Portfolio Turnover:
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in
higher taxes when shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the period of March 26, 2013 through September 30, 2013,
the Fund’s portfolio turnover rate was 70% of the average value of its portfolio.
Principal
Investment Strategies of the Fund
The Fund pursues its investment objective
by investing, under normal market conditions, at least 80% of its net assets (including borrowings for investment purposes) in equity or equity-related securities (including, but not limited to, exchange-traded funds, equity index futures, equity
index swaps and depositary receipts) of small cap companies.
In managing the Fund, the
Adviser
seeks to invest in attractively valued companies with positive
momentum
and a stable business. Companies are considered to be good value investments if they appear
cheap based on multiple fundamental measures, including price-to-book and price-to-earnings ratios relative to other securities in its relevant universe
at the time of purchase. In assessing positive
momentum
, the
Adviser
favors securities with strong medium-term performance relative to other securities in its relevant universe at the time of purchase. Further, the
Adviser
favors stable companies in good business health, including those with strong profitability and stable earnings. The
Adviser
may add to or modify the economic factors
employed in selecting securities. There is no guarantee that the Fund’s objective will be met.
The Fund generally invests in small cap U.S.
companies and the
Adviser
generally
considers small cap U.S. companies to be those companies with market capitalizations within the range of the
Russell 2000
®
Index
at the time of purchase.
The
Adviser
determines the weight of each security in the portfolio using a combination of the float-adjusted market capitalization of the security and the
Adviser’s
assessment of attractiveness of the security based on each factor described above. Float adjusted market capitalization is a method of calculating the market capitalization of a security under which only the shares of the security that are readily
available for purchase on open markets (as opposed to the total shares of the security outstanding) are included in the calculation of the security’s market capitalization. As a result, securities with less float (
i.e.
, less liquidity) are underweighted comparative to securities with greater float (
i.e.
, greater liquidity). The
Adviser
utilizes
portfolio optimization techniques to determine the frequency of trading, taking into account the transaction costs associated with trading each equity instrument.
The Fund invests primarily in common
stocks. The Fund may also invest in or use financial futures contracts and other types of equity-linked derivative instruments such as equity swaps and equity index swaps, as well as exchange-traded funds and similar pooled investment vehicles, for
hedging purposes, to gain exposure to the equity market and to maintain liquidity to pay for redemptions. A portion of the Fund’s assets may be held in cash or cash-equivalent investments, including, but not limited to short-term investment
funds.
Principal
Risks of Investing in the Fund
Risk
is inherent in all investing. The value of your investment in the Fund, as well as the amount of return you receive on your investment, may fluctuate significantly from day to day and over time. You may lose part or all of your investment in the
Fund or your investment may not perform as well as other similar investments.
The Fund is not a complete investment program and should be considered only as one part of an investment portfolio. The
Fund is more appropriate for long-term investors who can bear the risk of short-term NAV fluctuations, which at times, may be significant and rapid.
The following is a summary description of certain risks of investing in the Fund.
Common Stock Risk:
Common stocks are subject to greater fluctuations in market value than certain other asset classes as a result of such factors as a company’s business performance, investor perceptions, stock market trends and
general economic conditions.
Counterparty Risk:
The Fund may enter into various types of derivative contracts. These derivative contracts may be privately negotiated in the over-the-counter market. These contracts also involve exposure to credit risk, since
contract performance depends in part on the financial condition of the counterparty. If a privately negotiated over-the-counter contract calls for payments by the Fund, the Fund must be prepared to make such payments when due. In addition, if a
counterparty’s creditworthiness declines, the Fund may not receive payments owed under the contract, or such payments may be delayed under such circumstances and the value of agreements with such counterparty can be expected to decline,
potentially resulting in losses by the Fund.
Derivatives Risk:
In general, a derivative contract typically involves leverage,
i.e.
, it provides exposure to potential gain or loss from
a change in the level of the market price of the underlying security, currency or commodity (or a basket or index) in a notional amount that exceeds the amount of cash or assets required to establish or maintain the derivative contract. Adverse
changes in the value or level of the underlying asset or index can result in a loss to the Fund substantially greater than the amount invested in the derivative itself. The use of derivative instruments also exposes the Fund to additional risks and
transaction costs. These instruments come in many varieties and have a wide range of potential risks and rewards, and may include futures contracts and swaps. A risk of the Fund’s use of derivatives is that the fluctuations in their values may
not correlate perfectly with the overall securities markets.
High Portfolio Turnover Risk:
To the extent that the Fund makes investments on a shorter-term basis, the Fund may as a result trade more frequently and incur higher levels of brokerage fees and commissions, and may cause higher levels of current
tax liability to shareholders in the Fund.
Investment in Other Investment Companies
Risk:
As with other investments, investments in other investment companies, including exchange-traded funds ("ETFs"), are subject to market and selection risk. In addition, if the Fund acquires shares of investment
companies, shareholders bear both their proportionate share of expenses in the Fund (including management and advisory fees) and,