Principal Investment Strategies of the Fund
The Fund pursues its
investment objective by allocating assets among major liquid asset classes (including global developed and emerging market equities, global nominal and inflation-linked government bonds, developed and emerging market currencies, and commodities).
The Fund intends to gain exposure to these asset classes by investing in a portfolio of Instruments (as defined below). The Fund will generally have some level of investment in the majority of asset classes and Instruments which generally includes
over 50 exposures globally, but there is no stated limit on the percentage of assets the Fund can invest in a particular Instrument or the percentage of assets the Fund will allocate to any one asset class, and at times the Fund may focus on a small
number of Instruments or asset classes. The allocation among the different asset classes is based on the
Adviser’s
assessment of the risk associated with the asset class, the investment opportunity presented by each asset class, as well
as the
Adviser’s
assessment of prevailing market conditions within the asset classes in the United States and abroad.
The
“MV” in the Fund’s name reflects its “moderate volatility” approach.
Volatility
is a statistical measurement of the dispersion of returns of a security or fund or index, as measured by the annualized standard
deviation of its returns. Higher
volatility
generally indicates higher risk. The Fund’s returns are expected to be volatile; however, the
Adviser
, on average, will target an annualized
volatility
level of 10%. The
Adviser
expects that the Fund’s targeted annualized forecasted
volatility
will typically range between 7% and 13%; however, the actual or realized
volatility
level for longer or shorter periods may be materially higher or
lower depending on market conditions.
Actual or realized
volatility
can and will differ from the forecasted or target
volatility
described above.
There is no guarantee the Fund’s investment
objective will be met.
In allocating assets among asset classes, the
Adviser
follows a “risk parity” approach. The
“risk parity” approach to asset allocation seeks to balance the allocation of risk across asset classes (as measured by forecasted
volatility
, estimated potential loss, and other proprietary measures) when building the
portfolio. This means that lower risk asset classes (such as global fixed income and inflation-linked government bonds) will generally have higher notional allocations than higher risk asset classes (such as global developed and emerging market
equities). A “neutral” asset allocation targets an equal risk allocation from each of the three following major risk sources: equity risk, fixed income risk and inflation risk. The
Adviser
expects to tactically vary the
Fund’s allocation to the various asset classes depending on market conditions, which can cause the Fund to deviate from a “neutral” position. The desired overall risk level of the Fund may be increased or decreased by the
Adviser
. There can be no assurance that employing a “risk parity” approach will achieve any particular level or return or will, in fact, reduce
volatility
or potential loss.
Generally, the Fund gains exposure to asset classes by investing in many different types of instruments including, but not limited to: equity
securities, equity futures, equity swaps, currency forwards, commodity futures, swaps on commodity futures, commodity-linked notes, bond futures, swaps on bond futures, interest rate swaps, inflation swaps, cash corporate and government bonds,
including inflation protected government bonds, cash and cash equivalents including but not limited to money market fund shares (collectively, the “Instruments”), either by investing directly in those Instruments, or indirectly by
investing in the
Subsidiary
(as described below) that invests in those Instruments. There is no maximum or minimum exposure to any one Instrument or any one asset class. The Fund may also invest in exchange traded funds or exchange
traded notes through which the Fund can participate in the performance of one or more Instruments. The Fund’s return is expected to be derived principally from changes in the value of securities and its portfolio is expected to consist
principally of securities.
The Fund is actively managed and the
Adviser
will vary the Fund’s exposures to the asset classes
based on the
Adviser’s
evaluation of investment opportunities within and across the asset classes. The
Adviser
will use proprietary
volatility
forecasting and portfolio construction methodologies to manage the
Fund. Shifts in allocations among asset classes or Instruments will be determined using models based on the
Adviser’s
general value and
momentum
investment philosophy.
The Fund has no geographic limits on where its investments may be located or where its assets may be exposed. This flexibility allows the
Adviser
to look for investments or gain exposure to asset classes and markets around the world, including emerging markets, that it believes will enhance the Fund’s ability to meet its objective. The Fund may have exposure to fixed
income securities of U.S. and non-U.S. issuers of any credit quality, including securities that are unrated or are rated in the lowest credit rating categories. The Fund may have exposure to equity securities of companies of any market
capitalization. There is no percentage limit on the Fund’s exposure to below investment-grade fixed income securities including emerging market fixed income securities or to small less-liquid equity securities. The Fund may have exposure in
long and short positions across all of the asset classes, however, short positions will generally only be taken to hedge other investments made by the Fund. The
Adviser
does not anticipate that the Fund will be net short any particular
market.
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Futures and
forward contracts are contractual agreements to buy or sell a particular currency, commodity or financial instrument at a pre-determined price in the future. The Fund’s use of futures contracts, forward contracts, swaps and certain other
Instruments will have the economic effect of financial leverage. Financial leverage magnifies exposure to the swings in prices of an asset class underlying an Instrument and results in increased
volatility
, which means the Fund will have the
potential for greater gains, as well as the potential for greater losses, than if the Fund does not use Instruments that have a leveraging effect. Leveraging tends to magnify, sometimes significantly, the effect of any increase or decrease in the
Fund’s exposure to an asset class and may cause the Fund’s
NAV
to be volatile. There is no assurance that the Fund’s use of Instruments providing enhanced exposure will enable the Fund to achieve its investment objective.
As a result of the Fund’s strategy, the Fund may have highly leveraged exposure to one or more asset classes at times. The
1940
Act
and the rules and interpretations thereunder impose certain limitations on the Fund’s ability to use leverage; however, the Fund is not subject to any additional limitations on its exposures.
When taking into account derivative instruments and instruments with a maturity of one year or less at the time of acquisition, the Fund’s
strategy will result in frequent portfolio trading and high portfolio turnover (typically greater than 300%).
A significant portion of
the assets of the Fund may be invested directly or indirectly in money market instruments, which may include, but are not be limited to, U.S. Government securities, U.S. government agency securities, short-term fixed income securities, overnight
and/or fixed term repurchase agreements, money market
mutual fund
shares, and cash and cash equivalents with one year or less term to maturity. These cash or cash equivalent holdings serve as collateral for the positions the Fund takes and
also earn income for the Fund. The Fund may also enter into reverse repurchase agreements. Under a reverse repurchase agreement, the Fund sells securities to another party and agrees to repurchase them at a particular date and price. While the
Fund normally does not engage in borrowing, leverage may be created when the Fund enters into reverse repurchase agreements, engages in futures transactions or uses certain other derivative instruments.
The Fund intends to make investments through the
Subsidiary
and may invest up to 25% of its total assets in the
Subsidiary
. The
Subsidiary
is a wholly-owned and controlled
subsidiary
of the Fund, organized under the laws of the Cayman Islands as an exempted company. Generally, the
Subsidiary
will invest primarily in commodity futures and swaps on
commodity futures but it may also invest in financial futures, option and swap contracts, fixed income securities, pooled investment vehicles, including those that are not registered pursuant to the
1940 Act
, and other investments intended to
serve as margin or collateral for the
Subsidiary
‘s derivative positions. The Fund will invest in the
Subsidiary
in order to gain exposure to the commodities markets within the limitations of the federal tax laws, rules and
regulations that apply to registered investment companies. Unlike the Fund, the
Subsidiary
may invest without limitation in commodity-linked derivatives, however, the
Subsidiary
will comply with the same
1940 Act
asset coverage
requirements with respect to its investments in commodity-linked derivatives that are applicable to the Fund’s transactions in derivatives. In addition, to the extent applicable to the investment activities of the
Subsidiary
, the
Subsidiary
will be subject to the same fundamental investment restrictions and will follow the same compliance policies and procedures as the Fund. Unlike the Fund, the
Subsidiary
will not seek to qualify as a regulated investment
company under Subchapter M of the
Code
. The Fund is the sole shareholder of the
Subsidiary
and does not expect shares of the
Subsidiary
to be offered or sold to other investors.
Principal Risks of
Investing in the Fund
Risk is inherent in all investing. The value of your investment in the Fund, as well as the amount of
return you receive on your investment, may fluctuate significantly from day to day and over time. You may lose part or all of your investment in the Fund or your investment may not perform as well as other similar investments. The following is a
summary description of certain risks of investing in the Fund.
CFTC Regulation Risk:
The Adviser is registered with the Commodity
Futures Trading Commission (the “CFTC”) as a commodity pool operator (“CPO”). The Adviser, however, has claimed no-action relief with the CFTC from regulation as a CPO with respect to the Fund. This no-action relief is based upon
the fact that the Fund is a registered investment company that (i) would have been excluded from the definition of the term “commodity pool operator” under CFTC Rule 4.5 prior to the April 24, 2012 amendments to such rule and
(ii) was launched after July 10, 2012. While the no-action relief is effective through December 31, 2012, the Adviser will not be subject to the CFTC’s recordkeeping, reporting and disclosure requirements with respect to the Fund
until the effectiveness of the CFTC’s proposed harmonization rules with respect to registered investment companies. It is unclear in what form the final harmonization rules will be adopted and what impact they will have on the Fund. While
compliance with such rules may increase the Fund’s expenses, the Adviser does not expect that such compliance will materially adversely affect the ability of the Fund to achieve its objective.
Commodities Risk:
Exposure to the commodities markets may subject the Fund to greater
volatility
than investments in traditional
securities. The value of commodity-linked derivative investments may be affected by changes in overall market movements, commodity index
volatility
, changes in interest rates, or sectors affecting a particular industry or commodity, such as
drought, floods, weather, embargoes, tariffs and international economic, political and regulatory developments.
Commodity-linked notes
and other related instruments purchased by the Fund are generally privately negotiated debt obligations where the principal paid to the Fund by the counterparty at maturity or redemption is determined by reference to the performance of a specific
reference commodity or group of commodities or commodity index. The principal amount payable upon maturity or redemption may fluctuate, depending upon changes in the value of the reference commodity or index. The terms of a commodity-linked note may
provide that, in certain circumstances where the value of the reference commodity or index substantially declines, no principal is due to
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the buyer of the commodity-linked note at maturity and, therefore, may result in a total loss of invested capital by the Fund. The principal payments that may be made on a commodity-linked note
may vary widely, depending on a variety of factors, including the volatility of the reference commodity or index.
Counterparty
Risk:
In general, a derivative contract typically involves leverage,
i.e
., it provides exposure to potential gain or loss from a change in the level of the market price of a security, currency or commodity (or a basket or index) in a
notional amount that exceeds the amount of cash or assets required to establish or maintain the derivative contract. Many of these derivative contracts will be privately negotiated in the over-the-counter market. These contracts also involve
exposure to credit risk, since contract performance depends in part on the financial condition of the counterparty. If a privately negotiated over-the-counter contract calls for payments by the Fund, the Fund must be prepared to make such payments
when due. In addition, if a counterparty’s creditworthiness declines, the Fund may not receive payments owed under the contract, or such payments may be delayed under such circumstances and the value of agreements with such counterparty can be
expected to decline, potentially resulting in losses by the Fund.
Credit Risk:
Credit risk refers to the possibility that the
issuer of the security will not be able to make principal and interest payments when due. Changes in an issuer’s credit rating or the market’s perception of an issuer’s creditworthiness may also affect the value of the Fund’s
investment in that issuer. Securities rated in the four highest categories by the rating agencies are considered investment grade but they may also have some speculative characteristics. Investment grade ratings do not guarantee that bonds will not
lose value.
Currency Risk:
The risk that changes in currency exchange rates will negatively affect securities denominated in,
and/or receiving revenues in, foreign currencies. The liquidity and trading value of foreign currencies could be affected by global economic factors, such as inflation, interest rate levels, and trade balances among countries, as well as the actions
of sovereign governments and central banks. Adverse changes in currency exchange rates (relative to the U.S. dollar) may erode or reverse any potential gains from the Fund’s investments in securities denominated in a foreign currency or may
widen existing losses. The Fund’s net currency positions may expose it to risks independent of its securities positions.
Derivatives Risk:
In general, a derivative contract typically involves leverage, i.e., it provides exposure to potential gain or loss from a
change in the level of the market price of a security, currency or commodity (or a basket or index) in a notional amount that exceeds the amount of cash or assets required to establish or maintain the derivative contract.
The use of
derivative instruments also exposes the Fund to additional risks and transaction costs. These instruments come in many varieties and have a wide range of potential risks and rewards, and may include futures contracts, options on futures contracts,
options (both written and purchased), swaps, and forward currency exchange contracts. A risk of the Fund’s use of derivatives is that the fluctuations in their values may not correlate perfectly with the overall securities markets.
Emerging Market Risk:
The Fund intends to have exposure to emerging markets. Emerging markets are riskier than more developed markets because
they tend to develop unevenly and may never fully develop. Investments in emerging markets may be considered speculative. Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affect returns to U.S.
investors. In addition, many emerging securities markets have far lower trading volumes and less liquidity than developed markets.
Foreign Investments Risk:
Foreign investments often involve special risks not present in U.S. investments that can increase the chances that
the Fund will lose money. These risks include:
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The Fund generally holds its foreign instruments and cash in foreign banks and securities depositories, which may be recently organized or new to the foreign
custody business and may be subject to only limited or no regulatory oversight.
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Changes in foreign currency exchange rates can affect the value of the Fund’s portfolio.
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The economies of certain foreign markets may not compare favorably with the economy of the United States with respect to such issues as growth of gross
national product, reinvestment of capital, resources and balance of payments position.
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The governments of certain countries may prohibit or impose substantial restrictions on foreign investments in their capital markets or in certain industries.
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Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities to the same extent as does the United States and
may not have laws to protect investors that are comparable to U.S. securities laws.
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Settlement and clearance procedures in certain foreign markets may result in delays in payment for or delivery of investments not typically associated with
settlement and clearance of U.S. investments.
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Forward and Futures Contract Risk:
The successful use of forward
and futures contracts draws upon the
Adviser’s
skill and experience with respect to such instruments and are subject to special risk considerations. The primary risks associated with the use of futures contracts are (a) the
imperfect correlation between the change in market value of the instruments held by the Fund and the price of the forward or futures contract; (b) possible lack of a liquid secondary market for a forward or futures contract and the resulting
inability to close a forward or futures contract when desired; (c) losses caused by unanticipated market movements, which are potentially unlimited; (d) the
Adviser’s
inability to predict correctly the direction of securities
prices, interest rates, currency exchange rates and other economic factors; (e) the possibility that the counterparty will default in the performance of its obligations; and (f) if the Fund has insufficient cash, it may have to sell
securities from its portfolio to meet daily variation margin requirements, and the Fund may have to sell securities at a time when it may be disadvantageous to do so.
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Hedging
Transactions Risk:
The
Adviser
from time to time employs various hedging techniques. The success of the Fund’s hedging strategy will be subject to the
Adviser’s
ability to correctly assess the degree of correlation
between the performance of the instruments used in the hedging strategy and the performance of the investments in the portfolio being hedged. Since the characteristics of many securities change as markets change or time passes, the success of the
Fund’s hedging strategy will also be subject to the
Adviser’s
ability to continually recalculate, readjust, and execute hedges in an efficient and timely manner. For a variety of reasons, the
Adviser
may not seek to establish
a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Such imperfect correlation may prevent the Fund from achieving the intended hedge or expose the Fund to risk of loss. In addition, it is not possible to
hedge fully or perfectly against any risk, and hedging entails its own costs.
High Portfolio Turnover Risk:
The risk that when
investing on a shorter-term basis, the Fund may as a result trade more frequently and incur higher levels of brokerage fees and commissions, and cause higher levels of current tax liability to shareholders in the Fund.
Interest Rate Risk:
Interest rate risk is the risk that prices of fixed income securities generally increase when interest rates decline and
decrease when interest rates increase. The Fund may lose money if short term or long term interest rates rise sharply or otherwise change in a manner not anticipated by the
Adviser
.
Investment in Other Investment Companies Risk:
As with other investments, investments in other investment companies, including exchange
traded funds (“ETFs”), are subject to market and selection risk. In addition, if the Fund acquires shares of investment companies, shareholders bear both their proportionate share of expenses in the Fund (including management and advisory
fees) and, indirectly, the expenses of the investment companies. The Fund may invest in money market
mutual funds
. An investment in a money market
mutual fund
is not insured or guaranteed by a Federal Deposit Insurance Corporation or
any other government agency. Although such funds seek to preserve the value of the Fund’s investment at $1.00 per share, it is possible to lose money by investing in a money market
mutual fund
.
Leverage Risk:
As part of the Fund’s principal investment strategy, the Fund will make investments in futures contracts, forward
contracts, swap agreements and other derivative instruments. The futures contracts, forward contracts, swap agreements and certain other derivatives provide the economic effect of financial leverage by creating additional investment exposure, as
well as the potential for greater loss. If the Fund uses leverage through activities such as borrowing, entering into short sales, purchasing securities on margin or on a “when-issued” basis or purchasing derivative instruments in an
effort to increase its returns, the Fund has the risk of magnified capital losses that occur when losses affect an asset base, enlarged by borrowings or the creation of liabilities, that exceeds the net assets of the Fund. The net asset value of the
Fund employing leverage will be more volatile and sensitive to market movements. Leverage may involve the creation of a liability that requires the Fund to pay interest.
Manager Risk:
If the Fund’s portfolio managers make poor investment decisions, it will negatively affect the Fund’s investment performance.
Market Risk:
Market risk is the risk that the markets on which the Fund’s investments trade will increase or decrease in value. Prices
may fluctuate widely over short or extended periods in response to company, market or economic news. Markets also tend to move in cycles, with periods of rising and falling prices. If there is a general decline in the securities and other markets,
your investment in the Fund may lose value, regardless of the individual results of the securities and other instruments in which the Fund invests.
Model and Data Risk:
Given the complexity of the investments and strategies of the Fund, the
Adviser
relies heavily on quantitative models (both proprietary models developed by the
Adviser
, and
those supplied by third parties) and information and data supplied by third parties (“Models and Data”). Models and Data are used to construct sets of transactions and investments, to provide risk management insights, and to assist in
hedging the Fund’s investments.
When Models and Data prove to be incorrect or incomplete, any decisions made in reliance thereon
expose the Fund to potential risks. Similarly, any hedging based on faulty Models and Data may prove to be unsuccessful. Some of the models used by the
Adviser
for the Fund are predictive in nature. The use of predictive models has inherent
risks. Because predictive models are usually constructed based on historical data supplied by third parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data.
All models rely on correct market data inputs. If incorrect market data is entered into even a well-founded model, the resulting information will be
incorrect. However, even if market data is input correctly, “model prices” will often differ substantially from market prices, especially for securities with complex characteristics, such as derivative securities.
Momentum Style Risk:
Investing in securities with positive
momentum
entails investing in securities that have had above-average recent
returns. These securities may be more volatile than a broad cross-section of securities. In addition, there may be periods when the
momentum
style is out of favor, and during which the investment performance of a Fund using a
momentum
strategy may suffer.
New Fund Risk:
The Fund is newly-formed. Accordingly, investors in the Fund bear the risk that the Fund
may not be successful in implementing its investment strategy, and may not employ a successful investment strategy, any of which could result in the Fund being liquidated at any time without shareholder approval and at a time that may not be
favorable for all shareholders. Such a liquidation could have negative tax consequences for shareholders.
Non-Diversified Status
Risk:
The Fund is a non-diversified fund. Because the Fund may invest in securities of a smaller number of issuers, the Fund may be more exposed to the risks associated with and developments affecting an individual issuer than a fund that
invests more widely, which may, therefore, have a greater impact on the Fund’s performance.
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Repurchase Agreements Risk:
The Fund may invest in repurchase agreements. When entering into a repurchase agreement, the Fund essentially
makes a short-term loan to a qualified bank or broker-dealer. The Fund buys securities that the seller has agreed to buy back at a specified time and at a set price that includes interest. There is a risk that the seller will be unable to buy back
the securities at the time required and the Fund could experience delays in recovering amounts owed to it.
Reverse Repurchase
Agreements Risk:
Reverse repurchase agreements involve the sale of securities held by the Fund with an agreement to repurchase the securities at an agreed-upon price, date and interest payment. Reverse repurchase agreements involve the risk that
the other party may fail to return the securities in a timely manner or at all. The Fund could lose money if it is unable to recover the securities and the value of the collateral held by the Fund, including the value of the investments made with
cash collateral, is less than the value of securities. These events could also trigger adverse tax consequences to the Fund. Furthermore, reverse repurchase agreements involve the risks that (i) the interest income earned in the investment
of the proceeds will be less than the interest expense, (ii) the market value of the securities retained in lieu of sale by a Fund may decline below the price of the securities the Fund has sold but is obligated to repurchase, and
(iii) the market value of the securities sold will decline below the price at which the Fund is required to repurchase them. In addition, the use of reverse repurchase agreements may be regarded as leveraging.
Short Sale Risk:
The Fund may take a short position in a derivative instrument, such as a future, forward or swap. A short position on a
derivative instrument involves the risk of a theoretically unlimited increase in the value of the underlying instrument. Short sales also involve transaction and other costs that will reduce potential Fund gains and increase potential Fund losses.
Sovereign Debt Risk:
These investments are subject to the risk that a governmental entity may delay or refuse to pay interest or
repay principal on its sovereign debt, due, for example, to cash flow problems, insufficient foreign currency reserves, political considerations, the relative size of the governmental entity’s debt position in relation to the economy or the
failure to put in place economic reforms required by the International Monetary Fund or other multilateral agencies. If a governmental entity defaults, it may ask for more time in which to pay or for further loans. There is no legal process for
collecting sovereign debt that a government does not pay nor are there bankruptcy proceedings through which all or part of the sovereign debt that a governmental entity has not repaid may be collected.
Subsidiary Risk:
By investing in the
Subsidiary
, the Fund is indirectly exposed to the risks associated with the
Subsidiary’s
investments. The commodity-related instruments held by the
Subsidiary
are generally similar to those that are permitted to be held by the Fund and are subject to the same risks that apply to similar investments if held directly by the
Fund (see “Commodities Risk” above). There can be no assurance that the investment objective of the
Subsidiary
will be achieved. The
Subsidiary
is not registered under the
1940 Act
, and, unless otherwise noted in this
prospectus, is not subject to all the investor protections of the
1940 Act
. However, the Fund wholly owns and controls the
Subsidiary
, and the Fund and the
Subsidiary
are both managed by the
Adviser
, making it unlikely
that the
Subsidiary
will take action contrary to the interests of the Fund and its shareholders. The
Board of Trustees
has oversight responsibility for the investment activities of the Fund, including its investment in the
Subsidiary
, and the Fund’s role as sole shareholder of the
Subsidiary
. To the extent applicable to the investment activities of the
Subsidiary,
the
Subsidiary
will be subject to the same investment restrictions and
limitations, and follow the same compliance policies and procedures, as the Fund. Unlike the Fund, the
Subsidiary
will not seek to qualify as a regulated investment company under Subchapter M of the
Code
. Changes in the laws of the
United States and/or the Cayman Islands could result in the inability of the Fund and/or the
Subsidiary
to operate as described in this prospectus and the SAI and could adversely affect the Fund.
Swap Agreements Risk:
Swap agreements involve the risk that the party with whom the Fund has entered into the swap will default on its
obligation to pay the Fund and the risk that the Fund will not be able to meet its obligations to pay the other party to the agreement.
Tax Risk:
In order for the Fund to qualify as a regulated investment company under Subchapter M of the
Code
, the Fund must derive at
least 90 percent of its gross income each taxable year from qualifying income, which is described in more detail in the SAI. Income from certain commodity-linked derivative instruments in which the Fund invests is not considered qualifying income.
The Fund will therefore restrict its income from direct investments in commodity-linked derivative instruments that do not generate qualifying income, such as commodity-linked swaps, to a maximum of 10 percent of its gross income.
The Fund’s investment in the
Subsidiary
is expected to provide the Fund with exposure to the commodities markets within the limitations
of the federal tax requirements of Subchapter M. The Fund intends to request a private letter ruling from the Internal Revenue Service confirming that the annual net profit, if any, realized by the
Subsidiary
and imputed for income tax
purposes to the Fund should constitute “qualifying income” for purposes of the Fund remaining qualified as a regulated investment company for U.S. federal income tax purposes. The Internal Revenue Service has indicated that the granting of
private letter rulings, like the one requested by the Fund, is currently suspended, pending further internal discussion. As a result, there can be no assurance that the Internal Revenue Service will grant the private letter ruling requested. If the
Internal Revenue Service does not grant the private letter ruling request, there is a risk that the Internal Revenue Service could assert that the annual net profit realized by each Subsidiary and imputed for income tax purposes to the Fund will not
be considered “qualifying income” for purposes of the Fund remaining qualified as a regulated investment company for U.S. federal income tax purposes. Changes in the laws of the United States and/or the Cayman Islands could result in the
inability of the Fund and/or its
Subsidiary
to operate as described in this prospectus and the SAI and could adversely affect the Fund. For example, the Cayman Islands does not currently impose any income, corporate or capital gains tax,
estate duty, inheritance tax, gift tax or withholding tax on each
Subsidiary
. If Cayman Islands law changes such that each
Subsidiary
must pay Cayman Islands taxes, Fund shareholders would likely suffer decreased investment returns.
TIPS and Inflation-Linked Bonds Risk:
The value of inflation-protected securities generally fluctuates in response to changes in
real interest rates, which are in turn tied to the relationship between nominal interest rates and the rate of inflation. Therefore, if inflation were to rise at a faster rate than nominal interest rates, real interest rates might decline, leading
to an increase in the value of inflation-
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protected 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-protected
securities. If the Fund purchases inflation-protected securities in the secondary market whose principal values have been adjusted upward due to inflation since issuance, the Fund may experience a loss if there is a subsequent period of deflation.
The inflation protected securities markets are generally much smaller and less liquid than the nominal bonds from the same issuers and as such can suffer losses during times of economic stress or illiquidity.
U.S. Government Securities Risk:
Treasury obligations may differ in their interest rates, maturities, times of issuance and other
characteristics. Obligations of U.S. Government agencies and authorities are supported by varying degrees of credit but generally are not backed by the full faith and credit of the U.S. Government. No assurance can be given that the U.S. Government
will provide financial support to its agencies and authorities if it is not obligated by law to do so. Certain of the government agency securities the Fund may purchase are backed only by the credit of the government agency and not by full faith and
credit of the United States.
Value Style Risk:
Investing in “value” stocks presents the risk that the stocks may never
reach what the
Adviser
believes are their full market values, either because the market fails to recognize what the
Adviser
considers to be the companies’ true business values or because the
Adviser
misjudged those values.
In addition, value stocks may fall out of favor with investors and underperform growth stocks during given periods.
Volatility
Risk:
The Fund may have investments that appreciate or decrease significantly in value over short periods of time. This may cause the Fund’s net asset value per share to experience significant increases or declines in value over short
periods of time.