Perimeter Small Cap Value Fund (the “Fund”) was organized as a diversified series of Investment Managers Series Trust, a Delaware statutory trust (the “Trust”) which is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund’s primary investment objective is to seek long-term capital appreciation. The Fund commenced investment operations on June 29, 2012.
Note 2 – Accounting Policies
The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates.
(a) Valuation of Investments
The Fund values equity securities at the last reported sale price on the principal exchange or in the principal over the counter (“OTC”) market in which such securities are traded, as of the close of regular trading on the NYSE on the day the securities are being valued or, if there are no sales, at the mean between the last available bid and asked prices on that day. Securities traded on the NASDAQ are valued at the NASDAQ Official Closing Price (“NOCP”). Debt securities are valued at the mean between the last available bid and asked prices for such securities, or if such prices are not available, at prices for securities of comparable maturity, quality and type. All other types of securities, including restricted securities and securities for which market quotations are not readily available, are valued at fair value as determined in accordance with procedures established in good faith by the Board of Trustees. Short-term securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value.
A Fund’s assets generally are valued at their market value. If a market quotation is not readily available for a portfolio security, the security will be valued at fair value (the amount which the Fund might reasonably expect to receive for the security upon its current sale) as determined in good faith by the Fund’s advisor, subject to review and approval by the Valuation Committee, pursuant to procedures adopted by the Board of Trustees. The actions of the Valuation Committee are subsequently reviewed by the Board at its next regularly scheduled board meeting. The Valuation Committee meets as needed. The Valuation Committee is comprised of all the Trustees but action may be taken by any one of the Trustees.
(b) Investment Transactions, Investment Income and Expenses
Investment transactions are accounted for on the trade date. Realized gains and losses on investments are determined on the identified cost basis. Dividend income is recorded net of applicable withholding taxes on the ex-dividend date and interest income is recorded on an accrual basis. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates. Discounts or premiums on debt securities are accreted or amortized to interest income over the lives of the respective securities using the effective interest method. Expenses incurred by the Trust with respect to more than one fund are allocated in proportion to the net assets of each fund except where allocation of direct expenses to each Fund or an alternative allocation method can be more appropriately made.
The Fund incurred offering costs of approximately $32,748, which are amortized over a one‐year period from June 29, 2012 (commencement of operations).
Perimeter Small Cap Value Fund
NOTES TO FINANCIAL STATEMENTS - Continued
November 30, 2012 (Unaudited)
(c) Federal Income Taxes
The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its net investment income and any net realized gains to its shareholders. Therefore, no provision is made for federal income or excise taxes. Due to the timing of dividend distributions and the differences in accounting for income and realized gains and losses for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains and losses are recorded by the Fund.
Accounting for Uncertainty in Income Taxes
(the “Income Tax Statement”) requires an evaluation of tax positions taken (or expected to be taken) in the course of preparing a Fund’s tax returns to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statements of Operations.
The Income Tax Statement requires management of the Fund to analyze tax positions taken in the prior three open tax years, if any, and tax positions expected to be taken in the Fund’s current tax year, as defined by the IRS statute of limitations for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the period June 29, 2012 (commencement of operations) through November 30, 2012, the Fund did not have a liability for any unrecognized tax benefits. The Fund has no examination in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
(d) Distributions to Shareholders
The Fund declares and pays dividends at least annually from net investment income and from net realized gains, if any. Distributions to shareholders are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from GAAP.
The character of distributions made during the year from net investment income or net realized gains may differ from the characterization for federal income tax purposes due to differences in the recognition of income, expense and gain (loss) items for financial statement and tax purposes. Where appropriate, reclassifications between net asset accounts are made for such differences that are permanent in nature.
Note 3 – Investment Advisory and Other Agreements
The Trust, on behalf of the Fund, entered into an Investment Advisory Agreement (the “Agreement”) with Perimeter Capital Management LLC (the “Advisor”). Under the terms of the Agreement, the Fund pays a monthly investment advisory fee to the Advisor at the annual rate of 0.90% of the Fund’s average daily net assets. The Advisor has contractually agreed to waive its fee and, if necessary, to absorb other operating expenses in order to limit total annual operating expenses (excluding taxes, leverage interest, brokerage commissions, acquired fund fees and expenses as determined in accordance with Form N-1A, expenses incurred in connection with any merger or reorganization, or extraordinary expenses such as litigation expenses) to 1.20% of the Fund's average daily net assets. This agreement is effective until September 30, 2013, and may be terminated by the Trust’s Board of Trustees.
For the period June 29, 2012 (commencement of operations) through November 30, 2012, the Advisor waived all of its advisory fees and other fees totaling $77,360. The Advisor may recover from the Fund fees and/or expenses previously waived and/or absorbed, if the Fund’s expense ratio, including the recovered expenses, falls below the
Perimeter Small Cap Value Fund
NOTES TO FINANCIAL STATEMENTS - Continued
November 30, 2012 (Unaudited)
current expense limit. The Advisor is permitted to seek reimbursement from the Fund for a period three fiscal years following the fiscal year in which such reimbursements occurred. At November 30, 2012, the amount of these potentially recoverable expenses was $77,360.
Foreside Fund Services, LLC (“FFS”) serves as the Fund’s distributor; UMB Fund Services, Inc. (“UMBFS”) serves as the Fund’s fund accountant, transfer agent and co-administrator; and Mutual Fund Administration Corporation (“MFAC”) serves as the Fund’s other co-administrator. UMB Bank, n.a., an affiliate of UMBFS, serves as the Fund’s custodian.
Certain trustees and officers of the Trust are employees of UMBFS or MFAC. The Fund does not compensate trustees and officers affiliated with the Fund’s co-administrators. For the period June 29, 2012 (commencement of operations) through November 30, 2012, the Fund’s allocated fees incurred to Trustees who are not affiliated with the Fund’s co-administrators are reported on the Statement of Operations.
Cipperman & Co. provides Chief Compliance Officer (“CCO”) services to the Trust. The Fund’s allocated fees incurred for CCO services for the period June 29, 2012 (commencement of operations) through November 30, 2012, are reported on the Statement of Operations.
Note 4 – Federal Income Taxes
At November 30, 2012, gross unrealized appreciation and depreciation on investments based on cost for federal income tax purposes were as follows:
|
Cost of investments
|
|
$
|
575,339
|
|
|
|
|
|
|
|
|
Gross unrealized appreciation
|
|
|
17,226
|
|
|
Gross unrealized depreciation
|
|
|
(7,239
|
)
|
|
|
|
|
|
|
|
Net unrealized appreciation
|
|
$
|
9,987
|
|
The difference between cost amounts for financial statement and federal income tax purposes is due primarily to timing differences in recognizing certain gains and losses in security transactions.
Note 5 – Investment Transactions
For the period June 29, 2012 (commencement of operations) through November 30, 2012, purchases and sales of investments, excluding short-term investments, were $503,025 and $66,310, respectively.
Note 6 – Shareholder Servicing Plan
The Trust, on behalf of the Fund, has adopted a Shareholder Servicing Plan to pay a fee at an annual rate of up to 0.10% of average daily net assets of shares serviced by shareholder servicing agents who provide administrative and support services to their customers.
For the period June 29, 2012 (commencement of operations) through November 30, 2012, shareholder servicing fees incurred are disclosed on the Statement of Operations.
Note 7 – Indemnifications
In the normal course of business, the Fund enters into contracts that contain a variety of representations which provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this
Perimeter Small Cap Value Fund
NOTES TO FINANCIAL STATEMENTS - Continued
November 30, 2012 (Unaudited)
would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund expects the risk of loss to be remote.
Note 8 – Fair Value Measurements and Disclosure
Fair Value Measurements and Disclosures
defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. It also provides guidance on determining when there has been a significant decrease in the volume and level of activity for an asset or liability, when a transaction is not orderly, and how that information must be incorporated into a fair value measurement.
Under
Fair Value Measurements and Disclosures
, various inputs are used in determining the value of the Fund’s investments. These inputs are summarized into three broad Levels as described below:
|
|
·
|
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
|
|
|
·
|
Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
|
|
|
·
|
Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
|
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different Levels of the fair value hierarchy. In such cases, for disclosure purposes, the Level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest Level input that is significant to the fair value measurement in its entirety.
In addition, the Fund has adopted Accounting Standards Update No. 2011-04
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs
which amends
Fair Value Measurements and Disclosures
to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards. Enhanced disclosure is required to detail any transfers in to and out of Level 1 and Level 2 measurements and Level 2 and Level 3 measurements and the reasons for the transfers.
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. The following is a summary of the inputs used, as of November 30, 2012, in valuing the Fund’s assets carried at fair value:
Perimeter Small Cap Value Fund
NOTES TO FINANCIAL STATEMENTS - Continued
November 30, 2012 (Unaudited)
|
|
|
Level 1
|
|
|
Level 2
2
|
|
|
Level 3
2
|
|
|
Total
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks
1
|
|
$
|
448,923
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
448,923
|
|
|
Short-Term Investments
|
|
|
136,403
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,403
|
|
|
Total Investments
|
|
$
|
585,326
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
585,326
|
|
|
1
|
All common stocks held in the Fund are Level 1 securities. For a detailed break-out of common stocks by major industry classification, please refer to the Schedule of Investments.
|
|
2
|
The Fund did not hold any Level 2 or 3 securities at period end.
|
There were no transfers between Levels at the end of the period.
Note 9 – Recently Issued Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2011-11 related
Disclosures about Offsetting Assets and Liabilities
. The amendments in this ASU require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The ASU is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The guidance requires retrospective application for all comparative periods presented. Management is currently evaluating the impact ASU 2011-11 will have on the financial statement disclosures.
Perimeter Small Cap Value Fund
SUPPLEMENTAL INFORMATION (Unaudited)
Board Consideration of Investment Advisory Agreement
(Unaudited)
At an in-person meeting held on June 20-21, 2012, the
Board of Trustees (the “
Board
”) of Investment Managers Series Trust (the “
Trust
”), including the trustees who are not “interested persons” of the Trust (the “
Independent Trustees
”) as defined in the Investment Company Act of 1940, as amended (the “
1940 Act
”), reviewed and unanimously approved the Investment Advisory Agreement (the “
Advisory
Agreement
”) between the Trust and Perimeter Capital Management LLC (the “
Investment Advisor
”) with respect to the Perimeter Small Cap Value Fund
series of the Trust
(the “
Fund
”) for an initial two-year term. In approving the Advisory Agreement, the Board of Trustees, including the Independent Trustees, determined that approval of the Advisory Agreement is in the best interests of the Fund and its shareholders.
Background
In advance of the meeting, the Board
received information about the Fund and the Advisory Agreement from the Investment Advisor and from Mutual Fund Administration Corporation (“
MFAC
”) and UMB Fund Services, Inc., the Trust’s co-administrators, certain portions of which are discussed below.
The materials, among other things, included information about the Investment Advisor’s organization and financial condition; information regarding the background and experience of relevant personnel who would be providing services to the Fund; reports comparing the proposed management fee and the estimated total expenses of the Fund to those of a group of comparable funds selected by Morningstar, Inc. from its small value universe (the “
Peer Group
”); information about
the Investment Advisor’s
policies and procedures, including its code of ethics and compliance manual; and the performance of a small cap value portfolio (the “
Portfolio
”), a closely held investment fund that commenced in June 2009 and was managed using the same strategy the Investment Advisor would use to manage the Fund. The Board also received a memorandum from the independent legal counsel to the Independent Trustees discussing the legal standards
under the 1940 Act and other applicable law
for their consideration of the proposed Advisory Agreement.
Before voting on the Advisory Agreement, the Independent Trustees met in
a private session with counsel at which no representatives of the Investment Advisor were present
.
In approving the Advisory Agreement, the Board and the Independent Trustees considered a variety of factors, including those discussed below. In their deliberations, the Board and the Independent Trustees did not identify any particular factor that was controlling, and each Trustee may have attributed different weights to the various factors. The Board also considered information given to them by representatives of the Investment Advisor in a presentation on the Investment Advisor’s investment philosophy, strategy and process at the Board meeting. The Board reviewed the materials and various matters concerning the Investment Advisor and the Fund.
Nature, Extent and Quality of Services
In reviewing the proposed investment advisory agreement for the proposed Fund, the Board discussed, among other things, the nature, extent and quality of the services to be provided by the Investment Advisor with respect to the Fund, as well as the qualifications, experience and responsibilities of the personnel who would be involved in the activities of the Fund. The Board also considered information included in the meeting materials regarding the performance of the Portfolio, noting that it had significantly outperformed the Russell 2000 Value Index for the one-year, two-year and since inception periods ending March 31, 2012. Based on its review, the Board and the Independent Trustees concluded that the Investment Advisor has the capabilities, resources and personnel necessary to manage the Fund.
Advisory Fee and Expense Ratio
With respect to the advisory fee expected to be paid by the Fund, the Board noted the meeting materials indicated that the advisory fee proposed to be paid by the Fund was the same as the median of funds in the Peer Group at asset sizes of up to $250 million, and slightly higher than the median at higher asset levels. The Board also observed that the anticipated total expenses of the Fund were higher than the median of the funds in the Peer Group, but were not the highest of the funds in the Peer Group. The Board noted that the Fund’s advisory fee was
Perimeter Small Cap Value Fund
SUPPLEMENTAL INFORMATION (Unaudited)
slightly lower than the Investment Advisor’s advisory fee for separate accounts managed in the small cap value style for asset levels up to $100 million, and slightly higher than the separate account fee at higher asset levels. The Board also noted that the Fund’s advisory fee was the same as the fee received by the Investment Advisor from its proprietary small cap growth mutual fund and higher than the fees it received with respect to three small cap growth mutual funds that it sub-advises. The Board noted, however, that the three sub-advised funds were early clients of the Investment Advisor and that mutual fund sub-advisory fees are generally lower than advisory fees because compliance and oversight obligations are generally greater for advisors than sub-advisors. The Board and the Independent Trustees concluded that the proposed compensation payable to the Investment Advisor under the Advisory Agreement would be fair and reasonable in light of the services proposed to be provided by the Investment Advisor to the Fund.
Profitability and Economies of Scale
The Board also considered information relating to the estimated profitability to the Investment Advisor of its relationship with the Fund in its first year of operations, noting that
the Investment Advisor
anticipated waiving a portion of its advisory fees during that year, and determined that the estimated profitability was reasonable. The Board noted that during the Fund’s startup period, its asset levels would likely be too low to achieve significant economies of scale and that the matter of such economies would be reviewed in the future as Fund assets grow.
Conclusion
Based on these and other factors, the Board and the Independent Trustees concluded that approval of the Advisory Agreement is in the best interests of the Fund and its shareholders and, accordingly, approved the Advisory Agreement.
Perimeter Small Cap Value Fund
For the Periods Ended November 30, 2012 (Unaudited)
Expense Example
As a shareholder of the Perimeter Small Cap Value Fund (the “Fund”), you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees and other Fund expenses. The examples below are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Actual Performance example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from 6/29/12* to 11/30/12.
The Hypothetical (5% annual return before expenses) example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from 6/1/12 to 11/30/12.
Actual Expenses
The information in the row titled “Actual Performance” of the table below provides actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate row under the column titled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The information in the row titled “Hypothetical (5% annual return before expenses)” of the table below provides hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (load) or contingent deferred sales charges. Therefore, the information under the headings “Hypothetical (5% annual return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
|
|
Beginning
Account Value
|
Ending
Account Value
|
Expenses
Paid During Period
|
|
|
6/29/12*
|
11/30/12
|
6/29/12* – 11/30/12
|
|
Actual Performance**
|
$ 1,000.00
|
$ 1,064.50
|
$ 5.24
|
|
|
6/1/12
|
11/30/12
|
6/1/12 – 11/30/12
|
|
Hypothetical (5% annual return before expenses)^
|
$ 1,000.00
|
$ 1,019.92
|
$ 6.05
|
|
*
|
Commencement of Operations.
|
|
**
|
Expenses are equal to the Fund’s annualized expense ratio of 1.20% multiplied by the average account value over the period, multiplied by 155/365 (to reflect the since inception period). The expense ratio reflects an expense waiver. Assumes all dividends and distributions were reinvested.
|
|
^
|
Expenses are equal to the Fund’s annualized expense ratio of 1.20% multiplied by the average account value over the period, multiplied by 183/365 (to reflect the six month period). The expense ratio reflects an expense waiver. Assumes all dividends and distributions were reinvested.
|
Perimeter Small Cap Value Fund
a series of the Investment Managers Series Trust
Investment Advisor
Perimeter Capital Management LLC
Six Concourse Parkway NE, Suite 3300
Atlanta, Georgia 30328
Independent Counsel
Bingham McCutchen LLP
355 S. Grand Avenue, Suite 4400
Los Angeles, California 90071
Independent Registered Public Accounting Firm
Tait Weller & Baker LLP
1818 Market Street, Suite 2400
Philadelphia, Pennsylvania 19103
Custodian
UMB Bank, n.a.
928 Grand Boulevard, 5
th
Floor
Kansas City, Missouri 64106
Fund Co-Administrator
Mutual Fund Administration Corporation
2220 E. Route 66, Suite 226
Glendora, California 91740
Fund Co-Administrator, Transfer Agent and Fund Accountant
UMB Fund Services, Inc.
803 West Michigan Street
Milwaukee, Wisconsin 53233-2301
Distributor
IMST Distributors, LLC
Three Canal Plaza, Suite 100
Portland, Maine, 04101
www.foreside.com
|
|
TICKER
|
CUSIP
|
|
Perimeter Small Cap Value Fund
|
PSCVX
|
461418 196
|
Privacy Principles of the Perimeter Small Cap Value Fund for Shareholders
The Fund is committed to maintaining the privacy of its shareholders and to safeguarding its non-public personal information. The following information is provided to help you understand what personal information the Fund collects, how we protect that information and why, in certain cases, we may share information with select other parties.
Generally, the Fund does not receive any non-public personal information relating to its shareholders, although certain non-public personal information of its shareholders may become available to the Fund. The Fund does not disclose any non-public personal information about its shareholders or former shareholders to anyone, except as permitted by law or as is necessary in order to service shareholder accounts (for example, to a transfer agent or third party administrator).
This report is sent to shareholders of the Perimeter Small Cap Value Fund for their information. It is not a Prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in this report.
Proxy Voting Policies and Procedures
A description of the Fund’s proxy voting policies and procedures related to portfolio securities is available without charge, upon request, by calling the Fund (toll-free) at 800-970-2725, or on the U.S. Securities and Exchange Commission’s (“SEC”) website at
www.sec.gov
.
Proxy Voting Record
Information regarding how the Fund voted proxies for portfolio securities, if applicable, during the most recent 12-month period ended June 30, is also available, without charge and upon request by calling the Fund (toll-free) at 888-988-9801, or by accessing the Fund’s Form N-PX on the SEC’s website at
www.sec.gov
.
Form N-Q Disclosure
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Form N-Q is available on the SEC website at
www.sec.gov
or by calling the Fund (toll-free) at 800-970-2725. The Fund’s Form N-Q may also be viewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling (202) 551-8090.
Perimeter Small Cap Value Fund
P.O. Box 2175
Milwaukee, WI 53201
Toll Free: 800-970-2725