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Statement of Additional Information
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The Statement of Additional Information contains additional and more detailed information about the Fund, and is considered to be a part of this Prospectus. Additional information about the Fund's investments is available in the Fund's annual and semi-annual reports to shareholders. In the Fund's annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year.
There are three ways to get a copy of these documents.
1. Call or write for one, and a copy will be sent without charge.
Encompass Fund
c/o Mutual Shareholder Services
8000 Town Centre Drive, Suite 400
Broadview Heights, Ohio 44147
1-888-463-3957
You may also obtain free copies of the Fund’s annual and semi-annual reports, when avail-
able, and the Statement of Additional Information through the Fund’s internet website at
www.encompassfunds.com.
2. Write the Public Reference Section of the Securities and Exchange Commission ("SEC") and
ask them to mail you a copy. The SEC charges a fee for this service. You can also review
and copy information about the Fund in person at the SEC Public Reference Room in
Washington D.C. Information on the operation of the Public Reference Room may be
obtained by calling the number below.
Public Reference Section of the SEC
100 F Street NE
Washington D.C. 20549-0102
1-202-551-8090
Copies of these documents may also be obtained, after paying a duplication fee, by electron-
ic request at the following e-mail address: publicinfo@sec.gov
3. Go to the SEC's website (www.sec.gov) and download a text-only version. No dealer, sales-
man, or other person has been authorized to give any information or to make any represen-
tations, other than those contained in this Prospectus, and, if given or made, such other
information or representations must not be relied upon as having been authorized by the
Funds or the Adviser. This Prospectus does not constitute an offering in any state in which
such offering may not lawfully be made.
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Encompass Fund
1700 California St., Suite 335
San Francisco, CA 94109
Toll Free 888-463-3957
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SEC file number 811-21885
ENCOMPASS FUND (ENCPX)
STATEMENT OF ADDITIONAL INFORMATION
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This Statement of Additional Information ("SAI") is not a prospectus. It should be read in conjunction with the Prospectus of the Encompass Fund dated September 27, 2013. The Fund’s Annual Report to Shareholders, as filed with the Securities and Exchange Commission on July 30, 2013, has been incorporated by reference into this SAI. A free copy of the Prospectus and the Fund’s shareholder report can be obtained by writing the Transfer Agent at 8000 Town Centre Drive, Suite 400, Broadview Heights, OH 44147 or by calling 1-888-463-3957.
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TABLE OF CONTENTS
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DESCRIPTION OF THE TRUST AND THE FUND
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1
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ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK CONSIDERATIONS
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1
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INVESTMENT LIMITATIONS
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6
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THE INVESTMENT ADVISER
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7
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TRUSTEES AND OFFICERS
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8
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BOARD INTEREST IN THE FUND
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11
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THE PORTFOLIO MANAGERS
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12
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COMPENSATION
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13
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CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
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13
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AUDIT COMMITTEE
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13
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PORTFOLIO TRANSACTIONS AND BROKERAGE
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14
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ADDITIONAL TAX INFORMATION
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15
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PRICING OF FUND SHARES
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17
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PURCHASES AND SALES THROUGH BROKER DEALERS
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17
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ANTI-MONEY LAUNDERING PROGRAM
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17
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CUSTODIAN
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17
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FUND SERVICES
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18
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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18
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DISCLOSURE OF PORTFOLIO HOLDINGS
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18
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PROXY VOTING POLICIES
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19
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FINANCIAL STATEMENTS
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20
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DESCRIPTION OF THE TRUST AND THE FUND
Encompass Fund (the "Fund") was organized as a non-diversified series of Encompass Funds (the "Trust") on March 22, 2006 and commenced operations on June 30, 2006. The Trust is an open-end investment company established
under the laws of Ohio by an Agreement and Declaration of Trust dated March 22, 2006 (the "Trust Agreement"). The Trust Agreement permits the Trustees to issue an unlimited number of shares of beneficial interest of separate series without par
value. Encompass Fund is currently the only series authorized by the Trustees. The investment adviser to the Fund is Brick Asset Management, Inc. (the "Adviser").
The Fund does not issue share certificates. All shares are held in non-certificate form registered on the books of the Fund and the Fund's transfer agent for the account of the shareholder. Each share of a series
represents an equal proportionate interest in the assets and liabilities belonging to that series with each other share of that series and is entitled to such dividends and distributions out of income belonging to the series as are declared by the
Trustees. The shares do not have cumulative voting rights or any preemptive or conversion rights, and the Trustees have the authority from time to time to divide or combine the shares of any series into a greater or lesser number of shares of that
series so long as the proportionate beneficial interest in the assets belonging to that series and the rights of shares of any other series are in no way affected. In case of any liquidation of a series, the holders of shares of the series being
liquidated will be entitled to receive as a class a distribution out of the assets, net of the liabilities, belonging to that series. Expenses attributable to any series are borne by that series. Any general expenses of the Trust not readily
identifiable as belonging to a particular series are allocated by or under the direction of the Trustees in such manner as the Trustees determine to be fair and equitable. No shareholder is liable to further calls or to assessment by the Trust
without his or her express consent.
For information concerning the purchase and redemption of shares of the Fund, see "How to Buy and Sell Shares" in the Prospectus. For a description of the methods used to determine the share price and value of the
Fund's assets, see "Pricing of Fund Shares" in the Prospectus and in this Statement of Additional Information.
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK CONSIDERATIONS
This section contains a discussion of some of the investments the Fund may make and some of the techniques it may use.
A. Equity Securities. The Fund may invest in equity securities such as common stock, preferred stock, convertible securities, rights and warrants. Common stocks, the most familiar type, represent an equity (ownership)
interest in a corporation. Warrants are options to purchase equity securities at a specified price for a specific time period. Rights are similar to warrants, but normally have a short duration and are distributed by the issuer to its shareholders.
Although equity securities have a history of long-term growth in value, their prices fluctuate based on changes in a company's financial condition and on overall market and economic conditions.
Equity securities also include SPDRs (S&P Depositary Receipts, known as “Spiders”), DIAMONDS, PowerShares QQQ and a number of other exchange traded funds. SPDRs represent ownership in the SPDR Trust, a
unit investment trust that holds a portfolio of common stocks that closely tracks the price performance and dividend yield of the S&P 500 Composite Price Index. SPDRs trade on the American Stock Exchange under the symbol SPY. A MidCap SPDR is
similar to a SPDR except that it tracks the performance of the S&P MidCap 400 Index and trades on the American Stock Exchange under the symbol MDY. DIAMONDS represent ownership in the DIAMONDS Trust, a unit investment trust that serves as an
index to the Dow Jones Industrial Average (the “Dow”) in that its holding consists of the 30 component stocks of the Dow. DIAMONDS trade on the American Stock Exchange under the symbol DIA. PowerShares QQQ (NASDAQ-100 Index Tracking Stock)
represent ownership in the NASDAQ-100 Trust, a unit investment trust that attempts to closely track the price and yield performance of the NASDAQ 100 Index by holding shares of all the companies in the Index. QQQQs trade on the Nasdaq under the
symbol QQQQ. The Fund may also invest in a variety of other exchange traded funds, including, but not limited to, iShares, HOLDRs, Fidelity Select Portfolios, Select Sector SPDRs, Fortune e-50, Fortune 500 and streetTRACKS. To the extent the Fund
invests in a sector product, the Fund is subject to the risks associated with that sector. Additionally, the Fund may invest in new exchange traded shares as they become available.
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B. Foreign Securities. The Fund may invest in foreign equity securities including American Depositary Receipts (“ADRs”). ADRs are certificates evidencing ownership of shares of a foreign-based issuer held in
trust by a bank or similar financial institution. They are alternatives to the direct purchase of the underlying securities in their national markets and currencies. ADRs are subject to risks similar to those associated with direct investment in
foreign securities.
Foreign investments can involve significant risks in addition to the risks inherent in U.S. investments. The value of securities denominated in or indexed to foreign currencies, and of dividends and interest from such
securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets, and prices on some foreign markets can
be highly volatile. Many foreign countries lack uniform accounting and disclosure standards comparable to those applicable to U.S. companies, and it may be more difficult to obtain reliable information regarding an issuer’s financial condition
and operations. In addition, the costs of foreign investing, including withholding taxes, brokerage commissions, and custodial costs, generally are higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets. Foreign issuers, brokers, and securities markets may be subject to less government supervision. Foreign security trading practices, including
those involving the release of assets in advance of payment, may invoke increased risks in the event of a failed trade or the insolvency of a broker-dealer, and may involve substantial delays. It also may be difficult to enforce legal rights in
foreign countries.
Investing abroad also involves different political and economic risks. Foreign investments may be affected by actions of foreign governments adverse to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation, restrictions on U.S. investment or on the ability to repatriate assets or convert currency into U.S. dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises. Investments in foreign countries also involve a risk of local political, economic or social instability, military action or unrest, or adverse diplomatic developments. There
is no assurance that an advisor will be able to anticipate or counter these potential events and their impacts on the Fund’s share price.
The considerations noted above generally are intensified for investments in developing countries. Developing countries may have relatively unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities.
C. Short Sales. The Fund may sell a security short in anticipation of a decline in the market value of the security. When the Fund engages in a short sale, it sells a security which it does not own. To complete the
transaction, the Fund must borrow the security in order to deliver it to the buyer. The Fund must replace the borrowed security by purchasing it at the market price at the time of replacement, which may be more or less than the price at which the
Fund sold the security. The Fund will incur a loss as a result of the short sale if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund will realize a profit
if the security declines in price between those dates. Any potential gain is limited to the price at which the Fund sold the security short, and any potential loss is unlimited in size.
In connection with its short sales, the Fund will be required to maintain a segregated account with the Fund's custodian of cash or high grade liquid assets equal to (i) the greater of the current market value of the
securities sold short or the market value of such securities at the time they were sold short, less (ii) any collateral deposited with its broker (not including the proceeds from the short sales). Depending on arrangements made with the broker or
custodian, the Fund may not receive any payments (including interest) on collateral deposited with the broker or custodian.
D. Securities Lending. The Fund may make long and short term loans of its portfolio securities to parties such as broker-dealers, banks, or institutional investors. Securities lending allows a Fund to retain ownership
of the securities loaned and, at the same time, to earn additional income. Since there may be delays in the recovery of loaned securities, or even a loss of rights in collateral supplied, should the borrower fail financially, loans will be made only
to parties whose creditworthiness has been reviewed and deemed satisfactory by the Adviser.
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Furthermore, they will only be made if, in the judgment of the Adviser, the consideration to be earned from such loans would justify the risk.
The Adviser understands that it is the current view of the staff of the Securities and Exchange Commission (the "SEC") that a Fund may engage in loan transactions only under the following conditions: (1) a Fund must
receive 100% collateral in the form of cash, cash equivalents (e.g., U.S. Treasury bills or notes) or other high grade liquid debt instruments from the borrower; (2) the borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of the collateral; (3) after giving notice, the Fund must be able to terminate the loan at any time; (4) the Fund must receive reasonable interest on the loan or a flat fee from
the borrower, as well as amounts equivalent to any dividends, interest, or other distributions on the securities loaned and to any increase in market value; (5) the Fund may pay only reasonable custodian fees in connection with the loan; and (6) the
Board of Trustees must be able to vote proxies on the securities loaned, either by terminating the loan or by entering into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in any security in which the Fund is authorized to invest. Investing this cash subjects that investment, as well as the security loaned, to market forces (i.e.,
capital appreciation or depreciation).
E. Restricted and Illiquid Securities. The portfolio of the Fund may contain illiquid securities. Illiquid securities generally include securities which cannot be disposed of promptly and in the ordinary course of
business without taking a reduced price. Securities may be illiquid due to contractual or legal restrictions on resale or lack of a ready market. The following securities are considered to be illiquid: repurchase agreements and reverse repurchase
agreements maturing in more than seven days, nonpublicly offered securities and restricted securities. Restricted securities are securities the resale of which is subject to legal or contractual restrictions. Restricted securities may be sold only
in privately negotiated transactions, in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 or pursuant to Rule 144 or Rule 144A promulgated under such Act. Where registration is required,
the Fund may be obligated to pay all or part of the registration expense, and a considerable period may elapse between the time of the decision to sell and the time such security may be sold under an effective registration statement. If during such
a period adverse market conditions were to develop, a Fund might obtain a less favorable price than the price it could have obtained when it decided to sell. The Fund will not invest more than 15% of its net assets in illiquid securities.
With respect to Rule 144A securities, these restricted securities are treated as exempt from the 15% limit on illiquid securities, provided that a dealer or institutional trading market in such securities exists. The
Fund will not, however, invest more than 10% of its net assets in Rule 144A securities. Under the supervision of the Board of Trustees, the Adviser determines the liquidity of restricted securities and, through reports from the Adviser, the Board of
Trustees will monitor trading activity in restricted securities. If institutional trading in restricted securities were to decline, the liquidity of a Fund could be adversely affected.
F. U.S. Government Securities. U.S. government securities are high-quality debt securities issued or guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S. government. Not all U.S. government
securities are backed by the full faith and credit of, or guaranteed by, the United States Treasury. For example, securities issued by the Farm Credit Banks or by the Federal National Mortgage Association are supported by the instrumentality's right
to borrow money from the U.S. Treasury under certain circumstances. However, securities issued by other agencies or instrumentalities are supported only by the credit of the entity that issued them.
G. Corporate Debt Securities. Corporate debt securities are long and short term debt obligations issued by companies (such as publicly issued and privately placed bonds, notes and commercial paper). The Adviser
considers corporate debt securities to be of investment grade quality if they are rated BBB or higher by S&P or Baa or higher by Moody's, or if unrated, determined by the Adviser to be of comparable quality. Investment grade dept securities
generally have adequate to strong protection of principal and interest payments. In the lower end of this category, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay
principal than in higher rated categories.
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H. Fixed Income Securities. Under normal market conditions, the Fund may invest in all types of fixed income securities. The Fund may also purchase fixed income securities on a when-issued, delayed delivery, or forward
commitment basis.
Fixed income securities are subject to credit risk and interest rate risk. Credit risk is the risk that the Fund could lose money if an issuer of a fixed income security cannot meet its financial obligations or goes
bankrupt. Interest rate risk is the risk that the Fund's investments in fixed income securities may fall when interest rates rise.
Investments in high-yield bonds are considered to be more speculative than higher quality fixed income securities. They are more susceptible to credit risk than investment-grade securities, especially during periods of
economic uncertainty or economic downturns. The value of lower quality securities are subject to greater volatility and are generally more dependent on the ability of the issuer to meet interest and principal payments than higher quality securities.
Issuers of high-yield securities may not be as strong financially as those issuing bonds with higher credit ratings.
I. Financial Services Industry Obligations. The Fund may invest in each of the following obligations of the financial services industry:
(1) Certificate of Deposit. Certificates of deposit are negotiable certificates evidencing the indebtedness of a commercial bank or a savings and loan association to repay funds deposited with it for a definite period
of time (usually from fourteen days to one year) at a stated or variable interest rate.
(2) Time Deposits. Time deposits are non-negotiable deposits maintained in a banking institution or a savings and loan association for a specified period of time at a stated interest rate.
(3) Bankers' Acceptances. Bankers' acceptances are credit instruments evidencing the obligation of a bank to pay a draft which has been drawn on it by a customer, which instruments reflect the obligation both of the
bank and of the drawer to pay the face amount of the instrument upon maturity.
J. Repurchase Agreements. The Fund may invest in repurchase agreements fully collateralized by obligations issued by the U.S. government or agencies of the U.S. government ("U.S. Government Obligations"). A repurchase
agreement is a short term investment in which the purchaser (i.e., a Fund) acquires ownership of a U.S. Government Obligation (which may be of any maturity) and the seller agrees to repurchase the obligation at a future time at a set price, thereby
determining the yield during the purchaser's holding period (usually not more than 7 days from the date of purchase). Any repurchase transaction in which a Fund engages will require full collateralization of the seller's obligation during the entire
term of the repurchase agreement. In the event of a bankruptcy or other default of the seller, a Fund could experience both delays in liquidating the underlying security and losses in value. However, the Fund intends to enter into repurchase
agreements only with the custodian, other banks with assets of $1 billion or more and registered securities dealers determined by the Adviser to be creditworthy. The Adviser monitors the creditworthiness of the banks and securities dealers with
which a Fund engages in repurchase transactions.
K. Borrowing. The Fund is permitted to borrow money up to one-third of the value of its total assets. Borrowing is a speculative technique that increases both investment opportunity and a Fund's ability to achieve
greater diversification. However, it also increases investment risk. Because the Fund's investments will fluctuate in value, whereas the interest obligations on borrowed funds may be fixed, during times of borrowing, the Fund's net asset value may
tend to increase more when its investments increase in value, and decrease more when its investments decrease in value. In addition, interest costs on borrowings may fluctuate with changing market interest rates and may partially offset or exceed
the return earned on the borrowed funds. Also, during times of borrowing under adverse market conditions, the Fund might have to sell portfolio securities to meet interest or principal payments at a time when fundamental investment considerations
would not favor such sales.
L. Options Transactions. The Fund may engage in option transactions involving individual securities and stock indexes. An option involves either: (a) the right or the obligation to buy or sell a specific instrument at a
specific price until the expiration date of the option; or (b) the right to receive payments or the obligation to make payments representing the difference between the closing price of a stock index and the exercise price of the option expressed in
dollars times a specified multiple until the expiration date of the option. Options are sold (written) on securities
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and stock indexes. The purchaser of an option on a security pays the seller (the writer) a premium for the right granted but is not obligated to buy or sell the underlying security. The purchaser of an option on a stock index pays the seller a
premium for the right granted, and in return the seller of such an option is obligated to make the payment. A writer of an option may terminate the obligation prior to expiration of the option by making an offsetting purchase of an identical option.
Options are traded on organized exchanges and in the over-the-counter market. To cover the potential obligations involved in writing options, a Fund will either: (a) own the underlying security, or in the case of an option on a market index, will
hold a portfolio of stocks substantially replicating the movement of the index; or (b) the Fund will segregate with the custodian high grade liquid debt obligations sufficient to purchase the underlying security or equal to the market value of the
stock index option, marked to market daily.
The purchase and writing of options requires additional skills and techniques beyond normal portfolio management, and involves certain risks. The purchase of options limits a Fund's potential loss to the amount of the
premium paid and can afford the Fund the opportunity to profit from favorable movements in the price of an underlying security to a greater extent than if transactions were effected in the security directly. However, the purchase of an option could
result in the Fund losing a greater percentage of its investment than if the transaction were effected directly. When the Fund writes a call option, it will receive a premium, but it will give up the opportunity to profit from a price increase in
the underlying security above the exercise price as long as its obligation as a writer continues, and it will retain the risk of loss should the price of the security decline. When the Fund writes a put option, it will assume the risk that the price
of the underlying security or instrument will fall below the exercise price, in which case the Fund may be required to purchase the security or instrument at a higher price than the market price of the security or instrument. In addition, there can
be no assurance that the Fund can effect a closing transaction on a particular option it has written. Further, the total premium paid for any option may be lost if the Fund does not exercise the option or, in the case of over-the-counter options,
the writer does not perform its obligations.
M. Convertible Securities. The Fund may invest in convertible securities, including debt obligations and preferred stock of an issuer which may be exchanged for a predetermined price (the conversion price) into the
common stock of the issuer. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality.
Many convertible securities are issued with a "call" feature that allows the issuer of the security to choose when to redeem the security. If a convertible security held by the Fund is called for redemption, the Fund
will be required to redeem the security, convert it into the underlying common stock, or sell it to a third party at a time that may be unfavorable to the Fund. Conversely, certain convertible debt securities may provide a "put option" which
entitles the Fund to make the issuer redeem the security at a premium over the stated principal amount of the debt security. The conversion value of a convertible security tends to increase as the price of the underlying common stock increases, and
decrease as the price of the underlying common stock decreases. There is the risk that the value of the underlying common stock of the Fund's convertible security investments may fall below the price at which the Fund can exchange the security for
the common stock.
N. Real Estate Investment Trusts. The Fund may invest in the securities of real estate investment trusts (REITs). REITs offer investors greater liquidity and diversification than direct ownership of properties. A REIT
is a corporation or business trust that invests substantially all of its assets in interests in real estate. Equity REITs are those which purchase or lease land and buildings and generate income primarily from rental income. Equity REITs may also
realize capital gains (or losses) when selling property that has appreciated (or depreciated) in value. Mortgage REITs are those that invest in real estate mortgages and generate income primarily from interest payments on mortgage loans. Hybrid
REITs generally invest in both real property and mortgages. Unlike corporations, REITs do not pay income taxes if they meet certain IRS requirements. Real estate related equity securities also include those insured by real estate developers,
companies with substantial real estate holdings (for investment or as part of their operations), as well as companies whose products and services are directly related to the real estate industry, such as building supply manufacturers, mortgage
lenders or mortgage servicing companies. Like any investment in real estate, though, a REITs performance depends on several factors, such as its ability to find tenants, renew leases and finance property purchases and renovations. Other risks
associated with REIT investments include the fact that equity and mortgage REITs are dependent upon specialized management skills and are not fully diversified. These characteristics subject REITs to the risks associated with financing a limited
number of projects.
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They are also subject to heavy cash flow dependency, defaults by borrowers, and self-liquidation. Additionally, equity REITs may be affected by any changes in the value of the underlying property owned by the trusts, and mortgage REITs may be
affected by the quality of any credit extended. By investing in REITs indirectly through a Fund, a shareholder bears not only a proportionate share of the expenses of the Fund, but also may indirectly bear similar expenses of some of the REITs in
which it invests.
INVESTMENT LIMITATIONS
Fundamental. The investment limitations described below have been adopted by the Trust with respect to the Fund and are fundamental ("Fundamental"), i.e, they may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. As used in the Prospectus and the Statement of Additional Information, the term "majority" of the outstanding shares of the Fund means the lesser of: (1) 67% or more of the outstanding shares of the
Fund present at a meeting, if the holders of more than 50% of the outstanding shares of the Fund are present or represented at such meeting; or (2) more than 50% of the outstanding shares of the Fund. Other investment practices which may be changed
by the Board of Trustees without the approval of shareholders to the extent permitted by applicable law, regulation or regulatory policy are considered non-fundamental ("Non-Fundamental").
1. Borrowing Money. The Fund will not borrow money, except: (a) from a bank, provided that immediately after such borrowing there is an asset coverage of 300% for all borrowings of the Fund; or (b) from a bank or other
persons for temporary purposes only, provided that such temporary borrowings are in an amount not exceeding 5% of the Fund's total assets at the time when the borrowing is made. This limitation does not preclude the Fund from entering into reverse
repurchase transactions, provided that the Fund has an asset coverage of 300% for all borrowings and repurchase commitments of the Fund pursuant to reverse repurchase transactions.
2. Senior Securities. The Fund will not issue senior securities. This limitation is not applicable to activities that may be deemed to involve the issuance or sale of a senior security by the Fund, provided that the
Fund's engagement in such activities is consistent with or permitted by the Investment Company Act of 1940, as amended (The “1940 Act”), the rules and regulations promulgated thereunder or interpretations of the SEC or its staff.
3. Underwriting. The Fund will not act as underwriter of securities issued by other persons. This limitation is not applicable to the extent that, in connection with the disposition of portfolio securities (including
restricted securities), a Fund may be deemed an underwriter under certain federal securities laws.
4. Real Estate. The Fund will not purchase or sell real estate. This limitation is not applicable to investments in marketable securities which are secured by or represent interests in real estate. This limitation does
not preclude the Fund from investing in mortgage-related securities or investing in companies engaged in the real estate business or that have a significant portion of their assets in real estate (including real estate investment trusts).
5. Commodities. The Fund will not purchase or sell commodities unless acquired as a result of ownership of securities or other investments. This limitation does not preclude the Fund from purchasing or selling options
or futures contracts, from investing in securities or other instruments backed by commodities or from investing in companies which are engaged in a commodities business or have a significant portion of their assets in commodities.
6. Loans. The Fund will not make loans to other persons, except: (a) by loaning portfolio securities; (b) by engaging in repurchase agreements; or (c) by purchasing nonpublicly offered debt securities. For purposes of
this limitation, the term "loans" shall not include the purchase of a portion of an issue of publicly distributed bonds, debentures or other securities.
7. Concentration. The Fund will not invest 25% or more of its total assets in a particular industry. This limitation is not applicable to investments in obligations issued or guaranteed by the U.S. government, its
agencies and instrumentalities or repurchase agreements with respect thereto.
With respect to the percentages adopted by the Trust as maximum limitations on its investment policies and limitations, an excess above the fixed percentage will not be a violation of the policy or limitation unless the
excess results immediately and directly from the acquisition of any security or the action taken. This paragraph does not apply to the borrowing policy set forth in paragraph 1 above.
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Notwithstanding any of the foregoing limitations, any investment company, whether organized as a trust, association or corporation, or a personal holding company, may be merged or consolidated with or acquired by the
Trust, provided that if such merger, consolidation or acquisition results in an investment in the securities of any issuer prohibited by said paragraphs, the Trust shall, within ninety days after the consummation of such merger, consolidation or
acquisition, dispose of all of the securities of such issuer so acquired or such portion thereof as shall bring the total investment therein within the limitations imposed by said paragraphs above as of the date of consummation.
Non-Fundamental. The following limitations have been adopted by the Trust with respect to the Fund and are Non-Fundamental (see "Investment Limitations - Fundamental" above).
1. Pledging. The Fund will not mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any assets of the Fund except as may be necessary in connection with borrowings described in
limitation (1) above. Margin deposits, security interests, liens and collateral arrangements with respect to transactions involving options, futures contracts, short sales and other permitted investments and techniques are not deemed to be a
mortgage, pledge or hypothecation of assets for purposes of this limitation.
2. Borrowing. The Fund will not purchase any security while borrowings (including reverse repurchase agreements) representing more than one third of its total assets are outstanding.
3. Margin Purchases. The Fund will not purchase securities or evidences of interest thereon on "margin." This limitation is not applicable to short-term credit obtained by a Fund for the clearance of purchases and sales
or redemption of securities, or to arrangements with respect to transactions involving options, futures contracts, short sales and other permitted investments and techniques.
4. Options. The Fund will not purchase or sell puts, calls, options or straddles, except as described in the Statement of Additional Information.
5. Illiquid Investments. The Fund will not invest more than 15% of its net assets in securities for which there are legal or contractual restrictions on resale and other illiquid securities.
THE INVESTMENT ADVISER
The Adviser is Brick Asset Management, Inc. (“BAM”), located at address 1700 California Street, Suite 335, San Francisco, CA 94109. As shareholders of the Adviser, Malcolm H. Gissen and Marshall G. Berol are
regarded to control the Adviser for purposes of the 1940 Act.
Under the terms of the Management Agreement, the Adviser manages the investment portfolio of the Fund, subject to policies adopted by the Trust’s Board of Trustees. Under the Management Agreement, the Adviser, at
its own expense and without reimbursement from the Trust, furnishes office space and all necessary office facilities, equipment and executive personnel necessary for managing the Fund. For its services the Adviser receives an investment management
fee equal to 1.00% of the average daily net assets of the Fund. For the fiscal year ended May 31, 2011, the Adviser earned management fees totaling $160,351. For the fiscal year ended May 31, 2012, the Adviser earned management fees totaling
$174,720. For the fiscal year ended May 31, 2013, the Adviser earned management fees totaling $84,601.
Under the terms of the Services Agreement, BAM renders administrative and supervisory services to the Fund and covers the cost of the Fund’s chief compliance officer. BAM oversees and supervises the maintenance of
the books and records with respect to the Fund's securities transactions and the Fund's book of accounts in accordance with all applicable federal and state laws and regulations. BAM also arranges for the preservation of journals, ledgers, corporate
documents, brokerage account records and other records which are required pursuant to Rule 31a-1 promulgated under the 1940 Act. BAM is also responsible for the equipment, staff, office space and facilities necessary to perform its obligations. BAM
has delegated some of its administrative and other responsibilities to Premier Fund Solutions, Inc. ("PFS") and is responsible for paying all fees and expenses of PFS. For its services the Adviser receives an administration fee equal to 0.45% of the
average daily net assets of the Fund. For the fiscal year
7
ended May 31, 2011, the Adviser earned service fees totaling $72,158. For the fiscal year ended May 31, 2012, the Adviser earned service fees totaling $79,825. For the fiscal year ended May 31, 2013, the Adviser earned service fees totaling
$38,070.
Under the Services Agreement, BAM assumes and pays all ordinary expenses of the Fund, except that the Fund pays all management fees, brokerage fees and commissions, taxes, borrowing costs (such as (a) interest and (b)
dividend expenses on securities sold short), underlying Fund fees and expenses, and extraordinary or non-recurring expenses. The Fund may also pay expenses which it is authorized to pay pursuant to Rule 12b-1 under the Act (none are authorized at
present).
The Adviser retains the right to use the name "Encompass Fund" or any derivative thereof in connection with another investment company or business enterprise with which the Adviser is or may become associated. The
Trust's right to use the name "Encompass Fund" or any derivative thereof automatically ceases ninety days after termination of the Agreement and may be withdrawn by the Adviser on ninety days written notice.
The Adviser may make payments to banks or other financial institutions that provide shareholder services and administer shareholder accounts. If a bank or other financial institution were prohibited from continuing to
perform all or a part of such services, management of the Fund believes that there would be no material impact on the Fund or its shareholders. Financial institutions may charge their customers fees for offering these services to the extent
permitted by applicable regulatory authorities, and the overall return to those shareholders availing themselves of the financial institution’s services will be lower than to those shareholders who do not. The Fund may from time to time
purchase securities issued by financial institutions that provide such services; however, in selecting investments for the Fund, no preference will be shown for such securities.
TRUSTEES AND OFFICERS
The Board of Trustees supervises the business activities of the Trust. Each Trustee serves as a trustee until the termination of the Trust unless the Trustee dies, resigns, retires or is removed.
The Board has engaged the Adviser to manage and/or administer the Trust and is responsible for overseeing the Adviser and other service providers to the Trust and the Fund. The Board is currently composed of four
Trustees, including three Trustees who are not "interested persons" of the Fund, as that term is defined in the 1940 Act (each an “Independent Trustee”). In addition to four regularly scheduled meetings per year, the Board holds special
meetings or informal conference calls to discuss specific matters that may require action prior to the next regular meeting. The Board of Trustees has established an Audit Committee comprised entirely of Trustees who are Independent Trustees. The
Audit Committee is generally responsible for (i) overseeing and monitoring the Trust's internal accounting and control structure, its auditing function and its financial reporting process, (ii) selecting and recommending to the full Board of
Trustees the appointment of auditors for the Trust, (iii) reviewing audit plans, fees, and other material arrangements with respect to the engagement of auditors, including permissible non-audit services performed; (iv) reviewing the qualifications
of the auditor's key personnel involved in the foregoing activities and (v) monitoring the auditor's independence.
The Chairman of the Board of Trustees is Mr. Malcolm H. Gissen, who is an “interested person” of the Trust, within the meaning of the 1940 Act, on the basis of his affiliation with the Funds and the Adviser.
The Trust does not have a “lead” independent trustee. The use of an interested Chairman balanced by an independent Audit Committee allows the Board to access the expertise necessary to oversee the Trust, identify risks, recognize
shareholder concerns and needs and highlight opportunities. The Audit Committee is able to focus Board time and attention to matters of interest to shareholders and, through its private sessions with the Trust’s auditor, Chief Compliance
Officer and legal counsel, stay fully informed regarding management decisions. Considering the size of the Trust and its shareholder base, the Trustees have determined that an interested Chairman balanced by an independent Audit Committee is the
appropriate leadership structure for the Board of Trustees.
Mutual funds face a number of risks, including investment risk, compliance risk and valuation risk. The Board oversees management of the Fund’s risks directly and through its officers. While day-to-day risk
management responsibilities rest with the Fund’s Chief Compliance Officer, investment adviser and other service providers, the Board monitors and tracks risk by: (1) receiving and reviewing quarterly reports related to the performance and
8
operations of the Funds; (2) reviewing and approving, as applicable, the compliance policies and procedures of the Trust, including the Trust’s valuation policies and transaction procedures; (3) periodically meeting with the portfolio manager
to review investment strategies, techniques and related risks; (4) meeting with representatives of key service providers, including the Fund’s investment adviser, administrator, transfer agent and the independent registered public accounting
firm, to discuss the activities of the Fund; (5) engaging the services of the Chief Compliance Officer of the Fund to test the compliance procedures of the Trust and its service providers; (6) receiving and reviewing reports from the Trust’s
independent registered public accounting firm regarding the Fund’s financial condition and the Trust’s internal controls; and (7) receiving and reviewing an annual written report prepared by the Chief Compliance Officer reviewing the
adequacy of the Trust’s compliance policies and procedures and the effectiveness of their implementation. The Board has concluded that its general oversight of the investment adviser and other service providers as implemented through the
reporting and monitoring process outlined above allows the Board to effectively administer its risk oversight function.
Each Trustee was nominated to serve on the Board of Trustees based on their particular experiences, qualifications, attributes and skills. The characteristics that have led the Board to conclude that each of the
Trustees should continue to serve as a Trustee of the Trust are discussed below.
Malcolm H. Gissen.
Mr. Gissen has served as a Chairman of the Board of Trustee since the Trust’s inception in 2006. He has been involved in the investment business since 1982. His financial background and organizational skills
help the Board set long-term goals for the Trust and establish processes for overseeing Trust policies and procedures. He also brings investment management knowledge to the Board of Trustees.
John F. Runkel.
Mr. Runkel has served as a Trustee since the Trust’s inception in 2006. As a practicing attorney for approximately 3 decades, Mr. Runkel provides a valued legal perspective to the Board of Trustees. His strategic
planning, organizational and leadership skills help the Board set long-term goals.
William P. Twomey.
Mr. Twomey has served as a Trustee since the Trust’s inception in 2006. Mr. Twomey was the Chief Financial Officer of Morrison & Foerster from 1994 to 2006. Mr. Twomey brings budgeting and financial
reporting skills to the Board of Trustees.
John F. Hamilton.
Mr. Hamilton has served as a Trustee since September 2012. Mr. Hamilton provides a valued business perspective with experience as a director, chief financial officer and audit committee chair. Mr. Hamilton brings
budgeting and financial reporting skills to the Board of Trustees, and serves as Chairman of the Trust’s Audit Committee.
9
The names of the Trustees and executive officers of the Trust are shown below. The Trustee who is an "interested person" of the Trust, as defined in the Investment Company Act of 1940, is indicated by a (2).
The trustees and officers of the Trust and their principal business activities during the past five years are:
Interested Trustees and Officers
|
Name,
|
Position
|
Length
|
Principal Occupation(s)
|
Number of
|
Other
|
|
Address
(1)
,
|
with
|
of Time
|
During
|
Portfolios
|
Directorships Held
|
|
and Age
|
the Trust
|
Served
|
Past 5 Years
|
Overseen
|
By Trustee or
|
|
|
|
|
|
By
|
Officer During the
|
|
|
|
|
|
Trustee
|
Past 5 Years
|
|
|
|
|
|
Malcolm H. Gissen
(2)
,
|
President,
|
Since 2006
|
President, Malcolm H.
|
1
|
None
|
|
|
Treasurer, and
|
|
Gissen & Associates, Inc.
|
|
|
|
Age: 70
|
Trustee
|
|
(1985-Present). President,
|
|
|
|
|
|
|
Brick Asset Management,
|
|
|
|
|
|
|
Inc. (2006-Present).
|
|
|
|
|
|
Marshall G. Berol,
|
Secretary
|
Since 2006
|
Principal, BL/SH Financial
|
NA
|
None
|
|
|
|
|
(1990-present), Chief
|
|
|
|
Age: 77
|
|
|
Investment Officer,
|
|
|
|
|
|
|
Malcolm H. Gissen &
|
|
|
|
|
|
|
Associates, Inc. (2000-
|
|
|
|
|
|
|
Present), Secretary, Brick
|
|
|
|
|
|
|
Asset Management, Inc.
|
|
|
|
|
|
|
(2006-Present).
|
|
|
|
|
|
Julian G. Winters,
|
Chief
|
Since 2011
|
Managing Member
|
N/A
|
N/A
|
|
|
Compliance
|
|
Watermark Solutions LLC
|
|
|
|
Age: 44
|
Officer
|
|
(investment compliance
|
|
|
|
|
|
|
and consulting) since 3/07;
|
|
|
|
|
|
|
previously, Vice President
|
|
|
|
|
|
|
of Compliance
|
|
|
|
|
|
|
Administration, The
|
|
|
|
|
|
|
Nottingham Company
|
|
|
|
|
|
|
(investment company
|
|
|
|
|
|
|
administrator and fund
|
|
|
|
|
|
|
accountant), 3/98 - 3/07.
|
|
|
(1)
The address of each trustee and officer is c/o Encompass Funds 1700 California Street, Suite 335 San Francisco, CA 94109.
(2)
Trustees who are considered "interested persons" as defined in Section 2(a)(19) of the Investment Company Act of 1940 by
virtue of their affiliation with the Investment Adviser.
|
10
Independent Trustees
|
Name,
|
Position
|
Length
|
Principal Occupation(s)
|
Number of
|
Other
|
|
Address
(3)
,
|
with
|
of Time
|
During
|
Portfolios
|
Directorships Held
|
|
and Age
|
the Trust
|
Served
|
Past 5 Years
|
Overseen
|
By Trustee or
|
|
|
|
|
|
By
|
Officer During the
|
|
|
|
|
|
Trustee
|
Past 5 Years
|
|
|
|
|
|
John F. Runkel,
|
Independent
|
Since 2006
|
General Counsel,
|
1
|
None
|
|
|
Trustee
|
|
Affymetrix, Inc. (2008-
|
|
|
|
Age: 58
|
|
|
June 2013). General
|
|
|
|
|
|
|
Counsel, Intuitive Surgical,
|
|
|
|
|
|
|
Inc. (2006-2008).
|
|
|
|
|
|
William P. Twomey,
|
Independent
|
Since 2006
|
Retired (2006-Present).
|
1
|
None
|
|
|
Trustee
|
|
Chief Financial Officer,
|
|
|
|
Age: 71
|
|
|
Morrison & Foerster, LLP
|
|
|
|
|
|
|
(1994-2006).
|
|
|
|
|
|
John F. Hamilton
|
Independent
|
Since
|
Director, Vermillion, Inc.
|
1
|
None
|
|
|
Trustee
|
September
|
(2008 - 2013). Director
|
|
|
|
Age: 69
|
|
2012
|
and Audit Committee
|
|
|
|
|
|
|
Chair, Anesiva, Inc. (2009 -
|
|
|
|
|
|
|
2009). Consulting Chief
|
|
|
|
|
|
|
Financial Officer, Xoma
|
|
|
|
|
|
|
(US) LLC (2008 - 2009).
|
|
|
(3)
The address of each trustee and officer is c/o Encompass Funds 1700 California Street, Suite 335 San Francisco, CA 94109.
BOARD INTEREST IN THE FUND
As of December 31, 2012, the Trustees owned the following amounts in the Fund:
|
|
|
|
|
Aggregate Dollar Range of Equity
|
|
Name of Trustee or Offcer
|
|
Dollar Range of Securities
|
|
Securities In All Registered Investment
|
|
|
|
In The Encompass Fund
|
|
Companies Overseen By Trustee In
|
|
|
|
|
|
Family of Investment Companies
|
|
Malcolm H. Gissen
|
|
over $100,000
|
|
over $100,000
|
|
Marshall G. Berol
|
|
$10,001-$50,000
|
|
$10,001-$50,000
|
|
John F. Runkel
|
|
$50,001-$100,000
|
|
$50,001-$100,000
|
|
William P. Twomey
|
|
$ 1-$10,000
|
|
$1-$10,000
|
|
John F. Hamilton
|
|
None
|
|
None
|
11
THE PORTFOLIO MANAGERS
Mr. Malcolm H. Gissen and Mr. Marshall G. Berol (the “Portfolio Managers”) are the portfolio managers responsible for the day-to-day management of the Fund. As of May 31, 2013 the Portfolio Managers were responsible for the management of the following types of other accounts:
|
Malcolm H. Gissen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets By
|
|
|
|
|
|
Number of Accounts
|
|
Account Type
|
|
|
Number of Accounts
|
|
Total Assets By
|
by Type Subject to a
|
|
Subject to a
|
|
Account Type
|
by Account Type
|
|
Account Type
|
Performance Fee
|
|
Performance Fee
|
|
Registered
|
0
|
|
0
|
0
|
|
0
|
|
Investment
|
|
|
|
|
|
|
|
Companies
|
|
|
|
|
|
|
|
Other Pooled
|
0
|
|
0
|
0
|
|
0
|
|
Investment Vehicles
|
|
|
|
|
|
|
|
Other Accounts
|
537
|
|
$153,000,000
|
466
|
|
$141,000,000
|
|
|
|
|
|
Marshall G. Berol
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets By
|
|
|
|
|
|
Number of Accounts
|
|
Account Type
|
|
|
Number of Accounts
|
|
Total Assets By
|
by Type Subject to a
|
|
Subject to a
|
|
Account Type
|
by Account Type
|
|
Account Type
|
Performance Fee
|
|
Performance Fee
|
|
Registered
|
0
|
|
0
|
0
|
|
0
|
|
Investment
|
|
|
|
|
|
|
|
Companies
|
|
|
|
|
|
|
|
Other Pooled
|
0
|
|
0
|
0
|
|
0
|
|
Investment Vehicles
|
|
|
|
|
|
|
|
Other Accounts
|
9
|
|
$1,650,000
|
0
|
|
0
|
As of May 31, 2013, the Portfolio Managers managed the accounts listed above. The Portfolio Managers have not identified any material conflicts between the Fund and other accounts managed by the Portfolio Managers. However, actual or apparent conflicts of interest may arise in connection with the day-to-day management of the Fund and other accounts. The management of the Fund and other accounts may result in unequal time and attention being devoted to the Fund and other accounts. Another potential conflict of interest may arise where another account has the same investment objective as the Fund, whereby the Portfolio Managers could favor one account over another. Further, a potential conflict could include the Portfolio Managers’ knowledge about the size, timing and possible market impact of Fund trades, whereby the Portfolio Managers could use this information to the advantage of other accounts and to the disadvantage of the Fund. These potential conflicts of interest could create the appearance that the Portfolio Managers are favoring one investment vehicle over another.
Mr. Gissen’s and Mr. Berol’s compensation as the Fund's Portfolio Managers is not a fixed salary. The Portfolio Managers salaries are not based on Fund performance. There are no bonuses, deferred compensation or retirement plans associated with the Portfolio Managers service to the Fund. However, because Mr. Gissen and Mr. Berol are the sole shareholders of the Adviser, their salary is based upon the Adviser's profitability. In addition, the Portfolio Managers participate directly in all profits and losses of the Adviser, including the advisory fees paid by the Fund.
The following table shows the dollar range of equity securities beneficially owned by the Portfolio Managers in the Fund as of May 31, 2013.
|
|
|
Dollar Range of Equity Securities in the
|
|
Name of Portfolio Manager
|
|
Fund
|
|
Malcolm H. Gissen
|
|
$100,001 - $500,000
|
|
Marshall G. Berol
|
|
$10,001-$50,000
|
12
COMPENSATION
Trustee fees are paid by the Adviser. Officers and Trustees of the Fund who are deemed "interested persons" of the Trust receive no compensation from the Fund. The following table shows Trustee compensation for the Fund's fiscal period ended May 31, 2013.
|
Name
|
|
Aggregate Compensation from Adviser
|
|
Total Compensation from Adviser
|
|
Malcolm H. Gissen
|
|
$0
|
|
$0
|
|
John F. Hamilton
|
|
$2,000
|
|
$2,000
|
|
John F. Runkel
|
|
$2,000
|
|
$2,000
|
|
William P. Twomey
|
|
$2,000
|
|
$2,000
|
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
A principal shareholder is any person who owns (either of record or beneficially) 5% or more of the outstanding shares of the Fund. A control person is one who owns, either directly or indirectly, more than 25% of the voting securities of a company or acknowledges the existence of such control. A controlling shareholder could control the outcome of any proposal submitted to the shareholders for approval, including changes to the Fund’s fundamental policies or the terms of the management agreement with the Adviser. As of September 13, 2013 each of the following shareholders was considered to be either a control person or principal shareholder of the Fund:
|
Name and Address
|
Shares
|
Percent Ownership
|
|
Type of Ownership
|
|
Charles Schwab & Co., Inc.
|
513,453.12
|
61.14%
|
|
Record
|
|
FBO Customers
|
|
|
|
|
|
101 Montgomery Street
|
|
|
|
|
|
San Francisco, Ca 94101
|
|
|
|
|
|
National Financial Services
|
76,145.84
|
9.07%
|
|
Record
|
|
FBO Customers
|
|
|
|
|
|
200 Liberty Street
|
|
|
|
|
|
New York, NY 10281-1033
|
|
|
|
|
|
Angle Family Limited Partnership
|
74,286.60
|
8.85%
|
|
Beneficial
|
|
1215 Lombard Street
|
|
|
|
|
|
San Francisco, CA 94109
|
|
|
|
|
As of September 13, 2013 the Trustees and officers as a group owned 5.27% of the outstanding shares of the Fund.
AUDIT COMMITTEE
The Board of Trustees has an Audit Committee, which is comprised of the independent members of the Board of Trustees, Sol Coffino, John F. Runkel and William P. Twomey, for the fiscal year ended May 31, 2012. John F. Hamilton joined the Audit Committee in September, 2012 and Mr. Coffino resigned in July, 2012. The Audit Committee meets at least once a year, or more often as required, in conjunction with meetings of the Board of Trustees. The Audit Committee oversees and monitors the Trust's internal accounting and control structure, its auditing function and its financial reporting process. The Audit Committee selects and recommends to the full Board of Trustees the appointment of auditors for the Trust. The Audit Committee also reviews audit plans, fees, and other material arrangements with respect to the engagement of auditors, including permissible non-audit services performed. It reviews the qualifications of the auditor's key personnel involved in the foregoing activities and monitors the auditor's independence. The Audit Committee met three times during the fiscal year ended May 31, 2012.
13
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees, the Adviser is responsible for the Fund's portfolio decisions and the placing of the Fund's portfolio transactions. In placing portfolio transactions, the
Adviser seeks the best qualitative execution for the Fund, taking into account such factors as price (including the applicable brokerage commission or dealer spread), the execution capability, financial responsibility and responsiveness of the
broker or dealer and the brokerage and research services provided by the broker or dealer. The Adviser generally seeks favorable prices and commission rates that are reasonable in relation to the benefits received. The Adviser may not give
consideration to sale of shares of the Trust as a factor in the selection of brokers and dealers to execute portfolio transactions. However, the Adviser may place portfolio transactions with brokers or dealers that promote or sell the Fund’s
shares so long as such placements are made pursuant to policies approved by the Fund’s Board of Trustees that are designed to ensure that the selection is based on the quality of the broker’s execution and not on its sales efforts.
The Adviser is specifically authorized to select brokers or dealers who also provide brokerage and research services to the Fund and/or the other accounts over which the Adviser exercises investment discretion and to
pay such brokers or dealers a commission in excess of the commission another broker or dealer would charge if the Adviser determines in good faith that the commission is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction or the Adviser's overall responsibilities with respect to the Trust and to other accounts over which it exercises investment discretion.
Research services include supplemental research, securities and economic analyses, statistical services and information with respect to the availability of securities or purchasers or sellers of securities and analyses
of reports concerning performance of accounts. The research services and other information furnished by brokers through whom the Fund effect securities transactions may also be used by the Adviser in servicing all of its accounts. Similarly,
research and information provided by brokers or dealers serving other clients may be useful to the Adviser in connection with its services to the Fund. Although research services and other information are useful to the Fund and the Adviser, it is
not possible to place a dollar value on the research and other information received. It is the opinion of the Board of Trustees and the Adviser that the review and study of the research and other information will not reduce the overall cost to the
Adviser of performing its duties to the Fund under the Agreement. Due to research services provided by brokers, the Encompass Fund may direct trades to certain brokers.
For the fiscal year ended May 31, 2011 the Fund paid brokerage commissions of $45,729. For the fiscal year ended May 31, 2012 the Fund paid brokerage commissions of $31,541. For the fiscal year ended May 31, 2013 the Fund paid brokerage
commissions of $30,074.
Over-the-counter transactions will be placed either directly with principal market makers or with broker-dealers, if the same or a better price, including commissions and executions, is available. Fixed income
securities are normally purchased directly from the issuer, an underwriter or a market maker. Purchases include a concession paid by the issuer to the underwriter and the purchase price paid to a market maker may include the spread between the bid
and asked prices.
When the Fund and another of the Adviser's clients seek to purchase or sell the same security at or about the same time, the Adviser may execute the transaction on a combined ("blocked") basis. Blocked transactions can
produce better execution for the Fund because of the increased volume of the transaction. If the entire blocked order is not filled, the Fund may not be able to acquire as large a position in such security as it desires or it may have to pay a
higher price for the security. Similarly, the Fund may not be able to obtain as large an execution of an order to sell or as high a price for any particular portfolio security if the other client desires to sell the same portfolio security at the
same time. In the event that the entire blocked order is not filled, the purchase or sale will normally be allocated on a pro rata basis. The allocation may be adjusted by the Adviser, taking into account such factors as the size of the individual
orders and transaction costs, when the Adviser believes an adjustment is reasonable.
The Trust and the Adviser have each adopted a Code of Ethics (the "Code") under Rule 17j-1 of the Investment Company Act of 1940. The personnel subject to the Code are permitted to invest in securities, including
securities that may be purchased or held by the Fund. You may obtain a copy of the Code from the SEC.
14
ADDITIONAL TAX INFORMATION
The following discussion of certain U.S. federal income tax consequences is general in nature and should not be regarded as an exhaustive presentation of all possible tax ramifications. Each shareholder should consult a
qualified tax advisor regarding the tax consequences of an investment in the Fund. The tax considerations relevant to a specific shareholder depend upon the shareholder’s specific circumstances, and the following general summary does not
attempt to discuss all potential tax considerations that could be relevant to a prospective shareholder with respect to the Fund or its investments. This general summary is based on the Internal Revenue Code of 1986, as amended (the
“Code”), the U.S. federal income tax regulations promulgated thereunder, and administrative and judicial interpretations thereof as of the date hereof, all of which are subject to change (potentially on a retroactive basis).
The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Code, which requires compliance with certain requirements concerning the sources of its income, diversification of its
assets, and the amount and timing of its distributions to shareholders. Such qualification does not involve supervision of management or investment practices or policies by any government agency or bureau. By so qualifying, the Fund should not be
subject to federal income or excise tax on its net investment income or net realized capital gain, which are distributed to shareholders in accordance with the applicable timing requirements.
The Fund intends to distribute substantially all of its net investment income (including any excess of net short-term capital gains over net long-term capital losses) and net realized capital gain (that is, any excess
of net long-term capital gains over net short-term capital losses) in accordance with the timing requirements imposed by the Code and therefore should not be required to pay any federal income or excise taxes. Net realized capital gain for a fiscal
year is computed by taking into account any capital loss carryforward of the Fund.
To be treated as a regulated investment company under Subchapter M of the Code, the Fund must also (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans, net
income from certain publicly traded partnerships and gains from the sale or other disposition of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect
to the business of investing in such securities or currencies, and (b) diversify its holding so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the Fund’s assets is represented by cash, U.S. government
securities and securities of other regulated investment companies, and other securities (for purposes of this calculation, generally limited in respect of any one issuer, to an amount not greater than 5% of the market value of the Fund’s assets
and 10% of the outstanding voting securities of such issuer) and (ii) not more than 25% of the value of its assets is invested in the securities (other than U.S. government securities or the securities of other regulated investment companies) of any
one issuer, two or more issuers which the Fund controls and which are determined to be engaged in the same or similar trades or businesses, or the securities of certain publicly traded partnerships.
If the Fund fails to qualify as a regulated investment company under Subchapter M in any fiscal year, it may be treated as a corporation for federal income tax purposes. As such, the Fund would be required to pay income
taxes on its net investment income and net realized capital gains, if any, at the rates generally applicable to corporations. Shareholders of the Fund generally would not be liable for income tax on the Fund’s net investment income or net
realized capital gains in their individual capacities. However, distributions to shareholders, whether from the Fund’s net investment income or net realized capital gains, would be treated as taxable dividends to the extent of current or
accumulated earnings and profits of the Fund.
As a regulated investment company, the Fund is subject to a 4% nondeductible excise tax on certain undistributed amounts of ordinary income and net realized capital gain under a prescribed formula contained in Section
4982 of the Code. The formula requires payment to shareholders during a calendar year of distributions representing at least 98% of the Fund’s ordinary income for the calendar year and at least 98.2% of its net realized capital gain (i.e., the
excess of its capital gains over capital losses) realized during the one-year period ending October 31 during such year plus 100% of any income that was neither distributed nor taxed to the Fund during the preceding calendar year. Under ordinary
circumstances, the Fund expects to time its distributions so as to avoid liability for this tax.
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The following discussion of U.S. federal income tax consequences is for the general information of shareholders that are subject to tax. Shareholders that are invested in IRAs or other qualified retirement plans are
exempt from income taxation under the Code.
Distributions of taxable net investment income (including the excess of net short-term capital gain over net long-term realized capital loss) generally are taxable to shareholders as ordinary income. However,
distributions by the Fund to a non-corporate shareholder may be subject to income tax at the shareholder’s applicable tax rate for long-term capital gain, to the extent that the Fund receives qualified dividend income on the securities it
holds, the Fund properly designates the distribution as qualified dividend income, and the Fund and the non-corporate shareholder receiving the distribution meets certain holding period and other requirements. Distributions of net realized capital
gain (“capital gain dividends”) generally are taxable to shareholders as long-term capital gain, regardless of the length of time the shares of the Trust have been held by such shareholders. Under current law, capital gain dividends
recognized by a non-corporate shareholder generally will be taxed at a maximum income tax rate of 20%. Capital gains of corporate shareholders are taxed at the same rate as ordinary income.
Distributions of taxable net investment income and net realized capital gain will be taxable as described above, whether received in additional cash or shares. All distributions of taxable net investment income and net
realized capital gain, whether received in shares or in cash, must be reported by each taxable shareholder on his or her federal income tax return. Dividends or distributions declared in October, November or December as of a record date in such a
month, if any, will be deemed to have been received by shareholders on December 31, if paid during January of the following year. Redemptions of shares may result in tax consequences (gain or loss) to the shareholder and are also subject to these
reporting requirements.
Redemption of Fund shares by a shareholder will result in the recognition of taxable gain or loss in an amount equal to the difference between the amount realized and the shareholder’s tax basis in the
shareholder's Fund shares. Such gain or loss is treated as a capital gain or loss if the shares are held as capital assets. However, any loss realized upon the redemption of shares within six months from the date of their purchase will be treated as
a long-term capital loss to the extent of any amounts treated as capital gain dividends during such six-month period. All or a portion of any loss realized upon the redemption of shares may be disallowed to the extent shares are purchased (including
shares acquired by means of reinvested dividends) within 30 days before or after such redemption.
Under the Code, the Fund will be required to report to the Internal Revenue Service all distributions of taxable income and net realized capital gains as well as gross proceeds from the redemption or exchange of Fund
shares, except in the case of certain exempt shareholders. Under the backup withholding provisions of Section 3406 of the Code, distributions of taxable net investment income and net realized capital gain and proceeds from the redemption or exchange
of the shares of a regulated investment company may be subject to withholding of federal income tax (currently, at a rate of 28%) in the case of non-exempt shareholders who fail to furnish the investment company with their taxpayer identification
numbers and with required certifications regarding their status under the federal income tax law, or if the Fund is notified by the IRS or a broker that withholding is required due to an incorrect TIN or a previous failure to report taxable interest
or dividends. If the withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in additional shares, will be reduced by the amounts required to be withheld.
For taxable years beginning after December 31, 2012, an additional 3.8% Medicare tax generally will be imposed on certain net investment income (including ordinary dividends and capital gain distributions received from
the Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates and trusts to the extent that any such person’s “modified adjusted gross income” (in the case of an individual) or
“adjusted gross income” (in the case of an estate or trust) exceeds certain threshold amounts.
Shareholders should consult their tax advisers about the application of federal, state, local and foreign tax law in light of their particular situation.
Should additional series, or funds, be created by the Trustees, each fund would be treated as a separate tax entity for federal income tax purposes.
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PRICING OF FUND SHARES
The price (net asset value) of the shares of the Fund is determined at the close of trading (normally 4:00 p.m., Eastern time) on each day the New York Stock Exchange is open for business (the Exchange is closed on
weekends, most federal holidays, and Good Friday). For a description of the methods used to determine the net asset value (share price), see "Pricing of Fund Shares" in the Prospectus.
Equity securities generally are valued by using market quotations, but may be valued on the basis of prices furnished by a pricing service when the Adviser believes such prices accurately reflect the fair market value
of such securities. Securities that are traded on any stock exchange or on the NASDAQ over-the-counter market are generally valued by the pricing service at the last quoted sale price. Lacking a last sale price, an equity security is generally
valued by the pricing service at its last bid price. When market quotations are not readily available, when the Adviser determines that the market quotation or the price provided by the pricing service does not accurately reflect the current market
value, or when restricted or illiquid securities are being valued, such securities are valued as determined in good faith by the Adviser, in conformity with guidelines adopted by and subject to review of the Board of Trustees of the Trust.
Fixed income securities generally are valued by using market quotations, but may be valued on the basis of prices furnished by a pricing service when the Adviser believes such prices accurately reflect the fair market
value of such securities. A pricing service utilizes electronic data processing techniques based on yield spreads relating to securities with similar characteristics to determine prices for normal institutional-size trading units of debt securities
without regard to sale or bid prices. If the Adviser decides that a price provided by the pricing service does not accurately reflect the fair market value of the securities, when prices are not readily available from a pricing service, or when
restricted or illiquid securities are being valued, securities are valued at fair value as determined in good faith by the Adviser, subject to review of the Board of Trustees. Short term investments in fixed income securities with maturities of less
than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued by using the amortized cost method of valuation, which the Board has determined will represent fair value.
PURCHASES AND SALES THROUGH BROKER DEALERS
The Fund may be purchased through broker dealers and other intermediaries. The Fund has authorized one or more brokers to receive on its behalf purchase and redemption orders. Such brokers are authorized to designate
other intermediaries to receive purchase and redemption orders on the Fund's behalf. The Fund will be deemed to have received a purchase or redemption order when an authorized broker or, if applicable, a broker's authorized designee, received the
order. Customer orders will be priced at the Fund's net asset value next computed after they are received by an authorized broker or the broker's authorized designee.
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 Fund's transfer agent has established proper anti-money laundering procedures, reporting suspicious and/or fraudulent activity
and a complete and thorough review of all new 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.
CUSTODIAN
Union Bank, 400 California Street, San Francisco, California 94104, is custodian of the Fund's investments. The custodian acts as the Fund's depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds at the Fund's request and maintains records in connection with its duties.
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FUND SERVICES
Mutual Shareholder Services, LLC. (“MSS”), 8000 Town Centre Drive, Suite 400, Broadview Heights, OH 44147, acts as the Fund's transfer agent. MSS maintains the records of shareholder accounts, answers
shareholders' inquiries concerning their accounts, processes purchases and redemptions of the Fund's shares, acts as dividend and distribution disbursing agent and performs other transfer agent and shareholder service functions. MSS receives an
annual fee from the Adviser of $11.50 per shareholder (subject to a minimum monthly fee of $775 per Fund) for these transfer agency services.
In addition, MSS provides the Fund with fund accounting services, which includes certain monthly reports, record-keeping and other management-related services. For its services as fund accountant, MSS receives an annual
fee from the Adviser based on the average value of the Fund. These fees are: from $0 to $25 million in assets the annual fee is $21,000, from $25 million to $50 million in assets the annual fee is $30,500, from $50
million to $75 million in assets the annual fee is $36,250, from $75 million to $100 million in assets the annual fee is $42,000, from $100 million to $125 million in assets the annual fee is $47,750, from $125
million to $150 million in assets the annual fee is $53,500, and for asset above $150 million the annual fee is $59,250. For the fiscal year ended May 31, 2011, the Adviser paid MSS $30,656 for transfer agent and accounting
services. For the fiscal year ended May 31, 2012, the Adviser paid MSS $31,884 for transfer agent and accounting services. For the fiscal year ended May 31, 2013, the Adviser paid MSS $30,300 for transfer agent and accounting services.
Premier Fund Solutions, Inc. (“PFS”), 1939 Friendship Drive, Suite C, El Cajon, CA 92020, provides the Fund with administrative services, including regulatory reporting and necessary office equipment,
personnel and facilities. PFS receives a monthly fee from the Adviser equal to an annual rate of 0.07% of the Fund's assets under $200 million, 0.05% of the next $500 million of the Fund's average daily net assets, and 0.03% of the average
daily net assets of the Fund thereafter (subject to a minimum monthly fee of $2,500). For the fiscal year ended May 31, 2011 the Adviser paid PFS $30,000. For the fiscal year ended May 31, 2012 the Adviser paid PFS $30,000. For the
fiscal year ended May 31, 2013 the Adviser paid PFS $30,000.
Watermark Solutions, LLC (“WS”) provides a Chief Compliance Officer to the Trust as well as related compliance services pursuant to a compliance services agreement between WS and the Trust. For the fiscal year
ended May 31, 2012, the Adviser paid WS $11,250. For the fiscal year ended May 31, 2013, the Adviser paid WS $12,750.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The firm of Sanville & Company, 1514 Old York Road, Abington, PA 19001, has been selected as independent registered public accountants for the Fund for the fiscal year ending May 31, 2014. Sanville & Company
performs an annual audit of the Fund's financial statements and provides financial, tax and accounting consulting services as requested.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Fund is required to include a schedule of portfolio holdings in its annual and semi-annual reports to shareholders, which are sent to shareholders within 60 days of the end of the second and fourth fiscal quarters
and which are filed with the Securities and Exchange Commission (the “SEC”) on Form N-CSR within 70 days of the end of the second and fourth fiscal quarters. The Fund also is required to file a schedule of portfolio holdings with the SEC
on Form N-Q within 60 days of the end of the first and third fiscal quarters. The Fund must provide a copy of the complete schedule of portfolio holdings as filed with the SEC to any shareholder of the Fund, upon request, free of charge. This policy
is applied uniformly to all shareholders of the Fund without regard to the type of requesting shareholder (i.e., regardless of whether the shareholder is an individual or institutional investor). Information contained in annual and semi-annual
reports mailed to shareholders, as well as information filed with the SEC on Form N-Q and information posted on the Fund’s website, is public information. All other information is non-public information.
The Fund has an ongoing relationship with third party servicing agents to release portfolio holdings information on a daily basis in order for those parties to perform their duties on behalf of the Fund. These third
party servicing
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agents are the Adviser (“Brick Asset Management, Inc.), Transfer Agent and Fund Accounting Agent (“Mutual Shareholder Services, LLC”), Administrator (“Premier Fund Solutions, Inc.”) and Custodian (“Union Bank”). The Fund also may disclose portfolio holdings, as needed, to auditors (“Sanville & Company”), legal counsel (“Thompson Hine, LLP”), proxy voting services (if applicable), pricing services, printers, parties to merger and reorganization agreements and their agents. The Fund’s Chief Compliance Officer must authorize all disclosures of portfolio holdings. The lag between the date of the information and the date on which the information is disclosed will vary based on the identity of the party to whom the information is disclosed. For instance, the information may be provided to auditors within days of the end of an annual period, while the information may be given to legal counsel or prospective sub-advisers at any time. This information is disclosed to all such third parties under conditions of confidentiality. “Conditions of confidentiality” include (i) confidentiality clauses in written agreements, (ii) confidentiality implied by the nature of the relationship (e.g., attorney-client relationship), (iii) confidentiality required by fiduciary or regulatory principles (e.g., custody relationships) or (iv) understandings or expectations between the parties that the information will be kept confidential. The Fund also releases information to Morningstar and Lipper on a delayed basis after the information has been filed with the SEC or otherwise made public. The Fund believes, based upon its size and history, that these are reasonable procedures to protect the confidentiality of the Fund’s portfolio holdings and will provide sufficient protection against personal trading based on the information.
The Fund is prohibited from entering into any other arrangements with any person to make available information about the Fund’s portfolio holdings without the specific approval of the Board. The Adviser must submit any proposed arrangement pursuant to which the Adviser intends to disclose the Fund’s portfolio holdings to the Board, which will review such arrangement to determine (i) whether it is in the best interests of Fund shareholders, (ii) whether the information will be kept confidential and (iii) whether the disclosure presents a conflict of interest between the interests of Fund shareholders and those of the Adviser, or any affiliated person of the Fund, or the Adviser. Additionally, the Fund, the Adviser, and any affiliated persons of the Adviser, are prohibited from receiving compensation or other consideration, for themselves or on behalf of the Fund, as a result of disclosing the Fund’s portfolio holdings.
PROXY VOTING POLICY
The Board of Trustees of the Trust has delegated responsibilities for decisions regarding proxy voting for securities held by the Fund to the Fund’s Adviser. The Adviser will vote such proxies in accordance with its proxy policies and procedures. In some instances, the Adviser may be asked to cast a proxy vote that presents a conflict between the interests of the Fund’s shareholders, and those of the Adviser or an affiliated person of the Adviser. In such a case, the Trust’s policy requires that the Adviser abstain from making a voting decision and to forward all necessary proxy voting materials to the Trust to enable the Board of Trustees to make a voting decision. When the Board of Trustees of the Trust is required to make a proxy voting decision, only the Trustees without a conflict of interest with regard to the security in question or the matter to be voted upon shall be permitted to participate in the decision of how the Fund’s vote will be cast.
The Adviser’s policies and procedures state that the Adviser generally relies on the individual portfolio manager(s) to make the final decision on how to cast proxy votes. When exercising its voting responsibilities, the Adviser’s policies call for an emphasis on (i) accountability of management of the company to its board, and of the board to the company’s shareholders, (ii) alignment of management and shareholder interests and (iii) transparency through timely disclosure of important information about a company’s operations and financial performance. While no set of proxy voting guidelines can anticipate all situations that may arise, the Adviser has adopted guidelines describing the Adviser’s general philosophy when proposals involve certain matters. The following is a summary of those guidelines:
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electing a board of directors – a board should be composed primarily of independent directors, and key board committees should be entirely independent. The Adviser generally supports efforts to declassify boards or other measures that permit shareholders to remove a majority of directors at any time;
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approving independent auditors – the relationship between a company and its auditors should be limited primarily to the audit engagement;
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providing equity-based compensation plans - appropriately designed equity-based compensation plans, approved by shareholders, can be an effective way to align the interests of shareholders and the interests of directors, management, and employees by providing incentives to increase shareholder value. Conversely, the Adviser is opposed to plans that substantially dilute ownership interests in the company, provide participants with excessive awards, or have inherently objectionable structural features;
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corporate voting structure - shareholders should have voting power equal to their equity interest in the company and should be able to approve or reject changes to a company’s by-laws by a simple majority vote. The Adviser opposes super-majority requirements and generally supports the ability of shareholders to cumulate their votes for the election of directors; and
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shareholder rights plans - shareholder rights plans, also known as poison pills, may tend to entrench current management, which the Adviser generally considers to have a negative impact on shareholder value.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling our toll free number (1-888-463-3957). This information is also available on the Securities and Exchange Commission’s website at http://www.sec.gov.
FINANCIAL STATEMENTS
The financial statements and independent registered public accounting firm’s report required to be included in the Statement of Additional Information are incorporated herein by reference to the Trust’s Annual Report to Shareholders for the period ended May 31, 2013, as filed with the Securities and Exchange Commission on July 30, 2013. The Trust will provide the Annual Report without charge at written or telephone request. A free copy of the Fund’s Annual Report to Shareholders can be obtained by writing the Transfer Agent at 8000 Town Centre Drive, Suite 400, Broadview Heights, OH 44147 or by calling 1-888-463-3957.
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