically, businesses that meet these characteristics are well-established with modest growth profiles. The FMI investment team will review historical SEC filings and shareholder reports to understand a company’s business model, and, where necessary, adjust a company’s investment capital base for illegitimate write-offs (due to bad acquisitions, for example) to get a reliable picture of a company’s historical return on invested capital (“ROIC”). Then the team will conduct a deeper analysis of the drivers of a company’s ROIC such as revenue growth, margins, capital expenditure etc., going back at least 20 quarters. In addition, they will meet with and/or have conference calls with management of the company, as well as its suppliers, competitors, and customers.

FMI’s work on a company’s business model and quality helps identify which valuation metrics (such as Price/Earnings (“P/E”), Enterprise Value (EV) to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), Price/Sales (P/S), etc.) should be utilized for estimating a company’s intrinsic value. This work is also valuable in assessing whether or not the business model has changed significantly over time, making historical comparisons irrelevant. If that is the case, FMI will analyze the trading of a stock based on various valuation metrics over a 10- to 20-year time period, relative to the broad market and its peers, across different economic cycles, and with different underlying company fundamentals such as margins, top-line growth, competitive positioning, capital intensity of the business, etc.

This historical valuation analysis may be supplemented by other valuation techniques, such as sum-of-the-parts analysis (i.e., valuing different pieces of a business separately) and valuation based on private- and public-market transaction data (for example, valuation multiples used in an acquisition), which

 

 

 
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may assume greater importance when historical comparisons are less relevant, such as where business models have changed or management strategy has shifted. FMI is not looking for a specific discount to its estimate of intrinsic value, but if its valuation analysis suggests that a stock is undervalued, in absolute terms and/or in relation to its future profitability (ROIC in this case), and downside risks are limited, then the stock is a strong candidate for purchase. In general, FMI does not aim to be precise (just approximately correct) with its valuation analysis and will come up with price-target ranges over three to five years. These price targets are generally within a narrow range, and they guide FMI on when to trim or sell a stock.

FMI also focuses on areas that company management can control. Therefore, FMI will look at the backgrounds of management teams. This may involve: assessing their experience and track record; reviewing proxy statements to assess whether management compensation and incentives are in line with shareholder interests; evaluating past management decisions to assess whether or not those decisions enhanced shareholder value; and discussing with management their strategy and execution plan to assess the likelihood of meeting their stated goals and objectives.

 

 

Clyde S. McGregor, CFA

Harris Associates L.P.

111 S. Wacker Drive

Suite 4600

Chicago, IL 60606

Clyde S. McGregor is the portfolio manager for one of the segments of the Equity Fund’s assets managed by Harris Associates L.P. (“Harris”). McGregor is a Vice President and portfolio manager at Harris and has managed the Oakmark Equity and Income Fund since its inception in 1995 and the Oakmark Global Fund since 2003. He earned a B.A. degree from Oberlin College and an M.B.A. from the University of Wisconsin-Madison. McGregor joined Harris in 1981 as an analyst with broad industry coverage across the market capitalization spectrum. He has been in the investment business since 1983. McGregor became a portfolio manager at Harris in 1986. Harris has been a sub-advisor to the Equity Fund since 2008.

Approximately 15% of the Equity Fund’s assets are managed by McGregor. McGregor and Harris’ portfolio management team employ Harris’ value investment philosophy and process. This value investment philosophy is based upon the belief that, over time, a company’s stock price converges with Harris’ estimate of the company’s intrinsic value. By “intrinsic value,” Harris means its estimate of the price a knowledgeable buyer would pay to acquire the entire business. In making its investment decisions, Harris uses a “bottom-up” approach focused on individual companies, rather than focusing on specific economic factors or specific industries.

The chief consideration in the selection of stocks is the size of the discount of a company’s current stock price compared to Harris’ estimate of the company’s intrinsic value. In addition,

Harris looks for companies with the following characteristics, although not all companies will have all of these attributes: free cash flows and intelligent investment of excess cash, earnings that are growing and are reasonably predictable, and a high level of management ownership in the company. Once Harris identifies a stock that it believes is selling at a significant discount compared to Harris’ estimate of the company’s intrinsic value and that the company may have one or more of the additional qualities mentioned above, Harris may consider buying that stock for a strategy. Harris usually sells a stock when the price approaches its estimated intrinsic value. This means Harris sets “buy” and “sell” targets for each stock held by a portfolio. Harris monitors each holding and adjusts those price targets as warranted to reflect changes in a company’s fundamentals. Harris attempts to manage some of the risks of investing in common stocks by purchasing stocks whose prices it considers low relative to Harris’ estimate of the company’s intrinsic value. In addition, Harris seeks companies with solid finances and proven records and continuously monitors each portfolio company.

 

 

William C. Nygren, CFA

Harris Associates L.P.

111 S. Wacker Drive

Suite 4600

Chicago, IL 60606

William C. Nygren is the portfolio manager for one of the segments of the Equity Fund’s assets managed by Harris. Nygren is a Vice President, Chief Investment Officer – U.S. Equities, portfolio manager and U.S. investment analyst at Harris and has managed the Oakmark Select Fund since its inception in 1996, the Oakmark Fund since April 2000 and the Oakmark Global Select Fund since its inception in 2006. He earned a B.S. degree in Accounting from the University of Minnesota and an M.S. degree in Finance from the University of Wisconsin-Madison. He has been in the investment business since 1981. Nygren joined Harris in 1983 as an Investment Analyst and later served as Harris’ Director of Research from 1990 through 1998. Harris has been a sub-advisor to the Equity Fund since 2008.

Approximately 15% of the Equity Fund’s assets are managed by Nygren. Nygren and Harris’ portfolio management team employ Harris’ value investment philosophy and process. This value investment philosophy is based upon the belief that, over time, a company’s stock price converges with Harris’ estimate of the company’s intrinsic value. By “intrinsic value,” Harris means its estimate of the price a knowledgeable buyer would pay to acquire the entire business. In making its investment decisions, Harris uses a “bottom-up” approach focused on individual companies, rather than focusing on specific economic factors or specific industries.

The chief consideration in the selection of stocks is the size of the discount of a company’s current stock price compared to Harris’ estimate of the company’s intrinsic value. In addition, Harris looks for companies with the following characteristics, although not all companies will have all of these attributes: free

 

 

 
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cash flows and intelligent investment of excess cash, earnings that are growing and are reasonably predictable, and a high level of management ownership in the company. Once Harris identifies a stock that it believes is selling at a significant discount compared to Harris’ estimate of the company’s intrinsic value and that the company may have one or more of the additional qualities mentioned above, Harris may consider buying that stock for a strategy. Harris usually sells a stock when the price approaches its estimated intrinsic value. This means Harris sets “buy” and “sell” targets for each stock held by a portfolio. Harris monitors each holding and adjusts those price targets as warranted to reflect changes in a company’s fundamentals. Harris attempts to manage some of the risks of investing in common stocks by purchasing stocks whose prices it considers low relative to Harris’ estimate of the company’s intrinsic value. In addition, Harris seeks companies with solid finances and proven records and continuously monitors each portfolio company.

 

 

Scott Moore, CFA

Chad Baumler, CFA

Nuance Investments, LLC

4900 Main Street, Suite 220

Kansas City, MO 64112

Scott Moore is the lead portfolio manager for the segment of the Equity Fund’s assets managed by Nuance Investments, LLC (“Nuance”). Moore is the President and Co-Chief Investment officer of Nuance. He is also the Lead Portfolio Manager for the Nuance Concentrated Value and Mid Cap Value products within Nuance, and co-manager of the Nuance Concentrated Value Long-Short Fund. Moore has more than 29 years of value investment experience.

For the decade before co-founding Nuance, Moore managed more than $10 billion in institutional, intermediary and mutual fund assets for American Century Investments (“ACI”). Prior to becoming a Portfolio Manager at ACI, he spent three years as an Investment Analyst at ACI, specializing in the telecommunications, utility and industrial sectors. He also worked as a Fixed Income Investment Analyst at ACI and as an Investment Analyst at Boatmen’s Trust Company in St. Louis, Missouri.

Moore holds a BS degree in finance from Southern Illinois University, and an MBA with an emphasis in finance from the University of Missouri.

Chad Baumler, CFA is a Vice President and Co-Chief Investment Officer and has served as Portfolio Manager at Nuance Investments since June 2014. He is a co-manager for the Nuance Concentrated Value and Mid Cap Value products within Nuance, and the Lead Manager of the Nuance Concentrated Value Long-Short Fund. He has over 13 years of investment analyst experience and 8 years of portfolio management experience using a classic value approach.

Before joining Nuance, Baumler served as Portfolio Manager for American Century Investments, where he co-managed American Century Value fund and American Century Market

Neutral Value fund. Prior to becoming a Portfolio Manager at ACI, he spent six years as an Investment Analyst specializing in the energy and finance sectors. Baumler also has experience working in the commercial real estate industry at CB Richard Ellis, Inc. in Kansas City, Missouri.

Baumler graduated from the University of Northern Iowa with a BA in finance. He has an MBA with a concentration in finance from the University of Texas, McCombs School of Business.

Approximately 10% of the Equity Fund’s assets are managed by Nuance. Nuance’s investment philosophy was formed on the belief that the ability to outperform the broad stock market is predicated on a consistent and disciplined value investing approach. The Nuance investment team’s sole focus is generating investment returns for clients by diligently reviewing one company at a time on its own investment merits. Through long-term study of each company and thorough analysis of financial statements, management strategy and competitive position, the Nuance investment team becomes familiar with each company bought and sold in the portfolios over time. This familiarity allows for consistent and prompt execution with the sole focus being the generation of excess returns over the long-term. Further, Nuance is intensely focused on ensuring that it manages the appropriate amount of assets to allow future performance the opportunity to mirror that of the historical performance.

The Nuance investment team employs a consistent investment process when narrowing its selections for investment. The team initially goes through a quantitative screening process designed to identify potential leading business franchises by grouping all domestic and developed country companies into 68 sub-industries and reviewing returns on capital, balance sheet strength and capital spending habits. Leading business franchises with distinct traits are identified through this process, which allows the Nuance investment team to narrow the universe to those companies that statistically appear to fit Nuance’s criteria. Nuance is ultimately looking for best-in-class businesses with high and sustainable returns on capital, above-average financial strength and reasonable capital spending habits.

A major focus of Nuance’s fundamental analysis is on identifying competitive shifts, or transitions, within an industry that create significant threats to leading businesses. Nuance accepts subtle, transitory market-share shifts that occur between the number one and number two industry players, but Nuance does not invest in companies or industries that are undergoing secular competitive transitions, because Nuance is unwilling to accept the level of uncertainty that results from such transitions. The Nuance investment team is intentional about keeping an eye out for threats to its universe of leading businesses, including technology advancements that can lead to product obsolescence or to secular shifts in how business is conducted. Threats can also include secular shifts in the consumer mindset. Nuance’s focus on competitive position typically leads to minimal, if any, exposure to industries if Nuance does not believe companies in such industries can achieve long-term competitive advantages.

 

 

 
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With respect to valuation, Nuance believes good companies are periodically undervalued in the marketplace for transitory reasons. These opportunities are created by investors’ short-term focus on a period of under-earning that is not unusual in the context of the industry’s typical cycles or the specific company’s approach to the competitive landscape. Because these companies are out of favor, the periods of meaningful undervaluation often do not last much longer than a few years, providing Nuance with the opportunity to capitalize on the discount relatively quickly. The goal of this valuation work is to establish estimates of a company’s fair value and trough value, resulting in fair value and downside price targets used for portfolio construction. At the heart of Nuance’s valuation work is a focus on the normalized earnings power of a business based on the company’s current level of tangible assets.

Nuance believes it is important to know who is running the business. The focus is on whether management is going to stick with the core business and how it plans to execute over the long-term. These broader strategy-type discussions with management teams include capital-allocation plans, research and development budgets, thoughts on normal earnings and peaks and troughs (usually discussed in the context of margins) to help evaluate the sustainability of leading businesses. Nuance believes that management going outside of its core business speaks volumes about its sustainability and triggers a review of the business and an evaluation of whether the company continues to qualify as an investment candidate. The focus is on the dynamics of the business/industry, and the certainty around the competitive position of that business.

Nuance sells investments when the stock has surpassed the team’s estimate of intrinsic value, when a more attractive investment opportunity becomes available, when the team identifies a legitimate threat to the sustainability of a leading business, or when the team believes they made a misjudgment in their original analysis.

 

 

Frank M. Sands, CFA

A. Michael Sramek, CFA

Sands Capital Management, LLC

1000 Wilson Boulevard

Suite 3000

Arlington, VA 22209

Frank M. Sands is the lead portfolio manager, and A. Michael Sramek is the portfolio manager, for the segment of the Equity Fund’s assets managed by Sands Capital Management, LLC (“Sands Capital”). Sands is the Chief Investment Officer and Chief Executive Officer at Sands Capital. Prior to joining Sands Capital, he was a portfolio manager and research analyst for Fayez, Sarofim and Company. Sramek is a Senior Portfolio Manager, Research Analyst and Managing Director at Sands Capital. He began his investment career as a research analyst at Mastrapasqua & Associates in 2000 prior to joining Sands Capital in 2001. Sands and Sramek are supported by a larger team of research analysts and associates. Sands Capital is independent and 100% staff owned. Sands Capital has been a sub-advisor to the Equity Fund since 2008.

Approximately 17% of the Equity Fund’s assets are managed by Sands Capital. The Sands Capital team believes that over time stock price appreciation follows earnings growth. The investment objective is to identify companies that can sustain above-average earnings growth relative to the broader market, typically over the next three to five years. The team believes great investment ideas are rare and runs a concentrated portfolio of high-quality, seasoned, growing businesses across an array of attractive and growing business spaces. Independent research – bottom-up and company focused – is the cornerstone of the team’s investment process. All research analyses and conclusions are internally generated using a variety of fundamental techniques and external data sources.

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

 

(1)

Sustainable above-average earnings growth.

 

(2)

Leadership position in a promising business space.

 

(3)

Significant competitive advantage/unique business franchise.

 

(4)

Clear mission and value-added focus.

 

(5)

Financial strength.

 

(6)

Rational valuation relative to market and business prospects.

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

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

 

 

 
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Richard T. Weiss, CFA

Wells Capital Management, Inc.

10 S. Wacker Drive

Chicago, IL 60606

Richard T. Weiss is the portfolio manager for the segment of the Equity Fund’s assets managed by Wells Capital Management, Inc. (“WellsCap”). Weiss has been in the investment business for over 30 years and is currently Managing Director and Senior Portfolio Manager of the Select Equity portfolio for WellsCap. Previously, he had been the manager or co-manager of the Wells Fargo Advantage Common Stock Fund and the Wells Fargo Advantage Opportunity Fund (previously known as the Strong Common Stock Fund and Strong Opportunity Fund) from March 1991 until March 2008. Prior to this, Weiss was a partner/portfolio manager at Stein Roe & Farnham in Chicago where he began his career, starting as a research analyst, in 1975. Weiss continues an informal relationship with the Wells Capital Management Core Equity team, which manages the Wells Fargo Advantage Common Stock Fund and Wells Fargo Advantage Opportunity Fund. WellsCap has been a sub-advisor to the Equity Fund since the Equity Fund’s inception in 1996.

Approximately 13% of the Equity Fund’s assets are managed by Weiss. He invests in stocks of small- and mid-sized companies that are undervalued either because they are not broadly recognized, are in transition, or are out of favor based on short-term factors. Weiss also has the flexibility to invest in the stocks of larger companies if in his opinion they offer the potential for better returns. In seeking attractively valued companies, Weiss focuses on companies with above-average growth potential that also exhibit some or all of the following:

 

  Low institutional investor ownership and low analyst coverage

 

  High-quality management

 

  Sustainable competitive advantage

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

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

 

 

 
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Litman Gregory Masters International Fund – Sub-Advisors

 

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

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

Litman Gregory’s strategy is to allocate the portfolio’s assets among the managers who, based on Litman Gregory’s research, are judged to be among the best relative to their

respective peer groups. There is no minimum or maximum allocation of the Fund’s portfolio assets to each sub-advisor. With respect to managers for the International Fund, Litman Gregory has focused exclusively on stock pickers who emphasize bottom-up stock-picking rather than macro-driven, top-down country picking.

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

 

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

 

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

 

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

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

The sub-advisors manage their individual portfolio segments by building a focused portfolio representing their highest-confidence stocks. Under normal conditions, each manager’s portfolio segment typically includes a minimum of 8 and a maximum of 15 securities. A manager may occasionally hold more than 15 securities. Though the total number of securities the International Fund may hold at any point in time will vary, it is generally expected that the International Fund will hold between 32 and 60 securities.

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

 

 

PORTFOLIO MANAGER(S)/SUB- ADVISOR   TARGET
ASSET
ALLOCATION
   MARKET CAPITALIZATION OF
COMPANIES IN PORTFOLIO
   STOCK-PICKING STYLE

David E. Marcus

Evermore Global Advisors, LLC

  25%    All sizes    Value

David G. Herro, CFA

Harris Associates L.P.

  25%    All sizes, but mostly large- and mid-sized companies    Value

Mark Little

Lazard Asset Management LLC

  25%    All sizes    Blend

Fabio Paolini, CFA

Benjamin (Ben) Beneche, CFA

Pictet Asset Management, LTD

  25%    All sizes    Blend

 

 
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Litman Gregory Masters International Fund –

Sub-Advisors — (Continued)

 

Litman Gregory Masters International Fund Portfolio Managers

 

David E. Marcus

Evermore Global Advisors, LLC

89 Summit Avenue

Summit, NJ 07901

David E. Marcus is the lead portfolio manager for the segment of the International Fund’s assets managed by Evermore Global Advisors, LLC (“Evermore”). Marcus is Co-Founder, Chief Executive Officer and Chief Investment Officer and a portfolio manager at Evermore. He has managed the Evermore Global Value Fund since its inception in 2010. Marcus has over 30 years of experience in investment management, including management of registered investment companies. For a majority of this time, Marcus has focused on investing in European and other foreign companies. Marcus graduated from Northeastern University in 1988. From 1988 to 2000, Marcus held a series of positions at Mutual Series Fund, including junior research analyst, research analyst, co-portfolio manager and portfolio manager. From November 1998 to January 2000, Marcus was portfolio manager of the Mutual European Fund and co-portfolio manager of the Mutual Shares Fund and Mutual Discovery Fund. During this time, Marcus also served as Senior Vice President and Director of European Investments for Franklin Mutual Advisers, LLC. After leaving Franklin Mutual in early 2000, Marcus founded Marcstone Capital Management, L.P., a long/short European-focused equity manager, largely funded by Jan Stenbeck, the Swedish financier. After Stenbeck’s sudden death in late 2002, Marcus closed Marcstone and returned capital to its investors. In early 2003, Marcus co-founded Stonebrook Partners, LLC, the Stenbeck family office, and became an adviser to the Stenbeck family, in which capacity he helped restructure a number of the public and private companies that the family controlled. In June 2004, Marcus founded and served as managing partner of MarCap Investors, L.P., the investment manager of a European small-cap special situations fund, which he actively managed through the end of 2008 and wound down in 2009. Over the past fifteen years, Marcus has served on the board of directors of numerous companies, including: Novestra AB, a Swedish publicly-traded private equity firm with holdings in the U.S. and Europe; Pergo AB, a Swedish publicly-traded flooring company for which Marcus was instrumental in helping negotiate the sale of the company to the German company Pfleiderer AG; Scribona AB, a Swedish publicly-traded distributor of office products with sales in excess of $1 billion, for which Marcus, as Chairman of the Board, led the complete restructuring of the company and the negotiation to sell its operating assets; Miltope, Inc., a U.S. publicly-traded and subsequently acquired maker of ruggedized electronics for the U.S. military; and Modern Times Group AB, a Swedish publicly-traded pan-European media conglomerate. Marcus has gained significant operating experience through his active involvement on the above mentioned boards, as well as his involvement with the restructuring of a number of companies controlled by the Stenbeck family. Evermore has been a sub-advisor to the International Fund since 2017.

Approximately 25% of the International Fund’s assets are managed by Marcus. Evermore employs a research and catalyst driven, fundamental value investment strategy. With an emphasis on undervalued companies undergoing change (“special situations”), Evermore focuses on investments in areas where the most compelling opportunities exist and on situations that, in Evermore’s opinion, have the potential for growth of capital. In selecting equity investments, Evermore focuses on the market price of a company’s securities relative to Evermore’s own evaluation of the company’s asset value, including an analysis of book value, cash flow potential, long-term earnings, and multiples of earnings. Evermore also focuses on the strength of the management teams of the companies for which Evermore is evaluating an investment. Similarly, debt securities and other indebtedness, including loan participations, are generally selected based on Evermore’s own analysis of the security’s intrinsic value rather than the coupon rate or rating of the security. Evermore examines each investment separately and there are no set criteria as to specific value parameters, asset size, earnings or industry type.

A special situation arises when the securities of a company are expected to appreciate due to company-specific developments (“catalysts”) rather than general business conditions or movements of the market as a whole. Catalysts may include management changes, shareholder activism, and operational and financial restructurings (e.g., cost-cutting, asset sales, breakups, spinoffs, mergers, acquisitions, liquidations, share buybacks, recapitalizations, etc.). Investments in special situations may include equity securities or fixed-income securities, such as corporate debt, which may be in a stressed or distressed position. Special situation investments may include high yield fixed-income securities or “junk bonds” (i.e., securities that are rated below investment grade by S&P or by another Nationally Recognized Statistical Rating Organization or similar unrated securities).

 

 

David G. Herro, CFA

Harris Associates L.P.

111 S. Wacker Drive

Suite 4600

Chicago, IL 60606

David G. Herro is the portfolio manager for the segment of the International Fund’s assets managed by Harris Associates L.P. (“Harris”). Herro is Deputy Chairman, Chief Investment Officer – International Equities and a portfolio manager at Harris. He has managed the Oakmark International Fund, the Oakmark International Small Cap Fund and the Oakmark Global Select Fund since their inception in 1992, 1995 and 2006, respectively. Herro has also managed the Oakmark Global Fund since 2016. Herro earned a B.S. degree in Accounting from the University of Wisconsin-Platteville and an M.A. degree from the University of Wisconsin-Milwaukee. He has been in the investment business since 1986. Harris has been a sub-advisor to the International Fund since the International Fund’s inception in 1997.

 

 

 
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Approximately 25% of the International Fund’s assets are managed by Herro. Herro and Harris’ portfolio management team employ Harris’ value investment philosophy and process to manage his portion of the International Fund’s assets. This value investment philosophy is based upon the belief that, over time, a company’s stock price converges with Harris’ estimate of the company’s intrinsic value. By “intrinsic value,” Harris means its estimate of the price a knowledgeable buyer would pay to acquire the entire business. In making its investment decisions, Harris uses a “bottom-up” approach focused on individual companies, rather than focusing on specific economic factors or specific industries.

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

 

 

Mark Little

Lazard Asset Management LLC

30 Rockefeller Plaza

New York, NY 10112

Mark Little is the lead portfolio manager for the segment of the International Fund’s assets managed by Lazard Asset Management LLC (“Lazard”). Little is a managing director, portfolio manager/analyst on the International Strategic Equity portfolio-management team at Lazard. He has been a portfolio manager of the Lazard International Strategic Equity Portfolio since that fund’s inception in October 2005. He began working in the investment field in 1992. Prior to joining Lazard in 1997, he was a manager in the corporate finance practice of Coopers & Lybrand and earned his Associated Chartered Accountant (ACA) qualification with Rees Pollock Chartered Accountants. Little has an MA in Economics from Clare College, Cambridge University. Lazard has been a sub-advisor to the International Fund since 2013.

Approximately 25% of the International Fund’s assets are managed by Little. Little and the portfolio management team at Lazard believe that a company with the ability to improve and/or sustain its profitability at a relatively high level can compound returns at an attractive rate. At the same time, they believe in buying such companies that are trading at discounts relative to their profitability prospects.

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

 

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

 

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

 

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

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

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

 

 

 
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Litman Gregory Masters International Fund –

Sub-Advisors — (Continued)

 

 

Fabio Paolini, CFA

Benjamin (Ben) Beneche, CFA

Pictet Asset Management, LTD

120 London Wall

Moor House – Level 11

London, United Kingdom

EC2Y 5ET

Fabio Paolini and Benjamin (Ben) Beneche are the co-portfolio managers to the segment of the International Fund’s assets managed by Pictet Asset Management, LTD (“Pictet”). Pictet has been a sub-advisor to the International Fund since 2016.

Paolini joined Pictet in 1997 and is Head of European Equities and Co-Lead of EAFE Equities within the Developed Equities team. Paolini began his career in Pictet & Cie’s Financial Research Department in 1994, initially in the Economics team and then in the European equities research team. Paolini graduated with a degree in Economics from the University of Siena in Italy. He obtained a CFPI/AZEK in 1996 and is a Chartered Financial Analyst (CFA) charterholder.

Beneche joined Pictet in 2008 and is Co-Lead of EAFE Equities team with a specific focus on Japanese Equities. Beneche began his career as a graduate within PAM Equities then as a Junior Investment Manager on the Global Equities fund with an emphasis on the energy sector. Beneche graduated with a first class honors degree in Economics and Economic History from the University of York. He is also Chartered Financial Analyst (CFA) charterholder.

Approximately 25% of the International Fund’s assets are managed by Pictet.

The team wants companies to be able to generate free cash flow in the future. (Free cash is cash a business has at hand and broadly speaking is calculated by adding depreciation and amortization to net income and subtracting capital expenditures.) In addition, the team wants a company to have good opportunities to reinvest this free cash and do so in a profitable manner, i.e., generate high returns on capital, in order to compound investment returns for shareholders. When looking at free cash flow (FCF), the team focuses on what free cash a company can generate on a normalized basis. The period over which the team may expect normalization to happen varies by business model and is also dependent on the stage of the business and economic cycle a company may be operating in at any point in time. For example, in the event the team expects a business model to attain normal sales growth, margin, and capital expenditures over the next three years, the team’s task would be to estimate those free cash flows three years from now and discount them back to the present to assess what “normalized” FCF yield (FCF/stock price) the company’s stock is offering (we will discuss the relevance of FCF yield in buy and sell decisions further below). The discount rate used is the company’s cost of equity.

Assessing whether a company has good reinvestment opportunities in front of it is typically a function of what sales growth it can achieve and its pricing power. So the team assesses what organic and inorganic growth opportunities are available to the

company and whether the company has a competitive advantage versus its peers. The combination of higher sales growth and superior pricing power helps generate higher profitability and, therefore, high returns on capital. How company management will allocate capital is also important in understanding whether a company can generate high returns on capital.

The consistency of generating high returns on capital is also important. Typically, a company that is relatively less cyclical (i.e., less impacted by economic cycles), has good reinvestment opportunities, and is run by capable management has a higher likelihood of consistently generating high returns. The team calls these companies compounders and they are most attractive to the team in terms of their business-model attributes because these companies compound shareholder value at a faster rate than cyclical companies. To assess valuation for compounders, in addition to normalized FCF yield assessment, the team will also look at discounted cash flow modeling as that incorporates the cash flows a company is likely to generate beyond what the team considers to be a normalized or forecastable time frame. The team says for compounders it’s essential to look at DCF-type metrics to capture the long-term compounding effects of their superior growth and return-on-capital profile relative to more cyclical business models.

In the case of more cyclical business models, there is greater variability in free-cash generation, so balance-sheet quality assumes greater importance in the team’s overall analysis. In addition, for cyclical business models the valuation hurdle prior to purchase is typically higher than in the case of compounders. For example, the target normalized FCF yield (i.e., the sell target yield) for a relatively high-growth and high return-on-capital compounding business could be as low as around 5%, while for a riskier, cyclical business model with lower growth and return on capital this target yield could be 10%, or higher in some cases (such as in the case of oil- or commodity-related business models). Ultimately, the target yield at which a company’s stock would be sold is a function of Paolini’s and Beneche’s assessment of its business model. The difference between this target yield and the current yield (based on current price) indicates the potential upside there might be in a stock.

When constructing portfolios, their stock weightings are a function of the amount of upside in a stock, conviction in the business model and in the investment case, the downside risk in the business model, and liquidity. In addition, the team aims to diversify “investment drivers” or common risk factors. For example, they do not want the portfolio to be overly exposed to external factors, such as oil, economic growth in a country or region, or rising or falling interest rates. Stocks are sold when they reach their price targets or target yield, or when there are better opportunities, or when the investment pillars on which the initial purchase was based are no longer valid. In the case of the International Fund, all of these portfolio-management considerations will apply.

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

 

 

 
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Litman Gregory Masters Smaller Companies Fund – Sub-Advisors

 

Litman Gregory’s strategy is to allocate the portfolio’s assets among the Smaller Companies Fund’s three sub-advisors who, based on Litman Gregory’s research, are judged to be among the best in their respective style groups. There is no minimum or maximum allocation of the Fund’s portfolio assets to each sub-advisor. The sub-advisors manage their individual portfolio segments by building a focused portfolio representing their highest-confidence stocks. Under normal market conditions, the Smaller Companies Fund invests at least 80% of the Smaller Companies Fund’s net assets, plus the amount of any borrowings for investment purposes, in securities of small- and mid-sized U.S. companies. This investment policy may be changed by the Board without shareholder approval, but shareholders would be given at least 60 days’ notice if any change occurs. Under normal conditions, each manager’s portfolio segment typically includes a minimum of 8 and a maximum of 15 securities. A manager may occasionally hold more than 15 securities. Though the total number of securities the Smaller Companies Fund may hold at any point in time will vary, it is generally expected that the Smaller Companies Fund will hold between 24 and 45 securities.

As used in this Prospectus, Litman Gregory defines a “Smaller Company” as one whose market capitalization falls within the range of market capitalizations of any company in the Russell 2500® Index, as of the most recent reconstitution. Though the

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

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

 

 

PORTFOLIO MANAGER(S)/SUB- ADVISOR   TARGET
ASSET
ALLOCATION
   MARKET CAPITALIZATION OF
COMPANIES IN PORTFOLIO
   STOCK-PICKING STYLE

Jeffrey Bronchick, CFA

Cove Street Capital, LLC

  33-1/3%    Small- and mid-sized companies    Value

Mark T. Dickherber, CFA, CPA

Shaun P. Nicholson

Segall Bryant & Hamill, LLC

  33-1/3%    Small- and mid-sized companies    Value

Richard T. Weiss, CFA

Wells Capital Management, Inc.

  33-1/3%    Small- and mid-sized companies    Blend

 

Litman Gregory Masters Smaller Companies Fund Portfolio Managers

 

Jeffrey Bronchick, CFA

Cove Street Capital, LLC

2101 East El Segundo Boulevard, Suite 302

El Segundo, CA 90245

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

Neuberger Berman, Bankers Trust and First Boston. RCB was a sub-advisor to the Smaller Companies Fund from June 2007 through June 2011, and Bronchick was the co-manager of that segment of the Smaller Companies Fund during RCB’s tenure. Cove Street has been a sub-advisor to the Smaller Companies Fund since 2011.

Approximately 33-1/3% of the Smaller Companies Fund’s assets are managed by Bronchick. The objective of Bronchick’s fundamental research is to identify the best combination of attractive businesses, valuation, and shareholder-oriented management. His small-cap universe consists of companies between $100 million and $3 billion.

Idea generation, Stage I of Cove Street’s process, is driven by both quantitative and qualitative analyses. As a value-based, bottom-up manager, Cove Street consistently screens markets for securities that appear statistically inexpensive and allows that pool of ideas to drive its efforts and work rather than begin the day with a preconceived notion of securities it would like to

 

 

 
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Litman Gregory Masters Smaller Companies Fund – Sub-Advisors — (Continued)

 

buy. Cove Street also screens for “good businesses” as defined by classic characteristics like consistency of growth and profitability, high returns on invested capital and sustainable competitive advantages and makes the determination whether the valuation is cheap enough to provide a proper margin of safety. Lastly, Cove Street’s screens are based on a combination of value, business fundamentals and corporate and executive behavior such as share repurchase and insider buying and selling. On a qualitative basis, ideas are produced from the team’s collective investment experience, Cove Street’s deep contact network, out of office experiences and obvious headline issues.

Once the team has determined that an idea has promise, they begin Stage II, which consists of the data download of all relevant company financial information into the Cove Street analytical spreadsheet and the digestion of all publicly available company information. The analytical spreadsheet is designed to help the team efficiently determine the financial characteristics of the business. They then ask the question: whether the investment candidate appears to be either a great business at a reasonable price or an exceedingly cheap security that provides a deeper margin of safety to compensate for potential business issues.

Stage III is the deep dive. The research team performs intensive analysis on valuation and business characteristics, with a group of analysts focused on the stock as a “purchase” and one or more analysts focused on the stock as a “short-sale,” a version of the so-called Socratic method of reasoning. Key pivot points include:

 

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

 

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

 

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

 

  Management: friend, neutral or foe?

 

  PEST Control: Political, Economic, Social, Technological issues.

 

  What is the team thinking that others are not?

 

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

Stage IV is portfolio consideration. Key considerations include whether there is sufficient risk adjusted upside – on an absolute basis and as compared to other stocks that Cove Street owns and how it fits with the portfolio’s industry concentration.

As the team executes Stages III and IV discussed above, they complete Cove Street’s decision process spreadsheet, which is a series of qualitative and quantitative checklists. This tool helps the team identify the issues and risks that should be considered and studied as part of the investment process. At the end of the process, each participating analyst records a recommendation within the decision process spreadsheet and answers the following questions: What is it worth? What should we do? At

what position size? Recording the analysis and the recommendations helps us avoid revisionist history and maintain intellectual honesty, is applicable for compensation purposes and helps us identify and monitor our own biases. Although the investment team operates in a very flat and team-based fashion, ultimately, the final decision as to purchases and sales, and as to the position size, is made by Bronchick.

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

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

Valuation:

 

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

 

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

People:

 

  Unexpectedly poor decisions are made allocating shareholder capital

 

  Lose confidence that management and the board are best representing shareholders and the cost and effort to influence this process are deemed prohibitive

Business:

 

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

 

  Actual or likely prospects of balance sheet deterioration

 

  Perceived cyclical industry problems reveal themselves as secular

 

 

Mark T. Dickherber, CFA, CPA

Shaun P. Nicholson

Segall Bryant & Hamill, LLC

540 West Madison Street, Suite 1900

Chicago, IL 60661

Mark T. Dickherber and Shaun P. Nicholson are the portfolio managers for the segment of the Smaller Companies Fund’s assets managed by Segall Bryant & Hamill, LLC (“SBH”). Dickherber joined SBH in 2007 and is a principal, senior portfolio manager and head of SBH’s Small Cap strategies. He is the lead portfolio manager for SBH’s Small Cap Value strategy and the co-portfolio manager of SBH’s Small Cap Core and Small Cap Value Concentrated strategies. Dickherber is also responsible for equity research in the Small Cap and Small/Mid Core equity portfolios and is a specialist in the healthcare, utilities and REIT sectors within the respective portfolios. Prior to joining SBH, Dickherber served as director of research for Kennedy Capital Management, where he had worked since 1996. Nicholson joined SBH in 2011 and is a senior portfolio

 

 

 
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manager for SBH’s Small Cap strategies. He is the lead portfolio manager for SBH’s Small Cap Value Concentrated strategy and the co-portfolio manager for SBH’s Small Cap Value strategy. He is responsible for research related to materials, autos/transports, industrials and regional banks within the respective portfolios. Prior to joining SBH, Nicholson spent six years at Kennedy Capital Management. SBH has been a sub-advisor to the Smaller Companies Fund since 2017.

Approximately 33-1/3% of the Smaller Companies Fund’s assets are managed by Dickherber and Nicholson. Dickherber and Nicholson are small-cap value-oriented investors who seek to identify companies that have the potential for significant improvement in return on invested capital (“ROIC”), with the idea being that, as ROIC improves, each dollar invested in the business earns an incrementally higher return. Importantly, Dickherber and Nicholson disaggregate a company’s ROIC down to the business segment level to understand the drivers (and detractors) of a company’s profitability. Armed with segment-level return data, the team seeks to identify companies with low embedded expectations that have company-specific, returns-improving catalysts. The team does not buy stocks simply because they are “cheap.” Dickherber and Nicholson require that management is ROIC-focused, financially incentivized to improve returns through appropriate capital allocation, and able to articulate an appropriate returns-based strategy to improve profitability. The team tracks management’s progress via quarterly financials and quarterly management contact. The team believes that management’s commitment and ability to appropriately improve returns results in the largest portfolio weightings.

Dickherber and Nicholson seek to identify the building blocks of improved (and diminishing) profitability before it is recognized by the market. The team is willing to be early in a particular stock, and will stay invested provided the investment team sees continuing evidence that management is taking the appropriate steps to improve returns. Dickherber and Nicholson will sell stocks for a number of reasons. Examples include management making a capital-allocation decision that will likely diminish returns, such as an acquisition of a lower-returning business; management failing to demonstrate a strategy that improves returns; a change in management that negatively impacts a returns-based culture; the diminishing effectiveness of certain company-specific catalysts for improved returns; or an estimation by the co-portfolio managers that the risk-reward ratio has become unattractive.

 

Richard T. Weiss, CFA

Wells Capital Management, Inc.

10 S. Wacker Drive

Chicago, IL 60606

Richard T. Weiss is the portfolio manager for the segment of the Smaller Companies Fund’s assets managed by WellsCap. Weiss has been in the investment business for over 30 years and is currently Managing Director and Senior Portfolio Manager of the Select Equity portfolio for WellsCap. Previously, he had been the manager or co-manager of the Wells Fargo Advantage Common Stock Fund and the Wells Fargo Advantage Opportunity Fund (previously known as the Strong Common Stock Fund and Strong Opportunity Fund) from March 1991 until March 2008. Prior to this, Weiss was a partner/portfolio manager at Stein Roe & Farnham in Chicago where he began his career, starting as a research analyst, in 1975. Weiss continues an informal relationship with the Wells Capital Management Core Equity team, which manages the Wells Fargo Advantage Common Stock Fund and Wells Fargo Advantage Opportunity Fund. WellsCap has been a sub-advisor to the Smaller Companies Fund since the Smaller Companies Fund’s inception in 2003.

Approximately 33-1/3% of the Smaller Companies Fund’s assets are managed by Weiss. He invests in stocks of small- and mid-sized companies that are undervalued either because they are not broadly recognized, are in transition, or are out of favor based on short-term factors. Weiss also has the flexibility to invest in the stocks of larger companies if in his opinion they offer the potential for better returns. In seeking attractively valued companies, Weiss focuses on companies with above-average growth potential that also exhibit some or all of the following:

 

  Low institutional investor ownership and low analyst coverage

 

  High-quality management

 

  Sustainable competitive advantage

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

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

 

 

 
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Litman Gregory Masters Alternative Strategies Fund – Sub-Advisors

 

Litman Gregory’s strategy is to allocate the portfolio’s assets among the Alternative Strategies Fund’s five sub-advisors to provide investors a mix of strategies that Litman Gregory believes offer risk-return characteristics that are attractive individually and even more compelling collectively. Allocations among sub-advisors are based on a number of factors, including Litman Gregory’s expectation for the risk-adjusted return potential of each sub-advisor’s strategy and the impact on overall portfolio risk, with the objective of maximizing return subject to the goals of low volatility and relatively low correlation with broad financial markets, especially the stock market. Litman Gregory may at times adjust the allocations of capital to sub-advisors if it believes there is a highly compelling tactical opportunity in a particular sub-advisor’s strategy. Portfolio assets will be tactically allocated to the sub-advisors in accordance with the target allocation range for each sub-advisor specified in the table below, as measured at the time of allocation.

Sub-advisor strategies may seek to benefit from: opportunities to combine securities with differing risk characteristics; market inefficiencies; arbitrage opportunities; opportunities to provide liquidity; tactical opportunities in asset classes or securities; special situations such as spin offs; as well as other opportunities in areas such as real estate or managed futures. In the aggregate, the managers can invest globally in stocks of companies of any size, domicile or market capitalization, government and corporate bonds and other fixed income securities and currencies, including short positions of any of the foregoing, within their respective segments of the Alternative Strategies Fund. They may also invest in derivatives, including, without limitation, options, futures contracts, and swaps, to manage risk or enhance return and can also borrow amounts up to one third of the value of the Alternative Strategies Fund’s total

assets (except that the Alternative Strategies Fund may exceed this limit to satisfy redemption requests or for other temporary purposes). Each of the managers may invest in illiquid securities; however, the Alternative Strategies Fund as a whole may not hold more than 15% of its net assets in illiquid securities. In some cases, the sub-advisors may seek to replicate strategies they employ in their private (hedge) funds. In other cases, the sub-advisors may seek to enhance strategies they run in other public funds by focusing on their highest conviction ideas to a greater extent or by pursuing certain aspects of their strategies with greater flexibility. However, the Alternative Strategies Fund will only invest directly in portfolio securities selected by the sub-advisors and will not invest in any pooled investment vehicles or accounts managed by the sub-advisors.

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

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

 

 

     
PORTFOLIO MANAGER(S)/SUB-ADVISOR   CURRENT TARGET ALLOCATION AND
TARGET ASSET ALLOCATION RANGE
   STRATEGY

Stephen Kealhofer

Paul Harrison

Adam Dwinells

DCI, LLC

 

19%

9%-29%

   Long-Short Credit

Jeffrey Gundlach

Jeffrey Sherman, CFA

DoubleLine Capital LP

 

25%

15%-35%

   Opportunistic Income

Steven Romick, CFA

Brian Selmo, CFA

Mark Landecker, CFA

First Pacific Advisors, LP

 

18%

8%-28%

   Contrarian Opportunity

Matthew Eagan, CFA

Kevin Kearns

Todd Vandam, CFA

Loomis, Sayles & Company, L.P.

 

19%

9%-29%

   Strategic Alpha Fixed Income

John Orrico, CFA

Todd Munn

Roger Foltynowicz, CFA, CAIA

Gregg Loprete

Water Island Capital, LLC

 

19%

9%-29%

   Arbitrage

 

 
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Litman Gregory Masters Alternative Strategies Fund Portfolio Managers

 

Long-Short Credit Strategy

 

Stephen Kealhofer

Paul Harrison

Adam Dwinells

DCI, LLC

201 Spear Street, Suite 250

San Francisco, CA 94105

Stephen Kealhofer, Paul Harrison and Adam Dwinells are the co-portfolio managers responsible for the long-short credit strategy (the “Long-Short Credit Strategy”), which is the segment of the Alternative Strategies Fund’s assets managed by DCI, LLC (“DCI”). Kealhofer is the Head of Research and Director of DCI. He was formerly Co-Founder and Managing Partner of KMV and Assistant Professor of Finance at Columbia University. Harrison is Chief Investment Officer of DCI. He was formerly Chief Investment Officer and Head of Research at Barclays Global Investors/BlackRock; Chief of Capital Markets at the Federal Reserve Board and a member of the finance faculty at Brandeis University. Dwinells is Head of Portfolio Management of DCI. He was formerly Vice President and Senior Risk Advisor of JP Morgan and its predecessor companies. DCI has been a sub-advisor to the Alternative Strategies Fund since 2017.

DCI’s Long-Short Credit Strategy employs a systematic portfolio construction process underpinned by a proprietary, fundamental model of credit risk and valuation. DCI’s investment process is designed to exploit information gaps between credit and equity markets and other market inefficiencies to identify and capture potential mispricing at the individual asset level. The DCI Long-Short Credit Strategy is expected to generate returns from idiosyncratic credit selection, as the strategy systematically curtails rate duration and credit beta exposure. Correlations to systematic market risks including high yield and equity market returns are expected to be minimal, and strategy returns are not expected to be correlated to the returns of other active strategies. The DCI Long-Short Credit Strategy is designed to perform in both low and high volatility environments although returns are expected to be higher in higher volatility environments.

DCI targets superior risk-adjusted returns from portfolios of corporate credit assets through the selection of potentially mispriced individual securities. The principal driver of DCI’s strategies is its dynamic proprietary default probability model which incorporates fundamental balance sheet information and real-time information embedded in equity and options markets. DCI’s model uses this information to calculate credit spreads that, when compared to market spreads, identify possible mispricing that can potentially be exploited. Excess returns are anticipated over time as market prices converge to the actual risk levels and fair value pricing of the exposures, as indicated by DCI’s model. DCI’s technology produces timely risk measures for thousands of investments, which are monitored in

real-time, providing early warning capabilities and a large universe from which to create portfolios. DCI believes its approach to generating returns is unique in its integration of technology, infrastructure, ongoing research, and credit expertise.

DCI believes that the inability of conventional credit approaches to consider equity and other market information systematically, and their propensity to build portfolios around issue weightings, are features that create persistent inefficiencies in the market. These features are largely driven by the qualitative, discretionary style that conventional credit market participants use. While marginal information efficiencies are likely to come about as a natural part of the credit market’s maturation, as long as conventional credit investors dominate the market, exploitable inefficiencies will exist for DCI.

Opportunistic Income Strategy

 

Jeffrey Gundlach

Jeffrey Sherman, CFA

DoubleLine Capital LP

333 South Grand Avenue, Suite 1800

Los Angeles, CA 90071

Jeffrey Gundlach and Jeffrey Sherman are the co-portfolio managers responsible for the opportunistic income strategy (the “Opportunistic Income Strategy”), which is the segment of the Alternative Strategies Fund’s assets managed by DoubleLine Capital LP (“DoubleLine”). Gundlach is Chief Executive Officer and Chief Investment Officer of DoubleLine, which he co-founded in 2009. Sherman is Deputy Chief Investment Officer and is a member of DoubleLine’s Executive Management and Fixed Income Asset Allocation Committees. Prior to joining DoubleLine, Sherman was a Senior Vice President at TCW where he worked as a portfolio manager and quantitative analyst focused on fixed income and real-asset portfolios. Prior to TCW, Sherman was a statistics and mathematics instructor at both the University of the Pacific and Florida State University. DoubleLine has been a sub-advisor to the Alternative Strategies Fund since the Alternative Strategies Fund’s inception in 2011.

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

 

 

 
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Litman Gregory Masters Alternative Strategies Fund – Sub-Advisors — (Continued)

 

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

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

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

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

Contrarian Opportunity Strategy

 

Steven Romick, CFA

Brian Selmo, CFA

Mark Landecker, CFA

First Pacific Advisors, LP

11601 Wilshire Blvd., Suite 1200

Los Angeles, CA 90025

Steven Romick, Brian Selmo and Mark Landecker are the co-portfolio managers responsible for the contrarian opportunity strategy (the “Contrarian Opportunity Strategy”), which is the segment of the Alternative Strategies Fund’s assets managed by First Pacific. Romick joined First Pacific in 1996 and is currently a Managing Partner of the firm. Selmo joined First Pacific in 2008 and has been a Partner since 2013. He was briefly a Managing Director of First Pacific in 2013 before being named a Partner, and was a Vice President of First Pacific from 2008 to 2012. Landecker joined First Pacific in 2009 and has been a Partner since 2013. He was briefly a Managing Director of First Pacific in 2013 before being named a Partner, and was a Vice President of First Pacific from 2009 to 2012. Romick, Selmo and Landecker manage the FPA Crescent Fund and Source Capital, Inc. (Romick has been a portfolio manager since its inception in 1993) and separate accounts, including unregistered funds managed by First Pacific (commonly known as hedge funds), in First Pacific’s Contrarian Value style. First Pacific has been a sub-advisor to the Alternative Strategies Fund since the Alternative Strategies Fund’s inception in 2011.

This segment is managed, to the degree practical, with the intent to replicate elements of mutual funds, private funds and separate accounts also run by First Pacific. The elements replicated include investment strategies such as hedging, illiquid and restricted securities, international investments, coupled with the potential for maintaining high levels of liquidity. First Pacific implements these strategies through investing opportunistically in a wide variety of securities as discussed below.

The Contrarian Opportunity Strategy looks for investments that trade at a substantial discount to the portfolio managers’ determination of the company’s value (absolute value) rather than those that might appear inexpensive based on a discount to their peer groups or the market average (relative value), with an objective of above average risk-adjusted returns. As absolute return investors, the First Pacific team seeks genuine bargains rather than relatively attractive securities. The goal is to provide equity-like returns over longer periods (i.e., five to seven years) while protecting against the permanent loss of capital. Attention is directed toward those companies offering the best combination of quality criteria such as strong market share, good management, and high normalized return on capital. A company purchased might not look inexpensive, considering current earnings and return on capital; however, its valuation may reflect such conditions as a weak economy, an increase in raw material costs, a management misstep, or any number of other temporary conditions. The First Pacific team believes that

 

 

 
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price drops caused by such developments can, and often do, provide buying opportunities. There can be no assurance that the Fund will achieve its investment objective.

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

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

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

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

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

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

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

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

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

 

 

 
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Litman Gregory Masters Alternative Strategies Fund – Sub-Advisors — (Continued)

 

Strategic Alpha Fixed Income Strategy

 

Matthew Eagan, CFA

Kevin Kearns

Todd Vandam, CFA

Loomis, Sayles & Company, L.P.

One Financial Center

Boston, MA 02111

Matthew Eagan, Kevin Kearns and Todd Vandam are the co-portfolio managers responsible for the strategic alpha strategy (the “Strategic Alpha Strategy”), which is the segment of the Alternative Strategies Fund’s assets managed by Loomis, Sayles & Company, L.P. (“Loomis”). Eagan joined Loomis in 1997 and is an executive vice president and portfolio manager for the fixed income group and co-portfolio manager for the Loomis Sayles Strategic Alpha Fund, Loomis Sayles Bond Fund, the Loomis Sayles Strategic Income Fund and other fixed income funds managed by Loomis. Kearns joined Loomis in 2007 and is a vice president and portfolio manager. As leader of the firm’s alpha strategies group, he co-manages the Loomis Sayles multi asset credit and income strategies, strategic alpha, and custom strategies as well as the Loomis Sayles Strategic Alpha and Inflation Protected Securities funds. Vandam joined Loomis in 1994 and is a vice president of Loomis and co-portfolio manager of the Loomis Sayles Strategic Alpha Fund and High Income funds as well as several U.S. High Yield and global high yield institutional strategies. Loomis has been a sub-advisor to the Alternative Strategies Fund since the Alternative Strategies Fund’s inception in 2011.

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

The Loomis team may invest up to 75% of the total assets of the segment allocated to it in below investment-grade fixed income securities (also known as “junk bonds”) and derivatives that have returns related to the returns on below investment-grade fixed income securities. Under normal market conditions, the Loomis team also may invest up to 75% of the total assets of the segment allocated to it in investments denominated in non-U.S. currencies and related derivatives, including up to 50% in investments denominated in emerging market currencies and related derivatives. Under normal conditions, the Loomis team may invest up to 20% of the total assets of the segment allocated to it in equity-related securities and derivatives. There is no limit on the amount of preferred securities. A “related derivative” of a financial instrument means any derivative whose value is based upon or derived from that financial instrument or a related derivative of that financial instrument. The Loomis team expects that exposure to these asset classes will often be

obtained substantially through the use of derivative instruments. Currency positions that are intended to hedge the Loomis team’s non-U.S. currency exposure (i.e. , currency positions that are not made for investment purposes) will offset positions in the same currency that are made for investment purposes when calculating the limitation on investments in non-U.S. and emerging market currency investments because the Loomis team believes that hedging a currency position is likely to negate some or all of the currency risk associated with the original currency position. Restrictions will apply at the time of purchase.

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

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

The Loomis team seeks to gain a performance edge by integrating the global macro themes with Loomis’ best bottom-up security selection, risk analysis and trading capabilities to create the best expected risk/return portfolio. The Loomis team will pursue its investment goal by obtaining long investment exposures through direct cash investments and derivatives and short investment exposures substantially through derivatives. A “long” investment exposure is an investment that rises in value with a rise in the value of an asset, asset class or index and declines in value with a decline in the value of that asset, asset class or index. A “short” investment exposure is an investment that rises in value with a decline in the value of an asset, asset class or index and declines in value with a rise in the value of that asset, asset class or index. The Loomis team’s long and short investment exposures may, at

 

 

 
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times, each reach 150% of the assets invested in this segment of the Alternative Strategies Fund (excluding instruments primarily used for duration management and short-term investments (such as cash and money market instruments)), although these exposures may be higher or lower at any given time.

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

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

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

team’s strategy may be highly dependent on the use of derivatives, and to the extent that they become unavailable or unattractive the Loomis team may be unable to fully implement its investment strategy. For a detailed discussion of various types of derivatives in which the Alternative Strategies Fund may invest, including the risks of investing in such derivatives, please refer to the Description of Principal Investment Risks section in the Prospectus and the SAI.

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

Arbitrage Strategy

 

John Orrico, CFA

Todd Munn

Roger Foltynowicz, CFA, CAIA

Gregg Loprete

Water Island Capital, LLC

41 Madison Avenue, 42nd Floor

New York, NY 10010

John Orrico, Todd Munn, Roger Foltynowicz, and Gregg Loprete are the co-portfolio managers responsible for the arbitrage strategy (the “Arbitrage Strategy”), which is the segment of the Alternative Strategies Fund’s assets managed by Water Island Capital, LLC (“Water Island”). Orrico founded Water Island in 2000 and serves as its Chief Investment Officer. He also serves as the president and a trustee of The Arbitrage Funds trust. He is a portfolio manager on the firm’s merger arbitrage and special situations strategies. Prior to founding Water Island, Orrico worked at Gruss & Co., focusing on merger arbitrage and special situations. He has worked in the financial services industry since 1982, when he started his career in the Corporate Finance group at Morgan Stanley & Co. Munn joined Water Island in 2003 and is a portfolio manager on the firm’s merger arbitrage strategy. Foltynowicz joined Water Island in 2003 and is a portfolio manager on the firm’s merger arbitrage strategy. Loprete joined Water Island in 2009 and is a portfolio manager specializing in credit opportunities. Water Island has been a sub-advisor to the Alternative Strategies Fund since the Alternative Strategies Fund’s inception in 2011.

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

 

 

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

Credit Opportunities: Opportunistic credit investing is a highly specialized strategy that seeks to profit from investments in debt securities where the likely return will be more correlated with the outcome of specific catalysts or events rather than overall market direction. These catalysts and events include mergers, acquisitions, debt maturities, refinancings, regulatory changes, recapitalizations, reorganizations, restructurings and other special situations. Water Island also uses a relative value approach and may express positive views on specific issuers by taking long positions in cash bonds and/or derivatives and negative views on specific issuers by taking short positions in cash bonds and/or derivatives. Water Island uses fundamental research to identify mispricings or inefficiencies in these situations and assesses their potential impact on security prices. The opportunistic credit strategy may utilize investment strategies such as convertible arbitrage and capital structure arbitrage to achieve its goals. Convertible arbitrage is a specialized strategy that seeks to profit from mispricing between a firm’s convertible securities and its underlying equity. The most common convertible arbitrage approach, and the strategy the Water Island team generally will use, matches a long position in the convertible security with a short position in the underlying common stock. The Water Island team seeks to purchase convertible securities at discounts to their expected future values and sell short shares of the underlying common stock in order to mitigate equity market movements. As stock prices rise and the convertible security becomes more equity sensitive, the Water Island team will sell short additional common shares in order to maintain the relationship between the convertible and the underlying common stock. As stock prices fall, the Water Island team will typically buy back a portion of shares it had sold short. Positions are typically designed to

earn income from coupon or dividend payments and from the short sale of common stock. Capital structure arbitrage seeks to profit from relative pricing discrepancies between related debt and/or equity securities. For example, the Water Island team may purchase a senior secured security of an issuer and sell short an unsecured security of the same issuer. In this example the trade would be profitable if credit quality spreads widened or if the issuer went bankrupt and the recovery rate for the senior debt was higher.

Equity Special Situations: Equity special situations investing is a specialized strategy that seeks to profit from equity investments when news and events create misperception of a company’s correct stock price. Examples of such news and events, which Water Island refers to as “investment opportunities,” include, but are not limited to: changes in industry or sector fundamentals, announcements or potential announcements of restructurings (bankruptcies, spinoffs, and asset sales), mergers and acquisitions, earnings results and outlook, regulatory changes and litigation. The Water Island team’s investment approach is to identify these differences and to tactically purchase or sell short such securities in order to achieve the Fund’s objective.

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

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

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

 

 

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

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

 

 

 
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Litman Gregory Masters High Income Alternatives Fund – Sub-Advisors

 

Litman Gregory’s strategy is to allocate the portfolio’s assets among the High Income Alternatives Fund’s four sub-advisors to provide investors a mix of strategies that Litman Gregory believes offer risk-return characteristics that are attractive individually and even more compelling collectively. Allocations among sub-advisors are based on several factors, including Litman Gregory’s expectation for the risk-adjusted return potential of each sub-advisor’s strategy and the impact on overall portfolio risk, with the objective of maximizing return subject to the goal of high income relative to investment-grade, fixed income portfolios without taking undue risk. Litman Gregory may at times adjust the allocations of capital to sub-advisors if it believes there is a highly compelling tactical opportunity in a particular sub-advisor’s strategy. Portfolio assets will be tactically allocated to the sub-advisors in accordance with the target allocation range for each sub-advisor specified in the table below, as measured at the time of allocation.

Sub-advisor strategies may seek to benefit from: opportunities to combine securities with differing risk characteristics; market inefficiencies; opportunities to provide liquidity; tactical opportunities in asset classes or securities; special situations such as spin-offs; as well as other opportunities in other areas. In the aggregate, the managers can invest globally in debt and equity securities of companies of any size, domicile or market capitalization, government and corporate bonds, loans, loan participation interests, mortgage or other asset-backed

securities and other fixed income securities and currencies, including short positions of any of the foregoing, within their respective segments of the High Income Alternatives Fund. They may also write options, invest in derivatives, including, without limitation, options, futures contracts, participatory notes (“P-Notes”) and swaps, to manage risk or enhance return and can also borrow amounts up to one third of the value of the High Income Alternatives Fund’s total assets (except that the High Income Alternatives Fund may exceed this limit to satisfy redemption requests or for other temporary purposes). Each of the managers may invest in illiquid securities; however, the High Income Alternatives Fund as a whole may not hold more than 15% of its net assets in illiquid securities.

Each sub-advisor will have an investment approach that generally focuses on a particular asset class or specific strategies. Currently, the strategies the sub-advisors focus on are as follows: (1) an equity income strategy, (2) a credit value strategy, (3) a multi credit strategy, and (4) an option income strategy. Other appropriate strategies may also be considered and added to (or removed from) the High Income Alternatives Fund.

The following table provides a description of the High Income Alternatives Fund’s strategies and their target levels of assets. Asset levels will fluctuate, and it is at the discretion of Litman Gregory to re-balance the asset allocations. A detailed discussion of the management structure of the High Income Alternatives Fund follows the table.

 

 

PORTFOLIO MANAGER(S)/SUB-ADVISOR   CURRENT TARGET ALLOCATION AND
TARGET ASSET ALLOCATION RANGE
   STRATEGY

Greg Mason, CFA

Troy Ward

Ares Management LLC

 

15%

10-20%

   Equity Income

Andrew P. Hofer

Neil Hohmann

Paul Kunz, CFA

Brown Brothers Harriman & Co.

 

32.5%

22.5-42.5%

   Credit Value

Scott Minerd

Anne Walsh, CFA

Steven Brown, CFA

Adam Bloch

Guggenheim Partners Investment Management, LLC

 

32.5%

22.5-42.5%

   Multi Credit

Derek Devens, CFA

Neuberger Berman Investment Advisers LLC

 

20%

15-25%

   Option Income

 

 
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Litman Gregory Masters High Income Alternatives Fund Portfolio Managers

 

Equity Income Strategy

 

Greg Mason, CFA

Troy Ward

Ares Management LLC

2000 Avenue of the Stars, 12th Floor

Los Angeles, CA 90067

Greg Mason and Troy Ward are the co-portfolio managers responsible for the equity income strategy (the “Equity Income Strategy”), which is the segment of the High Income Alternatives Fund’s assets managed by Ares Management LLC (“Ares”). Mason is a Managing Director and Portfolio Manager in the Ares Credit Group, where he focuses on investing capital in publicly traded income producing equities. Prior to joining Ares in 2016, Mason was a Managing Director at KBW and Stifel Financial where he was a Senior Equity Analyst with a focus on business development companies (“BDCs”). Previously, he was a Senior Equity Analyst at A.G. Edwards where he focused on BDCs, mortgage servicers, asset managers and life insurance companies. Mason holds an M.B.A. from Saint Louis University and a B.S. from Southwest Baptist University. Mason is also a CFA® charterholder. Ward is a Managing Director and Portfolio Manager in the Ares Credit Group, where he focuses on investing capital in income producing publicly traded equities. Prior to joining Ares in 2016, Ward was a Managing Director at KBW and Stifel Financial where he was a Senior Equity Analyst with a focus on BDCs. Previously, he was a Senior Equity Analyst at A.G. Edwards where he focused on BDCs, specialty finance and small-cap banks. Ward serves on the Advisory Board for the Department of Finance at Southern Illinois University. Ward holds an M.B.A. from Saint Louis University and a B.S. from Southern Illinois University in Finance.

The managers of the Equity Income Opportunity strategy attempt to generate attractive total returns across market cycles, with a majority of those returns coming from current portfolio income. The managers invest across a variety of publicly-traded income producing asset classes where Ares has specific expertise. Targeted investments include publicly traded BDCs, mortgage REITs (“mREITS”), master limited partnerships (“MLPs”), and selectively, credit-based closed-end funds (“CEFs”) trading at discounts to net asset value and other opportunistic income investments like preferred equity. The team actively seeks to add value by finding positions with capital appreciation potential and adjusting capital allocation across sectors based on relative value. Risk management on a position and portfolio level is designed to avoid significant losses from individual company developments, as well as from negative sector or macro events.

The team’s investment philosophy is best described as “bottom-up” with a “top-down” macro overlay. The research and analysis processes seek to identify attractive opportunities that may provide upside capital appreciation potential while capturing existing yield and managing downside risk. The team

prefers to invest in companies with high quality management teams that have a history of investment discipline and strong operating performance, but it will also opportunistically invest in lower quality assets and/or management teams if the valuation offers sufficient compensation. The managers believe long-term successful equity income investing is best achieved through fundamental company-specific research (including detailed credit and cash flow analysis), combined with deep industry knowledge and an understanding of management incentives and capabilities.

The managers believe that many income-oriented asset classes are more retail-investor owned (and thus likely are more inefficiently priced). For example, investor perception regarding one particular aspect of a company, such as sensitivity to interest rates, can trigger heightened volatility as investors fall into “group think”, causing a stock or group of stocks to deviate materially from intrinsic value. In the managers’ experience, often the realization of an event can provide upside as investor sentiment shifts and uncertainty is removed. In particular, BDCs were traditionally under-followed by institutional investors, a dynamic that has been exacerbated over the past several years after the BDCs were removed from the S&P and Russell indexes (a result of the SEC’s ruling on Acquired Fund Fees and Expenses), creating a more attractive opportunity set for professional active managers.

The investment process begins with the assessment of company management. The managers believe that long-term performance of income-oriented value stocks is heavily impacted by management quality. The strategy’s heightened focus on management and portfolio analysis has been refined over time and the managers believe they have an informational advantage derived from their 15 years of closely following company management teams within BDCs and mREITs (along with 8 years of MLP sector coverage). If management is poor, there must be a significant valuation discount or outside catalysts to drive value.

The team performs “surface level” financial analysis, using standard metrics to identify differentiation within sectors, helping them effectively target potential investments for further research. Considerations at this stage include return on equity (ROE), EPS growth, dividend coverage and outlook, asset valuations, balance sheet stability, historical and current credit metrics, and new loan origination capacity (or new project backlog and underlying producer activity in the case of MLPs). Companies that appear attractive are subject to deeper analysis, in which the portfolio managers attempt to add value through more detailed assessment of the companies’ assets (they have tracked portfolios at the security level since inception for most finance companies in their universe, and maintain pipeline-level models of the relevant MLPs) and the identification of potential industry or company-level catalysts. At this stage, the broader Ares platform often proves valuable to the investment process, given the additional industry knowledge and research capabilities available to the investment team across public and private credit, real estate, and energy. Over time, the managers

 

 

 
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Litman Gregory Masters High Income Alternatives Fund – Sub-Advisors — (Continued)

 

have refined their approach to more thoroughly include industry specific catalysts, market sentiment, regulatory risks, and macro-economic trends.

Valuation is the final component of the investment process, and the managers are disciplined about the prices they will pay, as entry valuation is ultimately one of the most important factors in mitigating risk over reasonable holding periods, although changes in investor sentiment can, of course, cause losses in the short- or even medium-term. The team will estimate upside and downside for potential investments using standard valuation processes and metrics, including price/book (P/B), price/earnings (P/E), dividend yield, enterprise value/EBITDA, etc. The team is willing to think somewhat differently than consensus in the past to account for economic reality not reflected in the traditional metrics, such as using adjusted EBITDA numbers to reflect the fact that MLPs had to pay an increasing portion of their earnings to their general partner parent company, which reduced cash available for unitholders.

The managers have a target price and forward looking expected return for every position in the portfolio. Target prices take into account expected P/B values, earnings yields, and dividend yields, with an overlay using of expected earnings and dividend growth, book value stability, credit quality and qualitative management analysis. Downside risk, particularly in the BDC industry, may be assessed by understanding worst case book value, cash flow generation, and reasonable P/B multiples during a recession. The managers prefer to see 10-20 percentage points more upside than downside; however, these ratios are often significantly influenced by the timing of market cycles, probabilities of various macro-economic conditions and company-specific situations.

Credit Value Strategy

 

Andrew P. Hofer

Neil Hohmann

Paul Kunz, CFA

Brown Brothers Harriman & Co.

140 Broadway

New York, NY 10005

Andrew Hofer, Neil Hohmann and Paul Kunz are the portfolio managers primarily responsible for the credit value strategy (the “Credit Value Strategy”), which is the segment of the High Income Alternatives Fund’s assets managed by Brown Brothers Harriman & Co. (“BBH”) through its separately identifiable department known as the BBH Mutual Fund Advisory Department. Hofer is a Managing Director of BBH with 29 years of combined industry and investment experience. He joined BBH in 1988. Hofer has served as a Managing Director since 2000. Hohmann is a Managing Director of BBH with 20 years of investment experience. Hohmann served as a Senior Vice President from 2010-2017. Kunz is a Senior Vice President of BBH with 20 years of investment experience. He is also a CFA® charterholder.

The sub-advisor seeks to achieve the fund’s investment objective by investing its segment of the fund in fixed-income securities it believes to have the potential for excess return. The sub-advisor’s investment strategy will be to invest in fixed income securities from a wide variety of sectors, including asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), corporate bonds, floating-rate loans and municipal bonds. The sub-advisor expects to invest in structured and corporate securities. The sub-advisor’s emphasis is expected to be on A/BBB-rated asset backed securities and BBB/BB-rated corporate securities, as these ratings segments have historically offered attractive risk-adjusted returns, along with low default rates. The sub-advisor will also invest in U.S. Treasury futures to manage duration of the portfolio, which allows individual security selection to be managed without regard to portfolio duration. The sub-advisor will not typically own CCC rated or distressed securities.

The sub-advisor will consider investments based on a bottom-up assessment of opportunities and the risk/return potential of the yield curve. The investment strategy’s duration is flexible and the sub-advisor seeks to maintain a duration that is consistent with positive returns over longer time periods. The sub-advisor will consider the macroeconomic environment from the perspective of risk-management through economic cycles. The sub-advisor’s valuation process starts with the concept that credit spreads revert to the mean and that spread deviations relative to a long-term average indicate potential spread compression or spread widening. The sub-advisor applies this valuation framework to all economic sectors by credit rating and maturity.

The sub-advisor’s investment process is based on fundamental credit research. The sub-advisor identifies fixed income securities for potential purchase for the portfolio based on four fundamental criteria: a durable operating model, effective management, attractive/appropriate structure, and transparency. A durable credit is one where the sub-advisor believes an issuer’s revenue stream and its financial structure can withstand a wide range of economic and regulatory scenarios. When assessing management, the sub-advisor looks for issuers with a long, proven track record of execution (especially through a downturn), commitment to capital markets access, and incentives that are aligned with creditors’ interests. With regard to appropriate bond structures, the sub-advisor requires the level and variability of an issuer’s revenues to comfortably support ongoing operations and the capital structure.

The sub-advisor’s assumption of credit risk is valuation driven. When valuing securities/credits, and assessing an attractive margin of safety, the sub-advisor applies the same valuation approach across all sectors (ABS, CMBS, corporate credit, and municipal bonds). The sub-advisor seeks to buy securities at discounted valuations, inclusive of a sufficient margin of safety, that are created by excess short-term price volatility. The sub-advisor will make investments when it believes a security’s potential excess return more than compensates the fund for default risk, liquidity risk, and the embedded optionality of a bond. The sub-advisor may sell securities for several reasons

 

 

 
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including to adjust the portfolio’s average maturity, move into more attractively valued securities, take gains, the investment thesis changed, or to meet redemption requests.

Multi Credit Strategy

 

Scott Minerd

Anne Walsh, CFA

Steven Brown, CFA

Adam Bloch

Guggenheim Partners Investment Management, LLC

100 Wilshire Boulevard, 5th Floor

Santa Monica, CA 90401

Scott Minerd, Anne Walsh, Steven Brown and Adam Bloch are the co-portfolio managers responsible for the multi credit strategy (the “Multi Credit Strategy”), which is the segment of the High Income Alternatives Fund’s assets managed by Guggenheim Partners Investment Management, LLC (“Guggenheim”). Minerd is Chairman of Guggenheim Investments and Global Chief Investment Officer of Guggenheim Partners. Minerd leads Guggenheim’s research on global macroeconomics and guides the firm’s investment strategies. Previously, Minerd was a Managing Director with Credit Suisse First Boston in charge of trading and risk management for the Fixed Income Credit Trading Group. He was responsible for the corporate bond, preferred stock, money markets, U.S. government agency and sovereign debt, derivatives securities, structured debt and interest rate swaps trading business units. Minerd is a member of the Federal Reserve Bank of New York’s Investor Advisory Committee on Financial Markets, helping advise the NY Fed President about financial market developments, risks to the financial system and steps that can be taken to understand and mitigate these risks. He is an advisor to the Organization for Economic Cooperation and Development (OECD) on long-term investments and is a contributing member of the World Economic Forum (WEF) and their Global Agenda Council on the Arctic. Walsh joined Guggenheim in 2007, and is Chief Investment Officer – Fixed Income, and head of the Portfolio Construction Group and Portfolio Management. She oversees more than $185 billion in fixed-income investments including Agencies, Credit, Municipals, and Structured Securities. She is responsible for portfolio design, strategy, sector allocation and risk management, as well as conveying Guggenheim’s macroeconomic outlook to Portfolio Managers and fixed income Sector Specialists. Walsh specializes in liability-driven portfolio management. Prior to joining Guggenheim, she served as Chief Investment Officer at Reinsurance Group of America, and also held roles at Zurich Scudder Investments, Lincoln Investment Management and American Bankers Insurance Group. She is also a CFA® charterholder and a member of the CFA Institute. Brown joined Guggenheim in 2010 and is a Portfolio Manager for Guggenheim’s Active Fixed Income and Total Return mandates. He works with the Chief Investment Officers and other members of the Portfolio Management team to develop and execute portfolio strategy. Additionally, he works closely with the Sector Teams and Portfolio Construction Group. Prior to

joining Portfolio Management in 2012, Brown worked in the Asset Backed Securities group. His responsibilities on that team included trading and evaluating investment opportunities and monitoring credit performance. Prior to joining Guggenheim, Brown held roles within structured products at ABN AMRO and Bank of America in Chicago and London. He is also a CFA® charterholder and a member of the CFA Institute. Bloch joined Guggenheim in 2012 and is a Portfolio Manager for Guggenheim’s Active Fixed Income and Total Return mandates. Bloch works with the Chief Investment Officers and other Portfolio Managers to develop portfolio strategy that is in line with the firm’s views. He oversees strategy implementation, working with research analysts and traders to generate trade ideas, hedge portfolios, and manage day-to-day risk. Prior to joining Guggenheim, he worked in Leveraged Finance at Bank of America Merrill Lynch in New York where he structured high-yield bonds and leveraged loans for leveraged buyouts, restructurings, and corporate refinancings across multiple industries.

The managers of the Multi Credit Strategy seek to maximize total return through a combination of current income and capital appreciation. The team seeks to achieve its investment objective by investing in a wide range of fixed-income assets selected from a variety of credit sectors including, but not limited to, corporates, structured credit, U.S. government and agency, municipals, and other credit sectors. The investments can be across the capital structure including but not limited to senior secured, unsecured, second lien, other mezzanine including preferred, and equity. The strategy seeks opportunities across fixed-income market sectors, especially in non-index-eligible securities. In addition, the team may invest in derivatives or other asset classes to meet its investment objective. The strategy is flexible and is not constrained by duration, sector, issuer, or credit quality. As such, the strategy does not target any specific benchmark exposure to sectors, security weightings, and credit quality.

Guggenheim believes that an emphasis on capital preservation, while capturing attractive yields and a sustainable income component, is the surest path to superior long-term investment results. The firm strongly believes that fixed-income markets are inefficient, and as a result Guggenheim focuses on bottom-up, fundamental research to identify securities with attractive relative value, where prices do not accurately reflect a security’s intrinsic value for a given risk profile. In-house macroeconomic views serve as a “roadmap” to inform and guide portfolio construction considerations such as duration and credit quality, as well as sector weightings.

Credit selection is conducted by a deep team of sector and security analysts. The focus is on understanding the underlying business, issuer financial strength, risks pertaining to cash flows, the capital structure (seniority of payments), debt covenants, among other considerations. This analysis involves comprehensive industry analysis that incorporates inputs from industry experts, competitors, suppliers, servicers, and customers. It also integrates a thorough analysis of creditworthiness under a variety of downside stress-test

 

 

 
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Litman Gregory Masters High Income Alternatives Fund – Sub-Advisors — (Continued)

 

scenarios and leverages a dedicated legal team to assist in examining and assessing pertinent covenants and terms that may affect issues.

Risk management plays a prominent role in the investment process. At a high-level, the team studies a wide range of economic and market scenarios, and assesses the possible impact these scenarios could have on the portfolio. Scenarios can include those driven by macroeconomic risks, changes in regulation, broad sector trends, or an assessment of liquidity at the sector, security, and industry levels. Moreover, the team seeks to understand how specific changes in portfolio composition would lessen the downside, such as upgrading credit quality or including different types of security structures. Scenario analysis at the portfolio level also includes the impact of various interest-rate changes along different tenors of the curve.

At the portfolio level, the team might examine the effect of sudden mark-to-market shocks on the portfolio by assuming widening yield spreads for specific portfolio exposures. The team will also examine risks to specific sectors under a given stress-test scenario to quantify the potential downside risk. Risk management is also expressed through portfolio diversification, both across and within fixed-income sectors, position size limits, prudent yield-curve positioning, loss thresholds, and other measures.

Securities may be sold for several reasons including to adjust the portfolio’s average maturity, shift assets into or out of higher-quality securities, move into more attractively valued securities, take gains, or to meet redemption requests.

Option Income Strategy

 

Derek Devens, CFA

Neuberger Berman Investment Advisers LLC

1290 Avenue of the Americas

New York, NY 10104

Derek Devens is the portfolio manager responsible for the option income strategy (the “Option Income Strategy”), which is the segment of the High Income Alternatives Fund’s assets managed by Neuberger Berman Investment Advisers LLC (“Neuberger Berman”). Devens joined Neuberger Berman in 2016 and is a Managing Director and Senior Portfolio Manager of the Option Group. Prior to Neuberger Berman, he was responsible for both Research and Portfolio Management at Horizon Kinetics. Devens was a member of the Investment Committee and responsible for co-managing the Kinetics Alternative Income Fund and various separate account strategies. Prior to Horizon Kinetics, he was a Vice President with Goldman Sachs’ Global Manager Strategies Group where he was responsible for conducting investment manager research. He is also a CFA® charterholder.

In executing the Option Income Strategy, Devens writes put options on U.S. equity indexes, a strategy conceptually similar to that utilized by the Chicago Board Options Exchange (CBOE) S&P 500 PutWrite Index (the “Put Index”). However, by utilizing

thoughtful active management, he seeks to reduce the path dependence of the Put Index, as well as manage risk and seek attractive returns relative to the Put Index. While the Put Index writes one at-the-money (ATM) put option on the S&P 500 Index each month, Devens seeks to diversify the underlying options held by the strategy by strike price and expiration date by writing a series of short dated put options on diversified U.S. equity indexes, laddered across expiration dates, intending for option exposures to be relatively consistent across options tenors (i.e., the time left until an option contract expires). Options are rolled in a manner that seeks to preserve this laddered structure. This diversification is intended to seek to reduce the likelihood of a series of negative short-term outcomes in a row that could result from selling only one put per month.

Another critically important difference between the Put Index and the strategy Devens manages for the Fund is the selection of the level of ‘moneyness’ of the options sold (ATM versus out-of-the money, or “OTM”). The fund’s options will primarily be OTM, vs the Put Index selling ATM options. The Fund attempts to generate returns through the receipt of option premiums from selling puts, as well as through investments in fixed income instruments, which collectively are intended to reduce volatility relative to what it would be if the fund held the underlying equity index on which the options are written. The Fund’s investments in fixed income instruments will typically be in short duration U.S. Treasuries and are intended to provide liquidity and preserve capital and will serve as collateral for the Fund’s investments in options.

Risk management is a function of a number of factors, one being the overall sizing of the allocation at the fund level, since the strategy can have significant equity correlation (but has historically exhibited lower beta than broad-based U.S. equity indices as demonstrated by the PUT Index compared to the S&P 500 Index). Secondly, the selection of ATM or OTM, and how far OTM, influences the level of risk materially. Lastly, Devens seeks to actively reduce downside exposures to mitigate equity risk by buying back a portion of the put options that are underwater and selling new put options at higher premiums. Put writing is not a strategy built on a philosophy of explicit risk avoidance; rather, it is rooted in seeking receipt of option premiums in exchange for taking on the risk of a decline in U.S. broad based equity indices. As such, investors in the strategy accept limited upside returns relative to U.S. broad-based equity indices in exchange for the potential for option premiums to mitigate equity risk.

In a put writing strategy, a fund (as the seller of the option) receives premiums from the purchaser of the option in exchange for providing the purchaser with the right to sell the underlying instrument to the fund at a specific price (i.e., the strike price). If the market price of the instrument underlying the option exceeds the strike price, it is anticipated that the option would go unexercised and the fund would earn the full premium upon the option’s expiration or a portion of the premium upon the option’s early termination. If the market price of the instrument underlying the option drops below the strike price, it

 

 

 
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is anticipated that the option would be exercised and the fund would pay the option buyer the difference between the market value of the underlying instrument and the strike price. The amount of premium varies according to a number of factors, including the market perception of risk, the length of the option, and whether the option is ATM when written (riskier for the seller, which necessitates a higher premium) or OTM and by how much. The further OTM the option is, the less likely the index is to decline below the strike price, and thus the less likely the option seller is to be required to make a payment to the option buyer, thus the premium collected by the seller necessarily is lower.

The potential returns to equity index put writing come from two risk premia plus the return on collateral, which is typically invested in relatively conservative, short-duration fixed income. The first is the equity risk premium, or the return investors earn for holding equity risk. Devens believes that investors should also acknowledge the natural corollary related to options on stock indexes. Devens believes that for equity markets to be efficient, investors who assume exposure to the downside risk of an equity index should seek to earn a portion of the long-term equity risk premium over longer investment periods. Essentially, in Devens’ view, the underwriters of equity risk should earn the equity risk premium over the long term regardless of how the risk is assumed, whether through direct ownership of the index, or seeking to offset its downside. If this was not the case, then in Devens’ view, equity markets would demonstrate a massive inefficiency, as investors could own the equity index and buy puts to protect the full value of their investment from any loss while still earning positive returns. Therefore, Devens believes that for markets to be efficient, a portion of put option premium collected from writing put options must therefore compensate the put seller for the equity sensitivity of the option. The portion of the equity risk premium earned through put writing is a function of the moneyness of the put option written.

The second risk premium is the volatility risk premium. In addition to earning premiums on the put options written, Devens believes the option seller must be compensated further for the added risk associated with a decline in the broad-based U.S. equity markets for some period in the future in an unpredictable world. Investors do not generally assume risk with the intention of losing money over time, and option markets are not an exception. Because of the high degree of uncertainty, and the negatively skewed risk/return profile to which they are exposed, sellers of put options generally build in a cushion (or expected profit margin) to the premiums they collect from option buyers. Over time, Devens believes this concept has the potential to allow sellers of ATM puts to generate returns similar to owning the index over long-term investment horizons.

The return profile of selling ATM U.S. equity index puts has historically tended to be more stable than owning the underlying equity index outright as demonstrated by the PUT Index compared to the S&P 500 Index. In converting traditional equity investment return potential (capital appreciation and dividends) into up-front cash flows via the consistent collection of option premiums and interest income, put writing strategies make an explicit trade-off between up-market participation and down-market participation, while still seeking reasonable returns in flat markets. As such, it is anticipated that the strategy will not participate in the full upside of the index, but it also has the potential to mitigate a portion of losses when the index suffers negative performance, due to the offsetting effect of the premium cash flows. The premiums the strategy collects may decrease during up markets, however, Devens would expect premiums to materially ratchet up during periods of market losses, a feature which may help the strategy recover from drawdowns more quickly than the underlying equity index.

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

 

 

 
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Shareholder Services

 

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

Eligibility

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

Description of Classes

The Trust has adopted a multiple class plan. The Equity Fund, International Fund and Smaller Companies Fund each offer a single class of shares – Institutional Class shares – in this Prospectus. The Alternative Strategies Fund and High Income Alternatives Fund each offer two classes of shares – Institutional Class shares and Investor Class shares – in this Prospectus. The two different classes of shares represent investments in the same portfolio of securities, but the classes are subject to different expenses and may have different share prices as outlined below:

 

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

 

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

How to Buy Shares

 

Step 1

 

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

Individual or Joint Accounts

For your general investment needs:

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

Retirement Accounts

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

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

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

Gifts or Transfers to Minors (UGMA and UTMA)

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

These custodial accounts provide a way to give money to a child and obtain tax benefits. An individual can give up to a statutorily-defined amount per year per child without paying a federal gift tax. Such amount is subject to change each year. For 2020, the amount is $15,000. Depending on state laws, you can set up a custodial account under the Uniform Gifts to Minors Act (“UGMA”) or the Uniform Transfers to Minors Act (“UTMA”).

Trust

For money being invested by a trust:

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

Business or Organization

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

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

Step 2

 

How to Choose a Share Class

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

Conversion Feature

Subject to Litman Gregory’s approval and based on current Internal Revenue Service (“IRS”) guidance, if investors currently holding Investor Class shares meet the criteria for eligible investors and would like to convert to Institutional Class shares, there should be no tax consequences to the converting investor and investors are not subject to the redemption/exchange fees. To inquire about converting your Investor Class shares to Institutional Class shares, please call 1-800-960-0188.

 

 

 
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Investor Class Shares

Investor Class shares may be appropriate if you intend to retain the services of a financial adviser, mutual fund supermarket, retirement plan or other financial intermediary. Investor Class shares cannot be purchased directly from the Funds that offer such class. Investor Class shares have adopted a Distribution and Shareholder Servicing Plan (the “Distribution Plan”), pursuant to which each Investor Class may pay up to 0.25% of its average annual net assets to financial planners, mutual fund supermarkets, or any other persons that render assistance in distributing or promoting the sale of shares or that provide certain shareholder services.

Institutional Class Shares

Institutional Class shares may be appropriate if you intend to make your own investment decisions and will invest directly with the Funds. The Distribution Plan does not apply to the Institutional Class shares, and as a result, the Institutional Class of a Fund has a lower expense ratio than the Investor Class of the same Fund, which will result in higher investment returns for the Institutional Class over time.

Step 3

 

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

 

Equity Fund, International Fund and Smaller Companies Fund

 

Type of Account   Minimum
Initial
Investment
    Minimum
Additional
Investment
    Minimum
Account
Balance
 
Regular      

- Institutional Class

  $ 10,000     $ 250     $ 2,500  
Retirement Account      

- Institutional Class

  $ 1,000     $ 100     $ 250  
Automatic Investment Account      

- Institutional Class

  $ 2,500     $ 250     $ 2,500  
Alternative Strategies Fund and High Income Alternatives Fund

 

Regular      

- Institutional Class

  $ 100,000     $ 250     $ 2,500  

- Investor Class

  $ 1,000     $ 100     $ 250  
Retirement Account      

- Institutional Class

  $ 5,000     $ 100     $ 250  

- Investor Class

  $ 500     $ 100     $ 250  
Automatic Investment Account      

- Institutional Class

  $ 2,500     $ 250     $ 2,500  

- Investor Class

  $ 2,500     $ 250     $ 2,500  

Litman Gregory may waive the minimum investment from time to time in its discretion.

Step 4

 

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

Step 5

 

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

The mailing addresses for the Funds are:

 

For Regular Delivery:

Litman Gregory Funds Trust

c/o

DST Asset Manager Solutions, Inc.

P.O. Box 219922

Kansas City, MO 64121-9922

For Overnight Delivery:

Litman Gregory Funds Trust

c/o

DST Asset Manager Solutions, Inc.

330 West Ninth Street

Kansas City, MO 64105

 

 

In compliance with the USA PATRIOT Act of 2001, please note that the Transfer Agent will verify certain information on your account application as part of the Funds’ Anti-Money Laundering Compliance Program. Until such verification is made, the Funds may temporarily limit share purchases. As requested on the application, you should supply your full name, date of birth, social security number and permanent street address. If you are opening an account in the name of a legal entity (e.g., a partnership, limited liability company, business trust, corporation, etc.), you must also supply the identity of the beneficial owners. Mailing addresses containing only a P.O. Box will not be accepted. Your information will be handled by us as discussed in our privacy notice. Please contact the Transfer Agent at 1-800-960-0188 if you need additional assistance when completing your application.

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

 

 

 
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Shareholder Services — (Continued)

 

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

 

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

 

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

 

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

How to Sell Shares

 

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

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

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

 

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

 

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

 

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

 

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

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

Selling Shares by Letter

Write and sign a “letter of instruction” with:

Your Name

Your Fund’s account number

The dollar amount or number of shares to be redeemed

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

 

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

 

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

 

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

 

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

 

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

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

Mail your letter to:

 

For Regular Delivery:

Litman Gregory Funds Trust

c/o

DST Asset Manager Solutions, Inc.

P.O. Box 219922

Kansas City, MO 64121-9922

For Overnight Delivery:

Litman Gregory Funds Trust

c/o

DST Asset Manager Solutions, Inc.

330 West Ninth Street

Kansas City, MO 64105

 

 

Selling Shares by Telephone

You must select this option on your account application if you wish to use telephone redemption; it is not automatically available. If you selected the telephone redemption option on your account application, you can sell shares simply by calling 1-800-960-0188. If you wish to add this feature to your account, you must do so in writing at least 30 days in advance of any telephonic redemption. The amount you wish to redeem (up to $25,000) will be sent by check to the address of record. This option is not available for retirement accounts.

Selling Shares by Wire

You must sign up for the wire feature before using it. To verify that it is in place, please call 1-800-960-0188. Wire redemptions may be processed for amounts between $5,000 and $25,000. Your wire redemption request must be received by the Funds before 4:00 p.m., Eastern Time for money to be wired the next business day. This option is not available for retirement accounts.

 

 

 
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Shareholder and Account Policies

 

Statements, Reports, and Inquiries

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

 

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

 

  Financial reports (every six months)

 

  Account statements (every six months)

DST Asset Manager Solutions, Inc., the Funds’ transfer agent, is located at 330 West Ninth Street, Kansas City, Missouri, 64105. You may call the Transfer Agent at 1-800-960-0188 if you have questions about your account.

ALPS Distributors, Inc., the Funds’ principal underwriter, is located at 1290 Broadway, Suite 1100, Denver, Colorado 80203.

Exchange Privilege

Exchanges of shares between classes are permitted only as follows: (i) a class of shares of a Fund may be exchanged for the same class of shares of another Fund; and (ii) the Investor Class shares of a Fund may be exchanged for the Institutional Class shares of the same Fund, if the investor is eligible to invest in the Institutional Class shares of that Fund. Shareholders may exchange shares by mailing or delivering written instructions to the Transfer Agent. Such exchange will be treated as a sale of shares and may result in taxable gains. Please specify the names and class of the applicable Fund(s), the number of shares or dollar amount to be exchanged, and your name and account number. You may not utilize an exchange to establish an account into a closed fund.

Exchanging Shares by Telephone

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

Automatic Investment/Withdrawal Plans

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

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

Share Price

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

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

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

General Purchase Information

 

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

 

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

 

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

 

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

 

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

12b-1 Plan

The Trust has adopted the “Distribution Plan” under the Investment Company Act of 1940, as amended, on behalf of the Alternative Strategies Fund and the High Income Alternatives Fund. Under the Distribution Plan, the Alternative Strategies

 

 

 
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Shareholder Services — (Continued)

 

Fund and High Income Alternatives Fund are authorized to pay the Funds’ distributor a fee for the sale and distribution of the Investor Class shares of the Alternative Strategies Fund and High Income Alternatives Fund and for related services the Funds’ distributor provides to shareholders of the Investor Class shares. The maximum amount of the fee authorized under the Distribution Plan is 0.25% of average daily net assets attributable to Investor Class shares for the Alternative Strategies Fund and High Income Alternatives Fund. Because this fee is paid out of the assets of the Investor Class of the Alternative Strategies Fund and High Income Alternatives Fund on an on-going basis, over time these fees will increase the cost of your investment in the Alternative Strategies Fund and High Income Alternatives Fund shares and may cost you more than paying other types of sales charges. Institutional Class shares are not subject to the Distribution Plan.

Buying and Selling Shares through Financial Intermediaries

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

Redemptions

 

  After the Trust has received your redemption request and all proper documents, payment for shares tendered will generally be made within (i) one to three business days for redemptions made by wire, and (ii) three to five business days for ACH redemptions. Normally, redemption payments by check will be mailed to you on the next business day, but your actual receipt of the check will be subject to postal delivery schedules and timing. If making immediate payment could adversely affect the Funds, it may take up to seven days to pay you. The Funds may also delay payment if there have been changes in your mailing address or account registration within 30 days of the date of the redemption.

 

  A Fund typically expects to meet redemptions with positive cash flows. When that cash is not available, the Fund will seek to maintain its portfolio weightings by selling a cross-section of the Fund’s holdings to meet redemptions.
  During conditions that make the payment of cash unwise and/or in order to protect the interests of a Fund’s remaining shareholders, you could receive your redemption proceeds in the form of readily marketable securities. Receiving securities instead of cash is called “redemption in kind.” The Funds may redeem shares in kind during both normal and stressed market conditions, including when the amount you are redeeming from a Fund exceeds 1% of the Fund’s net assets or $250,000 during any 90-day period. Generally, in-kind redemptions will be effected through a pro rata distribution of the Fund’s portfolio securities. You may incur brokerage and other costs in converting to cash any securities distributed. It may take up to several weeks for the initial portion of the in-kind securities to be delivered to you, and substantially longer periods for the remainder of the in-kind securities to be delivered to you, in payment of your redemption in kind.

 

  Under certain circumstances, including stressed market conditions, a Fund may also borrow money (subject to certain regulatory conditions) through a bank line of credit, including from a joint credit facility, in order to meet redemption requests.

 

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

Policy Regarding Excessive Trading and Market Timing

The Board has adopted policies and procedures with respect to frequent purchases and redemptions of Fund shares by Fund shareholders. These policies are summarized below.

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

Investors seeking to engage in excessive trading or market timing practices may deploy a variety of strategies to avoid detection and, despite the efforts of the Funds to prevent such trading, there is no guarantee that the Funds or their agents will be able to identify such investors or curtail their practices. The ability of the Funds and their agents to detect and curtail excessive trading or short term trading practices may also be limited by operational systems and technological limitations. In addition, the Funds receive purchase, exchange and redemption orders through financial intermediaries and cannot always know or reasonably detect excessive trading that may be facilitated by these intermediaries or by the use of omnibus account arrangements. Omnibus accounts are common forms of holding Fund shares. Entities utilizing omnibus account arrangements may not identify customers’ trading activity in shares of a Fund on an individual basis (although in order for financial intermediaries to purchase Fund shares in nominee name on behalf of other persons, the Funds are required to enter into shareholder information agreements with the financial intermediaries, which may result in the disclosure of certain identifying information about shareholders to the Funds).

 

 

 
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Consequently, the Funds may not be able to detect frequent or excessive trading in Fund shares attributable to a particular investor who effects purchase and/or exchange activity in Fund shares through a broker, dealer or other financial intermediary acting in an omnibus capacity. Also, there may be multiple tiers of these entities, each utilizing an omnibus account arrangement, which may further compound the difficulty to the Funds of detecting excessive or short duration trading activity in Fund shares. In seeking to prevent disruptive trading practices in the Funds, the Funds and their agents consider the information actually available to them at the time.

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

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

Each Fund May Close Small Accounts. Due to the relatively high cost of maintaining smaller accounts, the shares in your account (unless it is a retirement plan or custodial account) may be redeemed by a Fund if, due to redemptions you have made, the total value of your account is reduced to less than $2,500 (unless you invest in Investor Class shares only, in which case less than $250). If a Fund decides to make such an involuntary redemption, you will first be notified that the value of your account is less than $2,500 (or $250, as applicable), and you will be allowed 30 days to make an additional investment to bring the value of your account to at least $2,500 (or $250, as applicable) before a Fund takes any action. Unless you are a tax-exempt investor or investing through a tax-deferred retirement plan or other tax-advantaged arrangement, a redemption of shares is generally a taxable event, and you may realize a gain or a loss for U.S. federal income tax purposes (see “Taxes on Transactions” below).

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

Dividends, Capital Gains and Taxes

 

Dividends of net investment income, if any, for the Alternative Strategies Fund are generally declared and paid quarterly. Dividends of net investment income, if any, for the High Income Alternatives Fund are generally declared and paid monthly. Dividends of net investment income, if any, for the Equity Fund, the International Fund, and the Smaller Companies Fund are generally declared and paid annually. Distributions of capital gains, if any, for the High Income Alternatives Fund are generally declared and paid to shareholders quarterly. Distributions of capital gains, if any, for the Equity Fund, the International Fund, the Smaller Companies Fund and the Alternative Strategies Fund are generally declared and paid to shareholders annually.

Distribution Options

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

 

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

 

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

 

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

For retirement accounts, all distributions are automatically reinvested. When you are over 5912 years old, you can receive distributions in cash.

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

Understanding Distributions

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

 

 

 
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Shareholder Services — (Continued)

 

Taxes

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

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

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

Taxes on Transactions. Your redemptions, including transfers between Litman Gregory Masters Funds, are subject to capital gains tax. A capital gain or loss is the difference between the cost of your shares and the price you receive when you sell

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

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

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

When you sign your account application, you will be asked to certify that your Social Security or Taxpayer Identification number is correct and that you are not subject to 24% withholding for failing to report income to the IRS. If you violate IRS regulations, the IRS can require a Fund to withhold 24% of your taxable distributions and redemptions.

 

 

 
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Index Descriptions

 

The 3-Month LIBOR represents the average interest rate at which a selection of banks in London are prepared to lend to one another in American dollars with a maturity of 3 months.

The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index consisting of U.S. dollar-denominated, fixed-rate, taxable bonds.

The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It is comprised of all eligible hedge fund strategies; including but not limited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage. The strategies are asset weighted based on the distribution of assets in the hedge fund industry.

The Morningstar Foreign Large Blend Category measures the performance of foreign large-blend funds which invest in a variety of big international stocks. Most of these funds divide their assets among a dozen or more developed markets, including Japan, Britain, France, and Germany. They tend to invest the rest in emerging markets such as Hong Kong, Brazil, Mexico and Thailand. These funds typically will have less than 20% of assets invested in U.S. stocks.

The Morningstar Large Blend Category measures the performance of large-blend funds which have portfolios that are fairly representative of the overall stock market in size, growth rates, and price. They tend to invest across the spectrum of U.S. industries and owing to their broad exposure, the funds returns are often similar to those of the S&P 500 Index.

The Morningstar Small Blend Category measures the performance of small-blend funds which favor firms at the smaller end of the market-capitalization range, and are flexible in the types of small caps they buy. Some aim to own an array of value and growth stocks while others employ a discipline that leads to holdings with valuations and growth rates close to the small-cap averages.

The Morningstar Multialternative Category measures the performance of funds that use a combination of alternative strategies such as taking long and short positions in equity and debt, trading futures, or using convertible arbitrage, among others. Funds in this category have a majority of their assets exposed to alternative strategies and include both funds with static allocations to alternative strategies and funds tactically allocating among alternative strategies and asset classes.

The MSCI ACWI ex-U.S. Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets, excluding the United States.

The MSCI EAFE Index comprises the MSCI country indices that represent developed markets outside of North America: Europe, Australasia and the Far East and is used to measure international equity performance.

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

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

The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index that measures the investment grade, U.S. dollar-denominated, fixed-rate, taxable bond market and includes Treasuries, government-related and corporate securities, mortgage-backed securities (MBS) (agency fixed-rate and hybrid adjustable rate mortgage (ARM) pass-throughs), asset-backed securities (ABS), and commercial mortgage-backed securities (CMBS) (agency and non-agency).

The HFRX Fixed Income – Credit Index is an unmanaged index that includes strategies with exposure to credit across a broad continuum of credit sub-strategies, including Corporate, Sovereign, Distressed, Convertible, Asset Backed, Capital Structure Arbitrage, Multi-Strategy and other Relative Value and Event Driven sub-strategies. The investment thesis across all strategies is predicated on realization of a valuation discrepancy between the related credit instruments. Strategies may also include and utilize equity securities, credit derivatives, government fixed income, commodities, currencies or other hybrid securities. Constituent funds are selected from an eligible pool of the more than 7,500 funds worldwide that report to the Hedge Fund Research (HFR) Database. Constituent funds must meet all of the following criteria: report monthly; report performance net of all fees; be U.S. dollar denominated; be active and accepting new investments; have a minimum 24 months track record; and the fund’s manager must have at least $50 million in assets under management. Constituents are weighted by a representative optimization methodology. The index is rebalanced quarterly.

The ICE BofAML U.S. High Yield TR USD Index is an unmanaged index that measures the performance of short-term U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. Qualifying securities must have at least 18 months to final maturity at the time of issuance, at least one year remaining term to final maturity as of the rebalancing date, a fixed coupon schedule and a minimum amount outstanding of $100 million. It is capitalization weighted.

Direct investment in an index is not possible.

Neither MSCI nor any other party involved in or related to compiling, computing, or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability, or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates, or any third party involved in or related to compiling, computing, or creating the data have any liability for any direct, indirect, special, punitive, consequential, or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.

 

 

 
Index Descriptions         89


Table of Contents

Financial Highlights

 

The financial highlights tables are intended to help you understand the Funds’ financial performance for the past five years. Certain information reflects financial results for a single Fund share. The total returns in the tables represent the rate that an investor would have earned or lost on an investment in a Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by Cohen & Company, Ltd., the Funds’ independent registered public accounting firm, whose report, along with the Funds’ financial statements, is included in the Funds’ Annual Report to Shareholders, which is available upon request.

For a capital share outstanding throughout each year

 

    LITMAN GREGORY MASTERS EQUITY FUND  
    Institutional Class  
    Year Ended December 31,  
     2019      2018      2017      2016      2015  

Net asset value, beginning of year

  $ 15.02      $ 19.10      $ 17.02      $ 16.08      $ 18.01  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Income from investment operations:

             

Net investment income (loss)

    0.08 1,2       (0.01 )1       (0.01 )1       0.13 1       0.07 1 

Net realized gain (loss) and net change in unrealized appreciation/depreciation on investments and foreign currency

    4.03        (1.90      3.61        1.81        (0.41
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total income (loss) from investment operations

    4.11        (1.91      3.60        1.94        (0.34
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Less distributions:

             

From net investment income

    (0.08                    (0.14      (0.06

From net realized gains

    (1.51      (2.17      (1.52      (0.86      (1.53
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total distributions

    (1.59      (2.17      (1.52      (1.00      (1.59
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of year

  $ 17.54      $ 15.02      $ 19.10      $ 17.02      $ 16.08  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total return

    27.55      (9.91 )%       21.15      11.98      (1.87 )% 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Ratios/supplemental data:

             

Net assets, end of year (millions)

  $ 286.3      $ 259.8      $ 339.5      $ 313.5      $ 321.2  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratios of total expenses to average net assets:

             

Before fees waived

    1.35 %4       1.29 %3       1.27 %3       1.27 %3       1.28 %3 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

After fees waived

    1.24 %4,5       1.17 %3,5       1.15 %3,5       1.17 %3,5       1.18 %3,5 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratio of net investment income (loss) to average net assets

    0.44 %2,4       (0.08 )%3       (0.07 )%3       0.78 %3       0.37 %3 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio turnover rate

    25.02 %6       41.68 %6       33.49 %6       26.98 %6       33.94 %6 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1    Calculated based on the average shares outstanding methodology.
2    Include non-cash distributions amounting to $0.06 per share and 0.33% of average daily net assets.
3    Includes Interest & Dividend expenses of 0.00% of average net assets.
4    Includes Interest & Dividend expense of 0.03% of average net assets.
5    Includes the impact of the voluntary waiver of less than 0.01% of average net assets.
6    Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued.

 

 
90       Litman Gregory Funds Trust


Table of Contents

For a capital share outstanding throughout each year

 

    LITMAN GREGORY MASTERS INTERNATIONAL FUND  
    Institutional Class  
    Year Ended December 31,  
     2019      2018      2017      2016      2015  

Net asset value, beginning of year

  $ 13.94      $ 17.73      $ 14.77      $ 16.13      $ 17.36  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Income from investment operations:

 

Net investment income

    0.27 1,4       0.30 1,3       0.20 1,2       0.23 1       0.22 1 

Net realized gain (loss) and net change in unrealized appreciation/depreciation on investments and foreign currency

    3.97        (3.99      3.28        (0.98      (1.18
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total income (loss) from investment operations

    4.24        (3.69      3.48        (0.75      (0.96
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Less distributions:

 

From net investment income

    (0.53      (0.10      (0.52      (0.61      (0.27

From net realized gains

                                 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total distributions

    (0.53      (0.10      (0.52      (0.61      (0.27
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Redemption fee proceeds

                               
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of year

  $ 17.65      $ 13.94      $ 17.73      $ 14.77      $ 16.13  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total return

    30.45      (20.80 )%       23.61      (4.61 )%       (5.52 )% 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Ratios/supplemental data:

 

Net assets, end of year (millions)

  $ 401.5      $ 368.6      $ 681.1      $ 621.3      $ 1,021.1  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratios of total expenses to average net assets:

             

Before fees waived

    1.36 %6       1.33 %6       1.26 %5       1.28 %6       1.24 %5 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

After fees waived

    1.12 %6,7       1.09 %6,7       0.98 %5,7       1.00 %6,7       0.99 %5,7 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratio of net investment income to average net assets

    1.65 %4,6       1.74 %3,6       1.18 %2,5       1.51 %6       1.22 %5 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio turnover rate

    45.48 %8       35.15 %8       41.90 %8       43.84 %8       51.68 %8 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

^   Amount represents less than $0.01 per share.
1    Calculated based on the average shares outstanding methodology.
2    Include non-cash distributions amounting to $0.06 per share and 0.35% of average daily net assets.
3    Include non-cash distributions amounting to $0.05 per share and 0.29% of average daily net assets.
4    Include non-cash distributions amounting to $0.10 per share and 0.60% of average daily net assets.
5    Includes Interest & Dividend expenses of 0.00% of average net assets.
6    Includes Interest & Dividend expenses of 0.01% of average net assets.
7    Includes the impact of the voluntary waiver of less than 0.01% of average net assets.
8    Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued.

 

 
Financial Highlights         91


Table of Contents

Financial Highlights — (Continued)

 

For a capital share outstanding throughout each year

 

    LITMAN GREGORY MASTERS SMALLER COMPANIES FUND  
    Institutional Class  
    Year Ended December 31,  
     2019      2018      2017      2016      2015  

Net asset value, beginning of year

  $ 21.21      $ 23.70      $ 20.71      $ 17.43      $ 20.09  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Income from investment operations:

 

Net investment income (loss)

    (0.01 )1       0.02 1       (0.07 )1       (0.01 )1       (0.15 )1 

Net realized gain (loss) and net change in unrealized appreciation/depreciation on investments

    5.01        (2.51      3.06        3.29        (2.51
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total income (loss) from investment operations

    5.00        (2.49      2.99        3.28        (2.66
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Less distributions:

 

From net investment income

                               

From net realized gains

    (2.52                            
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total distributions

    (2.52                            
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of year

  $ 23.69      $ 21.21      $ 23.70      $ 20.71      $ 17.43  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total return

    23.72      (10.51 )%       14.44      18.82      (13.24 )% 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Ratios/supplemental data:

 

Net assets, end of year (millions)

  $ 28.7      $ 26.6      $ 33.4      $ 37.2      $ 41.0  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratios of total expenses to average net assets:

 

Before fees waived

    1.88 %2       1.80 %2       1.74 %2       1.66 %2       1.69 %2 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

After fees waived

    1.46 %2,3       1.38 %2,3       1.32 %2,3       1.24 %2,3       1.59 %2,3 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratio of net investment income (loss) to average net assets

    (0.04 )%2       0.10 %2       (0.30 )%2       (0.06 )%2       (0.75 )%2 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio turnover rate

    64.88      75.00      107.51      51.32      60.73
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

^   Amount represents less than $0.01 per share.
1    Calculated based on the average shares outstanding methodology.
2    Includes Interest & Dividend expenses of 0.00% of average net assets.
3    Includes the impact of the voluntary waiver of less than 0.01% of average net assets.

 

 
92       Litman Gregory Funds Trust


Table of Contents

For a capital share outstanding throughout each year

 

    LITMAN GREGORY MASTERS ALTERNATIVE STRATEGIES FUND  
    Institutional Class  
    Year Ended December 31,  
     2019      2018      2017      2016      2015  

Net asset value, beginning of year

  $ 11.08      $ 11.69      $ 11.45      $ 10.99      $ 11.44  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Income from investment operations:

 

Net investment income

    0.31 1,2       0.26 1       0.26 1       0.31 1       0.30 1 

Net realized gain (loss) and net change in unrealized appreciation/depreciation on investments, foreign currency, short sales, options, futures and swap contracts

    0.64        (0.51      0.25        0.44        (0.40
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total income (loss) from investment operations

    0.95        (0.25      0.51        0.75        (0.10
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Less distributions:

 

From net investment income

    (0.33      (0.36      (0.27      (0.29      (0.32

From net realized gains

                                (0.03
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total distributions

    (0.33      (0.36      (0.27      (0.29      (0.35
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of year

  $ 11.70      $ 11.08      $ 11.69      $ 11.45      $ 10.99  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total return

    8.52      (2.08 )%       4.51      6.87      (0.77 )% 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Ratios/supplemental data:

 

Net assets, end of year (millions)

  $ 1,724.2      $ 1,663.7      $ 1,828.1      $ 1,368.9      $ 1,176.9  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratios of total expenses to average net assets:

 

Before fees waived

    1.63 %7       1.63 %6       1.75 %5       1.83 %4       1.94 %3 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

After fees waived

    1.51 %7,8       1.53 %6,8       1.66 %5,8       1.75 %4,8       1.85 %3,8 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratio of net investment income to average net assets

    2.70 %2,7       2.26 %6       2.25 %5       2.78 %4       2.62 %3 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio turnover rate

    190.21 %9       197.04 %9       169.34 %9       142.24 %9       145.97 %9 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1    Calculated based on the average shares outstanding methodology.
2    Include non-cash distributions amounting to $0.02 per share and 0.20% of average daily net assets.
3    Includes Interest & Dividend expense of 0.36% of average net assets.
4    Includes Interest & Dividend expense of 0.28% of average net assets.
5    Includes Interest & Dividend expense of 0.20% of average net assets.
6    Includes Interest & Dividend expense of 0.07% of average net assets.
7    Includes Interest & Dividend expense of 0.05% of average net assets.
8    Includes the impact of the voluntary waiver of less than 0.01% of average net assets.
9    Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued.

 

 
Financial Highlights         93


Table of Contents

Financial Highlights — (Continued)

 

For a capital share outstanding throughout each year

 

    LITMAN GREGORY MASTERS ALTERNATIVE STRATEGIES FUND  
    Investor Class  
    Year Ended December 31,  
     2019      2018      2017      2016      2015  

Net asset value, beginning of year

  $ 11.10      $ 11.70      $ 11.46      $ 11.00      $ 11.45  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Income from investment operations:

 

Net investment income

    0.28 1,2       0.23 1       0.23 1       0.28 1       0.28 1 

Net realized gain (loss) and net change in unrealized appreciation/depreciation on investments, foreign currency, short sales, options, futures and swap contracts

    0.63        (0.50      0.25        0.44        (0.40
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total income (loss) from investment operations

    0.91        (0.27      0.48        0.72        (0.12
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Less distributions:

 

From net investment income

    (0.30      (0.33      (0.24      (0.26      (0.30

From net realized gains

                                (0.03
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total distributions

    (0.30      (0.33      (0.24      (0.26      (0.33
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of year

  $ 11.71      $ 11.10      $ 11.70      $ 11.46      $ 11.00  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total return

    8.22      (2.32 )%       4.14      6.67      (0.95 )% 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             

Ratios/supplemental data:

 

Net assets, end of year (millions)

  $ 144.1      $ 175.3      $ 206.0      $ 179.8      $ 190.6  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratios of total expenses to average net assets:

 

Before fees waived

    1.88 %7       1.88 %6       2.00 %5       2.08 %4       2.18 %3 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

After fees waived

    1.76 %7,8       1.78 %6,8       1.90 %5,8       2.00 %4,8       2.03 %3,8 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratio of net investment income to average net assets

    2.44 %2,7       2.01 %6       2.01 %5       2.54 %4       2.44 %3 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio turnover rate

    190.21 %9       197.04 %9       169.34 %9       142.24 %9       145.97 %9 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1    Calculated based on the average shares outstanding methodology.
2    Include non-cash distributions amounting to $0.02 per share and 0.20% of average daily net assets.
3    Includes Interest & Dividend expense of 0.36% of average net assets.
4    Includes Interest & Dividend expense of 0.28% of average net assets.
5    Includes Interest & Dividend expense of 0.20% of average net assets.
6    Includes Interest & Dividend expense of 0.07% of average net assets.
7    Includes Interest & Dividend expense of 0.05% of average net assets.
8    Includes the impact of the voluntary waiver of less than 0.01% of average net assets.
9    Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued.

 

 
94       Litman Gregory Funds Trust


Table of Contents

For a capital share outstanding throughout each year

 

    LITMAN GREGORY MASTERS HIGH INCOME
ALTERNATIVES FUND
 
    Institutional Class  
     Year Ended
December 31, 2019
     Period Ended
December 31, 2018**
 

Net asset value, beginning of year

  $ 9.63      $ 10.00  
 

 

 

    

 

 

 
    

Income from investment operations:

 

Net investment income

    0.36 1       0.07 1 

Net realized gain (loss) and net change in unrealized appreciation/depreciation on investments, foreign currency, futures, options and swap contracts

    0.44        (0.38
 

 

 

    

 

 

 

Total income (loss) from investment operations

    0.80        (0.31
 

 

 

    

 

 

 
    

Less distributions:

 

From net investment income

    (0.33      (0.06

From net realized gains

    (0.04       
 

 

 

    

 

 

 

Total distributions

    (0.37      (0.06
 

 

 

    

 

 

 

Net asset value, end of year

  $ 10.06      $ 9.63  
 

 

 

    

 

 

 

Total return

    8.37      (3.08 )%+ 
 

 

 

    

 

 

 
    

Ratios/supplemental data:

 

Net assets, end of year (millions)

  $ 93.8      $ 77.2  
 

 

 

    

 

 

 

Ratios of total expenses to average net assets:

    

Before fees waived

    1.39 %2       1.34 %* 
 

 

 

    

 

 

 

After fees waived

    0.98 %2,3       0.98 %*3 
 

 

 

    

 

 

 

Ratio of net investment income to average net assets

    3.56 %2       2.89 %* 
 

 

 

    

 

 

 

Portfolio turnover rate

    90.51 %4       125.92 %+4 
 

 

 

    

 

 

 

 

+   Not annualized.
*   Annualized.
**   Commenced operations on September 28, 2018.
1    Calculated based on the average shares outstanding methodology.
2    Includes Interest & Dividend expense of 0.00% of average net assets.
3    Includes the impact of the voluntary waiver of less than 0.01% of average net assets.
4    Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued.

 

 
Financial Highlights         95


Table of Contents

Financial Highlights — (Continued)

 

For a capital share outstanding throughout each year

 

    LITMAN GREGORY MASTERS HIGH INCOME
ALTERNATIVES FUND
 
    Investor Class  
     Year Ended
December 31, 2019
     Period Ended
December 31, 2018**
 

Net asset value, beginning of year

  $ 9.63      $ 10.00  
 

 

 

    

 

 

 
    

Income from investment operations:

 

Net investment income

    0.34 1       0.08 1 

Net realized gain (loss) and net change in unrealized appreciation/depreciation on investments, foreign currency, futures, options and swap contracts

    0.44        (0.39
 

 

 

    

 

 

 

Total income (loss) from investment operations

    0.78        (0.31
 

 

 

    

 

 

 
    

Less distributions:

 

From net investment income

    (0.30      (0.06

From net realized gains

    (0.04       
 

 

 

    

 

 

 

Total distributions

    (0.34      (0.06
 

 

 

    

 

 

 

Net asset value, end of year

  $ 10.07      $ 9.63  
 

 

 

    

 

 

 

Total return

    8.18      (3.09 )%+ 
 

 

 

    

 

 

 
    

Ratios/supplemental data:

 

Net assets, end of year (millions)

  $ 1.4      $ 0.5  
 

 

 

    

 

 

 

Ratios of total expenses to average net assets:

    

Before fees waived

    1.67 %2       1.62 %* 
 

 

 

    

 

 

 

After fees waived

    1.23 %2,3       1.23 %*3 
 

 

 

    

 

 

 

Ratio of net investment income to average net assets

    3.36 %2       3.25 %* 
 

 

 

    

 

 

 

Portfolio turnover rate

    90.51 %4       125.92 %+4 
 

 

 

    

 

 

 

 

+   Not annualized.
*   Annualized.
**   Commenced operations on September 28, 2018.
1    Calculated based on the average shares outstanding methodology.
2    Includes Interest & Dividend expense of 0.00% of average net assets.
3    Includes the impact of the voluntary waiver of less than 0.01% of average net assets.
4    Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued.

 

 
96       Litman Gregory Funds Trust


Table of Contents

For More Information

Statement of Additional Information:

 

The SAI contains additional information about the Funds.

Annual and Semi-Annual Reports:

 

Additional information about the Funds’ investments is available in the Funds’ Annual and Semi-Annual Reports to Shareholders. In the Funds’ Annual Report, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds’ performance during the last fiscal year.

The SAI and the Funds’ Annual and Semi-Annual Reports to Shareholders are available, without charge, upon request. To request an SAI or the Funds’ Annual or Semi-Annual Reports to Shareholders, or to make shareholder inquiries or to obtain other information about the Funds, please call 1-800-960-0188. You may also obtain a copy of the SAI or Annual or Semi-Annual Reports, free of charge, by accessing the Funds’ website (http://www.mastersfunds.com), or by writing to the Funds.

SEC Contact Information:

 

If you have access to the Internet, you can view the SAI, the Funds’ Annual or Semi-Annual Reports to Shareholders and other information about the Funds on the EDGAR Database at the Securities and Exchange Commission’s (“SEC”) internet site at www.sec.gov. You may request copies of information available on the EDGAR Database by an electronic request at the following E-mail address: publicinfo@sec.gov. The SEC charges a duplicating fee for this service.

Fund Information:

 

 

Fund   Abbreviation   Symbol   CUSIP     Fund Number  

Equity Fund

  Equity      

Institutional Class

      MSEFX     53700T108       305  

International Fund

  Intl      

Institutional Class

      MSILX     53700T207       306  

Smaller Companies Fund

  Smaller      

Institutional Class

      MSSFX     53700T306       308  

Alternative Strategies Fund

  Alternative      

Institutional Class

    MASFX     53700T801       421  

Investor Class

      MASNX     53700T884       447  

High Income Alternatives Fund

  High Income      

Institutional Class

    MAHIX     53700T876       1478  

Investor Class

      MAHNX     53700T868       1479  

Website:

 

www.mastersfunds.com

Litman Gregory Funds Trust

P.O. Box 219922

Kansas City, MO 64121-9922

1-800-960-0188

    

ALPS Distributors, Inc. Denver, Colorado 80203

©2020 Litman Gregory Fund Advisors, LLC. All rights reserved.

 

Investment Company Act File No: 811-07763

LITMAN GREGORY FUNDS TRUST

Litman Gregory Masters Equity Fund – Institutional Class – MSEFX

Litman Gregory Masters International Fund – Institutional Class – MSILX

Litman Gregory Masters Smaller Companies Fund – Institutional Class – MSSFX

Litman Gregory Masters Alternative Strategies Fund – Institutional Class – MASFX

Investor Class – MASNX

Litman Gregory Masters High Income Alternatives Fund – Institutional Class – MAHIX

Investor Class – MAHNX

STATEMENT OF ADDITIONAL INFORMATION

Dated April 29, 2020

This Statement of Additional Information (“SAI”) is not a prospectus, and it should be read in conjunction with the prospectus dated April 29, 2020, as it may be amended from time to time, of Litman Gregory Masters Equity Fund (the “Equity Fund”), Litman Gregory Masters International Fund (the “International Fund”), Litman Gregory Masters Smaller Companies Fund (the “Smaller Companies Fund”), Litman Gregory Masters Alternative Strategies Fund (the “Alternative Strategies Fund”), and Litman Gregory Masters High Income Alternatives Fund (the “High Income Alternatives Fund,” and collectively with the Equity Fund, the International Fund, the Smaller Companies Fund, and the Alternative Strategies Fund, the “Funds”), each a series of the Litman Gregory Funds Trust (the “Trust”), formerly known as the Masters’ Select Funds Trust until August 2011 and the Masters’ Select Investment Trust until December 1997. Litman Gregory Fund Advisors, LLC (the “Advisor” or “Litman Gregory”) is the investment advisor of the Funds. The Advisor has retained certain investment managers as sub-advisors (each, a “Sub-Advisor,” and collectively, the “Sub-Advisors”), each responsible for portfolio management of a segment of a Fund’s total assets. A copy of the Funds’ prospectus and most recent annual report may be obtained from the Trust without charge at 1676 N. California Blvd., Suite 500, Walnut Creek, California 94596, telephone 1-800-960-0188.

The Funds’ audited financial statements for the fiscal year ended December 31, 2019 are incorporated by reference to the Funds’ Annual Report for the fiscal year ended December 31, 2019.

 

1


TABLE OF CONTENTS

 

FUND HISTORY

     3  

INVESTMENT OBJECTIVES, POLICIES AND RISKS

     3  

BOARD OF TRUSTEES

     35  

PORTFOLIO HOLDINGS DISCLOSURE POLICIES AND PROCEDURES

     44  

THE ADVISOR AND THE SUB-ADVISORS

     45  

ADDITIONAL PORTFOLIO MANAGER INFORMATION

     48  

PROXY VOTING POLICIES AND PROCEDURES

     82  

ADMINISTRATOR

     102  

PORTFOLIO TRANSACTIONS AND BROKERAGE

     102  

PORTFOLIO TURNOVER

     105  

NET ASSET VALUE

     107  

TAXATION

     108  

DIVIDENDS AND DISTRIBUTIONS

     111  

ANTI-MONEY LAUNDERING PROGRAM

     112  

GENERAL INFORMATION

     112  

FINANCIAL STATEMENTS

     113  

APPENDIX

     114  

 

2


FUND HISTORY

The Trust was organized as a Delaware statutory trust on August 1, 1996 and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust consists of five separate series: the Equity Fund, the International Fund, the Smaller Companies Fund, the Alternative Strategies Fund, and the High Income Alternatives Fund.

The Equity Fund commenced operations on December 31, 1996. On April 30, 2009, the existing unnamed class of shares was redesignated as the Institutional Class.

The International Fund commenced operations on December 1, 1997. On April 30, 2009, the existing unnamed class of shares was redesignated as the Institutional Class.

The Smaller Companies Fund commenced operations on June 30, 2003. On April 30, 2009, the existing unnamed class of shares was redesignated as the Institutional Class.

The Alternative Strategies Fund commenced operations on September 30, 2011. Both the Institutional Class and the Investor Class commenced operations on that date.

The High Income Alternatives Fund commenced operations on September 28, 2018. Both the Institutional Class and the Investor Class commenced operations on that date.

INVESTMENT OBJECTIVES, POLICIES AND RISKS

The investment objective of each Fund is fundamental and therefore may be changed only with the favorable vote of the holders of a majority of the outstanding voting securities (as defined in the 1940 Act) of such Fund. Each Fund’s investment objective is set forth in the Funds’ prospectus. There is no assurance that each Fund will achieve its investment objective. The discussion below supplements information contained in the prospectus as to the investment policies of each Fund.

Investment policies or descriptions that are described as percentages of “the Fund’s net assets” are measured as percentages of the Fund’s net assets plus borrowings for investment purposes. The investment policies of the Equity Fund, International Fund, and Smaller Companies Fund with respect to “80% of the Fund’s net assets” may be changed by the Board of Trustees of the Trust (the “Board”) without shareholder approval, but shareholders would be given at least 60 days’ notice if any change occurs.

Investors should be aware that in light of the current uncertainty, volatility and distress in economies, financial markets, and labor and health conditions across the world, the risks discussed below are heightened significantly compared to normal conditions and therefore subject a Fund’s investments and a shareholder’s investment in a Fund to sudden and substantial losses.

Cash Position

When a Fund’s Sub-Advisor believes that market conditions are unfavorable for profitable investing, or when the Sub-Advisor is otherwise unable to locate attractive investment opportunities, a Fund’s cash or similar investments may increase. In other words, the Funds do not always stay fully invested in stocks and bonds. Cash or similar investments generally are a residual—they represent the assets that remain after a portfolio manager has committed available assets to desirable investment opportunities. However, the Advisor or a Fund’s Sub-Advisor may also temporarily increase a Fund’s cash position to protect its assets or maintain liquidity. Partly because the Sub-Advisors act independently of each other, the cash positions of the Funds may vary significantly.

When a Fund’s investments in cash or similar investments increase, it may not participate in market advances or declines to the same extent that it would if the Fund remained more fully invested in stocks or bonds.

 

3


Equity Securities

The Funds may invest in equity securities consistent with its investment objective and strategies. Common stocks, preferred stocks and convertible securities are examples of equity securities.

All investments in equity securities are subject to market risks that may cause their prices to fluctuate over time. Historically, the equity markets have moved in cycles and the value of the securities in a Fund’s portfolio may fluctuate substantially from day to day. Owning an equity security can also subject a Fund to the risk that the issuer may discontinue paying dividends.

To the extent a Fund invests in the equity securities of small- or medium-size companies, it will be exposed to the risks of small- and medium-size companies. Such companies often have limited product lines or services, have narrower markets for their goods and/or services, and more limited managerial and financial resources than larger, more established companies. In addition, because these companies are not well-known to the investing public, they may not have significant institutional ownership and may be followed by relatively few security analysts, and there will normally be less publicly available information when compared to larger companies. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, can decrease the price and liquidity of securities held by the Fund. As a result, as compared to larger-sized companies, the performance of smaller-sized companies can be more volatile and they face greater risk of business failure, which could increase the volatility of the Fund’s portfolio.

Common Stock. A common stock represents a proportionate share of the ownership of a company and its value is based on the success of the company’s business, the cash a company generates, and the value of a company’s assets. However, over short periods of time, the price of any company, whether successful or not, may increase or decrease in price by a meaningful percentage. In addition to the general risks set forth above, investments in common stocks are subject to the risk that in the event a company in which a Fund invests is liquidated, the holders of preferred stock and creditors of that company will be paid in full before any payments are made to the Fund as a holder of that company’s common stock. It is possible that all assets of that company will be exhausted before any payments are made to the Fund.

Preferred Stock. Preferred stocks are equity securities that often pay dividends at a specific rate and have a preference over common stocks in dividend payments and liquidation of assets. A preferred stock has a blend of the characteristics of a bond and common stock. It can offer the higher yield of a bond and has priority over common stock in equity ownership, but does not have the seniority of a bond and, unlike common stock, its participation in the issuer’s growth may be limited. Although the dividend is set at a fixed annual rate, in some circumstances it can be changed or omitted by the issuer.

Convertible Securities and Warrants

Each Fund may invest in convertible securities and warrants. A convertible security is a fixed-income security (a debt instrument or a preferred stock) which may be converted at a stated price within a specified period of time into a certain quantity of the common stock of the same or a different issuer. Convertible securities are senior to common stock in an issuer’s capital structure, but are usually subordinated to similar non-convertible securities. While providing a fixed-income stream (generally higher in yield than the income derivable from common stock but lower than that afforded by a similar non-convertible security), a convertible security also affords an investor the opportunity, through its conversion feature, to participate in the capital appreciation upon a market price advance in the convertible security’s underlying common stock.

A warrant gives the holder the right to purchase at any time during a specified period a predetermined number of shares of common stock at a fixed price. Unlike convertible debt securities or preferred stock, warrants do not pay a fixed dividend. Investments in warrants involve certain risks, including the possible lack of a liquid market for resale of the warrants, potential price fluctuations as a result of speculation or other factors, and failure of the price of the underlying security to reach or have reasonable prospects of reaching a level at which the warrant can be prudently exercised (in which event the warrant may expire without being exercised, resulting in a loss of a Fund’s entire investment therein).

 

4


Other Corporate Debt Securities

Each Fund may invest in non-convertible debt securities of foreign and domestic companies over a cross-section of industries. The debt securities in which each Fund may invest will be of varying maturities and may include corporate bonds, debentures, notes and other similar corporate debt instruments. The value of a longer-term debt security fluctuates more widely in response to changes in interest rates than do shorter-term debt securities.

Risks of Investing in Debt Securities

There are a number of risks generally associated with an investment in debt securities (including convertible securities). Yields on short-, intermediate-, and long-term securities depend on a variety of factors, including the general condition of the money and bond markets, the size of a particular offering, the maturity of the obligation, and the rating of the issue.

Debt securities with longer maturities tend to produce higher yields and are generally subject to potentially greater capital appreciation and depreciation than obligations with short maturities and lower yields. The market prices of debt securities usually vary, depending upon available yields. An increase in interest rates will generally reduce the value of such portfolio investments, and a decline in interest rates will generally increase the value of such portfolio investments. The ability of each Fund to achieve its investment objective also depends on the continuing ability of the issuers of the debt securities in which each Fund invests to meet their obligations for the payment of interest and principal when due.

Risks of Investing in Lower-Rated Debt Securities

Each Fund may invest a portion of its net assets in debt securities rated below “Ba1” by Moody’s, below “BB+” by Standard & Poor’s (“S&P”) or below investment grade by other recognized rating agencies, or in unrated securities of comparable quality under certain circumstances. Securities with ratings below “Baa” by Moody’s and/or “BBB” by S&P are commonly referred to as “junk bonds.” Such bonds are subject to greater market fluctuations and risk of loss of income and principal than higher rated bonds for a variety of reasons, including the following:

Sensitivity to Interest Rate and Economic Changes. The economy and interest rates affect high yield securities differently from other securities. For example, the prices of high yield bonds have been found to be less sensitive to interest rate changes than higher-rated investments, but more sensitive to adverse economic changes or individual corporate developments. Also, during an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience financial stress which would adversely affect their ability to service their principal and interest obligations, to meet projected business goals, and to obtain additional financing. If the issuer of a bond defaults, each Fund may incur additional expenses to seek recovery. In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices of high yield bonds and a Fund’s asset values.

Payment Expectations. High yield bonds present certain risks based on payment expectations. For example, high yield bonds may contain redemption and call provisions. If an issuer exercises these provisions in a declining interest rate market, a Fund would have to replace the security with a lower yielding security, resulting in a decreased return for investors. Conversely, a high yield bond’s value will decrease in a rising interest rate market, as will the value of a Fund’s assets. If a Fund experiences unexpected net redemptions, it may be forced to sell its high yield bonds without regard to their investment merits, thereby decreasing the asset base upon which a Fund’s expenses can be spread and possibly reducing a Fund’s rate of return.

Liquidity and Valuation. To the extent that there is no established retail secondary market, there may be thin trading of high yield bonds, and this may impact a Sub-Advisor’s ability to accurately value high yield bonds and a Fund’s assets and hinder a Fund’s ability to dispose of the bonds. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of high yield bonds, especially in a thinly traded market.

Credit Ratings. Credit ratings evaluate the safety of principal and interest payments, not the market value risk of high yield bonds. Also, since credit rating agencies may fail to timely change the credit ratings to reflect subsequent events, a Sub-Advisor must monitor the issuers of high yield bonds in a Fund’s portfolio to determine if

 

5


the issuers will have sufficient cash flow and profits to meet required principal and interest payments, and to assure the bonds’ liquidity so a Fund can meet redemption requests. A Fund will not necessarily dispose of a portfolio security when its rating has been changed.

Exchange-Traded Notes

The Funds may invest in exchange-traded notes (“ETNs”). ETNs are senior, unsecured, unsubordinated debt securities whose returns are linked to the performance of a particular market benchmark or strategy minus applicable fees. ETNs are traded on an exchange (e.g., the New York Stock Exchange (“NYSE”)) during normal trading hours. However, investors can also hold the ETN until maturity. At maturity, the issuer pays to the investor a cash amount equal to the principal amount, subject to the day’s market benchmark or strategy factor.

ETNs do not make periodic coupon payments or provide principal protection. ETNs are subject to credit risk and the value of the ETN may drop due to a downgrade in the issuer’s credit rating, despite the underlying market benchmark or strategy remaining unchanged. The value of an ETN may also be influenced by time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying assets, changes in the applicable interest rates, changes in the issuer’s credit rating, and economic, legal, political, or geographic events that affect the referenced underlying asset. When a Fund invests in ETNs, it will bear its proportionate share of any fees and expenses borne by the ETN. A Fund’s decision to sell its ETN holdings may be limited by the availability of a secondary market. In addition, although an ETN may be listed on an exchange, the issuer may not be required to maintain the listing and there can be no assurance that a secondary market will exist for an ETN.

ETNs are also subject to tax risk. The tax treatment of ETNs is unclear. No statutory, juridical or administrative authority directly discusses how ETNs should be treated in this context for U.S. federal income tax purposes. No assurance can be given that the Internal Revenue Service (the “IRS”) will accept, or a court will uphold, how the Fund characterizes and treats ETNs for tax purposes. Further, the IRS and Congress are considering proposals that would change the timing and character of income and gains from ETNs.

An ETN that is tied to a specific market benchmark or strategy may not be able to replicate and maintain exactly the composition and relative weighting of securities, commodities or other components in the applicable market benchmark or strategy. Some ETNs that use leverage can, at times, be relatively illiquid and, thus, they may be difficult to purchase or sell at a fair price. Leveraged ETNs are subject to the same risk as other instruments that use leverage in any form.

The market value of ETN shares may differ from their market benchmark or strategy. This difference in price may be due to the fact that the supply and demand in the market for ETN shares at any point in time is not always identical to the supply and demand in the market for the securities, commodities or other components underlying the market benchmark or strategy that the ETN seeks to track. As a result, there may be times when an ETN share trades at a premium or discount to its market benchmark or strategy.

Participation Notes (International Fund, Alternative Strategies Fund and High Income Alternatives Fund)

The International Fund, the Alternative Strategies Fund and the High Income Alternatives Fund may invest in participation notes (“P-Notes”). Some countries, especially emerging markets countries, do not permit foreigners to participate directly in their securities markets or otherwise present difficulties for efficient foreign investment. The International Fund, the Alternative Strategies Fund and the High Income Alternatives Fund may use P-Notes to establish a position in such markets as a substitute for direct investment. The International Fund, the Alternative Strategies Fund and the High Income Alternatives Fund may also invest in P-Notes, as an alternative to investing directly in the underlying security, if Litman Gregory determines that P-Notes offer greater liquidity than the underlying security. P-Notes are issued by banks or broker-dealers and are designed to track the return of a particular underlying equity or debt security, currency, or market. When the P-Note matures, the issuer of the P-Note will pay to, or receive from, the International Fund, the Alternative Strategies Fund or the High Income Alternatives Fund the difference between the nominal value of the underlying instrument at the time of purchase and that instrument’s value at maturity. Investments in P-Notes involve the same risks associated with a direct investment in the underlying security, currency, or market that they seek to replicate, including, as applicable, foreign, emerging, and frontier risks.

 

6


In addition, P-Notes are generally traded over-the-counter and are subject to counterparty risk. Counterparty risk is the risk that the issuer of the P-Note will not fulfill its contractual obligation to complete the transaction with the International Fund, the Alternative Strategies Fund or the High Income Alternatives Fund. P-Notes constitute general unsecured contractual obligations of the banks or broker-dealers that issue them, and the International Fund, the Alternative Strategies Fund and the High Income Alternatives Fund would be relying on the creditworthiness of such banks or broker-dealers and would have no rights under a P-Note against the issuer of the underlying assets. In addition, P-Notes may trade at a discount to the value of the underlying securities or markets that they seek to replicate.

Short-Term Investments

Each Fund may invest in any of the following short-term securities and instruments:

Bank Certificates or Deposits, Bankers’ Acceptances and Time Deposits. Each Fund may acquire certificates of deposit, bankers’ acceptances and time deposits. Certificates of deposit are negotiable certificates issued against funds 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 to pay the face value of the instrument on maturity. Certificates of deposit and bankers’ acceptances acquired by a 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. If a Fund holds instruments of foreign banks or financial institutions, it may be subject to additional investment risks that are different in some respects from those incurred by a fund that invests only in debt obligations of U.S. domestic issuers. See “Foreign Investments” below. Such risks include those related to future political and economic developments, the possible imposition of withholding taxes by the particular country in which the issuer is located on interest income payable on the securities, the possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls and the possible adoption of other foreign governmental restrictions that might adversely affect the payment of principal and interest on these securities.

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 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 a Fund may acquire.

In addition to purchasing certificates of deposit and bankers’ acceptances, to the extent permitted under its investment objectives and policies stated above and in its prospectus, a 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. Each 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. Each 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.

 

7


Commercial paper and short-term notes in which a Fund may invest will consist of issues rated at the time of purchase “AA-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 a Sub-Advisor to be of comparable quality. These rating symbols are described in Appendix A.

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, a Fund may purchase corporate obligations that have remaining maturities of one year or less from the date of purchase and that are rated “AA” or higher by S&P or “Aa” or higher by Moody’s.

Loan Participations and Assignments (Bank Debt) (Alternative Strategies Fund and High Income Alternatives Fund)

The Alternative Strategies Fund and the High Income Alternatives Fund may invest in bank debt, which includes interests in loans to companies or their affiliates undertaken to finance a capital restructuring or in connection with recapitalizations, acquisitions, leveraged buyouts, refinancings or other financially leveraged transactions and may include loans which are designed to provide temporary or bridge financing to a borrower pending the sale of identified assets, the arrangement of longer-term loans or the issuance and sale of debt obligations. These loans, which may bear fixed or floating rates, have generally been arranged through private negotiations between a corporate borrower and one or more financial institutions (“Lenders”), including banks. Each Fund’s investment may be in the form of participations in loans (“Participations”) or of assignments of all or a portion of loans from third parties (“Assignments”).

Each Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender selling a Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, each Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loan, nor any rights of set-off against the borrower, and each Fund may not benefit directly from any collateral supporting the loan in which it has purchased the Participation. Thus, each Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. In addition, in connection with purchasing Participations, each Fund generally will have no role in terms of negotiating or effecting amendments, waivers and consents with respect to the loans underlying the Participations. In the event of the insolvency of the Lender, each Fund may be treated as a general creditor of the Lender and may not benefit from any set-off between the Lender and the borrower.

In certain cases, the rights and obligations acquired by each Fund through the purchase of an Assignment may differ from, and be more limited than, those held by the assigning selling institution. Assignments are sold strictly without recourse to the selling institutions, and the selling institutions will generally make no representations or warranties to each Fund about the underlying loan, the borrowers, the documentation of the loans or any collateral securing the loans.

Investments in Participations and Assignments involve additional risks, including the risk of nonpayment of principal and interest by the borrower, the risk that any loan collateral may become impaired and that each Fund may obtain less than the full value for the loan interests sold because they may be illiquid. Purchasers of loans depend primarily upon the creditworthiness of the borrower for payment of interest and repayment of principal. If scheduled interest or principal payments are not made, the value of the instrument may be adversely affected.

Investments in loans through direct assignment of a financial institution’s interests with respect to a loan may involve additional risks. For example, if a loan is foreclosed, each Fund could become part owner of any collateral, and would bear the costs and liabilities associated with owning and disposing of the collateral.

A loan is often administered by a bank or other financial institution that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. Unless, under the terms of the loan or other indebtedness, each Fund has direct recourse against the borrower, each Fund may have to rely on the agent to apply appropriate credit remedies against a borrower. If assets held by the agent for the benefit of each Fund were determined to be subject to the claims of the agent’s general creditors, each Fund might incur certain costs and delays in realizing payment on the loan or loan participation and could suffer a loss of principal or interest.

 

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Interests in loans are also subject to additional liquidity risks. Loans are generally subject to legal or contractual restrictions on resale. Loans are not currently listed on any securities exchange or automatic quotation system, but are traded by banks and other institutional investors engaged in loan syndication. As a result, no active market may exist for some loans, and to the extent a secondary market exists for other loans, such market may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods. Consequently, each Fund may have difficulty disposing of Assignments or Participations in response to a specific economic event such as deterioration in the creditworthiness of the borrower, which can result in a loss. In such market situations, it may be more difficult for each Fund to assign a value to Assignments or Participations when valuing each Fund’s securities and calculating its net asset value (“NAV”).

Each Fund limits the amount of its assets that it will invest in any one issuer or in issuers within the same industry (see “Investment Restrictions” below). For purposes of these limits, each Fund will generally treat the corporate borrower as the “issuer” of indebtedness held by each Fund. In the case of Participations where a bank or other lending institution serves as a financial intermediary between the Fund and the corporate borrower, if the Participation does not shift to each Fund the direct debtor-creditor relationship with the corporate borrower, U.S. Securities and Exchange Commission (the “SEC”) interpretations require each Fund, in appropriate circumstances, to treat both the lending bank or other lending institution and the corporate borrower as “issuers” for the purpose of determining whether each Fund has invested more than 5% of its total assets in a single issuer. Treating a financial intermediary as an issuer of indebtedness may restrict each Fund’s ability to invest in indebtedness related to a single financial intermediary, or a group of intermediaries engaged in the same industry, even if the underlying borrowers represent many different companies and industries.

Money Market Funds

Each Fund may under certain circumstances invest a portion of its assets in money market funds. The 1940 Act generally prohibits a Fund from investing more than 5% of the value of its total assets in any one investment company or more than 10% of the value of its total assets in investment companies as a group, and also restricts its investment in any investment company to 3% of the voting securities of such investment company. There are some exceptions, however, to these limitations pursuant to various rules promulgated by the SEC. For example, Section 12(d)(1)(F) of the 1940 Act provides that the limitations set forth above do not apply to securities purchased or otherwise acquired by the Fund if immediately after such purchase or acquisition not more than 3% of the total outstanding stock of such investment company is owned by the Fund and all affiliated persons of the Fund. The Fund must comply with certain other administrative requirements in order to comply this exception, including, among others, that the Fund (or the Advisor or Sub-Advisor acting on behalf of the Fund) complies with certain voting restrictions when voting the shares of such investment company. The Advisor and the Sub-Advisors will not impose advisory fees on assets of a Fund invested in a money market mutual fund. However, an investment in a money market mutual fund will involve payment by a Fund of its pro rata share of advisory and administrative fees charged by such fund.

Municipal Securities (Alternative Strategies Fund and High Income Alternatives Fund)

The Alternative Strategies Fund and the High Income Alternatives Fund may invest in municipal securities. Municipal securities are issued by the states, territories and possessions of the United States, their political subdivisions (such as cities, counties and towns) and various authorities (such as public housing or redevelopment authorities), instrumentalities, public corporations and special districts (such as water, sewer or sanitary districts) of the states, territories, and possessions of the United States or their political subdivisions. In addition, municipal securities include securities issued by or on behalf of public authorities to finance various privately operated facilities, such as industrial development bonds, that are backed only by the assets and revenues of the non-governmental user (such as hospitals and airports).

Municipal securities are issued to obtain funds for a variety of public purposes, including general financing for state and local governments, or financing for specific projects or public facilities. Municipal securities are classified as general obligation or revenue bonds or notes. General obligation securities are secured by the issuer’s pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable

 

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from revenue derived from a particular facility, class of facilities, or the proceeds of a special excise tax or other specific revenue source, but not from the issuer’s general taxing power. Each Fund will not invest more than 25% of its total assets in a single type of revenue bond. Private activity bonds and industrial revenue bonds do not carry the pledge of the credit of the issuing municipality, but generally are guaranteed by the corporate entity on whose behalf they are issued.

Shareholders of the Alternative Strategies Fund and the High Income Alternatives Fund should be aware that certain deductions and exemptions may be designated “tax preference items,” which must be added back to taxable income for purposes of calculating a shareholder’s federal alternative minimum tax (“AMT”), if applicable to such shareholder. Tax preference items may include tax-exempt interest on private activity bonds. To the extent that the Alternative Strategies Fund and the High Income Alternatives Fund invest in private activity bonds, their shareholders may be required to report that portion of each Fund’s distributions attributable to income from the bonds as a tax preference item in determining their federal AMT, if any. Shareholders are encouraged to consult their tax advisors in this regard.

Municipal leases are entered into by state and local governments and authorities to acquire equipment and facilities such as fire and sanitation vehicles, telecommunications equipment, and other assets. Municipal leases (which normally provide for title to the leased assets to pass eventually to the government issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting the constitutional and statutory requirements for the issuance of debt. The debt-issuance limitations of many state constitutions and statutes are deemed to be inapplicable because of the inclusion in many leases or contracts of “non-appropriation” clauses that provide that the governmental issuer has no obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative body on a yearly or other periodic basis.

Government Obligations

Each Fund may make short-term investments in U.S. Government obligations. Such obligations include Treasury bills, certificates of indebtedness, notes and bonds, and issues of such entities as the Government National Mortgage Association (“GNMA”), Export-Import Bank of the United States, Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and the Student Loan Marketing Association (“SLMA”).

Some of these obligations, such as those of the GNMA, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Export-Import Bank of United States, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the FNMA, are supported by the discretionary authority of the U.S. Government to purchase the agency’s obligations; still others, such as those of the SLMA, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law.

Each Fund may invest in sovereign debt obligations of foreign countries. A sovereign debtor’s willingness or ability to repay principal and interest in a timely manner may be affected by a number of factors, including its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor’s policy toward principal international lenders and the political constraints to which it may be subject. Emerging market governments could default on their sovereign debt. Such sovereign debtors also may be dependent on expected disbursements from foreign governments, multilateral agencies and other entities abroad to reduce principal and interest arrearages on their debt. The commitments on the part of these governments, agencies and others to make such disbursements may be conditioned on a sovereign debtor’s implementation of economic reforms and/or economic performance and the timely service of such debtor’s obligations. Failure to meet such conditions could result in the cancellation of such third parties’ commitments to lend funds to the sovereign debtor, which may further impair such debtor’s ability or willingness to service its debt in a timely manner.

 

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Zero Coupon Securities

Each Fund may invest up to 35% of its net assets in zero coupon securities issued by the U.S. Treasury. Zero coupon Treasury securities are U.S. Treasury notes and bonds that have been stripped of their unmatured interest coupons and receipts, or certificates representing interests in such stripped debt obligations or coupons. Because a zero coupon security pays no interest to its holder during its life or for a substantial period of time, it usually trades at a deep discount from its face or par value and will be subject to greater fluctuations of market value in response to changing interest rates than debt obligations of comparable maturities that make current distributions of interest.

Variable and Floating Rate Instruments

Each Fund may acquire variable and floating rate instruments. Such instruments are frequently not rated by credit rating agencies; however, unrated variable and floating rate instruments purchased by a Fund will be determined by a Sub-Advisor under guidelines established by the Board to be of comparable quality at the time of the purchase to rated instruments eligible for purchase by a Fund. In making such determinations, a Sub-Advisor will consider the earning power, cash flow and other liquidity ratios of the issuers of such instruments (such issuers include financial, merchandising, bank holding and other companies) and will monitor their financial condition. An active secondary market may not exist with respect to particular variable or floating rate instruments purchased by a Fund. The absence of such an active secondary market could make it difficult for a Fund to dispose of the variable or floating rate instrument involved in the event that the issuer of the instrument defaults on its payment obligation or during periods in which a Fund is not entitled to exercise its demand rights, and a Fund could, for these or other reasons, suffer a loss to the extent of the default. Variable and floating rate instruments may be secured by bank letters of credit.

Asset-Backed Securities (Alternative Strategies Fund and High Income Alternatives Fund)

The Alternative Strategies Fund and the High Income Alternatives Fund may invest in asset-backed securities. Asset-backed securities are securities issued by trusts and special purpose entities that are backed by pools of assets, such as automobile and credit-card receivables and home equity loans, which pass through the payments on the underlying obligations to the security holders (less servicing fees paid to the originator or fees for any credit enhancement). Typically, the originator of the loan or accounts receivable paper transfers it to a specially created trust, which repackages it as securities with a minimum denomination and a specific term. The securities are then privately placed or publicly offered. For example, each Fund may invest in collateralized debt obligations (“CDOs”), which include collateralized bond obligations (“CBOs”), collateralized loan obligations (“CLOs”), and other similarly structured entities. CBOs and CLOs are types of asset-backed securities. A CBO is a trust, which is backed by a diversified pool of high-risk, below investment grade fixed-income securities. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans.

The value of an asset-backed security is affected by, among other things, changes in the market’s perception of the asset backing the security, the creditworthiness of the servicing agent for the loan pool, the originator of the loans and the financial institution providing any credit enhancement. Payments of principal and interest passed through to holders of asset-backed securities are frequently supported by some form of credit enhancement, such as a letter of credit, surety bond, limited guarantee by another entity or by having a priority to certain of the borrower’s other assets. The degree of credit enhancement varies, and generally applies to only a portion of the asset-backed security’s par value. Value is also affected if any credit enhancement has been exhausted.

Mortgage-Related Securities

Each Fund may invest in mortgage-related securities. Mortgage-related securities are derivative interests in pools of mortgage loans made to U.S. residential home buyers, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and others. Pools of mortgage loans are assembled as securities for sale to investors by various governmental, government-related and private organizations. Each Fund may also invest in debt securities which are secured with collateral consisting of U.S. mortgage-related securities, and in other types of U.S. mortgage-related securities.

 

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The effects of the sub-prime mortgage crisis that began to unfold in 2007 continue to manifest in nearly all sub-divisions of the financial services industry. Sub-prime mortgage-related losses and write downs among investment banks and similar institutions reached significant levels in 2008. The impact of these losses among traditional banks, investment banks, broker-dealers and insurers has forced a number of such institutions into either liquidation or combination, while also drastically increasing the volatility of their stock prices. In some cases, the U.S. government has acted to bail out select institutions, such as insurers; however the risks associated with investment in stocks of such insurers has nonetheless increased substantially.

While the U.S. Department of the Treasury, Federal Reserve Board and Congress have taken steps to address problems in the financial markets and with financial institutions, there can be no assurance that the risks associated with investments in financial services company issuers will decrease as a result of these steps.

U.S. Mortgage Pass-Through Securities. Interests in pools of mortgage-related securities differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a monthly payment that consists of both interest and principal payments. In effect, these payments are a “pass-through” of the monthly payments made by the individual borrowers on their residential mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal resulting from the sale of the underlying residential property, refinancing or foreclosure, net of fees or costs which may be incurred. Some mortgage-related securities (such as securities issued by GNMA) are described as “modified pass-throughs.” These securities entitle the holder to receive all interest and principal payments owed on the mortgage pool, net of certain fees, at the scheduled payment dates regardless of whether or not the mortgagor actually makes the payment.

The principal governmental guarantor of U.S. mortgage-related securities is GNMA, a wholly-owned United States Government corporation within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full faith and credit of the United States Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of mortgages insured by the Federal Housing Agency or guaranteed by the Veterans Administration.

Government-related guarantors include FNMA and FHLMC. FNMA is a government-sponsored corporation owned entirely by private stockholders and subject to general regulation by the Secretary of Housing and Urban Development. FNMA purchases conventional residential mortgages not insured or guaranteed by any government agency from a list of approved seller/services which include state and federally chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. FHLMC is a government-sponsored corporation created to increase availability of mortgage credit for residential housing and owned entirely by private stockholders. FHLMC issues participation certificates which represent interests in conventional mortgages from FHLMC’s national portfolio. Pass-through securities issued by FNMA and participation certificates issued by FHLMC are guaranteed as to timely payment of principal and interest by FNMA and FHLMC, respectively, but are not backed by the full faith and credit of the United States Government.

Although the underlying mortgage loans in a pool may have maturities of up to 30 years, the actual average life of the pool certificates typically will be substantially less because the mortgages will be subject to normal principal amortization and may be prepaid prior to maturity. Prepayment rates vary widely and may be affected by changes in market interest rates. In periods of falling interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of the pool certificates. Conversely, when interest rates are rising, the rate of prepayments tends to decrease, thereby lengthening the actual average life of the certificates. Accordingly, it is not possible to predict accurately the average life of a particular pool.

Collateralized Mortgage Obligations (“CMOs”). A domestic or foreign CMO in which a Fund may invest is a hybrid between a mortgage-backed bond and a mortgage pass-through security. Like a bond, interest is paid, in most cases, semiannually. CMOs may be collateralized by whole mortgage loans, but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, FNMA or equivalent foreign entities.

 

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CMOs are structured into multiple classes, each bearing a different stated maturity. Actual maturity and average life depend upon the prepayment experience of the collateral. CMOs provide for a modified form of call protection through a de facto breakdown of the underlying pool of mortgages according to how quickly the loans are repaid. Monthly payment of principal and interest received from the pool of underlying mortgages, including prepayments, is first returned to the class having the earliest maturity date or highest maturity. Classes that have longer maturity dates and lower seniority will receive principal only after the higher class has been retired.

Real Estate Investment Trusts

Each Fund may invest in real estate investment trusts (“REITs”). REITs are pooled investment vehicles that invest primarily in either real estate or real estate-related loans. REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds, or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended and changes in interest rates. REITs whose underlying assets are concentrated in properties used by a particular industry, such as health care, are also subject to risks associated with such industry. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. REITs are also subject to the possibilities of failing to qualify for preferential tax treatment under the Internal Revenue Code of 1986, as amended (the “Code”), and failing to maintain their exemptions from registration under the 1940 Act.

REITs (especially mortgage REITs) are also subject to interest rate risks, including prepayment risk. When interest rates decline, the value of a REIT’s investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REIT’s investment in fixed rate obligations can be expected to decline. If the REIT invests in adjustable rate mortgage loans the interest rates on which are reset periodically, yields on a REIT’s investments in such loans will gradually align themselves to reflect changes in market interest rates. This causes the value of such investments to fluctuate less dramatically in response to interest rate fluctuations than would investments in fixed rate obligations. REITs may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than more widely held securities. A Fund’s investment in a REIT may require a Fund to accrue and distribute income not yet received or may result in a Fund making distributions that constitute a return of capital to a Fund’s shareholders for federal income tax purposes. In addition, distributions by a Fund from REITs will not qualify for the corporate dividends-received deduction, or, generally, for treatment as qualified dividend income.

Investments in REITs by a Fund may subject its shareholders to multiple levels of fees and expenses as a Fund’s shareholders will directly bear the fees and expenses of a Fund and will also indirectly bear a portion of the fees and expenses of the REITs in which a Fund invests.

Foreign Investments and Currencies

Each Fund may invest in securities of foreign issuers that are not publicly traded in the United States (the International Fund will invest substantially all of its assets in securities of foreign issuers). Each Fund may also invest in depositary receipts and in foreign currency futures contracts and may purchase and sell foreign currency on a spot basis.

Depositary Receipts. Depositary Receipts (“DRs”) include American Depositary Receipts (“ADRs”), European Depositary Receipts (“EDRs”), Global Depositary Receipts (“GDRs”) or other forms of depositary receipts. DRs are receipts typically issued in connection with a U.S. or foreign bank or trust company which evidence ownership of underlying securities issued by a foreign corporation.

Forward Foreign Currency Exchange Contracts (Alternative Strategies Fund and High Income Alternatives Fund). The Alternative Strategies Fund and the High Income Alternatives Fund may use forward foreign currency exchange contracts for hedging purposes as well as investment purposes. A forward foreign currency contract involves an obligation to purchase or sell a specific amount of currency at a future date or date range at a specific price. In the case of a cancelable forward contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. Forward foreign currency exchange contracts differ from foreign currency futures contracts in certain respects. Unlike futures contracts, forward contracts:

 

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Do not have standard maturity dates or amounts (i.e., the parties to the contract may fix the maturity date and the amount).

 

   

Are traded in the inter-bank markets conducted directly between currency traders (usually large commercial banks) and their customers, as opposed to futures contracts which are traded only on exchanges regulated by the Commodity Futures Trading Commission (“CFTC”).

 

   

Do not require an initial margin deposit.

 

   

May be closed by entering into a closing transaction with the currency trader who is a party to the original forward contract, as opposed to a commodities exchange.

Foreign Currency Hedging Strategies (Alternative Strategies Fund and High Income Alternatives Fund). A “settlement hedge” or “transaction hedge” is designed to protect each Fund against an adverse change in foreign currency values between the date a security is purchased or sold and the date on which payment is made or received. Entering into a forward contract for the purchase or sale of the amount of foreign currency involved in an underlying security transaction for a fixed amount of U.S. dollars “locks in” the U.S. dollar price of the security. Each Fund may also use forward contracts to purchase or sell a foreign currency when it anticipates purchasing or selling securities denominated in foreign currency, even if it has not yet selected the specific investments.

Each Fund may use forward contracts to hedge against a decline in the value of existing investments denominated in foreign currency. Such a hedge, sometimes referred to as a “position hedge,” would tend to offset both positive and negative currency fluctuations, but would not offset changes in security values caused by other factors. Each Fund could also hedge the position by selling another currency expected to perform similarly to the currency in which each Fund’s investment is denominated. This type of hedge, sometimes referred to as a “proxy hedge,” could offer advantages in terms of cost, yield, or efficiency, but generally would not hedge currency exposure as effectively as a direct hedge into U.S. dollars. Proxy hedges may result in losses if the currency used to hedge does not perform similarly to the currency in which the hedged securities are denominated.

Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities that each Fund owns or intends to purchase or sell. They simply establish a rate of exchange that one can achieve at some future point in time. Additionally, these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency and to limit any potential gain that might result from the increase in value of such currency.

Each Fund may enter into forward contracts to shift its investment exposure from one currency into another. Such transactions may call for the delivery of one foreign currency in exchange for another foreign currency, including currencies in which its securities are not then denominated. This may include shifting exposure from U.S. dollars to a foreign currency, or from one foreign currency to another foreign currency. This type of strategy, sometimes known as a “cross-hedge,” will tend to reduce or eliminate exposure to the currency that is sold, and increase exposure to the currency that is purchased. Cross-hedges protect against losses resulting from a decline in the hedged currency, but will cause each Fund to assume the risk of fluctuations in the value of the currency it purchases. Cross hedging transactions also involve the risk of imperfect correlation between changes in the values of the currencies involved.

It is difficult to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, each Fund may have to purchase additional foreign currency on the spot market if the market value of a security it is hedging is less than the amount of foreign currency it is obligated to deliver. Conversely, each Fund may have to sell on the spot market some of the foreign currency it received upon the sale of a security if the market value of such security exceeds the amount of foreign currency it is obligated to deliver.

Risks of Investing in Foreign Securities. Investments in foreign securities involve certain inherent risks, including the following:

Political and Economic Factors. Individual foreign economies of certain countries may differ favorably or unfavorably from the United States’ economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency, diversification and balance of payments position. The internal politics of certain foreign countries may not be as stable as those of the United States. Governments in certain foreign

 

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countries also continue to participate to a significant degree, through ownership interest or regulation, in their respective economies. Action by these governments could include restrictions on foreign investment, nationalization, expropriation of goods or imposition of taxes, and could have a significant effect on market prices of securities and payment of interest. The economies of many foreign countries are heavily dependent upon international trade and are accordingly affected by the trade policies and economic conditions of their trading partners. Enactment by these trading partners of protectionist trade legislation could have a significant adverse effect upon the securities markets of such countries.

The European financial markets have continued to experience volatility because of concerns about economic downturns and about high and rising government debt levels of several countries in the European Union and Europe generally. These events have adversely affected the exchange rate of the Euro and the European securities markets, and may spread to other countries in Europe, including countries that do not use the Euro. These events may affect the value and liquidity of certain of the Funds’ investments. Responses to the financial problems by European Union governments, central banks and others, including austerity measures and reforms, may not work, may result in social unrest and may limit future growth and economic recovery or have other unintended consequences. Further defaults or restructurings by governments and others of their debt could have additional adverse effects on economies, financial markets and asset valuations around the world.

The United Kingdom (the “U.K.”) exited the European Union on January 31, 2020 (an event commonly referred to as “Brexit”), subject to a transitional period ending December 31, 2020. During the transitional period, although the U.K. will no longer be a member state of the EU, it will remain subject to EU law and regulations as if it were still a member state. The U.K. and the EU are to negotiate the terms of their future trading relationship during the transitional period. Accordingly, the terms of such trading relationship remain uncertain. The outcome of such negotiations may give rise to significant uncertainties and instability in the financial markets as the U.K. negotiates the terms of its future relationship with the EU. The Funds will face risks associated with the potential uncertainty and consequences leading up to and that may follow Brexit, including with respect to volatility in exchange rates and interest rates. Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in global political institutions, regulatory agencies and financial markets. Brexit has also led to legal uncertainty and could lead to politically divergent national laws and regulations as a new relationship between the U.K. and EU is defined and the U.K. determines which EU laws to replace or replicate. Any of these effects of Brexit could adversely affect any of the companies to which the Fund has exposure and any other assets in which the Fund invests. The political, economic and legal consequences of Brexit are not yet known. In the short term, financial markets may experience heightened volatility, particularly those in the U.K. and Europe, but possibly worldwide. The U.K. and Europe may be less stable than they have been in recent years, and investments in the U.K. and the EU may be difficult to value, or subject to greater or more frequent rises and falls in value. In the longer term, there is likely to be a period of significant political, regulatory and commercial uncertainty as the U.K. seeks to negotiate the terms of its future trading relationships.

Currency Fluctuations. Each Fund may invest in securities denominated in foreign currencies. Accordingly, a change in the value of any such currency against the U.S. dollar will result in a corresponding change in the U.S. dollar value of a Fund’s assets denominated in that currency. Such changes will also affect a Fund’s income. The value of a Fund’s assets may also be affected significantly by currency restrictions and exchange control regulations enacted from time to time.

Market Characteristics. The Sub-Advisors expect that many foreign securities in which a Fund invests will be purchased in over-the-counter markets or on exchanges located in the countries in which the principal offices of the issuers of the various securities are located, if that is the best available market. Foreign exchanges and markets may be more volatile than those in the United States. While growing in volume, they usually have substantially less volume than U.S. markets, and a Fund’s portfolio securities may be less liquid and more volatile than U.S. Government securities. Moreover, settlement practices for transactions in foreign markets may differ from those in United States markets, and may include delays beyond periods customary in the United States. Foreign security trading practices, including those involving securities settlement where Fund assets may be released prior to receipt of payment or securities, may expose a Fund to increased risk in the event of a failed trade or the insolvency of a foreign broker-dealer.

 

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Transactions in options on securities, futures contracts, futures options and currency contracts may not be regulated as effectively on foreign exchanges as similar transactions in the United States, and may not involve clearing mechanisms and related guarantees. The value of such positions also could be adversely affected by the imposition of different exercise terms and procedures and margin requirements than in the United States. The value of a Fund’s positions may also be adversely impacted by delays in its ability to act upon economic events occurring in foreign markets during non-business hours in the United States.

Legal and Regulatory Matters. Certain foreign countries may have less supervision of securities markets, brokers and issuers of securities, and less financial information available to issuers, than is available in the United States.

Taxes. The interest payable on certain of a Fund’s foreign portfolio securities may be subject to foreign withholding or other taxes, thus reducing the net amount of income available for distribution to a Fund’s shareholders.

Costs. To the extent that each Fund invests in foreign securities, its expense ratio is likely to be higher than those of investment companies investing only in domestic securities, since the cost of maintaining the custody of foreign securities is higher.

Emerging markets. Some of the securities in which each Fund may invest may be located in developing or emerging markets, which entail additional risks, including less social, political and economic stability; smaller securities markets and lower trading volume, which may result in a less liquidity and greater price volatility; national policies that may restrict a Fund’s investment opportunities, including restrictions on investment in issuers or industries, or expropriation or confiscation of assets or property; and less developed legal structures governing private or foreign investment. Natural disasters, public health emergencies (including pandemics and epidemics), terrorism and other global unforeseeable events may lead to instability in world economies and markets, may lead to market volatility, and may have adverse long-term effects. The Funds cannot predict the effects of such unforeseeable events in the future on the economy, the markets or the Funds’ investments.

In considering whether to invest in the securities of a foreign company, a Sub-Advisor considers such factors as the characteristics of the particular company, differences between economic trends and the performance of securities markets within the U.S. and those within other countries, and also factors relating to the general economic, governmental and social conditions of the country or countries where the company is located. The extent to which a Fund will be invested in foreign companies and countries and depository receipts will fluctuate from time to time within the limitations described in the prospectus, depending on a Sub-Advisor’s assessment of prevailing market, economic and other conditions.

Master Limited Partnerships (High Income Alternatives Fund)

The High Income Alternatives Fund may invest in or be exposed to master limited partnerships (“MLPs”), which are formed as limited partnerships or limited liability companies under state law and are treated as partnerships for U.S. federal income tax purposes. The equity securities issued by many MLPs (typically general partner and limited partner interests) are publicly traded and listed and traded on a U.S. securities exchange. Certain MLP securities may trade in lower volumes due to their smaller capitalizations. Accordingly, those MLPs may be subject to more abrupt or erratic price movements, may lack sufficient market liquidity to enable the Fund to effect sales at an advantageous time or without a substantial drop in price, and investment in those MLPs may restrict the Fund’s ability to take advantage of other investment opportunities. The amount of cash that the Fund has available to distribute to shareholders will depend on the ability of the companies in which the Fund has an interest to make distributions or pay dividends to their investors, as well as the tax character of those distributions or dividends. Recent market volatility in the energy markets, including price decreases connected to the virus that causes COVID-19, has significantly affected the performance of the energy infrastructure industry, as well as the performance of the MLPs in which the Fund invests. In addition, volatility in the energy markets may affect the ability of MLPs to finance capital expenditures and new acquisitions and to maintain or increase distributions to investors due to a lack of access to capital.

 

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MLPs are subject to various risks related to the underlying operating companies they control. For example, MLPs are subject to risks and may be adversely affected by a variety of events, including, but not limited to: fluctuations in the prices of commodities; the highly cyclical nature of the energy sector, which may adversely affect the earnings or operating cash flows of the issuers in which the Fund will invest; extreme weather conditions that could result in substantial damage to the facilities of certain MLPs; and significant volatility in the supply of natural resources, energy assets, commodity prices and the earnings of such companies, which could adversely affect their securities. A significant decrease in the production of energy commodities would reduce the revenue, operating income and operating cash flows of MLPs and, therefore, their ability to make distributions or pay dividends and a sustained decline in demand for energy commodities, which could adversely affect the revenues and cash flows of MLPs. MLPs also may be subject to construction risk, development risk, acquisition risk or other risks arising from their specific business strategies and risks associated with changing foreign, federal, state and local regulations. There is an inherent risk that MLPs may incur environmental costs and liabilities because of the nature of their businesses and the substances they handle and the possibility exists that stricter laws, regulations or enforcement policies could significantly increase the compliance costs of MLPs, and the cost of any remediation that may become necessary, which MLPs may not be able to recover from insurance. An MLP may be dependent on its parent(s) or sponsor(s) for a majority of its revenues and any failure by the parent(s) or sponsor(s) to satisfy payments or obligations would impact the company’s revenues and cash flows and ability to make distributions. The terms of an MLP’s transactions with its parent or sponsor are typically not arrived at on an arm’s-length basis, and may not be as favorable to the MLP as a transaction with a non-affiliate.

As partnerships, MLPs may be subject to less regulation (and less protection for investors) under state laws than corporations. In an MLP, the general partner (which may be structured as a private or publicly-traded corporation or other entity) manages and often controls, has an ownership stake in, and is normally eligible to receive incentive distribution payments from, the MLP. The general partner typically controls the operations and management of the entity through an up to 2% general partner interest in the entity plus, in many cases, ownership of some percentage of the outstanding limited partner interests. The limited partners, through their ownership of limited partner interests, provide capital to the entity, are intended to have no role in the operation and management of the entity and receive cash distributions.

Moreover, because the partnership units or limited liability interests of MLPs are listed and traded on a U.S. securities exchange, MLPs need to be operate in such a manner so as to be treated as partnerships for U.S. tax purposes. To be treated as a partnership for U.S. federal income tax purposes, an MLP must derive at least 90% of its gross income for each taxable year from certain qualifying sources as described in Section 7704(d) of Code, including energy infrastructure assets and natural resources-based activities such as the exploration, development, mining, production, processing, refining, transportation, storage and certain marketing of mineral or natural resources. Due to their structure as partnerships for U.S. federal income tax purposes and the expected character of their income, MLPs generally are not subject to U.S. federal income taxes. However, MLPs may be subject to state taxation in certain jurisdictions, which may reduce the amount of income an MLP pays to its investors. Thus, unlike investors in corporate securities, direct MLP investors are generally not subject to double taxation (i.e., corporate-level tax and tax on corporate dividends). The Fund will invest no more than 25% of its total assets in securities of MLPs that are qualified publicly traded partnerships, which are treated as partnerships for U.S. federal income tax purposes. Under new tax legislation, individuals with taxable income from a direct interest in an MLP will be entitled to a 20% deduction with respect to such income. Currently, there is not a statutory or regulatory mechanism for the Fund to pass through such a deduction to its shareholders.

Options on Securities and Securities Indices

Purchasing Put and Call Options. Each Fund may purchase covered “put” and “call” options with respect to securities which are otherwise eligible for purchase by a Fund and with respect to various stock indices subject to certain restrictions. Each Fund will engage in trading of such derivative securities primarily for hedging purposes.

If a Fund purchases a put option, a Fund acquires the right to sell the underlying security at a specified price at any time during the term of the option (for “American-style” options) or on the option expiration date (for “European-style” options). Purchasing put options may be used as a portfolio investment strategy when a Sub-Advisor perceives significant short-term risk but substantial long-term appreciation for the underlying security. The put option acts as an insurance policy, as it protects against significant downward price movement while it allows full

 

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participation in any upward movement. If a Fund is holding a stock which it feels has strong fundamentals, but for some reason may be weak in the near term, a Fund may purchase a put option on such security, thereby giving itself the right to sell such security at a certain strike price throughout the term of the option. Consequently, a Fund will exercise the put only if the price of such security falls below the strike price of the put. The difference between the put’s strike price and the market price of the underlying security on the date a Fund exercises the put, less transaction costs, will be the amount by which a Fund will be able to hedge against a decline in the underlying security. If during the period of the option the market price for the underlying security remains at or above the put’s strike price, the put will expire worthless, representing a loss of the price a Fund paid for the put, plus transaction costs. If the price of the underlying security increases, the profit a Fund realizes on the sale of the security will be reduced by the premium paid for the put option less any amount for which the put may be sold.

If a Fund purchases a call option, it acquires the right to purchase the underlying security at a specified price at any time during the term of the option. The purchase of a call option is a type of insurance policy to hedge against losses that could occur if a Fund has a short position in the underlying security and the security thereafter increases in price. Each Fund will exercise a call option only if the price of the underlying security is above the strike price at the time of exercise. If during the option period the market price for the underlying security remains at or below the strike price of the call option, the option will expire worthless, representing a loss of the price paid for the option, plus transaction costs. If the call option has been purchased to hedge a short position of a Fund in the underlying security and the price of the underlying security thereafter falls, the profit a Fund realizes on the cover of the short position in the security will be reduced by the premium paid for the call option less any amount for which such option may be sold.

Prior to exercise or expiration, an option may be sold when it has remaining value by a purchaser through a “closing sale transaction,” which is accomplished by selling an option of the same series as the option previously purchased. Each Fund generally will purchase only those options for which a Sub-Advisor believes there is an active secondary market to facilitate closing transactions.

Writing Call Options. Each Fund may write covered call options. A call option is “covered” if a Fund owns the security underlying the call or has an absolute right to acquire the security without additional cash consideration (or, if additional cash consideration is required, cash or cash equivalents in such amount as are held in a segregated account by the Custodian). The writer of a call option receives a premium and gives the purchaser the right to buy the security underlying the option at the exercise price. The writer has the obligation upon exercise of the option to deliver the underlying security against payment of the exercise price during the option period. If the writer of an exchange-traded option wishes to terminate his obligation, he may effect a “closing purchase transaction.” This is accomplished by buying an option of the same series as the option previously written. A writer may not effect a closing purchase transaction after it has been notified of the exercise of an option.

Effecting a closing transaction in the case of a written call option will permit a Fund to write another call option on the underlying security with either a different exercise price, expiration date or both. Also, effecting a closing transaction will permit the cash or proceeds from the concurrent sale of any securities subject to the option to be used for other investments of a Fund. If a Fund desires to sell a particular security from its portfolio on which it has written a call option, it will effect a closing transaction prior to or concurrent with the sale of the security.

Each Fund will realize a gain from a closing transaction if the cost of the closing transaction is less than the premium received from writing the option or if the proceeds from the closing transaction are more than the premium paid to purchase the option. Each Fund will realize a loss from a closing transaction if the cost of the closing transaction is more than the premium received from writing the option or if the proceeds from the closing transaction are less than the premium paid to purchase the option. However, because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss to a Fund resulting from the repurchase of a call option is likely to be offset in whole or in part by appreciation of the underlying security owned by a Fund.

Stock Index Options. Each Fund may also write (sell) and purchase put and call options with respect to the S&P 500 and other stock indices. Such options may be written or purchased as a hedge against changes resulting from market conditions in the values of securities which are held in a Fund’s portfolio or which it intends to purchase or sell, or when they are economically appropriate for the reduction of risks inherent in the ongoing management of a Fund.

 

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The distinctive characteristics of options on stock indices create certain risks that are not present with stock options generally. Because the value of an index option depends upon movements in the level of the index rather than the price of a particular stock, whether a Fund will realize a gain or loss on the purchase or sale of an option on an index depends upon movements in the level of stock prices in the stock market generally rather than movements in the price of a particular stock. Accordingly, successful use by a Fund of options on a stock index would be subject to a Sub-Advisor’s ability to predict correctly movements in the direction of the stock market generally. This requires different skills and techniques than predicting changes in the price of individual stocks.

Index prices may be distorted if trading of certain stocks included in the index is interrupted. Trading of index options also may be interrupted in certain circumstances, such as if trading were halted in a substantial number of stocks included in the index. If this were to occur, a Fund would not be able to close out options which it had purchased, and if restrictions on exercise were imposed, a Fund might be unable to exercise an option it holds, which could result in substantial losses to a Fund. It is the policy of each Fund to purchase put or call options only with respect to an index which a Sub-Advisor believes includes a sufficient number of stocks to minimize the likelihood of a trading halt in the index.

Risks of Investing in Options. There are several risks associated with transactions in options on securities and indices. Options may be more volatile than the underlying instruments and, therefore, on a percentage basis, an investment in options may be subject to greater fluctuation than an investment in the underlying instruments themselves. There are also significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objective. In addition, a liquid secondary market for particular options may be absent for reasons which include the following: there may be insufficient trading interest in certain options; restrictions may be imposed by an exchange on opening transactions or closing transactions or both; trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of option of underlying securities; unusual or unforeseen circumstances may interrupt normal operations on an exchange; the facilities of an exchange or clearing corporation may not at all times be adequate to handle current trading volume; or one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.

A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. The extent to which a Fund may enter into options transactions may be limited by the requirements of the Code with respect to qualification of a Fund as a regulated investment company. See “Dividends and Distributions” and “Taxation.”

In addition, when trading options on foreign exchanges, many of the protections afforded to participants in United States option exchanges will not be available. For example, there may be no daily price fluctuation limits in such exchanges or markets, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the purchaser of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost. Moreover, a Fund as an option writer could lose amounts substantially in excess of its initial investment, due to the margin and collateral requirements typically associated with such option writing. See “Dealer Options” below.

Dealer Options. Each Fund may engage in transactions involving dealer options as well as exchange-traded options. Certain risks are specific to dealer options. While a Fund might look to a clearing corporation to exercise exchange-traded options, if a Fund were to purchase a dealer option it would need to rely on the dealer from which it purchased the option to perform if the option were exercised. Failure by the dealer to do so would result in the loss of the premium paid by a Fund as well as loss of the expected benefit of the transaction.

 

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Exchange-traded options generally have a continuous liquid market while dealer options may not. Consequently, a Fund may generally be able to realize the value of a dealer option it has purchased only by exercising or reselling the option to the dealer who issued it. Similarly, when a Fund writes a dealer option, a Fund may generally be able to close out the option prior to its expiration only by entering into a closing purchase transaction with the dealer to whom a Fund originally wrote the option. While a Fund will seek to enter into dealer options only with dealers who will agree to and which are expected to be capable of entering into closing transactions with a Fund, there can be no assurance that a Fund will at any time be able to liquidate a dealer option at a favorable price at any time prior to expiration. Unless a Fund, as a covered dealer call option writer, is able to effect a closing purchase transaction, it will not be able to liquidate securities (or other assets) used as cover until the option expires or is exercised. In the event of insolvency of the other party, a Fund may be unable to liquidate a dealer option. With respect to options written by a Fund, the inability to enter into a closing transaction may result in material losses to a Fund. For example, because a Fund must maintain a secured position with respect to any call option on a security it writes, a Fund may not sell the assets which it has segregated to secure the position while it is obligated under the option. This requirement may impair a Fund’s ability to sell portfolio securities at a time when such sale might be advantageous.

The Staff of the SEC has taken the position that purchased dealer options are illiquid securities. A Fund may treat the cover used for written dealer options as liquid if the dealer agrees that a Fund may repurchase the dealer option it has written for a maximum price to be calculated by a predetermined formula. In such cases, the dealer option would be considered illiquid only to the extent the maximum purchase price under the formula exceeds the intrinsic value of the option. Accordingly, each Fund will treat dealer options as subject to a Fund’s limitation on illiquid securities. If the SEC changes its position on the liquidity of dealer options, each Fund will change its treatment of such instruments accordingly.

Foreign Currency Options. Each Fund may buy or sell put and call options on foreign currencies. A put or call option on a foreign currency gives the purchaser of the option the right to sell or purchase a foreign currency at the exercise price until the option expires. Each Fund will use foreign currency options separately or in combination to control currency volatility. Among the strategies employed to control currency volatility is an option collar. An option collar involves the purchase of a put option and the simultaneous sale of call option on the same currency with the same expiration date but with different exercise (or “strike”) prices. Generally, the put option will have an out-of-the-money strike price, while the call option will have either an at-the-money strike price or an in-the-money strike price. Foreign currency options are derivative securities. Currency options traded on U.S. or other exchanges may be subject to position limits that may limit the ability of a Fund to reduce foreign currency risk using such options.

As with other kinds of option transactions, the writing of an option on foreign currency will constitute only a partial hedge, up to the amount of the premium received. Each Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may constitute an effective hedge against exchange rate fluctuations; however, in the event of exchange rate movements adverse to a Fund’s position, a Fund may forfeit the entire amount of the premium plus related transaction costs.

Spread Transactions. Each Fund may purchase covered spread options from securities dealers. These covered spread options are not presently exchange-listed or exchange-traded. The purchase of a spread option gives a Fund the right to put a security that it owns at a fixed dollar spread or fixed yield spread in relationship to another security that a Fund does not own, but which is used as a benchmark. The risk to a Fund, in addition to the risks of dealer options described above, is the cost of the premium paid as well as any transaction costs. The purchase of spread options will be used to protect a Fund against adverse changes in prevailing credit quality spreads, i.e., the yield spread between high quality and lower quality securities. This protection is provided only during the life of the spread options.

Forward Currency Contracts

Each Fund may enter into forward currency contracts in anticipation of changes in currency exchange rates. A forward currency contract is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. For example, a Fund might purchase a particular currency or enter into a forward currency contract to

 

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preserve the U.S. dollar price of securities it intends to or has contracted to purchase. Alternatively, it might sell a particular currency on either a spot or forward basis to hedge against an anticipated decline in the dollar value of securities it intends to or has contracted to sell. Although this strategy could minimize the risk of loss due to a decline in the value of the hedged currency, it could also limit any potential gain from an increase in the value of the currency.

Credit Default Swap Agreements (Alternative Strategies Fund and High Income Alternatives Fund)

The Alternative Strategies Fund and the High Income Alternatives Fund may enter into credit default swap agreements. The “buyer” in a credit default swap contract is obligated to pay the “seller” a periodic stream of payments over the term of the contract in return for a contingent payment upon the occurrence of a credit event with respect to an underlying reference obligation. Generally, a credit event means bankruptcy, failure to pay, obligation acceleration or modified restructuring. Each Fund may be either the buyer or the seller in the transaction. As a seller, each Fund receives a fixed rate of income throughout the term of the contract, which typically is between one month and five years, provided that no credit event occurs. If a credit event occurs, each Fund typically must pay the contingent payment to the buyer, which is typically the “par value” (full notional value) of the reference obligation. If each Fund writes a credit default swap, it would normally be required to segregate liquid assets equal in value to the notional value of the contract. The contingent payment may be a cash settlement or by physical delivery of the reference obligation in return for payment of the face amount of the obligation. The value of the reference obligation received by each Fund as a seller if a credit event occurs, coupled with the periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to each Fund. If the reference obligation is a defaulted security, physical delivery of the security will cause each Fund to hold a defaulted security. If each Fund is a buyer and no credit event occurs, each Fund will lose its periodic stream of payments over the term of the contract. However, if a credit event occurs, the buyer typically receives full notional value for a reference obligation that may have little or no value.

In a single name credit default swap the underlying asset or reference obligation is a bond of one particular issuer or reference entity. There are generally two sides to the swap trade: a buyer of protection and a seller of protection. If the reference entity of a credit default swap experiences what is known as a credit event (such as a bankruptcy, downgrade, etc.), then the buyer of protection (who pays a premium for that protection) can receive payment from the seller of protection. This is desirable because the price of those bonds will experience a decrease in value due to the negative credit event. There is also the option of physical, rather than cash, trade settlement in which the underlying bond or reference obligation actually changes hands, from buyer of protection to seller of protection.

The major tradable indexes for credit default swaps are: CDX, ABX, CMBX and LCDX. The CDX indexes are broken out between investment grade, high yield, high volatility, crossover and emerging market. For example, the CDX.NA.HY is an index based on a basket of North American (NA) single-name high yield credit default swaps. The crossover index includes names that are split rated, meaning they are rated “investment grade” by one agency, and “below investment grade” by another.

The CDX index rolls over every six months, and its 125 names enter and leave the index as appropriate. For example, if one of the names is upgraded from below investment grade to investment grade, it will move from the high yield index to the investment grade index when the rebalance occurs.

The ABX and CMBX are baskets of credit default swaps on two securitized products: asset-backed securities and commercial mortgage-backed securities. The ABX is based on asset-backed securities home equity loans and the CMBX on commercial mortgage-backed securities. There are five separate ABX indexes for ratings ranging from ‘AAA’ to ‘BBB-’. The CMBX also has the same breakdown of five indexes by ratings, but is based on a basket of 25 credit default swaps, which reference commercial mortgage-backed securities.

The LCDX is a credit derivative index with a basket made up of single-name, loan-only credit default swaps. The loans referred to are leveraged loans. The basket is made up of 100 names. Although a bank loan is considered secured debt, the names that usually trade in the leveraged loan market are lower quality credits (if they could issue in the normal investment grade markets, they would). Therefore, the LCDX index is used mostly by those looking for exposure to high-yield debt.

 

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All of the aforementioned indexes are issued by the Credit Default Swaps Index Company and administered by Markit. For these indexes to work, they must have sufficient liquidity. Therefore, the issuer has commitments from the largest dealers (large investment banks) to provide liquidity in the market.

Total Return Swap Agreements (Alternative Strategies Fund and High Income Alternatives Fund)

The Alternative Strategies Fund and the High Income Alternatives Fund may enter into total return swap agreements. Total return swap agreements are contracts in which one party agrees to make periodic payments to another party based on the change in market value of the assets underlying the contract, which may include a specified security, basket of securities or securities indices during the specified period, in return for periodic payments based on a fixed or variable interest rate or the total return from other underlying assets. Total return swap agreements may be used to obtain exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. Total return swap agreements may effectively add leverage to each Fund’s portfolio because, in addition to its total net assets, each Fund would be subject to investment exposure on the notional amount of the swap.

Total return swap agreements are subject to the risk that a counterparty will default on its payment obligations to each Fund thereunder. Swap agreements also bear the risk that each Fund will not be able to meet its obligation to the counterparty. Generally, each Fund will enter into total return swaps on a net basis (i.e., the two payment streams are netted against one another with each Fund receiving or paying, as the case may be, only the net amount of the two payments). The net amount of the excess, if any, of each Fund’s obligations over its entitlements with respect to each total return swap will be accrued on a daily basis, and an amount of liquid assets having an aggregate NAV at least equal to the accrued excess will be segregated by each Fund. If the total return swap transaction is entered into on other than a net basis, the full amount of each Fund’s obligations will be accrued on a daily basis, and the full amount of each Fund’s obligations will be segregated by each Fund in an amount equal to or greater than the market value of the liabilities under the total return swap agreement or the amount it would have cost each Fund initially to make an equivalent direct investment, plus or minus any amount each Fund is obligated to pay or is to receive under the total return swap agreement.

Futures Contracts and Related Options

Each Fund may invest in futures contracts and options on futures contracts as a hedge against changes in market conditions or interest rates. A Fund may trade in such derivative securities for bona fide hedging purposes and otherwise in accordance with the rules of the CFTC. A Fund will segregate liquid assets in a separate account with its custodian when required to do so by CFTC guidelines in order to cover its obligation in connection with futures and options transactions.

No price is paid or received by a Fund upon the purchase or sale of a futures contract. When it enters into a domestic futures contract, a Fund will be required to deposit in a segregated account with its custodian an amount of cash or U.S. Treasury bills equal to approximately 5% of the contract amount. This amount is known as initial margin. The margin requirements for foreign futures contracts may be different.

The nature of initial margin in futures transactions is different from that of margin in securities transactions. Futures contract margin does not involve the borrowing of funds by the customer to finance the transactions. Rather, the initial margin is in the nature of a performance bond or good faith deposit on the contract which is returned to a Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Subsequent payments (called variation margin) to and from the broker will be made on a daily basis as the price of the underlying stock index fluctuates, to reflect movements in the price of the contract making the long and short positions in the futures contract more or less valuable. For example, when a Fund has purchased a stock index futures contract and the price of the underlying stock index has risen, that position will have increased in value and a Fund will receive from the broker a variation margin payment equal to that increase in value. Conversely, when a Fund has purchased a stock index futures contract and the price of the underlying stock index has declined, the position will be less valuable and a Fund will be required to make a variation margin payment to the broker.

At any time prior to expiration of a futures contract, a Fund may elect to close the position by taking an opposite position, which will operate to terminate a Fund’s position in the futures contract. A final determination of variation margin is made on closing the position. Additional cash is paid by or released to a Fund, which realizes a loss or a gain.

 

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In addition to amounts segregated or paid as initial and variation margin, a Fund must segregate liquid assets with its custodian equal to the market value of the futures contracts, in order to comply with SEC requirements intended to ensure that a Fund’s use of futures is unleveraged. The requirements for margin payments and segregated accounts apply to both domestic and foreign futures contracts.

Stock Index Futures Contracts. Each Fund may invest in futures contracts on stock indices. Currently, stock index futures contracts can be purchased or sold with respect to the S&P 500 Stock Price Index on the Chicago Mercantile Exchange, the Major Market Index on the Chicago Board of Trade, the New York Stock Exchange Composite Index on the New York Futures Exchange and the Value Line Stock Index on the Kansas City Board of Trade. Foreign financial and stock index futures are traded on foreign exchanges including the London International Financial Futures Exchange, the Singapore International Monetary Exchange, the Sydney Futures Exchange Limited and the Tokyo Stock Exchange.

Interest Rate or Financial Futures Contracts. Each Fund may invest in interest rate or financial futures contracts. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have generally tended to move in the aggregate in concert with cash market prices, and the prices have maintained fairly predictable relationships.

The sale of an interest rate or financial futures contract by a Fund would create an obligation by a Fund, as seller, to deliver the specific type of financial instrument called for in the contract at a specific future time for a specified price. A futures contract purchased by a Fund would create an obligation by a Fund, as purchaser, to take delivery of the specific type of financial instrument at a specific future time at a specific price. The specific securities delivered or taken, respectively, at settlement date, would not be determined until at or near that date. The determination would be in accordance with the rules of the exchange on which the futures contract sale or purchase was made.

Although interest rate or financial futures contracts by their terms call for actual delivery or acceptance of securities, in most cases the contracts are closed out before the settlement date without delivery of securities. Closing out of a futures contract sale is effected by a Fund’s entering into a futures contract purchase for the same aggregate amount of the specific type of financial instrument and the same delivery date. If the price in the sale exceeds the price in the offsetting purchase, a Fund is paid the difference and thus realizes a gain. If the offsetting purchase price exceeds the sale price, a Fund pays the difference and realizes a loss. Similarly, the closing out of a futures contract purchase is effected by a Fund’s entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, a Fund realizes a gain, and if the purchase price exceeds the offsetting sale price, a Fund realizes a loss.

Each Fund will deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership. Domestic interest rate futures contracts are traded in an auction environment on the floors of several exchanges – principally, the Chicago Board of Trade and the Chicago Mercantile Exchange. A public market now exists in domestic futures contracts covering various financial instruments including long-term United States Treasury bonds and notes, GNMA modified pass-through mortgage-backed securities, three-month United States Treasury bills, and 90-day commercial paper. Each Fund may trade in any futures contract for which there exists a public market, including, without limitation, the foregoing instruments. International interest rate futures contracts are traded on the London International Financial Futures Exchange, the Singapore International Monetary Exchange, the Sydney Futures Exchange Limited and the Tokyo Stock Exchange.

Interest Rate Caps, Floors and Collars (Alternative Strategies Fund and High Income Alternatives Fund). The Alternative Strategies Fund and the High Income Alternatives Fund may use interest rate caps, floors and collars for the same purposes or similar purposes as for which it uses interest rate futures contracts and related options. Interest rate caps, floors and collars are similar to interest rate swap contracts because the payment obligations

 

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are measured by changes in interest rates as applied to a notional amount and because they are generally individually negotiated with a specific counterparty. The purchase of an interest rate cap entitles the purchaser, to the extent that a specific index exceeds a specified interest rate, to receive payments of interest on a notional principal amount from the party selling the interest rate cap. The purchase of an interest rate floor entitles the purchaser, to the extent that a specified index falls below specified interest rates, to receive payments of interest on a notional principal amount from the party selling the interest rate floor. The purchase of an interest rate collar entitles the purchaser, to the extent that a specified index exceeds or falls below a specified interest rate, to receive payments of interest on a notional principal amount from the party selling the interest rate collar.

Foreign Currency Futures Contracts. Each Fund may use foreign currency future contracts for hedging purposes. A foreign currency futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a foreign currency at a specified price and time. A public market exists in futures contracts covering several foreign currencies, including the Australian dollar, the Canadian dollar, the British pound, the Japanese yen, the Swiss franc, and certain multinational currencies such as the European Currency Unit (“ECU”). Other foreign currency futures contracts are likely to be developed and traded in the future. Each Fund will only enter into futures contracts and futures options which are standardized and traded on a U.S. or foreign exchange, board of trade, or similar entity, or quoted on an automated quotation system.

Risks of Transactions in Futures Contracts. There are several risks related to the use of futures as a hedging device. One risk arises because of the imperfect correlation between movements in the price of the futures contract and movements in the price of the securities which are the subject of the hedge. The price of the future may move more or less than the price of the securities being hedged. If the price of the future moves less than the price of the securities which are the subject of the hedge, the hedge will not be fully effective, but if the price of the securities being hedged has moved in an unfavorable direction, a Fund would be in a better position than if it had not hedged at all. If the price of the securities being hedged has moved in a favorable direction, this advantage will be partially offset by the loss on the future. If the price of the future moves more than the price of the hedged securities, a Fund will experience either a loss or a gain on the future which will not be completely offset by movements in the price of the securities which are subject to the hedge.

To compensate for the imperfect correlation of movements in the price of securities being hedged and movements in the price of the futures contract, a Fund may buy or sell futures contracts in a greater dollar amount than the dollar amount of securities being hedged if the historical volatility of the prices of such securities has been greater than the historical volatility over such time period of the future. Conversely, a Fund may buy or sell fewer futures contracts if the historical volatility of the price of the securities being hedged is less than the historical volatility of the futures contract being used. It is possible that, when a Fund has sold futures to hedge its portfolio against a decline in the market, the market may advance while the value of securities held in a Fund’s portfolio may decline. If this occurs, a Fund will lose money on the future and also experience a decline in value in its portfolio securities. However, the Advisor believes that over time the value of a diversified portfolio will tend to move in the same direction as the market indices upon which the futures are based.

Where futures are purchased to hedge against a possible increase in the price of securities before a Fund is able to invest its cash (or cash equivalents) in securities (or options) in an orderly fashion, it is possible that the market may decline instead. If a Fund then decides not to invest in securities or options at that time because of concern as to possible further market decline or for other reasons, it will realize a loss on the futures contract that is not offset by a reduction in the price of securities purchased.

In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the futures and the securities being hedged, the price of futures may not correlate perfectly with movement in the stock index or cash market due to certain market distortions. 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 relationship between the index or cash market and futures markets. In addition, 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 also cause temporary price distortions. As a result of price distortions in the futures market and the imperfect correlation between movements in the cash market and the price of securities and movements in the price of futures, a correct forecast of general trends by a Sub-Advisor may still not result in a successful hedging transaction over a very short time frame.

 

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Positions in futures may be closed out only on an exchange or board of trade which provides a secondary market for such futures. Although a Fund may intend to purchase or sell futures only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position, and in the event of adverse price movements, a Fund would continue to be required to make daily cash payments of variation margin. When futures contracts have been used to hedge portfolio securities, such securities will not be sold until the futures contract can be terminated. In such circumstances, an increase in the price of the securities, if any, may partially or completely offset losses on the futures contract. However, as described above, there is no guarantee that the price of the securities will in fact correlate with the price movements in the futures contract and thus provide an offset to losses on a futures contract.

Most United States futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day’s settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of futures contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses.

Successful use of futures by a Fund is also subject to a Sub-Advisor’s ability to predict correctly movements in the direction of the market. For example, if a Fund has hedged against the possibility of a decline in the market adversely affecting stocks held in its portfolio and stock prices increase instead, a Fund will lose part or all of the benefit of the increased value of the stocks which it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if a Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements. Such sales of securities may be, but will not necessarily be, at increased prices which reflect the rising market. Each Fund may have to sell securities at a time when it may be disadvantageous to do so.

In the event of the bankruptcy of a broker through which a Fund engages in transactions in futures contracts or options, a Fund could experience delays and losses in liquidating open positions purchased or sold through the broker, and incur a loss of all or part of its margin deposits with the broker.

Options on Futures Contracts. As described above, each Fund may purchase options on the futures contracts they can purchase or sell. A futures option gives the holder, in return for the premium paid, the right to buy (call) from or sell (put) to the writer of the option a futures contract at a specified price at any time during the period of the option. Upon exercise, the writer of the option is obligated to pay the difference between the cash value of the futures contract and the exercise price. Like the buyer or seller of a futures contract, the holder or writer of an option has the right to terminate its position prior to the scheduled expiration of the option by selling, or purchasing an option of the same series, at which time the person entering into the closing transaction will realize a gain or loss. There is no guarantee that such closing transactions can be effected.

Investments in futures options involve some of the same considerations as investments in futures contracts (for example, the existence of a liquid secondary market). In addition, the purchase of an option also entails the risk that changes in the value of the underlying futures contract will not be fully reflected in the value of the option. Depending on the pricing of the option compared to either the futures contract upon which it is based, or upon the price of the securities being hedged, an option may or may not be less risky than ownership of the futures contract or such securities. In general, the market prices of options can be expected to be more volatile than the market prices on the underlying futures contracts. Compared to the purchase or sale of futures contracts, however, the purchase of call or put options on futures contracts may frequently involve less potential risk to a Fund because the maximum amount at risk is limited to the premium paid for the options (plus transaction costs).

 

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Restrictions on the Use of Futures Contracts and Related Options. Each Fund may engage in transactions in futures contracts or related options primarily as a hedge against changes resulting from market conditions in the values of securities held in a Fund’s portfolio or which it intends to purchase and where the transactions are economically appropriate to the reduction of risks inherent in the ongoing management of each Fund. A Fund may not purchase or sell futures or purchase related options for purposes other than bona fide hedging if, immediately thereafter, more than 25% of its total assets would be hedged. A Fund also may not purchase or sell futures or purchase related options if, immediately thereafter, the sum of the amount of margin deposits on a Fund’s existing futures positions and premiums paid for such options would exceed 5% of the market value of a Fund’s total assets.

These restrictions, which are derived from current federal regulations regarding the use of options and futures by mutual funds, are not “fundamental restrictions” and may be changed by the Trustees of the Trust if applicable law permits such a change and the change is consistent with the overall investment objective and policies of each Fund.

The extent to which a Fund may enter into futures and options transactions may be limited by the Code requirements for qualification of a Fund as a regulated investment company. See “Taxation.”

Exclusion from Definition of Commodity Pool Operator

The Funds are operated by a person who has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act of 1936, as amended (“CEA”), pursuant to Rule 4.5 under the CEA promulgated by the CFTC. Therefore, neither the Funds nor the Advisor is subject to registrations or regulation as a commodity pool operator under the CEA. Effective December 31, 2012, in order to claim the Rule 4.5 exclusion, each Fund is limited in its ability to invest in certain financial instruments regulated under the CEA (“commodity interests”), including futures, options and certain swaps (including securities futures, broad-based stock index futures and financial futures contracts). In the event that the Funds’ investments in commodity interests are not within the thresholds set forth in the Rule 4.5 exclusion, the Advisor may be required to register as a “commodity pool operator” and/or “commodity trading advisor” with the CFTC with respect to the Funds, which may increase the Funds’ expenses and adversely affect the Funds’ total returns. The Advisor’s eligibility to claim the 4.5 exclusion with respect to the Funds will be based upon, among other things, the level and scope of the Funds’ investments in commodity interests, the purposes of such investments and the manner in which the Funds hold out their use of commodity interests. As a result, in the future, the Funds will be more limited in their ability to invest in commodity interests than in the past, which may negatively impact on the ability of the Advisor to manage the Funds and the Funds’ performance.

Repurchase Agreements

Each Fund may enter into repurchase agreements with respect to its portfolio securities. Pursuant to such agreements, a Fund acquires securities from financial institutions such as banks and broker-dealers as are deemed to be creditworthy by the Advisor or a Sub-Advisor, subject to the seller’s agreement to repurchase and a Fund’s agreement to resell such securities at a mutually agreed upon date and price. The repurchase price generally equals the price paid by a Fund plus interest negotiated on the basis of current short-term rates (which may be more or less than the rate on the underlying portfolio security). Securities subject to repurchase agreements will be held by the Custodian or in the Federal Reserve/Treasury Book-Entry System or an equivalent foreign system. The seller under a repurchase agreement will be required to maintain the value of the underlying securities at not less than 102% of the repurchase price under the agreement. If the seller defaults on its repurchase obligation, a Fund holding the repurchase agreement will suffer a loss to the extent that the proceeds from a sale of the underlying securities are less than the repurchase price under the agreement. Bankruptcy or insolvency of such a defaulting seller may cause a Fund’s rights with respect to such securities to be delayed or limited. Repurchase agreements are considered to be loans under the 1940 Act, and the total repurchase agreements of a Fund are limited to 33-1/3% of its total assets.

Reverse Repurchase Agreements

Each Fund may enter into reverse repurchase agreements. A Fund typically will invest the proceeds of a reverse repurchase agreement in money market instruments or repurchase agreements maturing not later than the expiration of the reverse repurchase agreement. A Fund may use the proceeds of reverse repurchase agreements to provide liquidity to meet redemption requests when sale of a Fund’s securities is disadvantageous.

 

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Each Fund causes its custodian to segregate liquid assets, such as cash, U.S. Government securities or other high-grade liquid debt securities equal in value to its obligations (including accrued interest) with respect to reverse repurchase agreements. In segregating such assets, the custodian either places such securities in a segregated account or separately identifies such assets and renders them unavailable for investment. Such assets are marked to market daily to ensure full collateralization is maintained.

Dollar Roll Transactions

Each Fund may enter into dollar roll transactions. A dollar roll transaction involves a sale by a Fund of a security to a financial institution concurrently with an agreement by a Fund to purchase a similar security from the institution at a later date at an agreed-upon price. The securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories than those sold. During the period between the sale and repurchase, a Fund will not be entitled to receive interest and principal payments on the securities sold. Proceeds of the sale will be invested in additional portfolio securities of a Fund, and the income from these investments, together with any additional fee income received on the sale, may or may not generate income for a Fund exceeding the yield on the securities sold.

At the time a Fund enters into a dollar roll transaction, it causes its custodian to segregate liquid assets such as cash, U.S. Government securities or other high-grade liquid debt securities having a value equal to the purchase price for the similar security (including accrued interest) and subsequently marks the assets to market daily to ensure that full collateralization is maintained.

When-Issued Securities, Forward Commitments and Delayed Settlements

Each Fund may purchase securities on a “when-issued,” forward commitment or delayed settlement basis. In this event, the Custodian will set aside, and the Fund will identify on its books, cash or liquid portfolio securities equal to the amount of the commitment in a separate account. Normally, the Custodian will set aside portfolio securities to satisfy a purchase commitment. In such a case, a Fund may be required subsequently to place additional assets in the separate account in order to assure that the value of the account remains equal to the amount of a Fund’s commitment. It may be expected that a Fund’s net assets will fluctuate to a greater degree when it sets aside portfolio securities to cover such purchase commitments than when it sets aside cash.

Each Fund does not intend to engage in these transactions for speculative purposes but only in furtherance of its investment objectives. Because a Fund will set aside cash or liquid portfolio securities to satisfy its purchase commitments in the manner described, a Fund’s liquidity and the ability of a Sub-Advisor to manage it may be affected in the event a Fund’s forward commitments, commitments to purchase when-issued securities and delayed settlements ever exceeded 15% of the value of its net assets.

Each Fund will purchase securities on a when-issued, forward commitment or delayed settlement basis only with the intention of completing the transaction. If deemed advisable as a matter of investment strategy, however, a Fund may dispose of or renegotiate a commitment after it is entered into, and may sell securities it has committed to purchase before those securities are delivered to a Fund on the settlement date. In these cases a Fund may realize a taxable capital gain or loss. When a Fund engages in when-issued, forward commitment and delayed settlement transactions, it relies on the other party to consummate the trade. Failure of such party to do so may result in a Fund’s incurring a loss or missing an opportunity to obtain a price credited to be advantageous.

The market value of the securities underlying a when-issued purchase, forward commitment to purchase securities, or a delayed settlement and any subsequent fluctuations in their market value is taken into account when determining the market value of a Fund starting on the day a Fund agrees to purchase the securities. A Fund does not earn interest on the securities it has committed to purchase until they are paid for and delivered on the settlement date.

Zero-Coupon, Step-Coupon and Pay-in-Kind Securities

Each Fund may invest in zero-coupon, step-coupon and pay-in-kind securities. These securities are debt securities that do not make regular cash interest payments. Zero-coupon and step-coupon securities are sold at a deep

 

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discount to their face value. Pay-in-kind securities pay interest through the issuance of additional securities. Because these securities do not pay current cash income, the price of these securities can be volatile when interest rates fluctuate. While these securities do not pay current cash income, the Code requires the holders of these securities to include in income each year the portion of the original issue discount (or deemed discount) and other non-cash income on the securities accruing that year. A Fund may be required to distribute a portion of that discount and income and may be required to dispose of other portfolio securities, which may occur in periods of adverse market prices, in order to generate cash to meet these distribution requirements.

Inflation-Linked and Inflation-Indexed Securities

The Alternative Strategies Fund and the High Income Alternatives Fund may invest in inflation-linked bonds. The principal amount of these bonds increases with increases in the price index used as a reference value for the bonds. In addition, the amounts payable as coupon interest payments increase when the price index increases because the interest amount is calculated by multiplying the principal amount (as adjusted) by a fixed coupon rate.

Although inflation-indexed securities protect their holders from long-term inflationary trends, short-term increases in inflation may result in a decline in value. The values of inflation-linked securities generally fluctuate in response to changes to real interest rates, which are in turn tied to the relationship between nominal interest rates and the rate of inflation. If inflation were to rise at a rate faster than nominal interest rates, real interest rates might decline, leading to an increase in value of the inflation-linked securities. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in the value of inflation-linked securities. If inflation is lower than expected during a period the Fund holds inflation-linked securities, the Fund may earn less on such bonds than on a conventional bond. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in inflation-linked securities may not be protected to the extent that the increase is not reflected in the price index used as a reference for the securities. There can be no assurance that the price index used for an inflation-linked security will accurately measure the real rate of inflation in the prices of goods and services. Inflation-linked and inflation-indexed securities include Treasury Inflation-Protected Securities issued by the U.S. government (see the section “U.S. Government Securities” for additional information), but also may include securities issued by state, local and non-U.S. governments and corporations and supranational entities.

Borrowing

Each of the Equity Fund, International Fund and Smaller Companies Fund is authorized to borrow money from banks from time to time for temporary, extraordinary or emergency purposes or for clearance of transactions in amounts up to 20% of the value of its total assets at the time of such borrowing. The Alternative Strategies Fund and the High Income Alternatives Fund are authorized to borrow money from banks in amounts up to 33-1/3% of their total assets. Each Fund is authorized to borrow money in amounts up to 5% of the value of its total assets at the time of such borrowing s for temporary purposes and is authorized to borrow money in excess of the 5% limit as permitted by the 1940 Act. The 1940 Act requires a Fund to maintain continuous asset coverage (i.e., total assets including borrowings less liabilities exclusive of borrowings) of at least 300% of the amount borrowed. If the 300% asset coverage declines as a result of market fluctuations or other reasons, a Fund may be required to sell some of its portfolio holdings within three days to reduce the debt and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. The use of borrowing by the Fund involves special risk considerations that may not be associated with other funds having similar objectives and policies. Since substantially all of the Fund’s assets fluctuate in value, whereas the interest obligation resulting from a borrowing will be fixed by the terms of the Fund’s agreement with its lender, the asset value per share of the Fund will tend to increase more when its portfolio securities increase in value and to decrease more when its portfolio assets decrease in value than would otherwise be the case if the Fund did not borrow funds. In addition, interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the return earned on borrowed funds. 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.

 

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Lending Portfolio Securities

Each Fund may lend its investment securities to approved institutional borrowers who need to borrow securities in order to complete certain transactions, such as covering short sales, avoiding failures to deliver securities or completing arbitrage operations. By lending its investment securities, a Fund attempts to increase its net investment income through the receipt of interest on the loan. Any gain or loss in the market price of the securities loaned that might occur during the term of the loan would belong to the Fund. Each Fund may lend its investment securities so long as the terms, structure and the aggregate amount of such loans are not inconsistent with the 1940 Act or the rules and regulations or interpretations of the SEC thereunder, which currently require that (i) the loan collateral must be equal to at least 100% of the value of the loaned securities, and the borrower must increase such collateral such that it remains equal to 100% of the value of the loaned securities whenever the price of the loaned securities increases (i.e., mark to market on a daily basis); (ii) the Fund must be able to terminate the loan at any time; (iii) the Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions payable on the loaned securities, and any increase in market value; (iv) the Fund may pay reasonable custodial fees in connection with the lending of portfolio securities, which fees must be negotiated by the Fund and the custodian and be approved by the Board; and (v) although the voting rights may pass with the lending of securities, the Board must be obligated to call the loan in time to vote the securities if a material event affecting the investment on loan is to occur.

The primary risk in securities lending is default by the borrower as the value of the borrowed security rises, resulting in a deficiency in the collateral posted by the borrower. The Funds seek to minimize this risk by computing the value of the security loaned on a daily basis and requiring additional collateral if necessary.

The Board has appointed State Street Bank and Trust Company, the Funds’ custodian, as securities lending agent for the Funds’ securities lending activity. The securities lending agent maintains a list of broker-dealers, banks or other institutions that it has determined to be creditworthy. The Funds will only enter into loan arrangements with borrowers on this list and will not lend its securities to be sold short.

Short Sales

Each Fund is authorized to make short sales of securities which it does not own or have the right to acquire. In a short sale, a Fund sells a security that it does not own, in anticipation of a decline in the market value of the security. To complete the sale, a Fund must borrow the security (generally from the broker through which the short sale is made) in order to make delivery to the buyer. Each Fund is then obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. Each Fund is said to have a “short position” in the securities sold until it delivers them to the broker. The period during which a Fund has a short position can range from one day to more than a year. Until the security is replaced, the proceeds of the short sale are retained by the broker, and a Fund is required to pay to the broker a negotiated portion of any dividends or interest that accrue during the period of the loan. To meet current margin requirements, a Fund is also required to deposit with the broker additional cash or securities so that the total deposit with the broker is maintained daily at 150% of the current market value of the securities sold short (100% of the current market value if a security is held in the account that is convertible or exchangeable into the security sold short within 90 days without restriction other than the payment of money).

Short sales by a Fund create opportunities to increase a Fund’s return but, at the same time, involve specific risk considerations and may be considered a speculative technique. Since each Fund in effect profits from a decline in the price of the securities sold short without the need to invest the full purchase price of the securities on the date of the short sale, a Fund’s NAV per share will tend to increase more when the securities it has sold short decrease in value, and to decrease more when the securities it has sold short increase in value, than would otherwise be the case if it had not engaged in such short sales. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of any premium, dividends or interest a Fund may be required to pay in connection with the short sale. Furthermore, under adverse market conditions a Fund might have difficulty purchasing securities to meet its short sale delivery obligations, and might have to sell portfolio securities to raise the capital necessary to meet its short sale obligations at a time when fundamental investment considerations would not favor such sales.

Illiquid Securities

Each Fund may not invest more than 15% of the value of its net assets in illiquid securities, including restricted securities that are not deemed to be liquid by the Sub-Advisor. The Advisor and the Sub-Advisors will monitor the amount of illiquid securities in a Fund’s portfolio, under the supervision of the Board, to ensure compliance with a Fund’s investment restrictions. In accordance with procedures approved by the Board, these

 

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securities may be valued using techniques other than market quotations, and the values established for these securities may be different than what would be produced through the use of another methodology or if they had been priced using market quotations. Illiquid securities and other portfolio securities that are valued using techniques other than market quotations, including “fair valued” securities, may be subject to greater fluctuation in their value from one day to the next than would be the case if market quotations were used. In addition, there is no assurance that a Fund could sell a portfolio security for the value established for it at any time, and it is possible that a Fund would incur a loss because a portfolio security is sold at a discount to its established value.

Historically, illiquid securities have included securities subject to contractual or legal restrictions on resale because they have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), securities which are otherwise not readily marketable and repurchase agreements having a maturity of longer than seven days. Securities which have not been registered under the Securities Act are referred to as private placement or restricted securities and are purchased directly from the issuer or in the secondary market. Mutual funds do not typically hold a significant amount of these restricted or other illiquid securities because of the potential for delays on resale and uncertainty in valuation. Limitations on resale may have an adverse effect on the marketability of portfolio securities and a Fund might be unable to dispose of restricted or other illiquid securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemption within seven days. A Fund might also have to register such restricted securities in order to dispose of them, resulting in additional expense and delay. Adverse market conditions could impede such a public offering of securities.

In recent years, however, a large institutional market has developed for certain securities that are not registered under the Securities Act, including repurchase agreements, commercial paper, foreign securities, municipal securities and corporate bonds and notes. Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or on an issuer’s ability to honor a demand for repayment. The fact that there are contractual or legal restrictions on resale to the general public or to certain institutions may not be indicative of the liquidity of such investments. If such securities are subject to purchase by institutional buyers in accordance with Rule 144A promulgated by the SEC under the Securities Act, the Sub-Advisor, pursuant to procedures adopted by the Board, may determine that such securities are not illiquid securities notwithstanding their legal or contractual restrictions on resale. In all other cases, however, securities subject to restrictions on resale will be deemed illiquid.

Exchange-Traded Funds

The Funds may invest in exchange-traded funds (“ETFs”), which are a type of index fund bought and sold on a securities exchange. An ETF trades like common stock and represents a fixed portfolio of securities designed to track a particular market index. A Fund could purchase an ETF to temporarily gain exposure to a portion of the U.S. or a foreign market while awaiting purchase of underlying securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities they are designed to track, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. ETFs are also subject to other risks, including the risk that their prices may not correlate perfectly with changes in the underlying index and the risk of possible trading halts due to market conditions or other reasons that, in the view of the exchange upon which an ETF trades, would make trading in the ETF inadvisable. An exchange-traded sector fund may also be adversely affected by the performance of that specific sector or group of industries on which it is based. Investments in ETFs are generally subject to limits in the 1940 Act on investments in other investment companies.

Merger Arbitrage (Alternative Strategies Fund)

The Alternative Strategies Fund may utilize merger arbitrage as an investment strategy. Merger arbitrage is a highly specialized investment approach designed to profit from the successful completion of mergers, takeovers, tender offers, leveraged buyouts, spin-offs, liquidations and other corporate reorganizations. The most common arbitrage activity, and the approach the Fund generally will use, involves purchasing the shares of an announced acquisition target company at a discount to their expected value upon completion of the acquisition. The Sub-Advisors may sell securities short when the terms of a proposed acquisition call for the exchange of common stock and/or other securities. In such a case, the common stock of the company to be acquired may be purchased and, at approximately the same time, an equivalent amount of the acquiring company’s common stock and/or other securities may be sold short. The Fund generally engages in active and frequent trading of portfolio securities to achieve its principal investment strategies.

 

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Convertible Arbitrage (Alternative Strategies Fund)

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

Capital Structure Arbitrage (Alternative Strategies Fund)

The Alternative Strategies Fund may utilize capital structure arbitrage as an investment strategy. This strategy attempts to take advantage of relative pricing discrepancies between related debt and/or equity securities. For example, the Fund may purchase a senior secured security of an issuer and sell short an unsecured security of the same issuer. In this example the trade would be profitable if credit quality spreads widened or if the issuer went bankrupt and the recovery rate for the senior debt was higher. Another example might involve the Fund purchasing one class of common stock while selling short a different class of common stock of the same issuer. It is expected that, over time, the relative mispricing of the securities will disappear, at which point the position will be liquidated.

Business Development Companies (“BDCs”) (High Income Alternatives Fund)

The High Income Alternatives Fund may invest in BDCs, which are a type of closed-end fund regulated under the 1940 Act. BDCs are publicly-traded mezzanine/private equity funds that typically invest in and lend to small and medium-sized private companies that may not have access to public equity markets for capital raising. BDCs are unique in that at least 70% of their investments must be made to private U.S. businesses and BDCs are required to make available significant managerial assistance to their portfolio companies. BDCs are not taxed on income distributed to shareholders provided they comply with the applicable requirements of the Code. BDCs have expenses associated with their operations. Accordingly, the Fund will indirectly bear its proportionate share of any management and other expenses, and of any performance based fees, charged by the BDCs in which it invests. Investments in BDCs are subject to various risks, including management’s ability to meet the BDC’s investment objective, and to manage the BDC’s portfolio when the underlying securities are redeemed or sold, during periods of market turmoil and as investors’ perceptions regarding a BDC or its underlying investments change. BDC shares are not redeemable at the option of the BDC shareholder and, as with shares of other closed-end funds, they may trade in the secondary market at a discount to their NAV.

Initial Public Offerings

The Funds may purchase securities of companies in initial public offerings (“IPOs”). By definition, IPOs have not traded publicly until the time of their offerings. Special risks associated with IPOs may include a limited number of shares available for trading, unseasoned trading, lack of investor knowledge of the company, and limited operating history, all of which may contribute to price volatility. Many IPOs are issued by undercapitalized companies of small- or micro-cap size. The effect of IPOs on a Fund’s performance depends on a variety of factors, including the number of IPOs the Fund invests in relative to the size of the Fund and whether and to what extent a security purchased in an IPO appreciates or depreciates in value. As a Fund’s asset base increases, IPOs often have a diminished effect on such Fund’s performance.

 

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Risks of Investing in Small Companies

Each Fund may, and the Smaller Companies Fund will, invest in securities of small companies. Additional risks of such investments include the markets on which such securities are frequently traded. In many instances the securities of smaller companies are traded only over-the-counter or on a regional securities exchange, and the frequency and volume of their trading is substantially less than is typical of larger companies. Therefore, the securities of smaller companies may be subject to greater and more abrupt price fluctuations. When making large sales, a Fund may have to sell portfolio holdings at discounts from quoted prices or may have to make a series of small sales over an extended period of time due to the trading volume of smaller company securities. Investors should be aware that, based on the foregoing factors, an investment in the Funds may be subject to greater price fluctuations than an investment in a fund that invests exclusively in larger, more established companies. A Sub-Advisor’s research efforts may also play a greater role in selecting securities for a Fund than in a fund that invests in larger, more established companies.

Market Events Risk

Events in certain sectors historically have resulted, and may in the future result, in an unusually high degree of volatility in the financial markets, both domestic and foreign. These events have included, but are not limited to: bankruptcies, corporate restructuring, and other events related to the sub-prime mortgage crisis in 2008; governmental efforts to limit short selling, and high frequency trading; measures to address U.S. federal and state budget deficits; social, political, and economic instability in Europe; economic stimulus by the Japanese central bank; steep declines in oil prices; dramatic changes in currency exchange rates; and China’s economic slowdown. Interconnected global economies and financial markets increase the possibility that conditions in one country or region might adversely impact issuers in a different country or region. Such events may cause significant declines in the values and liquidity of many securities and other instruments. It is impossible to predict whether these conditions will recur. Because such situations may be widespread, it may be difficult to identify both risks and opportunities using past models of the interplay of market forces, or to predict the duration of 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 spread globally. This coronavirus has resulted in certain 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, 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.

Large Shareholder Purchase and Redemption Risk

The Equity Fund, the International Fund, the Smaller Companies Fund and the High Income Alternatives Fund may experience adverse effects when certain large shareholders purchase or redeem large amounts of shares of the Fund. Such large shareholder redemptions may cause the Fund to sell its securities at times when it would not otherwise do so, which may negatively impact the Fund’s net asset value and liquidity. Similarly, large share purchases may adversely affect the Fund’s performance to the extent that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. In addition, a large redemption could result in the Fund’s current expenses being allocated over a smaller asset base, leading to an increase in the Fund’s expense ratio.

Risks of Increased Reliance on Data Analytics

In recent years, the asset management business has become increasingly dependent on data analytics to support portfolio management, investment operations and compliance. The Advisor’s and Sub-Advisors’ regulators have also substantially increased the extent and complexity of the data analytic component of compliance requirements. A failure to source accurate data from third parties or to correctly analyze, integrate or apply data could result in operational, trade or compliance errors, could cause portfolio losses, and could lead to regulatory concerns.

 

32


Investment Restrictions

The Trust (on behalf of each 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,” as defined in the 1940 Act, of a Fund. 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 a 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 a Fund.

As a matter of fundamental policy, each Fund is diversified; i.e., as to 75% of the value of its total assets: (i) no more than 5% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. Government securities); and (ii) a Fund may not purchase more than 10% of the outstanding voting securities of an issuer. Each Fund’s investment objective is also fundamental.

The following fundamental investment restrictions pertain to the Equity Fund, International Fund, and Smaller Companies Fund.

Each Fund may not:

1.        Issue senior securities, borrow money or pledge its assets, except that (i) a Fund may borrow on an unsecured basis from banks for temporary or emergency purposes or for the clearance of transactions in amounts not exceeding 20% of its total assets (not including the amount borrowed), provided that it will not make investments while borrowings in excess of 5% of the value of its total assets are outstanding; and (ii) this restriction shall not prohibit a Fund from engaging in options, futures and foreign currency transactions or short sales.

2.        Purchase securities on margin, except such short-term credits as may be necessary for the clearance of transactions.

3.        Act as underwriter (except to the extent a Fund may be deemed to be an underwriter in connection with the sale of securities in its investment portfolio).

4.        Invest 25% or more of its net assets, calculated at the time of purchase and taken at market value, in any one industry (other than U.S. Government securities).

5.        Purchase or sell real estate or interests in real estate or real estate limited partnerships (although a Fund may purchase and sell securities which are secured by real estate and securities of companies which invest or deal in real estate).

6.        Purchase or sell commodities or commodity futures contracts, except that a Fund may purchase and sell stock index futures contracts and currency and financial futures contracts and related options in accordance with any rules of the CFTC.

7.        Invest in oil and gas limited partnerships or oil, gas or mineral leases.

8.        Make loans of money (except for purchases of debt securities consistent with the investment policies of a Fund and except for repurchase agreements).

9.        Make investments for the purpose of exercising control or management.

With respect to the restriction on investments in oil and gas limited partnerships specified in restriction 7, only direct investment in oil and gas limited partnerships are prohibited. Therefore, the Funds may invest in publicly traded master limited partnerships, public limited partnerships or other investment vehicles that invest in oil and gas limited partnerships.

 

33


Each of the Equity Fund, International Fund, and Smaller Companies Fund observes the following non-fundamental restrictions, which may be changed by a vote of the Board at any time:

Each Fund may not:

1.        Invest in the securities of other investment companies or purchase any other investment company’s voting securities or make any other investment in other investment companies except to the extent permitted by federal law. (Generally, the 1940 Act prohibits a Fund from investing more than 5% of the value of its total assets in any one investment company or more than 10% of the value of its total assets in investment companies as a group, and also restricts its investment in any investment company to 3% of the voting securities of such investment company. There are some exceptions, however, to these limitations pursuant to various rules promulgated by the SEC.)

2.        Invest more than 15% of its net assets in securities that are restricted as to disposition or otherwise are illiquid or have no readily available market (except for securities that are determined by the Sub-Advisor, pursuant to procedures adopted by the Board, to be liquid).

The following fundamental investment restrictions pertain to the Alternative Strategies Fund and the High Income Alternatives Fund.

The Alternative Strategies Fund and the High Income Alternatives Fund may not:

1.        Issue senior securities, except as otherwise permitted by its fundamental policy on borrowing.

2.        Borrow money, except that it may (a) borrow from banks (as defined in the 1940 Act) in amounts up to 33-1/3% of its total assets (including the amount borrowed), (b) borrow amounts equal to an additional 5% of its total assets for temporary purposes, (c) engage in transactions in mortgage dollar rolls and reverse repurchase agreements, make leveraged investments, and engage in other transactions that may entail the use of leverage, where, if necessary to comply with Section 18(f) of the 1940 Act, the Fund sets aside in a segregated account, and marks to market daily, liquid securities, such as cash, U.S. government securities, or high-grade debt obligations, equal to the Fund’s potential obligation or economic exposure under these transactions and instruments.

3.        Purchase securities on margin, except such short-term credits as may be necessary for the clearance of transactions.

4.        Act as underwriter (except to the extent the Fund may be deemed to be an underwriter in connection with the sale of securities in its investment portfolio).

5.        Invest 25% or more of its net assets, calculated at the time of purchase and taken at market value, in any one industry (other than U.S. Government securities).

6.        Purchase or sell real estate or interests in real estate, except that (i) the Fund may purchase securities backed by real estate or interests therein, or issued by companies, including real estate investment trusts, which invest in real estate or interests therein; and (ii) the Fund may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. (For purposes of this restriction, investments by a Fund in mortgage-backed securities and other securities representing interests in mortgage pools shall not constitute the purchase or sale of real estate or interests in real estate or real estate mortgage loans).

7.        Purchase or sell commodities or contracts on commodities, except to the extent that the Alternative Strategies Fund may do so in accordance with applicable law and the Fund’s Prospectus and Statement of Additional Information, as they may be amended from time to time, and without registering as a commodity pool operator under the Commodity Exchange Act. (Alternative Strategies Fund)

8.        Purchase or sell commodities or commodity futures contracts, except that the High Income Alternatives Fund may purchase and sell stock index futures contracts and currency and financial futures contracts and related options in accordance with any rules of the CFTC. (High Income Alternatives Fund)

 

34


9.        Make loans of money (except for purchases of debt securities consistent with the investment policies of the Fund and except for repurchase agreements).

10.        Make investments for the purpose of exercising control or management.

The Alternative Strategies Fund and the High Income Alternatives Fund observe the following non-fundamental restrictions, which may be changed by a vote of the Board at any time:

The Alternative Strategies Fund and High Income Alternatives Fund may not:

1.        Invest in the securities of other investment companies or purchase any other investment company’s voting securities or make any other investment in other investment companies except to the extent permitted by federal law. (Generally, the 1940 Act prohibits the Fund from investing more than 5% of the value of its total assets in any one investment company or more than 10% of the value of its total assets in investment companies as a group, and also restricts its investment in any investment company to 3% of the voting securities of such investment company. There are some exceptions, however, to these limitations pursuant to various rules promulgated by the SEC.)

2.        Invest more than 15% of its net assets in securities that are restricted as to disposition or otherwise are illiquid or have no readily available market (except for securities that are determined by a Sub-Advisor, pursuant to procedures adopted by the Board, to be liquid).

BOARD OF TRUSTEES

The overall management of the business and affairs of the Trust is vested with its Board, which is responsible for protecting the interests of shareholders. The Trustees are experienced executives who meet throughout the year to oversee the activities of the Funds, review the compensation arrangements between the Advisor and the Sub-Advisors, review contractual arrangements with companies that provide services to the Funds, including the Advisor, Sub-Advisors, and the Funds’ administrator, custodian and transfer agent, and review the Funds’ performance. The day-to-day operations of the Trust are delegated to its officers, subject to a Fund’s investment objectives and policies and to general supervision by the Board. A majority of the Trustees are not otherwise affiliated with the Advisor or any of the Sub-Advisors.

 

35


Independent Trustees*

 

Name, Address and

Year Born

   Position(s)
Held with
the Trust
   Term of Office
and Length of
Time Served
   Principal Occupation(s)
During Past Five Years
   # of
Portfolios
in Fund
Complex
Overseen
by
Trustee
   Other
Directorships
Held by
Trustee
During Past
Five Years

Julie Allecta

1676 N. California

Blvd., Suite 500

Walnut Creek, CA 94596

(born 1946)

   Independent Trustee    Open-ended term; served since June 2013    Member of Governing Council and Policy Committee, Independent Directors Council (education for investment company independent directors) since 2014; and Retired Partner, Paul Hastings LLP (law firm) from 1999 to 2009.    5   

Forward Funds

(4 portfolios)

 

Salient MS Trust (2 portfolios)

 

Salient Midstream & MLP Fund (1 portfolio)

Frederick A. Eigenbrod, Jr., Ph.D.

1676 N. California Blvd., Suite 500

Walnut Creek, CA 94596

(born 1941)

   Independent Trustee   

Open-ended term;

served since inception

   Vice President, RoutSource Consulting Services (organizational planning and development) since 2002.    5    None

Harold M. Shefrin, Ph.D.

1676 N. California Blvd., Suite 500

Walnut Creek, CA 94596

(born 1948)

   Independent Trustee   

Open-ended term;

served since February 2005

   Professor, Department of Finance, Santa Clara University since 1979.    5    SA Funds – Investment Trust (10 portfolios)

Interested Trustees & Officers

 

Name, Address and

Year Born

   Position(s) Held with
the Trust
   Term of Office
and Length of
Time Served
   Principal Occupation(s)
During Past Five Years
   # of
Portfolios
in Fund
Complex
Overseen
by
Trustee
  

Other
Directorships
Held by
Trustee/

Officer
During Past
Five Years

Jeremy L. DeGroot**

1676 N. California Blvd., Suite 500

Walnut Creek, CA 94596

(born 1963)

   Chairman of the Board, Trustee and President   

Open-ended term;

served as a Chairman since March 2017, Trustee since December 2008 and President since 2014

   Chief Investment Officer of Litman Gregory Asset Management, LLC since 2008; and Co-Chief Investment Officer of Litman Gregory Asset Management, LLC from 2003 to 2008.    5    None

Stephen M. Savage

1676 N. California Blvd., Suite 500

Walnut Creek, CA 94596

(born 1961)

   Secretary   

Open-ended term;

served since 2014

   Chief Executive Officer of the Advisor since 2015; Managing Partner of the Advisor since 2010; Partner of the Advisor since 2003.    N/A    None

 

36


Name, Address and

Year Born

   Position(s)
Held with
the Trust
   Term of Office
and Length of
Time Served
   Principal Occupation(s)
During Past Five Years
   # of
Portfolios
in Fund
Complex
Overseen
by
Trustee
  

Other
Directorships
Held by
Trustee/

Officer
During Past
Five Years

John M. Coughlan

1676 N. California Blvd., Suite 500

Walnut Creek, CA 94596

(born 1956)

   Treasurer and Chief Compliance Officer    Open-ended term; served as Treasurer since inception, and as Chief Compliance Officer since September 2004    Chief Operating Officer and Chief Compliance Officer of the Advisor since 2004.    N/A    None
*

Denotes Trustees who are not “interested persons” of the Trust, as such term is defined under the 1940 Act (the “Independent Trustees”).

**

Denotes Trustees who are “interested persons” of the Trust, as such term is defined under the 1940 Act, because of their relationship with the Advisor (the “Interested Trustees”).

In addition, Jack Chee, Rajat Jain and Jason Steuerwalt, each a Senior Research Analyst at the Advisor, are each an Assistant Secretary of the Trust.

Additional Information Concerning Our Board of Trustees

The Role of the Board

The Board oversees the management and operations of the Trust. Like most mutual funds, the day-to-day management and operation of the Trust is performed by various service providers to the Trust, such as the Advisor, the Sub-Advisors, and the Funds’ distributor, administrator, custodian, and transfer agent, each of which is discussed in greater detail in this SAI. The Board has appointed senior employees of certain of these service providers as officers of the Trust, with the responsibility to monitor and report to the Board on the Trust’s operations. In conducting this oversight, the Board receives regular reports from these officers and service providers regarding the Trust’s operations. For example, investment officers report on the performance of the Funds. The Board has appointed a Chief Compliance Officer who administers the Trust’s compliance program and regularly reports to the Board as to compliance matters. Some of these reports are provided as part of formal “Board Meetings,” which are typically held quarterly, in person, and involve the Board’s review of recent Trust operations. From time to time, one or more members of the Board may also meet with management in less formal settings, between formal “Board Meetings,” to discuss various topics. In all cases, however, the role of the Board and of any individual Trustee is one of oversight and not of management of the day-to-day affairs of the Trust and its oversight role does not make the Board a guarantor of the Trust’s investments, portfolio pricing, operations or activities.

 

37


Board Structure, Leadership

The Board has structured itself in a manner that it believes allows it to perform its oversight function effectively. It has established three standing committees, an Audit Committee, a Nominating Committee and a Qualified Legal Compliance Committee, which are discussed in greater detail under “ Board of Trustees – Board Committees” below. Each of the three standing committees of the Board is comprised entirely of Independent Trustees. The Board does not currently have a designated lead Independent Trustee. The Independent Trustees have engaged their own independent counsel to advise them on matters relating to their responsibilities in connection with the Trust. The Board reviews its leadership structure periodically as part of its annual self-assessment process and believes that its structure is appropriate to enable the Board to exercise its oversight of the Trust.

Presently, Mr. DeGroot serves as the Chairman of the Board and President of the Trust and Chief Investment Officer of the Advisor. Mr. DeGroot is an “interested person” of the Trust, as defined in the 1940 Act, by virtue of his employment relationship with the Advisor. In developing the Board’s structure, the Board has determined that Mr. DeGroot’s history with the Trust, familiarity with the Funds’ investment objectives and extensive experience in the field of investments qualifies him to serve as the Chairman of the Board. The Board has also determined that the function and composition of the Audit Committee and Nominating Committees are appropriate means to address any potential conflicts of interest that may arise from the Chairman’s status as an Interested Trustee.

Board Oversight of Risk Management

As part of its oversight function, the Board receives and reviews various risk management reports and assessments and discusses these matters with appropriate management and other personnel. Risk management is a broad concept comprised of many disparate elements (such as, for example, investment risk, issuer and counterparty risk, compliance risk, operational risk, valuation risk and business continuity risk). Consequently, Board oversight of different types of risks is handled in different ways. In the course of providing oversight, the Board and its committees receive reports on the Trust’s activities regarding the Trust’s investment portfolios and its financial accounting and reporting. The Board also receives periodic reports as to how the Advisor conducts service provider oversight and how it monitors for other risks, such as derivatives risk, business continuity risks and risks that might be present with individual Sub-Advisors or specific investment strategies. The Audit Committee meets regularly with the Chief Compliance Officer to discuss compliance and operational risks. The Audit Committee’s meetings with the Treasurer and the Trust’s independent registered public accounting firm also contribute to its oversight of certain internal control risks. The full Board receives reports from the Advisor as to investment risks as well as other risks that may be also discussed in the Audit Committee.

The Board receives regular reports from a “Valuation Committee,” composed of the following senior employees of the Advisor: John Coughlan, Jeremy DeGroot, Jack Chee, Rajat Jain and Jason Steuerwalt. The Valuation Committee operates pursuant to the Trust’s Valuation Procedures, as approved by the Board. The Valuation Committee reports to the Board on the valuation of the Funds’ portfolio securities, reviews the performance of each approved pricing service, and recommends to the Board for approval pricing agents for the valuation of Fund holdings.

The Trust believes that the Board’s role in risk oversight must be evaluated on a case-by-case basis and that its existing role in risk oversight is appropriate. However, not all risks that may affect the Trust can be identified or processes and controls developed to eliminate or mitigate their occurrence or effects, and some risks are beyond any control of the Trust, the Advisor or its affiliates or other service providers.

Information about Each Trustee’s Qualification, Experience, Attributes or Skills

The Board believes that each of the Trustees has the qualifications, experience, attributes and skills (“Trustee Attributes”) appropriate to their continued service as Trustees of the Trust in light of the Trust’s business and structure. Each of the Trustees has a demonstrated record of business and professional accomplishment that indicates that they have the ability to critically review, evaluate and assess information provided to them. Certain of these business and professional experiences are set forth in detail in the charts above. In addition, certain of the Trustees have served on boards for organizations other than the Trust, and each of the Trustees has served on the Board of the Trust for a number of years. They therefore have substantial boardroom experience and, in their service to the Trust, have gained substantial insight as to the operation of the Trust and have demonstrated a commitment to discharging oversight duties as Trustees in the interest of shareholders.

 

38


In addition to the information provided in the charts above, certain additional information concerning each particular Trustee and certain of their Trustee Attributes is provided below. The information provided below, and in the charts above, is not all-inclusive. Many Trustee Attributes involve intangible elements, such as intelligence, work ethic, and the ability to work together, to communicate effectively, to exercise judgment, to ask incisive questions, to manage people and problems, and to develop solutions. The Board annually conducts a self-assessment wherein the effectiveness of the Board and individual Trustees is reviewed. In conducting its annual self-assessment, the Board has determined that the Trustees have the appropriate attributes and experience to continue to serve effectively as Trustees of the Trust.

The summaries set forth below as to the qualifications, attributes, and skills of the Trustees are furnished in response to disclosure requirements imposed by the SEC, do not constitute any representation or guarantee that the Board or any Trustee has any special expertise or experience, and do not impose any greater or additional responsibility or obligation on, or change any standard of care applicable to, any such person or the Board as a whole than otherwise would be the case.

Mr. DeGroot’s Trustee Attributes include his position as principal and Chief Investment Officer of Litman Gregory Asset Management, LLC (“LGAM”). In this position, Mr. DeGroot is responsible for overseeing Sub-Advisor due diligence, asset class research and portfolio tactical allocation decisions. Mr. DeGroot is also Portfolio Manager of the Alternative Strategies Fund and Co-Portfolio Manager of the Equity Fund, the International Fund, the Smaller Companies Fund and the High Income Alternatives Fund. He is frequently quoted in the national media in the areas of asset allocation and manager selection. He holds the Chartered Financial Analyst® (CFA®) designation. Mr. DeGroot also has prior experience as an economics consultant and economist.

Ms. Allecta’s Trustee Attributes include her significant professional experience in the legal field as counsel to various mutual funds and private funds. Ms. Allecta also has mutual fund and closed-end fund board experience, having served on the board of trustees of Forward Funds since 2012, the board of trustees of the Salient MS Trust since 2015, and the board of directors of the Salient Midstream & MLP Fund since 2017. Ms. Allecta has also been a member of the Governing Council of the Independent Directors Council since 2014.

Mr. Eigenbrod’s Trustee Attributes include his significant business advisory experience serving on the Board of Directors for Right Management Consultants providing management and organizational development consulting service as an independent consultant and executive coach.

Mr. Shefrin’s Trustee Attributes include his distinguished academic career as a Professor at Santa Clara University, where he teaches finance. Mr. Shefrin also has a number of years of mutual fund board experience, having served on the board of trustees of SA Funds—Investment Trust since 1999.

Board Committees

The Board has three standing committees as described below:

 

39


Audit Committee

 

Members    Description    Committee Meetings
During Fiscal Year Ended
December 31, 2019
 

Julie Allecta

Frederick A. Eigenbrod, Jr., Ph.D.

Harold M. Shefrin, Ph.D. (Chairman)

   Responsible for advising the full Board with respect to accounting, auditing and financial matters affecting the Trust.      3  

Qualified Legal Compliance Committee

 

Members    Description    Committee Meetings
During Fiscal Year Ended
December 31, 2019
 

Julie Allecta

Frederick A. Eigenbrod, Jr., Ph.D.

Harold M. Shefrin, Ph.D.

   Responsible for the receipt, review and consideration of any report made or referred to it by an attorney of evidence of a material violation of applicable U.S. federal or state securities law, material breach of a fiduciary duty under U.S. federal or state law or a similar material violation by the Trust or by any officer, Trustee, employee or agent of the Trust      0  

Nominating Committee

 

Members    Description    Committee Meetings
During Fiscal Year Ended
December 31, 2019
 

Julie Allecta

Frederick A. Eigenbrod, Jr., Ph.D. (Chairman)

Harold M. Shefrin, Ph.D.

   Responsible for evaluating the size and compensation of the Board and seeking and reviewing candidates for consideration as nominees for Trustees.      0  

Trustee Ownership of Fund Shares

As of December 31, 2019, the Trustees owned the following dollar range of shares of the Funds (1):

 

Name of Trustee    Equity
Fund
   International
Fund
   Smaller
Companies
Fund
   Alternative
Strategies
Fund
  

High
Income

Alternatives

Fund

   Aggregate Dollar Range
of Equity Securities in
all Registered
Investment Companies
Overseen by Trustee in
Family of Investment
Companies (2)
Independent Trustees
Julie Allecta    A    A    A    A    E    E
Frederick A. Eigenbrod, Jr., Ph.D.    D    C    A    D    D    E
Harold M. Shefrin, Ph.D.    A    E    A    A    A    E
Interested Trustees
Jeremy DeGroot    E    E    E    E    E    E
(1)

Dollar Range of Equity Securities in the Fund:

 

40


A=None

B=$1-$10,000

C=$10,001-$50,000

D=$50,001-$100,000

E= Over $100,000

(2)

As of December 31, 2019, the Trustees each oversaw five registered investment companies in the fund complex.

Trustee Interest in Investment Advisor, Distributor or Affiliates

As of December 31, 2019, the Independent Trustees, and their respective immediate family members, did not own any securities beneficially or of record in the Advisor, the Sub-Advisors, ALPS Distributors, Inc. (the “Distributor”) or any of their respective affiliates. Further, the Independent Trustees and their respective immediate family members did not have a direct or indirect interest, the value of which exceeds $120,000, in the Advisor, the Sub-Advisors, the Distributor, or any of their respective affiliates during the two most recently completed calendar years.

Compensation

For the year ended December 31, 2019 each Independent Trustee received an annual fee of $100,000, allocated $9,000 per Fund with the remaining balance pro-rated quarterly based on each Litman Gregory Masters Fund’s assets, plus expenses incurred by the Trustees in connection with attendance at meetings of the Board and its committees.

As of April 1, 2020, to the best of the knowledge of the Trust, the Board and the officers of the Funds, as a group, owned of record less than 1% of the outstanding shares of each of the Equity Fund, the International Fund, the Smaller Companies Fund, the Alternative Strategies Fund and the High Income Alternatives Fund.

The table below illustrates the annual compensation paid to each Trustee of the Trust during the fiscal year ended December 31, 2019:

 

     Aggregate Compensation from                       
Name of Person, Position    Equity
Fund
     International
Fund
     Smaller
Companies
Fund
    

Alternative
Strategies

Fund

     High Income
Alternatives
Fund
     Pension or
Retirement
Benefits
Accrued as
Part of Fund
Expenses
     Estimated
Annual
Benefits
Upon
Retirement
     Total
Compensation
from Trust
Paid to
Trustees
 

Independent Trustees

        
Julie Allecta, Trustee    $ 16,330      $ 17,930      $ 12,443      $ 39,968      $ 13,329        None        None      $ 100,000  

Frederick A. Eigenbrod, Jr., Ph.D.

Trustee

   $ 16,330      $ 17,930      $ 12,443      $ 39,968      $ 13,329        None        None      $ 100,000  

Harold M. Shefrin, Ph.D.

Trustee

   $ 16,330      $ 17,930      $ 12,443      $ 39,968      $ 13,329        None        None      $ 100,000  
Interested Trustees

        

Jeremy DeGroot,

President and Trustee*

     None        None        None        None           None        None        None  
*

As of December 31, 2018, Mr. DeGroot was an Interested Trustee because of his relationship with the Advisor and accordingly served on the Board without compensation.

Control Persons and Principal Shareholders

A principal shareholder is any person who owns (either of record or beneficially) 5% or more of the outstanding shares of any class of any of the Funds. A control person is one who owns, either directly or indirectly, more than 25% of the voting securities of a Fund or acknowledges the existence of such control. A control person can have a significant impact on the outcome of a shareholder vote. As of April 1, 2020, the shareholders indicated below were considered to be either a control person or principal shareholder of the Funds.1

 

1 

The Funds have no information regarding the beneficial owners of Fund shares owned through accounts with financial intermediaries.

 

41


Litman Gregory Masters Equity Fund – Institutional Class

 

Name and Address    Shares    % Ownership   Type of Ownership

Charles Schwab & Co., Inc.

101 Montgomery Street

San Francisco, CA 94104-4151

   5,853,152.490    38.58%   Record

National Financial Services, Corp.

499 Washington Blvd.

Jersey City, NJ 07310-2010

   2,276,382.878    15.01%   Record

TD Ameritrade Inc.

P.O. Box 2226

Omaha, NE 68103-2226

   803,902.462    5.30%   Record

Litman Gregory Masters International Fund – Institutional Class

 

Name and Address    Shares    % Ownership   Type of Ownership

Charles Schwab & Co., Inc.

101 Montgomery Street

San Francisco, CA 94104-4151

   6,295,426.772    28.67%   Record

Mac & Co.

500 Grant Street, Room 151-1010

Pittsburgh, PA 15219-2502

   5,743,093.722    26.16%   Record

National Financial Services, Corp.

499 Washington Blvd.

Jersey City, NJ 07310-1995

   1,889,364.393    8.61%   Record

TD Ameritrade Inc.

P.O. Box 2226

Omaha, NE 68103-2226

   1,112,628.42    5.07%   Record

Litman Gregory Masters Smaller Companies Fund – Institutional Class

 

Name and Address    Shares    % Ownership   Type of Ownership

Charles Schwab & Co., Inc.

101 Montgomery Street

San Francisco, CA 94104-4151

   348,774.846    30.89%   Record

National Financial Services, Corp.

499 Washington Blvd.

Jersey City, NJ 07310-1995

   215,925.858    19.12%   Record

TD Ameritrade, Inc.

P.O. Box 2226

Omaha, NE 68103-2226

   111,547.698    9.88%   Record

 

 

42


Litman Gregory Masters Alternative Strategies Fund – Institutional Class

 

Name and Address    Shares    % Ownership   Type of Ownership

Charles Schwab & Co., Inc.

101 Montgomery Street

San Francisco, CA 94104-4151

   59,147,757.540    44.72%   Record

National Financial Services, Corp.

499 Washington Blvd.

Jersey City, NJ 07310-1995

   29,924,989.040    22.62%   Record

TD Ameritrade Inc.

P.O. Box 2226

Omaha, NE 68103-2226

   8,679,219.747    6.56%   Record

Litman Gregory Masters Alternative Strategies Fund – Investor Class

 

Name and Address    Shares    % Ownership   Type of Ownership

Charles Schwab & Co., Inc.

101 Montgomery Street

San Francisco, CA 94104-4151

   5,154,634.788    52.01%   Record

National Financial Services, Corp.

499 Washington Blvd.

Jersey City, NJ 07310-1995

   2,824,540.855    28.50%   Record

TD Ameritrade Inc.

P.O. Box 2226

Omaha, NE 68103-2226

   851,571.622    8.59%   Record

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

   591,559.544    5.97%   Record

Litman Gregory Masters High Income Alternatives Fund – Institutional Class

 

Name and Address    Shares    % Ownership   Type of Ownership

Charles Schwab & Co., Inc.

101 Montgomery Street

San Francisco, CA 94104-4151

   6,953,507.949    76.68%   Record

National Financial Services, Corp.

499 Washington Blvd.

Jersey City, NJ 07310-1995

   1,515,070.4025    16.71%   Record

 

43


Litman Gregory Masters High Income Alternatives Fund – Investor Class

 

Name and Address    Shares    % Ownership   Type of Ownership

TD Ameritrade Inc.

P.O. Box 2226

Omaha, NE 68103-2226

   45,286.602    43.53%   Record

Charles Schwab & Co., Inc.

101 Montgomery Street

San Francisco, CA 94104-4151

   22,224.374    21.36%   Record

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

   18,791.267    18.06%   Record

National Financial Services, Corp.

499 Washington Blvd.

Jersey City, NJ 07310-1995

   17,218.586    16.55%   Record

PORTFOLIO HOLDINGS DISCLOSURE POLICIES AND PROCEDURES

The Board has adopted policies to ensure that any disclosure of information about the Funds’ portfolio holdings is in the best interest of Fund shareholders; and to make clear that information about the Funds’ portfolio holdings should not be distributed to any person unless:

 

   

The disclosure is required to respond to a regulatory request, court order or other legal proceedings;

 

   

The disclosure is to a mutual fund rating or statistical agency or person performing similar functions who has signed a confidentiality agreement with the Trust;

 

   

The disclosure is made to internal parties involved in the investment process, administration or custody of the Funds, including but not limited to the Advisor, the Sub-Advisors and the Board;

 

   

The disclosure is (a) in connection with a quarterly, semi-annual or annual report that is available to the public or (b) relates to information that is otherwise available to the public ( e.g., portfolio information that is available on a Fund’s website); or

 

   

The disclosure is made pursuant to prior written approval of the Chief Compliance Officer of the Advisor or the Funds, or the President of the Trust.

The Funds make their portfolio holdings publicly available on the Funds’ website 15 days after the end of each calendar quarter.

The Funds do not have any individualized ongoing arrangements to make available information about the Funds’ portfolio securities to any person other than the disclosures made, as described above, to internal parties involved in the Funds’ investment process, administration or custody of the Funds. To the extent required to perform services for the Funds or the Advisor, the Funds’ or the Advisor’s legal counsel or the Funds’ auditors may obtain portfolio holdings information. Such information is provided subject to confidentiality requirements.

 

44


THE ADVISOR AND THE SUB-ADVISORS

The Advisor is a registered investment advisor with the SEC under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The Advisor is wholly owned by LGAM. Craig Litman, Kenneth Gregory and certain other senior employees of LGAM own approximately 85% of LGAM, and the remainder of LGAM is owned by a private equity firm.

Subject to the supervision of the Board, investment management and related services are provided by the Advisor to each of the Funds, pursuant to an investment advisory agreement (the “Advisory Agreement”). The Trust, on behalf of the Funds, and the Advisor are parties to the Advisory Agreement. Shareholders are not parties to, or intended (or “third party”) beneficiaries of, the Advisory Agreement. Rather, the Trust and its respective investment series are the sole intended beneficiaries of the Advisory Agreement. Neither this SAI nor the Prospectus is intended to give rise to any contract rights or other rights in any shareholder, other than any rights conferred by federal or state securities laws that may not be waived.

In addition, the assets of each Fund are divided into segments by the Advisor, and individual selection of securities in each segment is provided by a Sub-Advisor approved by the Board pursuant, in each case, to an investment sub-advisory agreement (each, a “Management Agreement”). Under the Advisory Agreement, the Advisor has agreed to (i) furnish each Fund with advice and recommendations with respect to the selection and continued employment of Sub-Advisors to manage the actual investment of each Fund’s assets; (ii) direct the allocation of each Fund’s assets among such Sub-Advisors; (iii) oversee the investments made by such Sub-Advisors on behalf of each Fund, subject to the ultimate supervision and direction of the Board; (iv) oversee the actions of the Sub-Advisors with respect to voting proxies for each Fund, filing Section 13 ownership reports with the SEC for each Fund, and taking other actions on behalf of each Fund; (v) maintain the books and records required to be maintained by each Fund except to the extent arrangements have been made for such books and records to be maintained by the administrator, another agent of each Fund or a Sub-Advisor; (vi) furnish reports, statements and other data on securities, economic conditions and other matters related to the investment of each Fund’s assets that each Fund’s administrator or distributor or the officers of the Trust may reasonably request; and (vii) render to the Board such periodic and special reports with respect to each Fund’s investment activities as the Board may reasonably request, including at least one in-person appearance annually before the Board.

The Advisor has agreed, at its own expense, to maintain such staff and employ or retain such personnel and consult with such other persons as it shall from time to time determine to be necessary to the performance of its obligations under the Advisory Agreement. Personnel of the Advisor may serve as officers of the Trust provided they do so without compensation from the Trust. Without limiting the generality of the foregoing, the staff and personnel of the Advisor shall be deemed to include persons employed or retained by the Advisor to furnish statistical information, research, and other factual information, advice regarding economic factors and trends, information with respect to technical and scientific developments, and such other information, advice and assistance as the Advisor or the Board may desire and reasonably request. With respect to the operation of each Fund, the Advisor has agreed to be responsible for (i) providing the personnel, office space and equipment reasonably necessary for the operation of the Trust and each Fund including the provision of persons qualified to serve as officers of the Trust; (ii) compensating the Sub-Advisors selected to invest the assets of each Fund; (iii) the expenses of printing and distributing extra copies of each Fund’s prospectus, statement of additional information, and sales and advertising materials (but not the legal, auditing or accounting fees incurred thereto) to prospective investors (but not to existing shareholders); and (iv) the costs of any special Board meetings or shareholder meetings convened for the primary benefit of the Advisor or any Sub-Advisor.

Under each Management Agreement, each Sub-Advisor agrees to invest its allocated portion of the assets of each Fund in accordance with the investment objectives, policies and restrictions of each Fund as set forth in the Trust’s and each Fund’s governing documents, including, without limitation, the Trust’s Agreement and Declaration of Trust and By-Laws; each Fund’s prospectus, statement of additional information, and undertakings; and such other limitations, policies and procedures as the Advisor or the Trustees of the Trust may impose from time to time in writing to the Sub-Advisor. In providing such services, each Sub-Advisor shall at all times adhere to the provisions and restrictions contained in the federal securities laws, applicable state securities laws, the Code, and other applicable law.

 

45


Without limiting the generality of the foregoing, each Sub-Advisor has agreed to (i) furnish each Fund with advice and recommendations with respect to the investment of the Sub-Advisor’s allocated portion of each Fund’s assets; (ii) effect the purchase and sale of portfolio securities for the Sub-Advisor’s allocated portion or determine that a portion of such allocated portion will remain uninvested; (iii) manage and oversee the investments of the Sub-Advisor’s allocated portion, subject to the ultimate supervision and direction of the Board; (iv) vote proxies and take other actions with respect to the securities in the Sub-Advisor’s allocated portion; (v) maintain the books and records required to be maintained with respect to the securities in the Sub-Advisor’s allocated portion; (vi) furnish reports, statements and other data on securities, economic conditions and other matters related to the investment of each Fund’s assets which the Advisor, Trustees or the officers of the Trust may reasonably request; and (vii) render to the Board such periodic and special reports with respect to Sub-Advisor’s allocated portion as the Board may reasonably request.

As compensation for the Advisor’s services (including payment of the Sub-Advisors’ fees), each Fund pays the Advisor an advisory fee at the rate specified in the prospectus. In addition to the fees payable to the Advisor and the Funds’ administrator, the Trust is responsible for its operating expenses, including: fees and expenses incurred in connection with the issuance, registration and transfer of its shares; brokerage and commission expenses; all expenses of transfer, receipt, safekeeping, servicing and accounting for the cash, securities and other property of the Trust for the benefit of each Fund including all fees and expenses of its custodian, shareholder services agent and accounting services agent; interest charges on any borrowings; costs and expenses of pricing and calculating its daily NAV and of maintaining its books of account required under the 1940 Act; taxes, if any; a pro rata portion of expenditures in connection with meetings of each Fund’s shareholders and the Board that are properly payable by each Fund; salaries and expenses of officers and fees and expenses of members of the Board or members of any advisory board or committee who are not members of, affiliated with or interested persons of the Advisor; insurance premiums on property or personnel of each Fund that inure to its benefit, including liability and fidelity bond insurance; the cost of preparing and printing reports, proxy statements, prospectuses and statements of additional information of each Fund or other communications for distribution to existing shareholders; legal, auditing and accounting fees; trade association dues; fees and expenses (including legal fees) of registering and maintaining registration of its shares for sale under federal and applicable state and foreign securities laws; all expenses of maintaining and servicing shareholder accounts, including all charges for transfer, shareholder recordkeeping, dividend disbursing, redemption, and other agents for the benefit of each Fund, if any; and all other charges and costs of its operation plus any extraordinary and non-recurring expenses, except as otherwise prescribed in the Advisory Agreement.

Pursuant to a Restated Contractual Advisory Fee Waiver Agreement effective as of January 1, 2006, for one year and renewable annually for additional one-year terms thereafter (the “Fee Waiver Agreement”), the Advisor has agreed to waive a portion of its advisory fees for each Fund to reflect reductions in the Sub-Advisors’ fees. Reductions in Sub-Advisors’ fees can occur due to changes in Sub-Advisors, the negotiation of different Sub-Advisor fee schedules, the reallocation of assets among Sub-Advisors or for other reasons. The Board may terminate the Fee Waiver Agreement upon 60 days’ notice to the Advisor, and the Advisor has reserved the right to decline renewal by written notice to the Trust at least 30 days before the Fee Waiver Agreement’s annual expiration date. The current term of the Fee Waiver Agreement expires on April 30, 2021. The Advisor’s intent in making such waivers is to pass through to the shareholders the benefits of reductions in the fees the Advisor is required to pay to the Sub-Advisors. The Advisor has agreed to waive its right to recoupment of any fees waived pursuant to the Fee Waiver Agreement.

The Advisor has contractually agreed, through April 30, 2021, to waive a portion of its advisory fees so that after paying all of the sub-advisory fees, the net advisory fee as a percentage of the High Income Alternatives Fund’s daily net assets retained by the Advisor is 0.40% on the first $1 billion of assets, 0.375% on the next $1 billion of assets, 0.35% on the next $1 billion of assets, 0.325% on the next $1 billion of assets and 0.30% on assets in excess of $4 billion. The Advisor has waived its right to receive reimbursement of the portion of its advisory fees waived under this agreement.

Pursuant to a separate Operating Expenses Limitation Agreement (the “Expenses Limitation Agreement”), the Advisor has also agreed to limit the ordinary operating expenses of the High Income Alternatives Fund, through April 30, 2021 (unless otherwise sooner terminated), to an annual rate of 0.98% for the Institutional Class and 1.23% for the Investor Class. Such annual rates are expressed as a percentage of the daily net assets of the High Income Alternatives Fund attributable to the applicable class.. The Advisor may recoup reduced fees and expenses only within

 

46


three years, provided that the recoupment does not cause the High Income Alternatives Fund’s annual expense ratio to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement may be terminated at any time by the Board of Trustees of the Trust upon sixty (60) days’ written notice to the Advisor, and the Advisor may decline to renew this agreement by written notice to the Trust at least thirty (30) days before the agreement’s annual expiration date. Operating expenses referred to in this paragraph include management fees payable to the Advisor but exclude any taxes, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, borrowing costs (including commitment fees), dividend expenses, acquired fund fees and expenses and extraordinary expenses such as, but not limited to, litigation costs.

Under the Advisory Agreement and each Management Agreement, the Advisor and the Sub-Advisors will not be liable to the Trust for any error of judgment by the Advisor or the Sub-Advisors or any loss sustained by the Trust except in the case of a breach of fiduciary duty with respect to the receipt of compensation for services (in which case any award of damages will be limited as provided in the 1940 Act) or of willful misfeasance, bad faith or gross negligence by reason of reckless disregard of its obligations and duties under the applicable agreement.

The Advisory Agreement and the Management Agreements remain in effect for an initial period not to exceed two years. Thereafter, if not terminated, the Advisory Agreement and each Management Agreement will continue automatically for successive annual periods, provided that such continuance is specifically approved at least annually (i) by a majority vote of the Independent Trustees cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or by vote of a majority of the outstanding voting securities of a Fund.

The Advisory Agreement and Management Agreements are terminable by vote of the Board or by the holders of a majority of the outstanding voting securities of a Fund at any time without penalty, upon 60 days’ written notice to the Advisor or a Sub-Advisor, as applicable. The Advisory Agreement and the Management Agreements also may be terminated by the Advisor or a Sub-Advisor, as applicable, upon 60 days’ written notice to the applicable Fund. The Advisory Agreement and the Management Agreements terminate automatically upon their assignment (as defined in the 1940 Act).

In determining whether to renew the Advisory Agreement and the Management Agreements each year, the Board requests and evaluates information provided by the Advisor and the Sub-Advisors, in accordance with Section 15(c) of the 1940 Act. A discussion regarding the Board’s basis for approving the Funds’ Advisory Agreement with the Advisor and each Management Agreement is included in the Funds’ Annual Report to Shareholders for the fiscal year ended December 31, 2019.

Advisory fees net of waivers each of the Funds paid to the Advisor and the amounts waived by the Advisor for the last three fiscal years are specified below. Additional investment advisory fees payable under the Advisory Agreement may have, instead, been reduced by the Advisor and in some circumstances may be subject to reimbursement by the respective Fund, as discussed previously.

Advisor Fees Paid to Advisor, Net of Waivers

 

Year  

Equity

Fund

 

International

Fund

  Smaller Companies
Fund
  Alternative Strategies
Fund
  High Income
Alternatives
Fund†

2019

  $3,174,715   $4,339,134   $336,370   $26,180,508   $850,341

2018

  $3,303,233   $5,131,159   $232,168   $26,339,481   $107,180

2017

  $3,227,491   $5,619,185   $241,164   $24,008,949   N/A

The High Income Alternatives Fund commenced operations on September 28, 2018.

Amounts Waived by Advisor

 

Year  

Equity

Fund

 

International

Fund

  Smaller Companies
Fund
  Alternative Strategies
Fund
  High Income
Alternatives
Fund†

2019

  $311,514   $963,627   $122,904   $2,325,569   $368,906

2018

  $389,922   $1,395,882   $135,820   $2,035,928   $65,060

2017

  $386,672   $1,876,901   $141,709   $1,675,406   N/A

The High Income Alternatives Fund commenced operations on September 28, 2018.

 

47


ADDITIONAL PORTFOLIO MANAGER INFORMATION

The following section provides information regarding each portfolio manager’s compensation, other accounts managed, material conflicts of interests, and any ownership of securities in the Funds for which they sub-advise. Each portfolio manager or team member is referred to as a portfolio manager below. The portfolio managers are shown together in this section only for ease in presenting the information and should not be viewed for purposes of comparing the portfolio managers or their firms against one another. Each firm is a separate entity that may employ different compensation structures and may have different management requirements, and each portfolio manager may be affected by different conflicts of interest.

Other Accounts Managed by Portfolio Managers

The table below identifies, for each portfolio manager of each Fund, the number of accounts managed (excluding the Funds) 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 any of these accounts are based on account performance, this information is reflected in separate tables below. Information in all tables is shown as of the Funds’ fiscal year-end, December 31, 2019. Asset amounts are approximate and have been rounded.

 

    

Registered

Investment Companies
(excluding the Funds)

    

Other Pooled

Investment Vehicles

     Other Accounts  
Fund and
Portfolio Manager
(Firm)
   Number
of
Accounts
    

Total

Assets
in the
Accounts

     Number
of
Accounts
    

Total

Assets
in the
Accounts

     Number
of
Accounts
    

Total

Assets
in the
Accounts

 
All Funds                  
Jeremy DeGroot (Litman Gregory)      0        $0        0        $0        0        $0  
Equity Fund                  
Jack Chee (Litman Gregory)      0        $0        0        $0        0        $0  
Rajat Jain (Litman Gregory)      0        $0        0        $0        0        $0  
Christopher C. Davis (Davis Advisors)      11        $14.5 billion        2        $367.7 million        42        $6.9 billion  
Danton Goei (Davis Advisors)      11        $14.6 billion        5        $643.6 million        39        $7.0 billion  
Patrick J. English (FMI)      5        $13.7 billion        6        $736 million        1,291        $9 billion  
Jonathan T. Bloom (FMI)      5        $13.7 billion        6        $736 million        1,291        $9 billion  
Clyde S. McGregor (Harris)      2        $13.4 billion        11        $4.1 billion        113        $6.2 billion  
William C. Nygren (Harris)      15        $24.3 billion        2        $51.8 million        3        $554.8 million  
Scott Moore (Nuance)      5        $2.4 billion        0        $0        897        $1.1 billion  
Chad Baumler (Nuance)      5        $2.4 billion        0        $0        897        $1.1 billion  
Frank M. Sands (Sands Capital)      4        $4.1 billion        10        $1.4 billion        356        $14.0 billion  
A. Michael Sramek (Sands Capital)      4        $4.1 billion        10        $1.4 billion        356        $14.0 billion  
Richard T. Weiss (WellsCap)      1        $9        2        $291 million        12        $132 million  
International Fund                  
Rajat Jain (Litman Gregory)      0        $0        0        $0        0        $0  
David E. Marcus (Evermore)      1        $595.0 million        1        $25.2 million        6        $436.0 million  
David G. Herro (Harris)      13        $44.4 billion        32        $16.6 billion        41        $12.3 billion  
Mark Little (Lazard)      5        $6.6 billion        6        $878.2 million        46        $8.2 billion  
Fabio Paolini (Pictet)      1        $280 million        4        $884 million        8        $1.7 billion  
Benjamin (Ben) Beneche (Pictet)      1        $280 million        4        $884 million        8        $1.7 billion  
Smaller Companies Fund                  
Jack Chee (Litman Gregory)      0        $0        0        $0        0        $0  

 

48


    

Registered

Investment Companies
(excluding the Funds)

  

Other Pooled

Investment Vehicles

   Other Accounts
Fund and
Portfolio Manager
(Firm)
   Number
of
Accounts
  

Total

Assets
in the
Accounts

   Number
of
Accounts
  

Total

Assets
in the
Accounts

   Number
of
Accounts
  

Total

Assets
in the
Accounts

Jeffrey Bronchick (Cove Street)    1    $9 million    1    $115 million    114    $776 million
Mark T. Dickherber (SBH)    3    $441.0 million    0    $0    77    $836.7 million
Shaun P. Nicholson (SBH)    2    $402.9 million    0    $0    42    $458.8 million
Richard T. Weiss (WellsCap)    1    $33    2    $291 million    12    $132 million
Alternative Strategies Fund                  
Jason Steuerwalt (Litman Gregory)    0    $0    0    $0    0    $0
Stephen Kealhofer (DCI)    0    $0    9    $2.85 billion    8    $1.96 billion
Paul Harrison (DCI)    0    $0    9    $2.85 billion    8    $1.96 billion
Adam Dwinells (DCI)    0    $0    9    $2.85 billion    8    $1.96 billion
Jeffrey Gundlach (DoubleLine)    36    $108.7 billion    19    $9.4 billion    75    $25.6 billion
Jeffrey Sherman (DoubleLine)    23    $43.7 billion    8    $3.3 billion    18    $11.2 billion
Steven Romick (First Pacific)    4    $15 billion    16    $2.1 billion    4    $236.8 million
Brian Selmo (First Pacific)    4    $15 billion    15    $2.0 billion    4    $236.8 million
Mark Landecker (First Pacific)    4    $15 billion    15    $2.3 billion    4    $236.8 million
Matthew Eagan (Loomis Sayles)    18    $31 billion    34    $11.9 billion    134    $22.7 billion
Kevin Kearns (Loomis Sayles)    6    $1.8 billion    9    $4.6 billion    15    $4.6 billion
Todd Vandam (Loomis Sayles)    4    $1.5 billion    19    $4.7 billion    81    $11 billion
John Orrico (Water Island)    5    $1.91 billion    3    $132 million    0    $0
Todd Munn (Water Island)    4    $1.97 billion    1    $119 million    0    $0
Roger Foltynowicz (Water Island)    4    $1.97 billion    1    $119 million    0    $0
Gregg Loprete (Water Island)    3    $315 million    0    $0    0    $0
High Income Alternatives Fund                  
Jack Chee (Litman Gregory)    0    $0    0    $0    0    $0
Jason Steuerwalt (Litman Gregory)    0    $0    0    $0    0    $0
Greg Mason (Ares)    0    $0    1    $15.0 million    2    $49.0 million
Troy Ward (Ares)    0    $0    1    $15.0 million    2    $49.0 million
Andrew P. Hofer (BBH)    3    $10.3 billion    4    $1.1 billion    106    $20.7 billion
Neil Hohmann (BBH)    3    $10.3 billion    4    $1.1 billion    106    $20.7 billion
Paul Kunz (BBH)    0    $0    1    $240 million    0    $0
Scott Minerd (Guggenheim)    13    $23.3 billion    63    $16.4 billion    122    $155.9 billion
Anne Walsh (Guggenheim)    17    $27.6 billion    5    $3.2 billion    80    $144.5 billion
Steven Brown (Guggenheim)    13    $25.6 billion    5    $3.2 billion    23    $13.7 billion
Adam Bloch (Guggenheim)    19    $25.8 billion    5    $3.2 billion    23    $13.7 billion
Derek Devens (Neuberger Berman)    2    $335 million    5    $2.2 billion    64    $1.6 billion

The following table reflects information regarding accounts for which the portfolio manager has day-to-day management responsibilities and with respect to which the advisory fee is based on account performance. The Funds’ portfolio managers not listed below reported that they do not provide day-to-day management of accounts with performance-based advisory fees. Information is shown as of the Funds’ fiscal year-end, December 31, 2019. Asset amounts are approximate and have been rounded.

Other Accounts That Pay Performance-Based Advisory Fees Managed by Portfolio Managers

 

    

Registered

Investment Companies

    

Other Pooled

Investment Vehicles

     Other Accounts  
Fund and
Portfolio Manager
(Firm)
  

Number

of
Accounts

    

Total

Assets
in the
Accounts

     Number
of
Accounts
    

Total

Assets
in the
Accounts

    

Number

of
Accounts

    

Total

Assets
in the
Accounts

 
Equity Fund                  
Frank M. Sands (Sands Capital)      1        $1.7 billion        0        $0        18        $1.2 billion  

 

49


    

Registered

Investment Companies

  

Other Pooled

Investment Vehicles

   Other Accounts
Fund and
Portfolio Manager
(Firm)
  

Number

of
Accounts

  

Total

Assets
in the
Accounts

   Number
of
Accounts
  

Total

Assets
in the
Accounts

  

Number

of
Accounts

  

Total

Assets
in the
Accounts

A. Michael Sramek (Sands Capital)    1    $1.7 billion    0    $0    18    $1.2 billion
International Fund                  
David E. Marcus (Evermore)    0    $0    0    $0    3    $59.4 million
David G. Herro (Harris)    0    $0    3    $824.4 million    1    $146.2 million
Mark Little (Lazard)    0    $0    0    $0    1    $320.5 million
Alternative Strategies Fund                  
Stephen Kealhofer (DCI)    0    $0    4    $347 million    0    $0
Paul Harrison    0    $0    4    $347 million    0    $0
Adam Dwinells (DCI)    0    $0    4    $347 million    0    $0
Jeffrey Gundlach (DoubleLine)    0    $0    2    $2.6 billion    2    $986.7 million
Steven Romick (First Pacific)    0    $0    7    $802.7 million    0    $0
Brian Selmo (First Pacific)    0    $0    1    $59.1 million    0    $0
Mark Landecker (First Pacific)    0    $0    1    $355.6 million    0    $0
Brian Selmo, Mark Landecker (First Pacific)    0    $0    5    $595.9 million    0    $0
Matthew Eagan (Loomis Sayles)    0    $0    0    $0    3    $448.1 million
Todd Vandam (Loomis Sayles)    0    $0    0    $0    3    $448.1 million
John Orrico (Water Island)    0    $0    2    $13 million    0    $0
High Income Alternatives Fund                  
Greg Mason (Ares)    0    $0    0    $0    1    $34.0 million
Troy Ward (Ares)    0    $0    0    $0    1    $34.0 million
Scott Minerd (Guggenheim)    0    $0    34    $7.7 billion    11    $3.7 billion
Anne Walsh (Guggenheim)    0    $0    2    $2.3 billion    4    $278 million
Steven Brown (Guggenheim)    0    $0    2    $2.3 billion    4    $278 million
Adam Bloch (Guggenheim)    0    $0    2    $2.3 billion    4    $278 million

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. Portfolio managers of each of the following Sub-Advisors who manage other investment accounts in addition to one or more of the Funds may be presented with the potential conflicts described below.

ARES MANAGEMENT LLC (“Ares”)

Sub-Advisor to the High Income Alternatives Fund

Ares and its affiliates may, from time to time, face conflicts of interest relating to their dealings with the High Income Alternatives Fund. Ares and its affiliates also provide investment advisory and management services to other investment funds and clients (“Other Ares Funds”) that use similar strategies. Ares may give advice and recommend securities to others, which advice or securities may be identical to, or differ from, advice given to, or securities recommended or bought for, the High Income Alternatives Fund, even though their investment objectives may be the same or similar. Such other funds and accounts may be subject to different fees and expenses, and Ares or its affiliates may own interests in some of such other funds and accounts. In the ordinary course of its activities, Ares and its affiliates may, from time to time, buy or sell for other accounts, including their own accounts and for family members and friends who do not invest in the High Income Alternatives Fund, the same securities as those traded by the High Income Alternatives Fund.

When it is determined that it would be appropriate for the High Income Alternatives Fund and one or more Other Ares Funds to participate in an investment opportunity, Ares will seek to execute orders for all of the

 

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participating investment accounts, including the High Income Alternatives Fund, on an equitable basis, taking into account such factors as the investment objectives of the participating investment accounts, the relative amounts of capital available for new investments, relative exposure to market trends, transaction costs, the portfolio positions of the participating investment accounts, debt covenants or other structural requirements and the manner in which the investment in question is likely to affect the amount of available capital after the investment is made. Orders may be combined for all such accounts, and if any order is not filled at the same price, they may be allocated on an average price basis. Similarly, if an order on behalf of more than one account cannot be fully executed under prevailing market conditions, investments may be allocated among the different accounts on a basis which Ares or its affiliates consider equitable. Such aggregation of orders may not always be to the benefit of the High Income Alternatives Fund with regard to the price or quantity executed. Although Ares will act in a manner that it considers fair and equitable in allocating investment opportunities among the High Income Alternatives Fund and the accounts of its other clients, situations may arise in which the account activities of Ares, its affiliates or other clients may disadvantage the High Income Alternatives Fund. Such situations may include, among others, the inability of the market fully to absorb orders for the purchase or sale of particular securities placed by the Advisor for the High Income Alternatives Fund and other accounts at prices and in quantities that would be obtainable if the same were being placed only for the High Income Alternatives Fund or during times when certain accounts are in a “ramp-up” or “wind-down” phase. The performance of different accounts managed by Ares and its affiliates may vary. Neither Ares nor its affiliates has any affirmative obligation to offer any investments to the High Income Alternatives Fund or to inform the High Income Alternatives Fund before offering any investments to Other Ares Funds.

Ares and its affiliates may purchase on behalf of its clients, including the High Income Alternatives Fund, different classes of debt and/or equity of the same borrower or issuer. These and other investments may be deemed to create a conflict of interest, particularly because Ares may take certain actions for some clients with respect to one class of debt or equity that may be adverse to other clients who hold other classes of debt or equity of the same borrower or issuer. In addition, other accounts managed by Ares or its affiliates may seek to sell investments that are also held by the High Income Alternatives Fund at different times. For example, an account in liquidation or wind-down, or with a different strategy or withdrawal terms, may seek to sell an investment before the High Income Alternatives Fund seeks to sell such investment, which could adversely affect the market value of the investment that is still held by the High Income Alternatives Fund. In such cases, Ares will act in a manner it reasonably believes to be most equitable to all clients under the circumstances.

Ares or its affiliates may also manage separate managed accounts or dedicated investment vehicles for institutional investors that pursue strategies similar to, or that overlap with, those of the High Income Alternatives Fund. These clients may have access to detailed information about their accounts, including current portfolio holdings, which Ares does not customarily make available to investors in pooled investment vehicles. Such clients may be able to take action, including more timely action, with respect to their accounts that investors in pooled vehicles with similar or parallel strategies cannot take. Ares and its affiliates determine how certain expenses are allocated among the High Income Alternatives Fund and Other Ares Funds.

Cross Trades

Ares may cause the High Income Alternatives Fund to engage in cross trades with one or more Other Ares Funds, or its affiliates, typically for purposes of rebalancing the portfolios of the High Income Alternatives Fund and such other funds or accounts, to further the High Income Alternatives Fund’s and such other funds’ or accounts’ respective investment programs, or for other reasons consistent with the investment and operating guidelines of the High Income Alternatives Fund and such other funds or accounts. Generally, the value of any positions that are cross-traded in this manner will be determined in a manner that is consistent with the fair valuation methodologies that are used by Ares.

Other Activities

Ares and its members, officers and employees will devote so much of their time to the activities of the High Income Alternatives Fund as they deem necessary and appropriate. Ares and its affiliates are not restricted from forming additional investment funds, from entering into other investment advisory relationships or from engaging in other business activities, even though such activities may be in competition with the High Income Alternatives Fund and/or may involve substantial time and resources of Ares. These activities could be viewed as creating a conflict of

 

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interest in that the time and effort of the members of Ares and its officers and employees will not be devoted exclusively to the business of the High Income Alternatives Fund but will be allocated between the business of the High Income Alternatives Fund and the management of the monies of other advisees of members of Ares. Additionally, Ares and its affiliates may, and expect to, receive fees or other compensation from third parties in connection with these investment activities and such fees and compensation shall be for the benefit of their own account and not for the High Income Alternatives Fund.

Investments in Which Ares and/or Other Ares Funds Have a Different Principal Interest

Ares and its affiliates, including Other Ares Funds, invest in a broad range of asset classes throughout the corporate capital structure, including investments in corporate loans and debt securities, preferred equity securities, and common equity securities. Accordingly, subject to any limitations under applicable law, Ares and Other Ares Funds may invest in different parts of the capital structure of a company or other issuer in which the High Income Alternatives Fund invests. The interests of the High Income Alternatives Fund and such Other Ares Funds may not always be aligned, which may give rise to actual or potential conflicts of interest, or the appearance of such conflicts of interest. Actions taken for the High Income Alternatives Fund may be adverse to Ares or an Other Ares Fund, or vice versa.

Service Providers

Certain advisors and other service providers, or their affiliates (including accountants, administrators, lenders, bankers, brokers, attorneys, consultants, and investment or commercial banking firms) to the High Income Alternatives Fund, Ares and/or certain entities in which the High Income Alternatives Fund has an investment also provide goods or services to, or have business, personal, financial or other relationships with, Ares, its affiliates and portfolio companies. Such advisors and service providers may be investors in High Income Alternatives Fund, sources of investment opportunities or co-investors or commercial counterparties or entities in which Ares and/or Other Ares Funds have an investment, and payments by the High Income Alternatives Fund and/or such portfolio entities may indirectly benefit Ares and/or such Other Ares Funds. Additionally, certain employees of Ares may have family members or relatives employed by such advisors and service providers. These relationships may influence Ares in deciding whether to select or recommend such service providers to perform services for the High Income Alternatives Fund or a portfolio investment. The High Income Alternatives Fund, regardless of the relationship to Ares of the person performing the services, will bear the fees, costs and expenses related to such services. This may create an incentive for Ares to select an affiliated service provider or to select service providers based on the potential benefit to Ares rather than the High Income Alternatives Fund. Ares seeks to address this conflict of interest by using reasonable diligence to ascertain whether each service provider provides its service on a “best execution” basis, taking into account factors such as expertise, availability and quality of service and the competitiveness of compensation rates in comparison with other service providers satisfying Ares’ service provider selection criteria. In certain circumstances, advisors and service providers, or their affiliates, may charge different rates or have different arrangements for services provided to Ares, or its affiliates as compared to services provided to the High Income Alternatives Fund and the portfolio investments, which may result in more favorable rates or arrangements than those payable by the High Income Alternatives Fund or such portfolio investments, including because of the varying types of services provided to each. For example, the fee for a given type of work may vary depending on the complexity of the matter as well as the expertise required and demands placed on the service provider.

Investments in Other Investment Vehicles Managed or Sponsored by Ares

A portion of the assets of the High Income Alternatives Fund may be invested in other investment vehicles managed or sponsored by Ares or its affiliates, by a portfolio company in which the High Income Alternatives Fund and/or other accounts managed by Ares may have an investment, or by affiliates of such a portfolio company. Such investments may include REITs, BDCs and CEFs. The High Income Alternatives Fund will only enter into such transactions when determined by Ares to be in the best interests of the High Income Alternatives Fund. In such cases, investors will bear indirectly two levels of fees and expenses: the fees and expenses borne by High Income Alternatives Fund, and the fees and expenses borne by such other funds. The Advisor, Ares and its affiliates will be entitled to retain any fees or incentive compensation paid by any such investment vehicles and will not offset such fees or incentive compensation against the fees or incentive compensation paid by the High Income Alternatives Fund. Such

 

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investments may represent a conflict of interest to the extent that the Advisor or Ares receives such second level of fees, or to the extent they may benefit if the investment by the High Income Alternatives Fund contributes to making the investment vehicle more viable, marketable or profitable.

Portfolio Company Interests

Ares may invest on behalf of Other Ares Funds or for its own account in a portfolio company that is a competitor of a portfolio company of the High Income Alternatives Fund or that is a service provider, supplier, customer, or other counterparty with respect to a portfolio company of the High Income Alternatives Fund. In providing advice and recommendations to, or with respect to, such portfolio companies, and in dealing in their securities on behalf of Other Ares Funds or Ares, to the extent permitted by law, Ares will not have regard to the interests of the High Income Alternatives Fund and its portfolio companies. Accordingly, such advice, recommendations, and dealings may result in adverse consequences to the High Income Alternatives Fund or its portfolio companies. Conflicts of interest may also arise with respect to the allocation of Ares’s time and resources between such portfolio companies. In addition, in providing services to such portfolio companies, Ares may come into possession of information that it is prohibited from acting on (including on behalf of the High Income Alternatives Fund) or disclosing as a result of applicable confidentiality requirements or applicable law, even though such action or disclosure would be in the interests of the High Income Alternatives Fund. To the extent not restricted by confidentiality requirements or applicable law, Ares may apply experience and information gained in providing services to portfolio companies of the High Income Alternatives Fund to provide services to competing portfolio companies invested in by Ares or Other Ares Funds, which may have adverse consequences for the High Income Alternatives Fund (see also “Possession of Material Non-Public Information” below).

Possession of Material Non-Public Information

As noted above, Ares currently sponsors and advises a range of investment vehicles and accounts and expects to continue to develop its investment, advisory and related businesses. By reason of their responsibilities in connection with other activities of Ares, certain employees of Ares and its affiliates may acquire material non-public information or other confidential information. With limited exceptions, Ares does not establish information barriers between its internal investment teams. Trading by Ares on the basis of such information, or improperly disclosing such information, may be restricted pursuant to applicable law and/or internal policies and procedures adopted by Ares to promote compliance with applicable law. Additional restrictions may also be placed on the High Income Alternatives Fund or Ares by a portfolio company’s insider trading policy. Such personnel may not be free to share such information with the High Income Alternatives Fund, the High Income Alternatives Fund may not be free to act upon any such information, and the possession of information by persons associated with Ares may preclude the High Income Alternatives Fund from engaging in transactions that it might otherwise have undertaken. In addition, Other Ares Funds may hold positions in securities or be subject to contractual, legal or regulatory restraints that could prevent the Partnership from being able to initiate a transaction that it otherwise might have initiated or to sell an investment that it otherwise might have sold or, in the Advisor’s or sub-advisor’s judgment, that may make such transactions inadvisable. The trading activities of Other Ares Funds may be inconsistent with the investment activities of the High Income Alternatives Fund. Ares may also from time to time be subject to contractual “stand-still” obligations and/or confidentiality obligations that may restrict its ability to trade in certain securities on behalf of the High Income Alternatives Fund. Furthermore, Ares may have or develop business relations through its other businesses, which the Advisor or sub-advisor may consider in determining whether to undertake a transaction on behalf of the High Income Alternatives Fund, with the result that the High Income Alternatives Fund may not participate in certain transactions that it might otherwise have participated in.

Specifically, the High Income Alternatives Fund may invest in BDCs, REITs and CEFs sponsored or managed by Ares and its affiliates, which will limit the High Income Alternatives Fund ability to purchase and sell such investments due to material non-public information and other securities law restrictions.

10b5-1 Plan

Certain publicly-traded investment vehicles managed or advised by Ares and its affiliates (including ARCC, ACRE and ARDC) may now or in the future be subject to “10b5-1” trading plans. Such plans generally will require Ares to buy and/or sell securities of such publicly-traded vehicles according to predefined metrics and during certain

 

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trading windows set forth in the applicable 10b5-1 plan. Accordingly, Ares may be restricted from purchasing or selling securities of such vehicles at the most opportune time and, as a result, Ares may not be able to execute the most profitable trades on behalf of the High Income Alternatives Fund. Furthermore, to the extent that the High Income Alternatives Fund invests or intends to invest in such publicly-traded investment vehicles managed or advised by Ares (including ARCC), prospective investors that are affiliated with Ares may be restricted from purchasing an interest in the High Income Alternatives Fund or redeeming their interest in the High Income Alternatives Fund other than during certain predefined trading windows.

Client Relationships

Ares has, and will in the future develop, relationships with a significant number of clients that may hold or may have held investments in Ares-sponsored or -managed investment funds or separate accounts, including the High Income Alternatives Fund, clients that may hold or may have held investments similar to the investments intended to be made by the High Income Alternatives Fund, clients that may themselves represent appropriate investment opportunities for the High Income Alternatives Fund or clients that may compete with the High Income Alternatives Fund for investment opportunities. It is difficult to predict the circumstances under which these conflicts could become material, but it is possible that such relationships could require Ares to refrain from making all or a portion of any investment or a disposition for Ares to comply with its fiduciary duties, the Advisers Act or other applicable laws.

Brokerage and Other Arrangements

Subject to any limitations under applicable law, Ares may receive benefits from brokers and counterparties selected to execute transactions on behalf of the High Income Alternatives Fund, as described above under “Brokerage Matters.” In selecting brokers or dealers to effect portfolio transactions, Ares need not solicit competitive bids and does not have an obligation to seek the lowest available commission cost. Ares may cause commissions to be paid to a broker or dealer that furnishes or pays for research or other services at a higher price than that which might be charged by another broker or dealer for effecting the same transaction. Research services obtained by the use of commissions arising from portfolio transactions may be used by Ares in its other investment activities, and, therefore, the High Income Alternatives Fund may not, in any particular instance, be the direct or indirect beneficiary of the research services provided.

Any placement agents that solicit investors on behalf of the High Income Alternatives Fund are subject to a conflict of interest because they will be compensated in connection with their solicitation activities. Any placement agents to the High Income Alternatives Fund and its affiliates may have provided, and may in the future provide, investment banking, commercial banking and other services to the issuers of the High Income Alternatives Fund’s investments and to other persons whose activities may affect the High Income Alternatives Fund’s investments. Any placement agent to the High Income Alternatives Fund may have provided, and may in the future provide, structuring, arrangement, placement and underwriting services in connection with other investment funds and activities (including cash and synthetic collateralized debt obligations) of affiliates of Ares. Future arrangements and commitments for such services may be directly or indirectly affected by any placement agent’s solicitation activities in connection with the High Income Alternatives Fund and this may subject any placement agent to a conflict of interest. Affiliates of such placement agents (if any) may also be selected by Ares to value High Income Alternatives Fund’s investments.

Ares Investor Services LLC (“AIS”), a broker dealer affiliated with Ares, is currently registered with the SEC and FINRA to conduct private placements of certain Ares sponsored funds.

BROWN BROTHERS HARRIMAN & CO. (“BBH”)

Sub-Advisor to the High Income Alternatives Fund

BBH, through a separately identifiable department, provides discretionary and non-discretionary investment management services and products to corporations, institutions and individual investors throughout the world. As a result, in the ordinary course of its businesses, BBH may engage in activities in which its interests or the interests of its clients may conflict with or be adverse to the interests of the Fund. In addition, certain of such clients (including the Fund) may utilize the services of BBH for which they will pay to BBH customary fees and expenses that will not be shared with the Fund.

 

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BBH seeks to meet its fiduciary obligation with respect to all investment management clients, including the Fund. BBH has adopted and implemented policies and procedures that seek to manage conflicts of interest. Pursuant to such policies and procedures, BBH monitors a variety of areas, including compliance with Fund investment guidelines, review of allocation decisions and compliance with the sub-advisor’s Code of Ethics. With respect to the allocation of investment opportunities, BBH has adopted and implemented policies designed to achieve fair and equitable allocation of investment opportunities among its clients over time. The sub-advisor has structured the portfolio managers’ compensation in a manner it believes is reasonably designed to safeguard the Fund from being negatively affected as a result of any such potential conflicts.

COVE STREET CAPITAL, LLC (“Cove Street”)

Sub-Advisor to the Smaller Companies Fund

Cove Street’s management of “other accounts” may give rise to potential conflicts of interest in connection with the management of the Smaller Companies Fund’s investments, on the one hand, and the investments of the other accounts on the other. The other accounts may have the same investment objective as the Smaller Companies Fund. Therefore, a potential conflict of interest may arise as a result of the identical investment objectives, whereby Cove Street could favor one account over another. Another potential conflict could include Cove Street’s knowledge about the size, timing and possible market impact of Fund trades, whereby Cove Street could use this information to the advantage of other accounts and to the disadvantage of the Smaller Companies Fund. However, Cove Street has established policies and procedures to ensure that the purchase and sale of securities among all accounts it manages are fairly and equitably allocated.

Employees of Cove Street may own securities that are also owned by clients of Cove Street. As such, Cove Street has adopted a code of ethics to address these rules on personal trading and insider trading.

DAVIS SELECTED ADVISERS, L.P. (“Davis Advisors”)

Sub-Advisor to the Equity Fund

Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one portfolio or other account. More specifically, portfolio managers who manage multiple portfolios and/or other accounts are presented with the following potential conflicts: the management of multiple portfolios and/or other accounts may result in a portfolio manager devoting unequal time and attention to the management of each portfolio and/or other account. Davis Advisors seeks to manage such competing interests for the time and attention of portfolio managers by having portfolio managers focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment weightings that are used in connection with the management of the portfolios.

If a portfolio manager identifies a limited investment opportunity which may be suitable for more than one portfolio or other account, a portfolio may not be able to take full advantage of that opportunity due to an allocation of filled purchase or sale orders across all eligible portfolios and other accounts. To deal with these situations, Davis Advisors has adopted procedures for allocating portfolio transactions across multiple accounts.

With respect to securities transactions for the portfolios, Davis Advisors determines which broker to use to execute each order, consistent with its duty to seek best execution of the transaction. However, with respect to certain other accounts (such as mutual funds, other pooled investment vehicles that are not registered mutual funds, and other accounts managed for organizations and individuals), Davis Advisors may be limited by the client with respect to the selection of brokers or may be instructed to direct trades through a particular broker. In these cases, Davis Advisors may place separate, non-simultaneous, transactions for a portfolio and another account which may temporarily affect the market price of the security or the execution of the transaction, or both, to the detriment of the portfolio or the other account.

Finally, substantial investment of assets of Davis Advisors or of the Davis family members in certain mutual funds may lead to conflicts of interest. To mitigate these potential conflicts of interest, Davis Advisors has adopted policies and procedures intended to ensure that all clients are treated fairly over time. Davis Advisors does not receive an incentive-based fee on any account.

 

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DCI, LLC (“DCI”)

Sub-Advisor to the Alternative Strategies Fund

From time to time, potential and actual conflicts of interest may arise between the portfolio manager’s management of the investments of the Alternative Strategies Fund on the one hand, and the management of other accounts and investment funds, on the other. DCI may aggregate sale and purchase orders of securities with similar orders being made simultaneously for other accounts managed by DCI if, in DCI’s judgment, such aggregation is reasonably likely to result in an overall economic benefit to all accounts based on an evaluation that all are benefited by relatively better purchase or sale prices, lower commission expenses or beneficial timing of transactions, or a combination of these and other factors. There may be circumstances where DCI is unable to obtain sufficient quantities of a particular security due to market conditions, but may be able to obtain additional quantities of that security later in the trading period. Under such circumstances, DCI would allocate the quantities of the securities obtained in accordance with its trade allocation procedures and in any case in a fair and equitable way.

To address this potential conflict of interest, all allocations of investment opportunities and allocations of aggregated trades are required to be made in accordance with DCI’s written Investment Allocation Policy. In addition, DCI engages in ongoing trade activity reviews and has established a Best Execution Committee that conducts periodic reviews of DCI’s trading practices.

DOUBLELINE CAPITAL LP (“DoubleLine”)

Sub-Advisor to the Alternative Strategies Fund

From time to time, potential and actual conflicts of interest may arise between a portfolio manager’s management of the investments of the Alternative Strategies Fund, on the one hand, and the management of other accounts, on the other. Potential and actual conflicts of interest also may result because of DoubleLine’s other business activities. Other accounts managed by a portfolio manager might have similar investment objectives or strategies as the Alternative Strategies Fund, be managed (benchmarked) against the same index the Alternative Strategies Fund tracks, or otherwise hold, purchase, or sell securities that are eligible to be held, purchased or sold by the Alternative Strategies Fund. The other accounts might also have different investment objectives or strategies than the Alternative Strategies Fund.

Knowledge and Timing of Fund Trades. A potential conflict of interest may arise as a result of the portfolio managers’ management of the Alternative Strategies Fund. Because of their positions with the Alternative Strategies Fund, the portfolio managers know the size, timing and possible market impact of the Alternative Strategies Fund’s trades. It is theoretically possible that a portfolio manager could use this information to the advantage of other accounts under management, and also theoretically possible that actions could be taken (or not taken) to the detriment of the Alternative Strategies Fund.

Investment Opportunities. A potential conflict of interest may arise as a result of a portfolio manager’s management of a number of accounts with varying investment guidelines. Often, an investment opportunity may be suitable for both the Alternative Strategies Fund and other accounts managed by the portfolio manager, but securities may not be available in sufficient quantities for both the Alternative Strategies Fund and the other accounts to participate fully. Similarly, there may be limited opportunity to sell an investment held by the Alternative Strategies Fund and another account. DoubleLine has adopted policies and procedures reasonably designed to allocate investment opportunities on a fair and equitable basis over time.

Under DoubleLine’s allocation procedures, investment opportunities are allocated among various investment strategies based on individual account investment guidelines, DoubleLine’s investment outlook, cash availability and a series of other factors. DoubleLine has also adopted additional internal practices to complement the general trade allocation policy that are designed to address potential conflicts of interest due to the side-by-side management of the Alternative Strategies Fund and certain pooled investment vehicles, including investment opportunity allocation issues.

Conflicts potentially limiting the Alternative Strategies Fund’s investment opportunities may also arise when the Alternative Strategies Fund and other clients of DoubleLine invest in, or even conduct research relating to, different

 

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parts of an issuer’s capital structure, such as when the Alternative Strategies Fund owns senior debt obligations of an issuer and other clients own junior tranches of the same issuer. In such circumstances, decisions over whether to trigger an event of default, over the terms of any workout, or how to exit an investment may result in conflicts of interest. In order to minimize such conflicts, a portfolio manager may avoid certain investment opportunities that would potentially give rise to conflicts with other clients of DoubleLine or result in DoubleLine receiving material, non-public information, or DoubleLine may enact internal procedures designed to minimize such conflicts, which could have the effect of limiting the Alternative Strategies Fund’s investment opportunities. Additionally, if DoubleLine acquires material non-public confidential information in connection with its business activities for other clients, a portfolio manager or other investment personnel may be restricted from purchasing securities or selling certain securities for the Alternative Strategies Fund or other clients. When making investment decisions where a conflict of interest may arise, DoubleLine will endeavor to act in a fair and equitable manner between the Alternative Strategies Fund and other clients; however, in certain instances the resolution of the conflict may result in DoubleLine acting on behalf of another client in a manner that may not be in the best interest, or may be opposed to the best interest, of the Alternative Strategies Fund.

Investors in the Alternative Strategies Fund may also be advisory clients of DoubleLine. Accordingly, DoubleLine may in the course of its business provide advice to advisory clients whose interests may conflict with those of the Alternative Strategies Fund, may render advice to the Alternative Strategies Fund that provides a direct or indirect benefit to DoubleLine or a related party or may manage or advise a product in which the Alternative Strategies Fund is invested in such a way that would not be beneficial to the Fund. For example, DoubleLine may advise a client who has invested in the Alternative Strategies Fund to redeem its investment in the Alternative Strategies Fund, which may cause the Alternative Strategies Fund to incur transaction costs and/or have to sell assets at a time when it would not otherwise do so. DoubleLine could also, for example, make decisions with respect to a structured product managed or sponsored by DoubleLine in a manner that could have adverse effects on investors in the product, including, potentially, the Alternative Strategies Fund. DoubleLine currently provides asset allocation investment advice, including recommending the purchase and/or sale of shares of the Alternative Strategies Fund, to a large number of investors.

Broad and Wide-Ranging Activities. The portfolio managers, DoubleLine and its related parties engage in a broad spectrum of activities. In the ordinary course of their business activities, the portfolio managers, DoubleLine and its related parties may engage in activities where the interests of certain divisions of DoubleLine and its related parties or the interests of their clients may conflict with the interests of the shareholders of the Alternative Strategies Fund.

Possible Future Activities. DoubleLine and its related parties may expand the range of services that they provide over time. Except as provided herein, DoubleLine and its related parties will not be restricted in the scope of its business or in the performance of any such services (whether now offered or undertaken in the future) even if such activities could give rise to conflicts of interest, and whether or not such conflicts are described herein. DoubleLine and its related parties have, and will continue to develop, relationships with a significant number of companies, financial sponsors and their senior managers, including relationships with clients who may hold or may have held investments similar to those intended to be made by the Alternative Strategies Fund. These clients may themselves represent appropriate investment opportunities for the Alternative Strategies Fund or may compete with a Fund for investment opportunities.

Performance Fees and Personal Investments. A portfolio manager may advise certain accounts with respect to which the advisory fee is based entirely or partially on performance or in respect of which the portfolio manager may have made a significant personal investment. Such circumstances may create a conflict of interest for the portfolio manager in that the portfolio manager may have an incentive to allocate the investment opportunities that he or she believes might be the most profitable to such other accounts instead of allocating them to the Alternative Strategies Fund. DoubleLine has adopted policies and procedures reasonably designed to allocate investment opportunities between the Alternative Strategies Fund and performance fee based accounts on a fair and equitable basis over time.

 

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EVERMORE GLOBAL ADVISORS, LLC (“Evermore”)

Sub-Advisor to the International Fund

Potential conflicts of interest may arise when the International Fund’s portfolio manager has day-to-day management responsibilities with respect to one or more other funds or other accounts.

Evermore has adopted compliance policies and procedures that are designed to address various conflicts of interest that may arise for Evermore and the individuals that it employs. For example, Evermore has adopted a side-by-side management of mutual funds and private accounts policy and trade allocation procedures that are designed to facilitate the fair allocation of limited investment opportunities among multiple funds and accounts. There is no guarantee, however, that the policies and procedures adopted by Evermore will be able to detect and/or prevent every situation in which an actual or potential conflict may appear.

These potential conflicts include:

Allocation of Limited Time and Attention. A portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.

Allocation of Limited Investment Opportunities. If the portfolio manager identifies a limited investment opportunity that may be suitable for multiple funds and/or accounts, the opportunity may be allocated among these several funds or accounts, which may limit a fund’s and/or account’s ability to take full advantage of the investment opportunity.

Pursuit of Differing Strategies. At times, the portfolio manager may determine that an investment opportunity may be appropriate for only some of the funds and/or accounts for which he or she exercises investment responsibility, or may decide that certain of the funds and/or accounts should take differing positions with respect to a particular security. In these cases, the portfolio manager may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds and/or accounts.

Selection of Brokers/Dealers. The portfolio manager may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the funds and/or accounts that they supervise. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)), which may result in the payment of higher brokerage fees than might have otherwise been available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, the portfolio manager’s decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.

Variation in Compensation. A conflict of interest may arise where the financial or other benefits available to the portfolio manager differ among the funds and/or accounts that he or she manages. If the structure of Evermore’s management fee and/or the portfolio manager’s compensation differs among funds and/or accounts (such as where certain funds or accounts pay higher management fees or performance-based management fees), the portfolio manager might be motivated to help certain funds and/or accounts over others. The portfolio manager might be motivated to favor funds and/or accounts in which he or she has an interest or in which Evermore and/or its affiliates have interests. Similarly, the desire to maintain or raise assets under management or to enhance the portfolio manager’s performance record or to derive other rewards, financial or otherwise, could influence the portfolio manager to lend preferential treatment to those funds and/or accounts that could most significantly benefit the portfolio manager.

Related Business Opportunities. Evermore or its affiliates may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of funds and/or accounts that provide greater overall returns to Evermore and its affiliates.

 

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FIDUCIARY MANAGEMENT, INC. (“FMI”)

Sub-Advisor to the Equity Fund

The portfolio managers at FMI are often responsible for managing other accounts. FMI typically assigns accounts with similar investment strategies to the portfolio managers to mitigate the potentially conflicting investment strategies, the side-by-side management of the Equity Fund and other accounts may raise potential conflicts of interest due to the interest held by the portfolio managers (for example, cross trades between the Equity Fund and another account and allocation of aggregated trades). FMI has developed policies and procedures reasonably designed to mitigate those conflicts. In particular, FMI has adopted policies designed to ensure the fair allocation of securities purchased on an aggregated basis.

FIRST PACIFIC ADVISORS, LP (“First Pacific”)

Sub-Advisor to the Alternative Strategies Fund

First Pacific has potential conflicts of interest in connection with its investment activities. For example, First Pacific manages multiple client accounts with different investment objectives and guidelines, and with different fee structures. First Pacific receives both asset-based fees and performance-based fees as compensation for its investment advisory services. Performance-based fees create an incentive for First Pacific to favor those accounts over asset-based fee accounts or make investments that are riskier or more speculative than would be the case in the absence of performance-based fee clients. To mitigate potential conflicts of interest when managing performance-based fee clients side-by-side with asset-based fee clients, First Pacific has developed a policy in which portfolio managers seek to allocate investment opportunities among eligible accounts on a pro rata basis if that is practical; or, if a pro rata allocation is not practical, to allocate the investment opportunities among First Pacific advisory clients on a basis that over time is fair and equitable to each advisory client relative to other clients.

First Pacific has also implemented other policies and procedures (e.g., a code of ethics) that seek to address other potential conflicts of interest that may arise in connection with First Pacific’s business and that are designed to seek to ensure that all client accounts are treated fairly and equitably over time.

GUGGENHEIM PARTNERS INVESTMENT MANAGEMENT (“Guggenheim”)

Sub-Advisor to the High Income Alternatives Fund

Potential Conflicts Related to the Sale of Fund Shares. Guggenheim, its affiliates and its respective employees may have relationships with distributors, consultants and others who recommend, or engage in transactions with or for, the Fund. The Fund and/or Guggenheim or its affiliates may compensate such distributors, consultants and other parties in connection with such relationships. As a result of these relationships, distributors, consultants and other parties may have conflicts that create incentives for them to promote the Fund over other funds or financial products.

To the extent permitted by applicable law, Guggenheim and its affiliates and the Fund may make payments to authorized dealers and other financial intermediaries and to salespersons to promote the Fund. These payments may be made out of the assets of Guggenheim or its affiliates or amounts payable to Guggenheim or its affiliates. These payments may create an incentive for such persons to highlight, feature or recommend the Fund over other funds or financial products.

Potential Conflicts Related to Management of the Fund by Guggenheim. The following are descriptions of certain conflicts, financial or otherwise, that Guggenheim may have in managing the Fund. The descriptions below are not intended to be a complete enumeration or explanation of all of the conflicts of interests that may arise from the business activities of Guggenheim, its affiliates, or their respective clients. To address these and other actual or potential conflicts, Guggenheim and/or the Fund have established various policies and procedures that are reasonably designed to identify and mitigate such conflicts and to ensure that such conflicts are appropriately resolved taking into consideration the best interest of all clients involved, consistent with Guggenheim’s fiduciary obligations and in accordance with applicable law. However, there can be no guarantee that these policies and procedures will be successful in every instance. Additional information about potential conflicts of interest regarding Guggenheim is set forth in Guggenheim’s Form ADV. A copy of Part 1 and Part 2A of Guggenheim’s Form ADV is available on the SEC’s website at www.adviserinfo.sec.gov.

 

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Guggenheim and its Affiliates Provide a Broad Array of Services and Have Various Investment Banking, Advisory and Other Relationships. Guggenheim is an affiliate of Guggenheim Partners, LLC (“Guggenheim Partners”), which is a global, full service financial services firm. Guggenheim Partners and its affiliates, including Guggenheim (collectively, “Guggenheim Entities”), provide their clients with a broad array of investment management, insurance, broker-dealer, investment banking and other similar services (“Other Business Activities”). These Other Business Activities create actual and potential conflicts of interest for Guggenheim in managing the Fund.

For example, the Other Business Activities may create conflicts between the interests of the Fund, on the one hand, and the interests of Guggenheim, its affiliates and their respective other clients, on the other hand. Guggenheim and its affiliates may act as advisers to clients in investment banking, loan arranging and structuring, financial advisory, asset management and other capacities related to securities and instruments that may be purchased, sold or held by the Fund, and Guggenheim or an affiliate may issue, or be engaged as underwriter for the issuer of, securities and instruments that the Fund may purchase, sell or hold. At times, these activities may cause Guggenheim and its affiliates to give advice to their clients that may cause these clients to take actions adverse to the interest of the Fund. The Guggenheim Entities and their respective officers, directors, managing directors, partners, employees and consultants may act in a proprietary capacity with long or short positions in securities and instruments of all types, including those that may be purchased, sold or held by the Fund. Such activities could affect the prices and availability of the securities and instruments that Guggenheim seeks to buy or sell for the Fund’s account, which could adversely impact the financial returns of the Fund.

These Other Business Activities may create other potential conflicts of interests in managing the Fund, may cause the Fund to be subject to regulatory limits and, in certain circumstances, may prevent the Fund from participating or limit the Fund’s participation in an investment opportunity that the Fund’s portfolio managers view to be favorable. As a result, activities and dealings of Guggenheim and its affiliates may affect the Fund in ways that may disadvantage or restrict the Fund or be deemed to benefit Guggenheim, its affiliates or other client accounts.

Guggenheim’s and its Affiliates’ Activities on Behalf of Other Clients. Guggenheim and its affiliates currently manage and expect to continue to manage a variety of client accounts, including (without limitation) separately managed accounts, open-end registered funds, closed-end registered funds, private funds and other collective investment vehicles, and may serve as asset or collateral manager for certain non-registered structured products (collectively, “Other Clients”). Investors in such Other Clients include insurance companies affiliated with or related to Guggenheim as described below. Other Clients invest pursuant to the same or different investment objectives, strategies and philosophies as those employed by the Fund and may seek to make or sell investments in the same securities, instruments, sectors or strategies as the Fund. There are no restrictions on the ability of Guggenheim and its affiliates to manage Other Clients following the same, similar or different investment objectives, strategies and philosophies as those employed by the Fund. This “side-by-side” management of multiple accounts may create potential conflicts, particularly in circumstances where the availability or liquidity of investment opportunities is limited. Other Clients may also be subject to different legal restrictions or regulatory regimes than the Fund. Regardless of the similarity in investment objectives and strategies between the Fund and Other Clients, Guggenheim may give advice and recommend investments to Other Clients that may differ from advice given to, or investments bought or sold for, the Fund, and the Fund and Other Clients may vote differently on or take or refrain from taking different actions with respect to the same security or instrument, which may be disadvantageous to the Fund and adversely affect their performance.

The investment policies, fee arrangements and other characteristics of the Fund may also vary from those of Other Clients. In some cases, Guggenheim or an affiliate may receive a potentially larger financial benefit from managing one or more such Other Clients as compared to the Fund (for example, some Other Clients are charged performance or incentive fees constituting a percentage of profits or gains), which may provide an incentive to favor such Other Clients over the Fund or to recommend favorable investments to Other Clients who pay higher fees or who have the potential to generate greater fees over the Fund. Guggenheim on behalf of the Fund or Other Clients may, pursuant to one transaction or in a series of transactions over time, invest in different parts of an issuer’s or borrower’s

 

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capital structure (including but not limited to investments in public versus private securities, investments in debt versus equity, or investments in senior versus subordinated debt), depending on the respective client’s investment objectives and policies. Relevant issuers or borrowers may also include special purpose issuers or borrowers in structured finance, asset backed, collateralized loan obligation, collateralized debt obligation or similar transactions. As a result of the foregoing, the interests of one group of clients could conflict with those of other clients with respect to the same issuer or borrower. In managing such investments, Guggenheim will consider the interests of all affected clients in deciding what actions to take with respect to a given issuer or borrower, but at times will pursue or enforce rights on behalf of some clients in a manner that may have an adverse effect on, or result in asymmetrical financial outcomes to, other clients owning a different, including more senior or junior, investment in the same issuer or borrower. In these types of scenarios, Guggenheim may occasionally engage and appoint an independent party to provide independent analysis or recommendations with respect to consents, proxy voting, or other similar shareholder or debt holder rights decision (or a series of consents, votes or similar decisions) pertaining to the Fund and other clients. These potential conflicts of interests between Guggenheim’s clients may become more pronounced in situations in which an issuer or borrower experiences financial or operational challenges, or as a result of the Fund’s use of certain investment strategies, including small capitalization, emerging market, distressed or less liquid strategies.

Guggenheim Activities on Behalf of Affiliated or Related Accounts. To the extent permitted by the 1940 Act and other laws, Guggenheim, from time to time, may initiate or recommend transactions in the loans or securities of companies in which Guggenheim, its related persons, or its respective affiliates have a controlling or other material direct or indirect interest.

Sammons Enterprises, Inc. (“Sammons”), a diversified company with several insurance company subsidiaries, is the largest single equity holder in Guggenheim Capital, LLC (“Guggenheim Capital”), Guggenheim’s ultimate parent company. Sammons has relationships with Guggenheim and various Guggenheim Entities. In addition, Guggenheim Capital wholly owns Guggenheim Life and Annuity Company and Clear Spring Life Insurance Company (together with Sammons, the “Affiliated Insurance Companies”), which are also advisory clients of Guggenheim. Certain Affiliated Insurance Companies and their subsidiaries are advisory clients of Guggenheim and, accordingly, pay Guggenheim a substantial amount of annual fees for advisory services. Sammons is the largest individual stakeholder of Guggenheim and the largest individual source of annual advisory fees paid to Guggenheim.

Furthermore, some officers and directors of Guggenheim Capital and its subsidiaries (“Guggenheim Related Persons”) have economic interests or voting interests in companies, including insurance companies that are advisory clients of Guggenheim. Guggenheim Related Persons from time to time enter into transactions, including loans and other financings, with these companies. Some Guggenheim Related Persons also may have economic interests or voting interests in issuers, which may be controlling or otherwise material interests, in which Guggenheim has invested or will invest on behalf of its clients or to which Guggenheim has provided or will provide financing on behalf of its clients. Sammons and certain advisory or other clients in which Guggenheim Related Persons have interests have provided, and from time to time may provide, significant loans and other financing to Guggenheim and its affiliates.

The relationships described above create potential conflicts of interest for Guggenheim in managing the Fund and could create an incentive for Guggenheim to favor the interests of these companies over other clients. These incentives are more pronounced where Guggenheim has multiple relationships with the affiliated client. For example, Guggenheim has invested, and may in the future invest, on behalf of its clients in issuers or transactions in which Affiliated Insurance Companies or Guggenheim Related Persons have direct and/or indirect interests, which may include a controlling or significant beneficial interest. In addition, the accounts of Affiliated Insurance Companies and other Guggenheim clients have invested, and may in the future invest, in securities at different levels of the capital structure of the same issuer, in some cases at the same time and in other cases at different times as the Fund and other clients of Guggenheim. The following conflicts may arise in such situations: (i) enforcement of rights or determination not to enforce rights by Guggenheim on behalf of the Fund and other clients may have an adverse effect on the interests of its affiliates or related persons, and vice versa, (ii) Guggenheim may have an incentive to invest client funds in the issuer or borrower to either facilitate or obtain preferable terms for a proposed investment by an affiliate or related person in such issuer or borrower, or (iii) Guggenheim may have an incentive to preserve or protect the value or rights associated with an existing economic interest of an affiliate or related person in the issuer or borrower, which may have an adverse effect on the interests of other clients, including the Fund.

 

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Guggenheim mitigates potential conflicts of interest in the foregoing and similar situations, including through policies and procedures (i) designed to identify and mitigate conflicts of interest on a transaction-by-transaction basis and (ii) that require investment decisions for all client accounts be made independently from those of other client accounts and be made with specific reference to the individual needs and objectives of each client account, without consideration of Guggenheim’s pecuniary or investment interests (or those of their respective employees or affiliates). The Fund and Guggenheim also maintain procedures to comply with applicable laws, notably relevant provisions of the 1940 Act that prohibit Fund transactions with affiliates.

Allocation of Investment Opportunities. As described above, Guggenheim and its affiliates currently manage and expect to continue to manage Other Clients that may invest pursuant to the same or different strategies as those employed by the Fund, and such Other Clients could be viewed as being in competition with the Fund for appropriate investment opportunities, particularly where there is limited capacity with respect to such investment opportunities. The investment policies, fee arrangements and other circumstances of the Fund may vary from those of the Other Clients, and Guggenheim may face potential conflicts of interest because Guggenheim may have an incentive to favor particular client accounts (such as client accounts that pay performance-based fees) over other client accounts that may be less lucrative in the allocation of investment opportunities.

In order to minimize execution costs for clients, trades in the same security transacted on behalf of more than one client will generally be aggregated (i.e., blocked or bunched) by Guggenheim, unless it believes that doing so would conflict or otherwise be inconsistent with its duty to seek best execution for the clients and/or the terms of the respective investment advisory contracts and other agreements and understandings relating to the clients for which trades are being aggregated. When Guggenheim believes that it can effectively obtain best execution for the clients by aggregating trades, it will do so for all clients participating in the trade for which aggregated trades are consistent with the respective investment advisory contracts, investment guidelines, and other agreements and understandings relating to the clients.

Guggenheim has implemented policies and procedures that govern the allocation of investment opportunities among clients in a fair and equitable manner, taking into account the needs and financial objectives of the clients, their specific objectives and constraints for each account, as well as prevailing market conditions. If an investment opportunity would be appropriate for more than one client, Guggenheim may be required to choose among those clients in allocating the opportunity, or to allocate less of the opportunity to a client than it would ideally allocate if it did not have to allocate to multiple clients. In addition, Guggenheim may determine that an investment opportunity is appropriate for a particular client account, but not for another.

Guggenheim allocates transactions on an objective basis and in a manner designed to assure that no participating client is favored over any other participating client over time. If an investment is suitable and desirable for more than one client account, an initial allocation study will be determined based upon demand ascertained from the portfolio managers. With respect to fixed income and private equity assets, this initial allocation study is overseen by an allocation group and generally reflects a pro rata participation in the investment opportunity among the participating client accounts that expressed demand. Final allocation decisions are made or verified independently by the allocation group. With respect to public equity securities and public equity-related securities, the allocation shall generally reflect a pro rata participation in the investment opportunity among participating client accounts, provided that allocations may be adjusted under specific circumstances, such as situations of scarcity where pro rata allocations would result in de minimis positions or odd lots.

The application of relevant allocation factors often result in non-pro rata allocations, and particular client accounts (including client accounts in which Guggenheim and its affiliates or related persons, or their respective officers, directors or employees, including portfolio managers or senior managers, have an interest) may receive an allocation when other client accounts do not or receive a greater than pro-rata allocation. There can be no assurance that a particular investment opportunity will be allocated in any particular manner, and circumstances may occur in which an allocation could have adverse effects on the Fund with respect to the price or size of securities positions obtainable or saleable. All of the foregoing procedures could in certain circumstances adversely affect the price paid or received by the Fund or the size of the position purchased or sold by the Fund (including prohibiting the Fund from purchasing a position) or may limit the rights that the Fund may exercise with respect to an investment.

 

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Allocation of Limited Time and Attention. The portfolio managers for the Fund will devote as much time to the Fund as Guggenheim deems appropriate to perform their duties in accordance with reasonable commercial standards and Guggenheim’s duties. However, as described above, these portfolio managers are presently committed to and expect to be committed in the future to providing investment advisory and other services for Other Clients and engage in Other Business Activities in which the Fund may have no interest. As a result of these separate business activities, Guggenheim may have conflicts of interest in allocating management time, services and functions among the Fund and Other Business Activities or Other Clients in that the time and effort of the Fund’s portfolio managers would not be devoted exclusively to the business of the Fund.

Potential Restrictions and Issues Related to Material Non-Public Information. By reason of Other Business Activities as well as services and advice provided to Other Clients, Guggenheim and its affiliates may acquire confidential or material non-public information and may be restricted from initiating transactions in certain securities and instruments. Guggenheim will not be free to divulge, or to act upon, any such confidential or material non-public information and, due to these restrictions, Guggenheim may be unable to initiate a transaction for the Fund’s account that it otherwise might have initiated. As a result, the Fund may be frozen in an investment position that it otherwise might have liquidated or closed out or may not be able to acquire a position that it might otherwise have acquired.

Valuation of the Fund’s Investments. Fund assets are valued in accordance with the Fund’s valuation procedures. The valuation of a security or other asset for the Fund may differ from the value ascribed to the same asset by affiliates of Guggenheim (particularly difficult-to-value assets) or Other Clients because, among other things, they may have procedures that differ from the Fund’s procedures or may have access to different information or pricing vendors. Guggenheim may face a potential conflict with respect to such valuations.

Investments in Other Guggenheim Funds. To the extent permitted by applicable law, the Fund may invest in other funds sponsored, managed, advised or sub-advised by Guggenheim. Investments by the Fund in such funds present potential conflicts of interest, including potential incentives to invest in smaller or newer funds to increase asset levels or provide greater viability and to invest in funds managed by the portfolio manager(s) of the Fund. As may be disclosed in the Prospectus and this SAI, Guggenheim has agreed to waive certain fees associated with these investments.

Potential Conflicts Associated with Guggenheim and its Affiliates Acting in Multiple Capacities Simultaneously.

Principal and Cross Transactions. Guggenheim may, to the extent permitted under applicable law, effect client cross transactions where Guggenheim causes a transaction to be effected between the Fund and an Other Client; provided, that conditions set forth in SEC rules under the 1940 Act are followed. Cross transactions present an inherent conflict of interest because Guggenheim represents the interests of both the selling account and the buying account in the same transaction, and Guggenheim could seek to treat one party to the cross transaction more favorably than the other party. Guggenheim has policies and procedures designed to mitigate these conflicts and help ensure that any cross transactions are in the best interests of, and appropriate for, all clients involved and the transactions are consistent with Guggenheim’s fiduciary duties and obligation to seek best execution and applicable rules.

Guggenheim and its Affiliates May Act in Multiple Commercial Capacities. Subject to applicable law and subject to the provisions of the 1940 Act and rules thereunder, Guggenheim may cause the Fund to invest in securities, bank loans or other obligations of companies that result in commissions, fees, or other remuneration paid to Guggenheim or one of its affiliates. Such investments may include (i) investments that Guggenheim or one of its affiliates originated, arranged or placed, (ii) investments where Guggenheim or its affiliates provided services to a third party, (iii) investments where Guggenheim or one of its affiliates acts as the collateral agent, administrator, originator, manager, or other service provider, and (iv) investments that are secured or otherwise backed by collateral that could include assets originated or sold by Guggenheim or its affiliates, investment funds or pools managed by Guggenheim or its affiliates or assets or obligations managed by Guggenheim or its affiliates. Commissions, fees, or other remuneration payable to Guggenheim or its affiliates in these transactions may present a potential conflict in that Guggenheim may be viewed as having an incentive to purchase such investments to earn, or facilitate its affiliates’ ability to earn, such additional fees or compensation.

 

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In some circumstances, and also subject to applicable law, Guggenheim may cause the Fund to invest in or provide financing to issuers or borrowers, or otherwise participate in transactions, in which the issuer or borrower is, or is a subsidiary or affiliate of or otherwise related to, (a) an Other Client or (b) a company with which Guggenheim Related Persons, or officers or employees of Guggenheim, have investment, financial or other interests or relationships (including but not limited to directorships or equivalent roles). The financial interests of Guggenheim’s affiliates or their related persons in issuers or borrowers create potential conflict between the economic interests of these affiliates or related persons and the interests of Guggenheim’s clients. In addition, to the extent that a potential issuer or borrower (or one of its affiliates) is an advisory client of Guggenheim, or Guggenheim’s advisory client is a lender or financing provider to Guggenheim or its affiliates (including a parent), a potential conflict may exist as Guggenheim may have an incentive to favor the interests of those clients relative to those of its other clients.

Because of limitations imposed by applicable law, notably by provisions of the 1940 Act and rules thereunder, the involvement or presence of Guggenheim’s affiliates in the offerings described above or the financial markets more broadly may restrict the Fund’s ability to acquire some securities or loans, even if they would otherwise be desirable investments for the Fund, or affect the timing or price of such acquisitions, which may adversely affect the Fund’s performance.

To the extent permitted by applicable law, Guggenheim and its affiliates may create, write, sell, issue, invest in or act as placement agent or distributor of derivative instruments related to the Fund, or with respect to portfolio holdings of the Fund, or which may be otherwise based on or seek to replicate or hedge the performance of the Fund. Such derivative transactions, and any associated hedging activity, may differ from and be adverse to the interests of the Fund.

Present and future activities of Guggenheim and its affiliates, in addition to those described in this SAI, may give rise to additional or different conflicts of interest.

Portfolio Manager Compensation. As discussed in this SAI, portfolio managers may own, and a portion of their compensation may be in the form of, Fund shares. As a result, a potential conflict of interest may arise to the extent a portfolio manager owns or has an interest in shares of the Fund that he or she manages. These personal investments may create an incentive for a portfolio manager to favor the Fund over other advisory clients.

HARRIS ASSOCIATES L.P. (“Harris”)

Sub-Advisor to the Equity Fund and the International Fund

Conflicts may arise when Harris manages the Fund(s) and has discretionary authority over other accounts. Specifically, conflicts of interest may arise in the allocation of investment opportunities and the allocation of aggregated orders among the Equity Fund, International Fund and the other accounts managed by the portfolio managers. A portfolio manager potentially could give favorable treatment to some accounts for a variety of reasons, including favoring larger accounts, accounts that have a different advisory fee arrangement (including any accounts that pay performance-based fees), accounts of affiliated companies, or accounts in which the portfolio manager has a personal investment. With respect to the allocation of investment opportunities, Harris makes decisions to recommend, purchase, sell or hold securities for all of its client accounts, including the Equity Fund and International Fund, based on the specific investment objectives, guidelines, restrictions and circumstances of each account. It is Harris’ policy to allocate investment opportunities to each account, including the Equity Fund and International Fund, over a period of time on a fair and equitable basis relative to its other accounts. With respect to the allocation of aggregated orders, each account that participates in the aggregated order will participate at the average share price, and where the order has not been completely filled, each institutional account, including the Equity Fund and International Fund, will generally participate on a pro rata basis.

Additionally, a conflict of interest might exist in the exercise of Harris’ proxy voting authority. For example, a conflict could arise when an issuer who is soliciting proxy votes also has a client relationship with Harris, when a client of Harris is involved in a proxy contest (such as a corporate director) or when one of Harris’ employees has a personal interest in a proxy matter.

Harris has compliance policies and procedures in place that it believes are reasonably designed to mitigate these conflicts. However, there is no guarantee that such procedures will detect each and every situation in which an actual or potential conflict may arise. Harris seeks to anticipate circumstances that could cause a conflict between the firm and its employees on the one hand and the firm’s clients on the other. Harris has adopted and enforces a Code of Ethics that sets forth specific requirements and restrictions to address and help mitigate potential conflicts.

 

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LAZARD ASSET MANAGEMENT LLC (“LAZARD”)

Sub-Advisor to the International Fund

Lazard’s portfolio managers manage multiple accounts for a diverse client base, including private clients, institutions and investment funds. Lazard manages all portfolios on a team basis. The team is involved at all levels of the investment process. This team approach allows for every portfolio manager to benefit from his/her peers, and for clients to receive the firm’s best thinking, rather than that of a single portfolio manager. Lazard manages all like investment mandates against a model portfolio. Specific client objectives, guidelines or limitations then are applied against the model, and any necessary adjustments are made.

Although the potential for conflicts of interest exists when an investment adviser and portfolio managers manage other accounts that invest in securities in which the International Fund may invest or that may pursue a strategy similar to the Fund’s investment strategies implemented by Lazard (collectively, “Similar Accounts”), Lazard has procedures in place that are designed to ensure that all accounts are treated fairly and that the Fund is not disadvantaged, including procedures regarding trade allocations and “conflicting trades” (e.g., long and short positions in the same or similar securities). In addition, the Fund, as a registered investment company, is subject to different regulations than certain of the Similar Accounts, and, consequently, may not be permitted to engage in all the investment techniques or transactions, or to engage in such techniques or transactions to the same degree, as the Similar Accounts.

Potential conflicts of interest may arise because of Lazard’s management of the Fund and Similar Accounts, including the following:

1.    Similar Accounts may have investment objectives, strategies and risks that differ from those of the Fund. In addition, the Fund is an open-end investment company and “diversified” as defined in the Investment Company Act, subject to different regulations than certain of the Similar Accounts and, consequently, may not be permitted to invest in the same securities, exercise rights to exchange or convert securities or engage in all the investment techniques or transactions, or to invest, exercise or engage to the same degree, as the Similar Accounts. For these or other reasons, the portfolio managers may purchase different securities for the Fund and the corresponding Similar Accounts, and the performance of securities purchased for the Fund may vary from the performance of securities purchased for Similar Accounts, perhaps materially.

2.    Conflicts of interest may arise with both the aggregation and allocation of securities transactions and allocation of limited investment opportunities. Lazard may be perceived as causing accounts it manages to participate in an offering to increase Lazard’s overall allocation of securities in that offering, or to increase Lazard’s ability to participate in future offerings by the same underwriter or issuer. Allocations of bunched trades, particularly trade orders that were only partially filled due to limited availability, and allocation of investment opportunities generally, could raise a potential conflict of interest, as Lazard may have an incentive to allocate securities that are expected to increase in value to preferred accounts. Initial public offerings, in particular, are frequently of very limited availability. A potential conflict of interest may be perceived to arise if transactions in one account closely follow related transactions in a different account, such as when a purchase increases the value of securities previously purchased by the other account, or when a sale in one account lowers the sale price received in a sale by a second account.

3.    Portfolio managers may be perceived to have a conflict of interest because of the large number of Similar Accounts, in addition to the Fund, that they are managing on behalf of Lazard. Although Lazard does not track each individual portfolio manager’s time dedicated to each account, Lazard periodically reviews each portfolio manager’s overall responsibilities to ensure that he or she is able to allocate the necessary time and resources to effectively manage the Fund. Most of Lazard’s portfolio managers manage a significant number of Similar Accounts in addition to the Fund.

4.    Generally, Lazard and/or its portfolio managers have investments in Similar Accounts. This could be viewed as creating a potential conflict of interest, since certain of the portfolio managers do not invest in the Fund.

 

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5.    The table above notes the portfolio managers who manage Similar Accounts with respect to which the advisory fee is based on the performance of the account, which could give the portfolio managers and Lazard an incentive to favor such Similar Accounts over the Fund.

6.    Portfolio managers may place transactions on behalf of Similar Accounts that are directly or indirectly contrary to investment decisions made for the Fund, which could have the potential to adversely impact the Fund, depending on market conditions. In addition, if the Fund’s investment in an issuer is at a different level of the issuer’s capital structure than an investment in the issuer by Similar Accounts, in the event of credit deterioration of the issuer, there may be a conflict of interest between the Fund’s and such Similar Accounts’ investments in the issuer. If Lazard sells securities short, including on behalf of a Similar Account, it may be seen as harmful to the performance of the Fund to the extent it invests “long” in the same or similar securities whose market values fall as a result of short-selling activities.

7.    Investment decisions are made independently from those of the Similar Accounts. If, however, such Similar Accounts desire to invest in, or dispose of, the same securities as the Fund, available investments or opportunities for sales will be allocated equitably to each. In some cases, this procedure may adversely affect the size of the position obtained for or disposed of by the Fund or the price paid or received by the Fund.

8.    Under Lazard’s trade allocation procedures applicable to domestic and foreign initial and secondary public offerings and Rule 144A transactions (collectively herein a “Limited Offering”), Lazard will generally allocate Limited Offering shares among client accounts, including the Fund, pro rata based upon the aggregate asset size (excluding leverage) of the account. Lazard may also allocate Limited Offering shares on a random basis, as selected electronically, or other basis. It is often difficult for the Adviser to obtain a sufficient number of Limited Offering shares to provide a full allocation to each account. Lazard’s allocation procedures are designed to allocate Limited Offering securities in a fair and equitable manner.

LITMAN GREGORY

Advisor to the Funds

Litman Gregory has overall responsibility for assets under management and conducts oversight and evaluation of the Funds’ investment managers and other duties. Litman Gregory generally does not make day-to-day decisions with respect to the purchase and sale of portfolio securities by the Funds. Accordingly, no material conflicts of interest are expected to arise between the Funds and other accounts managed by the portfolio managers. Litman Gregory has adopted compliance policies, including allocation policies and a code of ethics, which are intended to prevent or mitigate conflicts of interest, if any, that may arise.

LOOMIS, SAYLES & COMPANY, L.P. (“Loomis Sayles”)

Sub-Advisor to the Alternative Strategies Fund

Conflicts of interest may arise in the allocation of investment opportunities and the allocation of aggregated orders among the Alternative Strategies Fund and other accounts managed by the portfolio managers. A portfolio manager potentially could give favorable treatment to some accounts for a variety of reasons, including favoring larger accounts, accounts that pay higher fees, accounts that pay performance-based fees, accounts of affiliated companies and accounts in which the portfolio manager has an interest. Such favorable treatment could lead to more favorable investment opportunities or allocations for some accounts. Loomis Sayles makes investment decisions for all accounts (including institutional accounts, mutual funds, hedge funds and affiliated accounts) based on each account’s availability of other comparable investment opportunities and Loomis Sayles’ desire to treat all accounts fairly and equitably over time. Loomis Sayles maintains trade allocation and aggregation policies and procedures to address these potential conflicts. Conflicts of interest also arise to the extend a portfolio manager short sells a stock in one client account but holds that stock long in other accounts, including the Alternative Strategies Fund, or sells a stock for some accounts while buying the stock for others, and through the use of “soft dollar arrangements,” which are addressed in Loomis Sayles’ Brokerage Allocation Policies and Procedures and Loomis Sayles’ Trade Aggregation and Allocation Policies and Procedures.

 

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NEUBERGER BERMAN INVESTMENT ADVISERS LLC (“Neuberger Berman”)

Sub-Advisor to the High Income Alternatives Fund

Actual or apparent conflicts of interest may arise when a Portfolio Manager for Neuberger Berman has day-to-day management responsibilities with respect to more than one fund or other account. The management of multiple funds and accounts (including proprietary accounts) may give rise to actual or potential conflicts of interest if the funds and accounts have different or similar objectives, benchmarks, time horizons, and fees, as the Portfolio Manager must allocate his or her time and investment ideas across multiple funds and accounts. The Portfolio Manager may execute transactions for another fund or account that may adversely impact the value of securities held by a fund, and which may include transactions that are directly contrary to the positions taken by a fund. For example, a Portfolio Manager may engage in short sales of securities for another account that are the same type of securities in which a fund it manages also invests. In such a case, the Portfolio Manager could be seen as harming the performance of the fund for the benefit of the account engaging in short sales if the short sales cause the market value of the securities to fall. Additionally, if a Portfolio Manager identifies a limited investment opportunity that may be suitable for more than one fund or other account, a fund may not be able to take full advantage of that opportunity. There may also be regulatory limitations that prevent a fund from participating in a transaction that another account or fund managed by the same Portfolio Manager will invest. For example, the 1940 Act prohibits the mutual funds from participating in certain transactions with certain of its affiliates and from participating in “joint” transactions alongside certain of its affiliates. The prohibition on “joint” transactions may limit the ability of the funds to participate alongside its affiliates in privately negotiated transactions unless the transaction is otherwise permitted under existing regulatory guidance and may reduce the amount of privately negotiated transactions that the funds may participate in. Further, Neuberger Berman may take an investment position or action for a fund or account that may be different from, inconsistent with, or have different rights than (e.g., voting rights, dividend or repayment priorities or other features that may conflict with one another), an action or position taken for one or more other funds or accounts, including a fund, having similar or different objectives. A conflict may also be created by investing in different parts of an issuer’s capital structure (e.g., equity or debt, or different positions in the debt structure). Those positions and actions may adversely impact, or in some instances benefit, one or more affected accounts, including the funds. Potential conflicts may also arise because portfolio decisions and related actions regarding a position held for a fund or another account may not be in the best interests of a position held by another fund or account having similar or different objectives. If one account were to buy or sell portfolio securities shortly before another account bought or sold the same securities, it could affect the price paid or received by the second account. Securities selected for funds or accounts other than a fund may outperform the securities selected for the fund. Finally, a conflict of interest may arise if Neuberger Berman and a Portfolio Manager have a financial incentive to favor one account over another, such as a performance-based management fee that applies to one account but not all funds or accounts for which the Portfolio Manager is responsible. In the ordinary course of operations certain businesses within the Neuberger Berman organization (“NB”) may seek access to material non-public information. For instance, Neuberger Berman loan portfolio managers may utilize material non-public information in purchasing loans and from time to time, may be offered the opportunity on behalf of applicable clients to participate on a creditors committee, which participation may provide access to material non-public information. NB maintains procedures that address the process by which material non-public information may be acquired intentionally by NB. When considering whether to acquire material non-public information, NB will take into account the interests of all clients and will endeavor to act fairly to all clients. The intentional acquisition of material non-public information may give rise to a potential conflict of interest since NB may be prohibited from rendering investment advice to clients regarding the public securities of such issuer and thereby potentially limiting the universe of public securities that NB, including a fund, may purchase or potentially limiting the ability of NB, including a fund, to sell such securities. Similarly, where NB declines access to (or otherwise does not receive) material non-public information regarding an issuer, the portfolio managers may base investment decisions for its clients, including a fund, with respect to loan assets of such issuer solely on public information, thereby limiting the amount of information available to the portfolio managers in connection with such investment decisions.

Neuberger Berman has adopted certain compliance procedures which are designed to address these types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.

 

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NUANCE INVESTMENTS, LLC (“Nuance”)

Sub-Advisor to the Equity Fund

Nuance’s management of other accounts may give rise to potential conflicts of interest in connection with the management of the Equity Fund’s investments, on the one hand, and the investments of the other accounts, on the other. The other accounts may have the same investment objective as the Equity Fund. Therefore, a potential conflict of interest may arise as a result of the identical investment objectives, whereby Nuance could favor one account over another. Another potential conflict could include Nuance’s knowledge about the size, timing and possible market impact of Equity Fund trades, whereby Nuance could use this information to the advantage of other accounts and to the disadvantage of the Equity Fund. However, Nuance has established policies and procedures to ensure that the purchase and sale of securities among all accounts it manages are fairly and equitably allocated.

PICTET ASSET MANAGEMENT LIMITED (“Pictet”)

Sub-Advisor to the International Fund

Pictet is governed by The Financial Conduct Authority (FCA). The FCA is a financial regulatory body in the United Kingdom, but operates independently of the U.K. government, and is financed by charging fees to members of the financial services industry. Pictet is required under FCA rules (a) to take all reasonable steps to identify conflicts of interest between (i) Pictet (including its staff or any person directly, or indirectly linked to us by control) and a client, or (ii) one client and another; (b) maintain and operate effective organizational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of its clients; and (c) establish, implement and maintain an effective written conflicts of interest policy (“the Conflicts of Interest Policy”) which identifies those conflicts of interest which constitute or may give rise to a conflict of interest entailing a material risk of damage to the interests of one or more clients and the procedures which are followed to manage such conflicts.

Pictet is also registered with the SEC which has similar requirements for the identification and management of conflicts of interest. This includes the requirement to make full and fair disclosure to clients of all material facts about the advisory relationship, particularly regarding conflicts of interest.

SANDS CAPITAL MANAGEMENT, LLC (“Sands Capital”)

Sub-Advisor to the Equity Fund

As an investment adviser to a variety of clients, Sands Capital recognizes there may be actual or potential conflicts of interest inherent in the firm’s activities. For example, conflicts of interest could result from portfolio managers’ management of multiple accounts for multiple clients, the execution and allocation of investment opportunities, the use of brokerage commissions to obtain research, and personal trading by employees. These conflicts have been addressed by developing policies and procedures reasonably designed to treat all clients in a fair and equitable manner over time. The firm’s policies and procedures address such issues as execution of portfolio transactions, aggregation and allocation of trades, directed brokerage, and the use of brokerage commissions. Additionally, the Code of Ethics and Insider Trading Policy and Procedures address rules on personal trading and insider information.

SEGALL BRYANT & HAMILL, LLC (“SBH”)

Sub-Advisor to the Smaller Companies Fund

Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. Where conflicts of interest arise between the Smaller Companies Fund and other accounts managed by the portfolio managers, SBH will proceed in a manner that ensures that the Smaller Companies Fund will not be treated less favorably. There may be instances where similar portfolio transactions may be executed for the same security for numerous accounts managed by the portfolio managers. In such instances, securities will be allocated in accordance with SBH’s trade allocation policy. SBH has also adopted policies and procedures that address potential conflicts of interest that may arise related to personal investing activities, structure of portfolio manager compensation, conflicting investment strategies and proxy voting of portfolio securities.

 

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WATER ISLAND CAPITAL, LLC (“Water Island”)

Sub-Advisor to the Alternative Strategies Fund

Water Island maintains policies and procedures reasonably designed to detect and minimize potential conflicts of interest inherent in circumstances when a portfolio manager has day-to-day responsibilities for managing multiple portfolios. Other portfolios managed by Water Island may include, without limitation: separately managed accounts, registered investment companies, unregistered investment companies such as pooled investment vehicles and hedge funds, and proprietary accounts. However, no set of policies and procedures can possibly anticipate or relieve all potential conflicts of interest. These conflicts may be real, potential, or perceived. Certain of these conflicts are described below.

Allocation of Limited Investment Opportunities. If a portfolio manager identifies a limited investment opportunity (including initial public offerings) that may be suitable for multiple funds and/or accounts, the investment opportunity may be allocated among these several funds or accounts, which may limit a client’s ability to take full advantage of the investment opportunity, due to liquidity constraints or other factors. Water Island has adopted trade allocation procedures designed to ensure that allocations of limited investment opportunities are conducted in a fair and equitable manner between client accounts. Nevertheless, investment opportunities may be allocated differently among client accounts due to the characteristics of an account, such as the size of the account, cash position, investment guidelines and restrictions, or risk controls.

Similar Investment Strategies. Water Island and its portfolio management team may manage multiple portfolios with similar investment strategies. Investment decisions for each portfolio are generally made based on each portfolio’s investment objectives and guidelines, cash availability, current holdings, and risk controls. Purchases or sales of securities for a portfolio may be appropriate for other portfolios with like objectives and may be bought or sold in different amounts and at different times in multiple portfolios. In these cases, transactions are allocated to portfolios in a manner believed fair and equitable across client account portfolios by Water Island’s allocation methodology. Purchase and sale orders for a portfolio may be combined with those of other portfolios in the interest of achieving the most favorable net results for all clients.

Different Investment Strategies. Water Island and its portfolio management team may manage multiple portfolios with different investment strategies. As such, the potential exists for short sales of securities in certain portfolios while the same security is held long in one or more other portfolios. In an attempt to mitigate the inherent risks of simultaneous management of portfolios with different investment strategies, Water Island has established and implemented procedures to promote fair and equitable treatment of all portfolios. The procedures include monitoring and surveillance of trading activity and supervisory reviews of accounts. Any proposed cross trades must be reviewed and approved by Water Island’s compliance department prior to execution and must comply with Rule 17a-7 under the 1940 Act.

Differences in Financial Incentives. A conflict of interest may arise where the financial or other benefits available to a portfolio manager or an investment adviser differ among the funds and/or accounts under management. For example, when the structure of an investment adviser’s management fee differs among the funds and/or accounts under its management (such as where certain funds or accounts pay higher management fees or performance-based management fees), a portfolio manager might be motivated to favor certain funds and/or accounts over others. Performance-based fees could also create an incentive for an investment adviser to make investments that are riskier or more speculative. In addition, a portfolio manager might be motivated to favor funds and/or accounts in which the portfolio manager or Water Island has a financial interest. For instance, Water Island may from time to time establish “pilot” or “incubator” funds for the purpose of testing proposed investment strategies or products prior to accepting assets from outside investors. Typically, Water Island or an affiliate supplies the funding for these accounts. Employees of Water Island, including the portfolio manager(s), may also invest in certain pilot accounts. Similarly, the desire to maintain or raise assets under management or to enhance the portfolio manager’s performance record in a particular investment strategy or to derive other rewards, financial or otherwise, could influence a portfolio manager to lend preferential treatment to those funds and/or accounts that could most significantly benefit the portfolio manager. To manage conflicts that arise from management of portfolios that may have differences in financial incentives, performance in portfolios with like strategies is regularly reviewed by management. Moreover, Water Island has adopted a policy to treat pilot accounts in the same manner as client accounts for purposes of trade aggregation and allocation – neither favoring nor disfavoring them (except that pilot accounts do not participate in initial public offerings).

 

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Selection of Brokers/Dealers. A portfolio manager may be able to select or influence the selection of the brokers/dealers that are used to execute securities transactions. In addition to executing trades, some brokers/dealers provide Water Island with brokerage and research services (as those terms are defined in Section 28(e) of the Exchange Act), which may result in the payment of higher brokerage fees than might have otherwise been available. These services may be more beneficial to certain accounts than to others. In order to be assured of continuing to receive services considered of value to its clients,

Water Island has adopted a brokerage allocation policy embodying the concepts of Section 28(e) of the Exchange Act. A portfolio manager’s decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the accounts that they manage, although the payment of brokerage commissions is always subject to the requirement that Water Island determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services received.

Personal Holdings and Transactions. Water Island’s portfolio managers and other employees may have beneficial ownership of holdings in personal accounts that are the same or similar to those held in client accounts. Under limited circumstances, Water Island allows its employees to trade in securities that it recommends to advisory clients, and the actions taken by such individuals on a personal basis may differ from, or be inconsistent with, the nature and timing of advice or actions taken by Water Island for its client accounts. Water Island and its employees may also invest in mutual funds and other pooled investment vehicles that are managed by Water Island. This may result in a potential conflict of interest since Water Island’s employees have knowledge of such funds’ investment holdings, which is non-public information. Water Island has implemented a Code of Ethics which is designed to address and mitigate the possibility that these professionals could place their own interests ahead of those of clients. The Code of Ethics addresses this potential conflict of interest by imposing preclearance and reporting requirements, trading blackout periods, a minimum holding period, supervisory oversight, and other measures designed to reduce conflicts of interest.

The Fund’s portfolio managers may also face other potential conflicts of interest in the management of the Alternative Strategies Fund and other accounts, and the examples above are not intended to provide an exhaustive list or complete description of every conflict that may arise.

WELLS CAPITAL MANAGEMENT, INC. (“WellsCap”)

Sub-Advisor to the Equity Fund and the Smaller Companies Fund

WellsCap’s portfolio managers often provide investment management for separate accounts advised in the same or similar investment style as that provided to mutual funds. While management of multiple accounts could potentially lead to conflicts of interest over various issues such as trade allocation, fee disparities and research acquisition, WellsCap has implemented policies and procedures for the express purpose of ensuring that clients are treated fairly and that potential conflicts of interest are minimized.

Compensation Structure and Methods

The following section describes the structure of, and the methods used to determine the different types of compensation (e.g., salary, bonus, deferred compensation, retirement plans and arrangements) for each of the Funds’ portfolio managers as of the fiscal year ended December 31, 2019.

ARES

Sub-Advisor to the High Income Alternatives Fund

Generally, compensation across the firm is determined by Ares’ Management Committee, with recommendations made by the head of each applicable business unit. Investment professionals receive a base salary and are eligible for a discretionary year-end bonus based on performance. Subject to a minimum compensation threshold, a portion of year-end bonus may be paid in the form of equity in our publicly traded parent, Ares Management Corporation, which vests over time and is intended as a retention mechanism for portfolio managers, investment professionals and other executives of Ares.

 

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Additionally and where applicable, portfolio managers and sometimes analysts and other senior professionals are awarded direct carried interest and/or profit participations with respect to funds in which they are involved, and may also receive similar incentive awards relating to the funds in the firm’s other investment groups. This both aligns the compensation of key employees with investment performance and rewards the collaboration of senior professionals across business platforms.

As the result of Ares’ May 2014 initial public offering and our ongoing performance bonus awards, most of Ares’ employees are stakeholders in Ares’ parent via various equity interests. These may be subject to transfer restrictions, as well as forfeiture if an employee does not remain with Ares for a defined period of time or terminates employment prior to certain vesting dates.

Professionals receive year-end annual reviews. For analysts these will focus primarily on credit analysis and communication, including the quality and number of investment recommendations made, the efficacy and accuracy of investment monitoring, and the contributions made to industry strategy and relative value assessments prepared internally.

BBH

Sub-Advisor to the High Income Alternatives Fund

BBH portfolio managers are paid a fixed base salary and variable incentives based on performance, investment strategy performance, and the overall profitability of BBH. Base salaries are determined within a market competitive salary range, based on experience and performance, and is consistent with the salaries paid to other fixed income portfolio managers of BBH. The variable incentives are composed of two separate elements. The first element is a cash bonus paid at the end of each calendar year based on multiple performance criteria using a Balanced Scorecard methodology (the “Performance Bonus”). The second and typically smaller element is participation in a profit sharing plan that allows all employees to share in the success of BBH in meeting its profit objectives. This participation is a uniform portion of each employee’s base salary and is paid to each employee’s 401(k) account that vests over time. The main criteria for establishing Performance Bonuses are the investment performance of the portfolios managed and their respective leadership, collaboration, and communication skills.

COVE STREET

Sub-Advisor to the Smaller Companies Fund

As a member of Cove Street, Jeffrey Bronchick receives a salary and his pro-rata share of Cove Street’s profits.

DAVIS ADVISORS

Sub-Advisor to the Equity Fund

Christopher C. Davis’ annual compensation as an employee and general partner of Davis Advisors consists of a base salary.

Danton Goei’s compensation for services provided to the Sub-Advisor consists of: (i) a base salary; (ii) an annual discretionary bonus; (iii) awards of equity (“Units”) in Davis Selected Advisers, L.P., including Units and/or phantom Units; (iv) an incentive plan whereby the Sub-Advisor purchases shares in certain mutual funds managed by the Sub-Advisor, which vest based on the passage of time provided that the Portfolio Manager is still employed by the Sub-Advisor; and (v) an incentive plan whereby the Sub-Advisor purchases shares in selected mutual funds managed by the Sub-Advisor. At the end of specified periods, generally five-years following the date of purchase, some, all or none of the Fund shares will be registered in the employee’s name based on Fund performance, after expenses on a pre-tax basis, versus the Fund’s benchmark index, as described in the Fund’s prospectus or, in limited cases, based on performance ranking among established peer groups. The Sub-Advisor does not purchase incentive shares in every fund these portfolio managers manage or assist on. In limited cases, such incentive compensation is tied on a memorandum basis to the performance of the portion of the Fund (“sleeve”) managed by the analyst versus the Fund’s benchmark.

 

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The Sub-Advisor’s portfolio managers are provided benefits packages including life insurance, health insurance, and participation in the Sub-Advisor’s 401(k) plan comparable to that received by other company employees.

DCI

Sub-Advisor to the Alternative Strategies Fund

DCI’s compensation structure is designed to attract and retain the highest quality professionals. The management team feels strongly that all executives should share in DCI’s long-term incentive mechanisms. This belief has resulted in a very strong rate of retention at the senior level. As a result, all executives are highly motivated to maximize DCI’s long-term value through superior investment performance and strong client relationships. Compensation comprises an industry competitive salary and an annual discretionary bonus based on corporate and individual performance.

For DCI’s most senior employees, compensation also includes a share in DCI’s overall profits, as well as long-term equity (which in some cases vests over time). No employee compensation is ever based on the performance of a specific strategy or portfolio.

DOUBLELINE

Sub-Advisor to the Alternative Strategies Fund

The overall objective of the compensation program for the portfolio managers employed by the Sub-Advisor is for the Sub-Advisor to attract competent and expert investment professionals and to retain them over the long-term. Compensation is comprised of several components which, in the aggregate, are designed to achieve these objectives and to reward the Sub-Advisor’s portfolio managers for their contribution to the success of the clients and the Sub-Advisor. The Sub-Advisor’s Portfolio managers are compensated through a combination of base salary, discretionary bonus and, in some cases, equity participation in the Sub-Advisor.

Salary. Salary is agreed to with managers at time of employment and is reviewed from time to time. It does not change significantly and often does not constitute a significant part of a portfolio manager’s compensation.

Discretionary Bonus/Guaranteed Minimums. Portfolio managers receive discretionary bonuses. However, in some cases, pursuant to contractual arrangements, some portfolio managers may be entitled to a mandatory minimum bonus if the sum of their salary and profit sharing does not reach certain levels.

Equity Incentives. Some portfolio managers participate in equity incentives based on overall firm performance of the Sub-Advisor, through direct ownership interests in the Sub-Advisor. These ownership interests or participation interests provide eligible portfolio managers the opportunity to participate in the financial performance of the Sub-Advisor. Participation is generally determined in the discretion of the Sub-Advisor, taking into account factors relevant to the portfolio manager’s contribution to the success of the Sub-Advisor.

Other Plans and Compensation Vehicles. Portfolio managers may elect to participate in the Sub-Advisor’s 401(k) plan, to which they may contribute a portion of their pre- and post-tax compensation to the plan for investment on a tax-deferred basis. The Sub-Advisor may also choose, from time to time, to offer certain other compensation plans and vehicles, such as a deferred compensation plan, to portfolio managers.

Summary. As described above, an investment professional’s total compensation is determined through a subjective process that evaluates numerous quantitative and qualitative factors, including the contribution made to the overall investment process. Not all factors apply to each employee and there is no particular weighting or formula for considering certain factors. Among the factors considered are: relative investment performance of portfolios (although there are no specific benchmarks or periods of time used in measuring performance); complexity of investment strategies; participation in the investment team’s dialogue; contribution to business results and overall business strategy; success of marketing/business development efforts and client servicing; seniority/length of service with the firm; management and supervisory responsibilities; and fulfillment of the Sub-Advisor’s leadership criteria.

 

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EVERMORE

Sub-Advisor to the International Fund

Because Mr. Marcus may manage other accounts, including accounts that may pay higher fees or accounts that may pay performance-based fees, potential conflicts of interest could exist, including potential conflicts between the investment strategy of the International Fund and the investment strategy of the other accounts managed by the portfolio manager and potential conflicts in the allocation of investment opportunities between the International Fund and the other accounts.

Mr. Marcus is a member of Evermore. His compensation consists of a fixed based salary and a membership interest in the firm’s profits. Mr. Marcus may also participate in Evermore’s matching 401(k) retirement plan. He may receive bonuses based on the performance of his duties and his contribution to Evermore. The compensation program does not disproportionately reward outperformance by higher fee/performance fee products. Evermore’s profits interest is the primary incentive for persons to maintain employment with Evermore. Evermore believes this is the best incentive to maintain stability of portfolio management personnel.

FMI

Sub-Advisor to the Equity Fund

Patrick J. English. Mr. English’s salary is based upon revenues of FMI. The type of account and source of the revenues has no bearing upon the salary except insofar as they affect the revenues of the company.

Jonathan T. Bloom. Mr. Bloom’s salary and bonus are based upon the revenues of FMI. The type of account has no bearing upon the salary and bonus except insofar as they affect the revenues of the company.

FIRST PACIFIC

Sub-Advisor to the Alternative Strategies Fund

Compensation of the portfolio managers consists of: (i) a base salary; (ii) an annual bonus; and (iii) for the portfolio managers that are equity owners of the firm, participation in residual profits of the firm.

The bonus calculation has both variable and fixed components and is primarily based on the revenues received on the assets managed by the portfolio managers, including the relevant account’s assets. The most significant portion of the variable component is based upon the firm’s assessment of the portfolio managers’ performance in three key areas: long-term performance, team building, and succession planning. The firm assesses long-term performance over a full market cycle, which generally lasts between five and ten years. Other considerations include portfolio manager and strategy recognition, client engagement and retention, and business development. The portfolio managers can receive 100% of their variable participation even if the strategy is closed to investors. In addition, the value of a portfolio manager’s equity ownership interest in the firm is dependent upon his ability to effectively manage the business over the long term, which includes the three main components discussed above: long-term performance, team-building and succession planning.

First Pacific believes this compensation structure aligns the interests of the portfolio managers with those of investors by reducing conflicts such as disparate compensation structures, establishing appropriate fee rates for accounts in the strategy and keeping the portfolio managers incentivized in areas such as long-term performance, team building and succession.

If the portfolio manager is an equity owner of the firm, then the value of the portfolio manager’s ownership interest is dependent upon his ability to effectively manage the business over the long term.

Compensation for some of the firm’s investment professionals involved in the management of certain UCITs accounts is governed by the provisions of the firm’s Remuneration Policy which is designed to comply with requirements mandated by the European Securities and Markets Authority’s ‘Guidelines on sound remuneration policies under the UCITS Directive and AIFMD.

 

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GUGGENHEIM

Sub-Advisor to the High Income Alternatives Fund

Guggenheim compensates portfolio managers for their management of a fund’s portfolio. Compensation is evaluated qualitatively based on their contribution to investment performance and factors such as teamwork and client service efforts. The portfolio managers’ incentives may include: a competitive base salary, bonus determined by individual and firm wide performance, equity participation, co-investment options, and participation opportunities in various investments, including through deferred compensation programs. All employees of Guggenheim are also eligible to participate in a 401(k) plan to which a discretionary match may be made after the completion of each plan year. Guggenheim’s deferred compensation programs include equity that vests over a period of years, including equity in the form of shares of fund(s) managed by the particular portfolio manager. The value of the fund shares under the deferred compensation program is awarded annually and each award vests over a period of years (generally 4 years). A portfolio manager’s ownership of shares of a fund managed by the portfolio manager may create conflicts of interest that incentivize the portfolio manager to favor such fund over other funds or other accounts.

HARRIS

Sub-Advisor to the Equity Fund and the International Fund

Compensation

Harris receives fees based on the assets under management of the Equity Fund and International Fund, respectively, as set forth in the Investment Sub-Advisory Agreements between Harris and Litman Gregory.

Harris is solely responsible for compensating its portfolio managers. Compensation for each of its portfolio managers is based on Harris’ assessment of the individual’s long-term contribution to the investment success of the firm. Each portfolio manager receives a base salary and participates in a discretionary bonus pool. In addition, most of the portfolio managers also participate in a long-term compensation plan that provides current compensation to certain key employees of Harris and deferred compensation to both current and former key employees. The compensation plan consists of bonus units awarded to participants that vest and are paid out over a period of time.

The determination of the amount of such portfolio manager’s base salary and discretionary bonus participation and, where applicable, participation in the long-term compensation plan is based on a variety of qualitative and quantitative factors. The factor given the most significant weight is the subjective assessment of the individual’s contribution to the overall investment results of Harris’ domestic or international investment group, whether as a portfolio manager, a research analyst or both.

The quantitative factors considered in evaluating the contribution of a portfolio manager include the performance of the portfolios managed by that individual relative to benchmarks, peers and other portfolio managers, as well as the assets under management in the accounts managed by the portfolio manager. The portfolio managers’ compensation is not based solely on an evaluation of the performance of the accounts or the amount of assets under management. Performance is measured in a number of ways, including by funds, accounts and by strategy, and is compared to one or more of the following benchmarks: S&P 500® Index, Russell Mid-Cap® Value Index, Russell 1000® Value Index, Lipper Balanced Funds Index (60% S&P 500® Index and 40% Barclays Bond Index), MSCI World Index, MSCI World ex U.S. Index, MSCI World ex-U.S. Small Cap Index and Harris’ approved lists of stocks, depending on whether the portfolio manager manages accounts in the particular strategy to which these benchmarks would be applicable. Performance is measured over short and long term periods, including one year, three years, five years, ten years and since a fund’s inception or since a portfolio manager has been managing a fund, as applicable. Performance is measured on a pre-tax and after-tax basis to the extent such information is available.

If a portfolio manager also serves as a research analyst, then his compensation is also based on the contribution made to Harris in that role. The specific quantitative and qualitative factors considered in evaluating a research analyst’s contributions include, among other things, new investment ideas, the performance of investment ideas covered by the analyst during the current year as well as over longer-term periods, the portfolio impact of the analyst’s investment ideas, other contributions to the research process, and an assessment of the quality of analytical work. If a portfolio manager also serves as a research analyst, then such manager may participate in a long-term

 

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compensation plan that may provide future compensation upon vesting after a multi-year period. The plan consists of an award based on a quantitative evaluation of the performance of the investment ideas covered by the analyst over the same multi-year period. In addition, an individual’s other contributions to Harris, such as a role in investment thought leadership and management, are taken into account in the overall compensation process.

LAZARD

Sub-Advisor to the International Fund

Lazard compensates key investment personnel by a competitive salary and bonus structure, which is determined both quantitatively and qualitatively.

Salary and bonus are paid in cash, stock and restricted interests in funds managed by Lazard or its affiliates. Portfolio managers are compensated on the performance of the aggregate group of portfolios managed by them rather than for a specific fund or account. Various factors are considered in the determination of a portfolio manager’s compensation. All of the portfolios managed by a portfolio manager are comprehensively evaluated to determine his or her positive and consistent performance contribution over time. Further factors include the amount of assets in the portfolios as well as qualitative aspects that reinforce Lazard’s investment philosophy.

Total compensation is generally not fixed, but rather is based on the following factors: (i) leadership, teamwork and commitment; (ii) maintenance of current knowledge and opinions on companies owned in the portfolio; (iii) generation and development of new investment ideas, including the quality of security analysis and identification of appreciation catalysts; (iv) ability and willingness to develop and share ideas on a team basis; and (v) the performance results of the portfolios managed by the investment teams of which the portfolio manager is a member.

A variable bonus is based on the portfolio manager’s quantitative performance as measured by his or her ability to make investment decisions that contribute to the pre-tax absolute and relative returns of the accounts managed by the teams of which the portfolio manager is a member, by comparison of each account to a predetermined benchmark (as set forth in the prospectus or other governing document) over the current fiscal year and the longer-term performance of such account, as well as performance of the account relative to peers. In addition, the portfolio manager’s bonus can be influenced by subjective measurement of the manager’s ability to help others make investment decisions. A portion of a portfolio manager’s variable bonus is awarded under a deferred compensation arrangement pursuant to which the portfolio manager may allocate certain amounts awarded among certain accounts in shares that vest in two to three years. Certain portfolio managers’ bonus compensation may be tied to a fixed percentage of revenues or assets generated by the accounts managed by such portfolio management teams.

LITMAN GREGORY

Advisor to the Funds

Litman Gregory’s portfolio managers are compensated based on a fixed salary and a distribution of Litman Gregory’s profits commensurate with the portfolio managers’ respective ownership percentages in the parent company of the Advisor.

LOOMIS SAYLES

Sub-Advisor to the Alternative Strategies Fund

Loomis Sayles believes that portfolio manager compensation should be driven primarily by the delivery of consistent and superior long-term performance for its clients. Portfolio manager compensation is made up primarily of three main components: base salary, variable compensation and a long-term incentive program. Although portfolio manager compensation is not directly tied to assets under management, a portfolio manager’s base salary and/or variable compensation potential may reflect the amount of assets for which the manager is responsible relative to other portfolio managers. Loomis Sayles also offers a profit sharing plan and a defined benefit plan to all employees hired before May 3, 2003.

Base salary is a fixed amount based on a combination of factors, including industry experience, firm experience, job performance and market considerations.

 

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Variable compensation is an incentive-based component and generally represents a significant multiple of base salary. Variable compensation is based on four factors: investment performance, profit growth of the firm, profit growth of the manager’s business unit and personal conduct. Investment performance is the primary component of total variable compensation and generally represents at least 60% of the total for fixed income managers. The other three factors are used to determine the remainder of variable compensation, subject to the discretion of the firm’s Chief Investment Officer and senior management. The Chief Investment Officer and senior management evaluate these other factors annually.

While mutual fund performance and asset size do not directly contribute to the compensation calculation, investment performance for fixed income managers is measured by comparing the performance of Loomis Sayles’ institutional composite (pre-tax and net of fees) in the manager’s style to the performance of an external benchmark and a customized peer group. The benchmark used for the investment style utilized for the Alternative Strategies Fund is the 3-Month LIBOR. The customized peer group is created by Loomis Sayles and is made up of institutional managers in the particular investment style. A portfolio manager’s relative performance for the past five years, or seven years for some products, is used to calculate the amount of variable compensation payable due to performance. To ensure consistency, Loomis Sayles analyzes the five- or seven-year performance on a rolling three-year basis. If a manager is responsible for more than one product, the rankings of each product are weighted based on relative revenue size of accounts represented in each product.

Loomis Sayles uses both an external benchmark and a customized peer group as a point of comparison for fixed income manager performance because Loomis Sayles believes they represent an appropriate combination of the competitive fixed-income product universe and the investment styles offered by Loomis Sayles.

In addition to the compensation described above, portfolio managers may receive additional compensation based on the overall growth of their strategies.

General

Most mutual funds do not directly contribute to a portfolio manager’s overall compensation because Loomis Sayles uses the performance of the portfolio manager’s institutional accounts compared to an institutional peer group. However, each fund managed by Loomis Sayles employs strategies endorsed by Loomis Sayles and fits into the product category for the relevant investment style. Loomis Sayles may adjust compensation if there is significant dispersion among the returns of the composite and accounts not included in the composite.

Loomis Sayles has developed and implemented two distinct long-term incentive plans to attract and retain investment talent. These plans supplement existing compensation and apply to certain portfolio managers, certain other investment talent, and certain high-ranking officers. The first plan has several important components distinguishing it from traditional equity ownership plans:

 

   

The plan grants units that entitle participants to an annual payment based on a percentage of company earnings above an established threshold;

 

   

Upon retirement a participant will receive a multi-year payout for his or her vested units;

 

   

Participation is contingent upon signing an award agreement, which includes a non-compete covenant.

The second plan grants participants an annual participation in company earnings is deferred for two years from the time of award and is only payable if the portfolio manager remains at Loomis Sayles. In this plan, there are no post-retirement payments or non-compete covenants, but there is a non-solicitation covenant.

Senior management expects that the variable compensation portion of overall compensation will continue to remain the largest source of income for those investment professionals included in the plan. The plan(s) was/were initially offered to portfolio managers and over time, the scope of eligibility widened to include other key investment professionals. Management has full discretion over what units are issued and to whom.

 

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Portfolio managers also participate in the Loomis Sayles profit sharing plan, in which Loomis Sayles makes a contribution to the retirement plan of each employee based on a percentage of base salary (up to a maximum amount). The portfolio managers may also participate in the Loomis Sayles defined benefit pension plan, which applies to all Loomis Sayles employees who joined the firm prior to May 3, 2003. The defined benefit is based on years of service and base compensation (up to a maximum amount).

In addition, portfolio managers may also participate in the Loomis Sayles deferred compensation plan which requires all Loomis Sayles employees to defer 50% of their annual bonus if in excess of a certain dollar amount, except for those Loomis Sayles employees who will be age 61 or older on the date the bonus is awarded. These amounts are deferred over a two year period with 50% being paid out one year from the bonus anniversary date and the second 50% being paid out two years from the bonus anniversary date. These deferrals are deposited into an investment account on the Loomis Sayles employee’s behalf, but the employee must be with Loomis Sayles on the vesting dates in order to receive the deferred bonus.

NEUBERGER BERMAN

Sub-Advisor to the High Income Alternatives Fund

Neuberger Berman’s compensation philosophy is one that focuses on rewarding performance and incentivizing our employees. Neuberger Berman is also focused on creating a compensation process that it believes is fair, transparent, and competitive with the market.

Compensation for Portfolio Managers consists of fixed (salary) and variable (bonus) compensation but is more heavily weighted on the variable portion of total compensation and is paid from a team compensation pool made available to the portfolio management team with which the Portfolio Manager is associated. The size of the team compensation pool is determined based on a formula that takes into consideration a number of factors including the pre-tax revenue that is generated by that particular portfolio management team, less certain adjustments. The bonus portion of the compensation is discretionary and is determined on the basis of a variety of criteria, including investment performance (including the aggregate multi-year track record), utilization of central resources (including research, sales and operations/support), business building to further the longer term sustainable success of the investment team, effective team/people management, and overall contribution to the success of the Neuberger Berman organization (“NB”). Certain Portfolio Managers may manage products other than mutual funds, such as high net worth separate accounts. For the management of these accounts, a Portfolio Manager may generally receive a percentage of pre-tax revenue determined on a monthly basis less certain deductions. The percentage of revenue a Portfolio Manager receives pursuant to this arrangement will vary based on certain revenue thresholds.

The terms of Neuberger Berman’s long-term retention incentives are as follows:

Employee-Owned Equity. Certain employees (primarily senior leadership and investment professionals) participate in NB’s equity ownership structure, which was designed to incentivize and retain key personnel. In addition, in prior years certain employees may have elected to have a portion of their compensation delivered in the form of equity. Neuberger Berman also offers an equity acquisition program which allows employees a more direct opportunity to invest in NB. For confidentiality and privacy reasons, Neuberger Berman cannot disclose individual equity holdings or program participation.

Contingent Compensation. Certain employees may participate in the Neuberger Berman Group Contingent Compensation Plan (the “CCP”) to serve as a means to further align the interests of our employees with the success of the firm and the interests of our clients, and to reward continued employment. Under the CCP, up to 20% of a participant’s annual total compensation in excess of $500,000 is contingent and subject to vesting. The contingent amounts are maintained in a notional account that is tied to the performance of a portfolio of NB investment strategies as specified by the firm on an employee-by-employee basis. By having a participant’s contingent compensation tied to NB investment strategies, each employee is given further incentive to operate as a prudent risk manager and to collaborate with colleagues to maximize performance across all business areas. In the case of members of investment teams, including Portfolio Managers, the CCP is currently structured so that such employees have exposure to the investment strategies of their respective teams as well as the broader NB portfolio.

 

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Restrictive Covenants. Most investment professionals, including Portfolio Managers, are subject to notice periods and restrictive covenants which include employee and client non-solicit restrictions as well as restrictions on the use of confidential information. In addition, depending on participation levels, certain senior professionals who have received equity grants have also agreed to additional notice and transition periods and, in some cases, non-compete restrictions. For confidentiality and privacy reasons, Neuberger Berman cannot disclose individual restrictive covenant arrangements.

NUANCE

Sub-Advisor to the Equity Fund

The Nuance team is compensated in three ways: salary, bonus and profit sharing. The profit sharing component of the compensation is motivation to stay loyal to the firm and participate in its growth through the overall profitability of the firm. It is paid monthly. Additionally, all employees of Nuance have a clear path to “equity rights” – without upfront capital that can be difficult for families. These rights grant true equity value without the upfront investment which adds clear retentive qualities

Scott Moore, President, Co-Chief Investment Officer, and portfolio manager, owns 78.12% of Nuance. As such, his performance is tied to the profits of the firm. He firmly believes that the profits of the firm will coincide directly with the success of the investment products he manages with his team. The vast majority of his compensation has a direct correlation with the success of his clients and their experience as clients with Nuance.

PICTET

Sub-Advisor to the International Fund

Pictet’s remuneration policy aligns individuals’ pay with the interests of Pictet’s clients and the long-term performance of the business.

Pictet’s Managing Partners, as part of the responsibilities of the Partners’ Committee, oversee all remuneration policies and provide independent oversight for remuneration decisions. The Partners’ attention to a sound risk management approach protects investors, the Pictet Group, Pictet, and employees. Pictet’s remuneration policy complies with regulatory requirements and external best practices.

An individual’s total compensation typically comprises a fixed salary; a performance related bonus; Pictet Parts (linking pay to Group results); and, for key senior executives, Long-Term Incentive Plan Units (linking pay to the long-term growth and continued success of Pictet). The variable elements of pay create a direct link between pay and performance, aligning Pictet’s staff’s incentives with the best interests of Pictet’s clients. The appropriate mix of different pay elements and deferrals ensures that an individual’s compensation is appropriately stable over time and encourages responsible risk-taking and sustainable performance for Pictet’s clients.

SANDS CAPITAL

Sub-Advisor to the Equity Fund

The primary goal of Sands Capital’s compensation and equity plans is tying the firm’s key contributors to the success of its clients. Sands Capital believes a carefully built compensation plan combined with an equity plan have been critical elements in the firm’s ability to attract and retain talent and deliver on our mission.

Investment professionals benefit from (1) a competitive salary; (2) a qualitative bonus: paid annually and based on each individual’s responsibilities and objectives that are agreed upon at the beginning of each year; (3) a 401(k) plan with a profit sharing component; and (4) an investment results bonus: calculated as each strategy’s value added versus their respective benchmarks over 1-, 3-, and 5-year periods—weighted toward longer time periods—this bonus is a significant component of compensation and aligns objectives and rewards with those of our clients’ results. Lastly, senior members of the firm are equity partners.

 

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SBH

Sub-Advisor to the Smaller Companies Fund

Compensation for investment professionals generally consists of base salary and potential incentive compensation, as well as possible equity ownership in the firm. Investment professionals are paid a salary that is competitive with industry standards, along with a team-based incentive bonus based on revenues derived from SBH’s investment strategies managed by the investment professional. Individual incentive allocation is merit based as determined by the portfolio manager, with final approval from SBH’s Chief Executive Officer. SBH believes that revenue-based compensation encompasses all aspects of the overall results we deliver to our clients, including investment performance. Portfolio managers may also participate in SBH’s defined contribution retirement plan, which includes normal matching provisions in accordance with applicable tax regulations.

WATER ISLAND

Sub-Advisor to the Alternative Strategies Fund

Investment professionals are compensated with salary and a bonus based on individual performance, both relative and absolute fund performance, and profitability of Water Island. Profit sharing in Water Island may also be included as potential compensation. In addition, Water Island believes employee ownership and the opportunity for all employees to hold ownership interests in Water Island fosters teamwork and encourages longevity in tenure. Ownership shares may be issued to employees based on tenure, position, and contribution to Water Island. Water Island’s policies help ensure that the financial interests of its key investment personnel are aligned with its clients’ financial interests. Water Island also expends efforts to help ensure it attracts and retains key investment talent. Its goal is to focus its employees on long-term rather than short-term performance and to encourage employee retention.

WELLSCAP

Sub-Advisor to the Equity Fund and the Smaller Companies Fund

The compensation structure for WellsCap’s Portfolio Managers includes a competitive fixed base salary plus variable incentives, payable annually and over a longer term period. WellsCap participates in third party investment management compensation surveys for market-based compensation information to help support individual pay decisions. In addition to surveys, WellsCap also considers prior professional experience, tenure, seniority and a Portfolio Manager’s team size, scope and assets under management when determining his/her fixed base salary. In addition, Portfolio Managers, who meet the eligibility requirements, may participate in Wells Fargo’s 401(k) plan that features a limited matching contribution. Eligibility for and participation in this plan is on the same basis for all employees.

WellsCap’s investment incentive program plays an important role in aligning the interests of our portfolio managers, investment team members, clients and shareholders. Incentive awards for portfolio managers are determined based on a review of relative investment and business/team performance. Investment performance is generally evaluated for 1, 3, and 5 year performance results, with a predominant weighting on the 3- and 5- year time periods, versus the relevant benchmarks and/or peer groups consistent with the investment style. In the case of each Fund, the benchmark(s) against which the performance of the Fund’s portfolio may be compared for these purposes generally are indicated in the “Average Annual Total Returns” table in the Prospectus. Once determined, incentives are awarded to portfolio managers annually, with a portion awarded as annual cash and a portion awarded as long term incentive. The long term portion of incentives generally carry a pro-rated vesting schedule over a three year period. For many of our portfolio managers, WellsCap further requires a portion of their annual long-term award be allocated directly into each strategy they manage through a deferred compensation vehicle. In addition, our investment team members who are eligible for long term awards also have the opportunity to invest up to 100% of their awards into investment strategies they support (through a deferred compensation vehicle).

Portfolio Manager Securities Ownership

The table below identifies the dollar range of Fund shares beneficially owned by each portfolio manager of such Fund, as of December 31, 2019.

 

Portfolio Manager/
Fund(s) Managed
  

Dollar Range of

Securities Owned

Chad Baumler/

  

Equity Fund

   A

 

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Portfolio Manager/
Fund(s) Managed
  

Dollar Range of

Securities Owned

 

Benjamin (Ben) Beneche/

  

International Fund

     A  

Adam Bloch/

  

High Income Alternatives Fund

     C  

Jonathan T. Bloom/

  

Equity Fund

     A  

Jeffrey Bronchick/

  

Smaller Companies Fund

     A  

Steven Brown/

  

High Income Alternatives Fund

     C  

Jack Chee/

  

Equity Fund

     C  

International Fund

     D  

Smaller Companies Fund

     A  

Alternative Strategies Fund

     E  

High Income Alternatives Fund

     E  

Christopher C. Davis/

  

Equity Fund

     A  

Jeremy DeGroot/

  

Equity Fund

     E  

International Fund

     E  

Smaller Companies Fund

     E  

Alternative Strategies Fund

     E  

High Income Alternatives Fund

     E  

Derek Devens/

  

High Income Alternatives Fund

     C  

Mark T. Dickherber/

  

Smaller Companies Fund

     A  

Adam Dwinells/

  

Alternative Strategies Fund

     A  

Matthew Eagan/

  

Alternative Strategies Fund

     A  

Patrick J. English/

  

Equity Fund

     A  

Roger Foltynowicz/

  

Alternative Strategies Fund

     A  

Danton Goei/

  

Equity Fund

     A  

Jeffrey Gundlach/

  

Alternative Strategies Fund

     A  

Paul Harrison/

  

Alternative Strategies Fund

     A  

David G. Herro/

  

International Fund

     D  

Andrew Hofer/

  

High Income Alternatives Fund

     A  

Neil Hohmann/

  

High Income Alternatives Fund

     A  

Rajat Jain/

  

Equity Fund

     A  

International Fund

     D  

Smaller Companies Fund

     B  

Alternative Strategies Fund

     C  

High Income Alternatives Fund

     A  

 

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Portfolio Manager/
Fund(s) Managed
  

Dollar Range of

Securities Owned

Stephen Kealhofer/

  

Alternative Strategies Fund

   A

Kevin Kearns/

  

Alternative Strategies Fund

   A

Paul Kunz/

  

High Income Alternatives Fund

   A

Mark Landecker/

  

Alternative Strategies Fund

   A

Mark Little/

  

International Fund

   A

Gregg Loprete/

  

Alternative Strategies Fund

   E

David E. Marcus/

  

International Fund

   A

Greg Mason/

  

High Income Alternatives Fund

   A

Clyde S. McGregor/

  

Equity Fund

   A

Scott Minerd/

  

High Income Alternatives Fund

   A

Scott Moore/

  

Equity Fund

   A

Todd Munn/

  

Alternative Strategies Fund

   D

Shaun P. Nicholson/

  

Smaller Companies Fund

   A

William C. Nygren/

  

Equity Fund

   A

John Orrico/

  

Alternative Strategies Fund

   A

Fabio Paolini/

  

International Fund

   A

Steven Romick/

  

Alternative Strategies Fund

   A

Frank M. Sands/

  

Equity Fund

   A

Brian Selmo/

  

Alternative Strategies Fund

   A

Jeffrey Sherman/

  

Alternative Strategies Fund

   A

A. Michael Sramek/

  

Equity Fund

   A

Jason Steuerwalt/

  

Equity Fund

   B

International Fund

   C

Alternative Strategies Fund

   D

High Income Alternatives Fund

   D

Todd Vandam/

  

Alternative Strategies Fund

   A

Anne Walsh/

  

High Income Alternatives Fund

   A

Troy Ward/

  

High Income Alternatives Fund

   A

 

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Portfolio Manager/
Fund(s) Managed
  

Dollar Range of

Securities Owned

Richard T. Weiss/

  

Equity Fund

   G

Smaller Companies Fund

   G

Key of Dollar Ranges for Table: A – None; B – $1 to $10,000; C – $10,001 to $50,000; D – $50,001 to $100,000; E – $100,001 –$500,000; F –  $500,001 – $1,000,000; G – Over $1,000,000.

PROXY VOTING POLICIES AND PROCEDURES

The Board has delegated the responsibility for voting proxies relating to portfolio securities held by the Funds to the Advisor as a part of the Advisor’s general management of the Funds, subject to the Board’s continuing oversight. The policy of the Trust is also to adopt the policies and procedures used by the Advisor to vote proxies relating to portfolio securities held by its clients.

The following information is a summary of the proxy voting policies and procedures of the Advisor and the Sub-Advisors.

LITMAN GREGORY

Advisor to the Funds

It is the Advisor’s policy to vote all proxies received by the Funds in a timely manner. In general, the Advisor will vote in accordance with its pre-determined voting guidelines (the “Guidelines”). However, the Advisor reserves the right to depart from any of the Guidelines and make a voting decision on a case-by-case basis. Although many proxy proposals will be covered by the Guidelines, the Advisor recognizes that some proposals require special consideration, and the Advisor will make a decision on a case-by-case basis in these situations. Where such a case-by-case determination is required, the Advisor’s proxy voting coordinator may, but is not required to, consult with other personnel of the Advisor to determine the appropriate action on the matter.

Unless otherwise instructed by the Funds, the Advisor may, and generally will, delegate the responsibility for voting proxies relating to the Funds’ portfolio securities to one or more of the Sub-Advisors. To the extent such responsibility is delegated to a Sub-Advisor, the Sub-Advisor shall assume the fiduciary duty and reporting responsibilities of the Advisor. Unless otherwise instructed by the Funds or the Advisor, the Sub-Advisor shall apply its own proxy voting policies and procedures.

The Advisor’s duty is to vote in the best interests of the Funds’ shareholders. In situations where the Advisor determines that a proxy proposal raises a material conflict of interest between the interests of the Advisor, the Funds’ principal underwriter, or an affiliated person of the Advisor or the principal underwriter and that of one or more Funds, the conflict shall be resolved by voting in accordance with a predetermined voting policy. However, to the extent that (1) no pre-determined voting policy applies to the specific proposal or (2) there is an applicable pre-determined voting policy, but the Advisor has discretion to deviate from such policy, the Advisor shall disclose the conflict to the Board and seek the Board’s direction or consent to the proposed vote prior to voting on such proposal.

ARES

Sub-Advisor to the High Income Alternatives Fund

Ares recognizes that proxy voting is an important right of shareholders and that reasonable care and diligence must be undertaken to ensure that such rights are properly and timely exercised. Where Ares been granted discretion by a client to exercise by proxy the voting rights of securities beneficially owned by such client, Ares will exercise all voting rights delegated to it by the client. In determining how to vote, investment professionals will consult with each other, taking into account the interests of each client as well as any potential conflicts of interest. In general, Ares will vote proxies in accordance with internally established general guidelines relating to such matters as election of directors, changes in capital structure, corporate restructurings, corporate governance, anti-takeover measures and social and corporate responsibility, unless Ares’ agreement with the client requires it to vote proxies in a certain way or Ares determined otherwise due to specific and unusual facts and circumstances with respect to a particular vote.

 

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Ares retains records pertaining to proxy voting including all proxy statements received and records of votes cast.

BBH

Sub-Advisor to the High Income Alternatives Fund

As part of BBH’s annual review of its compliance policies and procedures, BBH will consider the independent third party proxy agent’s (“Proxy Adviser’s”) (and to the extent proxy voting is delegated to a sub-adviser, such sub-adviser’s) capacity and competency to analyze proxy voting matters, whether the Proxy Adviser has an effective process for seeking input from issuers and clients to ensure current and accurate information, whether the Proxy Adviser has disclosed how it arrives at voting recommendations and the adequacy of the Proxy Adviser’s policies and procedures concerning identifying, disclosing and addressing conflicts of interests and that voting determinations are not based on potential factual errors, incompleteness or methodological weaknesses. BBH will seek to evaluate the services of the Proxy Adviser, including any material changes in services or operations and conduct a reasonable investigation into matters on which the Proxy Adviser and the sub-adviser votes to evaluate its compliance with Rule 206(4)-6 under the Advisers Act, including sampling proxy votes.

COVE STREET

Sub-Advisor to the Smaller Companies Fund

Cove Street will vote proxies on behalf of the Smaller Companies Fund in a manner that it believes is consistent with the best interests of the Smaller Companies Fund and its shareholders. Absent special circumstances, all proxies will be voted consistent with guidelines established and described in Cove Street’s Proxy Voting Policies and Procedures. A summary of Cove Street’s Proxy Voting Policies and Procedures is as follows:

 

   

Cove Street generally votes against issues that seek to entrench a board and management of a company through anti-takeover measures, staggered board terms, super majority requirements and poison pill provisions;

 

   

Cove Street is highly sensitive to any measures that potentially may dilute shareholder interests (i.e. , new issues or excessive management compensation through equity gifting);

 

   

Cove Street will not vote shares in favor of social issues unless it believes it will advance shareholder value; and

 

   

Cove Street generally votes in favor of measures that provide shareholders with greater ability to nominate directors, hold directors and management accountable for performance, and allow shareholders to directly vote on takeover proposals by third parties.

DAVIS ADVISORS

Sub-Advisor to the Equity Fund

Davis Advisors votes on behalf of its clients in matters of corporate governance through the proxy voting process. Davis Advisors takes its ownership responsibilities very seriously and believes the right to vote proxies for its clients’ holdings is a significant asset of the clients. Davis Advisors exercises its voting responsibilities as a fiduciary, solely with the goal of maximizing the value of its clients’ investments.

Davis Advisors votes proxies with a focus on the investment implications of each issue. For each proxy vote, Davis Advisors takes into consideration its duty to clients and all other relevant facts known to Davis Advisors at the time of the vote. Therefore, while these guidelines provide a framework for voting, votes are ultimately cast on a case-by-case basis.

Davis Advisors has adopted written Proxy Voting Policies and Procedures and established a Proxy Oversight Group to oversee voting policies and deal with potential conflicts of interest. In evaluating issues, the Proxy Oversight Group may consider information from many sources, including the portfolio manager for each client account, management of a company presenting a proposal, shareholder groups, and independent proxy research services.

 

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The most important factors that Davis Advisors considers in evaluating proxy issues are: (i) the company’s or management’s long-term track record of creating value for shareholders, with the recommendations of management with a good record of creating value for shareholders given more weight than those of managements with a poor record; (ii) whether, in Davis Advisors’ estimation, the current proposal being considered will significantly enhance or detract from long-term value for existing shareholders; and (iii) whether a poor record of long-term performance resulted from poor management or from factors outside of managements control.

Other factors that Davis Advisors considers may include:

(a) Shareholder oriented management.  One of the factors that Davis Advisors considers in selecting stocks for investment is the presence of shareholder-oriented management. In general, such managements will have a large ownership stake in the company. They also will have a record of taking actions and supporting policies designed to increase the value of the company’s shares and thereby enhance shareholder wealth. Davis Advisors’ research analysts are active in meeting with top management of portfolio companies and in discussing their views on policies or actions that could enhance shareholder value. Whether management shows evidence of responding to reasonable shareholder suggestions, and otherwise improving general corporate governance, is a factor that may be taken into consideration in proxy voting.

(b) Allowing responsible management teams to run the business.  Because Davis Advisors generally tries to invest with “owner oriented” managements (see above), Davis Advisors votes with the recommendation of management on most routine matters, unless circumstances such as long-standing poor performance or a change from Davis Advisors’ initial assessment indicate otherwise. Examples include the election of directors and ratification of auditors. Davis Advisors supports policies, plans and structures that give management teams appropriate latitude to run the business in the way that is most likely to maximize value for owners. Conversely, Davis Advisors opposes proposals that limit management’s ability to do this. Davis Advisors will generally vote with management on shareholder social and environmental proposals on the basis that their impact on share value is difficult to judge and is therefore best done by management.

(c) Preserve and expand the power of shareholders in areas of corporate governance.  Equity shareholders are owners of the business, and company boards and management teams are ultimately accountable to them. Davis Advisors supports policies, plans and structures that promote accountability of the board and management to owners, and align the interests of the board and management with owners. Examples include: annual election of all board members, cumulative voting, and incentive plans that are contingent on delivering value to shareholders. Davis Advisors generally opposes proposals that reduce accountability or misalign interests, including but not limited to classified boards, poison pills, excessive option plans, and repricing of options.

(d) Support compensation policies that reward management teams appropriately for performance.  Davis Advisors believes that well-thought out incentives are critical to driving long-term shareholder value creation. Management incentives ought to be aligned with the goals of long-term owners. In Davis Advisors’ view, the basic problem of skyrocketing executive compensation is not high pay for high performance, but high pay for mediocrity or worse. In situations where Davis Advisors feels that the compensation practices at companies it owns are not acceptable, Davis Advisors will exercise its discretion to vote against compensation committee members and specific compensation proposals.

Davis Advisors exercises its professional judgment in applying these principles to specific proxy votes. Davis Advisors’ Proxy Procedures and Policies provide additional explanation of the analysis Davis Advisors may conduct when applying these guiding principles to specific proxy votes.

A potential conflict of interest arises when Davis Advisors has business interests that may not be consistent with the best interests of its client. Davis Advisors’ Proxy Oversight Group is charged with resolving material potential conflicts of interest it becomes aware of. It is charged with resolving conflicts in a manner that is consistent with the best interests of clients. There are many acceptable methods of resolving potential conflicts, and the Proxy

 

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Oversight Group exercises its judgment and discretion to determine an appropriate means of resolving a potential conflict in any given situation including by the following means: (1) Votes consistent with the “General Proxy Voting Policies,” are to be consistent with the best interests of clients; (2) Davis Advisors may disclose the conflict to the client and obtain the client’s consent prior to voting the proxy; (3) Davis Advisors may obtain guidance from an independent third party; (4) the potential conflict may be immaterial; or (5) other reasonable means of resolving potential conflicts of interest to effectively insulate the decision on how to vote client proxies from the conflict.

DCI

Sub-Advisor to the Alternative Strategies Fund

DCI generally invests in fixed income securities that do not involve proxy votes. However, DCI has adopted a Proxy Voting Policy to govern situations under which DCI has responsibility for voting proxies for the Alternative Strategies Fund consistent with the best economic interests of the Alternative Strategies Fund. In the case of a proxy vote involving a security held by the Alternative Strategies Fund, it is DCI’s policy to generally vote proxies in accordance with the recommendations set forth by the issuer’s management. There may be times, however, when DCI determines that it is in the best interests of the Alternative Strategies Fund to vote against management’s recommendation. In such circumstances, the Best Execution Committee or its designee will decide how to vote the proxy at issue. DCI reserves the right, on occasion, to abstain from voting a proxy or a specific proxy item when it concludes that the cost of voting the proxy outweighs the potential benefit or when DCI otherwise believes that voting does not serve the Alternative Strategies Fund’s best interests. To the extent applicable, voting proxies in non-U.S. markets may give rise to a number of administrative issues that may prevent DCI from voting proxies for certain companies in these jurisdictions.

Were a conflict of interest to arise between DCI and the Alternative Strategies Fund regarding the outcome of a proxy vote, DCI is committed to resolving the conflict in the best interest of the Alternative Strategies Fund before it votes the proxy at issue. If the conflict is not resolvable, DCI may disclose the conflict to the Alternative Strategies Fund and obtain the Alternative Strategies Fund’s consent before voting or seek the recommendation of a third party in deciding how to vote. DCI will maintain a record of proxy voting decisions.

DOUBLELINE

Sub-Advisor to the Alternative Strategies Fund

DoubleLine determines how to vote proxies relating to portfolio securities pursuant to its written proxy voting policies and procedures, which have been adopted pursuant to Rule 206(4)-6 under the Advisers Act (the “DoubleLine Proxy Policy”). The DoubleLine Proxy Policy also applies to any voting rights and/or consent rights on behalf of the portfolio securities, with respect to debt securities, including but not limited to, plans of reorganization, and waivers and consents under applicable indentures.

The DoubleLine Proxy Policy is designed and implemented in a manner reasonably expected to ensure that voting and consent rights are exercised in the best interests of the funds managed by DoubleLine and their shareholders. Under the DoubleLine Proxy Policy, DoubleLine will review each proxy to determine whether there may be a material conflict between DoubleLine and the fund. If no conflict exists, DoubleLine will vote the proxy on a case-by-case basis in the best interest of each client under the circumstances, taking into account, but not necessarily being bound by, any recommendation made by any third party vendor that has been engaged by DoubleLine to provide recommendations on the voting of proxies.

If a material conflict does exist, DoubleLine will seek to resolve any such conflict in accordance with the DoubleLine Proxy Policy, which seeks to resolve such conflict in the relevant fund’s best interest by pursuing any one of the following courses of action: (i) convening a committee to assess and resolve the conflict; (ii) voting in accordance with the recommendation of an independent third-party service provider; (iii) voting in accordance with the instructions of the relevant fund’s board, or any committee thereof; or (iv) not voting the proxy. In voting proxies, including those in which a material conflict may be determined to exist, DoubleLine may also consider the factors and guidelines included in the DoubleLine Proxy Policy.

In certain limited circumstances, particularly in the area of structured finance, DoubleLine may enter into voting agreements or other contractual obligations that govern the voting of shares and, in such cases, will vote any proxy in accordance with such agreement or obligation.

 

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In addition, where DoubleLine determines that there are unusual costs and/or difficulties associated with voting a proxy, which more typically might be the case with respect to proxies of non-U.S. issuers, DoubleLine reserves the right to not vote a proxy unless it determines that the potential benefits of voting the proxy exceed the expected cost to the relevant fund.

DoubleLine supervises and periodically reviews its proxy voting activities and implementation of the DoubleLine Proxy Policy.

EVERMORE

Sub-Advisor to the International Fund

Evermore has adopted a set of proxy voting policies and procedures (the “Policies”) to ensure that Evermore votes proxies relating to equity securities in the best interest of clients.

In voting proxies, Evermore is guided by general fiduciary principles and seeks to act prudently and solely in the best interest of clients. Evermore attempts to consider all factors that could affect the value of the investment and will vote proxies in the manner that it believes will be consistent with efforts to maximize shareholder values. Evermore may utilize an external service provider to provide it with information and/or a recommendation with regard to proxy votes. However, such recommendations do not relieve Evermore of its responsibility for the proxy vote.

In the case of a proxy issue for which there is a stated position in the Policies, Evermore generally votes in accordance with such stated position. In the case of a proxy issue for which there is a list of factors set forth in the Policies that Evermore considers in voting on such issue, Evermore votes on a case-by-case basis in accordance with the general principles set forth above and considering such enumerated factors. In the case of a proxy issue for which there is no stated position or list of factors that Evermore considers in voting on such issue, Evermore votes on a case-by-case basis in accordance with the general principles set forth above. Issues for which there is a stated position set forth in the Policies or for which there is a list of factors set forth in the Policies that Evermore considers in voting on such issues fall into a variety of categories, including election of trustees, ratification of auditors, proxy and tender offer defenses, capital structure issues, executive and trustee compensation, mergers and corporate restructurings, and social and environmental issues. The stated position on an issue set forth in the Policies can always be superseded, subject to the duty to act solely in the best interest of the beneficial owners of accounts, by the investment management professionals responsible for the account whose shares are being voted. Issues applicable to a particular industry may cause Evermore to abandon a policy that would have otherwise applied to issuers generally. Evermore’s policy is to vote all proxies from a specific issuer in the same way for each client absent qualifying restrictions from the client.

In furtherance of Evermore’s goal to vote proxies in the best interest of clients, Evermore follows procedures designed to identify and address material conflicts that may arise between Evermore’s interests and those of its clients before voting proxies on behalf of such clients. To seek to identify conflicts of interest, Evermore reviews its relationship with the issuer of each security to determine if Evermore or any of its employees has any financial, business or personal relationship with the issuer. Evermore is also sensitive to the fact that a significant, publicized relationship between an issuer and a non- affiliate might appear to the public to influence the manner in which Evermore decides to vote a proxy with respect to such issuer.

Evermore’s CCO reviews and addresses conflicts of interest brought to his or her attention. A proxy issue that will be voted in accordance with a stated position on an issue is not brought to the attention of the CCO for a conflict of interest review because Evermore’s position is that to the extent a conflict of interest issue exists, it is resolved by voting in accordance with a pre-determined policy. With respect to a conflict of interest brought to its attention, the CCO first determines whether such conflict of interest is material. A conflict of interest is considered material to the extent that it is determined that such conflict is likely to influence, or appear to influence, Evermore’s decision-making in voting proxies.

If it is determined by the CCO that a conflict of interest is not material, Evermore may vote proxies notwithstanding the existence of the conflict. If it is determined by the CCO that a conflict of interest is material, the

 

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CCO is responsible for determining an appropriate method to resolve such conflict of interest before the proxy affected by the conflict of interest is voted. Such determination is based on the particular facts and circumstances, including the importance of the proxy issue and the nature of the conflict of interest. Methods of resolving a material conflict of interest may include, but are not limited to, disclosing the conflict to clients and obtaining their consent before voting, or suggesting to clients that they engage another party to vote the proxy on their behalf.

Evermore’s Proxy Voting Policies and Principles

Evermore’s proxy voting positions have been developed based on years of experience with proxy voting and corporate governance issues. These principles have been reviewed by various members of Evermore’s organization, including the investment team, chief operating officer, chief financial officer, chief compliance officer, operations personnel, and outside legal counsel. The Board of Trustees of the Trust will approve the proxy voting policies and procedures annually.

The following guidelines reflect what Evermore believes to be good corporate governance and behavior:

Board of Directors. The election of directors and an independent board are key to good corporate governance. Directors are expected to be competent individuals and they should be accountable and responsive to shareholders. Evermore supports an independent board of directors, and prefers that key committees such as audit, nominating, and compensation committees be comprised of independent directors. Evermore will generally vote against management efforts to classify a board and will generally support proposals to declassify the board of directors. Evermore will consider withholding votes from directors who have attended less than 75% of meetings without a valid reason. While generally in favor of separating Chairman and CEO positions, Evermore will review this issue on a case-by-case basis taking into consideration other factors including the company’s corporate governance guidelines and performance. Evermore evaluates proposals to restore or provide for cumulative voting on a case-by-case basis and considers such factors as corporate governance provisions as well as relative performance. Evermore generally will support non-binding shareholder proposals to require a majority vote standard for the election of directors; however, if these proposals are binding, Evermore will give careful review on a case-by-case basis of the potential ramifications of such implementation.

Ratification of Auditors. Evermore will closely scrutinize the independence, role, and performance of auditors. On a case-by-case basis, Evermore will examine proposals relating to non-audit relationships and non-audit fees. Evermore will also consider, on a case-by-case basis, proposals to rotate auditors, and will vote against the ratification of auditors when there is clear and compelling evidence of a lack of independence, accounting irregularities or negligence attributable to the auditors.

Management & Director Compensation. A company’s equity-based compensation plan should be in alignment with the shareholders’ long-term interests. Evermore believes that executive compensation should be directly linked to the performance of the company. Evermore evaluates plans on a case-by-case basis by considering several factors to determine whether the plan is fair and reasonable. Evermore will generally oppose plans that have the potential to be excessively dilutive, and will almost always oppose plans that are structured to allow the repricing of underwater options, or plans that have an automatic share replenishment “evergreen” feature. Evermore will generally support employee stock option plans in which the purchase price is at least 85% of fair market value, and when potential dilution is 10% or less. Severance compensation arrangements will be reviewed on a case-by-case basis, although Evermore will generally oppose “golden parachutes” that are considered excessive. Evermore will normally support proposals that require that a percentage of directors’ compensation be in the form of common stock, as it aligns their interests with those of the shareholders. Evermore will review non-binding say-on-pay proposals on a case-by-case basis, and will generally vote in favor of such proposals unless compensation is misaligned with performance and/or shareholders’ interests, the company has not provided reasonably clear disclosure regarding its compensation practices, or there are concerns with the company’s remuneration practices.

Anti-Takeover Mechanisms and Related Issues. Evermore generally opposes anti-takeover measures since they tend to reduce shareholder rights. However, as with all proxy issues, Evermore conducts an independent review of each anti-takeover proposal. On occasion, Evermore may vote with management when the investment team has concluded that the proposals are not onerous and would not harm Advisory Clients’ interests as stockholders. Evermore generally supports proposals that require shareholder rights plans (“poison pills”) to be subject to a

 

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shareholder vote. Evermore will closely evaluate shareholder rights plans on a case-by-case basis to determine whether or not they warrant support. Evermore will generally vote against any proposal to issue stock that has unequal or subordinate voting rights. In addition, Evermore generally opposes any supermajority voting requirements as well as the payment of “greenmail.” Evermore usually supports “fair price” provisions and confidential voting.

Changes to Capital Structure. Evermore realizes that a company’s financing decisions have a significant impact on its shareholders, particularly when they involve the issuance of additional shares of common or preferred stock or the assumption of additional debt. Evermore will carefully review, on a case-by-case basis, proposals by companies to increase authorized shares and the purpose for the increase. Evermore will generally not vote in favor of dual-class capital structures to increase the number of authorized shares where that class of stock would have superior voting rights. Evermore will generally vote in favor of the issuance of preferred stock in cases where the company specifies the voting, dividend, conversion and other rights of such stock and the terms of the preferred stock issuance are deemed reasonable. Evermore will review proposals seeking preemptive rights on a case-by-case basis.

Mergers and Corporate Restructuring. Mergers and acquisitions will be subject to careful review by Evermore to determine whether they would be beneficial to shareholders. Evermore will analyze various economic and strategic factors in making the final decision on a merger or acquisition. Corporate restructuring proposals are also subject to a thorough examination on a case-by-case basis.

Environmental, Social and Governance Issues. As a fiduciary, Evermore is primarily concerned about the financial interests of its advisory clients. Evermore will generally give management discretion with regard to social, environmental and ethical issues although Evermore may vote in favor of those issues that are believed to have significant economic benefits or implications. Evermore generally supports the right of shareholders to call special meetings and act by written consent. However, Evermore will review such shareholder proposals on a case-by-case basis in an effort to ensure that such proposals do not disrupt the course of business or waste company resources for the benefit of a small minority of shareholders.

Global Corporate Governance. Evermore manages investments in countries worldwide. Many of the tenets discussed above are applied to Evermore’s proxy voting decisions for international investments. However, Evermore must be flexible in these worldwide markets. Principles of good corporate governance may vary by country, given the constraints of a country’s laws and acceptable practices in the markets. As a result, it is on occasion difficult to apply a consistent set of governance practices to all issuers. As experienced money managers, Evermore’s analysts are skilled in understanding the complexities of the regions in which they specialize and are trained to analyze proxy issues germane to their regions.

Proxy Voting Procedures

Evermore utilizes the Institutional Shareholder Services Inc. (“ISS”) ProxyExchange voting and research platform to access proxy vote recommendations, research reports, execute vote instructions, and run proxy voting reports. Custodians of the Evermore’s client accounts notify ISS of any pending proxies related to such accounts. Evermore’s Investment Team reviews corporate management vote recommendations, ISS vote recommendations, and any other relevant documentation to make a final determination on how to vote for each proposal contained within a given proxy. The final proxy vote is then submitted via the ISS ProxyExchange platform. All proxy votes submitted on the ISS ProxyExchange platform are saved and may be retrieved at a later date.

FMI

Sub-Advisor to the Equity Fund

Policies

FMI will vote proxies in a manner that FMI feels best protects the interests of the common shareholder. FMI will look critically upon any issue or vote that will limit or reduce the prerogatives and/or influence of the common shareholders. To assist in its review of the proxies FMI receives, FMI may refer to the analyses and voting recommendations of an independent, third party proxy service provider (e.g., Glass, Lewis & Co., LLC, Institutional

 

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Shareholder Services Inc., etc. (each, a “Proxy Service Provider”)). While FMI may consider the analyses and recommendations provided by a Proxy Service Provider in making a final voting decision, FMI does not consider recommendations from a Proxy Service Provider to be determinative of its ultimate decision. Rather, FMI exercises its independent judgment in making voting decisions (except as discussed below).    

The following statement of policies is couched in terms of FMI’s general posture on various issues, recognizing that there are always exceptions.

Administrative Issues

FMI will generally vote in favor of the re-election of directors and the appointment of actuaries, auditors, and similar professionals. FMI will also vote in favor of programs of indemnification of directors, which are consistent with common practice. The changing of auditors raises a yellow flag, and FMI tries to determine the reasons for any change. If the change results from a dispute between the company and the auditors, and FMI feels the auditor’s position is correct, FMI will vote against making a change.

Management Entrenchment Issues

FMI will generally vote against any proposal or policy that seeks to prevent the takeover of a company that is in receipt of a bona fide offer, whether friendly or otherwise. Such anti-takeover policies may include, but are not limited to, poison pill, super-majority voting, golden parachute arrangements, and staggered board arrangements, where that represents a change from a standard board. FMI will generally vote in favor of maintaining preemptive rights for shareholders, one share/one vote, and cumulative voting rights. Generally FMI will support proposals calling for majority vote for directors and separation of the Chairman and CEO roles.

FMI will tend to vote against creation of classes of stock with superior voting rights, which protect management’s voting control despite reduced financial commitment of management to the company. FMI will evaluate proposals, such as changing state of incorporation, fiscal year, or corporate charter, in light of specific circumstances prompting the proposal, to determine whether the proposed change would reduce shareholders’ rights.

Mergers and Acquisitions

Voting on mergers, acquisitions, or spin-offs requires an evaluation of the impact of those transactions upon the company, and FMI will vote based upon its assessment of what is best for the company and therefore the shareholders. With respect to a proposed takeover of the company, FMI initially evaluates an offer for the company in terms of the fairness of the price. FMI does this in the context of a two- to three-year time horizon to avoid selling at a premium over a temporarily depressed stock price. FMI would generally vote in favor of offers that represent a fair price, paid either in cash or in exchange for liquid securities of strong acquiring firms. FMI will oppose offers which FMI feels represent an unfair price, and FMI will oppose offers where shareholders are asked to finance a takeover by taking back debt or preferred stock of questionable quality. FMI tends to be skeptical of management-led leveraged buyouts, as FMI feels it is very difficult for them to be objective as to the value of the company when they are the purchaser.

Management Incentives

FMI strongly favors programs that encourage outright stock ownership as opposed to conventional option plans. In limited cases, when the options are earmarked for lower level employees and the absolute amount is modest, FMI will vote affirmatively. FMI generally votes against traditional stock option plans. Typical option plans result in a misalignment of management and shareholder interests, due to the asymmetrical risk profile of an option. Since there is no downside risk, management has an incentive to take excessive risk. In short, executives tend to cease thinking like true owners. FMI likes to see senior and executive level managers own stock in multiples of their annual salary.

Ideally FMI prefers to see bonuses and incentive awards paid in stock (with a vesting period), rather than cash or options. FMI looks for stock award plans to be based on tangible operating performance metrics, such as return-on-invested capital or profit margin.

 

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Additionally, when FMI deems management as excessively compensated, FMI will likely vote against any kind of additional reward plan, even if the plan by itself looks reasonable.

Social Issues

It is FMI’s belief that socially responsible companies have, over time, provided superior investment returns for long-term investors. Fair hiring and inclusiveness with respect to women and minorities create a positive corporate culture that offers greater opportunities for growth for all employees, with concomitant rewards for shareholders of the company. A responsible corporate policy with respect to environmental issues is critical to all of us.

FMI’s general posture with respect to social issues is to support management so long as they are complying with the spirit of the laws and regulations of the United States of America. Shareholder proposals must be considered on a case-by-case basis. The number of specific issues that FMI has seen raised on proxy votes with respect to social and labor issues are increasing. Since there is much “gray” and little “black and white” with respect to the level of corporate commitment to many of the social issues, and since FMI is generally supportive of the goals and policies of the companies that FMI owns, FMI would tend to vote in favor of management on these issues absent evidence that the company is abusing FMI’s trust, or direction from FMI’s clients to the contrary. If it is the desire of a client to provide input and direction on the voting of proxies with respect to certain issues, FMI would be more than happy to advise them when such issues arise and to defer to their wishes in voting on those issues.

Conflicts of Interest

FMI strives to ensure that all conflicts of interest are resolved in the best interests of its clients. When there is an apparent conflict of interest, or the appearance of a conflict of interest (e.g., where FMI may receive fees from a company for advisory or other services at the same time that FMI has investments in the stock of that company), FMI will vote with management on those issues on which brokerage firms are allowed to vote without customer approval under NYSE rules (e.g., directors and auditors). In all other cases involving a conflict or appearance of a conflict, FMI will cause the proxies to be voted in accordance with the recommendations of a Proxy Service Provider.

Procedures

FMI has the responsibility and authority to vote proxies with respect to the securities under its management unless the right to vote proxies is expressly reserved for the client, plan trustees or other plan fiduciary. FMI will advise the pension committee, board of trustees, custodian or client to forward all proxy materials to its offices and will take reasonable steps to ensure that they are received. FMI will review the issues to be voted upon and vote the proxies in accordance with the policies stated above, unless directed otherwise by the client. FMI will maintain and monitor all meeting, ballot, account and vote information, and make this information available to clients upon request.

In situations where securities held in a portfolio are not generally owned “across the board” in all client accounts with the same investment style (i.e., small holdings), FMI will vote those proxies based upon the management’s recommendations.

Proxies cannot be voted on any securities that have been loaned out by the client. Where securities have been loaned out and a vote is required regarding a material event, FMI will attempt to recall the loaned security in order to vote the proxy. This does not apply to “small holdings” as defined above. Please note that in certain circumstances, securities on loan may not be recalled due to circumstances beyond the control of FMI.

FIRST PACIFIC

Sub-Advisor to the Alternative Strategies Fund

First Pacific has implemented Proxy Voting Policies and Procedures, which underscore First Pacific’s concern that all proxy voting decisions be made in the best interests of the funds it manages and that First Pacific act in a prudent and diligent manner intended to enhance the economic value of the assets of such funds. First Pacific has delegated to Institutional Shareholder Services (“ISS”), an independent service provider, the administration of proxy voting for the portfolio securities held in the accounts managed by First Pacific, including the Alternative Strategies Fund, subject to First Pacific’s continuing oversight.

 

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Where a proxy proposal raises a material conflict between First Pacific’s interests and a fund’s interests, First Pacific will resolve the conflict as follows: First Pacific will convene an internal group of senior First Pacific employees who are independent from the conflict of interest issue and after review of the issue and any associated documentation, the internal group will propose a course of action that they determine is in the best interest of the applicable First Pacific client(s). The internal group may take, but is not limited to, the following courses of action: (i) First Pacific may consult with the board of directors for a course of action; (ii) First Pacific may vote in accordance with the recommendation of its proxy voting service provider; (iii) First Pacific may seek client consent for the vote recommended by the Portfolio Manager; (iv) First Pacific may engage an independent third party to provide a recommendation on how to vote the proxy; or (iv) First Pacific may abstain from voting the proxy. First Pacific will vote the proxy or abstain from voting the proxy pursuant to the internal group’s instructions.

In certain instances, First Pacific may elect not to vote a proxy or otherwise be unable to vote a proxy on a client’s behalf. Such instances may include, but are not limited to: (i) a de minimis number of shares held; (ii) potential adverse impact on the client’s portfolio of voting such proxy (e.g., share blocking or short-term prohibitions on selling the issuer’s shares after the vote); or (iii) logistical or other considerations related to non-U.S. issuers (e.g., where an investment company’s legal structure may not be recognized in the relevant jurisdiction). In addition, First Pacific generally will not seek to recall securities that are out on loan for the purpose of voting the securities unless it is in the Fund’s best interests to do so.

GUGGENHEIM

Sub-Advisor to the High Income Alternatives Fund

Guggenheim’s Proxy Voting Policies and Procedures (in this section, “Procedures”) are designed to ensure that proxies are voted in the best interests of its clients. Where Guggenheim has been delegated the responsibility for voting proxies, it will take reasonable steps under the Procedures to ensure that proxies are received and voted in the best long-term interests of its clients. Guggenheim will consider all relevant factors without giving undue weight to the opinions of other individuals or groups who may have an economic interest in the outcome of the proxy vote.

The financial interest of Guggenheim’s clients is the primary consideration in determining how proxies should be voted. Any material conflicts of interest between Guggenheim and its clients with respect to proxy voting are resolved in the best interests of the clients. Corporate actions, such as rights offerings, tender offers, and stock splits or actions initiated by holders of a security rather than the issuer (such as reset rights for a CLO) or legal actions, such as bankruptcy proceedings or class action lawsuits are outside the scope of the Procedures.

Guggenheim has adopted the proxy voting guidelines of an outside proxy voting firm, ISS, as Guggenheim’s proxy voting guidelines (in this section, “Guidelines”). Guggenheim has also engaged ISS to act as agent for the proxy process, to maintain records on proxy votes for its clients, and to provide independent research on corporate governance, proxy and corporate responsibility issues. At inception, Guggenheim will assess the Procedures to determine which Guidelines will be followed. Guggenheim reviews the Guidelines and conducts a due diligence assessment of ISS and the performance of its duties as agent at least annually. Guggenheim may override the Guidelines recommending a vote on a particular proposal if Guggenheim determines a different vote to be in the best interest of the client or if required to deviate under applicable law, rule or regulation. If a proposal is voted contrary to the ISS Guidelines, the reasons will be documented in writing by Guggenheim. Guggenheim seeks to vote securities in the best interest of clients, and will apply the Guidelines regardless whether the issuer, a third party, or both solicit Guggenheim’s vote.

In the absence of contrary instructions received from Guggenheim, ISS will vote proxies in accordance with the Guidelines, as such Guidelines may be revised from time to time. Guggenheim will typically vote proxies itself in two scenarios: (1) the Guidelines do not address the proposal; and (2) Guggenheim has decided to vote some or all of the shares contrary to the Guidelines.

Proposals not addressed by Guidelines: ISS will notify Guggenheim of all proxy proposals that do not fall within the Guidelines (i.e., proposals which are either not addressed in the Guidelines or proposals for which

 

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Guggenheim has indicated that a decision will be made on a case-by-case basis, such as fixed-income securities). If Guggenheim determines that there are no material conflicts of interest, the proposal will be voted in accordance with the recommendation resulting from Guggenheim’s standard process. If there is a material conflict of interest, Guggenheim will follow the procedures outlined below.

Proposal to be voted contrary to Guidelines: When Guggenheim decides that a proposal should be voted contrary to the Guidelines, because it believes it is in the best interest of the client to do so, Guggenheim will determine whether there is a material conflict of interest as to that proposal. If Guggenheim determines that there is no material conflict of interest, Guggenheim will notify to override the proposal from ISS. If there is a material conflict of interest, Guggenheim will follow the procedures outlined below.

Guggenheim occasionally will be subject to conflicts of interest in the voting of proxies due to relationships it maintains with persons having an interest in the outcome of particular votes. Common examples of conflicts in the voting of proxies are: (a) Guggenheim or an affiliate of Guggenheim provides or is seeking to provide services to the company on whose behalf proxies are being solicited, (b) an employee of Guggenheim or its affiliate has a personal relationship with the company’s management or another proponent of a proxy issue, or (c) an immediate family member of the employee of Guggenheim or its affiliates is a director or executive officer of the company. If a material conflict of interest exists as determined by Guggenheim, Guggenheim will attempt to resolve the conflict consistent with the procedures below. In certain cases, Guggenheim occasionally engages and appoints an independent party to provide independent analysis or recommendations with respect to consents, proxy voting, or other similar shareholder or debt holder rights decision (or a series of consents, votes or similar decisions) pertaining to its clients.

If the Guidelines do not address a proposal, or Guggenheim wishes to vote a proposal contrary to the Guidelines, or ISS does not provide a recommendation on a proposal, and Guggenheim has a material conflict of interest as to the vote, then Guggenheim will seek to resolve the conflict in any of the following ways:

 

   

Refer Proposal to the Client – Guggenheim may refer the proposal to the client and obtain instructions from the client on how to vote the proxy relating to that proposal.

 

   

Obtain Client Ratification – If Guggenheim is in a position to disclose the conflict to the client (i.e., such information is not confidential), Guggenheim may determine how it proposes to vote the proposal on which it has a conflict, fully disclose the nature of the conflict to the client, and obtain the client’s consent for how Guggenheim will vote on the proposal (or otherwise obtain instructions from the client on how the proxy on the proposal should be voted).

 

   

Abstain from voting.

 

   

Use another Independent Third Party for All Proposals – Subject to any client imposed proxy voting policies, Guggenheim may vote all proposals in a single proxy according to the policies of an independent third party other than ISS (or have the third party vote such proxies).

 

   

Use another Independent Third Party to Vote Only the Specific Proposals that Involve a Conflict – Subject to any client-imposed proxy voting policies, Guggenheim may use an independent third party other than ISS to recommend how the proxy for specific proposals that involve a conflict should be voted (or have the third party vote such proxies).

The method selected by Guggenheim to resolve the conflict may vary from one instance to another depending upon the facts and circumstances of the situation, but in each case, consistent with its duty of loyalty and care.

Clients may obtain information about how Guggenheim voted proxies on their behalf by contacting Guggenheim.

HARRIS

Sub-Advisor to the Equity Fund and International Fund

Harris believes that proxy voting rights are valuable portfolio assets and an important part of the investment process, and Harris exercises voting responsibilities as a fiduciary solely with the goals of serving the best interests of Harris’ clients in their capacity as shareholders of a company. As an investment manager, Harris is primarily concerned

 

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with maximizing the value of its clients’ investment portfolios. Harris has long been active in voting proxies on behalf of shareholders in the belief that the proxy voting process is a significant means of addressing crucial corporate governance issues and encouraging corporate actions that are believed to enhance shareholder value. Harris has a Proxy Voting Committee comprised of investment professionals that reviews and recommends policies and procedures regarding proxy voting and ensures compliance with those policies.

In determining the vote on any proposal, the Proxy Voting Committee will consider the proposal’s expected impact on shareholder value and will not consider any benefit to Harris, its employees, its affiliates or any other person, other than benefits to the owners of the securities to be voted, as shareholders.

Harris considers the reputation, experience and competence of a company’s management when it evaluates the merits of investing in a particular company, and invests in companies in which Harris believes management goals and shareholder goals are aligned. When this happens, by definition, voting with management is generally the same as voting to maximize the expected value of Harris’ investment. Accordingly, on most issues, Harris casts votes in accordance with management’s recommendations. This does not mean that Harris does not care about corporate governance. Rather, it is confirmation that Harris’ process of investing with shareholder aligned management is working. Proxy voting is not always black and white, however, and reasonable people can disagree over some matters of business judgment. When Harris believes management’s position on a particular issue is not in the best interests of its clients, Harris will vote contrary to management’s recommendation.

The proxy voting guidelines below summarize Harris’ position on various issues of concern to investors and give a general indication of how proxies on portfolio securities will be voted on proposals dealing with particular issues. Harris will generally vote proxies in accordance with these guidelines, except as otherwise determined by the Proxy Voting Committee, unless the client has specifically instructed Harris to vote otherwise. Harris’ voting guidelines generally address issues related to boards of directors, auditors, equity based compensation plans, and shareholder rights.

 

   

With respect to a company’s board of directors, Harris believes that boards should have a majority of independent directors and that audit, compensation and nominating committees should generally consist solely of independent directors, and will usually vote in favor of proposals that ensure such independence.

 

   

With respect to auditors, Harris believes that the relationship between an issuer and its auditors should be limited primarily to the audit engagement, although it may include certain closely-related activities such as financial statement preparation and tax-related services that do not raise any appearance of impaired independence.

 

   

With respect to equity based compensation plans, Harris believes that appropriately designed equity-based compensation plans approved by shareholders can be an effective way to align the interests of long-term shareholders and the interests of management, employees and directors. However, Harris is opposed to plans that substantially dilute its clients’ ownership interest in the company, provide participants with excessive awards or have inherently objectionable structural features.

 

   

With respect to corporate structure and shareholder rights, Harris generally believes that all shareholders should have an equal voice and that barriers which limit the ability of shareholders to effect change and to realize full value are not desirable.

 

   

With respect to social responsibility issues, Harris believes that matters related to a company’s day-to-day business operations are primarily the responsibility of management and should be reviewed and supervised solely by the company’s board of directors. Harris is focused on maximizing long-term shareholder value and typically will vote against shareholder proposals requesting that a company disclose or amend certain business practices unless Harris believes the proposal would have a substantial positive economic impact on the company.

The Proxy Voting Committee, in consultation with Harris’ Legal and Compliance Departments, is responsible for monitoring and resolving any possible material conflicts of interest with respect to proxy voting. A conflict of interest may exist, for example, when: (i) proxy votes regarding non-routine matters are solicited by an

 

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issuer who has an institutional separate account relationship with Harris, or Harris is actively soliciting business from the issuer; (ii) when Harris, is aware that a proponent of a proxy proposal has a business relationship with Harris or Harris is actively soliciting such business (e.g., an employee group for which Harris manages money); (iii) when Harris is aware that it has business relationships with participants in proxy contests, corporate directors or director candidates; or (iv) when Harris is aware that a Harris employee has a personal interest in the outcome of a particular matter before shareholders (e.g., a Harris executive has an immediate family member who serves as a director of a company).

Harris is committed to resolving any such conflicts in its clients’ collective best interest, and accordingly, will vote pursuant to the Guidelines set forth in the Proxy Voting Policy when conflicts of interest arise. However, if Harris believes that voting in accordance with a Guideline is not in the best interest of clients under the particular facts and circumstances presented, or if the proposal is not addressed by the Guidelines, then Harris will vote in accordance with the guidance of ISS. If ISS has not provided guidance with respect to the proposal or if Harris believes the recommendation of ISS is not in the best interests of clients, then the Proxy Voting Committee will refer the matter to (1) the Executive Committee of the Board of Trustees of Harris Associates Investment Trust for a determination of how shares held in the Oakmark Funds will be voted, and (2) the Proxy Voting Conflicts Committee consisting of Harris’ General Counsel, Chief Compliance Officer and Chief Financial Officer for a determination of how shares held in all other client accounts will be voted. Each of those committees will keep a written record of the basis for its decision.

LAZARD

Sub-Advisor to the International Fund

Introduction

Lazard is a global investment firm that provides investment management services for a variety of clients. As a registered investment advisor, Lazard has a fiduciary obligation to vote proxies in the best interests of its clients. Lazard’s Proxy Voting Policy has been developed with the goal of maximizing the long term shareholder value.

Lazard does not delegate voting authority to any proxy advisory service, but rather retains complete authority for voting all proxies delegated to it. Lazard’s policy is generally to vote all meetings and all proposals; and generally to vote all proxies for a given proposal the same way for all clients. The Proxy Voting Policy is also designed to address potential material conflicts of interest associated with proxy voting, and does so principally in setting approved guidelines for various common proposals.

Proxy Operations Department

Lazard’s proxy voting process is administered by members of its Operations Department (Proxy Administration Team). Oversight of the process is provided by Lazard’s Legal/Compliance Department and Lazard’s Proxy Committee.

Proxy Committee

Lazard’s Proxy Committee is comprised of senior investment professionals, members of the Legal/Compliance Department and other Lazard personnel. The Proxy Committee meets regularly, generally on a quarterly basis, to review this Policy and other matters relating to the firm’s proxy voting functions. Meetings may be convened more frequently (for example, to discuss a specific proxy voting proposal) as needed.

Role of Third Parties

Lazard currently subscribes to advisory and other proxy voting services provided by Institutional Shareholder Services, Inc. and by Glass, Lewis & Co. These proxy advisory services provide independent analysis and recommendations regarding various companies’ proxy proposals. While this research serves to help improve Lazard’s understanding of the issues surrounding a company’s proxy proposals, Lazard’s investment professionals are ultimately responsible for providing the vote recommendation for a given non-routine proposal. Voting for each agenda of each meeting is instructed specifically by Lazard in accordance with the Proxy Voting Policy. ISS also provides administrative services related to proxy voting such as a web-based platform for proxy voting, ballot processing, recordkeeping and reporting.

 

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Voting Process

Lazard votes on behalf of its clients according to proxy voting guidelines approved by the Proxy Committee (the “Approved Guidelines”). The Approved Guidelines determine whether a specific agenda item should be voted ‘For,’ ‘Against,’ or is to be considered on a case-by case basis. The Proxy Administration Team ensures that investment professionals responsible for proxy voting are aware of the Approved Guidelines for each proposal. Voting on a proposal in a manner that is inconsistent with an Approved Guideline requires the approval of the Proxy Committee.

With respect to proposals to be voted on a case-by-case basis, the Proxy Administration Team will consult with relevant investment professionals prior to determining how to vote on a proposal. Lazard generally will treat proxy votes and voting intentions as confidential in the period before votes have been cast, and for appropriate time periods thereafter.

Conflicts of Interest

Meetings that pose a potential material conflict of interest for Lazard are voted in accordance with Approved Guidelines. Where the Approved Guideline is to vote on a case-by-case basis, Lazard will vote in accordance with the majority recommendation of the independent proxy services. Potential material conflicts of interest include:

Lazard manages the company’s pension plan;

The proponent of a shareholder proposal is a Lazard client;

An employee of Lazard (or an affiliate) sits on a company’s board of directors;

An affiliate of Lazard serves as financial advisor or provides other services to the company; or

A Lazard employee has a material relationship with the company.

“Conflict Meetings” are voted in accordance with the Lazard Approved Guidelines. In situations where the Approved Guideline is to vote case-by-case and a material conflict of interest appears to exist, Lazard’s policy is to vote the proxy item according to the majority recommendation of the independent proxy services to which we subscribe.

Voting Exceptions

It is Lazard’s intention to vote all proposals at every meeting. However, there are instances when voting is not practical or is not, in Lazard’s view, in the best interests of its clients. Lazard does not generally vote proxies for securities loaned by clients through a custodian’s stock lending program.

Environmental, Social and Corporate Governance

Lazard has an Environmental, Social and Corporate Governance (ESG) Policy, which outlines Lazard’s approach to ESG and how Lazard’s investment professionals take ESG issues into account as a part of the investment process. Lazard recognizes that ESG issues can affect the valuation of the companies that it invests in on its clients’ behalf. As a result, Lazard takes these factors into consideration when voting, and, consistent with its fiduciary duty, votes proposals in a way Lazard believes will increase shareholder value.

LOOMIS SAYLES

Sub-Advisor to the Alternative Strategies Fund

Loomis Sayles has adopted and implemented policies and procedures (“Procedures”) to ensure that, where it has voting authority, proxy matters are handled in the best interest of clients, in accordance with Loomis Sayles’ fiduciary duty, and all applicable law and regulations. The Procedures, as implemented by the Loomis Sayles Proxy Committee are intended to support good corporate governance, including those corporate practices that address environmental and social issues (“ESG Matter”), in all cases with the objective of protecting shareholder interests and maximizing shareholder value.

Loomis Sayles uses the services of third parties (“Proxy Voting Services”) to provide research, analysis and voting recommendations and to administer the process of voting proxies for those clients for which Loomis Sayles has voting authority. One of Loomis Sayles’ Proxy Voting Services provides vote recommendations and/or analysis to Loomis Sayles based on the Proxy Voting Service’s own research. Loomis Sayles will generally follow its express policy with input from the Proxy Voting Service unless Loomis Sayles’ Proxy Committee determines that the client’s

 

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best interests are served by voting otherwise. All issues presented for shareholder vote are subject to the oversight of the Proxy Committees either directly or by application of this policy. All non-routine issues will generally be considered directly by the Proxy Committee and, when necessary, the investment professionals responsible for an account holding the security, and will be voted in the best investment interests of the clients. All routine “for” and “against” issues will be voted according to this policy unless special factors require that they be considered by the Proxy Committee and, when necessary, the investment professionals responsible for an account holding the security. Loomis Sayles’ Proxy Committee has established these routine policies in what it believes are the best investment interests of Loomis Sayles’ clients.

The Proxy Committee’s specific responsibilities include the following: (1) the development, authorization, implementation and updating of the Procedures including an annual review of the Procedures, existing voting guidelines and the proxy voting process in general, (2) oversight of the proxy voting process including oversight of the vote on proposals according to the predetermined policies in the voting guidelines, directing the vote on proposals where there is reason not to vote according to the predetermined policies in the voting guidelines or where proposals require special consideration, and consultation with the portfolio managers and analysts for the fund holding the security when necessary or appropriate and, (3) engagement and oversight of third-party vendors, including Proxy Voting Services.

Loomis Sayles has established policies and procedures to ensure that proxies are voted in its clients’ best interest and are not affected by any possible conflicts of interests. First, except in certain limited instances, Loomis Sayles votes in accordance with its pre-determined policies set forth in the Procedures. Second, where these Procedures allow for discretion, Loomis Sayles will generally consider the recommendations of the Proxy Voting Services in making its voting decisions. However, if the Proxy Committee determines that the Proxy Voting Services’ recommendation is not in the best interests of its clients, then the Proxy Committee may use its discretion to vote against the Proxy Voting Services’ recommendation, but only after taking the following steps: (1) conducting a review for any material conflict of interest Loomis Sayles may have; and, (2) if any material conflict is found to exist, excluding anyone at Loomis Sayles who is subject to that conflict of interest from participating in the voting decision in any way. However, if deemed necessary or appropriate by the Proxy Committee after full disclosure of any conflict, that person may provide information, opinions or recommendations on any proposal to the Proxy Committee. In such event, prior to directing any vote, the Proxy Committee will make reasonable efforts to obtain and consider information, opinions and recommendations from or about the opposing position.

NEUBERGER BERMAN

Sub-Advisor to the High Income Alternatives Fund

Neuberger Berman has implemented written Proxy Voting Policies and Procedures (the “Proxy Voting Policy”) that are designed to reasonably ensure that Neuberger Berman votes proxies prudently and in the best interest of its advisory clients for whom Neuberger Berman has voting authority. The Proxy Voting Policy also describes how Neuberger Berman addresses any conflicts that may arise between its interests and those of its clients with respect to proxy voting. The following is a summary of the Proxy Voting Policy.

Neuberger Berman’s Governance and Proxy Committee (“Proxy Committee”) is responsible for developing, authorizing, implementing and updating the Proxy Voting Policy, administering and overseeing the proxy voting process, and engaging and overseeing any independent third-party vendors as voting delegates to review, monitor and/or vote proxies. In order to apply the Proxy Voting Policy noted above in a timely and consistent manner, Neuberger Berman utilizes Glass, Lewis & Co. LLC (“Glass Lewis”) to vote proxies in accordance with Neuberger Berman’s voting guidelines, or in instances where a material conflict has been determined to exist, in accordance with the voting recommendations of Glass Lewis.

Neuberger Berman retains final authority and fiduciary responsibility for proxy voting. Neuberger Berman believes that this process is reasonably designed to address material conflicts of interest that may arise between Neuberger Berman and a client as to how proxies are voted.

In the event that an investment professional at Neuberger Berman believes that it is in the best interest of a client or clients to vote proxies in a manner inconsistent with Neuberger Berman’s proxy voting guidelines, the Proxy Committee will review information submitted by the investment professional to determine that there is no material conflict of interest between Neuberger Berman and the client with respect to the voting of the proxy in the requested manner.

 

 

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If the Proxy Committee determines that the voting of a proxy as recommended by the investment professional would not be appropriate. the Proxy Committee shall: (i) take no further action, in which case Glass Lewis shall vote such proxy in accordance with the proxy voting guidelines; (ii) disclose such conflict to the client or clients and obtain written direction from the client as to how to vote the proxy; (iii) suggest that the client or clients engage another party to determine how to vote the proxy; or (iv) engage another independent third party to determine how to vote the proxy.

NUANCE

Sub-Advisor to the Equity Fund

It is Nuance’s policy, where it has accepted responsibility to vote proxies on behalf a particular client, to vote such proxies in the best interest of its clients and ensure that the vote is not the product of an actual or potential conflict of interest. For client’s that are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), it is Nuance’s policy to follow the provisions of any ERISA plan’s governing documents in the voting of plan securities, unless it determines that to do so would breach its fiduciary duties under ERISA.

Responsibility

Where Nuance has accepted responsibility to vote proxies on behalf a particular client, the Co-Chief Investment Officer is responsible for ensuring that proxies are voted in a manner consistent with the proxy voting guidelines adopted by Nuance (the “Proxy Voting Guidelines”) and Nuance’s policies and procedures.

Procedures

Nuance may vote client proxies where a client requests and Nuance accepts such responsibility, or in the case of an employee benefit plan, as defined by ERISA, where such responsibility has been properly delegated to, and assumed by, Nuance. In such circumstances Nuance will only cast proxy votes in a manner consistent with the best interest of its clients or, to the extent applicable, their beneficiaries. Nuance shall, in its Form ADV, generally disclose to clients information about these policies and procedures and how clients may obtain information on how Nuance voted their proxies when applicable. At any time, a client may contact Nuance to request information about how it voted proxies for their securities. It is generally Nuance’s policy not to disclose its proxy voting records to unaffiliated third parties or special interest groups.

Nuance’s Trading & Analytics Departments will be responsible for monitoring corporate actions and ensuring that proxies are submitted in a timely manner. Nuance may delegate the responsibility to vote client proxies to one or more persons affiliated with Nuance (such person(s) are hereafter collectively referred to as “Responsible Voting Parties”) consistent with the Proxy Voting Guidelines. Specifically, when Nuance receives proxy proposals where the Proxy Voting Guidelines outline its general position as voting either “for” or “against,” the proxy will be voted by one of the Responsible Voting Parties in accordance with Nuance’s Proxy Voting Guidelines. When Nuance receives proxy proposals where the Proxy Voting Guidelines do not contemplate the issue or otherwise outline its general position as voting on a case-by-case basis, the proxy will be forwarded to the Proxy Voting Committee, which will review the proposal and either vote the proxy or instruct one of the Responsible Voting Parties on how to vote the proxy.

It is intended that the Proxy Voting Guidelines will be applied with a measure of flexibility. Accordingly, except as otherwise provided in these policies and procedures, the Responsible Voting Parties may vote a proxy contrary to the Proxy Voting Guidelines if, in the sole determination of the Proxy Voting Committee, it is determined that such action is in the best interest of Nuance’s clients. In the exercise of such discretion, the Proxy Voting Committee may take into account a wide array of factors relating to the matter under consideration, the nature of the proposal, and the company involved. Similarly, poor past performance, uncertainties about management and future directions, and other factors may lead to a conclusion that particular proposals by an issuer present unacceptable investment risks and should not be supported. In addition, the proposals should be evaluated in context. For example, a particular proposal may be acceptable standing alone, but objectionable when part of an existing or proposed package, such as where the effect may be to entrench management. Special circumstances or instructions from clients may also justify casting different votes for different clients with respect to the same proxy vote.

 

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The Responsible Voting Parties will document the rationale for all proxies voted contrary to the Proxy Voting Guidelines. Such information will be maintained as part of Nuance’s recordkeeping process. In performing its responsibilities the Proxy Voting Committee may consider information from one or more sources including, but not limited to, management of the company presenting the proposal, shareholder groups, legal counsel, and independent proxy research services. In all cases, however, the ultimate decisions on how to vote proxies are made by the Proxy Voting Committee.

Conflicts of Interest

Nuance may occasionally be subject to conflicts of interest in the voting of proxies due to business or personal relationships it maintains with persons having an interest in the outcome of certain votes. For example, Nuance may provide services to accounts owned or controlled by companies whose management is soliciting proxies. Nuance, along with any affiliates and/or employees, may also occasionally have business or personal relationships with other proponents of proxy proposals, participants in proxy contests, corporate directors, or candidates for directorships.

If the Responsible Voting Parties become aware of any potential or actual conflict of interest relating to a particular proxy proposal, they will promptly report such conflict to the Proxy Voting Committee. Conflicts of interest will be handled in various ways depending on their type and materiality of the conflict. Nuance will take the following steps to ensure that its proxy voting decisions are made in the best interest of its clients and are not the product of such conflict:

Where the Proxy Voting Guidelines outline Nuance’s voting position, as either “for” or “against” such proxy proposal, voting will be in accordance with the its Proxy Voting Guidelines.

Where the Proxy Voting Guidelines outline Nuance’s voting position to be determined on a “case-by-case” basis for such proxy proposal, or such proposal is not contemplated in the Proxy Voting Guidelines, then one of the two following methods will be selected by the Proxy Voting Committee depending upon the facts and circumstances of each situation and the requirements of applicable law:

 

   

Vote the proxy in accordance with the voting recommendation of a non-affiliated third party vendor; or

 

   

Provide the client with sufficient information regarding the proxy proposal and obtain the client’s consent or direction before voting.

Third Party Delegation

Nuance may delegate, to a non-affiliated third-party vendor, the responsibility to review proxy proposals and make voting recommendations to Nuance. The Chief Compliance Officer will ensure that any third party recommendations followed will be consistent with the Proxy Voting Guidelines. In all cases, however, the ultimate decisions on how to vote proxies are made by the Proxy Voting Committee.

Special Circumstances

Nuance may choose not to vote proxies in certain situations or for certain accounts, such as: (i) where a client has informed Nuance that they wish to retain the right to vote the proxy; (ii) where Nuance deems the cost of voting the proxy would exceed any anticipated benefit to the client; (iii) where a proxy is received for a client that has terminated Nuance’s services; (iv) where a proxy is received for a security that Nuance no longer manages (i.e., Nuance had previously sold the entire position); and/or (v) where the exercise of voting rights could restrict the ability of an account’s portfolio manager to freely trade the security in question (as is the case, for example, in certain foreign jurisdictions known as “blocking markets”).

In addition, certain accounts over which Nuance has proxy-voting discretion may participate in securities lending programs administered by the custodian or a third party. Because the title to loaned securities passes to the borrower, Nuance will be unable to vote any security that is out on loan to a borrower on a proxy record date.

 

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PICTET

Sub-Advisor to the International Fund

Pictet uses the services of third party specialists to assist it in proxy voting, including the provision of background research on corporate governance, voting recommendation and transmission of ballots. Voting recommendations are based on Voting Guidelines defined by Pictet and cover matters that are commonly submitted to shareholders, including but not limited to, issues relating to the board of directors, capital structure, auditors, mergers and corporate restructuring. Pictet always reserves the right to deviate from third-party voting recommendations on a case-by-case basis in order to act in the best interests of its clients. Proxy voting statistics are available upon request.

SANDS CAPITAL

Sub-Advisor to the Equity Fund

Sands’ policies and procedures are designed to ensure that Sands is administering proxy voting matters in a manner consistent with the best interests of client and with the firm’s fiduciary duties under applicable law. Sands seeks to discharge the firm’s fiduciary duty to clients for whom Sands has proxy voting authority by monitoring corporate events and voting proxies solely in the best interests of clients. In voting proxies, Sands is neither an activist in corporate governance nor an automatic supporter of management. However, because Sands believes that the management teams of most companies it invests in generally seek to serve shareholder interests, Sands believes that voting proxy proposals in the client’s best economic interests usually means voting with the recommendations of these management teams. Accordingly, Sands believes that the recommendation of management on any issue should be given substantial weight in determining how proxy issues are resolved.    

Sands has established a Proxy Committee that is responsible for (i) the oversight and administration of proxy voting on behalf of Sands’ clients, including developing, authorizing, implementing and updating Sands’ proxy voting policies and procedures; (ii) overseeing the proxy voting process; and (iii) engaging and overseeing any third party service provider as voting agent to receive proxy statements and/or to provide information, research and other services intended to facilitate the proxy voting decisions made by Sands. The Proxy Committee has established guidelines that are applied generally and not absolutely, such that Sands’ evaluation of each proposal will be performed in the context of the guidelines considering the circumstances of the company whose proxy is being voted. In evaluating a proxy proposal, a research team member may consider information from many sources, including management of the company, shareholder groups and independent proxy research services.

For routine matters which generally means that such matter will not measurably change the structure, management, control or operation of the company and are consistent with customary industry standards and practices, as well as the laws of the state of incorporation applicable to the company, Sands will vote in accordance with the recommendation of the company’s management, unless, in Sands’ opinion, such recommendation is not conducive to long term value creation. Non-routine matters involve a variety of issues including, but not limited to, directors’ liability and indemnity proposals, executive compensation plans, mergers, acquisitions, and other restructurings submitted to a shareholder vote, anti-takeover and related provisions and shareholder proposals and will require company specific and a case-by-case review and analysis. With respect to matters that do not fit in the categories stated above, Sands will exercise its best judgment as a fiduciary to vote in accordance with the best interest of its clients.

When a Sands client participates in a securities lending program, Sands will not be able to vote the proxy of the shares out on loan. Sands will generally not seek to recall for voting the client shares on loan. However, under rare circumstances, for voting issues that may have a particularly significant impact on the investment, Sands may request a client to recall securities that are on loan if it is determined that the benefit of voting outweighs the costs and lost revenue to the client and the administrative burden of retrieving the securities. The research team member who is responsible for voting the proxy will notify the Proxy Committee in the event he/she believes a recall of loaned securities is necessary. In determining whether a recall of a security is warranted (“Significant Event”), Sands will take into consideration whether the benefit of the vote would be in the client’s best interest despite the costs and the lost revenue to the client and the administrative burden of retrieving the securities. Sands may utilize third-party service providers to assist it in identifying and evaluating whether an event constitutes a Significant Event. The Proxy Committee will review the proxy proposals that have been determined to be Significant Events from time to time and will adjust the foregoing standard as it deems necessary.

 

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For purposes of identifying conflicts, the Proxy Committee will rely on publicly available information about a company and its affiliates, information about the company and its affiliates that is generally known by Sands’ employees and other information known by a member of the Proxy Committee. The Proxy Voting Committee may determine that Sands has a conflict of interest as a result of the following: (1) a significant business relationship which may create an incentive for Sands to vote in favor of management; (2) significant personal or family relationships, meaning those that would be reasonably likely to influence how Sands votes the proxy; and (3) contact with Proxy Committee members for the purpose of influencing how a proxy is to be voted.

In the event that the Proxy Committee determines that Sands has a conflict of interest with respect to a proxy proposal, the Proxy Committee shall also determine whether the conflict is “material” to that proposal. The Proxy Committee may determine on a case-by-case basis that a particular proposal does not involve a material conflict of interest. To make this determination, the Proxy Committee must conclude that the proposal is not directly related to Sands’ conflict with the issuer. If the Proxy Committee determines that a conflict is not material, then Sands may vote the proxy in accordance with the recommendation of the research team member. In the event that the Proxy Committee determines that Sands has a material conflict of interest with respect to a proxy proposal, Sands will vote on the proposal in accordance with the determination of the Proxy Committee. Alternatively, prior to voting on the proposal, Sands may (i) contact an independent third party to recommend how to vote on the proposal and vote in accordance with the recommendation of such third party; or (ii) with respect to client accounts that are not subject to ERISA, fully disclose the nature of the conflict to the client and obtain the client’s consent as to how Sands will vote on the proposal. Sands may not address a material conflict of interest by abstaining from voting, unless the Proxy Committee has determined that abstaining from voting on the proposal is in the best interests of clients.

SBH

Sub-Advisor to the Smaller Companies Fund

SBH has adopted proxy voting policies and procedures that address recordkeeping and include provisions that address material conflicts of interest that arise in the proxy voting process. SBH relies on a third-party vendor, Institutional Shareholder Services (“ISS”), to research, vote and record all proxy ballots for the security positions maintained on clients’ behalf and for which the Adviser has voting authority. Annually, SBH reviews ISS’ independence and its Proxy Voting Guidelines. SBH follows ISS’ General Guidelines on most issues for shareholder votes.

The ISS’ Global Voting Principles were launched in 2013 and provide for four key tenets on accountability, stewardship, independence and transparency. These underlie their approach to developing recommendations on management and shareholder proposals at publicly traded companies.

The principles guiding the policy construction intend to assist institutional investors in meeting their fiduciary requirements, with respect to voting, by aiming to promote long-term shareholder value creation and risk mitigation at their portfolio firms through support of responsible global corporate governance practices.

These practices seek to respect shareholder rights and provide appropriate transparency, taking into account relevant laws, customs, and best practice codes of each market and region, as well as the right and responsibility of shareholders to make informed voting decisions.

In the rare instance when a portfolio manager or analyst believes that an ISS recommendation would be to the detriment of SBH’s investment clients, SBH can and will override ISS’ recommendation through a manual vote. If more than one investment team or wealth management portfolio manager holds the security, the decision to override should be authorized by a member of each investment team or the wealth management portfolio manager. The final authorization to override an ISS recommendation must be approved by the Chief Compliance Officer (CCO) or Chief Executive Officer (CEO) of SBH. A written record supporting the decision to override the ISS recommendation will be maintained.

Generally, for stocks traded on foreign exchanges, SBH will exercise its voting authority. However, if SBH believes that by voting, a client will incur excessive expense or that a lack of liquidity of a stock may be an issue or for any other reason that seeks to optimize the benefit to the client, SBH may not exercise its voting authority after considering all relevant factors.

 

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WATER ISLAND

Sub-Advisor to the Alternative Strategies Fund

Water Island intends to exercise a voice on behalf of its shareholders and clients in matters of corporate governance through the proxy voting process. Water Island takes its fiduciary responsibilities very seriously and believes the right to vote proxies is a significant asset of shareholders and clients. Water Island exercises its voting responsibilities as a fiduciary, solely with the goal of maximizing the value of its shareholders’ and clients’ investments.

Water Island votes proxies solely in the interests of its clients and believes that any conflict of interest must be resolved in the way that will most benefit its clients. Since the quality and depth of management is a primary factor considered when investing in a company, Water Island gives substantial weight to the recommendation of management on any issue. However, Water Island will consider each issue on its own merits, and the position of a company’s management will not be supported in any situation where it is found not to be in the best interests of Water Island’s clients.

Water Island recognizes that under certain circumstances it may have a conflict of interest in voting proxies on behalf of its clients. Such circumstances may include, but are not limited to, situations where Water Island or one or more of its affiliates, including officers, directors and employees, has or is seeking a client relationship with the issuer of the security that is the subject of the proxy vote. Water Island shall periodically inform its employees that they are under an obligation to be aware of the potential for conflicts of interest on the part of Water Island with respect to voting proxies on behalf of clients, both as a result of the employee’s personal relationships and due to circumstances that may arise during the conduct of Water Island’s business, and to bring conflicts of interest of which they become aware to the attention of Water Island. Water Island shall not vote proxies relating to such issuers on behalf of its client accounts until it has determined that the conflict of interest is not material or a method of resolving such conflict of interest has been agreed upon by the Board. A conflict of interest will be considered material to the extent that it is determined that such conflict has the potential to influence Water Island’s decision-making in voting a proxy. Materiality determinations will be based upon an assessment of the particular facts and circumstances. If Water Island determines that a conflict of interest is not material, Water Island may vote proxies notwithstanding the existence of a conflict.

WELLSCAP

Sub-Advisor to the Equity Fund and the Smaller Companies Fund

Pursuant to Rule 206(4)-6 under the Advisers Act, WellsCap has adopted Proxy Voting Policies and Procedures that it believes are reasonably designed to ensure that proxies are voted in the best interest of its clients. WellsCap exercises its voting responsibility, as a fiduciary, with the goal of maximizing value to shareholders consistent with the governing laws and investment policies of each portfolio. While securities are not purchased to exercise control or to seek to effect corporate change through share ownership, WellsCap supports sound corporate governance practices within companies in which they invest.

WellsCap utilizes an independent third-party (“Third-Party”), currently ISS, for voting proxies and proxy voting analysis and research. The Third-Party votes proxies in accordance with ISS’s published Proxy Guidelines. In addition, clients may elect to have WellsCap vote proxies in accordance with guidelines established pursuant to platforms, e.g., Taft-Hartley, to meet their specific business requirements.

To fulfill its fiduciary duties with respect to proxy voting, WellsCap has designated an officer to administer and oversee the proxy voting process and to monitor the Third-Party to ensure its compliance with the Proxy Guidelines.

WellsCap believes that, in most instances, material conflicts of interest can be minimized through a strict and objective application by the Third-Party of the Proxy Guidelines. In cases where WellsCap is aware of a material conflict of interest regarding a matter that would otherwise require its vote, it generally will defer to the Third-Party as to how to vote on such matter in accordance with ISS’ guidelines.

 

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MORE INFORMATION ABOUT PROXY VOTING

The actual voting records relating to portfolio securities during the most recent 12-month period ended June 30, are available without charge, upon request, by calling toll-free, 1-800-960-0188 or by accessing the SEC’s website at www.sec.gov. In addition, a copy of the Funds’ proxy voting policies and procedures are also available without charge, upon request, by calling 1-800-960-0188.

ADMINISTRATOR

State Street Bank and Trust Company (“State Street” or the “Administrator”) serves as the Trust’s administrator pursuant to an Administration Agreement dated September 10, 2014 (the “Administration Agreement”). State Street is a wholly owned subsidiary of State Street Corporation, a publicly held bank holding company. State Street is located at One Lincoln Street, Boston, MA 02111. Pursuant to the Administration Agreement with the Trust, the Administrator has agreed to furnish statistical and research data, clerical services, and stationery and office supplies; prepare various reports for filing with the appropriate regulatory agencies; and prepare various materials required by the SEC or any state securities commission having jurisdiction over the Trust. The Administration Agreement provides that the Administrator performing services thereunder shall not be liable under the Administration Agreement except for the negligence or willful misconduct of the Administrator, its officers or employees. As compensation for these services, each Fund pays State Street an annual administration fee based upon a percentage of the average net assets of such Fund.

The following table shows administrative fees paid to the Funds’ administrator during the fiscal years or period ended December 31:

 

Year/
Period
 

Equity

Fund

 

International

Fund

 

Smaller

Companies
Fund

 

Alternative

Strategies
Fund

 

High Income

Alternatives

Fund†

2019

  $68,253   $77,315   $14,042   $373,407   $29,097

2018

  $61,459   $114,927   $3,157   $371,586   $4,112

2017

  $48,862   $63,397   $0   $316,486   N/A

The High Income Alternatives Fund commenced operations on September 28, 2018.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Each Management Agreement states that, with respect to the segment of each Fund’s portfolio allocated to the applicable Sub-Advisor, the Sub-Advisor shall be responsible for broker-dealer selection and for negotiation of brokerage commission rates, provided that the Sub-Advisor shall not direct orders to an affiliated person of the Sub-Advisor without general prior authorization to use such affiliated broker or dealer by the Board. In general, a Sub-Advisor’s primary consideration in effecting a securities transaction will be execution at the most favorable cost or proceeds under the circumstances. In selecting a broker-dealer to execute each particular transaction, a Sub-Advisor may take the following into consideration: the best net price available; the reliability, integrity and financial condition of the broker-dealer; the size of and difficulty in executing the order; and the value of the expected contribution of the broker-dealer to the investment performance of each Fund on a continuing basis. The price to each Fund in any transaction may be less favorable than that available from another broker-dealer if the difference is reasonably justified by other aspects of the portfolio execution services offered.

 

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The aggregate dollar amounts of brokerage commissions paid by the Funds during the last three fiscal years or period are as follows:

 

Year/
Period
 

Equity

Fund

 

International

Fund

  Smaller Companies
Fund
  Alternative Strategies
Fund
 

High Income
Alternatives

Fund†

2019

  $88,079   $240,390   $43,170   $1,100,634   $38,165

2018

  $123,105   $362,996   $43,572   $1,327,250   $32,034

2017

  $122,851   $524,719   $64,211   $969,226   N/A

The High Income Alternatives Fund commenced operations on September 28, 2018.

Of these amounts, the dollar amount of brokerage commissions paid to the brokers who furnished research services during the last three fiscal years are as follows:

 

Year  

Equity

Fund

 

International

Fund

  Smaller Companies
Fund
  Alternative Strategies
Fund
 

High Income
Alternatives

Fund†

2019

  $25,688   $40,552   $13,725   $702,296   $0

2018

  $31,989   $13,076   $13,199   $956,389   $0

2017

  $36,423   $41,383   $32,705   $275,772   N/A

The High Income Alternatives Fund commenced operations on September 28, 2018.

For the fiscal years ended December 31, 2019, 2018 and 2017, the Funds paid no commissions to broker-dealers affiliated with the Advisor or any of the Sub-Advisors.     

Subject to such policies as the Advisor and the Board may determine, a Sub-Advisor shall not be deemed to have acted unlawfully or to have breached any duty created by its Management Agreement with a Fund or otherwise solely by reason of its having caused any Fund to pay a broker or dealer that provides (directly or indirectly) brokerage or research services to the Sub-Advisor a commission for effecting a portfolio transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Sub-Advisor determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Sub-Advisor’s or Advisor’s overall responsibilities with respect to each Fund or other advisory clients. Each Sub-Advisor is further authorized to allocate the orders placed by it on behalf of each Fund to such brokers or dealers who also provide research or statistical material, or other services, to the Trust, the Advisor or any affiliate of either. Such allocation shall be in such amounts and proportions as the Sub-Advisor shall determine. Each Sub-Advisor shall report on such allocations regularly to the Advisor and the Trust, indicating the broker-dealers to whom such allocations have been made and the basis for such allocations.

On occasions when a Sub-Advisor deems the purchase or sale of a security to be in the best interest of a Fund as well as other clients of the Sub-Advisor, the Sub-Advisor, to the extent permitted by applicable laws and regulations, may aggregate the securities to be so purchased or sold in order to obtain the most favorable price or lower brokerage commissions and the most efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Sub-Advisor in the manner it considers to be the most equitable and consistent with its fiduciary obligations to each Fund and to such other clients.

The following Funds acquired securities of their regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) during the most recent fiscal year.

 

Fund    Broker    Amount  

Equity Fund

  

Citigroup Global Markets, Inc.

   $ 2,900,007  
  

Bank of America Securities LLC

   $ 2,711,940  
  

J.P. Morgan Chase & Co.

   $ 2,095,182  

Alternative Strategies Fund

  

Citigroup Global Markets, Inc.

   $ 11,095,591  
  

Bank of America Securities LLC

   $ 6,667,745  
  

Jefferies Financial Group, Inc.

   $ 5,037,379  
  

HSBC Holdings Plc

   $ 1,914,393  

Distribution of Fund Shares

The Funds’ principal underwriter is ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. The Distributor is engaged on a non-exclusive basis to assist in the distribution of shares in various jurisdictions. The Distributor is compensated for performing this service by the Advisor and is not paid by the Funds.

 

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Distribution Plan

As noted in the prospectus, the Trust has adopted a Distribution and Shareholder Servicing Plan pursuant to Rule 12b-1 under the 1940 Act (the “Distribution Plan”) on behalf of the Investor Class of the Alternative Strategies Fund and High Income Alternatives Fund.

Under the Distribution Plan, the Alternative Strategies Fund and High Income Alternatives Fund are authorized to pay the Distributor for distribution services related to Investor Class shares (the “Distribution Fee”) at an annual rate of 0.25% of such Funds’ average daily net assets attributable to Investor Class shares. The Distribution Plan provides that the Distributor may use all or any portion of such Distribution Fee to finance any activity that is principally intended to result in the sale of such Funds’ Investor Class shares, subject to the terms of the Distribution Plan, or to provide certain shareholder services.

The Distribution Fee is payable to the Distributor regardless of the distribution-related expenses actually incurred. Because the Distribution Fee is not directly tied to expenses, the amount of distribution fees paid by the Investor Class of the Alternative Strategies Fund and High Income Alternatives Fund during any year may be more or less than actual expenses incurred pursuant to the Distribution Plan. For this reason, this type of distribution fee arrangement is characterized by the staff of the SEC as a “compensation” plan.

The Distributor may use the Distribution Fee to pay for services covered by the Distribution Plan including, but not limited to, advertising, compensating underwriters, dealers and selling personnel engaged in the distribution of Fund shares, the printing and mailing of prospectuses, statements of additional information and reports to prospective shareholders, the printing and mailing of sales literature, and obtaining whatever information, analyses and reports with respect to marketing and promotional activities that the Alternative Strategies Fund and High Income Alternatives Fund may, from time to time, deem advisable.

The tables below show the amount of the Distribution Fee for the fiscal year or period ended December 31, 2019.

 

Fund    Distribution Fee incurred
by Investor Class Shares

Equity Fund†

   $34

International Fund†

   $1,568

Alternative Strategies Fund

   $418,376

High Income Alternatives Fund

   $3,148

Effective April 29, 2019, the Investor Class shares of the Equity Fund and International Fund were converted into Institutional Class shares of the corresponding Fund.

 

Fund   

Advertising

and

Marketing

  

Printing

and

Postage

  

Payment

to

Distributor

  

Payment

to

Dealers

  

Compensation

to Sales

Personnel

   Other
Expenses

Equity Fund†

   $0    $0    $34    $0    $0    $0

International Fund†

   $0    $0    $1,568    $0    $0    $0

Alternative Strategies Fund

   $0    $0    $418,376    $0    $0    $0

High Income Alternatives Fund

   $0    $0    $3,148    $0    $0    $0

Effective April 29, 2019, the Investor Class shares of the Equity Fund and International Fund were converted into Institutional Class Shares of the corresponding Fund.

 

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Other Shareholder Servicing Expenses Paid by the Funds

The Funds make payments to financial intermediaries for certain sub-recordkeeping, sub-transfer agent or similar services provided by financial intermediaries in amounts determined by the Funds’ Board of Trustees to represent reasonable amounts for those services. These expenses paid by a Fund would remain subject to any overall expense limitation applicable to that Fund. These expenses are in addition to any supplemental amounts the Advisor pays out of its own resources and are in addition to a Fund’s payment of any amounts through the Distribution Plan.

The prospect of receiving, or the receipt of additional payments or other compensation as described above by financial intermediaries may provide financial intermediaries and/or their salespersons with an incentive to favor sales of shares of the Funds, and other mutual funds whose affiliates make similar compensation available, over sale of shares of mutual funds (or non-mutual fund investments) not making such payments. You may wish to take these payment arrangements into account when considering and evaluating any recommendations relating to the Funds’ shares.

The table below identifies the financial intermediaries who received compensation from the Funds for providing sub-recordkeeping, sub-transfer agency or similar services during the calendar year ended December 31, 2019:

Firm

Bank of America Merrill Lynch

Charles Schwab

Fidelity Investments

Great West Financial Services

LPL Financial

Massachusetts Mutual

National Financial Services, LLC (Fidelity Brokerage)

Nationwide

Pershing LLC

TD – Ameritrade

Vanguard

Voya Financial

Payments by the Advisor

Set forth below is a list of the member firms of FINRA to which the Advisor, or its affiliates, made payments out of their revenues in connection with the sale and distribution of the Funds’ shares or for services to the Funds and their shareholders for the year ended December 31, 2019. Such payments are in addition to any Distribution Plan amounts paid to such FINRA member firms. Any additions, modifications, or deletions to the FINRA member firms identified in this list since December 31, 2019 are not reflected:

FINRA member firms

Raymond James

The Advisor or its affiliates may also make payments to selling and shareholder servicing agents that are not FINRA member firms and that sell shares of or provide services to the Funds and their shareholders, such as banks, insurance companies and plan administrators. These firms are not included on the list above, although they may be affiliated with companies on the above list.

PORTFOLIO TURNOVER

Although the Funds 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 a Sub-Advisor, investment considerations warrant such action. Portfolio turnover rate is calculated by dividing (1) the lesser of purchases or sales of portfolio securities for the fiscal year by (2) the monthly average of the value of portfolio securities owned

 

105


during the fiscal year. A 100% turnover rate would occur if all the securities in a 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 higher transaction costs and may result in a greater number of taxable transactions as compared to the costs and taxable transactions of an investment company that holds investments for a longer period. The Advisor does not expect each Fund’s portfolio turnover rate (except for the Alternative Strategies Fund) to exceed 150% in most years.

Portfolio turnover rates for the fiscal years or period ended December 31, 2019 and 2018 were as follows:

 

Fund    2019     2018  

Equity Fund

     25.02     41.68

International Fund

     45.48     35.15

Smaller Companies Fund

     64.88     75.00

Alternative Strategies Fund

     190.21     197.04

High Income Alternatives Fund

     90.51     125.92

 

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NET ASSET VALUE

The NAV of a Fund’s shares will fluctuate and is determined as of the close of trading on the NYSE (currently, 4:00 p.m., Eastern Time) each business day that the NYSE is open for trading. The NYSE annually announces the days on which it will not be open for trading. The most recent announcement indicates that the NYSE will not be open on the following days: New Year’s Day, Martin Luther King’s Birthday, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However, the NYSE may close on days not included in that announcement.

The NAV per share is computed by dividing the value of the securities held by a Fund plus any cash or other assets (including interest and dividends accrued but not yet received) minus all liabilities (including accrued expenses) by the total number of shares in a Fund outstanding at such time.

Generally, trading in and valuation of foreign securities is substantially completed each day at various times prior to the close of the NYSE. In addition, trading in and valuation of foreign securities may not take place on every day in which the NYSE is open for trading. In that case, the price used to determine a Fund’s NAV on the last day on which such exchange was open will be used, unless the Board determines that a different price should be used. Furthermore, trading takes place in various foreign markets on days in which the NYSE is not open for trading and on which a Fund’s NAV is not calculated. Occasionally, events affecting the values of such securities in U.S. dollars on a day on which a Fund calculates its NAV may occur between the times when such securities are valued and the close of the NYSE which will not be reflected in the computation of a Fund’s NAV unless the Board or its delegates deem that such events would materially affect the NAV, in which case an adjustment would be made.

Generally, a Fund’s investments are valued on the basis of market quotations. Securities or assets for which market quotations are not available, or for which the pricing service approved by the Board does not provide a valuation or provides a valuation that in the judgment of the relevant Sub-Advisor, with the concurrence of the Advisor, is stale or does not represent the fair value of such securities or assets, shall be valued by the Valuation Committee in consultation with the Advisor, the relevant Sub-Advisor, and the Administrator pursuant to procedures approved by the Board.

Each Fund’s securities, including ADRs, EDRs and GDRs, which are traded on securities exchanges, are generally determined on the basis of the last reported sale price on the exchange on which such securities are traded (or the NASDAQ official closing price for NASDAQ-reported securities, if such price is provided by the Funds’ accountant), as of the close of business on the day the securities are being valued or, lacking any reported sales, at the mean between the last available bid and asked price. Securities that are traded on more than one exchange are valued on the exchange determined by the Sub-Advisors to be the primary market. Securities traded in the over-the-counter market are valued at the mean between the last available bid and asked price prior to the time of valuation. Securities and assets for which market quotations are not readily available (including restricted securities, which are subject to limitations as to their sale) are valued at fair value as determined in good faith by or under the direction of the Board.

Short-term debt obligations with remaining maturities in excess of 60 days are valued at current market prices, as discussed above. Short-term securities with 60 days or less remaining to maturity are, unless conditions indicate otherwise, amortized to maturity based on their cost to a Fund if acquired within 60 days of maturity or, if already held by a Fund on the 60th day, based on the value determined on the 61st day.

Corporate debt securities, mortgage-related securities and asset-backed securities held by a Fund are valued on the basis of valuations provided by dealers in those instruments, by an independent pricing service and approved by the Board, or at fair value as determined in good faith by procedures approved by the Board. Any such pricing service, in determining value, will use information with respect to transactions in the securities being valued, quotations from dealers, market transactions in comparable securities, analyses and evaluations of various relationships between securities and yield to maturity information.

An option that is written by a Fund is generally valued at the last sale price or, in the absence of the last sale price, the last offer price. An option that is purchased by a Fund is generally valued at the last sale price or, in the absence of the last sale price, the last bid price. The value of a futures contract is the last sale or settlement price on the exchange or board of trade on which the future is traded or, if no sales are reported, at the mean between the last

 

107


bid and asked price. When a settlement price cannot be used, futures contracts will be valued at their fair market value as determined by or under the direction of the Board. If an options or futures exchange closes after the time at which a Fund’s NAV is calculated, the last sale or last bid and asked prices as of that time will be used to calculate the NAV.

Any assets or liabilities initially expressed in terms of foreign currencies are translated into U.S. dollars at the official exchange rate or, alternatively, at the mean of the current bid and asked prices of such currencies against the U.S. dollar last quoted by a major bank that is a regular participant in the foreign exchange market or on the basis of a pricing service that takes into account the quotes provided by a number of such major banks. If neither of these alternatives is available or both are deemed not to provide a suitable methodology for converting a foreign currency into U.S. dollars, the Board in good faith will establish a conversion rate for such currency.

All other assets of a Fund are valued in such manner as the Board in good faith deems appropriate to reflect their fair value.

TAXATION

The following is a summary of certain material U.S. federal income tax consequences of acquiring, holding and disposing of the interests in the Funds. It is based upon the Code, the U.S. Treasury Regulations promulgated thereunder, published rulings and court decisions, all as in effect on the date hereof and all of which are subject to change or differing interpretations at any time (possibly with retroactive effect). This summary does not purport to deal with all of the U.S. federal income tax consequences applicable to a Fund or to all categories of investors, some of whom may be subject to special rules (including, without limitation, dealers in securities or currencies, financial institutions, life insurance companies, holders of Fund interests held as part of a “straddle,” “hedge” or “conversion transaction” with other investments, persons whose “functional currency” is not the U.S. dollar or persons for whom the Fund interests are not capital assets). This discussion also does not address U.S. federal tax consequences other than income taxes (such as estate and gift tax consequences). In addition, the following discussion generally applies only to “U.S. persons,” as defined for U.S. federal income tax purposes) who are beneficial owners of Fund interests. A “U.S. person” is generally defined as (i) a citizen or resident of the United States, (ii) a corporation (or an entity treated as a corporation for federal income tax purposes) or partnership (or an entity or arrangement treated as a partnership for federal income tax purposes) created or organized in or under the law of the United States or any political subdivision thereof, (iii) an estate whose income is subject to U.S. federal income tax regardless of its source or (iv) a trust if (a) it is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) it has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.

If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) is an investor in the Funds, the U.S. federal income tax treatment of a partner in that partnership will generally depend on the status of the partner and the activities of the partnership.

The tax consequences of an investment in the Funds will depend not only on the nature of the Funds’ operations and the then applicable U.S. federal tax principles, but also on certain factual determinations that cannot be made at this time, and upon a particular investor’s individual circumstances. No advance rulings have been sought from the Internal Revenue Service (the “IRS”).

IN VIEW OF THE FOREGOING, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING ALL THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF AN INVESTMENT IN THE FUNDS WITH SPECIFIC REFERENCE TO SUCH INVESTOR’S OWN PARTICULAR TAX SITUATION AND RECENT CHANGES IN APPLICABLE LAW.

Each Fund will be taxed, under the Code, as a separate entity from any other series of the Trust, and each Fund has elected to qualify for treatment as a regulated investment company (“RIC”) under Subchapter M of the Code. In each taxable year that a Fund qualifies, a Fund (but not its shareholders) will be relieved of federal income tax on that part of its investment company taxable income (consisting generally of interest and dividend income, net short term capital gain and net realized gains from currency transactions) and net capital gain that is distributed to shareholders.


In order to qualify for treatment as a RIC, a Fund must distribute annually to shareholders at least 90% of its investment company taxable income and must meet several additional requirements. Among these requirements are the following: (1) at least 90% of a Fund’s gross income each taxable year must be derived from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies, or other income derived with respect to its business of investing in securities or currencies; (2) at the close of each quarter of a Fund’s taxable year, at least 50% of the value of its total assets must be represented by cash and cash items (including receivables), U.S. Government securities, securities of other RICs and other securities, limited in respect of any one issuer, to an amount that does not exceed 5% of the value of a Fund and that does not represent more than 10% of the outstanding voting securities of such issuer; and (3) at the close of each quarter of a Fund’s taxable year, not more than 25% of the value of its assets may be invested in (i) securities (other than U.S. Government securities or the securities of other RICs) of any one issuer, (ii) securities (other than the securities of other RICs) of two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses or related trades or businesses, or (iii) securities of one or more of qualified publicly traded partnerships, as such term is defined under the Code.

Distributions of net investment income and net realized capital gains by a Fund will be taxable to shareholders whether made in cash or reinvested in shares. In determining amounts of net realized capital gains to be distributed, any capital loss carryovers from prior years will be applied against capital gains to the extent permitted under the Code. Shareholders receiving distributions in the form of additional shares will have a cost basis for federal income tax purposes in each share so received equal to the NAV of a share of a 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. A Fund may make taxable distributions to shareholders even during periods in which share prices have declined. Tax consequences are not the primary consideration of a Fund in implementing its investment strategy.

Each Fund or any securities dealer effecting a redemption of a Fund’s shares by a shareholder will be required to file information reports with the IRS with respect to distributions and payments made to the shareholder. In addition, under the federal backup withholding rules, a Fund will be required to withhold federal income tax at the current rate of 24% 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 made certain required certifications on the account application or with respect to which a 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 federal backup withholding.

Each Fund intends to declare and pay dividends and other distributions, as stated in the prospectus. In order to avoid the payment of a 4% non-deductible federal excise tax based on net income, a Fund must declare on or before December 31 of each year, and pay on or before January 31 of the following year, distributions at least equal to 98% of its ordinary income for that calendar year and at least 98.2% of the excess of any capital gains over any capital losses realized in the one-year period ending October 31 of that year, together with any undistributed amounts of ordinary income and capital gains (in excess of capital losses) from the previous calendar year.

Certain U.S. shareholders, including individuals and estates and trusts, in the higher income brackets will be subject to an additional 3.8% federal tax on all or a portion of their “net investment income,” which generally will include dividends from the Funds and net gain from the disposition of shares of the Funds. U.S. shareholders are urged to consult their tax advisors regarding the implications of the additional net investment income tax resulting from an investment in the Funds.

Each Fund may receive dividend distributions from U.S. corporations. To the extent that a Fund receives such dividends and distributes them to its shareholders, and meets certain other requirements of the Code, corporate shareholders of a Fund may be entitled to the dividends received deduction, and individual shareholders may, depending on the Fund’s underlying sources of income, have “qualified dividend income,” which would be subject to tax at the shareholder’s maximum federal capital gains tax rate. Availability of the deduction and/or taxation at the maximum federal capital gains tax rate is subject to certain holding period and debt-financing limitations.

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

 

109


connection therewith by a 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 a Fund with respect to its business of investing in securities or foreign currencies should qualify as permissible income under Subchapter M of the Code.

For accounting purposes, premiums paid by a Fund are recorded as an asset and are 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.

Any security, option or other position entered into or held by a Fund that substantially diminishes the Fund’s risk of loss from any other position held by that 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 a 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.

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 a 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 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.

Redemptions and exchanges of shares of a Fund will result in gains or losses for federal income tax purposes to the extent of the difference between the proceeds and the shareholder’s adjusted tax basis for the shares. Any loss realized (to the extent it is allowed) upon the redemption or exchange 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 with respect to such shares during such six-month period. All or a portion of a loss realized upon the redemption of shares of the Fund may be disallowed to the extent shares of the same Fund are purchased (including shares acquired by means of reinvested dividends) within 30 days before or after such redemption.

During the year or period ended December 31, 2019, the Funds utilized the following amounts of capital loss carry forwards:

 

Fund   

Capital Loss

Carryforwards Utilized

Equity Fund

   $—  

International Fund

   $4,721,435

Smaller Companies Fund

   $—  

Alternative Strategies Fund

   $4,871,907

High Income Alternatives Fund

   $1,190,910

 

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The capital loss carryforwards for each Fund were as follows:

 

     

Equity

Fund

     International
Fund
    Smaller
Companies
Fund
    Alternative
Strategies
Fund
   

High
Income
Alternatives

Fund

 

Capital Loss Carryforwards

           

Expires 12/31/20

   $ —        $ —       $ —       $ —       $ —    

Short-Term

   $ —        $ (38,306,691   $ (88,569   $ (16,075,806   $ —    

Long-Term

   $ —        $ —       $ —       $ (4,532,337   $ —    

Total

   $ —        $ (38,306,691   $ (88,569   $ (20,608,143   $ —    

Distributions and redemptions may be subject to state and local 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 a Fund.

Under the Foreign Account Tax Compliance Act (“FATCA”), and subject to any applicable intergovernmental agreements, a 30% withholding tax on each Fund’s distributions generally applies if paid to a foreign entity unless: (i) if the foreign entity is a “foreign financial institution,” it undertakes certain due diligence, reporting, withholding and certification obligations, (ii) if the foreign entity is not a “foreign financial institution,” it identifies certain of its U.S. investors or (iii) the foreign entity is otherwise excepted under FATCA. Under proposed Treasury regulations, which were to take effect on January 1, 2019 and upon which taxpayers may rely unless and until overridden by subsequent regulations, FATCA withholding on gross proceeds from the sale or disposition of Fund shares and capital gain distributions is eliminated. If withholding is required under FATCA on a payment related to your shares, investors that otherwise would not be subject to withholding (or that otherwise would be entitled to a reduced rate of withholding) on such payment generally will be required to seek a refund or credit from the IRS to obtain the benefits of such exemption or reduction. The Funds will not pay any additional amounts in respect to amounts withheld under FATCA. You should consult your tax advisor regarding the effect of FATCA based on your individual circumstances.

The above discussion and the related discussion in each prospectus are not intended to be complete discussions of all applicable tax consequences of an investment in the Funds. Paul Hastings LLP, counsel to the Trust, has expressed no opinion in respect thereof. Shareholders are advised to consult with their own tax advisers concerning the application of foreign, federal, state and local taxes to an investment in a Fund.

DIVIDENDS AND DISTRIBUTIONS

Dividends from a Fund’s investment company taxable income (whether paid in cash or invested in additional shares) will be taxable to shareholders as ordinary income to the extent of the Fund’s earnings and profits. Tax consequences are not the primary consideration of the Funds in implementing their investment strategies. Distributions of a Fund’s net capital gain (whether paid in cash or invested in additional shares) will be taxable to shareholders as long-term capital gain, regardless of how long they have held their Fund shares. A Fund may make taxable distributions to shareholders even during periods in which the share price has declined.

Dividends declared by a Fund in October, November or December of any year and payable to shareholders of record on a date in one of such months will be deemed to have been paid by the Fund and received by the shareholders on December 31 of such year if the dividends are paid by the Fund during the following January. Accordingly, such dividends will be taxed to shareholders for the year in which the record date falls.

 

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The Funds are required to withhold as backup withholding 24% of all dividends, capital gain distributions and redemption proceeds payable to any individuals and certain other non-corporate shareholders who do not provide the Fund with their correct taxpayer identification number. The Funds also are required to withhold 24% of all dividends and capital gain distributions paid to such shareholders who otherwise are subject to federal backup withholding.

ANTI-MONEY LAUNDERING PROGRAM

The Trust has established an Anti-Money Laundering Compliance Program (the “Program”) as required by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”). To ensure compliance with this law, the Trust’s Program provides for the development of internal practices, procedures and controls, designation of anti-money laundering compliance officers, an ongoing training program and an independent audit function to determine the effectiveness of the Program.

Procedures to implement the Program include, but are not limited to, determining that the Distributor and the Funds’ transfer agent have established proper anti-money laundering procedures, reporting suspicious and/or fraudulent activity and conducting a complete and thorough review of all new opening account applications. The Fund will not transact business with any person or entity whose identity cannot be adequately verified under the provisions of the USA PATRIOT Act.

As a result of the Program, the Trust may be required to “freeze” the account of a shareholder if the shareholder appears to be involved in suspicious activity or if certain account information matches information on government lists of known terrorists or other suspicious persons, or the Trust may be required to transfer the account or proceeds of the account to a governmental agency.

GENERAL INFORMATION

The Trust is a Delaware statutory trust organized on August 1, 1996. The Equity Fund commenced operations on December 31, 1996. The International Fund commenced operations on December 1, 1997. The Smaller Companies Fund commenced operations on June 30, 2003. The Alternative Strategies Fund commenced operations on September 30, 2011. The High Income Alternatives Fund commenced operations on September 28, 2018. The Agreement and Declaration of Trust permits the Trust to issue an unlimited number of full and fractional shares of beneficial interest and to divide or combine the shares into a greater or lesser number of shares without thereby changing the proportionate beneficial interest in a Fund. Each share represents an interest in a Fund proportionately equal to the interest of each other share. Upon the Trust’s liquidation, all shareholders would share pro rata in the net assets of a Fund available for distribution to shareholders. The Board has created five series of shares, and may create additional series in the future, which have separate assets and liabilities. Income and operating expenses not specifically attributable to a particular Fund will be allocated fairly among the Funds by the Trustees, generally on the basis of the relative net assets of each Fund.

The Trust has adopted a Multiple Class Plan pursuant to Rule 18f-3 under the 1940 Act on behalf of the Funds. Currently, the Alternative Strategies Fund and High Income Alternatives Fund are each authorized to issue two classes of shares: Institutional Class shares and Investor Class shares. The Equity Fund, International Fund and Smaller Companies Fund are authorized to issue one class of shares: Institutional Class shares.

Rule 18f-2 under the 1940 Act provides that as to any investment company which has two or more series outstanding and as to any matter required to be submitted to shareholder vote, such matter is not deemed to have been effectively acted upon unless approved by the holders of a “majority” (as defined in the Rule) of the voting securities of each series affected by the matter. Such separate voting requirements do not apply to the election of Trustees or the ratification of the selection of accountants. Rule 18f-2 contains special provisions for cases in which an advisory contract is approved by one or more, but not all, series. A change in investment policy may go into effect as to one or more series whose holders so approve the change even though the required vote is not obtained as to the holders of other affected series.

Each Fund may hold special meetings and mail proxy materials. These meetings may be called to elect or remove Trustees, change fundamental policies, approve an investment advisory contract or for other purposes. Shareholders not attending these meetings are encouraged to vote by proxy. Each Fund will mail proxy materials in

 

112


advance, including a voting card and information about the proposals to be voted on. The number of votes each shareholder is entitled to is based on the number of shares he or she owns. Shareholders are entitled to one vote for each full share held (and fractional votes for fractional shares) and may vote in the election of Trustees and on other matters submitted to meetings of shareholders. It is not contemplated that regular annual meetings of shareholders will be held.

The Equity Fund, the International Fund, the Smaller Companies Fund, the Alternative Strategies Fund and the High Income Alternatives Fund are the only operating series of shares of the Trust. The Board may, at its own discretion, create additional series of shares. The Agreement and Declaration of Trust contains an express disclaimer of shareholder liability for the Trust’s acts or obligations and provides for indemnification and reimbursement of expenses out of the Trust’s property for any shareholder held personally liable for its obligations.

The Agreement and Declaration of Trust provides that the shareholders have the right to remove a Trustee. Upon the written request of the record holders of 10% of the Trust’s shares, the Trustees will call a meeting of shareholders to vote on the removal of a Trustee. No amendment may be made to the Agreement and Declaration of Trust that would have a material adverse effect on shareholders without the approval of the holders of more than 50% of the Trust’s shares. Shareholders have no preemptive or conversion rights. Shares when issued are fully paid and non-assessable by the Trust, except as set forth above.

The Trust and Litman Gregory have obtained an exemptive order from the SEC, which permits Litman Gregory, subject to certain conditions, to hire, terminate and replace managers with the approval of the Board only and without shareholder approval. Within 60 days of the hiring of any new manager or the implementation of any proposed material change in a sub-advisory agreement with an existing manager, shareholders will be furnished information about the new manager or sub-advisory agreement that would be included in a proxy statement. The order also permits a Fund to disclose sub-advisory fees only in the aggregate in its registration statement. Pursuant to the order, shareholder approval is required before Litman Gregory enters into any sub-advisory agreement with a manager that is affiliated with the Funds or Litman Gregory.

The Trust, the Advisor, the Sub-Advisors and the Distributor have adopted codes of ethics pursuant to Rule 17j-1 under the 1940 Act. These codes of ethics permit, subject to certain conditions, personnel of the Advisor, the Sub-Advisors and the Distributor, to invest in securities that may be purchased or held by the Funds.

The Trust’s custodian, State Street Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02111 is responsible for holding the Funds’ assets and acting as the Trust’s accounting services agent. The Trust’s transfer agent, DST Asset Manager Solutions, Inc., is located at 330 West Ninth Street, Kansas City, Missouri, 64105. You may call DST Asset Manager Solutions, Inc. at 1-800-960-0188 if you have questions about your account. The Trust’s independent registered public accounting firm, Cohen & Company, Ltd., 1350 Euclid Avenue, Suite 800, Cleveland, Ohio 44115, also assists with the Funds’ tax returns. The Trust’s legal counsel is Paul Hastings LLP, 101 California Street, 48th Floor, San Francisco, California 94111.

The Funds reserve the right, if conditions exist that make cash payments undesirable, to honor any request for redemption or repurchase order by making payment in whole or in part in readily marketable securities chosen by the Fund and valued as they are for purposes of computing the Fund’s NAV (a redemption in kind). If payment is made in securities, a shareholder may incur transaction expenses in converting these securities into cash.

FINANCIAL STATEMENTS

The audited financial statements, including the Financial Highlights of the Funds for the year ended December 31, 2019, and Cohen & Company, Ltd.’s report thereon are incorporated by reference. The report of Cohen & Company, Ltd., the independent registered public accounting firm of the Funds, with respect to the audited financial statements, is incorporated herein in its entirety in reliance upon such report of Cohen & Company, Ltd. and on the authority of such firm as experts in auditing and accounting. Shareholders will receive a copy of the audited and unaudited financial statements at no additional charge when requesting a copy of the SAI.

 

113


APPENDIX

Description of Ratings

The following terms are generally used to describe the credit quality of debt securities:

Moody’s Investors Service, Inc.: Corporate Bond Ratings

Aaa – Bonds which are rated Aaa are judged to be of the best quality and carry the smallest degree of investment risk. Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.

Aa – Bonds which are rated Aa are judged to be of high quality and are subject to very low credit risk. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities.

Moody’s appends numerical modifiers “1”, “2” and “3” to each generic rating classification from Aa through Caa. Both the Aaa and Aa rating classifications. The modifier “1” indicates that the security ranks in the higher end of its generic rating category; the modifier “2” indicates a mid-range ranking; and the modifier “3” indicates that the issue ranks in the lower end of its generic rating category. Additionally a “(hyb)” indicator is appended to all ratings of hybrid securities issued by banks, insurers, finance companies, and securities firms.

A – Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations and subject to low credit risk. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future.

Baa – Bonds which are rated Baa are considered as medium grade obligations, subject to moderate credit risk, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great period of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.

Standard & Poor’s Corporation: Corporate Bond Ratings

AAA – This is the highest rating assigned by Standard & Poor’s to a debt obligation and indicates an extremely strong capacity to pay principal and interest.

AA – Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong, and in the majority of instances they differ from AAA issues only in small degree.

A – Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.

BBB – Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in the A category.

 

114


Commercial Paper Ratings

Moody’s commercial paper ratings are assessments of the issuer’s ability to repay punctually promissory obligations. Moody’s employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers: Prime 1 – highest quality; Prime 2 – higher quality; Prime 3 – high quality.

A Standard & Poor’s commercial paper rating is a current assessment of the likelihood of timely payment. Ratings are graded into four categories, ranging from “A” for the highest quality obligations to “D” for the lowest.

Issues assigned the highest rating, A, are regarded as having the greatest capacity for timely payment. Issues in this category are delineated with the numbers “1”, “2” and “3” to indicate the relative degree of safety. The designation A-1 indicates that the degree of safety regarding timely payment is either overwhelming or very strong. A “+” designation is applied to those issues rated “A-1” which possess extremely strong safety characteristics. Capacity for timely payment on issues with the designation “A-2” is strong. However, the relative degree of safety is not as high as for issues designated A-1. Issues carrying the designation “A-3” have a satisfactory capacity for timely payment. They are, however, somewhat more vulnerable to the adverse effect of changes in circumstances than obligations carrying the higher designations.

 

115

LITMAN GREGORY FUNDS TRUST

PART C

OTHER INFORMATION

Item 28. Exhibits

(a)

Articles of Incorporation.

(1)Agreement and Declaration of Trust (1)

(A)Amendment to Agreement and Declaration of Trust (2)

(B)Amendment to Agreement and Declaration of Trust dated December 4, 2008 (8)

(C)Amendment to Agreement and Declaration of Trust dated August 31, 2011 (8)

(b)

By-laws (12)

(c)

Instruments Defining Rights of Security Holders – See Articles III and V of Agreement and Declaration of

 

Trust and Article II of Third Amended and Restated By-Laws

(d)

Investment Advisory Contracts

(1)Unified Investment Advisory Agreement between Litman Gregory Funds Trust and Litman Gregory Fund Advisors, LLC dated April 1, 2013 (10)

(2)Amended Appendix A and Appendix B dated August 28, 2018 to the Unified Investment Advisory Agreement, as revised for the High Income Alternatives Fund dated December 10, 2018 (17)

(3)Sub-Advisory Agreements

(A)Equity Fund

1.Investment Management Agreement with Davis Selected Advisers L.P. (13)

2.Investment Management Agreement with Fiduciary Management, Inc. (13)

3.Investment Management Agreement with Harris Associates L.P. (7)

4.Investment Management Agreement with Nuance Investments, LLC (18)

5.Investment Management Agreement with Sands Capital Management, LLC (13)

6.Investment Management Agreement with Wells Capital Management, Inc. (13)

(B)International Fund

1.Investment Management Agreement with Evermore Global Advisors, LLC (15)

2.Investment Management Agreement with Harris Associates L.P. (13)

3.Investment Management Agreement with Lazard Asset Management LLC (13)

4.Investment Management Agreement with Pictet Asset Management Limited (15)

(C)Smaller Companies Fund

1.Investment Management Agreement with Cove Street Capital, LLC (13)

2.Investment Management Agreement with Segall Bryant & Hamill, LLC (16)

3.Investment Management Agreement with Wells Capital Management, Inc. (13)

(D)Alternative Strategies Fund

1.Investment Management Agreement with DCI, LLC (16)

2.Investment Management Agreement with DoubleLine Capital LP (13)

3.Investment Management Agreement with First Pacific Advisors, LLC (13)

4.Investment Management Agreement with Loomis, Sayles & Company, L.P. (13)

5.Investment Management Agreement with Water Island Capital LLC (13)

(E)High Income Alternatives Fund

1.Investment Management Agreement with Ares Management LLC (17)

2.Investment Management Agreement with Brown Brothers Harriman & Co. (17)

3.Investment Management Agreement with Guggenheim Partners Investment Management,

LLC(18)

4.Investment Management Agreement with Neuberger Berman Investment Advisers LLC(17)

(e)

Underwriting Contracts

(1)Distribution Agreement with ALPS Distributors, Inc. dated April 26, 2018 (16)

(2)Distribution Letter Agreement with ALPS Distributors, Inc. dated April 16, 2018 (16)

1

 

(3)Amendment to the Distribution Agreement – to be filed by amendment

(f)

Bonus or Profit Sharing Contracts – None

(g)

Custodian Agreements

(1)Custody Agreement with State Street Bank and Trust Company dated January 2, 1997 (13)

(A)Amendment dated September 20, 2018 to the Custody Agreement (18)

(h)

Other Material Contracts

(1)Administration Agreement with State Street Bank and Trust Company dated September 10, 2014 (13)

(A)Amendment dated September 20, 2018 to the Administration Agreement (18)

(2)Power of Attorney dated April 30, 2014 (13)

(3)Restated Contractual Advisory Fee Waiver Agreement (13)

(A)Amendment dated August 31, 2011 to the Restated Contractual Advisory Fee Waiver Agreement (13)

(B)Amendment dated May 20, 2013 to the Restated Contractual Advisory Fee Waiver Agreement (11)

(C)Amendment dated January 1, 2017 to the Restated Contractual Advisory Fee Waiver Agreement (15)

(D)Amendment dated August 28, 2018 to the Restated Contractual Advisory Fee Waiver Agreement (17)

(4)Operating Expenses Limitation Agreement

(A)Operating Expenses Limitation Agreement dated August 28, 2018 for the High Income Alternatives Fund (17)

(i)

Legal Opinion

(1)Consent of Counsel – filed herewith

(j)

Other Opinions

(1)Consent of Independent Registered Public Accounting Firm – filed herewith

(k)

Omitted Financial Statements – None

(l)

Initial Capital Agreements

(1)Subscription Agreement (initial seed capital only) (3)

(m)

Rule 12b-1 Plan

(1)Distribution and Shareholder Servicing Plan (12b-1 Plan) – filed herewith

(n)

Rule 18f-3 Plan

(1)Multiple Class Plan – filed herewith

(o)

Reserved

(p)

Codes of Ethics

(1)Code of Ethics for Litman Gregory Funds Trust (16)

(2)Code of Ethics for Litman Gregory Fund Advisors, LLC (16)

(3)Code of Ethics for ALPS Distributors, Inc. (16)

(4)Codes of Ethics for the Sub-Advisors

(A)Davis Selected Advisers, L.P. (18)

(B)First Pacific Advisors, LLC – filed herewith

(C)Wells Capital Management, Inc. – filed herewith

2

 

(D)Nuance Investments, LLC (12)

(E)Cove Street Capital, LLC (16)

(F)Harris Associates L.P. – filed herewith

(G)Sands Capital Management, LLC (15)

(H)DoubleLine Capital LP – filed herewith

(I)Loomis, Sayles & Company, L.P. (18)

(J)Water Island Capital, LLC (15)

(K)Lazard Asset Management LLC (16)

(L)Fiduciary Management, Inc. (12)

(M)Pictet Asset Management Limited (15)

(N)Evermore Global Advisors, LLC (15)

(O)DCI, LLC (18)

(P)Segall Bryant & Hamill, LLC (18)

(Q)Ares Management LLC (17)

(R)Brown Brothers Harriman & Co. (17)

(S)Guggenheim Partners Investment Management, LLC (17)

(T)Neuberger Berman Investment Advisers LLC – filed herewith

(1)Previously filed as an exhibit to the Registrant's initial Registration Statement on Form N-1A, filed with the Securities and Exchange Commission ("SEC") on August 12, 1996, and is herein incorporated by reference.

(2)

(3)

(4)

Previously filed as an exhibit to the Registrant's Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A, filed with the SEC on November 15, 1996, and is hereby incorporated by reference.

Previously filed as an exhibit to the Registrant's Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A, filed with the SEC on December 17, 1996, and is herein incorporated by reference.

Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 14 to the Registration Statement on Form N-1A, filed with the SEC on April 20, 2000, and is herein incorporated by reference.

(5)

(6)

Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 25 to the Registration Statement on Form N-1A, filed with the SEC on February 25, 2004, and is herein incorporated by reference.

Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 40 to the Registration Statement on Form N-1A, filed with the SEC on April 30, 2008, and is herein incorporated by reference.

(7)Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 46 to the Registration Statement on Form N-1A, filed with the SEC on April 30, 2010, and is herein incorporated by reference.

(8)Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 50 to the Registration Statement on Form N-1A, filed with the SEC on September 2, 2011, and is herein incorporated by reference.

(9)

(10)

Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 52 to the Registration Statement on Form N-1A, filed with the SEC on April 30, 2012, and is herein incorporated by reference.

Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 54 to the Registration Statement on Form N-1A, filed with the SEC on May 1, 2013, and is herein incorporated by reference.

(11)Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 56 to the Registration Statement on Form N-1A, filed with the SEC on February 26, 2014, and is herein incorporated by reference.

(12)Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 57 to the Registration Statement on Form N-1A, filed with the SEC on April 30, 2014, and is herein incorporated by reference.

3

 

(13)Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 59 to the Registration Statement on Form N-1A, filed with the SEC on April 30, 2015, and is herein incorporated by reference.

(14)Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 61 to the Registration Statement on Form N-1A, filed with the SEC on April 29, 2016, and is herein incorporated by reference.

(15)Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 64 to the Registration Statement on Form N-1A, filed with the SEC on April 28, 2017, and is herein incorporated by reference.

(16)Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 79 to the Registration Statement on Form N-1A, filed with the SEC on April 30, 2018, and is herein incorporated by reference.

(17)Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 85 to the Registration Statement on Form N-1A, filed with the SEC on September 6, 2018, and is herein incorporated by reference.

(18)Previously filed as an exhibit to the Registrant's Post-Effective Amendment No. 87 to the Registration Statement on Form N-1A, filed with the SEC on April 30, 2019, and is hereby incorporated by reference.

Item 29. Persons Controlled by or Under Common Control with the Fund

No person is directly or indirectly controlled by or under common control with the Registrant.

Item 30. Indemnification

Article VI of Registrant's By-Laws states as follows:

Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this Article, "agent" means any person who is or was a Trustee, officer, employee or other agent of this Trust or is or was serving at the request of this Trust as a Trustee, director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise or was a Trustee, director, officer, employee or agent of a foreign or domestic corporation which was a predecessor of another enterprise at the request of such predecessor entity; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and "expenses" includes without limitation attorney's fees and any expenses of establishing a right to indemnification under this Article.

Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of this Trust) by reason of the fact that such person is or was an agent of this Trust, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding, if it is determined that person acted in good faith and reasonably believed:

(a)in the case of conduct in his official capacity as a Trustee of the Trust, that his conduct was in the Trust's best interests, and

(b)in all other cases, that his conduct was at least not opposed to the Trust's best interests, and

(c)in the case of a criminal proceeding, that he had no reasonable cause to believe the conduct of that person was unlawful.

The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that the person did not act in good faith and in a manner which the

4

 

person reasonably believed to be in the best interests of this Trust or that the person had reasonable cause to believe that the person's conduct was unlawful.

Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of this Trust to procure a judgment in its favor by reason of the fact that that person is or was an agent of this Trust, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of that action if that person acted in good faith, in a manner that person believed to be in the best interests of this Trust and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision to the contrary contained herein, there shall be no right to indemnification for any liability arising by reason of willful misfeasance, bad faith, gross negligence, or the reckless disregard of the duties involved in the conduct of the agent's office with this Trust.

No indemnification shall be made under Sections 2 or 3 of this Article:

(a)In respect of any claim, issue, or matter as to which that person shall have been adjudged to be liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the person's official capacity; or

(b)In respect of any claim, issue or matter as to which that person shall have been adjudged to be liable in the performance of that person's duty to this Trust, unless and only to the extent that the court in which that action was brought shall determine upon application that in view of all the circumstances of the case, that person was not liable by reason of the disabling conduct set forth in the preceding paragraph and is fairly and reasonably entitled to indemnity for the expenses which the court shall determine.

(c)Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval, or of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval, unless the required approval set forth in Section 6 of this Article is obtained.

Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of this Trust has been successful on the merits in defense of any proceeding referred to in Sections 2 or 3 of this Article or in defense of any claim, issue or matter therein, before the court or other body before whom the proceeding was brought, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith, provided that the Board of Trustees, including a majority who are disinterested, non-party Trustees, also determines that based upon a review of the facts, the agent was not liable by reason of the disabling conduct referred to in Section 4 of this Article.

Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this Article, any indemnification under this Article shall be made by this Trust only if authorized in the specific case on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in Sections 2 or 3 of this Article and is not prohibited from indemnification because of the disabling conduct set forth in Section 4 of this Article, by:

(a)A majority vote of a quorum consisting of Trustees who are not parties to the proceeding and are not interested persons of the Trust (as defined in the Investment Company Act of 1940); or

(b)A written opinion by an independent legal counsel.

Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any proceeding may be advanced by this Trust before the final disposition of the proceeding upon a written undertaking by or on behalf of the agent, to repay the amount of the advance if it is ultimately determined that he or she is not entitled to indemnification, together with at least one of the following as a condition to the advance: (i) security for the undertaking; or (ii) the existence of insurance protecting the Trust against losses arising by reason of any lawful advances; or (iii) a determination by a majority of a

5

 

quorum of Trustees who are not parties to the proceeding and are not interested persons of the Trust, or by an independent legal counsel in a written opinion, based on a review of readily available facts that there is reason to believe that the agent ultimately will be found entitled to indemnification. Determinations and authorizations of payments under this Section must be made in the manner specified in Section 6 of this Article for determining that the indemnification is permissible.

Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article shall affect any right to indemnification to which persons other than Trustees and officers of this Trust or any subsidiary hereof may be entitled by contract or otherwise.

Section 9. LIMITATIONS. No indemnification or advance shall be made under this Article, except as provided in Sections 5 or 6 in any circumstances where it appears:

(a)that it would be inconsistent with a provision of the Agreement and Declaration of Trust of the Trust, a resolution of the shareholders, or an agreement in effect at the time of accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid which prohibits or otherwise limits indemnification; or

(b)that it would be inconsistent with any condition expressly imposed by a court in approving a settlement.

Section 10. INSURANCE. Upon and in the event of a determination by the Board of Trustees of this Trust to purchase such insurance, this Trust shall purchase and maintain insurance on behalf of any agent of this Trust against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such, but only to the extent that this Trust would have the power to indemnify the agent against that liability under the provisions of this Article and the Agreement and Declaration of Trust of the Trust.

Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not apply to any proceeding against any Trustee, investment manager or other fiduciary of an employee benefit plan in that person's capacity as such, even though that person may also be an agent of this Trust as defined in Section 1 of this Article. Nothing contained in this Article shall limit any right to indemnification to which such a Trustee, investment manager, or other fiduciary may be entitled by contract or otherwise which shall be enforceable to the extent permitted by applicable law other than this Article.

In addition to the indemnification provisions provided for in the Registrant's By-Laws, the Registrant has also entered into indemnification agreements (the "Indemnification Agreements") with each of the Trustees and with its Chief Compliance Officer (collectively, the "Indemnitees"). The Indemnification Agreements set forth the procedure by which Indemnitees are to request and receive advancement of expenses and indemnification. The Indemnification Agreements provide that, in any determination for advancement of expenses or indemnification, the Indemnitees are entitled to a rebuttable presumption that they did not engage in conduct that would disqualify them from eligibility to receive advancement of expenses or for indemnification. The Indemnification Agreements also set forth the procedure by which an independent counsel may be chosen if independent counsel is to make a determination of any Indemnitee's qualification for advancement of expenses or indemnification.

Item 31. Business and Other Connections of the Investment Adviser

The information required by this item is contained in the Form ADVs of the following entities and is incorporated herein by reference:

Name of Investment Adviser

File No.

Litman Gregory Fund Advisors, LLC

801-52710

Name of Sub-Advisors

 

Ares Management LLC

801-63800

 

6

 

Brown Brothers Harriman & Co.

801-60256

Cove Street Capital, LLC

801-72231

Davis Selected Advisors, L.P.

801-31648

DCI, LLC

801-63857

DoubleLine Capital LP

801-70942

Evermore Global Advisors, LLC

801-70645

Fiduciary Management, Inc.

801-15164

First Pacific Advisors, LLC

801-67160

Guggenheim Partners Investment Management, LLC

801-66786

Harris Associates L.P.

801-50333

Lazard Asset Management LLC

801-61701

Loomis, Sayles & Company, L.P.

801-170

Neuberger Berman Investment Advisers LLC

801-61757

Nuance Investments, LLC

801-69682

Pictet Asset Management Limited

801-15143

Sands Capital Management, LLC

801-64820

Segall Bryant & Hamill, LLC

801-47232

Water Island Capital, LLC

801-57341

Wells Capital Management, Inc.

801-21122

Item 32. Principal Underwriters

(a)ALPS Distributors, Inc., the Registrant's principal underwriter, acts as principal underwriter for the following investment companies:

1 WS Credit Income Fund

1290 Funds

Aberdeen Standard Investments ETFs

ALPS Series Trust

The Arbitrage Funds

AQR Funds

Barings Funds Trust

BBH Trust

Bluerock Total Income + Real Estate Fund

Brandes Investment Trust

Bridge Builder Trust

Broadstone Real Estate Access Fund

Broadview Funds Trust

Brown Advisory Funds

Brown Capital Management Mutual Funds

Centre Funds

CION Ares Diversified Credit Fund

CCReal Estate Income Fund Columbia ETF Trust Columbia ETF Trust I Columbia ETF Trust II CRM Mutual Fund Trust CSOP ETF Trust

Cullen Funds Trust DBX ETF Trust

Flat Rock Opportunity Fund Financial Investors Trust Firsthand Funds

FS Credit Income Fund

FS Energy Total Return Fund FS Series Trust

7

 

FS Multi-Alternative Income Fund

Goehring & Rozencwajg Investment Funds

Goldman Sachs ETF Trust

Griffin Institutional Access Credit Fund

Griffin Institutional Access Real Estate Fund

Hartford Funds Exchange-Traded Trust

Hartford Funds NextShares Trust

Heartland Group, Inc.

Holland Series Fund, Inc.

Index Funds

IndexIQ ETF Trust

IndexIQ Active ETF Trust

Infusive US Trust

James Advantage Funds

Janus Detroit Street Trust

Lattice Strategies Trust

Litman Gregory Funds Trust

Longleaf Partners Funds Trust

M3Sixty Funds Trust

Mairs & Power Funds Trust

Meridian Fund, Inc.

Natixis ETF Trust

Pax World Funds Series Trust I

Pax World Series Trust III

Principal Exchange-Traded Funds

Reality Shares ETF Trust

Resource Credit Income Fund

Resource Real Estate Diversified Income Fund

RiverNorth Funds

Sierra Total Return Fund

Smead Funds Trust

SPDR Dow Jones Industrial Average ETF Trust

SPDR S&P 500 ETF Trust

SPDR S&P MidCap 400 ETF Trust

Sprott ETF Trust

Stadion Investment Trust

Stone Harbor Investment Funds

Stone Ridge Trust

Stone Ridge Trust II

Stone Ridge Trust III

Stone Ridge Trust IV

Stone Ridge Trust V

USCF ETF Trust

Wasatch Funds Trust

WesMark Funds

Wilmington Funds

XAI Octagon Credit Trust

(b)To the best of Registrant's knowledge, the directors and executive officers of ALPS Distributors, Inc. are as

follows:

8

 

Name and Principal

Positions and Offices with

Positions and Offices

Business Address*

ALPS Distributors, Inc.

with Registrant

Bradley J. Swenson

Director, President, Chief Operating Officer

None

Robert J. Szydlowski

Senior Vice President, Chief Technology Officer

None

Eric T. Parsons

Vice President, Controller and Assistant Treasurer

None

Joseph J. Frank**

Secretary

None

Patrick J. Pedonti**

Vice President, Treasurer and Assistant Secretary

None

Richard C. Noyes

Senior Vice President, General Counsel, Assistant Secretary

None

Steven Price

Senior Vice President, Chief Compliance Officer

None

Stephen J. Kyllo

Vice President, Deputy Chief Compliance Officer

None

Liza Orr

Vice President, Senior Counsel

None

Jed Stahl

Vice President, Senior Counsel

None

Josh Eihausen

Vice President, Associate Senior Counsel

None

James Stegall

Vice President

None

Gary Ross

Senior Vice President

None

Kevin Ireland

Senior Vice President

None

Mark Kiniry

Senior Vice President

None

Stephen J. Kyllo

Vice President, Deputy Chief Compliance Officer

None

Hilary Quinn

Vice President

None

Jennifer Craig

Assistant Vice President

None

*Except as otherwise noted, the principal business address for each of the above directors and executive officers is 1290 Broadway, Suite 1100, Denver, Colorado 80203.

**The principal business address for Messrs. Pedonti and Frank is 333 W. 11th Street, 5th Floor, Kansas City, Missouri 64105.

(c)Not applicable.

Item 33. Location of Accounts and Records

All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of

1940, as amended (the "1940 Act"), and the rules thereunder are maintained at the following locations:

Records Relating to:

Are located at:

Registrant's Investment Adviser

Litman Gregory Fund Advisors, LLC

 

1676 N. California Blvd., Suite 500

 

Walnut Creek, CA 94596

Registrant's Fund Administrator

State Street Bank and Trust Company

 

One Lincoln Street

 

Boston, MA 02116

Registrant's Custodian/Fund Accountant

State Street Bank and Trust Company

 

1776 Heritage Drive

 

Quincy, MA 02171

Registrant's Distributor

ALPS Distributors, Inc.

 

1290 Broadway, Suite 1100

 

Denver, CO 80203

Registrant's Transfer Agent

DST Asset Manager Solutions, Inc. (formerly, Boston Financial

 

Data Services, Inc.)

 

330 West 9th Street

 

Kansas City, MO 64105

The documents required to be maintained by paragraphs (5), (6), (10) and (11) of Rule 31a-1(b) under the 1940 Act will be maintained by the Registrant's respective Sub-Advisors:

9

 

 

Ares Management LLC

2000 Avenue of the Stars, 12th Floor

Los Angeles, CA 90067

Brown Brothers Harriman & Co.

140 Broadway

New York, NY 10005

Cove Street Capital, LLC

2101 East El Segundo, Suite 302

El Segundo, CA 90245

Davis Selected Advisers, L.P.

2949 E. Elvira Rd. Suite 101

Tucson, AZ, 85756

DCI, LLC

201 Spear Street, Suite 250

San Francisco, CA 94105

DoubleLine Capital LP

333 South Grand Avenue, Suite 1800

Los Angeles, CA 90071

Evermore Global Advisors, LLC

89 Summit Avenue

Summit, NJ 07901

Fiduciary Management, Inc.

100 East Wisconsin Avenue, Suite 2200

Milwaukee, WI 53202

First Pacific Advisors, LLC

11601 Wilshire Boulevard, Suite 1200

Los Angeles, CA 90025

Guggenheim Partners Investment Management, LLC 100 Wilshire Boulevard, 5th Floor

Santa Monica, CA 90401

Harris Associates L.P.

111 S. Wacker Drive, Suite 4600

Chicago, IL 60606

Lazard Asset Management LLC

30 Rockefeller Plaza

New York, NY 10112

Loomis, Sayles & Company, L.P.

One Financial Center

Boston, MA 02111

Neuberger Berman Investment Advisers LLC

1290 Avenue of the Americas

New York, NY 10104

Nuance Investments, LLC

4900 Main Street, Suite 220

Kansas City, MO 64112

Pictet Asset Management Limited

Moor House, 120 London Wall

London EC2Y 5ET – United Kingdom

Sands Capital Management, LLC

1000 Wilson Boulevard, Suite 3000

Arlington, VA 22209

10

 

 

Segall Bryant & Hamill, LLC

540 West Madison Street, Suite 1900

Chicago, IL 60661

Water Island Capital, LLC

41Madison Avenue, 42nd Floor New York, NY 10010

Wells Capital Management, Inc. 100 Heritage Reserve Menomonee Falls, WI 53051

Item 34. Management Services

The Registrant has disclosed all management-related service contracts in Parts A and B.

Item 35. Undertakings

Registrant hereby undertakes to:

(1)Furnish each person to whom a Prospectus is delivered a copy of Registrant's latest annual report to shareholders, upon request and without charge.

(2)If requested to do so by the holders of at least 10% of the Trust's outstanding shares, call a meeting of shareholders for the purposes of voting upon the question of removal of a trustee and assist in communications with other shareholders.

11

 

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended (the "Securities Act"), 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. 92 to its Registration Statement on Form N-1A to be signed below on its behalf by the undersigned, duly authorized, in the City of Walnut Creek and State of California, on the 29th day of April, 2020.

LITMAN GREGORY FUNDS TRUST

By: /s/ Jeremy DeGroot

Jeremy DeGroot

President

Pursuant to the requirements of the Securities Act of 1933, as amended, this Post-Effective Amendment No. 92 to its Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature

Title

Date

/s/ Julie Allecta*

 

Trustee

April 29, 2020

Julie Allecta

 

 

/s/ Jeremy DeGroot

Trustee and President

April 29, 2020

Jeremy DeGroot

(Principal Executive Officer)

 

/s/ Frederick A. Eigenbrod, Jr.*

Trustee

April 29, 2020

Frederick A. Eigenbrod, Jr.

 

 

/s/ Harold M. Shefrin*

Trustee

April 29, 2020

Harold M. Shefrin

 

 

/s/ John Coughlan

Treasurer

April 29, 2020

John Coughlan

(Principal Financial Officer)

 

* By: /s/ John Coughlan

 

 

John Coughlan, Attorney-in-Fact

 

 

12

 

  

Paul Hastings LLP 

101 California Street, 48th Floor 

San Francisco, California 94111 

  

  

1(415) 856-7007 

davidhearth@paulhastings.com 

  

  

  

April 29, 2020 

  

Via Edgar 

Litman Gregory Funds Trust 

1676 N. California Blvd., Suite 500 

Walnut Creek, California 94596 

  

Re:Litman Gregory Funds Trust - File Nos. 333-10015 and 811-07763 

  

Ladies and Gentlemen: 

  

We hereby consent to the inclusion of our law firm’s name as counsel to the Litman Gregory Funds Trust (the “Registrant”), as shown in Post-Effective Amendment No. 92 to the Registrant’s Registration Statement on Form N-1A. 

  

Very truly yours, 

/s/ David A. Hearth 

David A. Hearth 

for PAUL HASTINGS LLP 

  

  

  

  

  

  

  

  

  

  

  

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

  

We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our report dated February 28, 2020, relating to the financial statements and financial highlights of Litman Gregory Funds Tust comprising of Litman Gregory Masters Equity Fund, Litman Gregory Masters International Fund, Litman Gregory Masters Smaller Companies Fund, Litman Gregory Masters Alternative Strategies Fund and Litman Gregory Masters High Income Alternatives Fund for the year ended December 31, 2019, and to the references to our firm under the headings “Financial Highlights” in the Prospectus and “General Information” and “Financial Statements” in the Statement of Additional Information. 

  

  

/s/ Cohen & Company, Ltd. 

Cohen & Company, Ltd.  

Cleveland, Ohio 

April 23, 2020 

  

  

  

  

  

  

  

Information Classification: Limited Access 

  

LITMAN GREGORY FUNDS TRUST

DISTRIBUTION AND SHAREHOLDER SERVICING PLAN

(12b-1 Plan)

The following Distribution Plan (the "Plan") has been adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Act"), by Litman Gregory Funds Trust f/k/a The Masters' Select Funds Trust (the "Trust"), a Delaware statutory trust, on behalf of the Funds listed on Appendix B (the "Funds"), each a series of the Trust. The Plan has been approved by a majority of the Trust's Board of Trustees, including a majority of the Trustees who are not "interested persons" of the Trust, as such term is defined in Section 2(a)(19) of the Act, and who have no direct or indirect financial interest in the operation of the Plan or in any Rule 12b-1 Agreement (as defined below) (the "Independent Trustees"), cast in person at a meeting called for the purpose of voting on such Plan.

In approving the Plan, the Board of Trustees determined that adoption of the Plan would be prudent and in the best interests of each Fund and its shareholders. Such approval by the Board of Trustees included a determination, in the exercise of its reasonable business judgment and in light of its fiduciary duties, that there is a reasonable likelihood that the Plan will benefit each Fund and the shareholders of each class of shares covered by the Plan (the "Covered Shares").

The provisions of the Plan are as follows:

1.PAYMENTS BY THE FUND TO PROMOTE THE SALE OF FUND SHARES

The Trust, on behalf of each Fund, will pay ALPS Distributors, Inc. (the "Distributor"), as principal distributor of the Fund's shares, a distribution and shareholder servicing fee as shown on Appendix B in connection with the promotion and distribution of Fund shares and the provision of personal services to shareholders, including, but not necessarily limited to, advertising, compensation to underwriters, dealers and selling personnel, the printing and mailing of prospectuses to other than current Fund shareholders, and the printing and mailing of sales literature. The Distributor may pay all or a portion of these fees to any registered securities dealer, financial institution or any other person (the "Recipient") who renders assistance in distributing or promoting the sale of shares, or who provides certain shareholder services, pursuant to a written agreement (the "Rule 12b-1 Agreement"), a form of which is attached hereto as Appendix A with respect to the Fund. To the extent not so paid by the Distributor such amounts may be retained by the Distributor. Payment of these fees shall be made monthly promptly following the close of the month.

2.RULE 12B-1 AGREEMENTS

(a)No Rule 12b-1 Agreement shall be entered into with respect to a Fund and no payments shall be made pursuant to any Rule 12b-1 Agreement, unless such Rule 12b-1 Agreement is in writing and the form of which has first been delivered to and approved by a vote of a majority of the Trust's Board of Trustees, and of the Independent Trustees, cast in person at

 

a meeting called for the purpose of voting on such Rule 12b-1 Agreement. The form of

Rule 12b-1 Agreement relating to the Fund attached hereto as Appendix A has been approved by the Trust's Board of Trustees as specified above.

(b)Any Rule 12b-1 Agreement shall describe the services to be performed by the Recipient and shall specify the amount of, or the method for determining, the compensation to the Recipient.

(c)No Rule 12b-1 Agreement may be entered into unless it provides (i) that it may be terminated with respect to each Fund at any time, without the payment of any penalty, by vote of a majority of the shareholders of each Fund's Covered Shares, or by vote of a majority of the Independent Trustees, on not more than 60 days' written notice to the other party to the Rule

12b-1 Agreement, and (ii) that it shall automatically terminate in the event of its assignment (as defined in the Act and related rules and Securities and Exchange Commission interpretations thereof).

(d)Any Rule 12b-1 Agreement shall continue in effect for a period of more than one year from the date of its execution only if such continuance is specifically approved at least annually by a vote of a majority of the Board of Trustees, and of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such Rule 12b-1 Agreement.

3.QUARTERLY REPORTS

The Distributor shall provide to the Board of Trustees, and the Trustees shall review at least quarterly, a written report of all amounts expended pursuant to the Plan. This report shall include the identity of the Recipient of each payment and the purpose for which the amounts were expended and such other information as the Board of Trustees may reasonably request.

4.EFFECTIVE DATE AND DURATION OF THE PLAN

The Plan shall become effective immediately upon approval by the vote of a majority of the Board of Trustees, and of the Independent Trustees, cast in person at a meeting called for the purpose of voting on the approval of the Plan. The Plan shall continue in effect with respect to the Fund for a period of one year from its effective date unless terminated pursuant to its terms. Thereafter, the Plan shall continue with respect to the Fund from year to year, provided that such continuance is approved at least annually by a vote of a majority of the Board of Trustees, and of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such continuance. The Plan, or any Rule 12b-1 agreement, may be terminated with respect to the Fund at any time, without penalty, on not more than sixty (60) days' written notice by a majority vote of the shareholders of each Fund's Covered Shares, or by vote of a majority of the Independent Trustees.

 

5.SELECTION OF INDEPENDENT TRUSTEES

During the period in which the Plan is effective, the selection and nomination of those Trustees who are Independent Trustees of the Trust shall be committed to the discretion of the Independent Trustees.

6.AMENDMENTS

All material amendments of the Plan shall be in writing and shall be approved by a vote of a majority of the Board of Trustees, and of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such amendment. In addition, the Plan may not be amended to increase materially the amount to be expended by each Fund hereunder without the approval by a majority vote of the shareholders of each Fund's Covered Shares.

7.RECORDKEEPING

The Trust shall preserve copies of the Plan, any Rule 12b-1 Agreement and all reports made pursuant to Section 3 for a period of not less than six years from the date of this Plan, any such Rule 12b-1 Agreement or such reports, as the case may be, the first two years in an easily accessible place.

Adopted: February 25, 2009

Amended:

August 31, 2011

September 4, 2014

August 28, 2018

April 29, 2019

 

 

APPENDIX A TO

DISTRIBUTION AND SHAREHOLDER SERVICING PLAN

OF

LITMAN GREGORY FUNDS TRUST

Rule 12b-1 Related Agreement

ALPS DISTRIBUTORS, INC.

1290 Broadway, Suite 1100

Denver, CO 80203

____________________

____________________

____________________

 

Re: Litman Gregory Funds Trust

Ladies and Gentlemen:

This letter will confirm our understanding and agreement with respect to payments to be made to you pursuant to a Distribution and Shareholder Servicing Plan (the "Plan") adopted by Litman Gregory Funds Trust (the "Trust"), on behalf of the Funds listed on Schedule A (the "Funds"), a series of the Trust, pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Act"). The Plan and this related agreement (the "Rule 12b-1 Agreement") have been approved by a majority of the Board of Trustees of the Trust, including a majority of the Board of Trustees who are not "interested persons" of the Trust, as defined in the Act, and who have no direct or indirect financial interest in the operation of the Plan or in this or any other Rule 12b-1 Agreement (the "Independent Trustees"), cast in person at a meeting called for the purpose of voting thereon. Such approval included a determination by the Board of Trustees that, in the exercise of its reasonable business judgment and in light of its fiduciary duties, there is a reasonable likelihood that the Plan will benefit the holders of the shares of each Fund covered by the Plan (the "Covered Shares").

1.To the extent you provide distribution and marketing services in the promotion of the Fund's Covered Shares and/or services to the holders of Covered Shares, including furnishing services and assistance to your customers who invest in and own Covered Shares, including, but not limited to, answering routine inquiries regarding the Fund and assisting in changing account designations and addresses, we shall pay you a fee as described on Schedule A. We reserve the right to increase, decrease or discontinue the fee at any time in our sole discretion upon written notice to you.

You agree that all activities conducted under this Rule 12b-1 Related Agreement will be conducted in accordance with the Plan, as well as all applicable state and federal laws, including the Act, the Securities Exchange Act of 1934, the Securities Act of 1933, the U.S. Patriot Act of 2001 and any applicable rules of the National Association of Securities Dealers, Inc.

2.You shall furnish us with such information as shall reasonably be requested either by the Trustees of the Fund or by us with respect to the services provided and the fees paid to you pursuant to this Rule 12b-1 Agreement.

 

3.We shall furnish to the Board of Trustees, for its review, on a quarterly basis, a written report of the amounts expended under the Plan by us and the purposes for which such expenditures were made.

4.This Rule 12b-1 Agreement may be terminated by the vote of (a) a majority of the holders of Covered Shares, or (b) a majority of the Independent Trustees, on 60 days' written notice, without payment of any penalty. In addition, this Rule 12b-1 Agreement will be terminated by any act which terminates the Plan or the Distribution Agreement between the Trust and us and shall terminate immediately in the event of its assignment. This Rule 12b-1 Agreement may be amended by us upon written notice to you, and you shall be deemed to have consented to such amendment upon effecting any purchases of Covered Shares for your own account or on behalf of any of your customer's accounts following your receipt of such notice.

5.This Rule 12b-1 Agreement shall become effective on the date accepted by you and shall continue in full force and effect so long as the continuance of the Plan and this Rule 12b-1 Agreement are approved at least annually by a vote of the Board of Trustees of the Trust and of the Independent Trustees, cast in person at a meeting called for the purpose of voting thereon. All communications to us should be sent to the above address. Any notice to you shall be duly given if mailed or faxed to you at the address specified by you below.

ALPS Distributors, Inc.

By:

(Name and Title)

Accepted:

(Dealer or Service Provider Name)

(Street Address)

(City)(State)(ZIP)

(Telephone No.)

(Facsimile No.)

By:

(Name and Title)

 

Schedule A

to the

Rule 12b-1 Related Agreement

For all services rendered pursuant to the Rule 12b-1 Agreement, we shall pay you a fee calculated as follows:

Fee of 0.25% of the average daily net assets of each Fund covered by the Plan (computed on an annual basis) which are owned of record by your firm as nominee for your customers or which are owned by those customers of your firm whose records, as maintained by the Trust or its agent, designate your firm as the customer's dealer or service provider of record.

We shall make the determination of the net asset value, which determination shall be made in the manner specified in the Fund's current prospectus, and pay to you, on the basis of such determination, the fee specified above, to the extent permitted under the Plan.

 

APPENDIX B TO

DISTRIBUTION AND SHAREHOLDER SERVICING PLAN

OF

LITMAN GREGORY FUNDS TRUST

FUNDS

CLASSES

12b-1 Fee (as a %

 

 

of Avg. Net Assets

Litman Gregory Masters Equity Fund

Institutional Class Shares

NONE

Litman Gregory Masters International Fund

Institutional Class Shares

NONE

Litman Gregory Masters Smaller

Institutional Class Shares

NONE

Companies Fund

 

 

Litman Gregory Masters Alternative

Institutional Class Shares

NONE

Strategies Fund

Investor Class Shares*

0.25%

Litman Gregory Masters High

Institutional Class Shares

NONE

Income Alternatives Fund

Investor Class Shares*

0.25%

———————

 

 

* Covered Shares.

 

 

LITMAN GREGORY FUNDS TRUST

MULTIPLE CLASS PLAN

This Multiple Class Plan (this "Plan") is adopted pursuant to Securities and Exchange Commission Rule 18f–3 promulgated under the Investment Company Act of 1940, as amended (the "1940 Act").

This Plan shall govern the terms and conditions under which Litman Gregory Funds Trust f/k/a The Masters' Select Funds Trust (the "Trust") may issue separate classes of shares representing interests in the Funds listed in Appendix B, all series of the Trust (each a "Fund" and together the "Funds"). To the extent that a subject matter herein is covered by the Trust's Agreement and Declaration of Trust or Bylaws, the Agreement and Declaration of Trust and Bylaws will control in the event of any inconsistencies with the descriptions herein.

SECTION 1. Rights and Obligations.

Except as set forth herein, all classes of shares issued by a Fund shall have identical voting, dividend, liquidation and other rights, preferences, powers, restrictions, limitations, qualifications, designations, and terms and conditions. The only differences among the various classes of shares shall relate solely to the following: (a) each class may be subject to different class expenses as discussed under Section 3 of this Plan; (b) each class may bear a different identifying designation; (c) each class shall have exclusive voting rights with respect to matters solely affecting such class; (d) each class may have different exchange privileges; and (e) each class may be offered to different types of investors.

SECTION 2. Classes of Shares and Designation Thereof.

Each Fund may offer any or all of the following classes of shares:

(a)Institutional Class Shares. "Institutional Class Shares" will be offered with no sales charges, transaction fees, shareholder service fees or distribution (Rule 12b- 1) fees. Institutional Class Shares do not automatically convert into shares of any other class.

(b)Investor Class Shares. "Investor Class Shares" will be offered with no sales charges, shareholder service fees, or transaction fees. Investor Class Shares will be subject to distribution (12b-1) fees at an annual rate of up to 0.25% of average daily net assets attributable to the Investor Class Shares. Investor Class Shares do not automatically convert into shares of any other class.

SECTION 3. Allocation of Expenses.

(a)Class Expenses. Each class of shares may be subject to different class expenses consisting of: (1) shareholder service fees, if applicable to a particular class; (2) transfer agency and other recordkeeping costs to the extent allocated to a

1

particular class; (3) Securities and Exchange Commission ("SEC") and blue sky registration fees incurred separately by a particular class; (4) litigation or other legal expenses relating solely to a particular class; (5) printing and postage expenses related to the preparation and distribution of class-specific materials such as shareholder reports, prospectuses and proxies to shareholders of a particular class; (6) expenses of administrative personnel and services as required to support the shareholders of a particular class; (7) audit or accounting fees or expenses relating solely to a particular class; (8) Trustee fees and expenses incurred as a result of issues relating solely to a particular class; (9) distribution (Rule 12b-1) fees, if applicable to a particular class; and (10) any other expenses subsequently identified that should be properly allocated to a particular class, which shall be approved by the Board of Trustees (collectively, the "Class Expenses").

(b)Other Expenses. Except for the Class Expenses discussed above (which will be allocated to the appropriate class), all expenses incurred by each Fund will be allocated in accordance with Rule 18f-3 (c).

(c)Waivers and Reimbursements of Expenses. Litman/Gregory Fund Advisors, LLP (the "Adviser") and any other provider of services to the Funds may waive or reimburse the expenses of a particular class or classes, provided, however, that such waiver shall not result in cross–subsidization among classes.

SECTION 4. Allocation of Income.

The Funds will allocate income and realized and unrealized capital gains and losses in accordance with Rule 18f-3 (c).

SECTION 5. Exchange Privileges.

A class of shares of a Fund may be exchanged only for the same class of shares of another Fund. All exchanges will be subject to such conditions as may be imposed from time to time as disclosed in Appendix A.

SECTION 7. Effective Date.

This Plan shall not take effect with respect to a Fund until (a) a majority of the Trustees of the Trust, including a majority of the Trustees who are not "interested persons" of the Trust (as defined in the 1940 Act), find that the Plan, as proposed and including the expense allocations, is in the best interests of each Institutional Class individually and the Trust as a whole, and (b) an amendment to the Trust's registration statement under the 1940 Act and the Securities Act of 1933, as amended, with respect to multiple classes of the Fund has become effective.

2

SECTION 8. Amendments.

This Plan may not be amended to materially change the provisions of this Plan unless such amendment is approved in the manner specified in item (a) of Section 7 above.

Adopted: February 25, 2009

Amended:

August 31, 2011

August 28, 2018

April 29, 2019

3

APPENDIX A TO

MULTIPLE CLASS PLAN

OF

LITMAN GREGORY FUNDS TRUST

EXCHANGE PRIVILEGES

SECTION 1. TERMS AND CONDITIONS OF EXCHANGES.

Shareholders of the Funds may participate in exchanges as described below. An exchange is permitted only in the following circumstances:

(a)the exchange must be between the same class of shares (e.g., Institutional Class Shares of one Fund cannot be exchanged for Investor Class Shares of another Fund, nor can Institutional Class Shares of one Fund be exchanged for Investor Class Shares of that same Fund);

(b)the dollar amount of the exchange must be at least equal to the minimum investment applicable to the shares of the Fund acquired through such exchange;

(c)the shares of the Fund acquired through exchange must be qualified for sale in the state in which the shareholder resides;

(d)the exchange must be made between accounts having identical registrations and addresses;

(e)the full amount of the purchase price for the shares being exchanged must have already been received by the Trust;

(f)the account from which shares have been exchanged must be coded as having a certified taxpayer identification number on file or, in the alternative, an appropriate IRS Form W–8 (certificate of foreign status) or Form W–9 (certifying exempt status) must have been received by the Trust;

(g)newly acquired shares (through either an initial or subsequent investment) must be held in an account for at least ten days, and all other shares are held in an account for at least one day, prior to the exchange; and

(h)certificates (if any) representing shares must be returned before shares can be exchanged.

Because excessive exchanges can harm a Fund's performance, the Trust does not accommodate frequent purchases and redemptions of Fund shares and reserves the right to restrict, reject or cancel, without any prior notice, any purchase or exchange order, including

A-1

transactions representing excessive trading (accounts under common ownership or control and accounts with the same taxpayer identification number will be counted together). The Adviser and the Trust's transfer agent currently monitor for various patterns in trading activity in client accounts, including omnibus accounts, such as a purchase and sale of approximately the same amount of shares of a Fund (a "round trip") more than twice in any twelve month period. These parameters are subject to change. The Trust reserves the right to refuse exchanges by any person or group if, in the Adviser's judgment, a Fund would be unable effectively to invest the money in accordance with its investment objective and policies, or would otherwise be potentially adversely affected. A shareholder's exchanges may be restricted or refused if a Fund receives, or the Adviser anticipates, simultaneous orders affecting significant portions of that Fund's assets and, in particular, a pattern of exchanges coinciding with a "market timing" strategy. Although the Trust attempts to provide prior notice to affected shareholders when it is reasonable to do so, it may impose these restrictions at any time. The Trust reserves the right to terminate or modify the exchange privileges of Fund shareholders in the future.

THE EXCHANGE PRIVILEGE IS NOT AN OPTION OR RIGHT TO PURCHASE SHARES BUT IS PERMITTED UNDER THE RESPECTIVE POLICIES OF THE PARTICIPATING FUNDS, AND MAY BE MODIFIED OR DISCONTINUED BY THE TRUST OR BY THE ADVISER OR DISTRIBUTOR OF THE FUNDS AT ANY TIME, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WITHOUT NOTICE.

Shares to be exchanged will be redeemed at their net asset value as determined at the close of business on the day that an exchange request in proper form is received, as described in the applicable prospectus. Exchange requests received after the required time will result in the redemption of shares at their net asset value as determined at the close of business on the next business day.

In the event of unusual market conditions, the Trust reserves the right to reject any exchange request if, in the judgment of the Adviser, the number of requests or the total value of the shares that are the subject of the exchange are likely to place a material burden on a Fund. For example, the number of exchanges by investment managers making market–timing exchanges may be limited.

SECTION 2. FEES.

There is no fee for exchanges between the Funds.

SEE THE APPLICABLE PROSPECTUS FOR MORE INFORMATION ABOUT SHARE EXCHANGES.

A-2

APPENDIX B TO

MULTIPLE CLASS PLAN

OF

LITMAN GREGORY FUNDS TRUST

FUNDS

CLASSES

Litman Gregory Masters Equity Fund

Institutional Class Shares

Litman Gregory Masters International Fund

Institutional Class Shares

Litman Gregory Masters Smaller Companies Fund

Institutional Class Shares

Litman Gregory Masters Alternative Strategies

Institutional Class Shares

Fund

Investor Class Shares

Litman Gregory Masters High Income Alternatives

Institutional Class Shares

Fund

Investor Class Shares

B-1

APPENDIX B - CODE OF ETHICS

FIRST PACIFIC ADVISORS, LP

and

FPA FUNDS

CODE OF ETHICS

October 2019

A.BACKGROUND

First Pacific Advisors, LP ("FPA" or the "Company") serves as the investment adviser to FPA Funds Trust (the "Trust"), FPA Capital Fund, Inc., FPA New Income, Inc., FPA Paramount Fund, Inc., FPA U.S. Value Fund, Inc., and Source Capital, Inc. (each a "Fund" and collectively with the Trust, the "FPA Funds"). In addition, FPA serves as the investment adviser to certain separately managed accounts, sub-advised mutual funds, and FPA Private Funds (together with the FPA Funds, the "Clients"). This Code of Ethics ("CODE") is being adopted by the FPA Funds and FPA in compliance with the requirements of Rule 17j-1 under the Investment Company Act of 1940, as amended (the "IC Act"), and Sections 204A and 206 of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and Rule 204A-1 thereunder, to effectuate the purposes and objectives of those provisions. These provisions make it unlawful for any Employee (as defined below), officer or director of the Funds, the Trust or FPA, in connection with the purchase or sale by such person of a security held or to be acquired by a Client:17

To employ a device, scheme or artifice to defraud the Client;

To make to the Client any untrue statement of a material fact or omit to state to the Client a material fact necessary in order to make the statements made, in light of the circumstances in which they are made, not misleading;

To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon the Client; or

To engage in a manipulative practice with respect to the Client.

Each reference herein to "Employee" means:

all FPA personnel;

certain consultants employed by FPA from time to time, as determined by FPA's Chief Compliance Officer (the "CCO"); and

certain of FPA's temporary workers, as determined from time to time by the CCO, who are hired on a temporary basis, including those employed by a third party, and interns.

A security is deemed to be "held or to be acquired" if within the most recent fifteen (15) calendar days it (i) is or has been held by a Client, or (ii) is being or has been considered by FPA for purchase by the Client.

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This CODE is predicated on the principle that FPA owes a fiduciary duty to its Clients. As a fiduciary, FPA at all times must serve in its Clients' best interests and comply with all applicable provisions of the Federal Securities Laws (as defined below). FPA's employees must avoid activities, interests, and relationships that run contrary to the best interests of Clients, whether as a result of a possible conflict of interest, the improper use of confidential information, diversion of an investment opportunity, or other impropriety with respect to dealing with or acting on behalf of a Client. FPA has implemented separate policies and procedures that seek to address the aforementioned potential conflicts, including, but not limited to:

INSIDER TRADING

TRADE AGGREGATION AND ALLOCATION, BEST EXECUTION, AND SOFT DOLLARS

BUSINESS GIFTS AND ENTERTAINMENT

OUTSIDE BUSINESS ACTIVITIES

POLITICAL CONTRIBUTIONS

This CODE does not attempt to identify all possible conflicts of interest, and literal compliance with each specific provision will not act as a shield from liability for personal trading or other conduct that violates a fiduciary duty to Clients. Although no written code can take the place of personal integrity, the following, in addition to common sense and sound judgment, should serve as a guide to the minimum standards of proper conduct.

B.REPORTING VIOLATIONS

Improper actions by FPA or its Employees could have severe negative consequences for FPA, its Clients, including investors in its pooled investment vehicles ("Investors"), and its Employees. Impropriety, or even the appearance of impropriety, could negatively impact all Employees, including people who had no involvement in the problematic activities.

Employees must promptly report any improper or suspicious activities, including any suspected violations of the CODE, to the CCO. Issues can be reported in person, or by telephone, email, or written letter. Reports of potential issues may be made anonymously. Any reports of potential problems will be thoroughly investigated by the CCO, who will report directly to the Directors of the General Partner on the matter. Any problems identified during the review will be addressed in ways that reflect FPA's fiduciary duty to its Clients.

An Employee's identification of a material compliance issue will be viewed favorably by FPA's senior executives. Retaliation against any Employee who reports a violation of the CODE in good faith is strictly prohibited and will be cause for corrective action, up to and including dismissal. If an Employee believes that he or she has been retaliated against, he or she should notify a Director of the General Partner and/or the CCO.

If the CCO determines that a material violation of this CODE has occurred, he/she will promptly report the violation, and any associated action(s), to the Directors of the General Partner. If the Directors of the General Partner determine that the material violation may involve a

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fraudulent, deceptive or manipulative act, FPA will report its findings to the FPA Funds' Board of Directors or Trustees pursuant to Rule 17j-1. The FPA Funds have separately adopted a WHISTLEBLOWER POLICY with respect to complaints involving the FPA Funds.

C.DEFINITIONS

"Access Person" means any director, officer, or employee of: (i) the FPA Funds; (ii) FPA, including their spouses/partners or their Immediate Families (as defined below); or (iii) any company in a control relationship to the FPA Funds or FPA.18 In addition, "Access Person" means any natural person in a control relationship to the FPA Funds or FPA who obtains information concerning recommendations made to a Client with regard to the purchase or sale of Covered Securities. Unless otherwise determined by the FPA Funds' CCO in writing, Independent FPA Fund Trustees/Directors and third-party FPA Fund officers are deemed not to be Access Persons under this Code on the grounds that they do not have regular access to information or recommendations regarding the purchase or sale of Covered Securities and risk of abuse is deemed minimal.

"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.

A security is "being considered for purchase or sale" or is "being purchased or sold" when a recommendation to purchase or sell the security has been made and communicated, which includes when a Client has a pending "buy" or "sell" order with respect to a security, and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. "Purchase or sale of a security" includes the writing, purchasing or selling of an option to purchase or sell a security.

"Beneficial Interest" means the opportunity, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, to profit, or share in any profit derived from, a transaction in the subject securities. An Access Person is deemed to have a Beneficial Interest in securities owned by members of his or her Immediate Family. Common examples of Beneficial Interest include joint accounts, spousal accounts, Uniform Transfers to Minors Act accounts, partnerships, trusts, and controlling interests in corporations. Uncertainty as to whether an Access Person has a Beneficial Interest in a security should be brought to FPA's Compliance Department ("Compliance"). Such questions will be resolved in accordance with, and this definition shall be subject to, the definition of "beneficial owner" found in Rules 16a- 1(a)(2) and (5) promulgated under the Securities Exchange Act of 1940, as amended.

"Board" refers to the Board of Directors of the Funds and the Board of Trustees of the Trust.

For purposes of this Code, "control" has the same meaning as it does under Section 2(a)(9) of the IC Act.

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"Covered Security" means a security as defined in Section 202(a)(18) of the Advisers Act and Section 2(a)(36) of the IC Act,19 except that it does not include: (i) direct obligations of the Government of the United States; (ii) bankers' acceptances, bank certificates of deposit, commercial paper, high quality short-term debt instruments (maturity of less than 366 days at issuance and rated in one of the two highest rating categories by a nationally recognized statistical rating organization), and repurchase agreements; (iii) shares issued by money market funds; (iv) shares issued by open-end funds (other than Reportable Funds, as defined below); (v) interests in 529 college savings plans; (vi) shares issued by unit investment trusts that are invested exclusively in one or more open-end registered investment companies; (vii) physical commodities, (e.g., gold coins), including foreign currencies; and (ix) currency (FX) forwards. For the avoidance of doubt, exchange-traded funds ("ETFs") and closed-end funds (such as Source Capital, Inc.) are Covered Securities and are thus subject to the preclearance and reporting requirements set forth below. In addition, investments in private placements or limited offerings are also considered Covered Securities and must be pre-cleared and reported as described below. Included in the category of private investments that are considered Covered Securities are crypto-currencies (e.g., bitcoin, ethereum, etc.) and crypto-currency related securities and businesses (e.g., crypto "futures" (e.g., instruments traded on the CME or any other authorized exchange), utility tokens, private tokens, private crypto funds, and Initial Coin Offerings ("ICOs"), etc. Any question as to whether a particular investment constitutes a "security" or a 'Covered Security' should be referred to Compliance.

"Employee-Related Account" means an account for any of the following persons: (i) the Employee, (ii) the Employee's Immediate Family (as defined); and (iii) an entity or individual for whom/which the Employee acts as general partner / managing member, trustee, executor or agent.20

"Equivalent Security" means any security issued by the same entity as the issuer of a Covered Security, including options, rights, stock appreciation rights, warrants, preferred stock, restricted stock, phantom stock, futures on single securities, bonds, and other obligations of that company or security otherwise convertible into that security. Options on securities and futures on single securities are included even if, technically, they are issued by the Options Clearing Corporation, a futures clearing corporation, or a similar entity.

19A Security means any note, stock, treasury stock, security future, bond, debenture, evidence 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 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 or instrument commonly known as a ''security'', or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

20FPA Private Funds for which an Employee or group of Employees hold a greater than 25% Beneficial Interest are exempt from the following provisions: Sections D.2 and G.; provided however, such funds shall be subject to FPA's Trade Aggregation and Allocation, Best Execution, and Soft Dollars policies and procedures.

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"Federal Securities Laws" means the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the IC Act, the Advisers Act, Title V of the Gramm-Leach-Bliley Act (governing disclosure of nonpublic personal information), and any rules adopted by the U.S. Securities and Exchange Commission (the "Commission") under any of these statutes, the Bank Secrecy Act (imposing restrictions designed to prevent financial intermediaries from being used in money laundering activities) as it applies to mutual funds and investment advisers, and any rules adopted thereunder by the Commission or the Department of the Treasury.

"Immediate Family" includes your spouse/domestic partner, minor children and/or stepchildren, and other Relatives who live with you (including adult children and/or stepchildren) if you contribute to their financial support. The definition also includes adoptive relationships. "Relative" means relative by blood, marriage or adoption and not more remote than a first cousin.

"Independent Trustee" means a member of the Board who is not affiliated with FPA and who does not otherwise meet the definition of "interested person" of the Funds or the Trust under Section 2(a)(19) of the IC Act.

"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 Securities Exchange Act of 1934.

"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.

"Reportable Fund" means any open-end fund for which FPA serves as an investment adviser or sub-adviser as defined in Section 2(a)(20) of the IC Act or any open-end fund whose investment adviser or principal underwriter controls FPA, is controlled by FPA, or is under common control with FPA.

"Third-party Fund officer" means an officer of a Fund that is an employee of a Fund service provider that is not FPA or an affiliate of FPA.

"Trustee" means a member of the Board of Directors of the Funds or the Board of Trustees of the Trust.

D.PROHIBITED TRANSACTIONS

1.No Access Person, Independent Trustee, or Third-party Fund officer, shall:

(a)Engage in any act, practice or course of conduct, which would violate the provisions of Rules 17j-1 and 204A-1 set forth above.

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(b)Transact in any Covered or Equivalent Security if the Access Person, Independent Trustee, or Third-party Fund officer knows that, at the time of such personal transaction, the Covered or Equivalent Security:

(1)is being considered for purchase or sale for Clients, or

(2)is being purchased or sold for Clients.

(c)Disclose to other persons the portfolio holdings of Clients, except as expressly permitted by FPA.21 In addition, except as required to effectuate securities transactions on behalf of a Client or for other legitimate business purposes, Access Persons must keep non-public information about Clients (including former Clients) in strict confidence, including the Client's identity (unless the Client consents), the Client's financial circumstances, and advice furnished to the Client by FPA. Compliance procedures regarding the use and treatment of confidential information are set forth in

FPA's PRIVACY POLICY.

(d)"Front-run" any Client transaction, which is a practice generally understood to be knowingly personally trading ahead of or in anticipation of client orders.

(e)Acquire personally or beneficially any securities in an Initial Public Offering (IPO), in order to preclude any possibility of such person profiting from his or her position with FPA or the FPA Funds. Fixed income IPOs are excluded from this prohibition. Access Persons must pre-clear any such purchases with Compliance, as described below.

NOTE: This prohibition only applies to Independent Trustees and Third-party Fund officers to the extent that such Independent Trustee or Third-party Fund officer obtains information concerning recommendations made to the FPA Funds regarding the purchase or sale of securities in an IPO by the FPA Funds.

(f)Purchase personally or beneficially any securities in a Private Placement,22 without prior approval of Compliance, as described below. Any person authorized to purchase securities in a Private Placement shall disclose that investment when such person plays a part in any subsequent consideration of an investment [on behalf of a Client] in the issuer. In such circumstances, FPA's decision to purchase securities of the issuer shall be subject to independent review by investment personnel with no personal interest in the issuer.

NOTE: This prohibition only applies to Independent Trustees and Third-party Fund officers to the extent that such Independent Trustee or Third-party Fund officer obtains information concerning recommendations made to the FPA Funds regarding the purchase or sale of Private Placements by the FPA Funds.

This prohibition is rooted in the fiduciary principle that information concerning the identity of security holdings and financial circumstances of its Clients is confidential.

22FPA Private Funds are exempt from the requirements set forth in Section D.1.(f).

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2.No Access Person shall, personally or beneficially:

(a)Transact in Covered or Equivalent Securities that are held in any Client account.23

Existing positions held by Client accounts that also are held by Access Persons in any account in which the Access Person has a Beneficial Interest, control, or trading authority may not be sold without the approval of Compliance, as described below. Such approval shall not be granted if there is an open block trade in such security.

(b)Transact in Covered Securities within the seven (7) calendar day period prior to transaction(s) for a Client in the same or an Equivalent Security if Compliance determines that the Access Person had knowledge that such security was under consideration for purchase or sale. Access Persons who transact in a Covered Security within such period may be required to unwind the transaction at their own cost if Compliance determines that the Access Person had or is deemed to have had knowledge of the Client transaction at the time of their personal or beneficial investment.

Access Persons should be aware that if they sell short a Covered Security and a Client account transacts in the same or an Equivalent Security within seven (7) calendar days, they may be prevented from covering their short transaction with a subsequent purchase.

(c)Purchase and sell, or sell and purchase, the same (or Equivalent) Covered Securities within sixty (60) calendar days. This prohibition applies to short sales and option transactions. Options transactions require the expiration date to be at a minimum sixty

(60)days from trade date. This prohibition applies without regard to tax lot considerations and without regard to profitability. Any exceptions to this policy (e.g., if a security is experiencing unprecedented losses) require advance written approval from the CCO or designee.

Trades made in violation of this prohibition may be required to be unwound, if possible. Otherwise, any profits realized on such short-term trades shall be subject to disgorgement to a qualified charity, with the exception of trades in shares of a FPA Fund, in which case any profits realized shall be subject to disgorgement to such FPA Fund.

E.RESTRICTED LIST

Compliance maintains a "Restricted List" of companies about which a determination has been made by the Legal Department ("Legal") and/or the CCO that it is prudent to restrict trading activity. This might include, for example, a company about which investment personnel may have acquired material, nonpublic information. Legal generally only communicates the Restricted List to Employees who need to know as part of their job function. Employees are not permitted to: (i)

FPA Private Funds are exempt from this restriction, as well as the seven (7) calendar day restriction set forth in Section D.2.(b).

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disclose the name of any company on the Restricted List to anyone outside the firm; or (ii) discuss any company on the Restricted List with anyone outside the firm.

As a general rule, trading is restricted for companies appearing on FPA's Restricted List, both for Client and Employee accounts. Similarly, any determination to remove a company from the Restricted List must be approved by Legal. Restrictions with regard to securities on the Restricted List extend to Equivalent Securities.

F.EXEMPTED TRANSACTIONS

The prohibitions of Subparagraphs D.1.(b), D.2.(a), D.2.(b), and D.2.(c) shall not apply

to:

1.Purchases or sales effected in any account over which the Access Person has no direct or indirect influence or control, and Compliance has exempted such account from personal securities transaction reporting;

2.Purchases or sales that are non-volitional on the part of the Access Person or Client, as applicable;

3.Transactions which are part of an Automatic Investment Plan;

4.Purchases effected upon the 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 issuer, and sales of such rights so acquired; and

5.Acquisitions through stock dividends, dividend reinvestments, stock splits, reverse stock splits, mergers, consolidations, spin-offs, or other similar corporate reorganizations or distributions generally applicable to all holders of the same class of securities.

G.COMPLIANCE PROCEDURES

FPA utilizes a web-based compliance reporting platform ("Personal Trading Control Center" or "PTCC") to facilitate Access Persons' completion of compliance obligations, and certain forms and disclosures required by this CODE. Employee Related Accounts and holdings reports (as set forth below), must be reported through PTCC, unless Compliance permits acceptance of such reports in another form. PTCC is available at https://aca.complysci.com/default.aspx. To the extent that all required information is included in the broker feeds linked to Employee Related Accounts in PTCC, the reports set forth in the Reporting Requirements section below will be deemed complete. Access Persons should note, however, if Covered Securities are held directly, as is the case of Private Placements, they must manually enter the information such that it is included in applicable reports.

Access Persons are generally only authorized to establish new Employee Related Accounts at PTCC-eligible brokers. Compliance must approve any exceptions in writing. With respect to non-PTCC eligible accounts established prior to FPA's implementation of PTCC ("Grandfathered Accounts"), Access Persons are required to ensure that Compliance receives duplicate account

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statements within the time periods required by the CODE.

1.Pre-clearance. All Access Persons shall receive prior written approval24 from Compliance before purchasing or selling Covered or Equivalent Securities, including investments in Private Placements, closed-end funds, and ETFs. Transactions in open-end mutual funds, including Reportable Funds, are not subject to the pre-clearance requirement. Prior to approval of a transaction, Compliance will consider, among other things, the following:

(a)If the security being requested for a sale transaction is currently held by any Client account, Compliance will confirm whether a trade in the same security or a related security is on the trade blotter.

(b)If the security requested for pre-clearance is on FPA's Restricted List, Compliance will review the facts and circumstances surrounding both the pre-clearance request and the reason for the inclusion of the security on the Restricted List.

In all cases, pre-clearance approval is only effective on the day the approval is granted.25

2.Reporting Requirements. In order to provide FPA with information to enable it to determine with reasonable assurance whether there are any indications of scalping,26 front- running, other abusive trading, or the appearance of a conflict of interest with the trading by Clients, all Access Persons shall submit the following reports to Compliance showing all holdings and transactions in Covered or Equivalent Securities and securities accounts in which the person has, or by reason of such transaction acquires, any direct or indirect Beneficial Interest. For the avoidance of doubt, Reportable Funds are Covered Securities and therefore subject to the Reporting Requirements set forth below.

(a)Disclosure of Personal Holdings. All Access Persons shall disclose to Compliance all accounts that hold any securities (including any accounts that may hold "Non-Covered Securities") and all holdings in Covered Securities within ten (10) calendar days of becoming an Access Person (which must be current as of a date not more than forty- five (45) calendar days before the report is submitted) (the "Initial Report")27 and annually thereafter (which must be current as of a date not more than forty-five (45) calendar days before submitting the report) (the "Annual Report"). Such reports shall include:

In the event that the Access Person requesting pre-clearance is unable to submit a written request for pre-clearance, Compliance may grant telephonic approval and will document such approval in writing.

25Compliance recognizes that there may be a timing issue for foreign transactions, whereby a pre-approval may be granted on a certain day, but when the transaction is executed, it may already be the next day in the country of origin. This is acceptable as long as the Employee executes the transaction on the date of pre-approval.

Scalping occurs when an employee purchases securities for clients for the sole purpose of increasing the value of the same securities held in such employee's personal accounts.

Along with the Initial Report, such Access Person must complete an initial certification that they have received, read, and understood the Code and that they agree to comply with the terms thereof. Access Persons are required to complete this certification in PTCC.

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(1)The title, number of shares and principal amount of each Covered Security in which the Access Person has any direct or indirect Beneficial Interest;

(2)The name of any broker, dealer or bank with whom the Access Person maintains an account in which securities are held for the direct or indirect benefit of the Access Person; and

(3)The date that the report is submitted by the Access Person.

(b)Quarterly Reporting Requirements. Except as provided in Subparagraphs G.3. and G.6. of this Section, Access Persons shall report transactions in any Covered or Equivalent Security in which such person has, or by reason of such transaction acquires, any direct or indirect Beneficial Interest in the security. Reports required to be made under this Subparagraph shall be made not later than thirty (30) calendar days after the end of the calendar quarter in which the transaction to which the report relates was effected and shall contain the following information:28

(1)The date of the transaction, the title and the number of shares, and the principal amount of each security involved;

(2)The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);

(3)The price at which the transaction was effected;

(4)The name of the broker, dealer or bank with or through whom the transaction was effected; and

(5)The date that the report is submitted by the Access Person.

With respect to any account established by the Access Person in which any securities (including Non-Covered Securities) were held during the quarter for the direct or indirect benefit of the Access Person, such information shall contain:

(1)The name of the broker, dealer or bank with which the Access Person established the account;

(2)The date that the account was established; and

(3)The date that the report is submitted by the Access Person.

Employees are reminded that they must also report transactions by members of their Immediate Family in accounts over which the Employee has a direct or indirect influence or control.

(c)Access Persons are not required to make reports under this Section to the extent that information in the report would duplicate information received by FPA pursuant to

All Access Persons shall be required to submit a report for all periods, including those periods in which no securities transactions were effected (i.e., negative reporting).

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Rule 204-2(a)(13) of the Advisers Act and that such information is received no later than thirty (30) days after the applicable calendar quarter end.

3.Each Independent Trustee or Third-party Fund officer who would be required to make an initial or annual holdings report solely by reason of being a Trustee or Third-party Fund officer is exempted from making such a report.

4.Each Independent Trustee or Third-party Fund officer need only report a transaction in a Covered Security if such Trustee or Third-party Fund officer, at the time of the transaction knew, or, in the ordinary course of fulfilling his official duties as a Trustee or Third-party Fund officer, should have known that, during the fifteen (15) day period immediately preceding or after the date of the transaction by the Trustee or Third-party Fund officer, such security is or was purchased or sold by the FPA Funds or is or was being considered for purchase or sale by the FPA Funds.

5.Except as provided in Subparagraph G.2(c) of this Section, Access Persons, with respect to any account in which such person holds any Covered Securities for his or her direct or indirect benefit, shall direct their broker-dealers to send to Compliance duplicate account statements.

6.Exceptions from Reporting Requirements. Access Persons need not make a report under this Section with respect to: (i) transactions effected for, and Covered Securities held in, any account over which the person has no direct or indirect influence or control if such account has been exempted in writing from reporting by Compliance,29 and (ii) transactions effected pursuant to an Automatic Investment Plan.

7.Certification of Compliance with the CODE. Every Access Person shall certify within ten

(10) calendar days of hire, annually, and upon any material changes to the CODE that:

(a)He or she has read and understand the CODE and recognizes that he or she is subject thereto;

(b)He or she has complied with the requirements of the CODE and will continue to do so; and

(c)He or she has reported all personal securities transactions required to be reported pursuant to the requirements of the Code.

In making this determination, Compliance may ask for supporting documentation, such as a copy of the applicable account agreement and/or a written certification from the account manager. In addition, the Access Person will be required to complete additional certifications to confirm the Access Person's lack of influence or control over the account. To the extent the Access Person is able to direct a trade in an otherwise non-discretionary account, e.g., in the case of tax-loss harvesting, the Access Person must pre-clear such transaction through PTCC and ensure it is included in the quarterly and annual reports, as necessary.

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H.IMPLEMENTATION; REVIEW; SANCTIONS

1.Implementation and Review. Compliance has primary responsibility for enforcing the CODE. Access Persons are required to promptly report any violations of the CODE to Compliance. Enforcement of the CODE includes reviewing the transaction reports and assessing whether Access Persons followed all required internal procedures (e.g., pre- clearance). In this connection, Compliance periodically will compare reports of personal securities transactions with completed and contemplated Client transactions to determine whether noncompliance with the CODE or other applicable trading procedures may have occurred. Access Persons should note that technical compliance with the CODE's procedures does not automatically insulate from scrutiny trades which show a pattern of abuse of an Access Person's fiduciary duties to all Clients.

2.Sanctions. If a violation of this CODE occurs or a preliminary determination is made that a violation may have occurred, a report of the alleged violation may be made to the Board and to the Directors of the General Partner. Sanctions for CODE violations may include any or all of the following: (a) a written censure; (b) temporary or permanent suspension of trading for any Employee-Related Account; (c) disgorgement of profit to a qualified charity; and/or (d) any other sanction deemed appropriate by the Board and the Directors of the General Partner.

I.REPORTS TO THE BOARD

No less frequently than annually, Compliance shall furnish to the Board a written report

that:

1.Describes any issues arising under the CODE or procedures since the last report, including, but not limited to, information about material violations of the CODE and sanctions imposed in response to material violations; and

2.Certifies that FPA, the Funds and the Trust have adopted procedures reasonably necessary to prevent Access Persons from violating the CODE.

J.RETENTION OF RECORDS

This CODE; a list of all persons required to make reports and review reports hereunder from time to time, as shall be updated by Compliance; a copy of each report made by an Access Person hereunder; each memorandum made by Compliance hereunder and a record of any violation hereof and any action taken as a result of such violation; and all other records required under Rules 17j- 1 and 204A-1 shall be maintained by FPA, the Funds and the Trust as required under those provisions.

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K.TEMPORARY EXEMPTION FROM CODE APPLICATION

Employees of FPA on approved leaves of absence (e.g., maternity leave) may not be subject to the pre-clearance and reporting provisions of the CODE, provided that they meet the following requirements:

1.They do not participate in, obtain information with respect to, or make recommendations as to, the purchase and sale of securities on behalf of any Client;

2.They do not have access to information regarding the day-to-day investment activities of FPA;

3.They do not devote significant time to the activities of FPA; and

4.Compliance approves such an exemption in writing.

REVISION HISTORY

Adopted: May 2, 2005

Revised: February 13, 2015

Revised: May 12, 2015

Revised: February 8, 2016

Revised: May 14, 2018

Revised: June 5, 2018

Revised: October 10, 2019

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Business Policy: WFAM COMP – 177 – WFAM Code of Ethics

Wells Fargo Asset Management Code of Ethics

Supplemental to the Risk Management Framework

Published Month XX, 20XX

Purpose

WFAM has adopted this Code pursuant to Rule 17j-1 under the 1940 Act, Financial Industry Regulatory Authority ("FINRA") Rules 3110, 3210, 3280, and Section 204A of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and Rule 204A-1 thereunder. This Code establishes standards of business conduct and outlines the policies and procedures that Reporting Persons (as defined in Appendix A) must follow to prevent fraudulent, manipulative or improper practices or transactions. This Code is maintained and enforced by the WFAM Chief Compliance Officer ("CCO"), the Code of Ethics Team Manager ("Code Manager"), and the Code of Ethics Team ("Code Team") within WFAM.

Areas Primarily Affected

This Wells Fargo Asset Management ("WFAM") Code of Ethics (the, or this "Code") applies to employees, directors, and officers of the following entities, which entities may be referred to collectively herein as "WFAM":

1.Wells Capital Management Inc., a Securities and Exchange Commission ("SEC") registered investment adviser based in San Francisco, California.

2.Wells Capital Management Singapore, an SEC registered investment adviser based in Singapore that is a separately identifiable department of Wells Fargo Bank, N.A.

3.Wells Fargo Asset Management International, an SEC and Financial Conduct Authority ("FCA") registered investment adviser based in London, England.

4.Wells Fargo Asset Management (International) Limited, an SEC and FCA registered investment adviser based in London, England.

5.Wells Fargo Funds Management LLC ("WFFM"), an SEC registered investment adviser that is a wholly owned subsidiary of Wells Fargo & Company primarily based in San Francisco, California.

6.Wells Fargo Funds Distributor LLC ("the Distributor" or "WFFD"), a limited purpose broker-dealer, registered with and regulated by Financial Industry Regulatory Authority ("FINRA") and the SEC that is a wholly owned subsidiary of Wells Fargo & Company ("WFC" or "Wells Fargo & Co.") primarily based in San Francisco, California.

7.Wells Fargo Asset Management Luxembourg S.A. ("WFAML") is a Luxembourg management company authorized by the Luxembourg Commission de Surveillance du Secteur Financier ("CSSF") pursuant to chapter 15 of the Law of 17 December 2010 relating to undertakings for collective investment, as may be amended from time to time ("Law of 2010"), managing Undertakings for Collective Investment in Transferable Securities ("UCITS") governed by Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities, as may be amended from time to time ("UCITS Directive").

Non-WFAM entities that are affiliated persons of WFAM, as defined in the Investment Company Act of 1940 (the "1940 Act") may be referred to collectively herein as "Non-WFAM Entities."

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1. Overview

1.1 Code of Ethics

WFAM has adopted this Code pursuant to Rule 17j-1 under the 1940 Act, Financial Industry Regulatory Authority ("FINRA") Rules 3110, 3210, 3280, and Section 204A of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and Rule 204A-1 thereunder. This Code establishes standards of business conduct and outlines the policies and procedures that Reporting Persons (as defined in Appendix A) must follow to prevent fraudulent, manipulative or improper practices or transactions. This Code is maintained and enforced by the WFAM Chief Compliance Officer ("CCO"), the Code of Ethics Team Manager ("Code Manager"), and the Code of Ethics Team ("Code Team") within WFAM. Note: See the Definitions located in Appendix A for definitions of capitalized terms that are not otherwise defined in the Code.

1.2 Standards of Business Conduct

Reporting Persons must always observe the highest standards of business conduct and follow all applicable laws and regulations. Reporting Persons may never:

Use any device, scheme or artifice to defraud a client;

Make any untrue statement of a material fact to a client or mislead a client by omitting to state a material fact;

Engage in any act, practice or course of business that would defraud or deceive a client;

Engage in any manipulative practice with respect to a client;

Engage in any inappropriate trading practices, including price manipulation; or

Engage in any transaction or series of transactions that may give the appearance of impropriety.

This Code does not attempt to identify all possible fraudulent, manipulative or improper practices or transactions, and literal compliance with each of its specific provisions will not shield Reporting Persons from liability for personal trading or other conduct that violates a fiduciary duty to clients.

1.3 Applicability of this Code of Ethics

"Reporting Persons" are subject to all provisions of this Code, except for Section 2.5.B. "Investment Professionals" are subject to all provisions of this Code, including Section 2.5.B. Please refer to Appendix A for the definitions of these terms. If you have any questions regarding whether you are a Reporting Person or an Investment Professional, please contact the Code Manager or Code Team. Compliance maintains a shared mailbox (COE@wellsfargo.com) for requests, assistance, and ad-hoc issues.

Important Note: All references to "Reporting Persons" and "Investment Professionals" in the guidelines, prohibitions, restrictions, and duties set forth in this Code should be interpreted to also refer, as the context requires, to Immediate Family Members (as defined in Appendix A) of such persons. "You" or "your" should be interpreted to refer, as the context requires, to Reporting Persons or Investment Professionals and/or the Immediate Family Members of such persons.

1.4 Reporting Person Duties

As a Reporting Person, you are expected to:

Be ethical;

Act professionally;

Exercise independent judgment;

Comply with all applicable Federal Securities Laws;

Avoid, mitigate or appropriately resolve conflicts of interest, and situations which create the perception of a conflict of interest. A conflict of interest exists when financial or other incentives motivate a Reporting Person to place their or Wells Fargo's interest ahead of a WFAM client. For more information on conflicts of interest, see the Wells Fargo Conflicts of Interest Policy and Section 2.1 of this Code;

Promptly report violations or suspected violations of the Code and/or any WFAM compliance policy to the relevant CCO or WFAM Compliance Department; and

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Cooperate fully, honestly and in a timely manner with any relevant CCO or WFAM Compliance Department investigation or inquiry.

Reporting Persons are required to submit all requests and reports to the Code Team via the FIS Protegent PTA ("PTA") transaction monitoring system ("TMS").

In addition to PTA, Reporting Persons can utilize the shared Compliance mailbox (COE@wellsfargo.com) for requests, assistance and ad-hoc issues.

Training for PTA will be provided to Reporting Persons by the Code Team.

All Reporting Persons, as a condition of employment, must acknowledge in writing (or electronically) receipt of this Code and certify, within 30 calendar days of becoming subject to the Code and annually thereafter, that they have read, understand, and will comply with the WFAM Code. Violations of the Code may result in disciplinary actions, including disgorgement, fines and even termination, as determined by the Code Manager and/or senior management.

In addition to this Code, Reporting Persons must comply with separate personal conduct policies (located on WFAM Connect) regarding the following:

Wells Fargo Conflicts of Interest and Outside Business Activities;

WFAM Firewall Compliance;

WFAM Information Barriers & Non-Public Information Compliance Policy ;

WFAM Gifts and Entertainment; and

WFAM Political Contributions and Solicitation of Contributions and Payments.

All Reporting Persons must disclose if they or an Immediate Family Member (i) have a beneficial financial interest in, or (ii) act as a proprietor, partner, member, director, trustee, officer, employee or consultant of a WFAM competitor, vendor, service provider, broker, intermediary or client, or a company seeking to become one.

All Reporting Persons must disclose if they or an Immediate Family Member (i) have a beneficial financial interest in, or (ii) act as a proprietor, partner, member, director, trustee, officer, or employee with access to material non-public information of a company or organization with publicly-traded debt or equity.

All Reporting Persons must also comply with policies outlined in the Handbook for Wells Fargo Team Members and the Wells Fargo Code of Ethics and Business Conduct located on Teamworks.

The Code and your fiduciary obligations generally require you to put the interests of WFAM clients ahead of your own. The Code Manager and/or any relevant CCO may review and take appropriate action concerning instances of conduct that, while not necessarily violating the letter of the Code, give the appearance of impropriety. Note: See Appendix B for Relevant Compliance Department Staff list.

1.5 Reporting Persons' Obligation to Report Violations

Reporting Persons are expected to report any concerns regarding ethical business conduct, suspected or actual violations of the Code, or any non-compliance with applicable laws, rules, or regulations to the Code Manager or to a member of the WFAM Compliance Department. Reporting Persons may instead contact the Ethics Line (800-382-7250 or https://www.reportlineweb.com/wfelreport) where a report can be made anonymously. Reports will be treated confidentially to the extent reasonably possible and will be investigated promptly and appropriately. No retaliation may be taken against a Reporting Person for providing information in good faith about such violations or concerns.

Examples of violations or concerns that Reporting Persons are expected to report include, but are not limited to:

Fraud or illegal acts involving any aspect of our business;

Concerns about accounting, auditing, or internal accounting control matters;

Material misstatements in reports;

Any activity that is prohibited by the Code; and

Deviations from required controls and procedures that safeguard clients, WFAM, and Wells Fargo.

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1.6 WFAM's Duties and Responsibilities to Reporting Persons

To help Reporting Persons comply with this Code, the Code Manager will:

Identify and maintain current listings of Reporting Persons and Investment Professionals;

Notify Reporting Persons and Investment Professionals in writing of their status as such and the Code requirements;

Make a copy of the Code available and require initial and annual certifications that Reporting Persons have read, understand, and will comply with the Code;

Make available a revised copy of the Code if there are any amendments to it (and, to the extent possible, prior to their effectiveness) and require Reporting Persons to certify in writing (or electronically) receipt, understanding, and compliance with the revised Code;

Periodically compare reported Reportable Personal Securities Transactions with portfolio transaction reports of the WFAM Accounts. Before WFAM determines if a Reporting Person has violated the Code on the basis of this comparison, the Code Team will give the Reporting Person an opportunity to provide an explanation;

From time to time, provide training sessions to facilitate compliance with and understanding of the Code and keep records of such sessions and the Reporting Persons in attendance; and

Review the Code at least once a year to assess its adequacy and effectiveness.

1.7 Annual Reports and Certifications

No less frequently than annually, the relevant CCO or his or her designee shall submit to the Wells Fargo Funds' and the Wells Fargo Funds Distributor Boards of Trustees (collectively, the "Boards") a written report on behalf of the Covered Companies:

Describing any issues arising under the Code relating to the particular Covered Company since the last report to the Boards, including, but not limited to, information about material violations of or waivers from the Code and any sanctions imposed in response to material violations, and

Certifying that the Code contains procedures reasonably necessary to prevent Reporting Persons from violating it.

1.8 Recordkeeping

This Code, a record of each violation of the Code and any action taken as a result of the violation, a copy of each report and certification/acknowledgment made by a Reporting Person pursuant to the Code, lists of all persons required to make and/or review reports under the Code, and a copy of any pre-clearance given or requested pursuant to Section 3 of the Code shall be preserved with the applicable Covered Company's records, as appropriate, for the periods and in the manner required by the rules noted in Section 1.1 above.. To the extent appropriate and permissible, these records may be kept electronically.

2. Reportable Personal Securities Transactions

2.1 Resolving Conflicts of Interest

When engaging in Reportable Personal Securities Transactions, there might be conflicts between the interests of a WFAM client or a WFAM Account and a Reporting Person's personal interests. Any conflicts that arise in connection with such Reportable Personal Securities Transactions must be resolved in a manner that does not inappropriately benefit the Reporting Person or adversely affect WFAM clients or WFAM Accounts. Reporting Persons shall always place the financial interests of the WFAM clients and WFAM Accounts before personal financial and business interests.

Examples of inappropriate resolutions of conflicts are:

Taking an investment opportunity away from a WFAM Account to benefit a portfolio or personal account in which a Reporting Person has Beneficial Ownership;

Using your position to take advantage of available investments for yourself;

Front running a WFAM Account by trading in Securities (or Equivalent Securities) ahead of the WFAM Account;

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Taking advantage of information or using WFAM Account portfolio assets to affect the market in a way that personally benefits you or a portfolio or personal account in which you have Beneficial Ownership; and

Engaging in any other behavior determined by the CCO to be, or to have the appearance of, an inappropriate resolution of a conflict.

2.2 Reporting Reportable Personal Securities Accounts and Transactions

Reporting Persons must report all Reportable Personal Securities Accounts (see definitions in Appendix

A)to the Code Team via the applicable TMS (see Section 1.4) along with the Reportable Personal Securities holdings and transactions of Reportable Personal Securities Transactions in those accounts. Reportable Personal Securities Accounts include accounts of Immediate Family Members and accounts in which a Reporting Person is a Beneficial Owner. There are three types of reports: (1) an initial holdings report that is filed upon becoming a Reporting Person or establishing any Reportable Personal Securities Account, (2) a quarterly transaction report, and (3) an annual holdings report.

Each broker-dealer, bank, or fund company, where a Reporting Person has a Reportable Personal Securities Account will receive a request for the WFAM Compliance Department to receive copies of all account statements and confirmations from such accounts. The Code Team will make this request after the accounts are reported via the TMS. All accounts that have the ability to hold Reportable Securities must be included even if the account does not have holdings of Securities at the time of reporting.

1. Initial Holdings Report. Within 10 business days of becoming a Reporting Person:

All Reportable Personal Securities Accounts and Managed Accounts, including broker name and account number information must be reported by each Reporting Person to the Code of Team via the TMS.

A recent statement (electronic or paper) for each Reportable Personal Securities Account and Managed Account must be submitted by each Reporting Person to the Code Team.

All holdings of Reportable Securities in Reportable Personal Securities Accounts and Managed Accounts must be inputted by each Reporting Person into an Initial Holdings Report via the applicable TMS. The information in the report must be current as of a date no more than 45 calendar days prior to the date of becoming a Reporting Person.

2.Quarterly Transactions Reports. Within 30 calendar days of each calendar quarter end:

Each Reporting Person must supply to the Code Team a report via the TMS showing all Reportable Securities trades made in the Reporting Person's Reportable Personal Securities Accounts during the quarter. A request for this report will be generated by the TMS with notification of due dates sent to Reporting Persons via email and a report must be submitted by each Reporting Person even if there were not any Reportable Securities trades transacted during the quarter.

Each Reporting Person must certify as to the correctness and completeness of this report.

This report and certification must be submitted to the Code Team by the business day immediately before the weekend or holiday if the 30th day falls on a weekend or holiday.

Managed Accounts are not subject to the quarterly transactions reports requirement.

3.Annual Holdings Reports. Within 30 calendar days of each calendar year end:

All holdings of Reportable Securities in all Reportable Personal Securities Accounts must be reported by each Reporting Person to the Code Team via the TMS. The information in the report must be current as of a date no more than 45 calendar days prior to when you submit the report.

Each Reporting Person must certify as to the correctness and completeness of this report.

This report and certification must be submitted to the Code Team by the business day immediately before the weekend or holiday if the 30th day falls on a weekend or holiday.

Managed Accounts are not subject to the annual holdings report requirement.

Any report under this Section may contain a statement that the report shall not be construed as an admission by the Reporting Person making such a report that he or she has any direct or indirect Beneficial Ownership in the Reportable Securities to which the report relates.

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2.3 New Accounts

Each Reporting Person must submit a request for pre-approval of a Reportable Personal Securities Account or Managed Account (including those of Immediate Family Members) to the Code Team within 10 business days of receiving the account number or prior to executing a transaction requiring pre- clearance, whichever occurs first. All new accounts opened are required to be at one of the approved brokers on the WFAM Approved Broker List. This requirement is not applicable to Managed Accounts. In addition, pursuant to FINRA Rule 3210, all Reporting Persons that are associated with WFFD (including those accounts where Reporting Persons have a beneficial interest) must obtain approval from WFFD Compliance when opening a Reportable Personal Securities Account or Managed Account (including those of Immediate Family Members) at another broker dealer. This FINRA rule does not apply to the following types of accounts:

Accounts that exclusively hold unit investment trusts;

Accounts that exclusively hold municipal fund securities;

Qualified tuition programs (529 accounts); and

Non-Reportable Accounts and accounts that exclusively hold non-reportable securities.

2.4Confidentiality

WFAM will use reasonable efforts to ensure that the reports submitted to the Code Team as required by this Code are kept confidential. Reports required to be submitted pursuant to the Code will be selectively reviewed by members of the Code Team and possibly senior executives or legal counsel on a periodic basis to seek to identify improper trading activity or patterns of trading and to otherwise seek to verify compliance with this Code. Data and information may be provided to Reportable Fund officers and trustees, and will be provided to government authorities upon request or others if required to do so by law or court order.

2.5Trading Restrictions and Prohibitions

A.Reporting Persons. All Reporting Persons (including Investment Professionals) and their Immediate Family Members must comply with the following trading restrictions and prohibitions:

All Reporting Persons must pre-clear transactions of certain Reportable Securities in Reportable Personal Security Accounts, (including those of Immediate Family Members and accounts for which the Reporting Person is a Beneficial Owner) as described in the table that follows in Section 2.7.

60-Day Holding Period for Reportable Fund Shares (open-end and closed-end) Except as noted below, Reporting Persons are required to hold shares of most of the Reportable Funds for at least 60 days. This restriction applies without regard to tax lot considerations. Reporting Persons are prohibited from selling any Reportable Fund shares for 60 days from the date of the most recent purchase. If it is necessary to sell Reportable Fund shares before the 60-day holding period has passed, Reporting Persons must obtain advance written approval from the CCO or the Code Manager. The 60-day holding period does not apply to transactions pursuant to Automatic Investment Plans. The 60-day holding period does not apply to the Adjustable Rate Government Fund, Conservative Income Fund, Ultra Short-Term Income Fund, Ultra Short-Term Municipal Income Fund, and the money market funds.

IPOs, Private Placements and Initial Coin Offerings

Reporting Persons are generally prohibited from purchasing shares in an IPO (an Initial Public Offering (as defined in Appendix A). Reporting Persons must get written approval from the Code Manager before acquiring shares in an IPO, or selling shares that were acquired in an IPO prior to becoming a Reporting Person. Reporting Persons may, subject to pre-clearance requirements, purchase shares in a Private Placement or acquire virtual "coins" or "tokens" in an Initial Coin Offering ("ICO") that is conducted as a Private Placement as long as the position will be less than a 10% voting interest in the issuer, or 10% of the ICO, and is

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otherwise permitted under the Policy on Directorships and Other Outside Employment as set forth in the Wells Fargo Code of Ethics and Business Conduct.

Reporting Persons who have been pre-cleared to purchase shares in a Private Placement or acquire virtual "coins" or "tokens" in a private placement that is an ICO must disclose that investment to the Code Team when they are involved in the subsequent consideration of an investment in the issuer, "coins" or "tokens" by WFAM for a client, and WFAM's decision to purchase such Reportable Securities must be independently reviewed by Reporting Persons with no personal interest in the issuer, "coins" or "tokens". To obtain pre-approval please complete the Private Securities Transaction Request Form in the applicable TMS' noted in Section 1.4.

WFC Derivatives

Reporting Persons must comply with the policies outlined in the Wells Fargo Code of Ethics and Business Conduct which states, "You may not invest or engage in derivative or hedging transactions involving Securities issued by Wells Fargo & Co, including but not limited to options contracts (other than employee stock options), puts, calls, short sales, futures contracts, or other similar transactions regardless of whether you have material inside information."

Exchange Traded Funds ("ETFs")

All Reporting Persons must disclose and report all holdings in ETFs. However, purchases or sales of ETFs that follow the following broad based indices do not require pre-clearance: Dow Jones Industrial Average, NASDAQ 100, Russell 2000, Russell 3000, S&P 100, S&P 500, S&P Midcap 400, S&P Europe 350, FTSE 100, FTSE Mid 250, FTSE 350, Hang Seng 100, Deutscher Aktien Index (DAX 30), S&P/TSX 60, Wilshire 5000 and Nikkei 225. ETFs that do not follow these indices must be pre-cleared. See Appendix D for list of ETF's that are not subject to pre- clearance or the 60 day holding period.

Wells Fargo Closed-End Funds

Reporting Persons may not participate in a tender offer made by a closed-end Wells Fargo Fund under the terms of which the number of shares to be purchased is limited to less than all of the outstanding shares of such closed-end Wells Fargo Fund.

No Reporting Person may purchase or sell shares of any closed-end Wells Fargo Fund within 60 days of the later of:

The initial closing of the issuance of shares of such fund; or

The final closing of the issuance of shares in connection with an overallotment option.

Reporting Persons may purchase or sell shares of closed-end Wells Fargo Funds only during the 10-day period following the release of dividend announcements to the public for such fund, which typically occurs on or about the first of the month. Certain Reporting Persons, who shall be notified by the Legal Department, are required to make filings with the SEC in connection with their purchases and sales of shares of closed-end Wells Fargo Funds.

Investment Clubs

Reporting Persons may not participate in the activities of an Investment Club without the prior approval from the Code Team. Remember that guidelines, prohibitions, restrictions, and duties set forth in this Code should be interpreted to also refer, as the context requires, to Immediate Family Members. Transactions for an Investment Club would need to be pre- cleared and reported as applicable.

Personal Transactions

Reporting Persons are prohibited from executing or processing through a Covered Company's direct access software (TA2000 or any other similar software):

Reporting Persons' own personal transactions;

Transactions for Immediate Family Members; or

Transactions for accounts of other persons for which the Reporting Person or his/her Immediate Family Member have been given investment discretion.

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This provision does not exclude you from trading directly with a broker/dealer or using a broker/dealer's software. The foregoing also does not prohibit you from executing or processing transactions in WFC Securities granted to you as compensation through an online program designated by WFC for such purpose.

Attempts to Manipulate the Market

Reporting Persons must not execute any transactions intended to raise, lower, or maintain the price of any Reportable Security or to create a false appearance of active trading.

Excessive Trading

Excessive Trading in Reportable Personal Securities Accounts is strongly discouraged and Reportable Personal Securities Accounts will be monitored by the Code Team for Excessive Trading activity and may be reported to the relevant CCO. Additional restrictions may be imposed by the Code Team if Excessive Trading is noted in a Reportable Personal Securities Account.

Currency Accounts (including Cryptocurrencies)

Reporting Persons do not need to report accounts established to hold foreign currency or cryptocurrencies, provided no Reportable Securities can be held in the account.

Volcker Rule

The "Volcker Rule" is a section of the Dodd-Frank Wall Street Reform and Consumer Protection Act that with certain exceptions, (i) prohibits banks and their affiliates from engaging in proprietary trading, and (ii) prohibits banks and their affiliates from investing in or sponsoring hedge funds and private equity funds (i.e., funds that are exempt from registration under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act), also known as Covered Funds. Many foreign funds are also considered Covered Funds under the Volcker Rule. The Volcker Rule contains a number of exemptions and exclusions from the general prohibitions on proprietary trading and sponsoring and investing in Covered Funds. One such exemption is known as the "Asset Management Exemption." Wells Fargo may sponsor a Covered Fund pursuant to the Asset Management Exemption so long as it meets certain conditions. One of the conditions is that no Reporting Person or director may acquire or retain an ownership interest in a Covered Fund, unless such Reporting Person or director acquired the ownership interest while directly engaged in providing investment advisory, commodity trading advisory or other services to the Covered Fund. These other services include providing investment advice or investment management services to the fund, and providing such services that enable the provision of investment advice or investment management, including but not limited to:

Oversight and risk management;

Deal origination;

Due Diligence; or

Administrative or other support services.

Additionally, any permissible investments cannot be financed by Wells Fargo. Reporting Persons are responsible for not investing in a Covered Fund, except when permitted under the conditions applicable to the Asset Management Exemption. The investors in a Covered Fund will be periodically checked to confirm no impermissible Reporting Persons ownership exists. Reporting Persons looking to make a purchase (initial or subsequent) in a Covered Fund must obtain pre-approval from the Code Team before making the transaction. Please consult your TMS' request form for Private Placements for additional guidance.

B.Investment Professionals. All Investment Professionals and their Immediate Family Members must comply with the following additional trading restrictions and prohibitions:

Investment Professionals' trades are subject to a 15-day blackout restriction: There is a "15-day blackout" on inappropriate purchases or sales of Reportable Securities bought or sold by a WFAM Account. This means that purchases and sales of a Reportable Security (or Equivalent Reportable Security) ("blackout security") during the 7-day periods

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immediately preceding and immediately following the date the WFAM Account trades in the blackout security ("blackout window") are subject to review by the Code Team in order to determine if the purchase or sale is inappropriate. In such review, any Reportable Personal Securities Transactions in a blackout security during a blackout window will be evaluated and investigated by the Code Team based on each situation. This will include a review of the Investment Professional's role within WFAM and his or her reason(s) for buying or selling. Penalties on trades determined to have been inappropriate may range from no action to potential disgorgement of profits or payment of avoided losses (see Section 3 for Code violations and penalties) or more serious penalties. A blackout security that is inappropriately purchased during a blackout window may be subject to mandatory divestment. Similarly, inappropriate sales of a blackout security during a blackout window may subject the Investment Professional to penalties.

In the case of a purchase and subsequent mandatory divestment at a higher price, any profits derived upon divestment may be subject to disgorgement; penalties may include a requirement that disgorged profits be donated to charity, with no tax deduction claimed by the Investment Professional. In the case of a sale, penalties may include a requirement that an amount equal to the avoided loss be donated to charity, with no tax deduction claimed by the Investment Professional.

For example, if a WFAM Account trades in a blackout security on July 7, July 15 (the 8th day following the trade date) would be the 1st day Investment Professionals may engage in a Reportable Personal Securities Transaction involving that blackout security. Any purchases and sales in the blackout security made on or after June 30 through July 14, even if pre-cleared, could be subject to mandatory divestment and/or penalties. Purchases and sales in the security made on or before June 29 (the 8th day before the trade date) would not be within the blackout window.

The Code Team has full discretion to determine whether any purchase or sale of a blackout security during a blackout window is "inappropriate" based on each situation.

Investment Professionals who are Research Analysts may not trade personally any Reportable Security that they cover until 2 business days after the publication of a research note.

2.6How to Pre-Clear Reportable Personal Securities Transactions

Reporting Persons must follow the steps below to pre-clear trades for themselves and their Immediate Family Members:

1.Request Authorization. A request for authorization of a transaction that requires pre-clearance must be entered using PTA (see Section 1.4). Email requests submitted to the respective mailbox noted in Appendix B will only be processed for those Reporting Persons who are on formal leave of absence or on paid time off ("PTO"). Reporting Persons may only request pre- clearance for market orders or same day limit orders. Verbal pre-clearance requests are not permitted.

2.Have The Request Reviewed and Approved. After receiving the electronic request, PTA will notify Reporting Persons if the trade has been approved or denied. For Reporting Persons on leave of absence or PTO, email responses will be sent with the approval or denial.

3.Trading in Foreign Markets. A request for pre-clearance of a transaction in a local foreign market that has already closed for the day may be granted with authorization to trade on the following day because of time considerations. Approval will only be valid for that following trading day in that local foreign market.

4.Approval of Transactions

The Request May be Refused. The Code Manager may refuse to authorize a Reporting Person's Reportable Personal Securities Transaction and need not give an explanation for the refusal. Reasons for refusing your Reportable Personal Securities Transactions may be confidential.

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Authorizations Expire. Any transaction authorization is effective until the close of business of the same trading day for which the authorization is granted (unless the authorization is revoked earlier). If the order for the transaction is not executed within that period, you must obtain a new advance authorization before placing a new transaction order.

2.7Summary of What Reporting Persons and their Immediate Family Need to Report Quarterly and Pre-Clear

The table below serves as a reference to use in determining

 

 

 

 

what Reporting Persons need to report on quarterly

 

 

 

 

transactions reports and must pre-clear when executing a

 

 

 

 

trade. If you have questions about any types of Securities

 

Report?

 

Pre-Clear?

not shown below, please contact the Code Team per

 

 

 

 

instructions located in Appendix B.

 

 

 

 

Equity Securities

 

Yes

 

Yes

Corporate Debt Securities

 

Yes

 

Yes

Investment Trusts

 

Yes

 

Yes

Municipal Bonds

 

Yes

 

Yes

Options on Reportable Securities

 

Yes

 

Yes

Self-directed Reportable Securities transactions in Automatic

 

Yes

 

Yes

Investment Plans

 

 

 

 

 

 

Virtual Coins or Tokens acquired through an Initial Coin

 

 

 

 

Offering ("ICO") or those acquired through a secondary token

 

Yes

 

Yes

offering. (please refer to Section 2.5)

 

 

 

 

Closed-End Mutual Funds (affiliated and non-affiliated)

 

Yes

 

Yes

Private Placements (please refer to Section 2.5)

 

Yes

 

Yes

ETFs, including iShares, both open-end and closed-end, Unit

 

 

 

 

Investment Trusts, and Options on ETFs (subject to pre-

 

Yes

 

Yes

clearance exceptions in Section 2.5)

 

 

 

 

Robo advisor accounts (e.g.,Wells Fargo Intuitive Investor)

 

Yes

 

No

Open-End Investment Companies that are Reportable Funds

 

Yes

 

No

WFC Stock

 

Yes

 

No

Money Market Mutual Funds

 

No

 

No

Short Term Cash Equivalents

 

No

 

No

U.S. Government Bonds (direct obligations)

 

No

 

No

U.S. Treasuries/Agencies (direct obligations)

 

No

 

No

Commodities, Futures or Options on Futures

 

No

 

No

Securities Purchased through automatic transactions in

 

No

 

No

Automatic Investment Plans

 

 

 

 

 

 

Open-End Investment Companies that are not Reportable

 

No

 

No

Funds

 

 

 

 

 

 

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The table below serves as a reference to use in determining

 

 

 

 

what Reporting Persons need to report on quarterly

 

 

 

 

transactions reports and must pre-clear when executing a

 

 

 

 

trade. If you have questions about any types of Securities

 

Report?

 

Pre-Clear?

not shown below, please contact the Code Team per

 

 

 

 

instructions located in Appendix B.

 

 

 

 

Receipt of unvested grants of WFC stock options, unvested

 

 

 

 

restricted shares and other Securities awarded in WFC

 

No

 

No

employee compensation plans

 

 

 

 

Banker's Acceptances, bank certificates of deposit,

 

 

 

 

commercial paper & High Quality Short-Term Debt

 

No

 

No

Instruments, including repurchase agreements

 

 

 

 

529 Plans

 

No

 

No

Non-WFC 401(k) plans that do not and cannot hold

 

No

 

No

Reportable Funds or Reportable Securities

 

 

 

 

 

 

Transactions in Managed Accounts

 

No

 

No

Cryptocurrencies (e.g., Bitcoin)

 

No

 

No

Reportable Securities purchased through Automated

 

Yes

 

No

Investment Plans

 

 

 

 

 

 

Vesting of WFC options in employee compensation plans or

 

Yes

 

No

WFC restricted shares

 

 

 

 

 

 

Gifting Reportable Securities to any account outside your

 

Yes

 

Yes

Reportable Securities account

 

 

 

 

 

 

Receipt of Reportable Securities as a gift

 

Yes

 

No

Tender Offers

 

Yes

 

Yes

2.8 Wells Fargo & C. Securities

Reporting Persons are prohibited from engaging in any transaction in Wells Fargo & Co. securities that is not in compliance with applicable requirements of the Wells Fargo Team Member Code of Ethics and Business Conduct set forth under the heading "Avoid Conflicts of Interest—Personal Trading and Investment—Derivative and Hedging Transactions in Securities Issued by Wells Fargo" as may be amended from time to time. A copy of this policy is available on the Wells Fargo & Co. website at: http://portal.teamworks.wellsfargo.com/1/Ethics/Pages/COE.aspx

2.9 Ban on Short-Term Trading Profits

There is a ban on short-term trading profits. Reporting Persons are not permitted to buy and sell, or sell and buy, the same pre-clearable Reportable Security (or Equivalent Security) within 60 calendar days and make a profit; this will be considered short-term trading.

This prohibition applies without regard to tax lot.

Short sales are subject to the 60-day profit ban.

If a Reporting Person makes a profit on an involuntary call of an option, those profits are excluded from this ban; however, buying and selling options within 60 calendar days resulting in profits is prohibited. Settlement/expiration date on the opening option transaction must be at least 60 days out.

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Sales or purchases made at the original purchase or sale price or at a loss are not prohibited during the 60 calendar day profit holding period.

Reporting Persons may be required to disgorge any profits the Reporting Person makes from any sale before the 60-day period expires.

The ban on short-term trading profits does not apply to transactions that involve:

Reportable Securities not requiring pre-clearance (e.g., open-end investment companies that are not Reportable Funds, although they typically impose their own restrictions on short-term trading);

Same-day sales of Reportable Securities acquired through the exercise of employee stock options or other WFC Securities granted to you as compensation or through the delivery (constructive or otherwise) of previously owned employer stock to pay the exercise price and tax withholding;

Commodities, futures (including currency futures), options on futures and options on currencies;

Automated purchases and sales that were done as part of an Automatic Investment Plan. However, any self-directed purchases or sales outside the pre-set schedule or allocation of the Automatic Investment Plan, or other changes to the pre-set schedule or allocation of the Automatic Investment Plan, within a 60-day period, are subject to the 60-day ban on short term profit; or

Adjustable Rate Government Fund, Conservative Income Fund, Ultra Short-Term Income Fund, Ultra Short-Term Municipal Income Fund, and the money market funds.

2.10Employee Compensation Related Accounts

1. 401(k) Plans

Initial Holding Report: Completed in PTA

Reporting Persons who have an established Wells Fargo 401(k) plan with a non-zero balance are required to report their 401(k) balances in Reportable Funds or Reportable Securities as part of the Initial Holdings Reporting process.

401(k) Plans that are external to Wells Fargo are required to be reported if, regardless of the balance, the plan is capable of holding Reportable Funds or Reportable Securities.

Quarterly Transaction Report: Completed in PTA

Reporting Persons are required to report self-directed transactions in Reportable Funds or Reportable Securities in Wells Fargo 401(k) plans that occurred outside of the previously reported investment allocations. This reporting may be made on behalf of the Reporting Person by the 401(k) plan administration area to the WFAM Compliance Department.

Reporting Persons are required to report transactions in Reportable Funds or Reportable Securities in 401(k) plans held outside of Wells Fargo.

Reporting Persons are not required to report bi-weekly payroll contributions, periodic company matches, or profit sharing contributions.

Annual Holdings Report: Completed PTA

Reporting Persons are required to update their holdings in Wells Fargo 401(k) plans in their Annual Holdings Report. This update may be made on behalf of the Reporting Person by the 401(k) plan administration area to the WFAM Department.

If an external 401(k) account holds Reportable Funds or Reportable Securities, Reporting Persons are required to update these holdings in their Annual Holdings Report.

2.Wells Fargo Employee Stock Options & Vested Stock Awards

Initial Holdings Report:

Reporting Persons are not required to report the grant or vesting of WFC restricted share rights in the Initial Holdings Report.

Following the delivery of an Initial Holding Report, when Reporting Persons' restricted share rights in WFC stock awarded under the Reporting Persons' Long Term Incentive Compensation Plan ("LTICP") vest and shares of WFC stock are thereupon delivered to a

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brokerage account, including the shareowner services account, Reporting Persons are required to report the account holding such shares of WFC stock as a new Reportable Personal Securities Account within the time period specified in Section 2.2, if such account was not previously reported.

Reporting Persons are required to report subsequent vested, restricted share rights and shares delivered to any such Reportable Personal Securities Account, including a shareowner services account.

Quarterly Transaction Report:

All Reporting Person-directed transactions in LTICP holdings are reportable on the Quarterly Transaction Report, i.e., exercising of WFC options.

The exercise of employee stock options is a reportable transaction.

Reporting Persons are required to report shares of WFC stock delivered to any Reportable Personal Security Accounts, including a shareowner services account upon vesting of restricted share rights, in Quarterly Transaction Reports, and any prior or subsequent transactions in WFC stock during the reporting period.

Reporting Person are not otherwise required to report the grant or vesting of WFC restricted share rights or the vesting of WFC employee stock options.

Annual Holdings Report:

Reporting Persons are required to report shares of WFC stock delivered upon vesting or restricted share rights and held in Reportable Personal Security Accounts, such as a shareowner services account.

Reporting Persons are not required to report holdings of restricted share rights or employee stock options in LTICP.

Pre-Clearance:

Pre-clearance is not required prior to the sale of LTICP restricted shares.

The exercise of stock options from LTICP is not pre-clearable in the TMS; however, Reporting Persons are requested to inform the Code Team via an email to COE@wellsfargo.com of the transaction details, as exercising of the options will create an alert in PTA.

3.Wells Fargo Employee Stock Purchase Plan ("ESPP")

Initial Holdings Report:

An ESPP is a Reportable Personal Securities Account and must be included in a Reporting Person's Initial Holding Report.

Quarterly Transaction Report:

Sales of shares acquired under an ESPP are reportable on the Quarterly Transaction Report.

Annual Holdings Report:

Reporting Persons are required to update holdings within ESPP accounts in the Annual Holdings Report.

Pre-Clearance:

Transactions in an ESPP (WFC stock) do not require pre-clearance.

4.Wells Fargo Health Savings Account ("HSA")

Initial Holdings Report:

Wells Fargo HSAs are reportable when the balance reaches the threshold that allows the Reporting Person to invest in Reportable Funds.

Quarterly Transaction Report:

Sales of shares of Reportable Funds within a Reporting Person's HSA are reportable on the Quarterly Transaction Report.

Annual Holdings Report:

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Reporting Persons are required to update holdings of balances invested in Reportable Funds within a Reporting Person's HSA in the Annual Holdings Report.

Pre-Clearance:

Transactions in an HSA account do not require pre-clearance.

5.Wells Fargo Deferred Compensation Plans

Wells Fargo Deferred Compensation Plans are not reportable accounts.

3. Code Violations

3.1 Investigating Code Violations

The Code Manager or designee is responsible for investigating any suspected violation of the Code. This includes not only instances of violations against the letter of the Code, but also any instances that may give the appearance of impropriety. Reporting Persons are expected to respond to Code Manager inquiries promptly. The Code Manager is responsible for reviewing the results of any investigation of any reported or suspected violation of the Code. The Code Manager will report the results of each investigation to the CCO, as well as the WFAM Ethics Committee. Violations of the Code may also be reported to the Reporting Person's supervisor and human resources as well.

3.2 Penalties

The Code Manager is responsible for deciding whether a violation is minor, substantive or serious. In determining the seriousness of a violation of this Code, the Code Manager will consider the following factors, among others and will escalate as needed to the WFAM CCO:

The degree of willfulness of the violation;

The severity of the violation;

The extent, if any, to which a Reporting Person profited or benefited from the violation;

The adverse effect, if any, of the violation on a Covered Company or a WFAM Account; and

The Reporting Person's history of prior violation(s) of the Code.

For purposes of imposing sanctions, violations generally will be counted on a rolling 24 month period. However, the Code Manager (in consultation with the CCO) reserves the right to impose a more severe sanction/penalty depending on the severity of the violation and/or taking into consideration violations dating back more than 24 months.

Any serious offense as described below will be reported to the Wells Fargo Fund Board. All minor and substantive violations will be reported to the Board at least annually

Minor Offenses:

Minor offenses may include, but are not limited to, the following: failure to timely submit quarterly transaction reports, failure to timely complete assigned training, failure to submit signed acknowledgments of Code forms and certifications, excessive (i.e., more than three) late submissions of such documents, and conflicting pre-clear request dates versus actual trade dates or other pre- clearance request errors, or Reportable Securities not covered by the blackout period.

Substantive Offenses:

Substantive offenses may include, but are not limited to, the following: unauthorized purchase/sale of Securities as outlined in this Code, violations of short-term trading for profit (60-day rule), failure to request pre-clearance of transactions as required by the Code, failure to timely report a reportable brokerage account, and violations of the 15-day blackout period.

Serious Offenses:

Engaging in insider trading or related illegal and prohibited activities such as "front running" and "scalping," and repeated violations or a flagrant violation of the Code are considered a "serious offense."

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3.3 Penalties

Depending on the severity of the infraction, a violation of this Code may result in the following, subject to applicable law: an informational memorandum; a warning; a fine, deduction from wages, disgorgement of profit or other payment; a personal trading ban; referral of the matter to Human Resources; termination of employment; or referral to civil or criminal authorities. Dismissal and/or Referral to Authorities.

Repeated violations or a flagrant violation of the Code may result in immediate dismissal from employment. In addition, the Code Manager, the CCO, the WFAM Ethics Committee and/or senior management may determine that a single flagrant violation of the law, such as insider trading, will result in immediate dismissal and referral to authorities.

3.4 Exceptions to the Code

The Code Manager is responsible for enforcing the Code. The CCO or Code Manager (or his or her designee) may grant certain exceptions to the Code, provided any requests and any approvals granted must be submitted and obtained, respectively, in advance and in writing. The CCO or Code Manager (or his or her designee) may refuse to authorize any request for exception under the Code and is not required to furnish any explanation for the refusal.

Related Information

Related Regulation

Rule 17j-1 of the Investment Company Act of 1940

Financial Industry Regulatory Authority Rules 3110, 3210, 3280

Section 204A of the Investment Advisers Act of 1940

Rule 204A-1 of Investment Advisers Act of 1940

Related Policies or Resources

WFAM Gifts and Entertainment Policy

WFAM Political Contributions Policy

 Wells Fargo Code of Ethics and Business Conduct 

Appendix A

Definitions

General Note:

The definitions and terms used in the Code are intended to mean the same as they do under the 1940 Act and applicable other Federal Securities Laws. If a definition hereunder conflicts with the definition in the 1940 Act or other Federal Securities Laws, or if a term used in the Code is not defined, you should follow the definitions and meanings in the 1940 Act or other Federal Securities Laws, as applicable.

Automatic Investment Plan A program that allows a person to purchase or sell Reportable Securities, automatically and on a regular basis in accordance with a pre-determined schedule and allocation, without any further action by the person. An Automatic Investment Plan includes a SIP (systematic

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investment plan), SWP (systematic withdrawal plan), SPP (stock

 

purchase plan), DRIP (dividend reinvestment plan), or employer-

 

sponsored plan.

Beneficial Owner

You are the "beneficial owner" of any Reportable Securities in which

 

you have a direct or indirect Financial or Pecuniary Interest, whether

 

or not you have the power to buy and sell, or to vote, the securities.

 

In addition, you are the "beneficial owner" of Reportable Securities in

 

which an Immediate Family Member has a direct or indirect Financial

 

or Pecuniary Interest, whether or not you or the Immediate Family

 

Member has the power to buy and sell, or to vote, the Reportable

 

Securities. For example, you have Beneficial Ownership of securities

 

in trusts of which Immediate Family Members are beneficiaries.

 

You are also the "beneficial owner" of Reportable Securities in any

 

account, including but not limited to those of relatives, friends and

 

entities in which you have a non-controlling interest or over which you

 

or an Immediate Family Member exercise investment discretion. Such

 

accounts do not include accounts you manage on behalf of a Covered

 

Company or any other affiliate of Wells Fargo & Co..

Control

The power to exercise a controlling influence over the management or

 

policies of a company, unless the power is solely the result of an

 

official position with such company. Owning 25% or more of a

 

company's outstanding voting securities is presumed to give you

 

control over the company. (See Section 2(a) (9) of the 1940 Act for a

 

complete definition.)

Covered Companies

Wells Fargo Funds Management, LLC, Wells Fargo Funds Distributor,

 

LLC, Wells Capital Management Inc., Wells Capital Management

 

Singapore, Wells Fargo Asset Management International, Wells Fargo

 

Asset Management International, Wells Fargo Asset Management

 

(International) Limited, and Wells Fargo Asset Management

 

Luxembourg ("WFAML").

Direct Listing

A Direct Listing is also known as a Direct Public Offering ("DPO") which

 

is a type of initial public offering ("IPO") in which a company offers its

 

securities directly to the public to raise capital. An issuing company

 

using a DPO eliminates the middlemen—investment banks, broker-

 

dealers, and underwriters that are involved in typical IPOs, and self-

 

underwrites its securities.

Equivalent Security

Any Reportable Security issued by the same entity as the issuer of a

 

subject security that is convertible into the equity security of the

 

issuer. Examples include, but are not limited to, options, rights, stock

 

appreciation rights, warrants and convertible bonds.

Excessive Trading

A high number of transactions by any Reporting Person during any

 

month could be considered by the Code Team, in its sole discretion, to

 

be Excessive Trading. The Compliance Department may report any

 

Excessive Trading to WFAM's CCO and/or senior management.

Federal Securities Laws

The Securities Act of 1933 (15 U.S.C. 77a-aa), the Securities

 

Exchange Act of 1934 (15 U.S.C. 78a—mm), the Sarbanes-Oxley Act

 

of 2002 (Pub. L. 107-204, 116 Stat. 745 (2002)), the Investment

 

Company Act of 1940 (15 U.S.C. 80a), the Investment Advisers Act of

 

1940 (15 U.S.C. 80b), Title V of the Gramm-Leach-Bliley Act

 

(Pub. L. No. 100-102, 113 Stat. 1338 (1999)), any rules adopted by

 

the SEC under any of these statutes, the Bank Secrecy Act

 

(31 U.S.C. 5311-5314; 5316-5332) as it applies to funds and

 

investment advisers, and any rules adopted thereunder by the SEC or

 

the Department of the Treasury.

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Financial or Pecuniary

The opportunity for you or your Immediate Family Member, directly, or

Interest

indirectly, to profit or share in any profit derived from a transaction in

 

the subject Reportable Securities whether through any contract,

 

arrangement, understanding, relationship or otherwise. This standard

 

looks beyond the record owner of Reportable Securities to reach the

 

substance of a particular arrangement. You not only have a Financial

 

or Pecuniary Interest in Reportable Securities held by you for your own

 

benefit, but also Reportable Securities held (regardless of whether or

 

how they are registered) by others for your benefit, such as

 

Reportable Securities held for you by custodians, brokers, relatives,

 

executors, administrators, or trustees. The term also includes any

 

interest in any Reportable Security owned by an entity directly or

 

indirectly controlled by you, which may include corporations,

 

partnerships, limited liability companies, trusts and other types of legal

 

entities. You or your Immediate Family Member likely have a Financial

 

or Pecuniary Interest in:

 

Your accounts or the accounts of Immediate Family Members;

 

A partnership or limited liability company, if you or an

 

Immediate Family Member is a general partner or a managing

 

member;

 

A corporation or similar business entity, if you or an

 

Immediate Family Member has or shares investment control;

 

or

 

A trust, if you or an Immediate Family Member is a

 

beneficiary.

High Quality Short-Term

Any instrument that has a maturity at issuance of less than 366 days

Debt Instrument

and that is rated in one of the two highest rating categories by a

 

nationally recognized statistical rating organization such as Moody's

 

Investors Service.

Immediate Family Member Any of the following persons, including any such relations through adoption, who reside in the same household with you:

spouse

grandparent

mother-in-law

domestic partner

grandchild

father-in-law

parent

brother

daughter-in-law

stepparent

sister

son-in-law

child

sister-in-law

 

 

stepchild

brother-in-law

 

 

 

Immediate Family Member also includes any other relationship that

 

the CCO determines could lead to possible conflicts of interest,

 

diversions of corporate opportunity, or appearances of impropriety.

 

All references to "Reporting Persons" and "Investment Professionals" in

 

the guidelines, prohibitions, restrictions and duties set forth in this

 

Code should be interpreted to also refer, as the context requires, to

 

Immediate Family Members of such persons.

Investment Club

An investment club is a group of people who pool their money to make

 

investments. Usually, investment clubs are organized as partnerships

 

and, after the members study different investments, the group decides

 

to buy or sell based on a majority vote of the members. Club meetings

 

may be educational and/or each member may actively participate in

 

investment decisions.

Investment Professional Any Reporting Person who is a portfolio manager, trader or analyst employed (including as a temporary or contract employee) by WFAM, and any other person designated by the CCO or designee as such given his or her access to current portfolio or trading information for clients.

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All references to "Investment Professionals" in the guidelines,

 

prohibitions, restrictions and duties set forth in this Code should be

 

interpreted to also refer, as the context requires, to Immediate Family

 

Members of Investment Professionals. The Code Manager is

 

responsible for maintaining a list of all Investment Professionals and

 

notifying such Investment Professionals of their status.

IPO

An initial public offering, or the first sale of a company's securities to

 

public investors. Specifically, it is an offering of securities registered

 

under the Securities Act of 1933, the issuer of which, immediately

 

before registration, was not subject to the reporting requirements of

 

Section 13 or Section 15(d) of the Securities Exchange Act of 1934.

Managed Account

Any account for which the holder gives, in writing, his/her broker or

 

someone else (other than another Reporting Person) the authority to

 

buy and sell Reportable Securities, either absolutely or subject to

 

certain restrictions, other than pre-approval by any Reportable

 

Person. In other words, the holder gives up the right to decide what

 

Reportable Securities are bought or sold for the account. This includes

 

accounts known as "Robo Advisor" accounts where account

 

investments and reallocations are done through an automated

 

platform.

Non-Public Information

Any information that is not generally available to the general public in

 

widely disseminated media reports, SEC filings, public reports,

 

prospectuses, or similar publications or sources.

Private Placement

An offering, including an ICO, that is exempt from registration under

 

Section 4(2) or 4(6) of the Securities Act of 1933, as amended, or

 

Rule 504, Rule 505 or Rule 506 thereunder.

Purchase or Sale of a

In addition to any acquisition or disposition of a Reportable Security

Security

for value, a Purchase or Sale of a Reportable Security includes, among

 

other things, the receipt or giving of a gift or writing of an option to

 

purchase or sell a Reportable Security.

Reportable Fund

Reportable Fund means (i) any investment company registered under

 

the 1940 Act, for which a Covered Company serves as an investment

 

adviser as defined in Section 2(a)(20) of that Act, which includes a

 

sub-adviser, or (ii) any investment company registered under the

 

1940 Act, as amended, whose investment adviser or sub-adviser or

 

principal underwriter controls a Covered Company, is controlled by a

 

Covered Company, or is under common control with a Covered

 

Company; provided, however, that Reportable Fund shall not include

 

an investment company that holds itself out as a money market fund.

 

For purposes of this definition, "control" has the same meaning as it

 

does in Section 2(a) (9) of the 1940 Act. A list of all Reportable Funds

 

shall be maintained and made available for reference under

 

"Reportable Funds" under the "Code of Ethics" tab in the WFAM

 

Compliance Department InvestNet web page.

Reporting Person

Reporting Person means (i) any employee, officer or director, and any

 

other persons designated by the CCO or designee, as having access to

 

current trading information for clients, of WFAM, and (ii) any employee

 

(including all temporary or contract employees), officer or director of

 

any Non-WFAM Entities who supports any WFAM business functions

 

and has access to WFAM systems that contain Non-Public Information

 

regarding WFAM client holdings or transactions, and any other person

 

designated by the CCO or designee as such given his or her access to

 

current portfolio or trading information for clients.

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All references to "Reporting Persons" in the guidelines, prohibitions,

 

restrictions and duties set forth in this Code should be interpreted to

 

also refer, as the context requires, to Immediate Family Members of

 

Reporting Persons. The Code Manager is responsible for maintaining a

 

list of all Reporting Persons and notifying such Reporting Persons of

 

their status.

Reportable Personal

Any account that holds Reportable Securities of which you have

Securities Account

Beneficial Ownership, other than a Managed Account that holds

 

Reportable Securities and has previously been approved by the Code

 

Manager over which you have no direct influence or Control. A

 

Reportable Personal Securities Account is not limited to Reportable

 

Securities accounts maintained at brokerage firms, but also includes

 

holdings of Reportable Securities owned directly by you or an

 

Immediate Family Member or held through a retirement plan of Wells

 

Fargo or any other employer. All Reportable Personal Securities

 

Accounts opened or reported after 1/1/2020 are required to be on the

 

WFAM Approved Broker List. The accounts reported after 1/1/2020

 

not on WFAM Approved Broker List must be moved to one of the

 

approved brokers timely. This requirement is not applicable to

 

Managed Accounts. Exceptions may be granted by the Code of Ethics

 

Manager.

Reportable Personal

A Purchase or Sale of a Reportable Security, of which you acquire or

Securities Transaction

relinquish Beneficial Ownership.

Reportable Security/Securities Any security as defined under Section 2(a)(36) of the 1940 Act or Section 202(a)(18) of the Advisers Act, except that it does not include direct obligations of the U.S. Government, bankers' acceptances, bank certificates of deposit, commercial paper, High Quality Short-Term Debt Instruments, including repurchase agreements, shares issued by affiliated or unaffiliated money market mutual funds, or shares issued by open-end registered investment companies other than the Reportable Funds or shares issued by unit investment trusts that are invested exclusively in one or more open-end registered investment companies none of which are Reportable Funds. "Reportable Security" includes any security issued by closed-end funds and ETFs.

WFAM Accounts

Accounts of investment advisory and sub-advisory clients of Covered

 

Companies, including but not limited to registered and unregistered

 

investment companies.

Appendix B

Compliance Department Staff List

Please consult WFAM Connect for a current list of compliance staff designated to monitoring the Code of Ethics, as wells as for additional Code of Ethics resources including links to PTA. For Reporting Persons with no access to the above systems, please contact the Code Team at COE@wellsfargo.com.

Appendix C

Reportable Funds

Please consult the following link for a list of WFAM Reportable Funds:

https://wellscap.ptaconnect.com/pta/openDocument.do?st=T376-RNOQYRTQ-RIDI-QL31-7SBY- V91VJY6E&name=281_1400097842793.PDF&path=//PTANAS01/Clients/WELLSCA P/docs/&st=T376- RNOQ-YRTQ-RIDI-QL31-7SBY-V91V-JY6E.

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Appendix D

Ticker

Name

Issuer

DIA

SPDR Dow Jones Industrial Average ETF Trust

State Street Global

Advisors

 

 

IYY

iShares Dow Jones US ETF

BlackRock

QQQ

Invesco QQQ Trust

Invesco

PSQ

ProShares Short QQQ

ProShares

QQQE

Direxion NASDAQ 100 Index

Direxion

SPSM

SPDR Portfolio Small Cap ETF

State Street Global

Advisors

 

 

VTWO

Vanguard Russell 2000 ETF

Vanguard

IWM

iShares Russell 2000 ETF

BlackRock

RWM

ProShares Short Russell 2000

Proshares

IWV

iShares Russell 3000

BlackRock

SPTM

SPDR Portfolio Total Stock Market ETF

State Street Global

Advisors

 

 

VTHR

Vanguard Russell 3000 ETF

Vanguard

OEF

iShares S&P 100

BlackRock

SH

ProShares Short S&P 500

ProShares

SPXB

ProShares S&P 500 Bond ETF

ProShares

SPY

SPDR S&P 500 ETF Trust

Standard and Poor's

Financial Services

 

 

IVV

iShares Core S&P 500

BlackRock

VOO

Vanguard S&P 500

Vanguard

VXXB

iPath Series B S$P 500 Vix Short-Term Futures ETN

Barclays Capital

 

SPDN

Direxion Daily S&P 500 Bear 1X Shares

Direxion

 

RSP

Invesco S&P 500 Equal Weight ETF

Invesco

 

PBP

Invesco S&P 500 BuyWrite ETF

Invesco

 

MIDU

Direxion Daily S&P MidCap 400

Direxion

 

MYY

Proshares Short S&P MidCap 400

Proshares

 

MZZ

UltraShort MidCap 400 Proshares

Proshares

 

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IEV

iShares Europe ETF

BlackRock

ISF

iShares Core FTSE 100

BlackRock

H4ZB

HSBC FTSE 100 UCITS ETF

HSBC

VMID

FTSE 250 UCITS ETF

Vanguard

MIDD

iShares FTSE 250 UCITS ETF

BlackRock

S250 LN

Invseco FTSE 250 UCITS ETF

Invesco

EWU

iShares MSCI United Kingdom ETF

BlackRock

EWH

iShares Core Hang Seng Index ETF

BlackRock

WKN

iShares DAX ETF

BlackRock

XIU

iShares S&P TSX 60 Index

BlackRock

HXT

Horizons S&P/TSX 60 Index ETF

Horizons

VTI

Vanguard Total Stock Market ETF

Vanguard

1329

iShares Core Nikkei 225 ETF

BlackRock

TYBS

Direxion Daily 20 Year Treasury Bear 1X

Direxion

TYNS

Direxion Daily 7-10 Year Treasury Bear 1X

Direxion

TBT

UltraShort Barclays 20+ Year Treasury

ProShares

SHY

iShares 1-3 Year Treasury Bond ETF

BlackRock

TLT

iShares 20+ Year Treasury Bond ETF

BlackRock

IEF

iShares 7-10 Year Treasury Bond ETF

BlackRock

STIP

iShares 0-5 Year TIPS Bond ETF

BlackRock

GVI

iShares Intermediate Government Credit Bond ETF

BlackRock

TLH

iShares 10-20 Year Treasury Bond ETF

BlackRock

FXA

Invesco CurrencyShares Australian Dollar Trust

Invesco

FXB

Invesco CurrencyShares British Pound Sterling Trust

Invesco

FXC

Invesco CurrencyShares Canadian Dollar Trust

Invesco

FXCH

Invesco CurrencyShare Chinese Renminbi Trust

Invesco

FXE

Invesco CurrencyShare Euro Trust

Invesco

FXY

Invesco CurrencyShare Japanese Yen Trust

Invesco

FXSG

Invesco CurrencyShare Singapore Trust

Invesco

FXSG

Invesco CurrencyShare Swedish Krona Trust

Invesco

Page 22 of 24. Wells Fargo internal use.

Corporate and business policies or procedures may not be duplicated outside of the Policy Library; only direct links may be used.

Business Policy: WFAM COMP – 177 – WFAM Code of Ethics

FXF

Invesco CurrencyShare Swiss Franc Trust

Invesco

DBV

Invesco DB G10 Currency Harvest Fund

Invesco

UDN

Invesco DB US Dollar Index Bearish Fund

Invesco

UUP

Invesco DB US Dollar Index Bullish Fund

Invesco

DBA

Invesco DB Agriculture Fund

Invesco

DBB

Invesco DB Base Metals Fund

Invesco

DBC

Invesco DB Commodity Index Tracking Fund

Invesco

DBE

Invesco DB Energy Fund

Invesco

DGL

Invesco DB Gold Fund

Invesco

DBO

Invesco DB Oil Fund

Invesco

DBP

Invesco DB Precious Metals Fund

Invesco

DBS

Invesco DB Silver Fund

Invesco

PDBC

Invesco DB Optimum Yield Diversified Commodity Strategy

Invesco

No K-1 ETF

 

 

SGOL

Aberdeen Standard Physical Swiss Gold Shares ETF

Aberdeen

PPLT

Aberdeen Standard Platinum Shares ETF

Aberdeen

GLTR

Aberdeen Standard Physical Precious Metals Basket Shares ETF

Aberdeen

SIVR

Aberdeen Standard Physical Silver Shares ETF

Aberdeen

PALL

Aberdeen Standard Physical Palladium Shares ETF

Aberdeen

BCI

Aberdeen Standard Bloomberg All Commodity Strategy

Aberdeen

K-1 Free Shares ETF

 

 

AOIL

Aberdeen Standard Bloomberg WTI Crude Oil Strategy

Aberdeen

K-1 Free Shares ETF

 

 

BCD

Aberdeen Standard Bloomberg All Commodity Longer Dated

Aberdeen

Strategy K-1 Free Shares ETF

 

 

DJP

iPath Dow Jones - UBS Commodity ETN

Barclay Capital

OIL

iPath Series B S&P GSCI Crude Oil Total Return Index ETN

Barclay Capital

JO

iPath Series B Bloomberg Coffee Subindex Total Return ETN

Barclay Capital

BCM

iPath Pure Beta Broad Commodity ETN

Barclay Capital

GSP

iPath S&P GSCI Total Return Index ETN

Barclay Capital

SGG

iPath Series B Bloomberg Sugar Subindex Total Return ETN

Barclay Capital

NIB

iPath Dow Jones - UBS Cocoa ETN

Barclay Capital

Page 23 of 24. Wells Fargo internal use.

Corporate and business policies or procedures may not be duplicated outside of the Policy Library; only direct links may be used.

Business Policy: WFAM COMP – 177 – WFAM Code of Ethics

JJG

iPath Series B Bloomberg Grains Subindex Total Return ETN

Barclay Capital

JJC

iPath Series B Bloomberg Copper Subindex Total Return ETN

Barclay Capital

COW

iPath Series B Bloomberg Livestock Subindex Total Return ETN

Barclay Capital

BAL

iPath Series B Bloomberg Cotton Subindex Total Return ETN

Barclay Capital

DGZ

DB Gold Short ETN

DWS

OILK

ProShares K-1 Free Crude Oil Strategy ETF

ProShares

IAU

iShares Gold Trust

iShares

CMDY

iShares Bloomberg Roll Select Commodity Strategy ETF

iShares

Page 24 of 24. Wells Fargo internal use.

Corporate and business policies or procedures may not be duplicated outside of the Policy Library; only direct links may be used.

 

Harris Associates L.P., Harris Associates Securities L.P. and Harris Associates Investment Trust Code of Ethics and Statement on Insider Trading

As Amended, Effective as of September 30, 2019

I. DEFINITIONS

A. Firm or Harris. The term "Firm" or "Harris" shall include Harris Associates L.P. ("HALP") and Harris Associates Securities L.P. ("HASLP").

B. Trust. The term "Trust" shall mean Harris Associates Investment Trust, including any series of shares of beneficial interest of the Trust (each, a "Fund").

C. Employee. The term "Employee" shall include any person employed by the Firm, whether on a full or part-time basis and all partners, officers, shareholders and directors (other than Non-Access Directors (as defined below)) of the Firm.

D. Access Person. The term "Access Person" shall have the meanings set forth in Section 17j- 1(a)(1) of the Investment Company Act of 1940 and rules thereunder (the "Act") and Section 204A-1(e)(1) of the Investment Advisers Act of 1940 (the "Advisers Act").

Accordingly, Access Person includes any director, officer, partner (or managing member) or Advisory Person (as defined below) of the Trust or HALP, and any director, officer or partner of the Trust, HALP or HASLP who has access to nonpublic information regarding any Client's purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any Reportable Fund or who is involved in making securities recommendations to a Client, or who has access to such recommendations that are non-public, but shall not include (1) any trustee of the Trust who is not an "interested person" of the Trust1; (2) any trustee of the Trust who is designated an "interested person", as defined in Section 2(a)(19) of the Investment Company Act of 1940, but who is not a director, officer, general partner or Advisory Person of HALP, HASLP or Harris Associates, Inc.; and (3) any Non-Access Director.

E. Advisory Person. The term "Advisory Person" shall have the meaning set forth in Section 17j-1(a)(2) of the Act. Accordingly, Advisory Person includes any Employee of the Firm, who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Covered Securities (as defined below) by a Client (as defined below), or whose functions relate to the making of any recommendations with respect to purchases and sales, and any natural person in a control relationship to a Fund or HALP who obtains information concerning recommendations made to a Fund with regard to the purchase or sale of Covered Securities by the Fund. For the

1 Independent trustees of the Trust are subject to a separate code of ethics.

1

 

 

purpose of this Code, each Employee of the Firm with an office at the Firm's principal place of business shall be deemed to be an Advisory Person. In addition, the term "Advisory Person" shall include any contractor, consultant, temporary employee or intern (or similar person) engaged by the Firm or employed by the Trust who is designated as an Advisory Person by the Chief Compliance Officer2 as a result of such person's access to information regarding the purchase or sale of Covered Securities.

F.Persons Subject to this Code. Each Employee, Access Person and such other individuals as are specifically identified in writing by the Trust's or HALP's Chief Compliance Officer as being subject to this Code will be subject to this Code. Non-Access Directors are subject to the following provisions of this Code: II.A, II.B, II.C.i., II.J, and III (except for III.B.3 and the last sentence of III.B.4).

G.Covered Security. The term "Covered Security" shall have the same meaning as "security" that is set forth in Section 2(a)(36) of the Act,3 including any right to acquire such security, except that it shall not include securities which are direct obligations of the Government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper, high quality short-term debt instruments (including repurchase agreements), and shares issued by open-end investment companies other than Reportable Funds and ETFs (defined below).

Securities which are direct obligations of the national government of any country other than the United States shall be treated as Covered Securities for reporting purposes only

("Reportable Government Bonds").

All exchange-traded funds ("ETFs") and Reportable Funds, whether registered as open-end management companies or unit investment trusts, shall be treated as Covered Securities for reporting purposes only. Derivative instruments where the reference asset(s) is a broad- based securities index or an ETF shall be treated as Covered Securities for reporting purposes only.

Digital currency shall be treated as Covered Securities when and only when they are to be purchased in an initial offering. For the avoidance of doubt, neither the holding of digital currency nor secondary trading in digital currency implicates this Code.4 Derivative

2The Chief Compliance Officer may delegate any responsibilities assigned to him or her hereunder to one or more delegates.

3Sec. 2(a)(36) "Security" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, pre- organization 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 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 or instrument commonly known as a "security," or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

4Given the evolving regulatory environment around digital currency generally, Persons Subject to this Code should contact the Compliance Department before trading in digital currency if they are unsure about how such trading is treated under this Code.

2

 

instruments where the reference asset(s) is a digital currency shall be treated as Covered Securities for reporting purposes only.

H.Reportable Fund. The term "Reportable Fund" shall have the meaning set forth in Section 204A-1(e)(9) of the Advisers Act. Reportable Fund means any investment company registered under the Act that is advised or sub-advised or distributed by the Firm or any entity that controls HALP, that is controlled by HALP or that is under common control with HALP (e.g. Natixis Asset Management Advisers, Loomis Sayles) other than money market funds. A current list of Reportable Funds is maintained on the Compliance page of the

Firm's intranet site.

I.Beneficial Interest or Ownership. The term "beneficial interest or ownership" shall be interpreted in the same manner as it would be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and rules thereunder, which includes any interest in which a person, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest.

A pecuniary interest is the opportunity, directly or indirectly, to profit or share in any profit derived from any transaction.

You will be presumed, unless such presumption is determined to have been rebutted by the Firm's General Counsel and Chief Compliance Officer (or their designee(s)), to have a pecuniary interest, and therefore, beneficial interest or ownership, in all securities held by you or by a member of your "immediate family" (which shall include any of your children, stepchildren, grandchildren,  parents,  stepparents, grandparents, siblings, sons-in-law, daughters-in-law, brothers-in-law, or sisters-in-law and your spouse, mother-in-law, father- in-law, and shall include adoptive relationships) with whom you share the same household and in all accounts through which any such person or you obtain the substantial equivalent of ownership, such as trusts in which he or she is a trustee or beneficiary, partnerships in which he or she is the general partner, corporations in which he or she is a controlling shareholder or any other similar arrangement. For these purposes, the term "spouse" includes any live-in/domestic partner who shares your household and who combines his or her financial resources with you in a manner similar to that of married persons.

Any questions an Employee may have about whether an interest in a security or an account constitutes beneficial interest or ownership should be directed to the Firm's General Counsel or Compliance Department. Non-exhaustive examples of beneficial interest or ownership are attached as Appendix A.

J.Client. The term "Client" shall mean any client of HALP, including any Fund.

K.Non-Access Director. The term "Non-Access Director" shall mean any person who is a

Director of Harris Associates, Inc., the corporate general partner of HALP and HASLP, but

3

 

who is not an officer or employee of any of HALP, HASLP or Harris Associates, Inc. and who meets all of the following conditions:

i.He or she, in connection with his or her regular functions or duties, does not make, participate in or obtain information regarding the purchase or sale of Covered Securities by a registered investment company, and whose functions do not relate to the making of recommendations with respect to such purchases or sales;

ii.He or she does not have access to nonpublic information regarding any Client's purchases or sales of securities (other than information contained in standard account statements or reports that the Firm may furnish to such person in his or her capacity as a Client), or nonpublic information regarding the portfolio holdings of any Reportable Fund; and

iii.He or she is not involved in making securities recommendations to Clients, and does not have access to such recommendations that are nonpublic (other than information contained in standard account statements or reports that the Firm may furnish to such person in his or her capacity as a Client).

L.Discretionary Accounts. The term "Discretionary Account" shall mean any account in which you have a beneficial interest or ownership, but over which you have no direct or indirect influence or control. You may be deemed to have direct or indirect influence or control over an account if your adviser consults you, or seeks your input, regarding potential or current investments in the account or if you suggest investments to the individual or institution with influence or control.

Persons Subject to this Code should obtain the written approval of the Chief Compliance Officer regarding a Discretionary Account before relying on the reporting and other exceptions provided herein for the Discretionary Account.

Exceptions: Notwithstanding the above, a "Discretionary Account" shall not include any account in which a Person Subject to this Code has delegated investment discretion to any other Person(s) Subject to this Code.

Assessment of Discretionary Accounts: The Chief Compliance Officer may make inquiries to a Person Subject to this Code and/or such person's investment professional at any time

(including before or after any approval of the Discretionary Account has been provided) in its assessment of whether an account should be treated as, or remains, a Discretionary Account. In doing so, the Chief Compliance Officer may request such person and/or such person's adviser to certify that such person has no direct or indirect influence or control over the account. Such person shall respond to, or, as requested, arrange for such person's adviser to respond to, any such inquiries and shall make, or, as requested, arrange for such person's adviser to make, any such certifications.

4

 

 

II.CODE OF ETHICS

A.GENERAL STATEMENT

Harris seeks to foster a reputation for integrity and professionalism. That reputation is a vital business asset. The confidence and trust placed in us by Clients is something that is highly valued and must be protected. The Firm owes a fiduciary duty to its Clients, and the fundamental principle of the Firm is that the Firm should not inappropriately put its interests ahead of its Clients.

The Investment Company Act and rules make it illegal for any person covered by the Code, directly or indirectly, in connection with the purchase or sale of a security held or to be acquired by a registered investment company that is advised or sub-advised by the Firm (a

"RIC") to:

i.) employ any device, scheme, or artifice to defraud a RIC;

ii.) make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of circumstances under which they are made, not misleading or in any way mislead a RIC regarding a material fact;

iii.) engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon a RIC; or

iv.) engage in any manipulative practice with respect to a RIC.

The restrictions on personal securities transactions contained in this Code are intended to help the Firm monitor for compliance with these prohibitions. To attempt to ensure that each Person Subject to this Code satisfies this Code and the Firm satisfies the relevant record keeping obligations, the Firm has developed the following rules relating to personal securities trading, outside employment, personal investments with external investment managers and confidentiality.

The General Counsel and Chief Compliance Officer, [acting in concert], have the authority to grant written waivers of the provisions of this Code in instances they determine appropriate in their discretion.5

The Firm expects all Persons Subject to this Code to comply with the spirit of the Code as well as the specific rules contained in the Code. Any violations of the Code must be reported promptly to the Firm's Chief Compliance Officer.

5In performing their various responsibilities under this Code, the General Counsel, Chief Compliance Officer, and others assigned powers and/or duties under this Code may consult with the Firm's President to the extent they deem necessary or desirable.

5

 

 

B.COMPLIANCE WITH FEDERAL SECURITIES LAWS

More generally, Persons Subject to this Code are required to comply with applicable federal securities laws at all times. Examples of applicable federal securities laws include:

i.)

the Securities Act of 1933, Securities Act of 1934, Sarbanes-Oxley Act of 2002 and

 

Securities and Exchange Commission ("SEC") rules thereunder;

ii.)

the Investment Advisers Act of 1940 and SEC rules thereunder;

iii.)

the Investment Company Act of 1940 and SEC rules thereunder;

iv.)

Title V of the Gramm-Leach-Bliley Act of 1999 (privacy and security of client non-public

 

information); and

v.)

the Bank Secrecy Act, as it applies to mutual funds and investment advisers, and SEC and

 

Department of the Treasury rules thereunder.

C.RESTRICTIONS ON TRADING

It is desirable for Persons Subject to this Code to avoid a transaction in any Covered Security which is also the subject of a Client portfolio purchase or sale if that transaction would be to the disadvantage of that Client. To seek to effect that result, the following specific restrictions apply to all trading activity in Covered Securities in accounts in which a Person Subject to this Code has a beneficial interest or ownership other than Discretionary Accounts:

i.) Any transaction in a Covered Security in anticipation of Client orders ("frontrunning") is prohibited;

ii.) Any transaction in a Covered Security which is the subject of approval by one of the Firm's stock selection groups for addition to an approved list is prohibited until the tenth business day following the dissemination of that recommendation, or any longer period specified in this Code;

iii.) Any transaction in a Covered Security which the Person Subject to this Code knows or has reason to believe is being purchased or sold or considered for purchase or sale6 by the Firm on behalf of any Client is prohibited until, subject to extension under II.E., the transaction by such Client has been completed or consideration of such transaction has been abandoned;

6A security is "being considered for purchase or sale" when the earlier of, a recommendation to purchase or sell has been made and communicated to SSG or the security is placed on the research project list and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation.

6

 

 

iv.) Any transaction in a security within two business days after any Client has a pending or actual transaction is prohibited. Additionally, if an Access Person places an order for a security prior to a Portfolio Manager or Fund Manager placing a Client order for the same security that day, the Access Person's order may be cancelled if practicable after notice and if, in the judgment of the General Counsel or Chief Compliance Officer, such cancellation will prevent Client harm;

v.) Any transaction in derivative instruments that are Covered Securities other than where the reference asset(s) (i) includes only one or more equity securities with a de minimis market capitalization7, (ii) is a broad-based securities index or an ETF or (iii) is a digital currency (together "Permissible Derivative Investments");

vi.) The purchase of any Covered Security in an initial public offering; and

vii.) Such other transactions in Covered Securities as the Chief Compliance Officer or General Counsel shall determine in each of their discretion from time to time to effect the purposes of this Code of Ethics.

Additionally, no Person Subject to this Code shall knowingly sell to or purchase from the Funds any security or other property except, in the case of the Funds, securities issued by the Funds. Neither shall the Firm nor any Person Subject to this Code share in the profits or losses in any account of a Client carried by the Firm or any other FINRA member, except to the extent provided for by Rule 205-3 of the Investment Advisers Act of 1940 and/or FINRA Rule 2150, as applicable.

D.PRIVATE INVESTMENT POOLS AND OTHER PRIVATE PLACEMENTS.

No non-Discretionary Account in which an Access Person has a beneficial interest or ownership shall acquire any security issued by a private investment pool (such as a hedge fund, commodity pool, or private equity fund), including by committing capital to an external investment manager's investment vehicle, or invest in any other limited offering (i.e., a securities offering exempt from registration pursuant to Section 4(a)(2) or 4(a)(5) of the Securities Act of 1933 or Rules 504 or 506 thereunder) without the prior approval of the Firm's Chief Compliance Officer. For the avoidance of doubt, this prohibition shall not apply to non-securities offerings, such as (i) direct investments or holdings in real estate (buildings, apartments, residences, or other similar investments that are not securities), (ii) a note secured by a mortgage on a home, (iii) a short-term note secured by a lien on a small business or some of its assets or (iv) an ownership interest in an enterprise whose profits, if any, will come primarily from the Access Person's own efforts.

In deciding whether to grant approval to a request to purchase a private investment pool or other private placement, consideration will be given to whether the investment (i) is consistent with the

7An issuer of an equity security has a de minimis market capitalization if the issuer has a market capitalization below the level at which Harris ordinarily invests for client accounts.

7

 

 

Firm's investment philosophy and guidelines, (ii) is a Firm opportunity that is appropriate for and should be offered to Clients and (iii) creates an actual conflict or the appearance of a conflict of interest for the Firm with respect to its Client(s). An Access Person who holds a security acquired in a private investment pool or in another private placement must disclose that investment to the Firm's Chief Compliance Officer if such Access Person later participates in the consideration of that issuer for inclusion on any list of securities approved for purchase or sale byClients.

E.ADDITIONAL RESTRICTION ON FUND MANAGERS OF INVESTMENT COMPANY ACCOUNTS.

Any Access Person who is a fund manager of any RIC is, to the extent the trade is otherwise permitted under this Code, prohibited from buying or selling a covered security for an account in which he or she has a beneficial interest or ownership or as to which he or she has investment discretion within fifteen calendar days before and after the investment company that he/she manages trades in that security. Any profits realized on trades effected within the proscribed periods in violation of this Code shall be required to be disgorged. Any losses realized on a sale within the proscribed periods where the sale is required by the Firm because the purchase was in violation of this Code shall be borne by the fund manager if it was the fund manager's actions which caused the violation.8

F.CLIENT ACCOUNTS EXEMPT FROM REQUIREMENTS OF CODE.

Any Client accounts (including open-end investment companies and limited partnerships) for which the Firm acts as investment adviser or general partner shall be managed in accordance with the Firm's trading procedures for a Client account. Any account owned in whole or in part by Persons Subject to this Code shall nonetheless be a Client account and exempt from the provisions of Sections C, D, E and G of Part II of this Code if: (1) the account has been seeded by the Firm or affiliated persons of the Firm and is being managed in anticipation of investments by persons not affiliated with the Firm; or (2) unaffiliated persons of the Firm are also invested in the account; or (3) the account is operated as a model portfolio in contemplation of management of Client accounts in the same or a similar strategy.

G.REQUIREMENTS AND PROCEDURES TO IMPLEMENT TRADING RESTRICTIONS AND REPORTING OBLIGATIONS.

1.Trading in Non-Discretionary Accounts in which an Advisory Person has a Beneficial Interest or Ownership.

Limitation on Non-Discretionary Accounts. All Advisory Persons who have non-Discretionary Accounts that hold or can hold Covered Securities and in which the Advisory Person has a

8Any profits required to be disgorged hereunder shall be donated to a charity designated by the Firm or as otherwise directed by the Chief Compliance Officer.

8

 

 

beneficial interest or ownership may maintain such accounts at Pershing LLC ("Pershing", the Firm's prime broker) or at any other approved broker-dealer or bank ("Approved Firms").9

Transactions in Covered Securities, other than mutual funds, ETFs, and Reportable Government Bonds (see below), in any non-Discretionary Account in which an Advisory Person has a beneficial interest or ownership (other than accounts held with Pershing) are permitted only after the Advisory Person has (i) obtained the written pre-approval of the Chief Compliance Officer to open the account or place an initial order in the account with such other broker-dealer or bank and

(ii)provided such other broker-dealer or bank with a written notice of the Advisory Person's affiliation with Harris and secured the obligation of such other broker-dealer or bank to send copies of confirmations and all periodic statements to the Compliance Department if information is not received through a direct broker feed.

Pre-Approval of Transactions in Covered Securities. Except for those transactions listed below, you must receive pre-approval for every transaction in a Covered Security in any account in which you have a beneficial interest. This requirement applies to purchases, sales, short sales and exposures obtained through entering into derivative instruments where a Covered Security is a reference asset.

Notwithstanding the above, transactions in the following do not require pre-approval:

Mutual Funds;

ETFs;

Derivative instruments where the reference asset(s) is a broad-based securities index;

Reportable Government Bonds;

Discretionary Accounts10;

Digital currencies unless it is a purchase in an initial offering;

Dividend reinvestment plans or systematic purchase plans; or

Securities, or options on securities, of an issuer at which an immediate family member is (or was) employed and that such immediate family member receives as compensation as part of his or her employment, when such transaction is conducted pursuant to a plan specified under Rule

9Contact Compliance for the list of approved firms. As a general matter trading through non-Approved Firms is not permitted except in unusual cases, such as when a new employee is hired and cannot practically move an account to an Approved Firm.

10Discretionary Accounts must be pre-approved before relying on any exception for Discretionary Accounts. See the definition of "Discretionary Account" above.

9

 

 

10b5-1(c) under the Securities Exchange Act of 1934 (or similar plan) ("Employee Compensation Plans").11

Required Provision of Confirmation. If an Advisory Person has obtained approval to open or hold a non-Discretionary Account at a broker-dealer or bank other than with Pershing or another Approved Firm, the Advisory Person must also, after each transaction in that account in Covered Securities other than Reportable Funds, ETFs or Reportable Government Bonds, promptly present Compliance with a confirmation reflecting the details of the transaction completed. Compliance will reconcile the trade confirmations it receives with the pre-clearance requests processed within the automated personal trading system.

Discretionary Application of Pre-Approval Requirement to Non-Advisory Persons. In addition to requiring pre-approval for transactions in Covered Securities by Advisory Persons (as described above), Compliance may require any trade by a Person Subject to this Code to be pre-cleared if such a trade could reasonably be viewed to give rise to, or appear to give rise to, any breach of fiduciary duty owed to any Client or create any actual or potential conflict of interest, or the appearance thereof, between any Client, on the one hand, and the Firm or any Person Subject to this Code, on the other hand.

2.Monitoring of Trades

Transactions for an account of an Advisory Person that are executed through the Firm's trading desk are to be monitored by Compliance and reviewed against pre-approval requests processed by the Chief Compliance Officer (or such party to whom he or she delegates). These transactions are non- discretionary transactions for the trading desk, but may not be executed if the trading desk believes they are in conflict with Harris' discretionary orders for Clients.

The Firm's Compliance Department obtains and monitors a daily data feed of trade information from Pershing and Approved Firms (including the title and exchange ticker symbol or CUSIP number of each Covered Security, the date of the transaction, the interest rate and maturity rate (if applicable), the number of shares and principal amount of each Covered Security involved, the nature of the transaction (i.e. buy/sell), the price at which the transaction was effected, and the name of any broker-dealer or bank through which the transaction was effected).

Transactions in non-discretionary accounts at brokers or banks other than Pershing and Approved Firms are to be monitored by the Compliance Department. To accomplish this, all Advisory Persons shall submit to the Compliance Department within thirty days after the month end in which any transaction occurred a statement which includes the title and exchange ticker or CUSIP number of the Covered Security, Reportable Fund, ETF, the date of the transaction, the interest rate and maturity rate (if applicable), the number of shares and principal amount of each Covered Security, Reportable Fund, ETF, or Reportable Government Bond involved, the nature of the transaction (i.e.

11Such transactions are also not subject to the Restrictions on Trading in Section II.C. Persons subject to this Code are encouraged to provide the Firm's Chief Compliance Officer with advance notice of any participation of an Immediate Family

Member in an Employee Compensation Plan.

10

 

buy/sell), the price at which the transaction was effected, the name of any broker-dealer or bank through which the transaction was effected and the date on which the report is submitted. This requirement may be satisfied by opening or maintaining the account(s) at Pershing or an Approved Firm or by having the broker-dealer or bank send the Firm duplicate copies of trade confirmations and all periodic statements, provided that such confirmations and periodic statements contain all of the information required to be provided in the report. The Compliance Department will maintain copies of all such transaction reports.

3.Cancellation of Trades.

Any transaction for an account of an Advisory Person is subject to cancellation or reversal if it is determined by the Chief Compliance Officer (or such party to whom he or she delegates) – in his or her absolute discretion – that the transaction is or was in conflict with the Code or any applicable trade restriction. A trader may also prevent the execution of orders for an Advisory Person's account if it appears to the trader that the trade may have to be cancelled or reversed for failure to comply with this Code.

4.Participation in Dividend Reinvestment Plans and Systematic Purchase Plans.

Advisory Persons may purchase Covered Securities through dividend reinvestment plans or systematic purchase plans without processing such transactions through the Firm's automated personal trading system or obtaining pre-approval. Purchases through such plans are permitted only if the Advisory Person properly obtained any necessary approvals under the Code prior to opening the relevant account and placing the initial purchase of the Covered Security.

5.Reporting of Securities Transactions Not Otherwise Reported.

Any transaction in a Covered Security through a non-Discretionary Account in which an Access Person has any beneficial interest or ownership, other than a transaction effected pursuant to a dividend reinvestment plan or systematic purchase plan, must be reported to the Compliance Department. Where such a transaction is effected through neither (i) Pershing or an Approved Firm for which the Firm receives a daily data feed of trade information nor (ii) a broker-dealer or bank that sends the Firm duplicate copies of trade confirmations and all periodic statements (e.g., the transaction is in Covered Securities held at stock transfer companies such as Computershare), the Access Person shall submit to the Compliance Department a report within thirty days after the end of each calendar quarter and include: the title and exchange ticker symbol or CUSIP number of each Covered Security involved, the date of the transaction, the interest rate and maturity rate (if applicable), the number of shares and principal amount of each Covered Security involved, the nature of the transaction (i.e. buy/sell), the price at which the transaction was effected, the name of any broker-dealer or bank through which the transaction was effected, and the date on which the report is submitted. This report may be in any form, including a copy of a confirmation or monthly or other periodic statement.

11

 

 

6.Initial, Quarterly and Annual Reporting Requirements; Questionnaires.

Each Access Person shall initially disclose in writing to the Compliance Department within ten days of becoming an Access Person, and annually thereafter, within forty-five days after each calendar year-end, the title and exchange ticker or CUSIP number, type of security, number of shares and principal amount12 of all Covered Securities beneficially owned by such Access Person in a non-Discretionary Account, and the date the Access Person submits the report, with information as of a date that is no more than forty-five days from the date of becoming a Access Person, or as of the preceding December 31 for annual reporting, and the name of each broker- dealer or bank with whom the Access Person maintains an account in which he or she has beneficial ownership of any security.

Additionally, each Access Person shall submit responses to quarterly questionnaires requested by Compliance no later than 30 days after the end of each calendar quarter. The questionnaires are intended to satisfy the reporting requirements of Rule 17j-1(d)(ii) under the Act and Rule 204A- 1(b)(2) under the Advisers Act by requiring each Access Person to confirm and, as necessary, supplement the information that the Firm receives from Pershing and Approved Firms through a daily data feed of trade information and from other broker-dealers and banks through the duplicate copies of trade confirmations and periodic statements. Quarterly transaction reports and responses to quarterly questionnaires need not include transactions effected pursuant to a dividend reinvestment plan or systematic purchase plan.

H.CONFIDENTIALITY & OBLIGATIONS OF EMPLOYEES

During the period of employment with the Firm an Employee will have access to certain "confidential information" concerning the Firm and its Clients. This information is a valuable asset and the sole property of the Firm and may not be misappropriated and used outside of the Firm by an Employee or former Employee. "Confidential Information", defined as all information not publicly available about the business of the Firm, may include, but is not limited to, Client and prospect names and records, research, trading and portfolio information and systems, information concerning externally managed entities or accounts which have been considered or made on behalf of fee paying Clients, and the financial records of the Firm and/or its Employees. In order to protect the interests of the Firm, an Employee or ex-Employee shall not, without the express written consent of the Firm's Chief Compliance Officer or General Counsel, disclose directly or indirectly confidential information to anyone outside of the Firm other than as necessary or appropriate to carry out the Firm's normal business operations (e.g., disclosure to a third-party vendor of the Firm or a Fund). An Employee should be extremely careful to avoid inadvertent disclosures and to exercise maximum effort to keep confidential information confidential. Any questions concerning the confidentiality of information should be directed to the Chief Compliance Officer or the General Counsel. An abuse of the Firm's policy of confidentiality could subject an

12It shall not be deemed a violation of this Code for any report required hereunder not to include the principal amount of a Covered Security; provided, however, that the Compliance Department may request or require such information where it determines that it is necessary to effect the purposes of this Code.

12

 

Employee to immediate disciplinary action that may include dismissal from the Firm. Nothing in this Code is intended to prevent an Employee from reporting a violation of applicable laws or regulations to an appropriate regulatory authority.

I. OUTSIDE EMPLOYMENT, ASSOCIATIONS AND BUSINESS ACTIVITIES; REPORTING OF POSITIONS OF IMMEDIATE FAMILY MEMBERS

Harris requires that all Advisory Persons make their positions with the Firm their primary employment. The approval of Harris (and, in some cases, the approval of FINRA) is required before any Advisory Person may hold any outside position with any business organization (for- profit or not-for-profit), or enter into any relationship, or activity, where such outside position, relationship, or activity could influence the investment activities of the Firm or present a conflict of interest with the Advisory Person's employment with the Firm. All outside positions, regardless of whether such position is compensated or not, must be discussed with Compliance in advance of accepting such a position to assess the existence of a conflict of interest. Any such outside position, relationship, or activity must be approved in advance in writing by the Chief Compliance Officer and the Advisory Person's supervisor, and a copy of such approval shall be submitted and maintained by the Compliance Department. Any change in the status of such approved position, relationship, investment, or activity must be reported in writing to the Compliance Department and the Advisory Person's supervisor within the quarter that the change in status occurred or within the certification cutoff period for the quarter. Any income or compensation received by an Advisory Person for serving in such position must be paid in full to the Firm, unless a waiver is granted by the Chief Compliance Officer and the Advisory Person's supervisor. Under no circumstance may an Advisory Person represent or suggest that Harris has approved or recommended the business activities of the outside organization or any person associated with it. Associations with entities, such as charitable/volunteer and non-profit organizations where the activity is voluntary in nature (e.g., school or condominium board member, Scout leader, Parent/Teacher Association) and does not involve securities-related activities (such as the selection of investments for endowments and foundations), will generally be granted a written exemption (e.g., email) from this section's pre-approval requirement, and as such will not require written approval nor will it appear in the quarterly certification of outside activities.

An Advisory Person shall not be deemed to be engaged in securities-related activities as the result of the grant of a durable or conditional power of attorney over an investment account until such time as the power of attorney is exercised or the condition has been met.

Reporting of Positions of Immediate Family Members that Involve Conflicts of Interest. To identify actual or potential conflicts of interest, each Advisory Person must disclose in writing to the Compliance Department any position, relationship, investment, or activity that an immediate family member has that to the Advisory Person's knowledge could present a conflict of interest for the Advisory Person in his or role with the Firm. If an Advisory Person has any questions about any activities and the need for disclosure, the Advisory Person should be cautious and direct any questions to the Firm's General Counsel or ComplianceDepartment.

13

 

J.Certification of Compliance by Access Persons.

In addition to new-hire training on the Code, each Access Person will receive annual training over certain aspects of the Code. The Firm shall distribute the Code to each Employee and Non-Access Director upon inception of employment and whenever the Code is amended, but no less frequently than annually. Each Access Person and Non-Access Director is required to certify in writing annually that (i) he or she has received, read and understands the Code, (ii) recognizes that he or she is subject to the Code, and, in the case of Access Persons, (iii) he or she has disclosed or reported all transactions in which the Access Person has a beneficial interest or ownership that are required to be disclosed or reported under the Code or, alternatively, that the Access Person has not engaged in any personal securities transactions during the preceding year for which a report was required to be filed pursuant to the Code.

K.Annual Report to the Trust's Board of Trustees.

HALP, as the adviser to the Trust, shall prepare an annual report to the board of trustees of the Trust that:

i.) summarizes existing procedures concerning personal investing and any changes in those procedures during the past year;

ii.) describes issues that arose during the previous year under the Code or procedures concerning personal investing, including but not limited to information about material violations of the Code and sanctions imposed;

iii.) certifies to the board that the Trust, the Trust's adviser (HALP), and the Trust's principal distributor (HASLP) have adopted procedures reasonably necessary to prevent their Access Persons from violating the Code; and

iv.) identifies any recommended changes in existing restrictions or procedures based upon experience under the Code, evolving industry practices, or developments in applicable laws or regulations.

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III.POLICY STATEMENT ON INSIDER TRADING

A.BACKGROUND

Trading securities while in possession of material, nonpublic information or improperly communicating that information to others may expose you to stringent penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years imprisonment. The SEC can recover the profits gained or losses avoided through the violative trading, obtain a penalty of up to three times the illicit windfall and issue an order permanently barring you from the securities industry. Finally, you may be sued by investors seeking to recover damages for insider trading violations.

Regardless of whether a government inquiry occurs, Harris views seriously any violation of this Policy Statement. Such violations constitute potential grounds for disciplinary sanctions, including dismissal.

Cautionary note: The law of insider trading is unsettled; an individual legitimately may be uncertain about the application of the Policy Statement in a particular circumstance. Often, a single question can prevent a violation of law or forestall disciplinary action or complex legal problems. You should direct any questions relating to the Policy Statement to the General Counsel and the Chief Compliance Officer or, in their absence, their respective deputies. You also must notify the General Counsel and the Chief Compliance Officer or, in their absence, their respective deputies immediately if you have any reason to believe that a violation of the Policy Statement has occurred or is about to occur.

B.POLICY STATEMENT ON INSIDER TRADING

Generally, no person to whom this Policy Statement applies may trade, either personally or on behalf of others (such as Clients), while in possession of material, nonpublic information and in breach of a duty of trust or confidence that is owed to the issuer of the security, the shareholders of the issuer, or to any other person who is the source of the material nonpublic information; nor may such persons communicate material, nonpublic information to others in breach of a duty of confidentiality or in violation of the law. This Policy Statement applies to securities trading and information handling by all Employees (including their spouse or domestic/live-in partner, minor children and adult members of their households).

The section below reviews principles important to this Policy Statement.

1.What is Material Information?

Information is "material" when there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. Generally, this is information whose disclosure will have a substantial effect on the price of a company's securities. No simple "bright line" test exists to determine when information is material; assessments of materiality involve a highly fact-specific inquiry. For this reason, you

15

 

should direct any questions about whether information is material to the General Counsel or Chief Compliance Officer.

Material information often relates to a company's results and operations including, for example, dividend changes, earnings results, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments.

Material information also may relate to the market for a company's securities. Information about a significant order to purchase or sell securities may, in some contexts, be deemed material.

Similarly, prepublication information regarding reports in the financial press also may be deemed material.

2.What is Nonpublic Information?

Information is "nonpublic" until it has been disseminated broadly to investors in the marketplace. Tangible evidence of such dissemination is the best indication that the information is public. For example, information is public after it has become available to the general public through a public filing with the SEC or some other governmental agency, the Dow Jones "tape" or the WALL STREET JOURNAL or some other publication of general circulation, and after sufficient time has passed so that the information has been disseminated widely.

3.Identifying Inside Information

Before executing any trade for yourself or others, including Clients, you must determine whether you have access to material, nonpublic information. If you think that you might have access to material, nonpublic information, you should take the following steps:

i.) Immediately alert the Trading Department to restrict trading in the security. No reason or explanation should be given to the Trading Department for the restriction.

ii.)

Report the information and proposed trade immediately to the General Counsel

 

or the Chief Compliance Officer.

iii.) Do not purchase or sell the securities on behalf of yourself or others, including Clients.

iv.) Do not communicate the information inside or outside Harris other than to the above individuals.

v.) After the above individuals have reviewed the issue, the Firm will determine whether the information is material and nonpublic and, if so, what action(s) the Firm should take.

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4.Contacts with Public Companies

For Harris, contacts with public companies represent an important part of our research efforts. Harris may make investment decisions on the basis of the Firm's conclusions formed through such contacts and analysis of publicly-available information. Difficult legal issues arise, however, when, in the course of these contacts, an Employee becomes aware of material, nonpublic information. This could happen, for example, if a company's Chief Financial Officer prematurely discloses quarterly results to an analyst or an investor relations representative makes a selective disclosure of adverse news to a handful of investors. In such situations, Harris must make a judgment as to its further conduct. To protect yourself, Clients and the Firm, you should contact the General Counsel or the Chief Compliance Officer immediately if you believe that you may have received material, nonpublic information.

5.Tender Offers

Tender offers represent a particular concern in the law of insider trading for two reasons. First, tender offer activity often produces extraordinary gyrations in the price of the target company's securities. Trading during this time period is more likely to attract regulatory attention (and produces a disproportionate percentage of insider trading cases). Second, the SEC has adopted a rule which expressly forbids trading and "tipping" while in possession of material, nonpublic information regarding a tender offer received from the tender offeror, the target company or anyone acting on behalf of either. Employees should exercise particular caution any time they become aware of nonpublic information relating to a tender offer.

C.PROCEDURES TO IMPLEMENT THE POLICY STATEMENT ON INSIDER

TRADING

1.Personal Securities Trading

The restrictions on Employee trading and procedures to implement those restrictions and the Firm's reporting obligations, which are set forth in Section II above and in the Procedures for Personal Trading, constitute the procedures to implement this Policy Statement. Review those procedures carefully and direct any questions about their scope or applicability to the General Counsel or the Compliance Department.

2.Restrictions on Disclosures

Employees shall not disclose any nonpublic information (whether or not it is material) relating to Harris or its securities transactions to any person outside Harris (unless such disclosure has been authorized by Harris). Material, nonpublic information may not be communicated to anyone, including persons within Harris, except as provided in Section

17

 

III(B)(3) above. Such information must be secured. For example, access to files containing material, nonpublic information and computer files containing such information should be restricted, and conversations containing such information, if appropriate at all, should be conducted in private.

IV. RETENTION OF RECORDS

The Compliance Department or the Secretary of the Trust will maintain the records listed below for a period of five years. Such records shall be maintained at the Firm's principal place of business in an easily accessible place:

i.)

a list of all Persons Subject to this Code during that period;

ii.)

receipts signed by all Persons Subject to this Code acknowledging receipt of

 

copies of the Code and acknowledging that they are subject to it;

iii.) a copy of each Code of Ethics that has been in effect at any time during the period;

iv.) a copy of each report filed pursuant to the Code and a record of any known violations and actions taken as a result thereof during the period as well as a record of all persons responsible for reviewing these reports;

v.)

a copy of any decision and the reasons supporting the decision, to approve the

 

acquisition of Limited Offerings; and

vi.)

a copy of each report required by II.K of this Code.

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ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS AND STATEMENT

ON INSIDER TRADING

Code of Ethics.

Harris Associates L.P. ("HALP"), Harris Associates Securities L.P. ("HASLP") and Harris Associates Investment Trust (the "Trust") have adopted a written Code of Ethics and Statement on Insider Trading (the "Code") and Procedures for Personal Trading to address potential conflicts of interest by HALP and HASLP personnel and to govern the use and handling of material non-public information. Capitalized terms used and not defined herein shall have the meanings ascribed to them in the Code. Copies of the Code and the Procedures for Personal Trading are attached to this acknowledgement. As a condition of your continued employment with HALP and HASLP, and/or the retention of your position, if any, as an officer of the Trust or a member of the board of HALP's general partner, you are required to read, understand and abide by the Code and the Procedures for Personal Trading.

Compliance Program.

The Code requires that all Access Persons furnish to the Compliance Department information regarding any investment account in which you have a "beneficial interest or ownership" other than Discretionary Accounts. You are also required to furnish to the Compliance Department copies of your monthly or quarterly account statements, or other documents, showing all purchases or sales, other than those effected pursuant to a dividend reinvestment plan or systematic purchase plan, of securities in any such account. Additionally, you are required to furnish a report of your personal securities holdings in Covered Securities within ten calendar days of commencement of your employment with HALP or HASLP and annually thereafter. These requirements apply to any investment account, such as an account at a brokerage house, trust account at a bank, custodial account or similar types of accounts, other than Discretionary Accounts.

This compliance program also requires that Employees report any contact with any securities issuer, government or its personnel, or others, that, in the usual course of business, might involve receipt of what the Employee believes might be material non-public financial information. The Code requires that Employees bring to the attention of the General Counsel or the Chief Compliance Officer any information they receive from any source, which they believe might be material non-public information.

Any questions concerning the Code or Procedures for Personal Trading should be directed to the General Counsel or the Compliance Department.

I affirm that I have received new-hire training covering certain key aspects of the Code and Procedures for Personal Trading from Compliance, and have read and understand the Code and Procedures for Personal Trading. I agree to the terms and conditions set forth in the Code and Procedures for Personal Trading.

If I am acting in the capacity as a contractor, consultant, temporary employee or intern (or similar person) to Harris, I acknowledge that all references to "Employee" in the Code and Procedures for Personal Trading refer to me and shall be construed to mean "agent" and that I may be designated as an Advisory Person and therefore an Access Person as a result of my access to information regarding the purchase or sale of Covered Securities. My agreement and affirmation are made in the capacity as an agent, and not as an employee of Harris, and are not intended to impact my status as an independent contractor.

 

ANNUAL AFFIRMATION OF COMPLIANCE FOR ACCESS PERSONS AND NON-

ACCESS DIRECTORS

Signature

Date

 

ANNUAL AFFIRMATION OF COMPLIANCE FOR ACCESS PERSONS AND NON-

ACCESS DIRECTORS

I affirm that:

1.I have received annual training pertaining to certain aspects of the Code of Ethics and Statement of Insider Trading (the "Code") and Procedures for Personal Trading, and have again read and, to the best of my knowledge, have complied with provisions of the Code and Procedures for Personal Trading that pertain to me during the past year. Capitalized terms used and not defined herein shall have the meanings ascribed to them in the Code.

2.I have provided to the Compliance Department the names and addresses of each investment account, other than Discretionary Accounts, in which I have a beneficial interest or ownership, as defined in the Code, including, but not limited to, those with broker-dealers, banks and others. (List of known accounts attached.) (Access Persons only)

3.I have provided to the Compliance Department copies of account statements or other reports showing each and every transaction in any Covered Security in any non- Discretionary Account in which I have a beneficial interest or ownership, as defined in the Code, during the most recently ended calendar year

or

during the most recent calendar year there were no transactions in any security in which I had a beneficial interest or ownership required to be reported pursuant to the Code. (Access Persons only)

4.I have provided to the Compliance Department a report of my personal securities holdings in Covered Securities in all non-Discretionary Accounts in which I have a beneficial interest or ownership, as defined in the Code, as of the end of the most recent calendar year, including all required information for each Covered Security in which I have any direct or indirect beneficial ownership. (Access Persons only)

5.With respect to the activities conducted at Harris, I am unaware of any violations of applicable laws or regulations that have not otherwise been reported to the Chief Compliance Officer or an appropriate regulatory authority.

6.If I am acting in the capacity as a contractor, consultant, temporary employee or intern (or similar person) to Harris, I acknowledge that all references to "Employee" in the Code and Procedures for Personal Trading refer to me and shall be construed to mean "agent" and that

I may be designated as an Advisory Person and therefore an Access Person as a result of my access to information regarding the purchase or sale of Covered Securities. My agreement and affirmation made herein are made in the capacity as an agent, and not as an employee of Harris, and are not intended to impact my independent contractor status.

 

ANNUAL AFFIRMATION OF COMPLIANCE FOR ACCESS PERSONS AND NON-

ACCESS DIRECTORS

Signature

Date

 

APPENDIX A

Examples of Beneficial Interest

For purposes of the Code, you will be deemed to have a beneficial interest in a security if you have the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the security. Examples of beneficial ownership under this definition include:

osecurities you own, no matter how they are registered, and including securities held for you by others (for example, by a custodian or broker, or by a relative, executor or administrator) or that you have pledged to another (as security for a loan, for example);

osecurities held by a trust of which you are a beneficiary (except that, if your interest is a remainder interest and you do not have or participate in investment control of trust assets, you will not be deemed to have a beneficial interest in securities held by the trust);

osecurities held by you as trustee or co-trustee, where either you or any member of your immediate family has a beneficial interest (using these rules) in the trust.

osecurities held by a trust of which you are the settlor, if you have the power to revoke the trust without obtaining the consent of all the beneficiaries and have or participate in investment control;

osecurities held by any partnership in which you are a general partner, to the extent of your interest in the greater of partnership capital or profits;

osecurities held by a personal holding company controlled by you alone or jointly withothers;

osecurities held, directly or through a trust, by a member of your immediate family who is sharing your home, even if the securities were not received from you and the income from the securities is not actually used for the maintenance of your household; or

osecurities you have the right to acquire (for example, through the exercise of a derivative security), even if the right is not presently exercisable, or securities as to which, through any other type of arrangement, you obtain benefits substantially equivalent to those of ownership.

You will not be deemed to have beneficial ownership of securities in the following situations:

 

oportfolio securities held by a limited partnership in which you do not have a controlling interest and do not have or share investment control over the partnership's portfolio; and

osecurities held by a foundation of which you are a trustee and donor, provided that the beneficiaries are exclusivelycharitable and you have no right to revoke the gift.

These examples are not exclusive. There are other circumstances in which you may be deemed to have a beneficial interest in a security. Any questions about whether you have a beneficial interest should be directed to the General Counsel or Compliance Department.

 

Code of Ethics

for

DoubleLine Group LP

DoubleLine Capital LP

DoubleLine Equity LP

DoubleLine Alternatives LP

DoubleLine Investment Management Asia Ltd.

DoubleLine Funds Trust

DoubleLine Income Solutions Fund

DoubleLine Opportunistic Credit Fund

Effective date: January 1, 2020

 

 

TABLE OF CONTENTS

Page

 

 

I.

Introduction

1

A.

Applicable to all Personnel

2

B.

Access to the Code

2

C.

Regulatory Requirements

2

D.

Other Topics Covered In the Code

3

E.

Code May be Supplemented by Other Applicable Policies

3

F.

Best Judgment and Further Advice

4

II.

Duty to Report Violations of this Code, Sanctions and Acknowledgement

4

A.

Duty to Report Violations of this Code

4

B.

Sanctions

5

C.

Acknowledgement

6

III.

General Standard of Conduct

7

A.

Fiduciary Duty

7

B.

Adherence to Good Business Practices

8

C.

Compliance with Applicable Federal Securities Laws and Other Requirements

8

D.

Client Representations

8

E.

Market Rumors

8

F.

General Antifraud Prohibitions

9

IV.

Conflicts of Interest

10

A.

General Statement of Policy

10

B.

General Description of Conflicts

10

C.

Particular Conflicts

11

V.

Confidentiality/Privacy

12

A.

General Statement of Policy -- Confidentiality

12

B.

Sharing of Information Within the Companies

13

C.

Sharing of Information Outside the Companies

13

D.

Reasonable Safeguards

14

E.

Reporting of Possible Confidentiality Breach

14

VI.

Prohibition Against Insider Trading

15

A.

Companies' Policy – Insider Trading

15

B.

Recognizing Material Nonpublic Information

15

C.

Avoiding the Receipt and Misuse of Material Nonpublic Information

17

D.

Required Steps to Take If Exposed to Material Nonpublic Information

21

E.

Responsibilities of the Chief Compliance Officer

21

F.

Reporting of Insider Trading Activity

23

VII.

Reporting of Accounts and Transactions Involving Securities and Other Financial Products 24

A.

General Statement of Companies' Policy With Respect to Account and Notification

24

VIII.

Investment Activities

28

A.

Overview

28

B.

Provisions of General Applicability

28

C.

Prohibitions and Pre-Approval Requirements of General Applicability

29

D.

Additional Restrictions Applicable to Access Persons

34

IX.

Annual Review by Trustees

36

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ATTACHMENTS

Acknowledgement of Receipt of Initial Code of Ethics Acknowledgement of Receipt of Initial Code of Ethics (consultants) Acknowledgement of Receipt of Amended Code of Ethics Exhibit I.A.: New Access Person Introduction Checklist

Exhibit VII A1: Annual or Initial Holdings Report

Exhibit VII A2: Request for Duplicate Confirmations and Statements

- ii -

 

 

I.INTRODUCTION

A number of entities affiliated with DoubleLine Group LP ("Group")1 have jointly adopted this Code of Ethics (the "Code") to set forth the ethical and professional standards required of those entities listed and defined below (collectively, the "Companies") and to demonstrate the commitment of the Companies and their management to maintaining the trust and confidence of the investors in the funds offered by DoubleLine Funds Trust (each series thereof individually, a "Fund", and together with the other series, the "Trust"), DoubleLine Opportunistic Credit Fund ("DBL") and DoubleLine Opportunistic Income Fund ("DSL" and, together with the Trust and DBL, the "Funds") and of the Adviser's clients, to upholding high standards of integrity and business ethics and professionalism, and to comply with legal and regulatory requirements and with the Companies' internal policies and procedures. Various employees of Group, which provides operational support for the Trust, DBL and DSL, will perform certain actions discussed herein on behalf of DBL, DSL and the Trust.

The entities comprising the Companies are:

DoubleLine Group LP ("Group")

DoubleLine Capital LP ("Adviser", "DoubleLine", "Capital")

DoubleLine Equity LP ("Adviser", "DoubleLine", "Equity")

DoubleLine Alternatives LP ("Adviser", "DoubleLine", "Alternatives")

DoubleLine Opportunistic Credit Fund ("DBL")

DoubleLine Funds Trust ("Trust")

DoubleLine Income Solutions Fund ("DSL")

DoubleLine Investment Management Asia Ltd. ("DIMA")

Together, the series of funds within the Trust are known as the "DoubleLine Funds".

A.Applicable to all Personnel

The Code covers all personnel of Group, DBL, DSL, the Trust and the Advisers and DIMA, including partners, officers, directors (and other persons occupying a similar status or performing similar functions), and employees, as well as individuals associated with the Companies in any manner that provide investment advice on their behalf and are subject to their supervision and control (collectively, hereinafter, the "DoubleLine Personnel" or "Personnel"). The term "Personnel" shall also include any individuals who are members of the DoubleLine Capital GP LLC, which is Capital's general partner. Temporary employees and consultants that, in each case, are engaged by any of the Companies to provide clerical, administrative or professional services that are not directly investment related will not be considered to be Personnel subject to this Code except to the extent the Chief Compliance Officer ("CCO")2 or designee notifies them to the contrary.

New employees, including any temporary employees, independent contractors or consultants designated by the CCO or designee, shall be briefed as to the requirements of the Code of Ethics. The

1Group is an entity which serves as the employer of the persons termed as "DoubleLine Personnel" under the Code. However, while it provides these persons to supply services to the Advisers under various service contracts, Group itself does not conduct activities requiring registration as a registered investment adviser. Group adopts this Code solely as an administrative convenience, to ensure that all persons employed by Group are subject to the Code because of the services rendered to registered investment advisers.

2 References to CCO within the Code shall be construed to mean the CCO of DoubleLine Capital LP (the "Capital CCO") except where expressly indicated otherwise. It is expected that the Capital CCO will involve the CCO of Alternatives (or other entities) as and when necessary.

 

briefing is not a substitute for reading the Code in its entirety at least annually. The fact that a briefing has not occurred or that the CCO or designee has not made a determination of any existing employee's change of status does not in any way limit the obligation of any person to comply with all applicable provisions of the Code.

i.Applicability of this Code to the Disinterested Trustees

Various provisions of this Code either do not apply to the Trustees of the Trust, DBL or DSL who are not "interested persons" within the meaning of Section 2(a)(19) of the Investment Company Act of 1940 (the "Disinterested Trustees") or applies only in a limited fashion.

The following Sections of this Code do not apply to the Disinterested Trustees:

Section VIII (Investment Activities)

In addition, Disinterested Trustees are required to comply with only Subsection A(5) of Section VII (Reporting of Accounts and Transactions Involving Securities and Other Financial Products). For the avoidance of doubt and notwithstanding any other term herein, the provisions of this Code shall be construed to apply to the Disinterested Trustees only to the extent such application is required by Rule 17j-1 under the Investment Company Act of 1940.

ii.Authority to Exempt Any Person from Coverage

Notwithstanding the foregoing, the CCO may exempt any person from all or any portion of the Code upon a finding that such person is neither an "Access Person," as defined at Rule 17j-1(a)(1) under the Investment Company Act of 1940 (the "Investment Company Act") or Rule 204A-1 of the Investment Advisers Act of 1940 (the "Advisers Act") or a "supervised person," as defined at Section 202(a)(25) of the Advisers Act, and that, such person's duties and responsibilities are such that application of all or any particular portion of this Code to such person is not reasonably necessary. Accordingly, all persons subject to the Code shall be considered to be Access Persons, regardless of whether they meet any particular definition thereof while persons that have been exempted from all or any particular portion of the Code shall not be considered to be Access Persons to the extent of that exemption.

The CCO also may waive provisions of the Code on a case-by-case basis, after reviewing the circumstances surrounding the request for a waiver. An example of such a waiver would be the waiver of the two-day requirement to execute a trade. The CCO shall keep a written record of all such waivers and the basis for such waiver, which typically shall be recorded on a trade approval form or via email.

B.Access to the Code

All Personnel will be provided access to the Code, either in hard copy or on the Companies' Compliance section of the intranet. Personnel should keep the Code available for easy reference.

C.Regulatory Requirements

The Code has been adopted in connection with the Companies' compliance with Rule 204A-1 under the Advisers Act or Rule 17j-1(c) under the Investment Company Act, as applicable.

Investment advisers registered pursuant to Rule 204A-1, are required to establish, maintain and enforce a written code of ethics that, at a minimum:

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i.Sets forth the general standard of conduct required of all supervised persons, which standard reflects the fiduciary duties that the Advisers and all such individuals owe to the Advisers' clients.

ii.Requires compliance by all supervised persons with applicable federal securities laws.

iii.Requires certain supervised persons to report, and for the Advisers to review, their personal securities transactions and holdings periodically.

iv.Requires prompt reporting by all supervised persons of any violations of this Code.

v.Requires distribution by the Advisers of the Code and of any amendments to all supervised persons and for the Advisers to obtain written acknowledgements from all such individuals as to their receipt of the Code.

DBL, DSL, the Trust and the Advisers also are required pursuant to Rule 17j-1 under the Investment Company Act to adopt a written code of ethics that contain provisions reasonably necessary to prevent their "Access Persons," as defined in Investment Company Act Rule 17j-1(a)(1), from:

vi.employing any device, scheme or artifice to defraud a Fund;

vii.making any untrue statement of a material fact to a Fund or omit to state a material fact necessary in order to make the statements made to a Fund, considering the circumstances under which they are made, not misleading;

viii.engaging in any act, practice or course of business that operates or would operate as a fraud or deceit on a Fund; or

ix.engaging in any manipulative practice with respect to a Fund.

D. Other Topics Covered In the Code

In addition to the minimum requirements set forth above, the Code also addresses the Companies' policies and procedures regarding:

i.Sanctions for violating the Code

ii.Safeguarding and maintaining confidential information

iii.Prohibitions against insider trading

iv.Investment activities

v.Annual review by Trustees

E. Code May be Supplemented by Other Applicable Policies

The Code has been drafted in a manner that allows it to apply equally to all Personnel regardless of their specific functions or responsibilities. As a result of this "one size fits all" approach, the Companies may, from time-to-time, supplement the Code as it applies to Personnel that perform certain functions or that have responsibilities by the adoption of separate, more specialized policies and procedures. Where this is the case, Personnel to whom these separate policies and procedures apply must comply

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with both the Code and these additional policies – or the more restrictive of the two in the case of a conflict. More generally, the existence of the Code should not be understood as relieving Personnel, in any manner, from their continuing responsibility to familiarize themselves, and to comply, with all applicable policies and procedures of the Companies.

F.Best Judgment and Further Advice

It is not reasonable to expect this Code or other applicable policies or procedures of the Companies to cover all the possible situations that Personnel may encounter. For this reason, nothing in this Code removes the need for all Personnel to use their best judgment in order to maintain high professional standards and to consult with their supervisors as well as appropriate Compliance Personnel, as needed.

Personnel that are unsure how to handle a situation are urged to consult with their supervisor or Compliance Personnel for advice.

References:

Advisers Act Section 202(a)(25): Definitions (definition of "Supervised

 

Person")

 

Advisers Act Rule 204A-1(a): Investment Adviser Codes of Ethics (adoption

 

of code of ethics)

 

Investment Company Act Section 17: Transaction of Certain Affiliated

 

Persons and Underwriters

 

Investment Company Act Rule 17j-1: Personal Investment Activities of

 

Investment Company Personnel

II.DUTY TO REPORT VIOLATIONS OF THIS CODE, SANCTIONS AND ACKNOWLEDGEMENT

A.Duty to Report Violations of this Code

DoubleLine Personnel are required to report promptly any violation or potential violation of the Code to the CCO. Any such report shall be maintained in confidence and no retaliation shall be made against the individual for making a report and, indeed, any retaliation for reporting a violation of the Code shall itself constitute a violation of the Code.

i.Review and Investigation

The CCO shall be responsible for the prompt review and investigation of any violations of the Code reported to, or independently discovered by, the CCO. The CCO shall be responsible for reporting any substantiated material violations of the Code to appropriate senior management within the Companies and to the Board of Trustees of the Trust, DSL or DBL (as applicable) (the "Trustees") and for appropriately documenting such review and investigation, the reporting thereof to senior management, and any action, including any sanctions, taken as a result thereof.

ii.Involvement of Legal Counsel

Notwithstanding the assignment of responsibility to the CCO with respect to the review and investigation and reporting of violations, where either the CCO, counsel, or the Disinterested Trustees determine that sufficient reasons exist for any such review, investigation, or reporting to be conducted

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under the direction of legal counsel or such outside counsel as shall engage for such purpose, such legal or outside counsel shall have the ultimate responsibility for the conduct of such review, investigation, and the reporting and documentation thereof.

iii.Where the CCO is Implicated by the Violation Being Reported

Notwithstanding the foregoing, where a person making a report believes that the CCO is implicated in any violation being reported, the reporting person may report such violation to any of the Companies' senior management, including the Disinterested Trustees, as such individual believes is appropriate (the "Receiving Person"). Upon the receipt of a report of a violation, the Receiving Person shall either cause the Companies to undertake such review and investigation of the reported violation and to take such other action as is contemplated above or promptly report such matter to another member of senior management as the Receiving Person believes is appropriate, who, upon receipt of such report, shall have the responsibility of a Receiving Person.

References:

Advisers Act Rule 204A-1(a)(4): Investment Adviser Codes of Ethics (duty to

 

report violations)

 

Advisers Act Rule 204-2(a)(12)(ii): Books and Records to be Maintained by

 

Investment Advisers (record of any violation of the Code and action taken

 

as a result)

 

Advisers Act Rule 204-2(e)(1): Books and Records to be Maintained by

 

Investment Advisers (holding periods for certain required records)

 

Investment Company Act Rule 17j-1(c)(2)(ii)(A): Personal Investment

 

Activities of Investment Company Personnel (Administration of Code of

 

Ethics)

 

Investment Company Act Rule 17j-1(f)(B): Personal Investment Activities of

 

Investment Company Personnel (Recordkeeping Requirements)

 

 

B.Sanctions

i.Requirement that CCO be Informed of all Internal Discipline

No internal discipline shall be imposed, nor any decision reached to not impose discipline, on any DoubleLine Personnel for violation of this Code without the underlying matter and the sanction to be imposed being first brought to the attention of the CCO.

ii.Possible Sanctions

Possible sanctions for violation of this Code may include, but need not be limited to, verbal or written warnings, reversal of trades or reallocation of trades to client accounts, disgorgement of profits, suspension or termination of trading or investment privileges, monetary penalty, heightened supervision, job modification, suspension or termination, and/or civil or criminal referral to the appropriate governmental authority. Sanctions are imposed by the Code of Ethics Committee, which generally shall consist of the General Counsel, Chief Risk Officer, CCO, President and other senior Personnel that they may designate.

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iii.Heightened Supervision or Other Responsive Actions

The CCO shall be responsible for determining whether any violation of the Code that is brought to the CCO's attention indicates a need (i) for heightened supervisory procedures, and, if so, the means by which such need should be addressed, and (ii) any change in the Companies' procedures or policies or applicable controls. In addition, the CCO, after conferring with outside counsel, shall also be responsible for determining whether the violation, or any sanction imposed as a result thereof, requires additional disclosure or reporting, including to the Companies' clients or, any regulatory, law enforcement or other outside party. The CCO shall be responsible for appropriately documenting each determination.

C.Acknowledgement

All Personnel must read, understand and adhere to this Code as well as any amendments or changes to the Code. Personnel (except for the Trustees) are required to sign3 an Acknowledgement that they have read the entire Code, and from time-to-time, any amendments, and have had an opportunity to review any portions with their supervisor and a member of the Compliance Department.

By signing the Acknowledgement, each signatory agrees to perform fully all applicable responsibilities and to comply with all applicable restrictions, limitations, and requirements set forth in the Code and acknowledge that any such failure may result in disciplinary action, up to and including termination. Failure to comply with the terms of this Code can also subject the Companies and responsible supervisors and involved individuals to fines, penalties and potentially even criminal proceedings in addition to significant reputational harm and regulatory sanctions. From time-to-time, the Companies may ask any recipient of this Code may be asked to certify his or her continued compliance with the applicable terms and/or with any other applicable restrictions, limitations or requirements and to sign an Acknowledgement with respect to any amendments hereto.

A copy of the Acknowledgement can be found at the end of this Code. Each recipient is required to return the completed Acknowledgement to the Chief Compliance Officer.

References:

Advisers Act Rule 204A-1(a)(5): Investment Adviser Codes of Ethics (written

 

acknowledgement)

 

Advisers Act Rule 204-2(a)(12)(iii): Books and Records to be Maintained by

 

Investment Advisers (record of written acknowledgement)

 

Investment Company Act Rule 17j-1: Personal Investment Activities of

 

Investment Company Personnel

 

 

3"Sign" shall be construed to indicate the use of electronic means, including through any systems used by the Companies to monitor the Code.

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III.GENERAL STANDARD OF CONDUCT

The Companies are committed to maintaining the trust and confidence of their shareholders and clients, to upholding high standards of integrity and business ethics and professionalism, and to compliance with legal and regulatory requirements and its own internal policies and procedures.

Compliance with these standards is crucial to the Companies' long-term success. Simply put, the Companies' continued success is dependent upon its reputation and there is no more certain way to diminish the Companies' reputation than by failing to put their shareholders and clients first. If the Companies serve their shareholders and clients honestly and equitably and to the best of their abilities, their success will follow.

The general standard of conduct required by all Personnel reflects several underlying requirements including:

the fiduciary duty owed by the Companies and their Personnel to the Funds' shareholders and the Adviser's clients;

the Companies' intent to adhere to good business practices;

applicable legal and regulatory requirements;

the Companies' own internal policies and procedures; and

representations that the Companies have made to its clients in agreements, offering documents or other written materials.

A.Fiduciary Duty

The Companies and all Personnel owe a fiduciary duty to the Funds and to the Adviser's other clients. This fiduciary duty is composed of both a duty of care and a duty of loyalty. The duty of care requires the Companies and all Personnel (i) to provide advice to the Funds and to the Adviser's other clients that is in the best interest of, and is suitable for, the Fund or the client, (ii) to seek best execution of transactions where the Companies and the Personnel have responsibility to select executing broker- dealers, and (iii) to provide advice and monitoring over the course of the Companies' relationship with the Fund or the Adviser's other clients, as applicable. The duty of loyalty means that the Companies and their Personnel must always place the interests of the Funds and the Adviser's other clients first. More specifically, the Companies' fiduciary duty to the Funds and the Adviser's other clients requires that Personnel adhere to the following standards:

i.Any recommendation to a client must have a reasonable basis and must be suitable for the client considering the client's needs, financial circumstances, and investment objectives;

ii.Facts that may be material to the client's economic interest or decision-making must be disclosed fully and fairly and Personnel must refrain from engaging in fraudulent, deceptive or manipulative conduct;

iii.Best execution must be provided with respect to client transactions where the Companies have discretion to select executing broker-dealers; and

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iv.Conflicts of interest should be mitigating wherever possible and, failing that, must be fully disclosed and managed (as discussed more fully at Section IV hereof).

All Personnel should note that various topics mentioned within the Code, such as but not limited to, best execution or soft dollars are addressed in more detail in other policies, which also should be consulted when researching the Companies' policies on such topics.

B.Adherence to Good Business Practices

The Companies expect all Personnel to adhere to the principles of good business practice. At a minimum, this requires Personnel to engage in fair and honest conduct in all their dealings and to perform their functions and meet their responsibilities with a degree of professionalism reasonable to the circumstances.

C.Compliance with Applicable Federal Securities Laws and Other Requirements

Inherent in the above standard is the requirement that the Companies and all Personnel comply at all times with all applicable securities laws as well as the Companies' own internal policies and procedures.

While many applicable legal and regulatory requirements are reflected in this Code or the Companies' other policies and procedures, Personnel should not assume that this is true of every relevant securities law or regulation. As a result, Personnel must take the responsibility to inform themselves of, and understand, the legal and regulatory requirements applicable to their activities. For this same reason, the Companies expect all Personnel to stay current with respect to applicable regulatory and legislative developments.

D.Client Representations

The Companies and all Personnel are also expected to comply with any written representations that the Companies have made to their clients, including, but not limited to, representations that are made in formal agreements between the Companies and their clients or the offering documents for any of the Companies' products (where applicable). This is particularly relevant with respect to adherence to stated objectives and constraints applicable to a portfolio or fund. Personnel tasked with managing client relationships are responsible for memorializing, in writing, any material oral representations made to clients and prospective clients with respect to their investments with the Companies or the Funds.

E.Market Rumors

No officer or employee of the Companies shall originate or, except as permitted below, circulate in any manner a false or misleading rumor about a security or its issuer for the purpose of influencing the market price of the security. A statement that is clearly an expression of an individual's or the Companies' opinion, such as an analyst's view of the prospects of a company, is not considered to be a rumor, and is excluded from these restrictions.

Where a legitimate business reason exists for discussing a rumor, for example where a client is seeking an explanation for an erratic share price movement which could be explained by the rumor, care should be taken to ensure that the rumor is communicated in a manner that:

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i.sources the origin of the information (where possible);

ii.gives it no additional credibility or embellishment;

iii.makes clear that the information is a rumor; and

iv.makes clear that the information has not been verified.

If in doubt, Personnel should consult with the CCO regarding questions about the appropriateness of any communications about specific securities.

F.General Antifraud Prohibitions

DoubleLine Personnel are prohibited from:

i.employing any device, scheme, or artifice to defraud a client or prospective client;

ii.engaging in any transaction, practice, or course of business that operates as a fraud or deceit upon a client or prospective client;

iii.making any untrue statement of a material fact to a client or omitting to state a material fact necessary to make a statement made not misleading; or

iv.engaging in any act, practice or course of business that is fraudulent, deceptive, or manipulative.

References:

Advisers Act Section 206: Prohibited Transactions by Investment Advisers

 

Advisers Act Rule 204A-1(a)(1) and (2): Investment Adviser Codes of Ethics

 

(adoption of general standard of business conduct and requirement of

 

compliance with applicable Federal securities laws)

 

Advisers Act Rule 204A-1(e)(4): Investment Adviser Codes of Ethics

 

(definition of "Federal Securities Laws")

 

Investment Company Act Rule 17j-1(b): Personal Investment Activities of

 

Investment Company Personnel (Unlawful Actions)

 

Investment Company Act Rule 17j-1(c): Personal Investment Activities of

 

Investment Company Personnel (Code of Ethics)

 

Investment Company Act Rule 38a-1(f)(1): Compliance Procedures and

 

Practices of Certain Investment Companies (definition of "Federal

 

Securities Laws")

 

 

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IV. CONFLICTS OF INTEREST

A.General Statement of Policy

The fiduciary duties imposed on the Companies and Personnel require all Personnel to be diligent with respect to the possibility of conflicts of interest, whether real or apparent, in transactions with clients. This includes conflicts between the interest of the Companies or their Personnel and their clients, and conflicts between two client accounts. As a general matter, conflicts should be avoided where practicable. Where they cannot be avoided, it will generally be the case that a conflict must be mitigated as much as possible and then fully and fairly disclosed to the client, such that the client can make an informed investment decision and, where applicable, provide an informed consent. When in doubt, Personnel should contact their supervisor or a member of Compliance Personnel for advice.

B.General Description of Conflicts

While it is impossible to describe all conflicts that may arise, in general, conflicts will include various practices in which the Companies or any Personnel have a pecuniary or other interest in recommending or undertaking a transaction for a client. It is important to understand that a conflict does not require that the client suffer any actual harm. It also does not require that the improper interest in question be tangible or otherwise quantifiable or even certain. It is enough if the improper interest is, or could be viewed as, a motivating factor in the Companies or Personnel recommending or undertaking the transaction. Conflicts of interest can also exist across clients, for example where one client account owns debt in an issuer undergoing bankruptcy and another client account owns equity in the same issuer, and their interests are not aligned as a result of the right related to the bankruptcy proceeding.

An improper interest may be economic, personal or otherwise. In the case of an economic interest, the interest may be a positive benefit or the avoidance, or minimization of, a negative economic result, e.g., the avoidance of an expense or a loss, or loss minimization.

Improper interests can include a wide variety of situations, including situations where:

i.The transaction allows the Companies or Personnel to generate fees or profits, or avoid losses or expenses, from another relationship as, for example, is the case with respect to soft dollars (discussed further below), the receipt of finder's fees, outside commissions or bonuses;

ii.The Companies or Personnel are directly interested in the transaction as, for example, is the case with respect to principal transactions;

iii.The transaction benefits a third party in which the Companies or any Personnel has an ownership or other economic interest;

iv.The transaction provides a benefit to a third party, rather than to the Companies or any Personnel directly, for an improper purpose as, for example, one that:

v.involves any quid pro quo, e.g., where the benefit is returned to the Companies or Personnel in some manner;

vi.is done to benefit a spouse or child or other person for personal reasons; or

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vii.is done to repay a favor or out of gratitude or for the purpose of obtaining or continuing to receive lavish gifts or entertainment (as discussed further below).

Without limiting the generality of the foregoing, all Personnel should avoid any investment, interest, association or other relationship of a personal nature that interferes, might interfere, or even might be perceived as interfering with the independent exercise by the individual of good judgment in the best interest of the Advisers' clients or the Funds.

C.Particular Conflicts

i.Conflicts Related to the Provision of Disinterested and Impartial Advice or Undertaking a Transaction on Behalf of a Client

Where any advice or recommendation, or transaction undertaken on behalf of a client, is not effected on a fully disinterested and impartial basis, the applicable Adviser must mitigate the conflict to the extent possible (e.g., waive or reduce a fee that creates a conflict) and fully and fairly disclose and residual conflict to the Fund shareholders or other Adviser client, as applicable. An interest in a security or issuer, whether direct or indirect, or a relationship with an issuer, may support an inference that advice or a recommendation or the undertaking concerning such security, or the securities of an issuer was not disinterested and impartial.

Accordingly, to minimize the possibility of such conflicts the Companies have adopted policies to address the conflicts:

1.the investment activities of DoubleLine Personnel (see Sections VII and VIII hereof);

2.the holding of any position (e.g., as a director or trustee) with an issuer or its affiliates (see the Companies' Outside Business Activities Policy); or

3.any present or proposed business relationship with an issuer or its affiliates (see the Companies' Outside Business Activities Policy).

ii.Appropriation of Client Information for Personal Benefit

DoubleLine Personnel may not trade or recommend trading in securities based on client information, including information related to client positions, trades, or strategies. This means that trades and recommended trades by Personnel should always be based upon an investment assessment that is independent of any nonpublic client information.

iii.Selecting Suppliers and Service Providers

The acceptance of any compensation or other benefit from a supplier or service provider to the Companies, especially one involving expenses that are, directly or indirectly, borne by an Adviser's clients, may also be perceived as a conflict in that it may lead to a perception that the provider's selection may not be in the clients' best interest. Accordingly, the Companies' use of any brokerage firm or other vendor, or service provider may be subject to separate policies and procedures of the Companies subjecting such use to a pre-approval process and other requirements for the purpose of minimizing the possibility of such conflicts. Potential Conflicts of Interest Arising from Transactions in Affiliated Entities

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DoubleLine may recommend that its clients invest in public or private investment vehicles sponsored by or affiliated with DoubleLine. Examples of such investment vehicles include the DoubleLine Funds, hedge funds sponsored by DoubleLine, securitized assets created by DoubleLine or its affiliates or collateralized loan obligations sponsored by DoubleLine. The possibility exists that DoubleLine could take a position on governance matters for investment vehicles sponsored or affiliated with DoubleLine that could be adverse to some or all shareholders, equity holders or noteholders in these sponsored or affiliated investment opportunities. The Code of Ethics Committee is responsible to review and resolve or seek to mitigate such conflicts through appropriate controls.

References:

Exchange Act Section 28(e): Effect on Existing Law (exchange, broker, and dealer

commissions; brokerage and research services)

 

Advisers Act Section 206: Prohibited Transactions by Investment Advisers

 

Advisers Act Rule 204A-1(a)(1) and (2): Investment Adviser Codes of Ethics

 

(adoption of general standard of business conduct and requirement of compliance

 

with applicable Federal securities laws)

 

Investment Company Act Rule 17j-1(b): Personal Investment Activities of

 

Investment Company Personnel (Unlawful Actions)

 

Investment Company Act Rule 17j-1(c): Personal Investment Activities of

 

Investment Company Personnel (Code of Ethics)

 

Investment Company Act Rule 38a-1(f)(1): Compliance Procedures and Practices of

 

Certain Investment Companies (definition of "Federal Securities Laws")

II.CONFIDENTIALITY/PRIVACY

A. General Statement of Policy -- Confidentiality

All DoubleLine Personnel have a duty to safeguard and treat as confidential all nonpublic information concerning the Companies, investors in the Funds, clients of the Advisers, and all transactions in which the Advisers or its clients are involved. This includes all information concerning a client's financial circumstances and holdings, and advice furnished to the client. Moreover, employees may only use Companies or client information within the scope of their employment and, accordingly, may not appropriate such information for their own use or benefit or the use or benefit of any third party.

Confidential information also shall be construed to mean any information acquired from a third party pursuant to a non-disclosure (confidentiality) agreement ("NDA") or confidentiality clauses contained in contractual arrangements with such third parties. Such NDAs or confidentiality clauses generally require DoubleLine to keep the other party's Confidential Information in confidence using a reasonable degree of care, which shall be at least the same degree of care that DoubleLine uses to maintain its own Confidential Information of like importance, and to use the other party's Confidential Information only to carry out its obligations and exercise its rights under the applicable agreement. DoubleLine Personnel are encouraged and reminded to allow access to such third parties' confidential information only to those of employees having a need to know such information. DoubleLine Personnel also should consult members of the Legal Department if any questions arise about the terms of any NDA or the confidentiality clause of any applicable contract.

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B.Sharing of Information Within the Companies

DoubleLine Personnel should only share client or proprietary information within the Companies with individuals that have a legitimate business need for knowing the information. In addition, employees should not share information in violation of any Information Walls implemented by the Companies as a means of isolating certain kinds of sensitive information within the Companies so that it is not available to employees that perform "public" functions, such as the making of recommendations or giving of advice with respect to trading. Employees should bring to the attention of the CCO any attempt by other Personnel to solicit or obtain client or proprietary information for which they do not have a legitimate business need.

i.Presentations to the Fund's Trustees

In presenting or furnishing a report to the Fund's Trustees, representatives of service providers (such as an Adviser) to the Funds generally should refrain from identifying or discussing Fund portfolio transactions that occurred within the preceding 15 calendar days or Fund portfolio transactions that will occur or are actively being considered within the following 15 calendar days (a "Disclosed Portfolio Transaction"). Exceptions to the foregoing policy may be made upon the request of a Trustee, with the permission of the CCO or as is otherwise necessary for the Trustees to fulfill their oversight responsibilities.

Notification to Disinterested Trustees

For the purposes of assisting the Disinterested Trustees in fulfilling their reporting obligations under the Code, whenever the CCO is informed or otherwise becomes aware of a Disclosed Portfolio Transaction, the CCO shall provide the Disinterested Trustees with specific notice of such fact and remind them of the reporting requirements applicable to the Disinterested Trustees with respect to the applicable securities. Notwithstanding such obligation on the part of the CCO, any failure by the CCO to provide such notice shall not affect or otherwise lessen in any way any reporting obligation that the Disinterested Trustees may have under this Code or otherwise.

C.Sharing of Information Outside the Companies

DoubleLine Personnel should not discuss or share client or proprietary information with individuals outside the Companies, other than with parties that both have a legitimate need to know such information and have either provided a confidentially agreement that covers such information, which, in accordance with the Companies' policies, has been reviewed and approved by the Companies' Legal/Compliance Department (or outside legal counsel, as appropriate) or are themselves under a separate duty to maintain the confidentiality of the information, such as, for example, the Companies' outside counsel or accounting firm, or employees of regulated entities such as prime brokers, clearing firms or transfer agents. When any doubt exists as to the need for a confidentially agreement, employees should contact the Companies' Legal/Compliance Department or legal counsel if appropriate.

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D.Reasonable Safeguards

DoubleLine Personnel should use special care to limit the possibility of inadvertent disclosure of client or proprietary information. Personnel should:

i.keep their desk and work areas clear of all confidential information when they are not present;

ii.lock (via the screen or similar locking mechanism) all desktop computers, laptops, smart phones, and other such devices when unattended;

iii.dispose of confidential documents by shredding them or placing them in confidential document waste bins or otherwise complying with proper document destruction procedures;

iv.keep sensitive information removed from the office out of public view;

v.limit discussions of such information within the Companies to individuals who have a legitimate business need for knowing the information;

vi.consider whether the use of a code name in place of a client's name may be advisable (or contractually required) and

vii.consider whether the use of a code name in place of an issuer's name may be advisable.

Employees should not:

viii.leave confidential information in the open, including in a conference room, once a meeting is over;

ix.discuss confidential information in places where it may be inadvertently overheard by unauthorized persons, such as in elevators, public transportation, restaurants or the like;

x.discuss confidential information while using a speaker-phone that is turned up loud enough to be overhead by visitors or unauthorized Personnel (e.g., Personnel who are subject to an internal confidentiality screening procedure); or

xi.discuss confidential information with individuals outside the Companies (including family members) except in accordance with the policy set forth above.

E.Reporting of Possible Confidentiality Breach

Employees should promptly bring to the attention of the CCO or legal counsel (if deemed appropriate) any suspicion that an unauthorized person has obtained confidential information.

i.Special Considerations Involving Information Disclosure About Publicly Traded

Clients

The inadvertent disclosure of nonpublic information about a client that has publicly traded securities outstanding may trigger a disclosure requirement on the part of the client. Accordingly, anyone who

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unintentionally discloses nonpublic information regarding a client that has publicly traded securities should immediately contact the CCO so that a determination can be made as to whether there is a need to take any action, including alerting such client of such disclosure so that it will have an opportunity to publicly disclose such information.

III.PROHIBITION AGAINST INSIDER TRADING

A. Companies' Policy – Insider Trading

It is unlawful for any person to trade on one's own behalf or on behalf of others, or to "tip" or recommend trading in securities on the basis of material nonpublic (i.e., inside) information concerning an issuer or to pass such information to others improperly. Violations of the foregoing can result in severe civil and criminal penalties for the individuals involved and can result in the imposition of significant penalties on the Companies.

The possession of material nonpublic information by any employee or other Personnel may be attributed to the Companies generally unless the information is effectively isolated using Information Walls so that it is not available to employees that perform public functions, including trading and the making of recommendations or giving of advice with respect to trading. A breach of the Companies' Information Walls so that nonpublic information is not confined to Personnel that do not perform public functions can result in the Companies being required to suspend activities involving trading and the making of recommendations in whole or in part for some indefinite period in certain circumstances.

As a result, strict compliance with all applicable procedures that the Companies institute to contain the flow of material nonpublic information is required of all Personnel. Moreover, and as described more fully below, Personnel that become aware of material nonpublic information must promptly contact the CCO and otherwise comply with the requirements of Subsection D below.

The provisions of this Section VI shall and shall be construed to, apply to the Trustees of the Trust, DSL or DBL who are not interested persons of DBL, DSL, the Trust or the Advisers only in respect or their status and activities as such.

Personnel that have questions concerning the requirements of the policies set forth in this Section are urged to consult with their supervisor, the compliance personnel responsible for maintaining information walls, the CCO or legal counsel as appropriate.

B.Recognizing Material Nonpublic Information

i.Nonpublic Information

Typically, for purposes of the U.S. securities laws, information is considered "nonpublic" if the information has not been broadly disseminated to investors in the marketplace such as by releasing the information over the news wires, disclosing it in public filings (e.g., Forms 10-K or 10-Q) or otherwise disseminating it in a manner that makes it fully available to investors and a reasonable time has elapsed to allow such dissemination.

ii.Materiality

Information is considered "material" if: (1) there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision; or (2) a reasonable investor would consider it as having significantly altered the total mix of information relating to the

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issuer's securities. Generally, this includes any information the disclosure of which would have a meaningful effect on the price of an outstanding security.

Determining materiality is a fact-specific inquiry, requiring a careful assessment of the inferences a reasonable person would draw from a given set of facts. In general, Personnel are encouraged to err on the side of caution when assessing whether a piece of information is material and nonpublic. Personnel can inquire with the CCO regarding whether a piece of information is material and nonpublic. By way of guidance, the Securities and Exchange Commission has indicated the following as non-exclusive list of examples of the types of information or events that may be considered material:

1.impending or potential mergers, acquisitions, tender offers, joint ventures, or changes in assets, such as a large disposal of the same;

2.earnings or revenue information and changes in previously disclosed financial information;

3.events regarding the issuer's securities, e.g., advance knowledge of a ratings downgrade, defaults on securities, calls of securities for redemption, public or private sales of additional securities, stock splits or changes in dividends, repurchase plans or changes to the rights of security holders;

4.new products or discoveries, or developments regarding clients or suppliers (e.g., the acquisition or loss of a major contract);

5.significant changes in control or management;

6.changes in auditors or auditor notification that the issuer may no longer rely on an auditor's report;

7.impending bankruptcies or receiverships;

8.information relating to the market for an issuer's securities, such as a large order to purchase or sell securities; and

9.prepublication information regarding reports in the financial press.

When in doubt and because assessments of materiality are necessarily highly fact-specific, DoubleLine Personnel should err on the side of caution and treat the matter in question as material and bring such matter to the attention of the CCO for further consideration.

iii.Breach of Fiduciary Duty or Duty of Trust or Confidence

Generally, except in the case of tender offers (as described in the immediately following subparagraph), the legal prohibitions on the use of material nonpublic information are dependent upon such information being obtained under a fiduciary duty or a duty of trust or confidence (or, directly or indirectly, from someone who has such a duty). Nevertheless, even where information is obtained outside of a fiduciary relationship or relationship of trust or confidence, the use of material nonpublic information may still trigger regulatory investigations and reputational concerns. For this reason, as a general policy, the

Companies prohibit intentionally obtaining any material, nonpublic information by all Personnel, regardless of whether the information is obtained pursuant to a fiduciary duty or a duty of trust or confidence, except to the extent explicit written approval is obtained from the

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General Counsel, CCO, or a designee of either the General Counsel or CCO. An example of such approval would be the creation (in writing) of an information wall to facilitate the receipt of such material, nonpublic information.

1.Special Situations -- Tender Offers

Exchange Act Rule 14e-3 specifically prohibits trading or "tipping," e.g., providing information to third parties, while in the possession of material nonpublic information regarding a tender offer received from the tender offeror, the target company or anyone acting on behalf of either – irrespective of whether the information was obtained in breach of a fiduciary duty or similar duty of trust and confidence. Personnel that become aware of nonpublic information relating to a tender offer must promptly contact the CCO and otherwise comply with the requirements of Subsection D below.

B.Avoiding the Inadvertent Receipt and Misuse of Material Nonpublic Information

Nonpublic information may come to the attention of DoubleLine Personnel in a variety of ways. Personnel should be aware of the most likely situations so that they can either avoid being inadvertently "tainted" with such information, which as discussed above may impact their ability to perform their usual functions for the Companies as well as the Companies' ability to engage in business as usual, or take such actions as are described below to minimize the impact such information may have on the Companies and the affected employee.

In the event any Personnel comes into possession of, or is otherwise exposed to, nonpublic information, such individual must immediately notify the CCO or designee and must otherwise comply with the requirements of Subsection D below. Upon being informed of any such matter, the CCO or designee will make a determination of whether trading restrictions (as a firm or for personal trades or both) or other restrictions or controls should be put in place to minimize any conflicts of interest that may result or lead to any improper use or dissemination of material nonpublic information by the Companies or their employees. Personnel in possession of material nonpublic information may not discuss the information with, or provide any investment views with respect to any securities to which the information represents material nonpublic information to, anyone else within or outside the Companies except the General Counsel, the CCO or other members of the Legal/Compliance Department; as otherwise expressly permitted by this Code of Ethics; or as may be expressly authorized in writing by the CCO or General Counsel. See Section VI.D. below.

i.Pre-Sounding

From time to time, investment banks may contact Personnel for the purpose of gauging the Companies' interest in a potential transaction that has not yet been publicly disclosed. Because of the potential for such conversations, even when conducted on a hypothetical or no names basis, to result in the disclosure of material, nonpublic information, such conversations must be coordinated through the CCO and comply with any restrictions or other requirements imposed thereby.

Personnel that are contacted for such purpose must promptly interrupt the investment bank representatives and inform them that applicable policies require that such calls be coordinated through the Companies' General Counsel or CCO. After providing the investment banking representatives with contact information for the General Counsel or CCO, the contacted Personnel should terminate the call and promptly bring the call to the attention to the General Counsel or CCO.4

4Assuming the proper protocols are followed, this provision is not intended to prevent personnel from providing an

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ii.Involvement by the Companies in a Nonpublic Transaction

The Advisers may bid for, or cause one of its clients to bid for, securities in a company, purchase securities in a private placement, serve on a creditors' committee with respect to a bankrupt entity, or otherwise be involved in another type of transaction with an issuer through which the Advisers may be made aware of material nonpublic information. In such situations, the head of the business unit involved in such transactions is responsible for informing the CCO of such involvement at or before the initiation thereof, to the extent practical, but in any event before any material nonpublic information is provided to the Advisers or any Personnel.

iii.Intentional Receipt of Material Non Public Information

If you intend to receive any material, non-public information related to a company with a class of publicly traded securities (whether domestic or foreign), you must contact the CCO or Compliance Personnel in advance of its receipt. The CCO or Compliance Personnel will work with the appropriate business unit(s) to determine whether to receive the information and whether to implement informational wall and other procedures, as appropriate.

Under certain circumstances, Personnel may seek or agree to receive material non-public information for a legitimate purpose in the context of a transaction in which an Adviser (or its affiliates), on behalf of itself or a client entity or account, is a potential participant or in the context of forming a confidential relationship. This may include receiving "private" information from agent banks, normally facilitated through on-line services such as, but not limited to, Intralinks, Debt Domain or SyndTrak. This information may be available to all potential purchasers of an investment opportunity represented, for example, by an investment which may not generally qualify as a "security" for purposes of the federal securities laws (e.g., certain bank loans). Typically, that information can be used to evaluate the investment opportunity and in making an investment decision.

Prior to receipt of such information, the Personnel must request approval from the CCO or his or her designee.

Generally, if a confidentiality agreement is to be signed in the context of such transactions, members of the Legal/Compliance group should evaluate carefully whether a duty of confidentiality and/or a duty not to trade in the relevant issuer's securities without prior disclosure will be created before any information is received under the confidentiality agreement. However, even in the absence of a written confidentiality agreement, a duty to disclose material non-public information before trading may be created when an oral agreement is made, or an expectation exists that the confidentiality of such information will be maintained or that the information will not be used in trading. For example, if the persons providing or receiving the information have a pattern or practice of sharing confidences so that the recipient knows or reasonably should know that the provider expects the information to be kept confidential, such pattern or practice may be enough to form a confidential relationship.

Material non-public or deal-specific information may be given in connection with an Adviser making a direct investment in a company on behalf of a client in the form of equity or debt; it may also involve a purchase by an Adviser on behalf of a client of a debt or equity security in a secondary transaction or in the form of a loan participation. The information can be conveyed through a portal such as Intralinks, Debt Domain or SyndTrak, orally from a sponsor or dealer or through other electronic delivery or hard copy documentation. This type of situation typically arises in mezzanine financings, loan participations,

indication of interest to purchase shares of an initial public offering, whether in the context of a roadshow or as part of an underwriter gathering its book for a pending deal.

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bank debt financings, venture capital financing, purchases of distressed securities, oil and gas investments and purchases of substantial blocks of stock from insiders. Even though the investment for which the deal-specific information is being received may not be a publicly traded security, the company may have other classes of publicly traded securities, and the receipt of the information by an Adviser can affect the ability of other parts of the organization to trade in the issuer's securities. For the aforementioned reasons, prior to receiving any information that may constitute material, non-public information on a company with any class of publicly traded securities (whether domestic or foreign), please contact Compliance Personnel who will help to evaluate whether the information may represent material non-public information and, where necessary, implement the appropriate Information Wall and trading procedures.

iv.Contacts with Officials or Representatives of Publicly-Held Companies

Contacts with public companies may constitute an important part of the Companies' research efforts and investment decisions may be made based on conclusions formed through these contacts, as well as through an analysis of publicly available information. Difficult legal issues arise, however, when, in the course of these contacts, Personnel become aware of material nonpublic information. This could happen, for example, if an issuer's Chief Financial Officer prematurely discloses quarterly results to an individual associated with the Companies, or an investor relations representative selectively discloses significant news to a handful of investors, including Personnel of a Company. In such situations, the Companies must make a judgment as to its further conduct. Any individual who believes he or she may receive or has received material nonpublic information about an issuer must promptly contact the CCO and otherwise comply with the requirements of Subsection D below.

Whenever practicable, Personnel shall provide advance notice to the CCO or his designee prior to attending any meeting with officials or representatives of a public company with securities to discuss matters related to the issuer of the securities unless the meeting is open to the public or open broadly to the investment community. Upon the request of the CCO or designate, the Personnel attending such a meeting shall provide a brief summary of the substantive information provided during the meeting.

v.Board Seats

DoubleLine Personnel are sometimes asked to sit or act as Board members for an issuer of publicly held securities. As noted under the Outside Business Activities Policy, any such arrangement must be pre-approved and, in connection therewith, the CCO, in accordance with Subsection E below, will make a determination of whether trading restrictions or other controls should be put in place to minimize any conflicts of interest that may result therefrom or prevent the improper use or dissemination of material nonpublic information by the Companies or its employees and as is required to comply with any restrictions imposed by the issuer on its directors. It should be noted that such approval generally will not be granted.

In addition, Board members of public issuers may also be exposed to material nonpublic information concerning other publicly held companies that may have dealings with the company on whose board they sit. Personnel sitting on the board of a company who receive material nonpublic information concerning other publicly held companies must immediately contact the CCO and otherwise comply with the requirements of Subsection D below.

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vi.Creditors' Committees

Participants on creditors' committees are often exposed to nonpublic information regarding the debtor company. This exposure may affect the Companies' ability to trade in securities in that company. Accordingly, Personnel should not agree to sit on any creditor's committee, whether official or informal (including preliminary meetings that precede creditors' committees), without first contacting the CCO, who will obtain any necessary approvals and make a determination of whether trading restrictions or other controls should be put in place to minimize any conflicts of interest that may result therefrom or any improper use of material nonpublic information by the Companies or its employees and as may otherwise be required of members of the creditor committee.

vii.Other Situations

1.Information Originating within the Companies

Material, non-public information may include information originating within the Companies, for example, information regarding open-end or closed-end funds advised by the Advisers, such as information on a fund's portfolio holdings, net asset value, expected dividend rate, or any other information that could be considered material. DoubleLine Personnel that are contacted by another employee for the purpose of communicating material, nonpublic information as to which the employee was previously unaware must immediately notify the CCO regardless of whether any nonpublic information is communicated and may be required to comply with the requirements of Subsection D below.

2.Information Originating Outside the Companies

All Personnel who come into receipt of material nonpublic information, no matter what the source or circumstances, must immediately contact the CCO and may have to comply with the requirements of Subsection D below.

3.Expert Networks

The Companies occasionally use expert networks as part of its research efforts. A more detailed procedure regarding the use of expert networks is contained within the Advisers' Compliance Manual.

4.Minimum Holding Period for Closed-End Funds advised or Sub-Advised by DoubleLine

DoubleLine Personnel may only invest in a closed-end fund advised or sub-advised by DoubleLine (a "DoubleLine CEF") as a long-term investment and any such investment is subject to a minimum six- month holding period. This means DoubleLine Personnel may not sell any number of shares of a DoubleLine CEF within six months of purchasing shares of the DoubleLine CEF, or purchase shares of a DoubleLine CEF within six months of selling shares of the DoubleLine CEF. Any violation of this six-month holding period will require disgorgement of any profits. Certain DoubleLine Personnel may be required to file forms promptly with the SEC regarding their transactions in shares of a DoubleLine CEF. For additional details, please review the "Procedures with Respect to Fund Obligations under Section 16 of the Securities Exchange Act of 1934" otherwise known as the Section 16 Policy. All transactions in a DoubleLine CEF require preclearance and you may not be able to sell shares of a DoubleLine CEF notwithstanding your compliance with the holding period requirement, including, for example, if a blackout period applies. A blackout period may apply for an extended period and you may not be able to sell shares of a DoubleLine CEF when you wish, if at all.

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C.Required Steps to Take If You Have Been Exposed to Material Nonpublic

Information

Personnel who believe they have been exposed to or may possess material nonpublic information should cease any further actions in any way related to such information or any issuer to which it relates and immediately take the following steps:

i.contact the CCO or Compliance Personnel;

ii.refrain from discussing the information with, or providing any investment views with respect to any securities to which the information relates to, anyone else within or outside the Companies

iii.Except that you may disclose the information to the General Counsel, the CCO or Compliance Personnel in accordance with your obligations under this Code and you may disclose the information and/or provide your investment view with respect to the relevant securities as expressly permitted by this Code or as may be expressly authorized in writing by the CCO or General Counsel;

iv.refrain from transactions involving the subject securities or related securities (whether for a personal account or an account of a client) or otherwise attempting to take advantage of the information whether for one's own benefit, that of the Companies, a client or any other person; and

v.comply with any restrictions or controls that are put in place by the Companies in response to such exposure or possession.

Personnel who are authorized to possess material nonpublic information in accordance with this Code shall take all appropriate measures to prevent the unauthorized dissemination of that information, including:

vi.reviewing such information in a private office; and

vii.avoiding the storage of such information on any network drives to which others (other than the CCO, Legal, IT or Compliance Personnel and anyone else cleared to view the exact same information) have permission to access.

D.Responsibilities of the CCO

i.Upon Receipt of Notification of Possible Receipt of Material, Nonpublic Information/Imposition of Information Barriers

Upon the receipt of any notification with respect to the receipt by Personnel of possible material, nonpublic information, the CCO, in consultation with legal if deemed necessary, shall be responsible for making a determination of whether the information is material and nonpublic and, if so, necessary precautions should be taken, including restricting the Companies' activities in any way or placing an Information Wall around the individual(s) involved.

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ii.Restrictions on Communication and Information Barriers

Individuals subject to information barriers are prohibited from discussing the information that gave rise to the information barrier except:

1.among other individuals who are part of the same walled off group;

2.with the Companies' legal counsel, CCO or such other persons as the CCO shall specifically direct.

Individuals subject to information barriers should use care to maintain the information that gave rise to the information barrier in confidence and shall:

3.take reasonable steps, including such steps as are set forth at Subsection D of Section V hereof, to safeguard the protected information;

4.not discuss such matter with anyone except as specifically provided above; and

5.in accordance with Subsection B of Section V hereof, bring to the attention of the CCO any attempt by Personnel to solicit or obtain such information unless they have a legitimate business need or reason.

iii.Pre-Sounding

The CCO shall be responsible for managing the Companies' participation in any response thereto. (See also the discussion at Section VI. C. 1.)

iv.Maintenance of Restricted and Watch List

The Chief Compliance Officer is responsible for maintaining the Companies' Restricted and Watch Lists. The Chief Compliance Officer may designate others to assist with the maintenance of these lists.

The Restricted List generally may be disclosed to DoubleLine Personnel and consists of a list of issuers, e.g.., companies, in which Personnel and their Immediate Family Members are prohibited from trading, absent an exemption from such restriction.

The Watch List generally is not disclosed to Personnel and consists of a list of issuers as to which a limited or select group of Personnel may be in possession of material nonpublic material information or other sensitive information. However, the CCO may share the Watch List with certain Personnel as necessary to further the purposes of this Code or for other purposes the CCO deems necessary or appropriate.

The Restricted and Watch Lists are maintained separately. The Restricted List is available on the Compliance section of the Companies' intranet, while the Watch List shall not be accessible by Access Persons except as the CCO may deem necessary to further the purposes of this Code of Ethics or for other purposes the CCO deems necessary or appropriate.

The Companies also maintain a list of bank loan borrowers which are not currently issuers of public securities and which Personnel have accessed their private information on services such as, but not limited to, Intralinks, Debt Domain or SyndTrak.

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The Companies also maintain a list of private issuers (such as hedge funds or private operating companies) in which Personnel are invested, based on information gathered as part of the procedures outlined in this Code.

As a general matter, the CCO shall be responsible for the determination to add or remove an issuer from any of the Restricted List, the Watch List, the list of bank loan borrowers, the list of private issuers or any other lists deemed necessary to comply with these provisions of the Code.

In considering whether an issuer should be added or removed from the Restricted or Watch List, the following presumptions shall apply:

1.Issuers that are the subject of an Information Wall or similar controls should be placed on the Companies' Watch List.

2.Issuers as to which Personnel are in possession of material nonpublic information should be placed on the Companies' Watch List, provided that if such information is not restricted to a limited number of Walled Off individuals, the issuer should be placed on the Companies' Restricted List.

3.Issuers for whom Personnel serve as directors or members of official creditors' committee should generally be placed on the Restricted List or, if information walls or other appropriate measures are taken, on the Watch List.

E.Reporting of Insider Trading Activity

All DoubleLine Personnel are required to immediately report to the CCO any activity related to a client or client related account or employee or employee related account that appears to be based upon material nonpublic information. Upon receipt of such notice, the CCO shall be responsible for conducting such review with respect thereto as the CCO believes appropriate and, in conjunction with the Companies' senior management, for determining whether the Companies should take any action in response thereto, including reporting such matter to any official, as may be required or appropriate and for documenting such notice, review and determination. The CCO may deem it appropriate, but is not required, to engage outside counsel to investigate or assist with a review of such matters.

References:

Advisers Act Section 204A: Prevention of Misuse of Nonpublic Information

 

Advisers Act Section 206: Prohibited Transactions by Investment Advisers

 

Exchange Act, Section 9: Manipulation of Security Prices

 

Exchange Act, Section 10: Manipulative and Deceptive Devices

 

Exchange Act Rule 10b5-1: Trading on the Basis of Material Nonpublic

 

Information in Insider Trading Cases

 

Exchange Act Rule 14e-3: Transactions in Securities based on Material, Nonpublic

 

Information in the Context of Tender Offers

 

 

 

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II.REPORTING OF ACCOUNTS AND TRANSACTIONS INVOLVING SECURITIES AND OTHER FINANCIAL PRODUCTS

A.General Statement of Companies' Policy With Respect to Account and Notification

All DoubleLine Personnel, other than Disinterested Trustees, are required to notify the Companies promptly, in the manner provided below, upon the opening of any outside account by a DoubleLine Personnel or an Immediate Family Member of a DoubleLine Personnel, each as hereinafter defined, for the purchase, holding or disposition of any financial product, e.g., a security, future, commodity, or any derivative thereon. To the extent you report an account over which neither you nor any other Immediate Family Member has any direct or indirect influence or control over, you may be required to certify in writing that they have no direct or indirect influence or control over such account. See also the section below entitled "Non-Volitional Transactions" below.

DoubleLine Personnel, other than Disinterested Trustees, must report any account that is beneficially owned by (i) them; (ii) their spouse or domestic partner; (iii) any Immediate Family Member (as defined below); and (iv) any account as to which any of the foregoing has discretionary authority or direct influence or control, including any account for which an individual acts as trustee, executor or custodian, but excluding any account for an Adviser's client to the extent the discretion is exercised on behalf of the Adviser.

The term "Immediate Family Member" shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse or domestic partner, sibling, mother-in-law, father-in-law, son-in law, brother-in law, or sister-in-law, including all adoptive relationships, but only to the extent such family member shares a household with the individual.

Personnel who are new to the Companies must promptly notify the Companies within ten (10) business days of all existing accounts that would otherwise fall within the foregoing notification requirement.

All DoubleLine Personnel are also required to notify the Companies promptly upon any change in the account set up information, e.g., a change to the name of the account or the account number, or the closing of such account.

Any information required to be submitted to the Companies pursuant to this Section VII may be delivered, at the Companies' option, through authorized and designated compliance systems designed for such purpose.

i.Account and Initial Holdings Notification

All account and initial holding notifications, including account openings, changes to an account and account closings, must be made in writing or through electronic delivery of the relevant information to designated Compliance Personnel, and in the case of account openings, shall include the name of the broker, dealer, bank or other party with whom the account was established. Such notification should be provided using Exhibit VII A1 (or its substantial equivalent in any designated compliance system). All initial holding notifications shall be submitted within ten (10) days of a person being designated as an Access Person and being subjected to the requirements of the Code. Information submitted in initial account and holdings reports must be current as of a date no more than forty-five (45) days prior to the date the person becomes an Access Person.

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At the time any such notification is made, the brokerage or other firm that is to carry the account also must be notified by DoubleLine Personnel of the need to provide copies of account statements and confirmations to the Companies. Such notification should be provided by completing and mailing a copy of the form letter attached hereto as Exhibit VII A2.

ii.Right of Companies to Limit Where Accounts May be Carried

Notwithstanding anything herein, the Companies reserve the right to limit the firms at which personal securities accounts of DoubleLine Personnel and their Immediate Family Members may be opened and carried, provided that the CCO may grant exceptions to such policy in the case of hardship or for other good cause.

iii.Disclosure and Furnishing of Quarterly Transaction Reports Regarding Financial Products

No later than thirty (30) calendar days after the end of each calendar quarter, all Personnel, other than Disinterested Trustees, must provide designated Compliance Personnel with the following information with respect to all transactions during such quarter involving a security or financial product, other than "Excluded Transaction," as defined below, in which they have any direct or indirect beneficial interest:

1.The date of the transaction, the type of product and, as applicable, the exchange ticker symbol or CUSIP, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each security or financial product involved;

2.The price of the security or financial product at which the transaction was effected;

3.The name of the broker, dealer, bank or other party with or through which the transaction was effected; and

4.The date that the report is submitted.

1.Excluded Transactions

For purposes hereof, the term "Excluded Transaction" means any of the following:

"A transaction involving an Excluded Product (as defined in Section VII A 7) or a Non-Volitional Transaction

"A transaction as to which all the information required to be reported is contained in a broker trade confirmation or account statement that has been previously provided hereunder;

"A transaction pursuant to an "Automatic Investment Plan," which, in accordance with Investment Company Act Rule 17j-1(a)(11), 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 and which includes a dividend reinvestment plan.

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iv.Annual Holdings Reports

As required by Rule 204A-1 under the Advisers Act, and Rule 17j-1 under the Investment Company Act, not later than 45 days after January 1st, all Personnel, other than Disinterested Trustees, are required to report in a dated writing to the CCO the following information, which must be current as of December 31st:

1.The title, number of shares and principal amount of each security or financial product, other than an Excluded Product, in which the individual has any direct or indirect beneficial ownership;

2.The name of any broker, dealer, bank or other party through whom an account is held for the direct or indirect benefit of the individual.

3.The timing of the submission of these reports is designed to coincide with a quarterly transaction report to alleviate confusion about the submission of reports.

v.Reporting Requirements Applicable to Disinterested Trustees

While Disinterested Trustees are not subject to the foregoing reporting requirements, they are required to report any transaction, other than a "Non-Reportable Transaction" (as hereinafter defined), involving a security, other than one that is an Excluded Product, undertaken by the Disinterested Trustee or any DoubleLine Personnel or any Immediate Family Member, if the Disinterested Trustee knew or, in the ordinary course of fulfilling his or her official duties as a Trustee of the Fund, should have known that, during a 15-day period immediately preceding or after the date of the transaction, (i) the Fund purchased or sold such security, or (ii) the Fund or an adviser to the Fund was considering the purchase or sale of such security (such transaction a "Covered Transaction").

1.Reporting Requirements

Any Disinterested Trustee that is required to report a Covered Transaction shall, no later than thirty

(30)calendar days after the end of the calendar quarter in which such transaction occurred, file such report containing such information with respect to such transaction and any account in which the transacted securities were held with the Funds' CCO.

2.Definition of Non-Reportable Transaction

For purposes hereof, the term "Non-Reportable Transaction" means any transaction taken as part of an Automatic Investment Plan or a Non-Volitional Transaction.

vi.Other Reports or Information

Notwithstanding the foregoing, all Personnel may be required to provide such additional information regarding any holdings of, or transactions in, financial products at such times and in such manner as designated Compliance Personnel may request.

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vii.Excluded Products

For purposes hereof, the term "Excluded Products" means the following:

1.Direct obligations of the federal government of the United States (Note for clarification: this does not include obligations of any state, including obligations of any municipality or state agency).

2.Bankers' acceptances, bank certificates of deposit, commercial paper and high-quality short-term debt instruments, including repurchase agreements.

3.Shares issued by money market funds.

4.Shares in open-end investment companies (mutual funds) (Note: this does not include open-end investment companies that are advised or sub-advised by DoubleLine or any affiliate).

5.Shares issued by unit investment trusts that are invested exclusively in one or more mutual funds not advised by DoubleLine or any affiliate. (Mutual funds and ETFs advised or sub-advised by DoubleLine or any affiliate are "Reportable Funds".)

6.Purchases or sales of physical currencies and physical commodities.

7.Investments in 529 plans not managed, distributed, marketed or underwritten by a DoubleLine or any of its affiliates.5

viii.Non-Volitional Transactions

For purposes hereof, the term "Non-Volitional Transaction" means any transaction effected in an account over which neither the applicable Personnel nor any of the Personnel's relevant Immediate Family Members have any direct or indirect influence or control, including transactions such as demutualization, stock splits, stock from mergers or spin-offs, automatic tender offers or stock dividends.

References: Advisers Act Rule 204A-1(a) (3): Investment Adviser Codes of Ethics (review of securities transactions and holdings)

Advisers Act Rule 204A-1(b): Investment Adviser Codes of Ethics (reporting requirements)

Advisers Act Rule 204-2(a)(13)(1): Books and Records to be Maintained by Investment Advisers (record of report with respect to securities transactions)

Advisers Act Rule 204-2(e): Books and Records to be Maintained by Investment Advisers (holding period for certain records)

Investment Company Act Rule 17j-1(d): Personal Investment Activities of

Investment Company Personnel (Reporting Requirements of Access Persons)

5See SEC no-action letter, WilmerHale, July 28, 2010.

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Investment Company Act Rule 17j-1(e): Personal Investment Activities of

Investment Company Personnel (Preapproval of Investments in IPOs and

Limited Offerings)

Investment Company Act Rule 17j-1(f): Personal Investment Activities of

Investment Company Personnel (Recordkeeping Requirements)

III.INVESTMENT ACTIVITIES

A.Overview

The Companies impose a number of restrictions on trading and investment activities by DoubleLine Personnel, other than Disinterested Trustees. These restrictions are designed to assist the Companies in complying with applicable legal and regulatory requirements; to help avoid conflicts of interest, including apparent conflicts; and, ultimately, to protect the Companies' reputation.

B.Provisions of General Applicability

i.Prohibition on Doing Indirectly What Cannot Be Done Directly

DoubleLine Personnel are expected to comply with both the letter and the spirit of the restrictions and prohibitions set forth in this Code. Accordingly, to the extent any transaction would put an individual in an economic position that would be substantially equivalent to a prohibited or restricted transaction, such transaction is similarly prohibited or restricted. By way of illustration, where a long position in an underlying equity would be prohibited, it would be prohibited for an individual to establish a derivative or synthetic position that achieves similar economics.

ii.When in Doubt

When in doubt as to the applicability of these restrictions and prohibitions to any transaction, Personnel should either refrain from entering into the transaction or discuss the matter with their supervisor or Compliance Personnel.

iii.Breaking Trades

As all or part of a sanction imposed, the Companies may require that Personnel break or unwind any transaction entered by any Personnel in violation of these provisions. In such case, the Companies shall not have any obligation to reimburse the individual for any loss suffered as a result thereof and any realized profits shall be disgorged and provided to a charitable organization chosen by the Companies.

iv.Hardship

The CCO may grant exceptions to certain restrictions or prohibitions set forth herein in the case of hardship or for other good cause, provided that any such exemption shall be documented and otherwise in compliance with any applicable legal requirements.

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v.Trade Request Submission Requirements and Timing Expectations

Personnel should understand that the Approving Officers will be under no obligation to respond to any request for approval within any stated time and once any such matter is considered may withhold approval for any reason or for no reason at all and, in any event, may withhold approval where it is determined that any such transaction may be legally uncertain, may give the appearance of a conflict of interest, or may expose the Companies to reputational risk, risk of regulatory inquiry or other harm, no matter how remote.

All personal trades must be submitted through the designated compliance system. Certain transactions may require additional documentation at the discretion of the Approving Officers.

Should any person use email to make a personal trade request, such person is presumed to be making all the representations that are present on the sample forms provided in this policy (including similar forms available in any electronic or automated preclearance system). The use of email to make such requests should be restricted to situations such as when the requestor is out of office or the use of the prescribed form is otherwise impractical and such procedure should be the exception to the general procedure of requesting preapproval through the designated compliance system.

NOTE: Post-approval is not permitted. Any trade completed before pre-approval is obtained or after the approval window has terminated may be broken or unwound as provided at Section VIII. B. 3 and may result in disciplinary action.

C.Prohibitions and Pre-Approval Requirements of General Applicability

i.Prohibited Transactions

Nonpublic Information. All DoubleLine Personnel are strictly prohibited from trading or participating in any investment activity, including without limitation the making of any recommendation, whether on their own behalf or on behalf of a shareholder or client of the Companies or other third party, based on material nonpublic information or nonpublic client information, including client securities information.

Manipulative Conduct. Personnel are strictly prohibited from engaging in any trading or investment activity that constitutes manipulative conduct. This would include trades that do not have a bona fide purpose, e.g., that are done to influence market price or convey a false appearance of price movement or volume.

Fraud. Personnel are strictly prohibited from participating in any investment activity that is known to any such individual to involve fraudulent activities such as forgery, non-disclosure or misstatement of material facts or the taking of any action that is meant to conceal or misrepresent the facts of a matter. This would include, for example, knowingly backdating a document or recording a trade as occurring at an incorrect time.

Restricted List. Absent an exception specifically granted by the CCO, Personnel are prohibited from trading or participating in any investment activity in any security on the Companies' Restricted List.

Uncovered Short Trade. Personnel are prohibited from entering into an uncovered short trade.

Uncovered Option. Personnel are prohibited from writing an uncovered option.

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ii.Transactions Requiring Additional Documentation to obtain Pre-Approval

All DoubleLine Personnel are prohibited from engaging in any Restricted Transaction (as defined below) without first obtaining prior approval by the CCO or the CCO's designees (collectively, the "Approving Officers").

For purposes hereof, a Restricted Transaction shall mean:

1.acquiring ownership, directly or indirectly, in any security issued in an initial public offering or a limited offering or private placement (each as defined below), including any interest in a hedge fund.

For purposes of the foregoing, the term "initial public offering" shall mean 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 Securities Exchange Act of 1934.

2.transfers of interest in private placements sponsored by the Companies, other than transfers for estate planning purposes or that are court-mandated.

For purposes of the foregoing, the terms "limited offering" or "private placement" shall each mean an offering of securities that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2), which provides an exemption for transactions by an issuer not involving any public offering, or Section 4(6), which involve offers or sales by an issuer solely to one or more accredited investors, or pursuant to Rule 504, Rule 505, or Rule 506 of Regulation D, which allow offerings for a limited dollar amount and/or to a limited number of investors, or any other applicable exemption from registration under the Securities Act of 1933.

3.Transactions involving any closed end fund advised or sub advised by DoubleLine must be pre-approved without exception. It may prove necessary for the Code of Ethics Committee to discuss such requests and reach agreement as to whether that transaction can be approved considering the circumstances.

Closed end funds not managed by DoubleLine require preapproval as described below under "Transactions requiring pre-approval".

Requests for approval of all Restricted Transactions must be submitted directly to the CCO. When considering approval of any request, the Approving Officers will take into consideration whether the investment opportunity is one that should have been reserved for an Adviser's clients and whether the opportunity is being offered by virtue of the individual's position with an Adviser.

References: Advisers Act Section 204A: Prevention of Misuse of Nonpublic Information Advisers Act Section 206: Prohibited Transactions by Investment Advisers

Advisers Act Rule 204A-1(c): Investment Adviser Codes of Ethics (pre- approval of certain investments)

Advisers Act Rule 204-2(a)(13)(iii): Books and Records to be Maintained by Investment Advisers (record of decision regarding certain securities

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acquisitions)

Investment Company Act Rule 17j-1(e): Personal Investment Activities of Investment Company Personnel (Pre-Approval of Investments in IPOs and Limited Offerings)

iii.Transactions Requiring Pre-approval

Before you execute a personal trade, the trade may need to be pre-approved (i.e., pre-cleared) to ensure that there is no conflict with the Companies' current trading activities on behalf of its clients (including the Funds). All trades in any security must be precleared, except as provided below.

1.Pre-Approval is required for the following types of transactions:

Any Security (unless excluded below): You must preclear trades in any security, which means any bond, stock, debenture, certificate of interest or participation in any profit-sharing venture, warrant, right and generally anything that meets the definition of "security" under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. Except for money market instruments and G- 7 government direct obligations, all fixed income securities must be precleared.

Common Stocks: You are required to preclear all publicly traded common stocks (any equity security). Restrictions also apply to investments in private placements (including private funds) or initial public offerings (see discussion below).

Derivatives: Trades in any financial instrument related to a security or commodity interest that is required to be pre-cleared, including options on securities, futures contracts, single stock futures, options on futures contracts and any other derivative must be precleared.

ETFs: You are required to preclear all trades in any ETF.

Shares in any Closed-end Fund or REIT: Preclearance is required if you purchase or sell shares of any closed-end funds and/or REITs, including any advised or sub-advised by the Companies.

Systematic Investment Plans: Preclearance is required when executing an initial instruction for any purchases or sales that are made pursuant to a systematic investment or withdrawal plan involving a security that requires preclearance. A systematic investment or withdrawal plan is one pursuant to which a prescribed purchase or sale will be automatically made on a regular, predetermined basis without affirmative action by the Access Person. As such, only the initial investment instruction (and any subsequent changes to the instruction) requires preclearance.

Private Placement Securities: All DoubleLine Personnel must preclear any trades in private placement securities (i.e., any offering, in fixed income or otherwise, that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or 4(6) or pursuant to rule 504, rule 505, or rule 506 under

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the Securities Act of 1933). partnerships or funds such partnerships.

This requirement includes all private investment as hedge funds and private real estate holding

Initial Public Offerings: DoubleLine Personnel may only participate after obtaining preclearance from the CCO or his designee. As a general matter, you should expect that most preclearance requests involving initial public offerings will be denied.

Commercial Real Estate: Transactions that involve the purchase or sale of commercial real estate must be pre-approved by the CCO, regardless of whether such transaction is effected through an entity controlled by the Access Person or in such Access Person's individual capacity.

Shares of Preferred Stock: All transactions in shares of preferred stock must be pre-cleared.

2.De minimis transactions

Any personal trades of any equity security that, in the aggregate, do not exceed 5,000 shares in a rolling 30-day period or $35,000 total market value, per issuer with a market capitalization of $10 billion or greater, will be processed as a de minimis transaction.

PLEASE NOTE: Even if a personal trade qualifies as a de minimis transaction, it still must be reported to the Compliance Department reasonably in advance of being placed.

De minimis transactions may not be used for:

Any bond (debt security) trade (except trades in direct obligations of the federal government of the United States or municipal bonds);

Any security issued by a client;

Any initial public offering;

Any private placement;

Any closed end funds managed by the Companies – either as adviser or sub- adviser;

De minimis transactions may not be used to avoid compliance with other aspects of this Code.

iv.Pre-approval is not required for the following types of transactions:

1.Government Securities: Trades in any direct obligations of the U.S. Government or any G7 government are not required to be precleared. This does not include obligations of any state, including obligations of any municipality or state agency.

2.High Quality Short-term Debt Instruments: High quality short term debt instruments including bankers acceptances, bank certificates of deposit, commercial

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paper, variable-rate demand notes, repurchase agreements and other high quality short- term debt instruments (meaning any instrument that has a maturity at issuance of less than 366 days and that is rated in one of the two highest rating categories by a nationally recognized statistical rating organization, such as S&P or Moody's) are not required to be precleared.

3.Money Market Funds: Trades in any investment company or fund that is a money market fund are not required to be precleared.

4.Open-End Mutual Funds (other than ETFs): Subject to applicable blackout periods, trades in open-end mutual funds, , including open-end mutual funds advised or sub-advised by the Companies.. Note: Trades in the Companies' open-ended mutual funds advised or sub-advised by the Companies are not required to be pre- cleared but are required to be reported if you hold them in your investment accounts, and from time to time may be subject to blackout period or holding period requirements.

5.Transactions in Retirement Accounts and Deferred Compensation Plans: Purchases or sales of investment companies or funds in the Companies' 401(k) participant account or Deferred Compensation Plans (including open-end mutual funds advised or sub-advised by the Companies) are not required to be precleared.

6.Systematic Investment Plans: Any purchases or sales that are made pursuant to a systematic investment or withdrawal plan that has previously been approved by a Compliance Officer. A systematic investment plan is any plan where a sale or purchase will be automatically made on a regular, predetermined basis without your authorization for each transaction. The first instruction must be precleared, but each subsequent purchase is not required to be precleared unless changes are made to the terms of the standing order.

7.Certain Corporate Actions: Any acquisition of securities through stock dividends, dividend reinvestments, stock splits, reverse stock splits, mergers, consolidations, spin- offs, exercise of rights or other similar corporate reorganizations or distributions generally applicable to all holders of the same class of securities is not required to be precleared.

8.529 College Savings Plans: Any transaction in units of a college savings plan established under Section 529 of the Internal Revenue Code.

9.Miscellaneous: Any transaction in any other securities as the CCO may designate on the grounds that the risk of abuse is minimal or non-existent.

If you place a Good-until-Canceled ("GTC") or Limit Order and the order is not fully executed or filled by the end of the second business day after pre-clearance is received, you must repeat the preclearance process.

DoubleLine Personnel that are registered representatives of a broker dealer also must request written pre- approval from that broker dealer before engaging in private securities transactions or transacting in initial public offerings.

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v.Additional Restrictions

1.Holdings Periods for Securities in Personal Accounts for all DoubleLine Personnel and Immediate Family Members

After making a purchase, you generally must hold that security for at least 60 calendar days unless specifically exempted below.

Holding periods apply for all securities except transactions in money market funds, government/sovereign securities issued by G-7 countries, high quality short-term debt instruments, and open-end mutual funds (except as described in the next bullet).

For the avoidance of doubt, the 60-day holding period applies for all mutual funds, investment companies, unit trusts, REITs, or other commingled vehicles for which the Companies serve as adviser or sub-adviser.

This limitation applies to any purchases or sales in your individual retirement account, 401(k), deferred compensation plan, or any similar retirement plan or investment account for you or your immediate family. There is no holding period for purchases or sales done through a systematic investment or withdrawal plan.

2.Blackout Periods for all DoubleLine Personnel

Seven Day Blackout period for all DoubleLine Personnel:

You may not purchase or sell a security if the Companies purchase or sell securities of the same issuer on behalf of a client within seven calendar days before or after the date of your purchase or sale.

D.Additional Restrictions Applicable to Access Persons

i.Transactions with a Heightened Approval Requirement

To avoid potential conflict situations and the appearance of a conflict, Access Persons shall not enter into any transactions that they have reason to believe could be a contrary transaction or a trading ahead transaction, each as described below, unless the particular transaction has been pre-approved by Approving Officers. The applicable Approving Officers shall only approve such a transaction where they (i) have documented their awareness of such facts as would allow the specific transaction to be characterized as a contrary transaction or a trading ahead transaction and (ii) have a reasonable belief that the transaction will not adversely impact the client's position or strategy. In making such determination, the Approving Officers shall consider such factors, such as the size of the transaction or the liquidity of the market for such product, as they reasonably believe are relevant to such determination.

Contrary Transaction. A contrary transaction is one that that reflects a view that is contrary to:

1.any currently contemplated, but unexecuted, client transaction or current recommendation made to a client or other transaction under active consideration, but only to the extent the individual is aware of such contemplated transaction or recommendation;

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2.any trade made on behalf of a client by such individual or by the Companies during the previous fifteen (15) days, but only to the extent the individual is aware of such trade; and

3.any current position known by the individual to be held by a client as a result of either or both Companies' recommendation or decision.

For purposes of the foregoing, any strategy or research shall be considered to be a recommendation that has been made to a shareholder or client to the extent it has been made known to the applicable shareholder or client, is being prepared for the benefit of such shareholder or client, or is being used in connection with the exercise by the Companies of trading discretion on behalf of such shareholder or client.

Trading Ahead Transaction A "trading ahead transaction" is one that seeks to take advantage of market movements that are likely to result from an impending trade, e.g., an increase in price as a result of the purchase of a large position, or the execution of contemplated strategy or research.

ii.Round Trip Transactions within 60 Day Window

Access Persons shall forfeit any profit from the purchase and sale, or sale and purchase, of the same (or equivalent) securities, other than Excluded Products, within any sixty (60) day period. Such profits will be calculated by matching most recent purchases against a given sale or most recent sales against a given purchase.

Other limitations under this Code on such a transaction may apply.

Note: This prohibition effectively limits the utility of options trading and short sales of securities and could make legitimate hedging activities less available.

***********************************************************************

THE FOLLOWING SUMMARY OF PERSONAL SECURITIES TRADING REQUIREMENTS IS PROVIDED TO ASSIST THE READER. IT IS NOT A SUBSTITUTE FOR THE DETAILED DISCUSSION WITHIN THIS CODE OF ETHICS OF THE PERSONAL SECURITIES TRADING REQUIREMENTS. THE INTERPRETATION OF THE CODE OF ETHICS BY THE CAPITAL CCO SHALL SERVE AS THE FINAL ARBITRATION OF THE CODE OF ETHICS PERSONAL TRADING REQUIREMENTS.

Transactions or securities not requiring pre-approval

Excluded Products

Non-Volitional transactions

Automated Investment Plans

Automated payroll purchase or sale of DoubleLine Funds into the DoubleLine 401(k) up to the annual

statutory limit for contributions to a 401(k) plan

Automated (pre-planned) rebalancing transactions leading to the purchase or sale of DoubleLine Funds

into the DoubleLine 401(k)

Purchase or sales of shares issued by open-end mutual funds and unit investment trusts that are

invested including funds advised or sub-advised by an Adviser or any affiliate

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Transactions or securities REQUIRING pre-approval

Trades in any closed end fund advised or sub-advised by DoubleLine

Trades in any stock (to mean: any equity security)

Trades in any bond that is not an Excluded Product

Trades in any closed end fund

Trades in any ETF

Trades in any financial derivatives

De minimis transactions

Transactions or securities REQUIRING increased review or documentation before pre-approval

ANY private placement (private company, hedge fund, etc)

ANY Initial Public Offering (IPO)

ANY trade in a DoubleLine advised (or sub-advised) Closed End Fund

Contrary Transactions

Trading Ahead Transactions

IX. ANNUAL REVIEW BY TRUSTEES

No less frequently than annually, the Chief of Compliance and other senior management shall furnish a written report to the Trustees, which shall:

describe any issues arising under the Code of Ethics or "material compliance matter," as such term is defined at Rule 38a-1(e)(2) of the Investment Company Act, not previously reported to the Trustees, including any information regarding sanctions and remedial actions taken in response thereto;

list all waivers given by quantity and type and describe any waivers that might be considered material or important by the Trustees;

list all approvals of investments in IPOs and Limited Offerings that were granted;

certify that the CCO has reviewed the Code and the compliance and supervisory policies and procedures of the Companies and has found that they are reasonably designed to prevent violations of the Federal Securities Laws and of the Code itself.

The CCO shall provide reports similar to those described above (and elsewhere in the Code) to the boards of trustees (or directors) of other registered investment companies for which an Adviser serves as an adviser or sub-adviser.

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DOUBLELINE OPPORTUNISTIC CREDIT FUND

DOUBLELINE INCOME SOLUTIONS FUND

DOUBLELINE FUNDS TRUST

DOUBLELINE CAPITAL LP

DOUBLELINE EQUITY LP

DOUBLELINE ALTERNATIVES LP

DOUBLELINE GROUP LP

DOUBLELINE INVESTMENT MANAGEMENT ASIA LTD.

ACKNOWLEDGEMENT OF INITIAL RECEIPT

OF

CODE OF ETHICS

This acknowledgement must be signed and returned to the Chief Compliance Officer.

I hereby acknowledge that I have read the Code of Ethics for DoubleLine Opportunistic Credit Fund, DoubleLine Income Solutions Fund, DoubleLine Funds Trust, DoubleLine Equity LP, DoubleLine Alternatives LP, DoubleLine Group LP, and DoubleLine Capital LP (which contains the Insider Trading Policy for DoubleLine Funds Trust, DoubleLine Equity LP, DoubleLine Alternatives LP, and DoubleLine Capital LP) and have had an opportunity to review any portions thereof with my supervisor and the or other member of the Compliance Department. By signing below, I agree to perform fully in accordance with such provisions of the Code of Ethics as are applicable to me, including the requirement that I promptly report to the any violation of the Code of which I become aware. I understand that my failure to fully comply with all applicable provisions may subject me to disciplinary action up to and including termination and can also subject me to fines, penalties and even criminal actions and result in significant reputational harm.

Signature: ______________________________

Print Name: _____________________________

Date: __________________________________

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DOUBLELINE OPPORTUNISTIC CREDIT FUND

DOUBLELINE INCOME SOLUTIONS FUND

DOUBLELINE FUNDS TRUST

DOUBLELINE CAPITAL LP

DOUBLELINE EQUITY LP

DOUBLELINE ALTERNATIVES LP

DOUBLELINE GROUP LP

DOUBLELINE INVESTMENT MANAGEMENT ASIA LTD.

ACKNOWLEDGEMENT OF INITIAL RECEIPT

OF

CODE OF ETHICS (CONSULTANTS)

This acknowledgement must be signed and returned to the Chief Compliance Officer.

I have received and read the Code of Ethics (which contains the Insider Trading Policy for DoubleLine Opportunistic Credit Fund, DoubleLine Income Solutions Fund, DoubleLine Funds Trust, DoubleLine Equity LP, DoubleLine Alternatives LP, DoubleLine Group LP and DoubleLine Capital LP) (collectively, "DoubleLine"). I understand that, as a consultant, I may be exposed to certain information pertaining to DoubleLine's portfolio management or trading strategies, including securities traded by DoubleLine on behalf of its clients.

If I am exposed to such information, I will notify the Chief Compliance Officer immediately. I understand that, in such cases, I may be required to conform to the requirements of the Code of Ethics for access persons.

Signature: ________________________

Print Name: _______________________

Date: ____________________________

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DOUBLELINE OPPORTUNISTIC CREDIT FUND

DOUBLELINE INCOME SOLUTIONS FUND

DOUBLELINE FUNDS TRUST

DOUBLELINE CAPITAL LP

DOUBLELINE EQUITY LP

DOUBLELINE ALTERNATIVES LP

DOUBLELINE GROUP LP

DOUBLELINE INVESTMENT MANAGEMENT ASIA LTD.

ACKNOWLEDGEMENT OF RECEIPT OF AMENDED

CODE OF ETHICS

This acknowledgement must be signed and returned to the Chief Compliance Officer.

I hereby acknowledge that I have received a copy of the amended Code of Ethics for DoubleLine Opportunistic Credit Fund, DoubleLine Income Solutions Fund, DoubleLine Funds Trust, DoubleLine Equity LP, DoubleLine Alternatives LP, DoubleLine Group LP and DoubleLine Capital LP (which contains the Insider Trading Policy, dated as of _______________, and have had an opportunity to review any portions thereof with my supervisor and a member of the Compliance Department. By signing below, I agree to perform fully in accordance with such provisions of the Code of Ethics as are applicable to me, including the requirement that I promptly report to the Chief Compliance Officer any violation of the Code of which I become aware. I understand that my failure to fully comply with all applicable provisions may subject me to disciplinary action up to and including termination and can also subject me to fines, penalties and even criminal actions and result in significant reputational harm.

Signature: ______________________________

Print Name: _____________________________

Date: ___________________________________

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Exhibit VII. A1.

DOUBLELINE OPPORTUNISTIC CREDIT FUND

DOUBLELINE INCOME SOLUTIONS FUND

DOUBLELINE FUNDS TRUST

DOUBLELINE CAPITAL LP

DOUBLELINE EQUITY LP

DOUBLELINE ALTERNATIVES LP

DOUBLELINE GROUP LP

DOUBLELINE INVESTMENT MANAGEMENT ASIA LTD.

Annual or Initial Holdings Report

Data is complete as of ____________________

Account

Account

CUSIP

Security

# shares

Total $

Notes

(Brokerage

Number

 

Name

(or principal

 

 

firm name)

 

 

 

 

 

 

 

 

amount)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(For initial reports: Account statements may be attached if they are within ten days of the date of hire. If the date of this report is more than ten days after the date of the account statements, this chart shall be updated with any changes, or if none, so state.)

(For annual reports: Account statements may be attached if they are within forty-five days of the date that this report is required to be submitted. If the date of this report is more than forty-five days after the date of the account statements, this chart shall be updated with any changes, or if none, so state.)

(If I annotate that the Companies have my account statements on file, I have reviewed those files for completeness and accuracy.)

_____________________________________________

SIGNATURE

_____________________________________________

TYPE OR PRINT NAME

___________________

DATE

 

Exhibit VII A2

DOUBLELINE CAPITAL LP

DOUBLELINE EQUITY LP

DOUBLELINE ALTERNATIVES LP

DOUBLELINE GROUP LP

Sample Request for Duplicate Confirmations and Statements

Date:

[Address of Outside Firm]

RE: (NAME OF INDIVIDUAL)

ACCOUNT #

Dear Sir/Madam:

Please be advised that [insert employee name] is an employee of DoubleLine Capital LP, DoubleLine Equity LP, DoubleLine Alternatives LP or DoubleLine Group LP ("DoubleLine") and in compliance with FINRA conduct rule 3050, Rule 206(4)-7 under the Investment Advisers Act of 1940, as amended, and/or DoubleLine's employee Code of Ethics, this account is subject to a requirement that duplicate account statements and trade confirmations be sent to our compliance department at the address below:

In connection with the above account, please send duplicate confirmations and account statements to my employer at the following address:

Attn: Chief Compliance Officer

DoubleLine Group LP

333 South Grand Ave, Suite 1800

Los Angeles, CA 90071

If you have established electronic delivery of such duplicate information for other persons to our firm's automated compliance systems, please establish such delivery for (NAME OF INDIVIDUAL).

If you have any questions or comments relative to the foregoing, please do not hesitate to contact me. Thank you for your kind attention to this matter.

Very truly yours,

 

Other Policies and Updates

 

 

OUTSIDE BUSINESS ACTIVITIES AND AFFILIATIONS POLICY

A.Outside Business Activities

All DoubleLine1 Personnel are required to obtain pre-approval from their supervisor and the DoubleLine Capital LP Chief Compliance Officer or his/her designee ("CCO") 2 before serving as an officer, director, general partner, managing member, employee, consultant or other similar capacity for, or receiving compensation from, any non-DoubleLine party (each an "Outside Business Activity").

Foreside Registered Persons (i.e. Personnel carrying a securities license through Foreside Fund Services, LLC) must also request written pre-approval from Foreside before participating in any Outside Business Activity.

1.Non-Profit Entities

The foregoing requirement does not apply to volunteer service for charitable and other non-profit organizations or civic and trade associations, unless the service is compensated or involves decision-making authority or counseling on financial matters.

2.Directorships and Officer Positions

Approval of any Personnel to serve on the board of directors/trustees or in an officer position of any issuer entity will only be granted based upon a determination that such service will not create an actual or potential conflict with the interest of the Companies, Companies' shareholders and/or clients. Where such service is authorized, the CCO shall make a determination of whether trading or other restrictions or controls should be put in place to minimize any conflicts of interest that may result therefrom or any improper use of material nonpublic information by the Companies or their employees and as is required to comply with any restriction imposed by the issuer on its directors/trustees/officers.

Where the board or officer service is within the scope of the Personnel's employment by the Companies, whether because the Companies, for example, (i) are affiliated with the Adviser(s) (as is the case with the Funds), (ii) hold a position in the entity or (iii) an Adviser's clients hold a position in the entity, all compensation awarded for the service, whether in the form of cash or securities, shall be for the benefit of an Adviser's clients holding such interest, and, if none, for the Companies' benefit. Accordingly, Personnel serving in such capacity shall

1"DoubleLine" includes the following entities – DoubleLine Group LP, DoubleLine Capital LP, DoubleLine Equity LP, DoubleLine Alternatives LP and DoubleLine Investment Management Asia Ltd.

2The DoubleLine Capital LP Chief Compliance Officer will involve the Chief Compliance Officer of DoubleLine Alternatives LP (and other applicable entities) as and when necessary.

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

1

 

disgorge all compensation received. Board or officer service in an affiliated operating entity which is within the scope of the Personnel's employment by the Companies does not require disclosure or pre-approval.

3.Fiduciary Appointments

Personnel may not accept appointment as (i) a fiduciary, including as an executor, trustee, guardian, or conservator, or (ii) a consultant in connection with fiduciary or active money management matters, without the written pre-approval from the Personnel's supervisor and the CCO. The foregoing prohibition does not apply to appointments involving personal estates or estates of family members.

B.Outside Affiliations

The Companies need to be aware of certain affiliations involving Personnel or any of their spouse or domestic partner, child, stepchild, grandchild, parent, stepparent, grandparent, sibling, mother-in-law, father-in-law, son-in law, brother-in-law, or sister-in-law, including all adoptive relationships, but only to the extent such family member shares a household with the Personnel (collectively, "Immediate Family Members") that create actual, potential or perceived conflicts of interest. The CCO shall assess the need to prohibit certain Personnel from handling matters where such conflict exists and/or implement controls for the relevant business activity. Accordingly, all Personnel are required to disclose to the CCO the following affiliations ("Outside Affiliations"):

1.Any Personnel or Immediate Family Member who owns more than five percent (5%) of a public company or any Immediate Family Member who is a board member or a senior management executive of a public company;

2.Any Immediate Family Member who is employed or engaged by a party with which DoubleLine is conducting or may conduct business, and such Immediate Family Member is in a position to make decisions with respect to such business or is directly involved with the relationship with the Companies; and

3.Any Immediate Family Member who is employed with or serving in an office of a foreign, state or local government entity (e.g., sovereign wealth fund, city retirement system, state office, public university, etc.), in which the Immediate Family Member has the authority, directly or indirectly, to affect the entity's current or prospective relationship with the Companies.

C.Documentation

All pre-approval requests and disclosures, approvals and any supporting documentation required under this policy shall be submitted and maintained through the designated compliance system.

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

2

 

Personnel will be required on a quarterly basis to certify their Outside Business Activities, and their continued compliance with the foregoing requirements.

History of Amendments

Effective as of January 1, 2020

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

3

 

 

BUSINESS GIFTS, ENTERTAINMENT

AND

MEALS POLICY

One possible area of fiduciary concern relates to receiving or providing gifts, entertainment or meals involving parties with which DoubleLine1 or any of the Companies has, or seeks to have, a business or client relationship (collectively "Outside Parties" and each an "Outside Party").

Personnel are prohibited from soliciting anything of value from Outside Parties. Further, no Personnel may receive or give any gift, entertainment or meal that could or is intended to influence decision-making or to make a person beholden, in any way, to another person or company that seeks to do or is currently doing business with the Companies. Lavish, luxurious or frequent gifts, entertainment or meals are generally deemed to meet this standard and are prohibited, unless the DoubleLine Capital LP Chief Compliance Officer or his/her designee (together, the "CCO")2 indicates otherwise. In addition, depending upon the Personnel's responsibilities, specific regulatory requirements may dictate the types and extent of gifts, entertainment and meals that he/she may receive or give.

The Companies are committed to competing solely on the merit of its products and services, and Personnel must avoid any actions that create a perception that favorable treatment of Outside Parties was sought, received or given in exchange for a particular decision or action.

A.Gifts

Personnel must not obtain any material personal benefits or favors because of his or her position with DoubleLine. Each Personnel's decisions on behalf of the Companies must be free from undue influence. Soliciting gifts from Outside Parties is strictly prohibited. A gift may include any services or merchandise of any kind or discounts on merchandise or services and other items of value.

Any Personnel who offers a gift to an Outside Party must ensure that it cannot reasonably be interpreted as an attempt to gain an unfair business advantage or otherwise reflect negatively upon the Companies. In addition, Personnel may never use personal funds or resources to do something that cannot be done with the Companies' resources.

1 "DoubleLine" includes the following entities – DoubleLine Group LP, DoubleLine Capital LP, DoubleLine Equity LP, DoubleLine Alternatives LP and DoubleLine Investment Management Asia Ltd.

2The DoubleLine Capital LP Chief Compliance Officer will involve the Chief Compliance Officer of DoubleLine Alternatives LP (and other applicable entities) as and when necessary.

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

1

 

Personnel are prohibited from receiving or giving gifts of cash or cash equivalents such as gift cards, gift certificates, or securities from/to Outside Parties. This policy does not prohibit the receipt or provision of occasional or nominal non-cash gift items, such as holiday gifts, so long as the amount received or given by Personnel from/to any one source does not exceed $100.

Gifts received or given by Personnel from/to an Outside Party valued at $100 or less, must be promptly disclosed to the CCO and by no later than 30 calendar days of receipt or giving.

Any gift or an aggregation of gifts during the calendar year from or to an Outside Party that is reasonably expected to exceed $100, and any additional gift thereafter received or given during the calendar year, requires pre-approval by the CCO. All pre-approval requests and disclosures, regardless of size, must be submitted via the designated compliance system.

Gifts, of any value, offered by brokers or other trading counterparties to DoubleLine traders and portfolio management staff are prohibited (see Item D below).

Gifts, of any value, to be given to Public Officials or union or pension plan representatives require pre-approval from the CCO (see Item E below).

Gifts of nominal value, such as promotional items including pens, notepads, coffee mugs and baseball caps with company logos or common food items broadly shared among Personnel, do not need to be disclosed nor pre-approved.

B.Entertainment

The gift policies above are not intended to prohibit the acceptance or provision of non- extravagant entertainment that facilitates the handling of the Companies' businesses. Thus, normal and customary entertainment (e.g., concerts, sporting events or other similar paid activities where the person providing the entertainment is present), that is not lavish nor frequent and does not influence the selection of service providers or other Outside Parties, is acceptable. Note, entertainment provided by or to Personnel where the person providing the entertainment does not attend is considered a "gift." Business meals are not considered entertainment for purposes of this policy (see Item C below).

No Personnel may solicit entertainment or provide or accept extravagant or excessive entertainment to or from an Outside Party.

Business entertainment received that is $100 or less in market value per person must be disclosed to the CCO promptly after participating in such entertainment and by no later than 30 calendar days. All business entertainment that is reasonably expected to exceed $100 in market value per person, whether received or provided, must be pre-approved

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

2

 

by the CCO. All pre-approval requests and disclosures must be submitted via the designated compliance system.

Business entertainment, of any value, offered by brokers or other trading counterparties to DoubleLine traders and portfolio management staff are prohibited (see Item D below).

Business entertainment, of any value, to be provided to Public Officials or union or pension plan representatives require pre-approval from the CCO (see Item E below).

C.Business Meals

Generally, Personnel may share meals with Outside Parties in the ordinary course of business. Meals received or provided by Personnel from or to Outside Parties are generally permissible so long as they are neither lavish nor frequent.

All business meals received must be promptly disclosed to the CCO and by no later than 30 calendar days. All pre-approval requests and disclosures must be submitted via the designated compliance system.

All business meals offered by brokers or other trading counterparties to DoubleLine traders and portfolio management staff are prohibited (see Item D below).

All business meals to be provided to Public Officials or union or pension plan representatives requires pre-approval from the CCO (see Item E below).

D.Heightened Restriction - Traders and Portfolio Management Staff Receiving Gifts, Entertainment and Meals from Brokers or other Trading Desk Counterparties

Traders, portfolio management staff and other investment professionals with the ability to influence the selection of brokers or other trade counterparties are prohibited from receiving gifts, entertainment or meals in any value from any current or prospective counterparty.

E.Heightened Restriction - Giving Gifts, Entertainment and Meals to Public Officials and Union or Pension Plan Representatives.

Specific requirements and restrictions apply regarding the offering of gifts, entertainment and meals to "Public Officials," including foreign and domestic government officials and employees (for example, employees of pension plans, sovereign wealth funds, and state-owned businesses) and can vary depending on the governmental branch/body, state or other jurisdiction. For example, many government pension plans place strict limits on the value of any meal provided by a service provider, such as the Companies, to the pension plans' employees. Certain jurisdictions even ban service providers from providing anything of value

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

3

 

to their public employees, including promotional items of nominal value. Penalties for violating these gift laws can range from monetary fines to disqualification from the proposal process and rescindment of existing investment mandates. Private unions are subject to Department of Labor gift rules and regulations, and service providers, such as the Companies, must likewise comply with prescribed limits and reporting requirements when providing gifts, entertainment and meals to union employees. Accordingly, it is against DoubleLine policy to offer or give gifts, entertainment, meals or anything of value to Public Officials and union or pension plan representatives unless the regulations applicable to that individual permit acceptance of such items.

Personnel are required to obtain pre-approval from the CCO to offer or give anything of value, including nominal items or snacks, to Public Officials or union or pension plan representatives. All pre-approval requests must be submitted via the designated compliance system.

Consult with the Compliance Department if you are unsure of applicable laws, rules and regulations with respect to providing gifts, entertainment and meals to Public Officials and union or pension plan representatives in any circumstance.

For purposes of this policy, "Public Official" means any person who is employed full- or part- time by a government, or by regional subdivisions of governments, including states, provinces, districts, counties, cities, towns and villages or by independent agencies, state-owned businesses, state-controlled businesses or public academic institutions. In certain cases, providing a payment or thing of value to a person actually known to be an immediate family member or close associate of a Public Official or a charity associated with a Public Official may be the equivalent of providing a thing of value to the Public Official directly.

F.Heightened Restriction – FINRA-Licensed Personnel Receiving and Giving Gifts, Entertainment and Meals

Registered persons (i.e. persons carrying a securities license through the Financial Industry Regulatory Authority or "FINRA" may not give or accept any gifts, entertainment or meals to or from Outside Parties exceeding $100 or the current limit established in FINRA Rule 3220) under any circumstances. All such registered persons shall consult with the broker-dealer carrying their securities license for further requirements imposed by that broker-dealer.

G.Charitable Contributions

Nothing within this policy shall be construed to prevent personal charitable contributions by DoubleLine Personnel to qualified Internal Revenue Code section 501(c)(3) organizations that are not Outside Parties.

Nothing within this policy shall be construed to prevent corporate charitable contributions by Companies to qualified Internal Revenue Code section 501(c)(3) organizations that are not Outside Parties.

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

4

 

Proposed charitable contributions by Personnel or the Companies to a 501(c)(3) organization that is an Outside Party or to an organization that is not a 501(c)(3), must be pre-approved by the CCO prior to making the charitable contribution. All pre- approval requests must be submitted via the designated compliance system

H.Documentation

All pre-approval requests and disclosures, approvals and any supporting documentation required under this policy shall be submitted and maintained through the designated compliance system.

Personnel will be required on a quarterly basis to certify their reportable gifts, entertainment and meals and their continued compliance with the foregoing requirements.

The Companies may be required to file Form LM-10 with the Department of Labor by March 31st of the calendar year following any year in which the Companies or any Personnel made any payments, gave any gifts, or provided entertainment or meals to any union officials, including union pension fund trustees. The Chief Financial Officer (or designees) is responsible for ensuring that accounting records accurately reflect, with sufficient details necessary, any transaction required to be reported on Form LM-10 and the timely filing of Form LM-10 or any other gifts, entertainment and meal reports that the Companies may be required to make.

FOREIGN CORRUPT PRACTICES ACT ("FCPA")

The purpose of this section of the policy is to ensure compliance with all applicable anti-bribery laws and to prevent Companies' employees from offering, promising, paying or providing, or authorizing the promising, paying or providing of any amount of money or anything of value to a Public Official or Private Sector Counterparty Representative (each, as defined below) for the purpose of improperly obtaining, directing or retaining business or securing an improper advantage for the Companies.

"Public Official" includes a "Foreign Official" as defined under the Foreign Corrupt Practices Act of 1977, as amended, ("FCPA"). U.S. government officials are Public Officials. The definition of "Public Official" includes any person who is employed full- or part-time by a government, or by regional subdivisions of governments, including states, provinces, districts, counties, cities, towns and villages or by independent agencies, state-owned businesses, state- controlled businesses or public academic institutions. This would include, for example, employees of sovereign wealth funds, government sponsored pension plans (i.e. pension plans for the benefit of government employees), and government sponsored university endowments. For FCPA purposes only, "Public Official," also includes political party officials and candidates for political office. For example, a campaign contribution is the equivalent of a payment to a Public Official under the FCPA. In certain cases, providing a payment or thing of value to a person actually known to be an immediate family member of a Public Official or a charity associated with a Public Official may be the equivalent of providing a thing of value

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

5

 

to the Public Official directly. Under the FCPA, the employees of public international organizations, such as the African and Asian Development Banks, the European Union, the International Monetary Fund, the United Nations and the Organization of American States, are considered Public Officials.

A "Private Sector Counterparty Representative" is an owner, employee or representative of a private entity, such as a partnership or corporation, with which an Adviser is conducting or seeking to conduct business.

The FCPA in pertinent part, makes it illegal for a U.S. issuer, domestic concern, or any person other than an issuer or domestic concern while in the territory of the United States, to utilize the mails or any instrumentality of U.S. commerce, corruptly, in furtherance of a payment, or the provision of anything of value, or an offer, promise or authorization thereof directly or indirectly, to a foreign government official, political party or candidate, for the purpose of influencing his or her official actions or securing any improper advantage, or inducing such foreign official to use his or her influence with a foreign government to affect or influence any act or decision of such government in order to assist the U.S. company in obtaining or retaining business for or with, or directing business to, any person. The statute further prohibits payments or gifts of anything of value to any person while "knowing" that such payment or gift will be given to a foreign official for a business purpose.

Companies' policy is to prohibit Personnel from offering, promising, paying or providing, or authorizing the promising, paying or providing (in each case, directly or indirectly, including through third parties) of any amount of money or anything of value (colloquially termed a "bribe") to any Public Official, including a person actually known to be an immediate family member of a Public Official and a former Public Official, in order to improperly influence or reward any official action or decision by such person for Companies' benefit. Neither funds from Companies nor funds from any other source may be used to make any such payment or gift on behalf of or for Companies' benefit.

Additionally, Companies' policy provides that Personnel are prohibited from offering, promising, paying or providing, or authorizing the promising, paying or providing of (in each case, directly or indirectly, including through Third Parties) a bribe to a Private Sector Counterparty Representative in order to induce or reward that person's improper performance of their functions or activity.

Generally, offering or authorizing a bribe will trigger liability under the FCPA. There is no minimum threshold – any amount offered or authorized for the purposes described in the paragraphs above creates potential liability under the FCPA.

Such activities by Personnel are prohibited by Companies. Note, too, that authorizing or tacitly approving of such activities by third parties on behalf of Companies also could create liability for the Personnel and/or the Companies.

The CFO or Treasurer (as applicable) shall ensure that any payments made by the Companies

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

6

 

to a foreign official are properly recorded in the financial books and records of the Companies.

Any requests by foreign officials or persons with access to foreign officials for a bribe to be paid by Personnel or engaging in any similar behavior must be reported promptly to the CCO.

History of Amendments

Effective as of January 1, 2020

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

7

 

 

POLITICAL ACTIVITIES POLICY

In the U.S., federal, state and local laws impose limitations, and in some cases restrictions, on certain kinds of political contributions and activities. These laws apply not only to U.S. citizens, but also to foreign nationals and both U.S. and foreign corporations and other institutions. Accordingly, DoubleLine1 and the Companies have adopted policies and procedures concerning political contributions and activities regarding federal, state, and local candidates, officials and political parties.

This policy regarding activities and political contributions applies to DoubleLine, the Companies, all Personnel and any of their spouse or domestic partner, child, stepchild, grandchild, parent, stepparent, grandparent, sibling, mother-in-law, father-in-law, son-in law, brother-in-law, or sister-in-law, including all adoptive relationships, but only to the extent such family member shares a household with the Personnel (collectively, "Immediate Family Members"). Failure to comply with these rules could result in civil or criminal penalties for the Companies and the individuals involved.

These policies are intended solely to comply with applicable laws and regulations and to avoid any appearance of impropriety. These policies are not intended to interfere with an individual's right to participate in the political process.

For purposes hereof, the term political contribution generally includes monetary or in-kind contributions to a current office holder, candidate, political party, or political/party committees (including, among others, committees supporting or opposing ballot initiatives, e.g., referendum and separate segregated funds or non-connected committees within the meaning of the Federal Election Campaign Act or any state or local law equivalent, also commonly referred to as a "PAC").

1.General Prohibition on Contributions to Obtain Business

The Companies and Personnel are prohibited from making or soliciting political contributions for the purpose of obtaining or retaining adviser contracts with government entities.

2.Restrictions on Contributions by Personnel and Immediate Family Members

ALL POLITICAL CONTRIBUTIONS – REGARDLESS OF VALUE OR RECIPIENT– REQUIRE PREAPPROVAL FROM THE DOUBLELINE CAPITAL LP CHIEF COMPLIANCE OFFICER OR HIS/HER DESIGNEE (TOGETHER,

1"DoubleLine" includes the following entities – DoubleLine Group LP, DoubleLine Capital LP, DoubleLine Equity LP, DoubleLine Alternatives LP and DoubleLine Investment Management Asia Ltd.

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

1

 

 

THE "CCO")2. CERTAIN POLITICAL CONTRIBUTIONS MAY REQUIRE

ADDITIONAL APPROVALS.

In general, pre-approvals may be given for $350 or less to any one candidate for whom Personnel or an Immediate Family Member may vote (per election), and $150 or less to candidates for whom Personnel or an Immediate Family Member may not vote (per election, where primaries and general elections are considered two separate elections).

Personnel should expect that requests involving potential contributions3 to officials4 of government entities5 who can influence the hiring or retention of an investment adviser may receive additional scrutiny and may not be approved. Furthermore, such political contributions only can be granted by the CCO and in compliance with any additional and/or more restrictive requirements imposed by the applicable jurisdiction.

For in-kind contributions (e.g., volunteer work, etc.) that involve the solicitation or coordination of political contributions, Personnel must avoid any confusion that suggests, in any way, that the Companies have approved, supports or is otherwise involved in the political activity. Without limitation, Personnel or Immediate Family Members, who may be approved to participate in soliciting or coordinating political contributions, must not use the names, facilities or addresses of the Companies.

The CCO has absolute discretion to deny requests to make political contributions for any or no reason. The dollar limitations provided in this paragraph apply to political contributions of any type for any recipient in any election.

3.Prohibition and Restrictions on Contributions by the Companies

Federal law prohibits political contributions by the Companies or in their name in support of candidates for federal office. Accordingly, such contributions are prohibited. Because restrictions may also apply with respect to contributions to state and local officials, no such contributions may be made by the Companies or in their names except to the extent the same is first approved in writing by the CCO.

2The DoubleLine Capital LP Chief Compliance Officer will involve the Chief Compliance Officer of DoubleLine Alternatives LP (and other applicable entities) as and when necessary.

3A contribution is defined to include a gift, subscription, loan, advance, deposit of money, or anything of value made for the purpose of influencing an election for a federal, state or local office, including any payments for debts incurred in such an election or payments towards the transition or inaugural expenses of the successful candidate for state or local office.

4An official includes an incumbent, candidate or successful candidate for elective office of a government entity.

5Government entities include all state and local governments, their agencies and instrumentalities, and all public pension plans and other collective government funds, including participant-directed plans such as 403(b), 457, and 529 plans.

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

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4.Use of Companies' Names, Facilities and Addresses for Political Purposes

The Companies' names, facilities and addresses may only be used for political purposes to the extent such use is first approved in writing by the CCO.

5.Restrictions on Foreign Nationals

Political contributions, expenditures and disbursements, whether directly or indirectly, to U.S. candidates by persons who are not U.S. citizens or permanent resident aliens are prohibited by law. Accordingly, Personnel who are not U.S. citizens or permanent resident aliens are prohibited from making political contributions, expenditures or disbursements with respect to U.S. candidates.

6.Restrictions on Reimbursement of Contributions by Others

Personnel (and the Companies) are prohibited from reimbursing others for political contributions.

7.No Indirect Violations

Personnel also are prohibited from seeking the assistance of others (including political committees) to bundle or coordinate the solicitation of such contributions. In sum, Personnel shall not attempt to do indirectly what they may not do directly, including by channeling political contributions through third parties such as Immediate Family Members.5

8.Actions to take if Personnel or Immediate Family Members inadvertently make an unapproved contribution

Personnel detecting that they or their Immediate Family Members have made a contribution without receiving preclearance must report such contributions to the CCO immediately. When applicable, it is possible that seeking (and achieving) the return of the contribution can preclude application of the U.S. Securities and Exchange Commission rules and penalties. However, there can be no assurance that any attempt to preclude application of the statutory penalties will be completely successful. Personnel are advised to comply with the requirements at all times, to avoid the potential difficulty of attempting to unwind an impermissible political contribution.

5SEC Rule 206(4)-5(d) makes it unlawful for any investment adviser covered by the rule and its covered associates to do anything indirectly which, if done directly, would result in a violation of that rule.

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

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9.Documentation

All pre-approval requests and disclosures, approvals and any supporting documentation required under this policy shall be submitted and maintained through the designated compliance system.

Records of contributions by the Companies to government officials able to influence the selection of investment advisers for money management mandates and to Political Action Committees and other records related to this requirement shall be maintained by Corporate Accounting.

As part of the initial reports, new Personnel are required to provide information regarding their political contributions for the two-year period prior to joining DoubleLine, to allow the Companies to verify whether any such contributions have the potential to disqualify an Adviser from future or current business opportunities with government entities.

History of Amendments

Effective as of January 1, 2020

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

4

 

 

CLIENT COMPLAINTS AND INDICATIONS OF INAPPROPRIATE CONDUCT

A.General Statement of Policy

All DoubleLine1 Personnel are required to promptly bring to the Chief Compliance Officer any communication received, whether verbal, electronic, e.g., email, text message, instant messenger (e.g., "chat"), or fax, hard copy, or otherwise, that contains (or appears to contain) any form of complaint about impermissible or inappropriate conduct of the Companies. Personnel should also bring to the attention of the DoubleLine Capital LP Chief Compliance Officer ("CCO")2, any communication received that contains a nonpublic or confidential information about a security or issuer that is inappropriate for receipt by the employee. Employees should bring to the CCO's attention the receipt of any other information that may reasonably be of concern (e.g., possible illegal activities, allegations of misconduct on the part of any employee, allegations of mistreatment of any client).

B.Responsibility of the Chief Compliance Officer

1.Review and Reporting

Upon being notified of a complaint or other indications of impermissible or inappropriate conduct, the CCO shall promptly review the complaint and make a determination as to whether, in light of any such review, the facts underlying the complaint indicate a need to notify the Companies' legal counsel or otherwise take any immediate action including imposition of restrictions or heightened supervision with respect to any individual or supervisor and/or is otherwise indicative of a weakness or other shortcoming in the Companies' procedures or policies.

Upon notification of a matter not involving a complaint, the CCO shall undertake such review and take such additional action as the CCO deems appropriate.

2.Acknowledgement

The CCO, working with the applicable senior management, will arrange for an acknowledgement to be sent in response to all written complaints.

1"DoubleLine" includes the following entities – DoubleLine Group LP, DoubleLine Capital LP, DoubleLine Equity LP, DoubleLine Alternatives LP and DoubleLine Investment Management Asia Ltd.

2The DoubleLine Capital LP Chief Compliance Officer will involve the Chief Compliance Officer of DoubleLine Alternatives LP (and other applicable entities) as and when necessary.

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

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3.Documentation

For each written complaint, the CCO shall create a record, which shall include the complainant's name and address; the date the complaint was received; the name of any Personnel identified in the complaint and the identification of any Personnel responsible for subject matter of the complaint; a description of the nature of the complaint; and the disposition of the complaint.

For each complaint, the CCO shall also maintain a narrative (or correspondence) involving any review or investigation and follow up activities, indicating who undertook the investigation, what the findings were and what follow-up steps have been taken.

History of Amendments

Effective as of January 1, 2020

Capitalized terms used but not defined in this policy shall have the same meaning as defined in the Code of Ethics.

2

NEUBERGER BERMAN

CODE OF ETHICS

January 2019

 

CODE OF ETHICS

This Code of Ethics (the "Code") is adopted by the North-American based registered investment advisers (the "NB Advisers")1 of Neuberger Berman Group LLC (the "Firm") pursuant to Rule 204A-1 under the Investment Advisers Act of 1940 (the "Advisers Act"), the Neuberger Berman Group of Funds (the "NB Funds") and any NB Adviser that serves as investment adviser or sub- adviser to the NB Funds or other non-NB Funds (collectively, the "Funds") pursuant to Rule 17j-1 under the Investment Company Act of 1940 (the "Company Act").

Any questions relating to this document should be brought to the attention of your designated Chief Compliance Officer or the firm's Head of Compliance, Brad E. Cetron. A list of Chief Compliance Officers and other Compliance contacts within the Firm is attached here as Exhibit A.

By accepting employment with the Firm, you have agreed to be bound by this Code of Ethics. On an annual basis you will be required to certify in writing your understanding of, and adherence to, this Code and your intention to comply with its requirements (including any amendments).

1Neuberger Berman Investment Advisers LLC, NB Alternatives Advisers LLC, Neuberger Berman Breton Hill ULC and Neuberger Berman BD LLC. This Code also applies to Neuberger Berman Trust Company N.A. and Neuberger Berman Trust Company of Delaware N.A.

2

 

 

Table of Contents

 

Statement of General Principles ....................................................................................................

5

A. General Prohibitions..................................................................................................................

6

B. Definitions ...................................................................................................................................

6

C. Code Policies.............................................................................................................................

11

1.

Covered Accounts ...............................................................................................................

12

2.

Initial Public Offerings .......................................................................................................

12

3.

Insider Trading ...................................................................................................................

12

4.

Transactions in Restricted List Securities...........................................................................

12

5.

Private Placements .............................................................................................................

12

6.

Dissemination of Client Information....................................................................................

13

7.

Gifts .....................................................................................................................................

13

8.

Related Issuer ......................................................................................................................

13

9.

Trading Opposite Clients....................................................................................................

13

10.

Service on a Board of Directors .........................................................................................

14

11.

Limitations on Short and Long Positions............................................................................

14

12.

Transactions in Shares of Funds.........................................................................................

15

13.

Sanctions.............................................................................................................................

15

14.

Violations ............................................................................................................................

15

D. Reporting Requirements .........................................................................................................

15

1.

Reports by Access Persons..................................................................................................

15

2.

Reports by Disinterested Directors/Trustees......................................................................

17

3.

Exceptions to Reporting Requirements...............................................................................

17

4.

Notification of Reporting Obligations.................................................................................

17

E. Code Procedures.......................................................................................................................

17

1.

Maintenance of Covered Accounts .....................................................................................

17

2.

Pre-Clearance of Securities Transactions ..........................................................................

18

 

a. Access Persons ................................................................................................................

18

 

b. Advisory Persons ............................................................................................................

18

 

c. NB CEF Insiders .............................................................................................................

19

 

d. Exceptions from Pre-Clearance Requirement.................................................................

19

3.

Blackout Period ..................................................................................................................

19

 

a. Same Day – Advisory Persons of a Fund........................................................................

19

 

b. Research Personnel .........................................................................................................

19

4.

Price Restitution..................................................................................................................

19

 

a. Same Day Price Restitution ............................................................................................

19

 

b. Five(5)/One(1) Day Price Restitution – Advisory Persons.............................................

20

 

c. Price Restitution Execution.............................................................................................

20

 

d. Exceptions to Price Restitution.......................................................................................

20

5.

Holding Periods..................................................................................................................

21

 

a. Thirty (30) Day Holding Period......................................................................................

21

 

b. Sixty (60) Day Holding Period .......................................................................................

21

 

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c. Exceptions to the Holding Periods..................................................................................

21

6. Code Procedures Monitoring .............................................................................................

22

F. NB Funds' Ethics and Compliance Committee.....................................................................

22

G. Annual Report to the NB Funds' Board.................................................................................

22

H. Administration ........................................................................................................................

23

I. Recordkeeping ..........................................................................................................................

23

Exhibit A: Compliance Contacts ................................................................................................

25

Exhibit B: Applicability of Code Procedures to Temporary Access Persons.........................

26

4

 

Statement of General Principles

The Code is designed to ensure, among other things, that employees put Client interests first and conduct their activities in a manner consistent with applicable Federal Securities Laws. The following principles shall govern the personal investment activities of all individuals subject to this Code:

Employees must at all times place the interests of Clients ahead of their personal interests - Client trades have priority over personal securities trades.

Personal securities transactions must be conducted in accordance with this Code and in such a manner as to avoid any actual, perceived or potential conflict of interest or abuse of an employee's position of trust and responsibility.

Employees should not take advantage of their position to benefit themselves at the expense of any Client.

In personal securities investing, employees should follow a philosophy of investment rather than trading.

Employees must comply with applicable Federal Securities Laws.

5

 

A. General Prohibitions

No person associated with the NB Advisers or the Firm, in connection with the purchase or sale, directly or indirectly, of a security held or to be acquired by a Client, shall:

Employ any device, scheme or artifice to defraud any Client;

Make any untrue statement of a material fact to any Client or omit to state to such Client a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;

Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any Client;

Engage in any manipulative practice with respect to any Client;

Engage in any transaction in a security while in possession of material nonpublic information regarding the security or the issuer of the security; or

Engage in any transaction intended to raise, lower, or maintain the price of any security or to create a false appearance of active trading.

B.Definitions

The following words have the following meanings in this Code:

Access Person

a.Any employee, officer, director of any NB Adviser or NB Fund (or any company controlled by the NB Advisers) and their Immediate Family Members; and

b.Any director, officer or general partner of a principal underwriter who, in the ordinary course of business, makes, participates in or obtains information regarding the purchase or sale of Covered Securities by any NB Fund for which the principal underwriter acts, or whose functions or duties in the ordinary course of business relate to the making of any recommendation to the NB Fund regarding the purchase or sale of Covered Securities.

c.Any temporary employee, consultant, contractor, intern or other person who will be on the Firm's premises for a period of ninety (90) days or more. See Exhibit B for applicability of Code Procedures to Temporary Access Persons.

Advisory Person

An Access Person of the NB Advisers who, in connection with his or her regular functions or duties, makes, or participates in making, recommendations regarding the purchase or sale of Covered Securities by a Related Client. The determination as to whether an individual is an Advisory Person shall be made by the Legal and Compliance Department, taking into consideration the following roles and responsibilities: Portfolio Manager, Traders, Analysts (credit/research) and any member on any of their respective teams, including Administrative Assistants.

6

 

Beneficial Interest

An employee has a Beneficial Interest in an account if they may profit or share in the profit from transactions. In general, a person is regarded as having direct or indirect Beneficial Interest in securities held in his or her name, as well as:

in the name of an Immediate Family Member;

in his or her name as trustee for himself or herself or for his or her Immediate Family Member;

in a trust in which he or she has a Beneficial Interest or is the settlor with a power to revoke;

by another person and he or she has a contract or an understanding with such person that the securities held in that person's name are for his or her benefit;

in the form of acquisition rights of such security through the exercise of warrants, options, rights, or conversion rights;

by a partnership of which he or she is a member;

by a corporation which he or she uses as a personal trading medium;

by a holding company which he or she controls; or

any other relationship in which a person would have beneficial ownership under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934 and the rules and regulations thereunder, except that the determination of direct or indirect Beneficial Interest shall apply to all securities which an Access Person has or acquires.

Any employee who wishes to disclaim a Beneficial Interest in any securities must submit a written request to the Legal and Compliance Department explaining the reasons therefore. Any disclaimers granted by the Legal and Compliance Department must be made in writing. Without limiting the foregoing, if a disclaimer is granted to any employee with respect to an account of an Immediate Family Member, the provisions of this Code applicable to such employee shall not apply to the Immediate Family Member for which such disclaimer was granted. However, if the Immediate Family Member whose account was disclaimed is also an employee of an NB Adviser, the sections of this Code applicable to employees would still be applicable to the employee's Immediate Family Member.

Blind Trust

A trust in which an Access Person has Beneficial Interest or is the settlor with a power to revoke, with respect to which the Legal and Compliance Department has determined that such Access Person has no direct or indirect influence or control over the selection or disposition of securities and no knowledge of transactions therein, provided, however, that direct or indirect influence or control of such trust is held by a person or entity not associated with the Firm and not a relative of such Access Person.

Client

An investment advisory account, including, but not limited to, the Funds, other commingled investment vehicles and separate accounts for which any of the NB Advisers provides investment advice, management or exercises discretion.

7

 

"Control" means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. Generally, any person who owns beneficially, either directly or through one or more controlled companies, more than 25 percent of the voting securities of a company shall be presumed to control such company (Section 2(a)(9) of the Company Act).

Covered Account

An account held in the name of an Access Person where the Access Person has, or is deemed to have, a Beneficial Interest, including investments held outside of an account over which an Access Person has physical control, such as a stock certificate.

Covered Security

a.Any note, stock, treasury stock, security future, bond, debenture, evidence 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 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 or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing;

b.Shares of any Fund; and

c.Exchange Traded Funds and closed-end funds registered under the Company Act.

The term Covered Security does not include:

a.Direct obligations of the Government of the United States, its territories or States or Related Securities thereof, (including short term debt securities that are government securities within the

meaning of the law);

b. Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short- term debt instruments including repurchase agreements; and

c.Shares issued by registered open-end investment companies for which any NB Adviser does not act as investment adviser, sub-adviser or distributor provided such shares are held directly with the fund company in a mutual fund account and not in a third party brokerage account unless the Access Person has obtained prior written approval from the Legal and Compliance Department to maintain such account.

De minimis Restitution

Price restitutions that result in less than $1000 collectively or where the gain to be received by each underlying Client account is less than $100.

Disinterested Director/Trustee

A person who serves as director/trustee of an NB Fund and is not otherwise affiliated with an NB Fund.

8

 

 

Domestic Partnership

An interpersonal relationship between two individuals who live together and share a common domestic life ("Domestic Partners").2

Ethics and Compliance Committee

The Ethics and Compliance Committee of the NB Funds.

Exchange Traded Fund

Unit investment trusts or open-ended investment companies registered under the Company Act that trade on a national stock exchange.

Exempt Transactions

Transactions that may be exempt from certain provisions of the Code such as, pre-clearance, minimum holding periods, or blackout periods. Exempt Transactions are not exempt from the general provisions of the Code including reporting requirements. The following have been defined as Exempt Transactions:

a.Transactions in Managed Accounts.

b.Transactions made automatically in accordance with a predetermined schedule and allocation, such as part of a dividend reinvestment plan ("DRIP").

c.An involuntary purchase effected upon the 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 issuer, and sales of rights so acquired.

d.The acquisition or disposition of securities through stock dividends, stock splits, reverse stock splits, mergers, margin calls, consolidations, spin-offs, or other similar corporate reorganizations or distributions generally applicable to all holders of the same class of securities.

e.Securities transactions effected in Blind Trusts.

f.A transaction by an NB Fund Disinterested Director/Trustee unless at the time of such transaction, the Disinterested Fund Director/Trustee, knew or should have known that, during the fifteen calendar day period immediately preceding or, after the date of the transaction by the Disinterested Director/Trustee, such security was purchased or sold by the NB Fund or was being considered for purchase or sale for Clients of the NB Adviser.

g.Transactions in the following broad-based security indices: S&P 500, NASDAQ, 7-10 Year Treasury Bond Index, 20+ Year Treasury Bond Index, Russell 2000 and Dow Jones Industrial Average.

h.Other transactions designated in writing by the Legal and Compliance Department.

Federal Securities Laws

The Securities Act of 1933 ("Securities Act"), the Securities Exchange Act of 1934 ("Exchange Act"), the Company Act, the Advisers Act, the Sarbanes-Oxley Act of 2002 (as applicable), Title V of the Gramm- Leach-Bliley Act, any rules adopted by the Securities and Exchange Commission

2The above definition is being used solely for purposes of this Code of Ethics and should not be construed as the applicable definition for other purposes (e.g., employee benefits).

9

 

("SEC") under any of these statutes, the Bank Secrecy Act as it applies to registered investment companies and investment advisers, and any rules adopted thereunder by the SEC or the Department of the Treasury.

Fund

Any investment company, and series thereof, registered under the Company Act for which any NB Adviser is the investment manager, investment adviser, sub-adviser, administrator or distributor.

iCompliance

The Firm's proprietary employee compliance dashboard managed by the Legal and Compliance Department. iCompliance facilitates the reporting and monitoring of a number of key compliance requirements including: the Firm's annual personal securities holding affirmation; tracking of employee outside investments, outside activities, political contributions and employee licenses and registrations; and a pre-trade approval process for employee trading activity that occurs at third party broker-dealers.

Immediate Family Member

a.An Access Person's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, Domestic Partner, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother- in-law, sister-in- law, including adoptive relationships; and

b.Any other relative or person who shares the same household as the Access Person and to whom the employee provides material financial support and is deemed to be an Immediate Family Member by the Legal and Compliance Department.

Legal and Compliance Department

The Neuberger Berman Legal and Compliance Department.

Limited Access Person

An Access Person's Immediate Family Member who would otherwise be an Access Person but who is determined by the Legal and Compliance Department to be a Limited Access Person considering factors including, but not limited to, whether the Immediate Family Member shares the same household as the Access Person and is financially dependent on the Access Person.

Limited Access Person Account

An account in the name of a Limited Access Person held at the Firm. A Limited Access Person Account may be treated as a Managed Account at the discretion of the Legal and Compliance Department.

Managed Account

A Covered Account where full control and investment discretion has been delegated pursuant to an investment advisory agreement that includes the payment of a management fee to: 1) an unrelated third party investment manager, or 2) a Neuberger Berman portfolio management team of which the employee is not a member. A Limited Access Person Account may be treated as a Managed Account at the discretion of the Legal and Compliance Department.

10

 

NB Advisers

The Firm's North-American-based investment advisers: Neuberger Berman Investment Advisers LLC, Neuberger Berman Breton Hill ULC, Neuberger Berman BD LLC, NB Alternatives Advisers LLC, Neuberger Berman Trust Company N.A., Neuberger Berman Trust Company of Delaware N.A.

NB Closed-End Fund ("CEF") Insider

An Access Person who is a director, officer or principal stockholder (holder of more than 10% of a class of reportable securities) of any company that has a class of equity securities registered pursuant to Section 12 of the Exchange Act and is subject to beneficial ownership reporting obligations under Section 16. Obligations apply to all insiders of the closed-end funds ("NB CEF") as well as to NBIA and certain of its affiliated persons.

NB Funds

The NB Group of Funds.

Private Placement

An offering that is exempt from registration under the Securities Act pursuant to Section 4(2) or Section 4(6) or pursuant to Rules 504, 505 or 506 under the Securities Act.

Related Client

A Client account, including a proprietary account consisting of seed capital during the incubation period, for which an Advisory Person or the portfolio management team of which the Advisory Person is a member, has or is deemed to have, investment decision-making authority or is responsible for maintaining and/or reviewing information pertaining to the account.

Related Issuer

An issuer with respect to which an Advisory Person or their Immediate Family Member: (i) has a material business relationship with such issuer or any promoter, underwriter, officer, director, or employee of such issuer; or (ii) is an Immediate Family Member of any officer, director or senior management employee of such issuer.

Related Security

A Related Security is one whose value is based on or derived from the value of another security, including convertible securities and derivative securities such as options, futures and warrants.

Security Held or to be Acquired by a Client

Any Covered Security (or Related Security) that within the most recent fifteen (15) days:

is or has been held by a Client, or

is being or has been considered by a NB Adviser for purchase by such Client.

Trading Desk

The Neuberger Berman Trading Desk.

C. Code Policies

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1.Covered Accounts

Access Persons who are not Advisory Persons are generally permitted to maintain their Covered Accounts at Neuberger Berman, or with prior approval from the Legal and

Compliance Department, at Fidelity Investments ("Fidelity"). Advisory Persons are generally required to maintain their Covered Accounts at Neuberger Berman. 3

2.Initial Public Offerings

Access Persons are generally prohibited from acquiring direct or indirect beneficial ownership of any equity security in an initial public offering.

3.Insider Trading

The Firm has adopted an Information Barrier Policy and related MNPI Procedures (together, the "Insider Trading Policy and Procedures"). All Access Persons are required to be familiar with the Insider Trading Policy and Procedures and shall certify, on an annual basis, that they have read, understood and complied with the requirements of this Code and the Insider Trading Policy and Procedures.

4.Transactions in Restricted List Securities

Access Persons may obtain material non-public information ("MNPI") or establish special or "insider" relationships with one or more issuers of securities (e.g., the employee may become an officer or director of an issuer, a member of a creditor committee that engages in material negotiations with an issuer, and so forth). In such cases, the Access Person should keep in mind that they are subject to the Firm's Information Barrier Policy and the MNPI Procedures.

5.Private Placements

Access Persons may not acquire direct or indirect Beneficial Interest in any Private Placement without prior written approval from the Legal and Compliance Department and such other persons as may be required. Private Placements include, but are not limited to, any interest in a hedge fund, private equity vehicle or other similar private or limited offering investment. Pre-approval for NB-sponsored private securities transactions made through the firm's Employee Investment Solutions (EIS) team are submitted by the Legal and Compliance Department on the employee's behalf.

Approval of a Private Placement shall take into account, among other factors, whether: i) the investment opportunity should be reserved for a Client, and ii) the opportunity is being offered to the individual by virtue of his or her position with the Firm, the NB Adviser or his or her relationship with or to the Client or the issuer of the Private Placement. Additional capital investments (other than capital calls related to the initially approved

3See Section E(1) for information related to Maintenance of Employee Covered Accounts.

12

 

investment) in a previously approved Private Placement require a new approval.

Advisory Persons who hold a previously approved Private Placement and are subsequently involved, or play a part in the consideration of the same Private Placement as an investment for a Related Client, must inform the Legal and Compliance Department of their personal investment (or their Immediate Family Member's investment). The decision to invest in the Private Placement for a Related Client will be determined by the Legal and Compliance Department and other relevant parties as deemed necessary for the review process.

Access Persons' private placement redemptions are subject to review and approval by the Legal and Compliance Department.

6.Dissemination of Client Information

Access Persons are prohibited from revealing material information relating to current or anticipated investment intentions, portfolio transactions or activities of Client/Funds except to persons whose responsibilities require knowledge of such information.

7.Gifts

Access Persons are prohibited from giving or receiving any gift or other item of value to or from any one person or entity that does business with the Firm without prior approval from the Legal and Compliance Department. Generally, promotional items valued at $25 or less do not require prior approval although certain recipients may be subject to stricter gift limits under state rules or rules applicable to ERISA fiduciaries. The Firm has adopted gift and entertainment policies to which all employees are subject. See the NB Code of Conduct and the Political Activity Policy for additional information.

8.Related Issuer

Advisory Persons are required to disclose to the Legal and Compliance Department when they play a part in any consideration of an investment by a Client in a Related Issuer. The decision to purchase securities of the Related Issuer for a Client will be determined by the Legal and Compliance Department and other relevant parties as deemed necessary for the review process.

9.Trading Opposite Clients

No Advisory Person or Advisory Person of a Fund may execute transactions in a Covered Security held in a Covered Account that would be on the opposite side of any trade in a Related Client account that was executed within 5 business days prior to the trade in the Covered Account ("Opposite Side Trade"). For example, if an Advisory Person executes a purchase of shares of Company XYZ on Monday, February 1st for a Related Client account(s), that Advisory Person and their team will be prohibited from executing a sale of shares of Company XYZ for their Covered Accounts between the time when the Related Client order was submitted on Monday, February 1st through the close of trading on

13

 

Monday, February 8th.

Notwithstanding the foregoing, an Advisory Person or Advisory Person of a Fund (or their team member) may execute an Opposite Side Trade for the following reasons:

to capture a gain or loss for tax purposes;

the Advisory Person or Advisory Person of a Fund sold the security for the Related Client account in order to raise cash;

securities transactions effected in Blind Trusts;

securities transactions that are non-volitional on the part of the Advisory Person or Advisory Person of a Fund. Non-volitional transactions include shares obtained or redeemed through a corporate action (e.g. stock dividend) or the exercise of rights issued by an issuer pro rata to all holders of a class of securities; or

other such exceptions as may be granted by the Legal and Compliance Department.

10.Service on a Board of Directors

Access Persons are prohibited from serving on the board of directors of any public or

private company without prior written approved from the Legal and Compliance Department.4

11.Limitations on Short and Long Positions

Advisory Persons are not permitted to: a) sell short any security (or Related Security) that they hold or intend to hold for a Related Client; or b) buy a long position in a security (or Related Security) if they have or intend to create a short position in the same security for a Related Client. Notwithstanding the foregoing, certain types of transactions may be permitted with prior approval from the Legal and Compliance Department and the CIO (or designee), such as

i.A purchase to cover an existing short position, except that if an Advisory Person intends to create a long position for a Related Client in the same security, all Related Client transactions must be completed before the Advisory Person can cover their short position.

ii.A short sale against a broad-based index. Approved broad-based indices include the S&P 500, NASDAQ, 7-10 Year Treasury Bond Index, 20+ Year Treasury Bond Index, Russell 2000 and Dow Jones Industrial Average. Any other index must be approved by the Legal and Compliance Department before engaging in any short sales against such index.

iii.A short sale to hedge an existing security position provided the hedging activity is proportionate to the account.

iv.Any approvals granted under this section will not relieve the Advisory Person from being subject to Price Restitution.

4Request must be made through iCompliance by completing the Outside Affiliation request form.

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12.Transactions in Shares of Funds

a.All trading in shares of a Fund is subject to the terms of the prospectus and the Statement of Additional Information of the Fund.

b. No Access Person may engage in excessive trading or market timing in any shares of any Fund.

13.Sanctions

The Firm shall have the authority to impose sanctions for violations of this Code. Such sanctions may include a letter of censure, suspension or termination of the employment of the violator, forfeiture of profits, forfeiture of personal trading privileges, forfeiture of gifts, or any other penalty deemed to be appropriate.

14.Violations

Access Persons must report apparent or suspected violations in addition to actual or known violations of the Code to the Legal and Compliance Department. Access Persons are encouraged to seek advice from the Legal and Compliance Department with respect to any action or transaction which may violate this Code and to refrain from any action or transaction which might lead to the appearance of a violation. The types of reporting that are required under this Code include:

Non-compliance with applicable laws, rules, and regulations;

Fraud or illegal acts involving any aspect of the Firm's business;

Material misstatements in regulatory filings, internal books and records, client records or reports;

Activity that is harmful to clients, including fund investors; and

Deviations from required controls and procedures that safeguard clients and the Firm.

D. Reporting Requirements5

1.Reports by Access Persons a. Initial Disclosure

i. All Access Persons must disclose their Covered Accounts within 10 calendar days of becoming an Access Person. The initial holdings disclosure must include all Covered Accounts in which the Access Person has a direct or indirect Beneficial Interest. Access Persons may satisfy this requirement by providing copies of their account statements for all Covered Accounts to the Legal and Compliance Department (as applicable).

5All Code reporting disclosures are done through iCompliance.

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ii.The information provided must be current as of a date no more than 45 days prior to the date the person became an Access Person.

iii.Access Persons will be provided with a copy of the Code of Ethics and be required to acknowledge receipt of the Code.

b.Quarterly Disclosure

i.Within 30 days of the end of each calendar quarter, Access Persons must disclose securities transactions in any Covered Security in which such Access Person has, or by reason of such transaction acquires, any direct or indirect Beneficial Interest that occurred during the previous quarter. For each transaction executed during the quarter, the following information must be provided:

the date of the transaction;

type of transaction (buy, sell, short, cover, etc.);

name of security, exchange ticker, symbol or CUSIP number;

the number of shares, price and principal amount; and

the interest rate and maturity date (as applicable).

ii.The above requirement may be satisfied if information is being received by Neuberger Berman as stated in Section D(3)(b).

c.Annual Disclosure

i.On an annual basis, Access Persons must affirm that all Covered Accounts have been reported and are reflected in iCompliance.

ii.Access Persons are required to certify that they have read, understand, and complied with the Code of Ethics and the Insider Trading Policy and Procedures, and have disclosed or reported all personal securities transactions, holdings and accounts required to be disclosed or reported pursuant to the requirements of the Code.

iii.The information provided must be current as of a date no more than 45 days of the date the report is submitted.

iv.With respect to any Blind Trust in which an Access Person has a Beneficial

Interest, such Access Person must certify that they do not exert any direct or indirect influence or control over the trustee by: a) suggesting or directing any particular transactions in the account, or b) consulting with the trustee regarding the allocation of investments in the account. .

v.With respect to any Managed Account managed by a third-party, Access Persons must certify that they do not exert any direct or indirect influence or control over the third-party manager by: a) suggesting or directing any particular

16

 

transactions in the account, or b) consulting with the third-party manager regarding the allocation of investments in the account.

2.Reports by Disinterested Directors/Trustees

a.A director/trustee of a NB Fund who is not an "interested person" of the NB Fund within the meaning of section 2(a)(19) of the Company Act, and who would be required to make a report solely by reason of being a NB Fund director/trustee, need not make:

i.An initial holdings disclosure and annual holdings disclosure under Section D(1)(a) and (c) above; and

ii.A quarterly transactions disclosure under Section D(1)(b) above, unless the director/trustee knew or, in the ordinary course of fulfilling their official duties as a NB Fund director/trustee, should have known that during the 15-day period immediately before or after the director/trustee's transaction in a Covered Security, the NB Fund purchased or sold the Covered Security, or the NB Fund or its investment adviser considered purchasing or selling the Covered Security.

3.Exceptions to Reporting Requirements

a.With regards to Section D(1)(b), Access Persons need not disclose holdings if such disclosure would duplicate information contained in trade confirmations or account statements (including electronic feeds of such information) received by Neuberger Berman. For purposes of the foregoing, the Legal and Compliance Department maintains

(i)electronic records of all securities transactions effected through Neuberger Berman and Fidelity, and (ii) copies of any duplicate confirmations that have been provided to the Legal and Compliance Department under this Code of Ethics with respect to securities transactions that, pursuant to exceptions granted by the Legal and Compliance Department, have not been effected through Neuberger Berman.

4.Notification of Reporting Obligations

The Legal and Compliance Department shall identify all Access Persons who are required to make reports under the Code and inform them of their reporting obligations.

E. Code Procedures

1.Maintenance of Covered Accounts a. General Rules

i.Access Persons who are not Advisory Persons may maintain their Covered Accounts at Neuberger Berman or Fidelity. Prior written approval from the Legal and Compliance Department is required for Fidelity accounts.

ii.Advisory Persons are required to maintain their Covered Accounts at

17

 

Neuberger Berman.

iii.Limited Access Persons are not required to keep their securities accounts at Neuberger Berman or Fidelity.

b.Exceptions to Maintenance of Covered Accounts at Neuberger Berman or Fidelity:

i.Managed Accounts. Any Access Person granted approval to maintain an external Managed Account is required to direct their broker, adviser or trustee to provide duplicate copies of all trade confirmations, as well as copies of account statements to the Legal and Compliance Department.

ii.DRIPs established directly with the issuer that have been approved by the Legal and Compliance Department and for which duplicate copies of confirmations and periodic statements are provided.

iii.Other accounts as may be permitted by the Legal and Compliance Department.

2.Pre-Clearance of Securities Transactions

a.Access Persons

i.Access Persons are required to obtain prior approval for transactions in Covered Accounts not maintained at Neuberger Berman by submitting a pre-clearance request in iCompliance that is compared with the Firm's Restricted List.

ii.Access Persons are required to obtain prior approval from the Trading Desk before executing any transactions in Covered Accounts held at Neuberger Berman. Before granting approval, the Trading Desk, subject to oversight by the Legal and Compliance Department, will determine whether:

the employee is an Advisory Person of a Fund that is a Related Client with a pending "buy" or "sell" order in the same (or Related Security;

the security is on the Firm's Restricted List(s); or

the transaction is de minimis

iii.The Legal and Compliance Department reviews transactions for required trade pre-clearance and all transactions are subject to the Price Restitution review, subject to certain exceptions (see section E(4)).

b.Advisory Persons

i.Advisory Persons who are members of the Firm's Equity Research Department are subject to additional pre-approval requirements for their personal trading.

18

 

Members of the Research Department should refer to the Equity Research Department's Procedures for specific details.

c.NB CEF Insiders

i.Access Persons who are NB CEF Insiders must obtain prior approval from mutual fund compliance before placing any transactions in the NB CEFs.

d.Exceptions from Pre-clearance Requirement

i.Exempt Transactions

ii.Other securities designated in writing by the Legal and Compliance Department

3.Blackout Period

a.Same Day – Advisory Persons of a Fund

i.An Advisory Person of a Fund may not buy or sell a Covered Security (or a Related Security) on a day during which any Related Client executes either a "buy" or "sell" order in the same security ("Same Day Blackout Period").

ii.Purchases that occur within the Same Day Blackout Period will be required to be "broken." Any losses will be incurred by the Covered Account and any gains (including gains disgorged from a sale within the Same Day Blackout Period) may be donated to a charitable organization designated by the Firm.

iii.Certain Limited Access Person Accounts may be subject to the Same Day Blackout Period.

b.Research Personnel

i.Advisory Persons who are members of the Firm's Equity Research Department may be subject to a blackout period for their personal trading. Members of the Research Department should refer to the Equity Research Department's Procedures for specific details.

4.Price Restitution

a.Same Day Price Restitution

i.Access Persons

If an Access Person purchases or sells a Covered Security in a Covered Account and a Client purchases or sells the same security during the same day, the Access Person may not receive a more favorable price than that received by the Client.

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ii.Limited Access Persons

If an Advisory Person related to a Limited Access Person purchases or sells a Covered Security in the Limited Access Person Account and such Advisory Person purchases or sells the same security during the same day for a Related Client, the Limited Access Person Account may not receive a more favorable price than that received by the Related Client.

iii.For the avoidance of doubt, a "purchase" includes a long buy, as well as a cover short, and a "sell" includes a long sell, as well as a short sale.

b.Five(5)/One(1) Day Price Restitution – Advisory Persons

i.If an Advisory Person purchases or sells a Covered Security within five (5) business days prior, or one (1) business day subsequent to a Related Client ("5/1 Price Restitution"), the Advisory Person may not receive a more favorable price than that received by the Related Client.

ii.Certain Limited Access Person Accounts may be subject to the 5/1 Price Restitution.

iii.For the avoidance of doubt, a "purchase" includes a long buy, as well as a cover short, and a "sell" includes a long sell, as well as a short sale.

c.Price Restitution Execution

i.Price restitution will generally be executed when there is a total gain of at least $1000 from the difference in price received by the Access Person vs. the Related Client(s), and a gain of at least $100 to each underlying Client Account.

ii.With respect to the Funds, the Legal and Compliance Department reserves the right to review the individual restitutions below $1000 and may require payment of these amounts if facts and circumstances warrant.

iii.Where restitution is required, preference shall be to provide the economic benefit to Clients where operationally, contractually or legally permitted. Where otherwise not feasible or permitted, restitution may be made by transfer, wire or check and shall be remitted to the Firm for donation to a charitable organization designated by the Firm.

d.Exceptions to Price Restitution

i.Exempt Transactions.

ii.De minimis Restitution.

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iii.Transactions in non-Covered Securities.

iv.Transactions arising through hedged options trading.

v.Transactions in the Firm's retirement contribution program.

vi.Certain transactions related to the initial investment of a Related Client account or investments made as a result of additional funds contributed to an existing Related Client account communicated to the Legal and Compliance Department.

vii.Other exceptions designated in writing by the Legal and Compliance Department.

5.Holding Periods

a.Thirty (30) Day Holding Period

i.All securities positions, including both long and short positions, established in any Covered Account must be held for at least 30 calendar days (beginning on the day of the transaction) measured on a Last In-First Out ("LIFO") basis.

b.Sixty (60) Day Holding Period

ii.Access Persons are required to hold shares of any Fund for at least 60 days, measured on a LIFO basis. After the holding period has lapsed, Fund shares may be redeemed or exchanged; however, the redemption or exchange of such shares will result in a new 60-day holding period.

c.Exceptions to the Holding Periods

i.Transactions in Managed Accounts

ii.U.S. Treasury obligations

iii.Bona fide hedging transactions, identified as such to the Legal and Compliance Department prior to execution, on the following broad-based indices: S&P 500, NASDAQ, 7-10 Year Treasury Bond Index, 20+ Year Treasury Bond Index, Russell 2000 and Dow Jones Industrial Average.

iv.Positions where at time of order entry, there is an expected loss of at least 10%. This exclusion does not apply to losses in options on equities.

v.Notwithstanding the foregoing, on a limited basis and with the prior approval of the Legal and Compliance Department and CIO (or designee), shares that have been held for at least one year may be sold even if additional shares of the same security were purchased in the last 30 calendar days.

vi.The 60-day holding period shall not apply to:

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Taxable and tax-exempt money market funds;

Variable annuity contracts for which a Fund does not serve as the underlying investment vehicle; and

Shares of an investment company that are purchased through an automatic investment program or payroll deduction.

vii.The above exclusions shall not apply if, in the opinion of the Legal and Compliance Department, a pattern of excessive trading exists.

Any requests for exceptions to the above holding periods must be submitted to the Legal and Compliance Department.

6. Code Procedures Monitoring

The Legal and Compliance Department will conduct post-trade monitoring of employee trades to ascertain that such trading conforms to the procedures above, and where required, that employees have obtained the necessary pre-trade approvals as may be applicable.

F.NB Funds' Ethics and Compliance Committee

1.The Ethics and Compliance Committee shall be composed of at least two members who shall be Disinterested Director/Trustees selected by the Board of Directors/Trustees of the Company/Trust (the "Board").

2.The Ethics and Compliance Committee shall consult regularly with the Legal and Compliance Department and/or the NB Funds Chief Compliance Officer and either the Committee or the Board shall meet no less frequently than annually with the Legal and Compliance Department and/or the NB Funds Chief Compliance Officer regarding the implementation of this Code. The Legal and Compliance Department shall provide the Ethics and Compliance Committee with such reports as are required herein or as are requested by the Ethics and Compliance Committee.

3.A quarterly report shall be provided to the Board certifying that except as specifically disclosed to the Ethics and Compliance Committee, the Legal and Compliance Department knows of no violations of the Code of Ethics and the NB Funds Chief Compliance Officer shall attend all regular meetings of the Board to report on the implementation of this Code.

G.Annual Report to the NB Funds' Board

No less frequently than annually and concurrently with reports to the Board, the NB Funds Chief Compliance Officer shall furnish to the Funds, and the Board must consider a written report that:

describes any issues arising under this Code or procedures concerning personal investing since the last such report, including, but not limited to, information about

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material violations of the Code or procedures and sanctions imposed in response to the material violations;

certifies that NBIA, the Firm or any NB Adviser, as applicable, have adopted procedures reasonably necessary to prevent Access Persons from violating the Code; and

identifies any recommended changes in existing restrictions or procedures based upon the fund's experience under the Code, evolving industry practices, or developments in applicable laws or regulations.

H.Administration

1.All Access Persons must be presented with a copy of this Code of Ethics upon commencement of employment and any amendments thereafter.

2.All Access Persons are required to read this Code of Ethics and to acknowledge in writing that they have read, understood and agreed to abide by this Code of Ethics, upon commencement of employment and on an annual basis thereafter. In addition, Access Persons are required to read and understand any amendments thereto.

3.All Access Persons are required to provide a list of their Covered Accounts.

4.Access Persons who violate the rules of this Code of Ethics are subject to sanctions, which may include censure, suspension or termination of employment.

5.Nothing contained in this Code of Ethics shall be interpreted as relieving any Covered Account from acting in accordance with the provisions of any applicable law, rule or regulation or any other statement of policy or procedure governing the conduct of Access Persons.

6.If any Access Person has any question with regard to the applicability of the provisions of this Code of Ethics generally or with regard to any securities transaction, he or she should consult with Legal and Compliance.

7.The Legal and Compliance Department may grant exceptions to the requirements of this Code based upon individual facts and circumstances. Exceptions granted will be documented and retained in accordance with record-keeping requirements.

Exceptions will not serve as precedent for additional exceptions, even under similar circumstances.

I.Recordkeeping

The Firm shall maintain the following records:

1.A copy of this Code of Ethics and any Code of Ethics that has been in effect within the previous five years.

2.Any record of any violation of this Code of Ethics and any action taken as a result of the violation. These records shall be maintained in an easily accessible

23

 

place for at least five years after the end of the fiscal year in which the violation occurs.

3.A copy of each report made by an Access Person as required by this Code of Ethics, including any information provided in lieu of the monthly reports. These records shall be maintained for at least five years after the end of the fiscal year in which the report is made or the information provided, the first two years in an easily accessible place.

4.A record of all persons, currently or within the past five years, who are or were required to make reports under this Code of Ethics, or who are or were responsible for reviewing these reports. These records shall be maintained in an easily accessible place.

5.A copy of each decision to approve an acquisition by an Access Person of any Private Placement. These records must be maintained for at least five years after the end of the fiscal year in which the approval is granted.

Previous Revisions:

May 2011

January 2013

January 2016

January 2018

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EXHIBIT A

Compliance Contacts

NB Adviser

Compliance Contact

 

Contact

 

 

 

 

Information

NB Alternatives Advisers LLC

Mark Salzberg, CCO

(212) 476-5781

 

David Leimgruber

(212) 476-8992

 

 

 

 

 

Neuberger Berman Investment Advisers LLC -

Brian Lord, CCO

(312) 325-7707

Fixed Income

MaryAnn McCann

(312) 627-4338

 

 

 

 

 

Neuberger Berman Investment Advisers LLC -

Brad Cetron, CCO

(646) 497-4654

Equity

Henry Rosenberg

(646) 497-4668

Neuberger Berman BD LLC

Joshua Blackman

(646) 497-4791

Jason Hauptman

(646) 497-4681

 

Stacy Miller

(646) 497-4663

 

Cathy Collier

(212) 476-8120

 

Christina Korzeniowski

(646) 497-4603

 

Christopher Altieri

 

 

(646) 497-4677

 

 

 

 

Steven Szaro

 

 

(646) 497-4098

 

 

 

Neuberger Berman Investment Advisers LLC -

Savonne Ferguson, CCO

 

(646) 497-4934

Mutual Funds

Chris Connor

 

(212) 476-5430

 

Kevin Pemberton

 

(646) 497-4770

 

Noel Daugherty

 

 

(646) 497-4653

 

 

 

 

Kelly Ullman

 

 

(646) 497-4938

Neuberger Berman Investment Advisers LLC -

Mark Salzberg, CCO

(212) 476-5781

Alternatives

David Leimgruber

(212) 476-8992

 

 

 

Neuberger Berman Trust Company N.A.

Benedykt Szwalbenest, CCO

(212) 476-9869

Neuberger Berman Trust Company of

 

 

 

 

Delaware N.A

 

 

 

 

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EXHIBIT B

Applicability of Code Procedures to Temporary Access Persons

This section describes the requirements under the Code procedures applicable to Temporary Access Persons who will be on the Firm's premises for ninety (90) days or more and will have access to certain types of firm information. The Legal and Compliance Department reserves the right to treat

persons who will be on the Firm's premises for less than ninety (90) days as Temporary Access Persons if it deems so appropriate. Absent specific mention in this section, Temporary Access Persons are subject to all other provisions of the Code.

D.1. Reporting Requirements – Temporary Access Persons

1.Initial Disclosure

a.All Temporary Access Persons must disclose their Covered Accounts within 10 calendar days of becoming a Temporary Access Person. The initial holdings disclosure must include all Covered Accounts in which the Temporary Access Person has a direct or indirect Beneficial Interest. Temporary Access Persons may satisfy this requirement by providing copies of their account statements for all Covered Accounts to the Legal and Compliance Department (as applicable).

b.The information provided must be current as of a date no more than 45 days prior to the date the person became an Access Person.

c.Temporary Access Persons will be provided with a copy of the Code of Ethics and be required to acknowledge receipt of the Code.

2.Ongoing Disclosure

a.Temporary Access Persons must provide the Legal and Compliance Department with duplicate statements of all Covered Accounts disclosed, on a monthly basis (or quarterly, as may be applicable) for their duration at the Firm.

3.Annual Disclosure

a.Temporary Access Persons who are with the Firm at the time the annual affirmation takes place, must affirm that all their Covered Accounts have been reported and are reflected in iCompliance.

b.Temporary Access Persons are required to certify that they have read, understand, and complied with the Code of Ethics and the Insider Trading Policy and Procedures, and have disclosed or reported all personal securities transactions, holdings and accounts required to be disclosed or reported pursuant to the requirements of the Code.

c.The information provided must be current as of a date no more than 45 days of the date the

report is submitted.

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d.With respect to any Managed Account, Temporary Access Persons must certify that they do not place, recommend, approve or direct transactions in such account.

E.1. Maintenance of Covered Accounts

1.Temporary Access Persons are not required to hold their Covered Accounts at Neuberger Berman, but must either 1) direct their broker, adviser or trustee, as applicable, to provide duplicate copies of all trade confirmations, as well as copies of account statements to the Legal and Compliance Department for their duration at the Firm, or 2) provide copies of their trade confirmations and account statements to the Legal and Compliance Department.

E.2. Pre-Clearance of Securities Transactions

1.Temporary Access Persons are required to obtain prior approval for transactions in Covered Accounts by submitting a pre-clearance request in iCompliance.

E.3. Same-Day Blackout Period

1.A Temporary Access Person of a Fund may not buy or sell a Covered Security (or Related Security) on a day during which any Related Client executes either a "buy" or "sell" order in the same security ("Same Day Blackout Period").

2.Purchases that occur within the Same Day Blackout Period will be required to be "broken." Any losses will be incurred by the Covered Account and any gains (including gains disgorged from a sale within the Same Day Blackout Period) may be donated to a charitable organization designated by the Firm.

E.4. Price Restitution

1.Same Day Price Restitution

a.If a Temporary Access Person purchases or sells a Covered Security in a Covered Account and a Client purchases or sells the same security during the same day, the Temporary Access Person may not receive a more favorable price than that received by the Client.

2.Five(5)/One(1) Day Price Restitution

a.If a Temporary Access Person purchases or sells a Covered Security within five (5) business days prior, or one (1) business day subsequent to a Related Client ("5/1 Price Restitution"), the Temporary Advisory Person may not receive a more favorable price than that received by the Related Client.

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E.5. Holding Periods

1.Thirty (30) Day Holding Period

a.All securities positions, including both long and short positions, established in any Covered Account must be held for at least 30 calendar days (beginning on the day of the transaction) measured on a Last In-First Out ("LIFO") basis.

2.Sixty (60) Day Holding Period

a.Temporary Access Persons are required to hold shares of any Fund for at least 60 days, measured on a LIFO basis. After the holding period has lapsed, Fund shares may be redeemed or exchanged; however, the redemption or exchange of such shares will result in a new 60-day holding period.

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