Filed with the Securities and Exchange Commission on August 15, 2013
Securities Act of 1933 File No. 333-168569
Investment Company Act of 1940 File No. 811-22447
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 53
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and
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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Amendment No. 54
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(Check Appropriate Box or Boxes)
EQUINOX FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
17605 Wright Street Suite 2
Omaha, Nebraska 68130
(Address of Principal Executive Offices) (Zip Code)
Registrants Telephone Number, including Area Code: (609) 577-4200
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
(Name and Address of Agent for Service)
Copies to:
John M. Ford, Esq.
Pepper Hamilton LLP
3000 Two Logan Square
Philadelphia, PA 19103
It is proposed that this filing will become effective (check appropriate
box)
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immediately upon filing pursuant to paragraph (b)
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on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
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This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
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CAMPBELL STRATEGY FUND OF EQUINOX FUNDS TRUST (CLASS C SHARES)
PROSPECTUS
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August 15, 2013
Equinox Campbell Strategy Fund of Equinox Funds Trust
Class C Shares: EBSCX
Advised by:
Equinox Fund
Management, LLC
1775 Sherman Street, Suite 2500
Denver, CO 80203
1-888-643-3431
This Prospectus provides important information about the Fund that you should know before investing. Please read it carefully and keep it for future reference.
The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
TABLE OF CONTENTS
FUND SUMMARY
INVESTMENT OBJECTIVE:
The Equinox Campbell Strategy Fund (the Fund) seeks to achieve long-term capital appreciation.
FEES AND EXPENSES OF THE FUND:
The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder Fees
(fees paid directly from your investment)
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Class C
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Maximum Sales Charge (Load) Imposed on Purchases
(as a % of offering price)
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None
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Maximum Deferred Sales Charge (Load)
(as a % of original purchase price)
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1.00%
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(1)
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Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other Distributions
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None
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Redemption Fee
(2)
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None
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Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
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Management Fees
(3)
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0.75%
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Distribution and/or Service (12b-1) Fees
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1.00%
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Other Expenses
(4)
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0.66%
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Acquired Fund Fees and Expenses
(5)
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0.04%
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Total Annual Fund Operating Expenses
(6)
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2.45%
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Fee Waiver and/or Expense Reimbursement
(6)
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(0.51)%
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Total Annual Fund Operating Expenses (after Fee Waiver and/or Expense Reimbursement)
(5)(6)
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1.94%
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(1)
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A contingent deferred sales charge (CDSC) of 1.00% is assessed on redemptions of Class C shares made within one year after a purchase of such shares
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(2)
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The Funds transfer agent charges a $15.00 fee for each wire redemption.
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(3)
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Management Fees include a management fee paid to Equinox Fund Management, LLC (the Adviser) by the Subsidiary (as defined herein) at the annual rate of
0.75% of the Subsidiarys average daily net assets. The Adviser has contractually agreed, for so long as the Fund invests in the Subsidiary, to waive the management fee it receives from the Fund in an amount equal to the management fee paid to
the Adviser by the Subsidiary.
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(4)
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Other Expenses are based on estimated amounts for the Funds current fiscal year. This item does not include management fees paid by the Subsidiary to the
Adviser, which are included in Management fees in the table above. To the extent applicable, Other Expenses include estimated expenses of the Funds consolidated wholly-owned subsidiary (Subsidiary), and any
consolidated trading companies in which the Subsidiary may invest. Trading companies in which the Subsidiary may invest may pay management fees and/or incentive fees to the commodity trading advisor or CTA with whom the trading company
contracts. The Fund indirectly bears the fees and expenses of the Subsidiary and consolidated trading companies in the form of reduced returns on its investments. The Adviser anticipates that any investment in the Campbell Program (as defined below)
will be subject to (i) management fees of up to 1.25% of notional exposure, and (ii) performance-based incentive fees of 20.0% of new high net trading profits. The Subsidiary and any trading company are also subject to certain derivative
trading costs, including brokerage commissions and various exchange fees. Actual fees and expenses may vary from year to year, including depending on the trading companies profits and amount of assets allocated to each trading company.
Positive performance of a trading company will have the effect of increasing the trading companies fees and expenses to the extent that the relevant CTA earns performance fees. Other Expenses does not include costs associated with any
over-the-counter derivatives that provide the Fund with exposure to the Campbell Program, which is the primary manner in which the Fund intends to gain exposure to the Campbell Program. Costs associated with such derivative instruments include any
fee paid to the Funds counterparty and the fees and expenses associated with the Campbell Program referenced by such derivative instruments. Such costs are included in the return of any such derivative instruments and, therefore, represent an
indirect cost of investing in the Fund. The Fund does not anticipate that it will pay fees to derivative counterparties in the fiscal year 2013 in excess of 0.50% (annualized) of the notional exposure to the Campbell Program provided by the relevant
derivative instrument.
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(5)
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The operating expenses in this fee table will not correlate to the expense ratio in the Funds financial highlights because the financial statements include only the direct
operating expenses incurred by the Fund and do not include Acquired Fund Fees and Expenses. Acquired Fund Fees and Expenses do not include fees and expenses associated with the Funds investments in its wholly-owned
subsidiary (the Subsidiary) or in any trading company. Acquired Fund Fees and Expenses are based on estimated amounts for the Funds current fiscal year.
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(6)
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The Adviser has contractually agreed to reduce its advisory fee and/or reimburse certain expenses of the Fund, to ensure that the Funds total annual operating expenses,
excluding (i) taxes, (ii) interest, (iii) extraordinary items, (iv) Acquired Fund Fees and Expenses, (v) any expenses of the Subsidiary including trading company expenses, (vi) any class specific fees and
expenses, and (vii) brokerage commissions, do not exceed, on an annual basis, 0.90% of the Funds average daily net assets. The Adviser has contractually agreed to reduce its fees and/or reimburse expenses of the Fund until at least
January 30, 2015. This agreement may be terminated only by the Funds Board of Trustees on 60 days written notice to the Adviser. The Adviser shall be entitled to recover, subject to approval by the Board of Trustees of the Trust, such
waived or reimbursed amounts for a period of up to three (3) years from the year in which the Adviser reduced its compensation and/or assumed expenses for the Fund. The Adviser is permitted to seek reimbursement from the Fund, subject to
certain limitations, for fees it waived and Fund expenses it paid to the extent the total annual fund operating expenses for a Class do not exceed the limits described above or any lesser limits in effect at the time of reimbursement. The amount of
the fee waiver/expense reimbursement shown is an estimate based on expenses estimated for this fiscal year.
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Expense
Example:
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Funds operating expenses remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1 Year
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3 Years
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Class C
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$
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197
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$
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715
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Portfolio Turnover:
The Fund pays transaction costs, such as commissions, when it buys
and sells securities or derivative instruments (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These
costs (which are not reflected in Annual Fund Operating Expenses in the table above or in the Example) affect the Funds performance.
PRINCIPAL INVESTMENT STRATEGIES:
Please refer to the section entitled
Key Terms below for additional information on highlighted terms.
The Fund pursues its investment objective by making a combination
of investments (i) directly in an actively managed fixed-income portfolio, and (ii) indirectly through its wholly-owned subsidiary (the Subsidiary) in
trading companies
that employ the
managed futures
program
of Campbell & Company, Inc. (Campbell), a commodity trading adviser (CTA) registered with the U.S. Commodity Futures Trading Commission and/or derivative instruments such as swap agreements that
provide exposure to Campbells
managed futures program
(the Campbell Program).
The Campbell Program seeks to
generate attractive risk-adjusted returns across a broad range of market conditions through systematic investments in a diversified portfolio that may include swaps, futures and forward contracts in various global assets, including global interest
rates, stock indices, currencies and commodities. The Campbell Program seeks to invest in a variety of assets and markets in and outside of the United States including emerging countries. The Campbell Program consists of trend following and other
quantitative strategies that aim for low correlation to traditional asset classes such as equities and fixed income and are diversified by investment style, information source, investment holding period and instrument.
Campbells investment philosophy is driven by a belief that markets are broadly efficient but trends emerge and remain due to shifts in supply, demand, and
other economic factors. Asset mispricing can occur as a result of instability and uncertainty in markets, strongly-held opinions by market participants, or an unreliable flow of market information. Campbell seeks to systematically identify price
trends and to develop
macro
and
fundamental
themes that exploit asset mispricing.
The Campbell Program uses quantitative modeling to
develop and maintain
systematic trading
strategies driven by scientific analysis of
technical
,
macro
, and
econometric
data across global financial and commodity markets. The Campbell Program is designed to analyze market
data to identify trends and relationships occurring within and across markets and asset classes globally. Once identified, these trends and relationships are converted into mathematical models that can be historically tested. Once a model is
developed and thoroughly tested, it undergoes a rigorous peer review process to evaluate strength of theory and robustness. Model assumptions and other criteria are also analyzed, including tail risk, broad level risk factor exposures, market
diversification, correlation, and volatility as well as transaction costs. New models must demonstrate efficacy on a stand-alone basis while complimenting the existing portfolio.
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Derivative Instruments:
As a principal investment strategy, the Fund or the Subsidiary will either (i) invest in one or more
trading companies that use a variety of derivative instruments including swap agreements, exchange-traded
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futures and option contracts and forward contracts to gain exposure to a wide variety of global markets for currencies, interest rates, stock market indices, energy resources, metals and
agricultural products and to hedge price risk that provide exposure to the Campbell Program, (ii) enter into swap agreements to gain exposure to the Campbell Program, or (iii) invest in some combination of (i) and (ii). In general, a
derivative contract typically involves leverage, i.e., it provides exposure to potential gain or loss from a change in the level of the market price of a security, currency or commodity (or a basket or index) in a notional amount that exceeds the
amount of cash or assets required to establish or maintain the derivative contract.
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Cash and Fixed-Income Securities:
The Fund will also invest in cash, cash equivalents or securities issued by the U.S. government
with one year or less term to maturity for liquidity purposes, and to serve as margin or collateral for the derivatives positions of the Fund or the Subsidiary to the extent necessary. The Fund may also invest, to the extent permitted by the 1940
Act and rules under it, in money market funds.
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Subsidiary:
Investments in the Subsidiary, which has the same investment objective as the Fund, are intended to provide the Fund
with indirect exposure to futures contracts and commodities in a manner consistent with the limitations and requirements of the Internal Revenue Code of 1986, as amended (the Code) that apply to the Fund, which limit the amount of income
the Fund may receive from certain sources. Applicable federal tax requirements generally limit the degree to which the Fund may invest in the Subsidiary to an amount not exceeding 25% of its total assets. To the extent they are applicable to the
investment activities of the Subsidiary, the Subsidiary will be subject to the same investment restrictions and limitations, and follow the same compliance policies and procedures, as the Fund.
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KEY TERMS
Econometric
analysis is the use of statistical tools and data to describe and test certain economic relationships such
as asset prices.
Fundamental
analysis is the study of basic, underlying factors that will affect the
supply and demand of an investment. For example, with respect to commodity futures, fundamental analysis may look at crop reports, weather patterns, economic reports and other fundamental data to determine whether to buy or sell the futures
contract.
Macro
analysis generally analyzes economic, political or financial trends to seek returns and
invests across a particular, or a number of, geographic regions.
A
Managed Futures Program
generally is a
trading program that a CTA uses to guide its investments in futures, forwards, options or spot contracts. Each of these investments may be tied to a particular asset class: commodities, equities, fixed income or foreign currencies. A managed futures
program may use one or a combination of trading strategies, including those described below.
Systematic
Trading
is a trading strategy that employs computer-driven, mathematical models to identify when to buy or sell an instrument according to rules determined before a trade is made, generally, with little or no human intervention once a
mathematical formula has been entered.
Technical analysis
is a method of evaluating an investment
opportunity by using charts or computer programs to identify patterns in market data, such as price change, rates of change, and changes in volume of trading, open interest and other statistical indicators, in order to project the direction that a
market or the price of an investment will move. Technical analysis does not take into account fundamental market factors, such as supply and demand.
A
Trading Company
is a pooled investment vehicle organized as a limited liability company and operated as a commodity pool.
A
Trend Following
strategy generally seeks to identify the general direction of one or more global
market segments (either up or down) using indicators such as current market prices and moving average prices, and buy or sell investments based on the assessment of these trade signals as determined before a trade is made. Trend-following generally
focuses on the direction an investment or global market segment already has gone and not on the direction it may go.
The Funds return will be
derived principally from changes in the value of securities held in the Funds portfolio (including its investment in the Subsidiary), and the Funds assets will consist principally of securities. The Fund is non-diversified, which means
that it can invest a greater percentage of its assets in any one issuer than a diversified fund. The Adviser may engage in frequent buying and selling of portfolio holdings to achieve the Funds investment objective.
3
Principal Investment Risks:
As with all mutual funds,
there is the risk that you could lose money through your investment in the Fund. In general, the Funds investment strategies involve greater risks than the strategies used by a typical mutual fund. Many factors affect the Funds net asset
value and performance.
The following describes some of the risks the Fund may bear through direct investments in securities and derivatives as
well as indirectly through its investment in the Subsidiary.
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Campbell Program Strategy Risk.
The profitability of any Fund investment in the Campbell Program depends primarily on the ability
of Campbell to anticipate price movements in the relevant markets and underlying derivative instruments and futures contracts. Such price movements are influenced by, among other things:
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changes in interest rates;
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governmental, agricultural, trade, fiscal, monetary and exchange control programs and policies;
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weather and climate conditions;
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natural disasters, such as hurricanes;
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changing supply and demand relationships;
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changes in balances of payments and trade;
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U.S. and international rates of inflation and deflation;
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currency devaluations and revaluations;
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U.S. and international political and economic events; and
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changes in philosophies and emotions of various market participants.
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The Campbell Program may not take all of these factors into account. In addition, the Fund will indirectly bear the expenses, including management fees, incentive fees and transaction fees, associated with the
Campbell Program through reduced returns.
The successful use of forward and futures contracts draws upon Campbells skill and
experience with respect to such instruments and are subject to special risk considerations. The primary risks associated with the use of futures contracts are:
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Futures and forward contracts have a high degree of price variability and are subject to occasional rapid and substantial changes;
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the imperfect correlation between the change in market value of the instruments held by a trading company and the price of the forward or futures contracts and
the market value of the underlying instrument of reference assets with respect to such contracts;
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possible lack of a liquid secondary market for a forward or futures contract and the resulting inability to close a forward or futures contract when desired;
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possible market disruption or other extraordinary events, including but not limited to, governmental intervention;
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losses caused by unanticipated market movements, which are potentially unlimited;
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Campbells inability to predict correctly the direction of securities prices, interest rates, currency exchange rates and other economic factors;
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the possibility that the counterparty will default in the performance of its obligations; and
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if the Fund or any trading company has insufficient cash, it may either have to sell securities from its portfolio to meet daily variation margin requirements
with respect to its derivative instruments or close certain positions at a time when it may be disadvantageous to do so.
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The use of futures contracts, forward contracts and derivative instruments will have the economic effect of financial leverage. Financial leverage magnifies exposure to the swings in prices of an asset class
underlying an investment and results in increased volatility, which means the Campbell Program (and indirectly the Fund through its investment exposure to the Campbell Program) will have the potential for greater losses, as well as the potential for
greater gains, than if the Campbell Program did not employ leverage in its investment activity. Leveraging tends to magnify, sometimes significantly, the effect of any increase or decrease in the Campbell Programs exposure to an asset class
and may cause the value of the trading companys securities or related derivatives instruments to be volatile. Accordingly, the Funds NAV may be volatile because of its investment exposure to the Campbell Program.
4
There is no assurance that the Funds investment in a derivative instrument or trading company
with leveraged exposure to certain investments and markets will enable the Fund to achieve its investment objective.
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Commodities Risk.
Exposure to the commodities markets (including financial futures markets) may subject the Fund through its
investment in the Subsidiary to greater volatility than investments in traditional securities. Prices of commodities and related contracts may fluctuate significantly over short periods for a variety of reasons, including changes in interest rates,
supply and demand relationships and balances of payments and trade; weather and natural disasters; and governmental, agricultural, trade, fiscal, monetary and exchange control programs and policies. The commodity markets are subject to temporary
distortions and other disruptions. U.S. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices which may occur during a single business day. Limit prices have the effect of
precluding trading in a particular contract or forcing the liquidation of contracts at disadvantageous times or prices.
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Derivatives Risk.
Derivatives include instruments and contracts that are based on, and are valued in relation to, one or more
underlying securities, financial benchmarks or indices, such as futures, options, swap agreements and forward contracts. Derivatives typically have economic leverage inherent in their terms. Such leverage will magnify any losses. See
Leverage/Volatility Risk below. The primary types of derivatives in which the Fund, its Subsidiary or a trading company invest in are swap agreements, futures contracts and forward contracts. Futures contracts, forward contracts and swap
agreements can be highly volatile, illiquid and difficult to value, and changes in the value of such instruments held directly or indirectly by the Fund may not correlate with the underlying instrument or reference assets, or the Funds other
investments. Although the value of futures contracts, forward contracts and swap agreements depend largely upon price movements in the underlying instrument or reference asset, there are additional risks associated with futures contracts, forward
contracts and swap agreements that are possibly greater than the risks associated with investing directly in the underlying instruments or reference assets, including illiquidity risk, leveraging risk and counterparty credit risk. A small position
in futures contracts, forward contracts or swap agreements could have a potentially large impact on the Funds performance. Trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in
swap agreements, futures contracts and options and forward contracts.
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Fixed-Income Risk.
Fixed income securities are subject to credit risk and interest rate risk. Credit risk, as described more fully
below, refers to the possibility that the issuer of a debt security will be unable to make interest payments or repay principal when it becomes due. Interest rate risk refers to fluctuations in the value of a debt security resulting from changes in
the general level of interest rates. Prices of fixed income securities tend to move inversely with changes in interest rates. Typically, a rise in rates will adversely affect fixed income security prices and, accordingly, the Funds returns and
share price. In addition, the Fund may be subject to call risk, which is the risk that during a period of falling interest rates the issuer may redeem a security by repaying it early (which may reduce the Funds income if the
proceeds are reinvested at lower interest rates), and extension risk, which occurs during a rising interest rate environment because certain obligations will be paid off by an issuer more slowly than anticipated (causing the value of
those securities held by the Fund to fall).
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Counterparty Risk.
Many of the derivative contracts entered into by the Fund, the Subsidiary or a trading company will be privately
negotiated in the over-the-counter market. These contracts also involve exposure to credit risk, since contract performance depends in part on the financial condition of the counterparty. If a privately negotiated over-the-counter contract calls for
payments by the Fund, the Subsidiary or a trading company, the Fund, the Subsidiary or trading company must be prepared to make such payments when due. In addition, if a counterpartys creditworthiness declines, the Fund, the Subsidiary or a
trading company 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.
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Credit Risk.
Credit risk refers to the possibility that the issuer of the security will not be able to make principal and interest
payments when due. Changes in an issuers credit rating or the markets perception of an issuers creditworthiness may also affect the value of the Funds investment in that issuer. Securities rated in the four highest categories
by the rating agencies are considered investment grade but they may also have some speculative characteristics. Investment grade ratings do not guarantee that bonds will not lose value or default.
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Currency Risk.
The Funds exposure to foreign currencies subjects the Fund to the risk that those currencies will decline in
value relative to the U.S. Dollar, or, in the case of short positions, that the U.S. Dollar will decline in value relative to the currency that the Fund is short. Currency rates in foreign countries may fluctuate significantly over short
periods of time for any number of reasons, including changes in interest rates and the imposition of currency controls or other political developments in the U.S. or abroad.
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Emerging Market Risk.
The Fund intends to have exposure to emerging markets. Emerging markets are riskier than more developed
markets because they tend to develop unevenly and may never fully develop. Investments in emerging markets may be considered speculative. Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affect
returns to U.S. investors. In addition, many emerging financial markets have far lower trading volumes and less liquidity than developed markets.
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Foreign Market Risk.
As a general rule, there is less legal and regulatory protection for investors in foreign markets than that
available domestically. Additionally, trading on foreign exchanges is subject to the risks presented by exchange controls, expropriation, increased tax burdens and exposure to local economic declines and political instability. Some foreign
derivative markets are so-called principals markets in which performance is the responsibility only of the individual counterparty with whom the trader has entered into a commodity interest transaction and not of the exchange or clearing
corporation. International trading activities are subject to foreign exchange risk.
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General Market Risk.
The Funds net asset value (NAV) and investment return will fluctuate based upon changes in
the value of its portfolio securities. You could lose money on your investment in the Fund, or the Fund could underperform other investments.
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Government Intervention and Regulatory Changes
. The recent instability in financial markets has led the government to take a number
of unprecedented actions designed to support certain financial institutions and segments of the financial markets that are exposed to extreme volatility and in some cases lack of liquidity. For example, the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the Dodd-Frank Act) (which was passed into law in July 2010) significantly revises and expands the rulemaking, supervisory and enforcement authority of federal bank, securities and commodities regulators. It is unclear
how these regulators will exercise these revised and expanded powers and whether they will undertake rulemaking, supervisory or enforcement actions that would adversely affect the Fund or investments made by the Fund. There can be no assurance that
future regulatory actions authorized by the Dodd-Frank Act will not adversely impact the Fund. Major changes resulting from the Dodd-Frank Act or other legislative or regulatory actions could materially affect the profitability of the Fund or the
value of investments made by the Fund or force the Fund to revise its investment strategy or divest certain of its investments. Any of these developments could expose the Fund to additional costs, taxes, liabilities, enforcement actions and
reputational risk.
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In addition, the Dodd-Frank Act established a new regulatory structure for derivatives. If more
restrictive position limits are imposed on investors in the commodity futures and other derivative markets, the Campbell Program or other managed futures programs in which trading companies invest, and as a result, the Fund, may be adversely
affected. Similarly, changes in the regulation of foreign currency-related trading arising from the Dodd-Frank Act may make such trading more expensive for the Fund, and otherwise limit the Funds ability to engage in such trading, which could
adversely affect the Fund.
In 2012, the CFTC adopted certain rule amendments that significantly affected the exemptions from CFTC
regulations that were available to the Fund and its Subsidiary. Effective January 1, 2013, the Fund and its Subsidiary are subject to CFTC regulations because of these changes. At the time of the CFTCs adoption of the rule amendments,
Equinox was (and continues to be) registered as a commodity pool operator and, accordingly, is subject to CFTC regulations. The on-going compliance implications of these amendments are not yet fully effective and their scope of application is still
uncertain. CFTC-mandated disclosure, reporting and recordkeeping obligations will apply with respect to the Fund once the CFTC proposal that seeks to harmonize these obligations with overlapping SEC regulations is finalized. The effects
of these regulatory changes could increase Fund expenses, reduce investment returns or limit the Funds ability to implement its investment strategy.
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High Indirect Fees and Expenses.
Your cost of investing in the Fund may be higher than the cost of investing in other mutual funds
that invest directly in the types of instruments traded by the Campbell Program. In addition to the Funds direct fees and expenses, you will indirectly bear fees and expenses paid by the Subsidiary and by a trading company, including
management fees and performance-based fees associated with the Campbell Program, commodity brokerage commissions and operating expenses. Further, any investment in the Campbell Program is expected to be subject to management and performance-based
fees. Management fees typically are based on the leveraged account size or the notional exposure of the Fund to the Campbell Program and not the actual cash invested.
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Leverage/Volatility Risk
. The use of leverage by the Fund (or trading companies in which the Fund invests) will cause the value of
the Funds shares to be more volatile than if the Fund did not employ leverage. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of the Funds portfolio securities or other investments.
Relatively small market movements may result in large changes in the value of a leveraged investment. The potential loss on such leveraged investments may be substantial relative to the initial investment
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therein. Furthermore, derivative instruments and futures contracts are highly volatile and are subject to occasional rapid and substantial fluctuations. Consequently, you could lose all or
substantially all of your investment in the Fund should the Funds (or the relevant trading companies) trading positions suddenly turn unprofitable.
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The Funds NAV is expected over short-term periods to be volatile because of the significant use of direct and indirect investments that have a
leveraging effect. Volatility is a statistical measurement of the magnitude of up and down asset price fluctuations over time. Rapid and dramatic price swings will result in high volatility. The Funds returns are expected to be volatile;
however, the actual or realized volatility level for longer or shorter periods may be materially higher or lower depending on market conditions and investors may suffer a significant and possibly a complete loss on their investment in the Fund.
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Liquidity Risk.
The Fund is subject to liquidity risk primarily due to its investments in derivatives. Investments in illiquid
securities or derivative instruments involve the risk that the Fund may be unable to sell the security or derivative instrument or sell it at a reasonable price.
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Management Risk.
The Advisers judgments about the attractiveness, value and potential positive or negative performance of the
Campbell Program or any particular security or derivative in which the Fund invests or sells short may prove to be inaccurate and may not produce the desired results.
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Non-Diversification Risk.
The Fund is a non-diversified investment company, which means that more of the Funds assets may be
invested in the securities of a single issuer than could be invested in the securities of a single issuer by a diversified investment company. The Fund has a greater potential to realize losses upon the occurrence of adverse events affecting a
particular issuer.
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OTC Trading Risk.
Certain of the derivatives in which the Fund may invest may be traded (and privately negotiated) in the
over-the-counter or OTC market. While the OTC derivatives market is the primary trading venue for many derivatives, it is largely unregulated. As a result and similar to other privately negotiated contracts, the Fund is
subject to counterparty credit risk with respect to such derivative contracts.
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Performance Fees.
The performance-based fees indirectly paid to Campbell may create an incentive for Campbell to make investments
that are riskier or more speculative than those they might have made in the absence of such performance-based fees. In addition, because performance-based fees will generally be calculated on a basis that includes unrealized trading profits of the
Campbell Program, the fee may be greater than if it were based solely on realized gains. Positive performance of the Funds investments in the Campbell Program is expected to result in performance-based compensation being paid to Campbell,
which will be borne indirectly by the Fund, even if the Funds overall returns are negative. Further, because performance fees are frequently calculated on a quarterly basis (and, in some cases, upon a withdrawal of capital from a Trading
Company), it is possible that Campbell could earn a performance fee in a year in which its overall performance for the whole year was negative.
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Portfolio Turnover Risk.
The Fund may frequently buy and sell portfolio securities and other assets to rebalance the Funds
exposure to various market sectors. Higher portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Funds performance to
be less than you expect.
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Regulatory risk
. Governments, agencies or other regulatory bodies may adopt or change laws or regulations that could adversely
affect the issuer, or market value, of an instrument held by the Fund, its Subsidiary or a trading company, or that could adversely impact the Funds performance.
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Subsidiary Risk
. The Subsidiary will not be registered under the 1940 Act and, unless otherwise noted in this Prospectus, will not
be subject to all of the investor protections of the 1940 Act. Thus, the Fund, as an investor in the Subsidiary, will not have all of the protections offered to investors in registered investment companies. Changes in the laws of the United States
and/or the Cayman Islands, under which the Fund and Subsidiary, respectively, are organized, could result in the inability of the Fund and/or Subsidiary to operate as described in this Prospectus and could negatively affect the Fund and its
shareholders. For example, Cayman Islands law does not currently impose any income, corporate or capital gains tax, estate duty, inheritance tax, gift tax or withholding tax on the Subsidiary. If Cayman Islands law changes such that the Subsidiary
must pay Cayman Islands governmental authority taxes, Fund shareholders would likely suffer decreased investment returns.
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Performance:
Because the Fund has not been in operation for a complete calendar year, no performance information is presented for the Fund at this time. In the future, performance information will be presented in this
section of this Prospectus. Shareholder reports containing financial and performance information will be mailed to shareholders semi-annually.
7
Investment Adviser:
Equinox Fund Management, LLC
PORTFOLIO MANAGERS:
The
portfolio management team has included the following four members since 2013:
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Richard Bornhoft, Chief Investment Officer of the Adviser
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Ajay Dravid, Managing Director of Portfolio Strategy
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Sue Osborne, member of the Advisers portfolio management team
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Afroz Qadeer, member of the Advisers portfolio management team
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Rufus Rankin, Director of Portfolio Management
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Purchase and Sale of Fund Shares:
Minimum Investment Requirements
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Purchase Amounts
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Class C
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Minimum initial investment
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$
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2,500
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Minimum subsequent investment
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$
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500
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You may purchase and redeem shares of the Fund on any day that the New York Stock Exchange is open. Redemptions requests may be
made in writing, by telephone, or through a financial intermediary and will be paid by check or wire transfer.
Tax
Information:
The Fund intends to make distributions that may be taxed as ordinary income or capital gains except when shares are held through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement
account. Shares that are held in a tax-deferred account may be taxed as ordinary income or capital gains once they are withdrawn from the tax-deferred account.
Payments to Broker-Dealers and Other Financial Intermediaries:
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a
bank), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
ADDITIONAL INFORMATION ABOUT PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
INVESTMENT OBJECTIVE
The Fund seeks to achieve long-term capital appreciation. The
Funds investment objective is a non-fundamental policy and may be changed upon 60 days written notice to shareholders. There is no guarantee that the Fund will achieve its investment objective.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund pursues its investment objective by making a combination of investments (i) directly in an actively managed fixed income portfolio, and (ii) indirectly through its Subsidiary in trading companies that
employ the
managed futures program
of Campbell, a CTA registered with the U.S. Commodity Futures Trading Commission and/or derivative instruments such as swap agreements that provide exposure to the Campbell Program.
The Campbell Program seeks to generate attractive risk-adjusted returns across a broad range of market conditions through systematic investments in a diversified
portfolio that may include swaps, futures and forward contracts in various global assets, including global interest rates, stock indices, currencies and commodities. The Campbell Program seeks to invest in a variety of assets and markets in and
outside of the United States including emerging countries. The Campbell Program consists of trend following and other quantitative strategies that aim for low correlation to traditional asset classes such as equities and fixed income and are
diversified by investment style, information source, investment holding period and instrument.
Campbells investment philosophy is driven by a
belief that markets are broadly efficient but trends emerge and remain due to shifts in supply, demand, and other economic factors. Asset mispricing can occur as a result of instability and
8
uncertainty in markets, strongly-held opinions by market participants, or an unreliable flow of market information. Campbell seeks to systematically identify price trends and to develop
macro
and
fundamental
themes that exploit asset mispricing.
The Campbell Program uses quantitative modeling to develop and maintain
systematic trading
strategies driven by scientific analysis of
technical
,
macro
, and
econometric
data across global financial and commodity markets. The Campbell Program is designed to analyze market data to identify
trends relationships occurring within and across markets and asset classes globally. Once identified, these trends and relationships are converted into mathematical models that can be historically tested. Once a model is developed and thoroughly
tested, it undergoes a rigorous peer review process to evaluate strength of theory and robustness. Model assumptions and other criteria are also analyzed, including tail risk, broad level risk factor exposures, market diversification, correlation,
and volatility as well as transaction costs. New models must demonstrate efficacy on a stand-alone basis while complimenting the existing portfolio.
The
Funds return will be derived principally from changes in the value of securities held in the Funds portfolio (including its interests in the Subsidiary), and the Funds assets consist principally of securities. The Fund is
non-diversified, which means that it can invest a greater percentage of its assets in any one issuer than a diversified fund.
The Adviser may engage in
frequent buying and selling of portfolio holdings to achieve the Funds investment objective.
The Fund invests directly or indirectly through
the Subsidiary in the global derivatives markets through its exposure to one or more trading companies that employ the Campbell Program, which may utilize futures contracts, forward contracts and other derivatives to provide exposure to a variety of
global markets for currencies, interest rates, stock market indices, energy resources, metals and agricultural products.
Because the Fund may
invest a substantial portion of its assets in the Subsidiary, which may hold some of the investments described in this Prospectus, the Fund may be considered to be investing indirectly in some of those investments through its Subsidiary. For that
reason, references to the Fund may also include the Subsidiary.
To the extent the Fund itself owns, or otherwise gains exposure to the Campbell Program
that utilizes, futures contracts, forward contracts and derivatives, these instruments will have the economic effect of financial leverage. Financial leverage magnifies exposure to the swings in prices of an asset class underlying an investment and
results in increased volatility, which means the Fund will have the potential for greater gains, as well as the potential for greater losses, than if the Fund did not employ leverage in its investment activity. Leveraging tends to magnify, sometimes
significantly, the effect of any increase or decrease in the Funds exposure to an asset class and may cause the Funds NAV to be volatile. For example, if the Adviser seeks to gain enhanced exposure to a specific asset class through a
direct or indirect investment providing leveraged exposure to the class and that investment increases in value, the gain to the Fund will be magnified; however, if that investment decreases in value, the loss to the Fund will be magnified. There is
no assurance that the Funds leveraged exposure to certain investments will enable the Fund to achieve its investment objective.
The Adviser
expects the Funds NAV over short-term periods to be volatile because of the significant use, either directly or through its investment in the Campbell Program, of investments that have a leveraging effect. Volatility is a statistical
measurement of the magnitude of up and down asset price fluctuations over time. Rapid and dramatic price swings will result in high volatility. The Funds returns are expected to be volatile; however, the actual or realized volatility level for
longer or shorter periods may be materially higher or lower depending on market conditions.
The Subsidiary
Investments in the Subsidiary, which has the same investment objective as the Fund, are expected to provide the Fund with exposure to futures contracts and
commodities in a manner consistent with the limitations of the federal tax requirements that apply to the Fund to maintain its qualification as a Regulated Investment Company (a RIC). In addition, applicable federal tax requirements
generally limit the degree to which the Fund may invest not exceeding 25% of its total assets. It is expected that the Subsidiary will invest primarily in swap contracts or Trading Companies which is intended by the Adviser to provide exposure to
commodity-focused Managed Futures Programs and commodity-based indices but also may invest in commodity and financial futures and options, fixed income securities and other investments intended to serve as margin or collateral for the
Subsidiarys derivatives positions. Please refer to the Statement of Additional Information for more information about the organization and management of the Subsidiary.
Subchapter M also requires, among other things, that at least 90% of the Funds income be derived from securities or derived with respect to its business of investing in securities (typically referred to as
qualifying income). Income from certain of the commodity-linked derivatives in which the Fund invests may not be treated as qualifying income for purposes of the 90% income requirement. The Fund is aware of certain private
letter rulings from the Internal Revenue Service issued to other mutual funds, which indicate that income from the funds investment in a subsidiary will
9
constitute qualifying income for purposes of Subchapter M; however, the Fund has not itself received or applied for private letter ruling from the Internal Revenue Service and does
not intend to apply for such a ruling. Private letter rulings are not precedent and the Internal Revenue Service is not bound by them. Therefore, if the Internal Revenue Service challenges the position taken by the Fund that the income is qualifying
income, it may not prevail and would lose its status as a RIC. See More Information About Taxes Tax Risks of Investing in the Fund.
As with the Fund, the Adviser is responsible for the Subsidiarys day-to-day business pursuant to an investment advisory agreement with the Subsidiary. Under this agreement, the Adviser provides the Subsidiary
with the same type of management services, under the same terms, as are provided to the Fund. The investment advisory agreement of the Subsidiary provides for automatic termination upon the termination of the investment advisory agreement with
respect to the Fund. The Subsidiary has also entered into separate contracts for the provision of custody, transfer agency, and audit services with the same service providers that provide those services to the Fund. The Fund pays the Adviser a fee
for its services. The Adviser has contractually agreed to waive the management fee it receives from the Fund in an amount equal to the management fee paid to the Adviser by the Subsidiary. This undertaking will continue in effect for so long as the
Fund invests in the Subsidiary, and may not be terminated by the Adviser unless the Adviser first obtains the prior approval of the Funds Board of Trustees for such termination. The Subsidiary will also bear the fees and expenses incurred in
connection with the custody, transfer agency and audit services that it receives. The expenses borne by the Subsidiary are not expected to be material in relation to the value of the Funds assets. The Funds own expenses are reduced to
some extent as a result of the payment of such expenses at the Subsidiary level. Therefore, any duplicative fees for similar services provided to the Fund and Subsidiary are not material.
To the extent they are applicable to the investment activities of the Subsidiary, the Subsidiary will be managed pursuant to compliance policies and procedures that are the same, in all material respects, as the
policies and procedures adopted by the Fund. As a result, the Adviser, in managing the Subsidiarys portfolio, is subject to the same investment policies and restrictions that apply to the management of the Fund, and, in particular, to the
requirements relating to portfolio leverage, liquidity, brokerage, and the timing and method of the valuation of the Subsidiarys portfolio investments and shares of the Subsidiary. These policies and restrictions are described in detail in the
Funds Statement of Additional Information. The Funds Chief Compliance Officer oversees implementation of the Subsidiarys policies and procedures, and makes periodic reports to the Funds Board regarding the Subsidiarys
compliance with its policies and procedures.
PRINCIPAL INVESTMENT RISKS:
The risk descriptions below provide a more detailed explanation of the principal investment risks that correspond to the risks described in the Fund Summary section
of this Prospectus. In general, the Funds investment strategies involve greater risks than the strategies used by a typical mutual fund. The following describes the common risks of the Fund.
Campbell Program Strategy Risk
The profitability of any
Fund investment in the Campbell Program depends primarily on the ability of Campbell to anticipate price movements in the relevant markets and underlying derivative instruments and futures contracts. Such price movements are influenced by, among
other things:
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changes in interest rates;
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governmental, agricultural, trade, fiscal, monetary and exchange control programs and policies;
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weather and climate conditions;
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natural disasters, such as hurricanes;
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changing supply and demand relationships;
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changes in balances of payments and trade;
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U.S. and international rates of inflation and deflation;
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currency devaluations and revaluations;
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U.S. and international political and economic events; and
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changes in philosophies and emotions of various market participants.
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The Campbell Program may not take all of these factors into account.
10
The Campbell Program involves actively trading derivative instruments using a variety of strategies and investment
techniques that involve significant risks. Such derivative instruments may include commodities, currencies, futures, options and forward contracts and other derivative instruments that have inherent leverage and price volatility that result in
greater risk than instruments used by a typical mutual fund, and the systematic programs used to trade them may rely on proprietary investment strategies that are not fully disclosed, which may in turn result in risks that are not anticipated. In
addition, investments in the Campbell Program will typically be subject to relatively high management fees and performance-based fees which further reduce the potential return of the Funds or the Subsidiarys investments. These costs are
in addition to the operating expenses associated with the Fund. The combined impact of these costs will have the effect of reducing the performance of the Fund. Furthermore, performance-based fees may create an incentive for Campbell to make
investments that are riskier or more speculative than they might have made in the absence of such arrangements. The Adviser anticipates that any investment in the Campbell Program will be subject to (i) management fees of up to 1.25% of
notional exposure, and (ii) performance-based incentive fees of 20.0% of new high net trading profits. The Fund, Subsidiary or any trading company is also subject to certain derivative trading costs, including brokerage commissions and various
exchange fees.
The use of futures contracts, forward contracts and derivative instruments will have the economic effect of financial leverage.
Financial leverage magnifies exposure to the swings in prices of an asset class underlying an investment and results in increased volatility, which means the Campbell Program (and indirectly the Fund through its investment in a derivative instrument
or trading company) will have the potential for greater losses, as well as the potential for greater gains, than if the Campbell Program did not employ leverage in its investment activity. Leveraging tends to magnify, sometimes significantly, the
effect of any increase or decrease in the Campbell Programs exposure to an asset class and may cause the value of the Funds investment to be volatile. Accordingly, the Funds NAV may be volatile because of its investment exposure to
the Campbell Program.
The notional value of exposure achieved by the Fund, its Subsidiary or a trading company to the Campbell Program is expected to be
leveraged and such exposure may be by a multiple of more than four times the assets of the Subsidiary.
There is no assurance that the Funds
investment in a derivative instrument or trading company with leveraged exposure to certain investments and markets will enable the Fund to achieve its investment objective.
Commodities Risk
Exposure to the commodities markets (including financial futures markets) may subject the
Fund through its investment in the Subsidiary to greater volatility than investments in traditional securities. The values of commodities and commodity-linked investments are affected by events that might have less impact on the values of stocks and
bonds and have recently experienced periods of significant volatility. Prices of commodities and related contracts may fluctuate significantly over short periods for a variety of reasons, including: changes in interest rates, supply and demand
relationships and balances of payments and trade; weather and natural disasters; governmental, agricultural, trade, fiscal, monetary and exchange control programs and policies; acts of terrorism, tariffs and U.S. and international economic,
political, military and regulatory developments.
The commodity markets are subject to temporary distortions or other disruptions. U.S. futures
exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices, which may occur during a single business day. Once a limit price has been reached in a particular contract, no trades may be made
at a different price. Limit prices have the effect of precluding trading in a particular contract or forcing the liquidation of contracts at disadvantageous times or prices. These circumstances could adversely affect the value of the Funds
commodity-linked investments.
Derivatives Risk
Derivatives include instruments and contracts that are based on, and are valued in relation to, one or more underlying securities, financial benchmarks or indices,
such as futures, options, swap agreements and forward contracts. The value of a derivative depends largely upon price movements in the underlying instrument. Many of the risks applicable to trading the underlying instrument are also applicable to
derivatives trading. However, derivatives trading is subject to a number of additional risks. Transactions in certain derivatives are subject to clearance on a U.S. national exchange and to regulatory oversight, while other derivatives are subject
to risks of trading in the over-the-counter markets or on non-U.S. exchanges. A small investment in derivative instruments could have a potentially large impact on the Funds performance.
Liquidity of Futures Contracts
. The Fund may use futures as part of its strategy. Futures positions may be illiquid because certain commodity exchanges limit fluctuations in certain
futures contract prices during a single day by
11
regulations referred to as daily price fluctuation limits or daily limits. Under such daily limits, during a single trading day no trades may be executed at prices beyond
the daily limits. Once the price of a particular futures contract has increased or decreased by an amount equal to the daily limit, positions in that contract can neither be entered into nor liquidated unless traders are willing to effect trades at
or within the limit. Futures prices have occasionally moved beyond the daily limits for several consecutive days with little or no trading. OTC instruments generally are not as liquid as instruments traded on recognized exchanges. These constraints
could prevent the Fund from promptly liquidating unfavorable positions, thereby subjecting the Fund to substantial losses. In addition, the Commodity Futures Trading Commission (CFTC) and various exchanges limit the number of positions
that the Fund may indirectly hold or control in particular commodities.
Non-U.S. Futures Transactions
. Foreign futures
transactions involve the execution and clearing of trades on a foreign exchange. This is the case even if the foreign exchange is formally linked to a domestic exchange, whereby a trade executed on one exchange liquidates or establishes
a position on the other exchange. No domestic organization regulates the activities of a foreign exchange, including the execution, delivery, and clearing of transactions on such an exchange, and no domestic regulator has the power to compel
enforcement of the rules of the foreign exchange or the laws of the foreign country. Moreover, such laws or regulations will vary depending on the foreign country in which the transaction occurs. For these reasons, the Fund may not be afforded
certain of the protections that apply to domestic transactions. In particular, funds received to margin foreign futures transactions may not be provided the same protections as funds received to margin futures transactions on domestic exchanges. In
addition, the price of any foreign futures or option contract and, therefore, the resulting potential profit or loss, may be affected by any fluctuation in the foreign exchange rate between the time the order is placed and the foreign futures
contract is liquidated or the foreign option contract is liquidated or exercised.
Forward Contracts.
The Fund may enter
into forward contracts that are not traded on exchanges and may not be regulated. There are no limitations on daily price movements of forward contracts. Banks and other dealers with which the Fund maintains accounts may require that the Fund
deposit margin with respect to such trading. The Funds counterparties are not required to continue making markets in such contracts. There have been periods during which certain counterparties have refused to continue to quote prices for
forward contracts or have quoted prices with an unusually wide spread (the price at which the counterparty is prepared to buy and that at which it is prepared to sell). Arrangements to trade forward contracts may be made with only one or a few
counterparties, and liquidity problems therefore might be greater than if such arrangements were made with numerous counterparties. The imposition of credit controls by governmental authorities might limit such forward trading to less than the
amount that the Adviser would otherwise recommend, to the possible detriment of the Fund.
Swap Agreements
. The Fund may
enter into swap agreements. Swap agreements can be individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Depending on their structure, swap agreements may increase or decrease
the Funds exposure to long-term or short-term interest rates, foreign currency values, corporate borrowing rates, or other factors such as security prices, baskets of securities, or inflation rates. Swap agreements can take many different
forms and are known by a variety of names. The Fund is not limited to any particular form of swap agreement if the Adviser determines that other forms are consistent with the Funds investment objective and policies.
Swap agreements will tend to shift the Funds investment exposure from one type of investment to another. For example, if the Fund agrees to exchange payments
in dollars for payments in foreign currency, the swap agreement would tend to decrease the Funds exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Depending on how they are used, swap agreements
may increase or decrease the overall volatility of the Funds portfolio. The most significant factor in the performance of swap agreements is the change in the specific interest rate, currency, individual equity values or other factors that
determine the amounts of payments due to and from the Fund. If a swap agreement calls for payments by the Fund, the Fund must be prepared to make such payments when due. In addition, the value of a swap agreement is likely to decline if the
counterpartys creditworthiness declines. Such a decrease in value might cause the Fund to incur losses.
Recent market developments related to
swaps have prompted increased scrutiny with respect to these instruments. As a result of the Dodd-Frank Act, swaps may in the future be subject to increased regulation. Such regulation may limit the Funds ability to use swaps and increase the
cost of using swaps.
Fixed-Income Risk
A
substantial portion of the Funds assets may be invested in U.S. Treasuries or other short-term debt obligations. When interest rates change, the value of the Funds fixed-income investments will be affected. Prices of fixed income
securities tend to move inversely with changes in interest rates. Typically, a rise in rates will adversely affect fixed
12
income security prices and, accordingly, the Funds share price. The longer the effective maturity and duration of the Funds portfolio, the more the Funds share price is likely
to react to interest rates. Some fixed income securities give the issuer the option to call, or redeem, the securities before their maturity dates. If an issuer calls its security during a time of declining interest rates, the Fund might have to
reinvest the proceeds in an investment offering a lower yield, and therefore might not benefit from any increase in value as a result of declining interest rates. During periods of market illiquidity or rising interest rates, prices of callable
issues are subject to increased price fluctuation. In addition, the Fund may be subject to extension risk, which occurs during a rising interest rate environment because certain obligations will be paid off by an issuer more slowly than anticipated,
causing the value of those securities held by the Fund to fall.
Fixed income investments are also subject to Credit Risk discussed below.
Counterparty Risk
Many of the derivatives
entered into by the Fund, the Subsidiary or a trading company are not traded on an exchange but instead will be privately negotiated in the over-the-counter market. This means that these instruments are traded between counterparties based on
contractual relationships. As a result, the Fund is subject to the risk that a counterparty will not perform its obligations under the related contract. If a privately negotiated over-the-counter contract calls for payments by the Fund, the
Subsidiary or a trading company, the Fund, the Subsidiary or trading company must be prepared to make such payments when due. In addition, if a counterpartys creditworthiness declines, the Fund, the Subsidiary or a trading company 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. There can be no assurance
that a counterparty will not default and that the Fund will not sustain a loss on a transaction as a result.
In situations in which the Fund is required
to post margin or other collateral with a counterparty, including with a futures commission merchant or a clearing organization for futures or other derivative contracts, the counterparty may fail to segregate the collateral or may commingle the
collateral with the counterpartys own assets. As a result, in the event of the counterpartys bankruptcy or insolvency, the Funds collateral may be subject to the conflicting claims of the counterpartys creditors and the Fund
may be exposed to the risk of being treated as a general unsecured creditor of the counterparty, rather than as the owner of the collateral.
The Fund is
subject to the risk that issuers of the instruments in which it invests and trades may default on their obligations, and that certain events may occur that have an immediate and significant adverse effect on the value of those instruments. There can
be no assurance that an issuer will not default, or that an event that has an immediate and significant adverse effect on the value of an instrument will not occur, and that the Fund will not sustain a loss on a transaction as a result.
Transactions entered into by the Fund may be executed on various U.S. and non-U.S. exchanges, and may be cleared and settled through various clearing houses,
custodians, depositories and prime brokers throughout the world. A failure by any such entity may lead to a loss to the Fund.
Credit Risk
Credit risk refers to the possibility that the issuer of the security will not be able to make principal and interest payments when due. Changes
in an issuers credit rating or the markets perception of an issuers creditworthiness may also affect the value of the Funds investment in that issuer. The degree of credit risk depends on both the financial condition of the
issuer and the terms of the obligation. Securities rated in the four highest categories (Standard & Poors (S&P) (AAA, AA, A and BBB), Fitch Ratings (Fitch) (AAA, AA, A and BBB) or Moodys Investors
Service, Inc. (Moodys) (Aaa, Aa, A and Baa)) by the rating agencies are considered investment grade but they may also have some speculative characteristics, meaning that they carry more risk than higher rated securities and may
have problems making principal and interest payments in difficult economic climates. Investment grade ratings do not guarantee that bonds will not lose value or default.
If a security issuer defaults on its payment obligations to the Fund, this default will cause the value of an investment in the Fund to decrease. Lower credit quality may lead to greater volatility in the price of
a security and in shares of the Fund. Lower credit quality also may affect liquidity and make it difficult to sell the security. Default, or the markets perception that an issuer is likely to default, could reduce the value and liquidity of
securities, thereby reducing the value of your investment in Fund shares. In addition, default may cause the Fund to incur expenses in seeking recovery of principal or interest on its portfolio holdings.
When the Fund or any trading company invests in over-the-counter derivatives (including options), it is assuming a credit risk with regard to the party with which
it trades and also bears the risk of settlement default. These risks may
13
differ materially from risks associated with transactions effected on an exchange, which generally are backed by clearing organization guarantees, daily mark-to-market and settlement, segregation
and minimum capital requirements applicable to intermediaries. Transactions entered into directly between two counterparties generally do not benefit from such protections. Relying on any counterparty exposes the Fund to the risk that such
counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the Fund to suffer a
loss. If any counterparty defaults on its payment obligations to the Fund, this default will cause the value of an investment in the Fund to decrease.
In addition, to the extent the Fund or any trading company deals with a limited number of counterparties, it will be more susceptible to the credit risks associated
with those counterparties. The Fund is neither restricted from dealing with any particular counterparty nor from concentrating any or all of its transactions with one counterparty. The ability of the Fund to transact business with any one or number
of counterparties and the absence of a regulated market to facilitate settlement may increase the potential for losses by the Fund.
High Indirect
fees and expenses
Your cost of investing in the Fund may be higher than the cost of investing in other mutual funds that invest directly in the
types of instruments traded by the Campbell Program. In addition to the Funds direct fees and expenses, you will indirectly bear fees and expenses paid by the Subsidiary and by a trading company, including management fees and performance-based
fees associated with the Campbell Program, commodity brokerage commissions and operating expenses. Further, any investment in the Campbell Program is expected to be subject to management and performance-based fees. Management fees typically are
based on the leveraged account size or the notional exposure of the Fund to the Campbell Program and not the actual cash invested.
Performance fees
The performance-based fees indirectly
paid to Campbell may create an incentive for Campbell to make investments that are riskier or more speculative than those they might have made in the absence of such performance-based fees. In addition, because performance-based fees will generally
be calculated on a basis that includes unrealized trading profits of the Campbell Program, the fee may be greater than if it were based solely on realized gains. Positive performance of the Funds investments in the Campbell Program is expected
to result in performance-based compensation being paid to Campbell, which will be borne indirectly by the Fund, even if the Funds overall returns are negative. Further, because performance fees are frequently calculated on a quarterly basis
(and, in some cases, upon a withdrawal of capital from a trading company), it is possible that Campbell could earn a performance fee in a year in which its overall performance for the whole year was negative.
Currency Risk
The Funds indirect and direct exposure
to foreign currencies subjects the Fund to the risk that those currencies will decline in value relative to the U.S. Dollar, or, in the case of short positions, that the U.S. Dollar will decline in value relative to the currency that the
Fund is short. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates and the imposition of currency controls or other political developments in the
U.S. or abroad. In addition, the Fund may incur transaction costs in connection with conversions between various currencies.
Emerging Market Risk
The Fund in tends to have exposure to emerging markets. Investing in emerging markets will, among other things, expose the Fund to all the risks
described below in the Foreign Market Risk section, and you should review that section carefully. However, there are greater risks involved in investing in emerging market countries and/or their financial markets than there are in more developed
countries and/or markets. Generally, economic structures in these countries are less diverse and mature than those in developed countries, and their political systems are less stable. Investments in emerging market countries may be affected by
national policies that restrict foreign investment in certain issuers or industries. The small size of their financial markets and low trading volumes can make investments illiquid and more volatile than investments in developed countries and such
securities may be subject to abrupt and severe price declines. The Fund may be required to establish special custody or other arrangements before investing. In addition, because the securities settlement procedures are less developed in these
countries, the Fund may be required to deliver securities before receiving payment and may also be unable to complete transactions during market disruptions. The possible establishment of exchange controls or freezes on the convertibility of
currency might adversely affect an investment in assets traded in foreign markets.
14
Foreign Market Risk
A substantial portion of the trades of the Campbell Program are expected to take place on markets or exchanges outside the United States. There is no limit to the amount of assets of the Fund that may be committed
to trading on foreign markets. The risk of loss in trading foreign futures and options on futures contracts can be substantial. Participation in foreign futures and options on futures contracts involves the execution and clearing of trades on, or
subject to the rules of, a foreign board of trade or exchange. Some of these foreign markets, in contrast to U.S. exchanges, are so-called principals markets in which performance is the responsibility only of the individual counterparty with
whom the trader has entered into a commodity interest transaction and not of the exchange or clearing corporation. In these kinds of markets, there is risk of bankruptcy or other failure or refusal to perform by the counterparty.
Some foreign markets present additional risk, because they are not subject to the same degree of regulation as their U.S. counterparts. No U.S. regulatory agency or
any domestic exchange regulates activities on any foreign boards of trade or exchanges (such as the execution, delivery and clearing of transactions) or has the power to compel enforcement of the rules of a foreign board of trade or exchange or of
any applicable foreign laws. Similarly, the rights of market participants, in the event of the insolvency or bankruptcy of a foreign market or broker are also likely to be more limited than in the case of U.S. markets or brokers. As a result, in
these markets, there is less legal and regulatory protection than that available domestically.
Additionally, trading on foreign exchanges is subject to
the risks presented by exchange controls, expropriation, increased tax burdens and exposure to local economic declines and political instability. An adverse development with respect to any of these variables could reduce the profit or increase the
loss earned on trades in the affected international markets. International trading activities are subject to foreign exchange risk.
General Market
Risk
The Funds NAV and investment return will fluctuate based upon changes in the value of its portfolio securities. The market value of
securities in which the Fund or the Subsidiary invests is based upon the markets perception of value and is not necessarily an objective measure of a securitys value. There is no assurance that the Fund will realize its investment
objective, and an investment in the Fund is not, by itself, a complete or balanced investment program. You could lose money on your investment in the Fund, or the Fund could underperform other investments.
Government Intervention and Regulatory Changes
The recent
instability in financial markets has led government to take a number of unprecedented actions designed to support certain financial institutions and segments of the financial markets that are exposed to extreme volatility and in some cases lack of
liquidity. For example, the Dodd-Frank Act significantly revises and expands the rulemaking, supervisory and enforcement authority of federal bank, securities and commodities regulators. It is unclear how these regulators will exercise these revised
and expanded powers and whether they will undertake rulemaking, supervisory or enforcement actions that would adversely affect the Fund or investments made by the Fund. Possible regulatory actions taken under these revised and expanded powers may
include actions related to financial consumer protection, proprietary trading and derivatives. There can be no assurance that future regulatory actions authorized by the Dodd-Frank Act will not adversely impact the Fund. Legislators and regulators
in the United States are currently considering a wide range of proposals beyond the Dodd-Frank Act that, if enacted, could result in major changes to the way banking operations are regulated. Some of these major changes could materially affect the
profitability of the Fund or the value of investments made by the Fund or force the Fund to revise its investment strategy or divest certain of its investments. Any of these developments could expose the Fund to additional costs, taxes, liabilities,
enforcement actions and reputational risk.
In addition, the Dodd-Frank Act established a new regulatory structure for derivatives. The new legislation
requires regulators to set minimum capital requirements and minimum initial and variation margin requirements, repeals prior regulatory exemptions for OTC derivatives, provides substantial authority to the SEC and the CFTC with respect to position
limits for certain swaps and may change the standards for determining manipulation. Much of the required rulemaking and regulations have yet to be implemented. Accordingly, the effect of the new legislation and its impact on the Fund and any trading
companies cannot yet be known. If more restrictive position limits are imposed on investors in the commodity futures and other derivative markets, the managed futures programs in which trading companies invest, and as a result, the Fund, may be
adversely affected. Similarly, changes in the regulation of foreign currency-related trading arising from the Dodd-Frank Act may make it more expensive for the Fund and otherwise limit the Funds ability to engage in such trading, which could
adversely affect the Fund.
In 2012, the CFTC adopted certain rule amendments that significantly affected the exemptions from CFTC regulations that
were available to the Fund and its Subsidiary. Effective January 1, 2013, the Fund and its Subsidiary are subject to CFTC regulations because of these changes. At the time of the CFTCs adoption of the rule amendments, Equinox
15
was (and continues to be) registered as a commodity pool operator and, accordingly, is subject to CFTC regulations. The on-going compliance implications of these amendments are not yet fully
effective and their scope of application is still uncertain. CFTC-mandated disclosure, reporting and recordkeeping obligations will apply with respect to the Fund once the CFTC proposal that seeks to harmonize these obligations with
overlapping SEC regulations is finalized. The effects of these regulatory changes could increase Fund expenses, reduce investment returns or limit the Funds ability to implement its investment strategy.
Leverage/Volatility Risk
The Fund may employ leverage
and may invest in leveraged instruments. The more the Fund invests in leveraged instruments, the more this leverage will magnify any losses on those investments. Leverage will cause the value of the Funds shares to be more volatile than if the
Fund did not use leverage. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of the Funds portfolio securities or other investments. The Fund or any trading company may engage in transactions or
purchase instruments that give rise to forms of leverage. Such transactions and instruments may include the investment of collateral from loans of portfolio securities, or the use of when issued, delayed-delivery or forward commitment transactions.
Derivative contracts ordinarily have leverage inherent in their terms. The use of leverage may also cause the Fund or a trading company to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations
or to meet segregation requirements. Certain types of leveraging transactions could theoretically be subject to unlimited losses in cases where the Fund or a trading company, for any reason, is unable to close out the transaction.
Furthermore, derivative contracts are highly volatile and are subject to occasional rapid and substantial fluctuations. Consequently, you could lose all or
substantially all of your investment in the Fund should the trading positions of the Fund or any trading company suddenly turn unprofitable.
Liquidity Risk
The Fund may be subject to liquidity risk
primarily due to investments in derivatives. The Fund may invest up to 15% of its net assets in illiquid securities or instruments. Derivatives, such as swaps, options and warrants, may not be readily marketable and, therefore, may be deemed to be
illiquid. An asset is not readily marketable if it cannot be sold within seven business days in the ordinary course of business for approximately the amount at which it is valued. Investments in illiquid assets involve the risk that the Fund may be
unable to sell the asset or sell it at a reasonable price. In addition, the Fund may be required to liquidate positions or close out derivatives on unfavorable terms at a time contrary to the interests of the Fund in order to raise cash to pay
redemptions.
An investment in derivatives is also subject to the risk that the Fund may not be able to terminate the derivatives effective on whatever
date it chooses, or that the settlement of any early termination may depend on subsequent market movements. As a result, the Fund may be exposed to the risk of additional losses due to such delays.
Management Risk
The Advisers judgments about the
attractiveness, value and potential positive or negative performance of the Campbell Program or any particular security or derivative in which the Fund invests or sells short may prove to be inaccurate and may not produce the desired results.
Non-Diversification Risk
The Fund is a
non-diversified investment company, which means that more of the Funds assets may be invested in the securities of a single issuer than could be invested in the securities of a single issuer by a diversified investment company. This may make
the value of the Funds shares more susceptible to certain risks than shares of a diversified investment company. As a non-diversified fund, the Fund has a greater potential to realize losses upon the occurrence of adverse events affecting a
particular issuer.
OTC Trading Risk
Certain of
the derivatives in which the Fund may invest, including swap agreements, may be traded (and privately negotiated) in the OTC market. While the OTC derivatives market is the primary trading venue for many derivatives, it is largely unregulated and
lacks transparency with respect to the terms of OTC transactions. OTC derivatives are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to the Fund. In
addition, such derivative instruments are often highly customized and tailored to meet the needs of the counterparties. If a derivative transaction is particularly large or if the relevant market is illiquid, it may not be possible to initiate a
transaction or liquidate a position at an advantageous time or price. As a result and similar to other privately negotiated contracts, the Fund is subject to counterparty credit risk with respect to such derivative contracts.
16
Portfolio Turnover Risk
The Fund may frequently buy and sell portfolio securities and other assets to rebalance the Funds exposure to various market sectors. Higher portfolio turnover may result in the Fund paying higher levels of
transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Funds performance to be less than you expect.
Regulatory Risk
Governments, agencies or other regulatory bodies may adopt or change laws or regulations that
could adversely affect the issuer, or market value, of an instrument held by the Fund or the Funds performance.
Subsidiary Risk
The Subsidiary is not registered under the Investment Company Act of 1940 and, unless otherwise noted in this Prospectus, is not subject to all of
the investor protections of the Investment Company Act of 1940. Thus, the Fund, as an investor in the Subsidiary, will not have all of the protections offered to investors in registered investment companies. However, the Fund wholly owns and
controls the Subsidiary, and the Fund and the Subsidiary are both managed by the Adviser, making it unlikely that the Subsidiary will take action contrary to the interests of the Fund or its shareholders. While the Subsidiary has an independent
board of directors that is responsible for overseeing the operations of the Subsidiary, the Funds Board has oversight responsibility for the investment activities of the Fund, including its investment in the Subsidiary, and the Funds
role as the sole shareholder of the Subsidiary. Also, to the extent they are applicable to the investment activities of the Subsidiary, the Adviser will be subject to the same fundamental investment restrictions that apply to the management of the
Fund in managing the Subsidiarys portfolio. It is not currently expected that shares of the Subsidiary will be sold or offered to investors other than the Fund.
Changes in the laws of the United States and/or the Cayman Islands, under which the Fund and the Subsidiary, respectively, are organized, could result in the inability of the Fund and/or the Subsidiary to operate
as described in this Prospectus and could negatively affect the Fund and its shareholders. For example, Cayman Islands law does not currently impose any income, corporate or capital gains tax, estate duty, inheritance tax, gift tax or withholding
tax on the Subsidiary. If Cayman Islands law changes such that the Subsidiary must pay Cayman Islands governmental authority taxes, Fund shareholders would likely suffer decreased investment returns.
TEMPORARY INVESTMENTS
To respond
to adverse market, economic, political or other conditions, the Fund may invest up to 100% of total assets, without limitation, in high-quality short-term debt securities and money market instruments or any derivative instrument meant to track the
return of any such instrument. These short-term debt securities and money market instruments include shares of other mutual funds, commercial paper, certificates of deposit, bankers acceptances, U.S. Government securities and repurchase
agreements. While the Fund is in a defensive position, the opportunity to achieve its investment objective will be limited. Furthermore, to the extent that the Fund invests in money market mutual funds for cash positions, there will be some
duplication of expenses because the Fund will bear its pro-rata portion of such money market funds advisory fees and operational fees. The Fund may also invest a substantial portion of its assets in such instruments at any time to maintain
liquidity or pending selection of investments in accordance with its policies.
PORTFOLIO HOLDINGS DISCLOSURE
A description of the Funds policies regarding the release of portfolio holdings information is available in the Funds Statement of
Additional Information (SAI) and can also be found on the Funds website at www.EquinoxFundManagement.com.
MANAGEMENT
INVESTMENT ADVISER
Equinox
Fund Management, LLC, a Delaware limited liability company formed in 2003, serves as the investment adviser to the Fund. It has been registered with the Commodity Futures Trading Commission as a commodity pool operator since 2003 and registered with
the Securities and Exchange Commission (SEC) as an investment adviser since 2007. The Advisers principal place of business is located at 1775 Sherman Street, Suite 2500 Denver, CO 80203. The Adviser manages and supervises the
investment of the Funds assets on a discretionary basis. As of June 30, 2013, the Adviser had approximately $1.289 billion in assets under management.
For its services, the Adviser is entitled to an investment advisory fee, which is calculated daily and paid monthly, at an annual rate of 0.75% of the Funds average daily net assets. The Adviser has
contractually agreed that from
17
commencement of the Funds operations through January 30, 2015, it will reduce its compensation and/or reimburse certain expenses for the Fund, to the extent necessary to ensure that
the Funds total operating expenses, excluding taxes, any class-specific fees and expenses (such as Rule 12b-1 distribution fees, shareholder service fees, or transfer agency fees), interest, extraordinary items, Acquired Fund Fees and
Expenses and brokerage commissions, do not exceed, on an annual basis, 0.90% of the Funds average daily net assets. The Adviser shall be entitled to recover, subject to approval by the Board of Trustees of the Trust, such waived or
reimbursed amounts for a period of up to three (3) years from the year in which the Adviser reduced its compensation and/or assumed expenses for the Fund.
A discussion regarding the basis for the Board of Trustees approval of the investment advisory contract with the Adviser will be available in the Funds first Semi-Annual or Annual Report to
Shareholders.
PORTFOLIO MANAGERS
Richard Bornhoft is a Co-Founder and the Chief Investment Officer of the Adviser. He leads the Advisers portfolio management team and is responsible for day-to-day investment decisions for the Fund.
Mr. Bornhoft has over 30 years of experience in the alternative investment industry. He specializes in the creation, evaluation, and risk monitoring of managed futures investment portfolios for institutional and individual investors.
Mr. Bornhoft began his career directing hedging strategies for mortgage and agricultural companies and banks, and subsequently as a systematic CTA. Mr. Bornhoft co-founded one of the first multiple-CTA managed futures funds in 1983, and
his own futures investment advisory firm in 1985. Over the course of his career, Mr. Bornhoft has financially engineered and directed the research, design and on-going management of multiple-CTA managed futures portfolios for approximately 20
pension plans, corporations and banking institutions throughout the world. He has served on numerous arbitration boards and committees of regulatory and industry organizations. Mr. Bornhoft earned his BS in Agricultural Business from Colorado
State University. He holds securities licenses Series 7, 24, 63 and CFTC/NFA Series 3.
Dr. Ajay Dravid is the Managing Director of Portfolio
Strategy for the Adviser and joined the Adviser in 2011. As a coportfolio manager of Equinox Fund Managements mutual funds, Dr. Dravid is involved in day-to-day portfolio and risk management, as well as in developing and structuring new
products. Prior to joining Equinox, he was a consultant and a member of the Executive Committee of The Frontier Fund. Dr. Dravid has more than 30 years of experience in industry, academia, and financial services. From 2004 to 2006, he was
President of Saranac Capital Management, a separate entity spun out from Citigroup to manage more than $3 billion in hedge fund assets. From 1996 to 2004, he was a Director and then a Managing Director at Salomon Brothers and Citigroup, where he
helped to build and manage the hedge fund business and platforms. He was a co-portfolio manager for the Multi-Strategy Arbitrage funds, a quantitative analyst for the Equity Long-Short funds, and the head of the Risk Committee. He was also involved
in the structuring and marketing of funds and in client service. From 1993 to 1996, Dr. Dravid was a Vice President in the Asset Allocation Research Group of Salomon Brothers. Prior to this, he was an Assistant Professor of Finance at the
Wharton School.
Dr. Dravid has published numerous papers in leading academic and practitioner journals including Journal of Finance, Journal of
Financial Economics, and Journal of Derivatives. Dr. Dravid received a BSc in Physics from the University of Poona (India), an MA in Physics from SUNY at Stony Brook, an MBA in Finance and Marketing from the University of Rochester, and a PhD
in Finance from the Graduate School of Business at Stanford University. He holds a CFTC/NFA Series 3 registration.
Sue Osborne is a member of the
Advisers portfolio management team and joined the Advisor in April 2013. Ms. Osborne is also Director of Research at Equinox Institutional Asset Management, LP (formerly known as Tapestry Asset Management, LP), an affiliate of the
Adviser, where she has been since 2003, first as a consultant and then in her current role. She has held positions in hedge fund research and portfolio management at Hamilton & Co. from 2002 to 2003, Goldman Sachs from 1998 to 2002, Lake
Partners from 1996 to 1998, and Greenwich Associates in 1996. She holds an MBA from Lehigh University and a BS in Marketing from Duquesne University.
Afroz Qadeer is a member of the Advisers portfolio management team and joined the Adviser in April 2013. Mr. Qadeer co-founded Equinox Institutional
Asset Management, LP (then known as Tapestry Asset Management, LP) in 2002 and serves as its President and Chief Investment Officer. He has held tenures in hedge fund research and portfolio management roles with Goldman Sachs, Optima Fund
Management, and Lake Partners. In such roles, he participated in the launch of eight multi-manager funds, management of 20 multi-manager portfolios covering a diverse range of alternatives, and management of four hedge fund portfolios with assets of
approximately $2 billion.
Mr. Qadeer holds an MBA from The Wharton School, University of Pennsylvania and a Bachelor of Commerce from
Sydenham College, University of Bombay, India.
Rufus Rankin is the
Advisers Director of Portfolio Management and joined the Adviser in 2011. Mr. Rankin works on the conception, development and implementation of new products and distribution strategies for investment products
18
managed by Equinox Fund Management, a role that requires daily contact with and evaluation of CTAs, and other alternative investment managers. He is a co-portfolio manager of the firms
mutual funds. Prior to his current role, he was Product Development Manager at Solon Capital, LLC, an affiliate of the adviser. Before then, he performed sales at SEI from August 2005 to February 2009, and was previously at Morgan Stanley from
September 2004 to August 2005. Mr. Rankin holds a BA in Philosophy and a Masters in International Studies from North Carolina State University, and is currently ABD in the process pursuing a Doctorate of Business Administration with a
concentration in finance and a dissertation on statistical methods of creating more diversified multi-manager portfolios. The SAI provides additional information about the portfolio managers compensation, other accounts managed, and ownership
of Fund shares.
In addition to investment advisory fees, the Fund pays other expenses including costs incurred in connection with the maintenance
of its securities law registration, printing and mailing prospectuses and SAIs to shareholders, certain financial accounting services, taxes or governmental fees, custodial, transfer and shareholder servicing agent costs, expenses of outside counsel
and independent accountants, preparation of shareholder reports and expenses of trustee and shareholders meetings.
INVESTMENT SUBSIDIARY
The Subsidiary is a company organized under the laws of the Cayman Islands, and is overseen by its own board of directors. The Fund is the sole
shareholder of the Subsidiary. It is not currently expected that shares of the Subsidiary will be sold or offered to other investors. If, at any time, the Subsidiary proposes to offer or sell its shares to any investor other than the Fund, Fund
shareholders will receive 60 days prior notice of such offer or sale.
As with the Fund, the Adviser is responsible for the Subsidiarys day-to-day
business pursuant to an investment advisory agreement with the Subsidiary. Under the terms of the agreement, the Adviser provides the Subsidiary with the same type of management services, under the same terms, as are provided to the Fund. The
advisory agreement with the Subsidiary provides for automatic termination upon the termination of the investment advisory agreement with respect to the Fund. The Subsidiary has also entered into separate contracts for the provision of custody,
transfer agency, and audit services with the same service providers that provide those services to the Fund.
The Fund and Subsidiary pay the Adviser a
fee for its services. The Adviser has contractually agreed to waive the fee it receives from the Fund in an amount equal to the management fee paid to the Adviser by the Subsidiary. This undertaking will continue in effect for so long as the Fund
invests in the Subsidiary, and may not be terminated by the Adviser unless the Adviser first obtains the prior approval of the Funds Board of Trustees for such termination. The Subsidiary will also bear the fees and expenses incurred in
connection with the custody, transfer agency and audit services that it receives. The Fund expects that the expenses borne by the Subsidiary will not be material in relation to the value of the Funds assets. It is also anticipated that the
Funds own expense will be reduced to some extent as a result of the payment of such expenses at the Subsidiary level. It is therefore expected that any duplicative fees for similar services provided to the Fund and the Subsidiary will not be
material.
The Subsidiary will be managed pursuant to compliance policies and procedures that are the same, in all material respects, as the policies and
procedures adopted by the Fund. As a result, the Adviser, in managing the Subsidiarys portfolio, is subject to the same investment policies and restrictions that apply to the management of the Fund, and, in particular, to the requirements
relating to portfolio leverage, liquidity, brokerage, and the timing and method of the valuation of the Subsidiarys portfolio investments and shares of the Subsidiary. These policies and restrictions are described in detail in the Funds
SAI. The Funds Chief Compliance Officer oversees implementation of the Subsidiarys policies and procedures, and makes periodic reports to the Funds Board of Trustees regarding the Subsidiarys compliance with its policies and
procedures.
The financial statements of the Subsidiary will be included in the Funds annual and semi-annual reports or will be consolidated
with those of the Fund as may be required. The Funds annual and semi-annual reports are distributed to shareholders, and copies of the reports are provided without charge upon request as indicated on the back cover of this Prospectus. Please
refer to the SAI for additional information about the organization and management of the Subsidiary.
HOW SHARES ARE
PRICED
The Funds NAV and offering
price (NAV plus any applicable sales charges) is determined at 4:00 p.m. (Eastern Time) on each day the New York Stock Exchange (NYSE) is open for business (a Business Day). NAV is computed by determining the aggregate market
value of all assets of the Fund, less its liabilities, divided by the total number of shares outstanding ((assets-liabilities)/number of shares = NAV). The NYSE is closed on weekends and New Years Day,
19
Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The NAV takes into account the expenses and fees of
the Fund, including management, administration, and distribution fees, which are accrued daily. The determination of NAV for a particular day is applicable to all applications for the purchase of shares, as well as all requests for the redemption of
shares, received by the Fund (or an authorized broker or agent, or its authorized designee) before the close of trading on the NYSE on that day.
If
available, the Funds investments in securities and other exchange traded assets are generally valued based on market quotations. If market prices are unavailable or the Fund believes that they are unreliable, the Fund prices those securities
or other assets at fair value as determined in good faith using methods approved by the Board of Trustees. For example, market prices may be unavailable if trading in a particular portfolio security was halted during the day and did not resume prior
to the Funds NAV calculation. The Fund may view market prices as unreliable when the value of a security has been materially affected by events occurring after the market closes, but prior to the time as of which the Fund calculates NAV. The
Fund will regularly value its investments in derivative instruments, including swaps, at fair value. The use of fair valuation in pricing a portfolio holding involves the consideration of a number of subjective factors and therefore, is susceptible
to the unavoidable risk that the valuation may be higher or lower than the price at which the portfolio holding might actually trade if a reliable market price were readily available.
The Fund may use independent pricing services to assist in calculating the value of the Funds portfolio holdings.
With respect to any portion of the Funds assets that are invested in one or more open-end management investment companies registered under the 1940 Act, each
Funds net asset value is calculated based upon the net asset values of those open-end management investment companies, and the prospectuses for these companies explain the circumstances under which those companies will use fair value pricing
and the effects of using fair value pricing.
Applicable federal tax requirements generally limit the degree to which the Fund may invest in the
Subsidiary to an amount not exceeding 25% of its total assets. The Subsidiary prices its portfolio investments pursuant to the same pricing and valuation methodologies and procedures employed by the Fund. The Subsidiary offers to redeem all or a
portion of its shares at the current net asset value per share every day the Fund is open for business. The value of shares of the Subsidiary will fluctuate with the value of the Subsidiarys portfolio investments.
More information about the valuation of the Funds holdings is provided in the SAI.
HOW TO PURCHASE SHARES
SHARE CLASSES
Presently, the Fund offers four classes
of shares (Class A, Class C, Class I and Class P), but only Class C shares are offered in this Prospectus. You should weigh the impact of all potential costs over the life of your investment before making your initial investment. Each share class is
available to all investors who meet the investment minimum for the class, as described below.
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Class C
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No initial sales charge
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Deferred sales charge
(1)
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Higher annual expenses than Class A, Class I and Class P shares due to higher distribution
fees
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(1)
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A 1.00% CDSC is assessed on redemptions of Class C shares made within one year after purchase of such shares. .
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INVESTMENT MINIMUMS
Shares representing interests in the
Fund are offered continuously for sale by the Distributor. You can purchase
Class C shares through certain broker-dealers or directly through the
transfer agent of the Fund, as discussed below. Shares of the Fund are offered only to residents of states in which the shares are registered or qualified. No share certificates are issued in connection with the purchase of Fund shares. Listed below
are the minimum investment amounts for Class C shares. The Fund reserves the right to waive the minimum initial investment requirement for any investor.
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|
|
|
|
Purchase Amounts
|
|
Class C
|
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Minimum initial investment
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$
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2,500
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Minimum subsequent investment
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$
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500
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SHARE CLASSES
CLASS C SHARES
Class C shares of the Fund are offered at their NAV without an initial sales charge. This means
that 100% of your initial investment is placed into shares of the Fund. Class C shares pay 1.00% on an annualized basis of their average daily net assets as reimbursement or compensation for service and distribution related activities with respect
to the Fund and/or shareholder services.
Distribution Plan.
The Board of Trustees, on behalf of the Funds Class
C shares, has adopted a plan pursuant to Rule 12b-1 under the 1940 Act that allows the Fund to pay distribution and service fees for the sale and distribution of its shares and for services provided to its shareholders. Because these fees are paid
out of the Funds assets on an ongoing basis, over time, these fees will increase the cost of your investment and may cost more than paying other types of sales charges.
Contingent Deferred Sales Charge.
If you redeem Class C shares within one year after purchase, you will be charged a CDSC of up to 1.00%. The charge will apply to the lesser of the
original cost of the Class C shares being redeemed or the proceeds of your redemption and will be calculated without regard to any redemption fee. When you redeem Class C shares, the redemption order is processed so that the lowest CDSC is charged.
Class C shares that are not subject to a CDSC are redeemed first. In addition, you will not be charged a CDSC when you redeem shares that you acquired through reinvestment of Fund dividends or capital gains. Any CDSC paid on the redemptions of Class
C shares expressed as a percentage of the applicable redemption amount may be higher or lower than the charge described due to rounding.
PURCHASING SHARES
You may purchase shares of the Fund by
sending a completed application form to the following address by either regular or overnight mail:
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|
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Address for Regular Mail:
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Address for Overnight Mail:
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|
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Equinox Campbell Strategy Fund
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Equinox Campbell Strategy Fund
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c/o Gemini Fund Services, LLC
P.O. Box 541150
Omaha, Nebraska 68154-1150
1-888-643-3431
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c/o Gemini Fund Services, LLC
17605 Wright
Street, Suite 2
Omaha, Nebraska 68130
1-888-643-3431
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MINIMUM AND ADDITIONAL INVESTMENT AMOUNTS
The minimum initial investment to open an account is $2,500 for Class C Shares and the minimum subsequent investment is $500. There is no minimum investment requirement when you are buying shares by reinvesting
dividends and distributions from the Fund. The Fund and the Adviser reserve the right to waive or reduce the investment minimums under certain circumstances. The Fund may change the investment minimums at any time.
The Fund, however, reserves the right, in its sole discretion, to reject any application to purchase shares. Applications will not be accepted unless they are
accompanied by a check drawn on a U.S. bank, savings and loan, or credit union in U.S. funds for the full amount of the shares to be purchased. After you open an account, you may purchase additional shares by sending a check together with written
instructions stating the name(s) on the account and the account number, to the above address.
Make all checks payable to the name of the Fund.
The Fund will not accept payment in cash, including cashiers checks or money orders. Also, to
prevent check fraud, the Fund will not accept third party checks, U.S. Treasury checks, credit card checks, or starter checks for the purchase of shares.
Note: Gemini Fund Services, LLC (GFS), the Funds transfer agent, will charge a $25 fee against a shareholders account, in addition to any
loss sustained by the Fund, for any check returned to the transfer agent for insufficient funds.
The USA PATRIOT Act requires financial institutions,
including the Fund, to adopt certain policies and programs to prevent money-laundering activities, including procedures to verify the identity of customers opening new accounts. As requested on the application, you should supply your full name, date
of birth, social security number, and permanent street address. Mailing addresses containing a P.O. Box will not be accepted. This information will assist the Fund in verifying your identity. Until such verification is made, the Fund may temporarily
limit additional share purchases. In addition, the Fund may limit additional share purchases or close an account if it is unable to verify a shareholders identity. As required by law, the Fund may employ various procedures, such as comparing
the information to fraud databases or requesting additional information or documentation from you, to ensure that the information supplied by you is correct.
21
When Order is Processed
All shares will be purchased at the NAV, plus any applicable sales charges, per share next determined after the Fund receives your application or request in good order. All requests received in good order by the
Fund before 4:00 p.m. (Eastern time) will be executed on that same day. Requests received after 4:00 p.m. will be processed on the next business day.
Good Order:
When making a purchase request, make sure your request is in good order. Good order means your purchase
request includes:
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the dollar amount of shares to be purchased;
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a completed purchase application or investment stub; and
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a check payable to the Fund.
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PURCHASES
THROUGH BROKERS
You may invest in the Fund through brokers or agents who have entered into selling agreements with the Funds distributor.
These brokers and agents are authorized to designate other intermediaries to receive purchase and redemption orders on behalf of the Fund. The Fund will be deemed to have received a purchase or redemption order when an authorized broker or its
designee receives the order. The broker or agent may set its own initial and subsequent investment minimums. You may be charged a fee if you use a broker or agent to buy or redeem shares of the Fund. Finally, various servicing agents use procedures
and impose restrictions that may be in addition to, or different from those applicable to investors purchasing shares directly from the Fund. You should carefully read the program materials provided to you by your servicing agent.
PURCHASES BY WIRE
If you wish to wire money to make an
investment in the Fund, please call the Fund at 1-888-643-3431 for wiring instructions and to notify the Fund that a wire transfer is coming. Any commercial bank can transfer same-day funds via wire. The Fund will normally accept wired funds for
investment on the day received if they are received by the Funds designated bank before the close of regular trading on the NYSE. Your bank may charge you a fee for wiring same-day funds.
HOW TO REDEEM SHARES
REDEMPTION REQUESTS
You will be entitled to redeem all or any portion of the shares credited to your accounts by submitting a written request for redemption by regular, express or
overnight mail to:
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Address for Regular Mail:
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Address for Overnight Mail:
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Equinox Campbell Strategy Fund
c/o Gemini
Fund Services, LLC
P.O. Box 541150
Omaha, Nebraska
68154-1150
1-888-643-3431
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Equinox Campbell Strategy Fund
c/o
Gemini Fund Services, LLC
17605 Wright Street, Suite 2
Omaha, Nebraska 68130
1-888-643-3431
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REDEEMING BY TELEPHONE
The
telephone redemption privilege is automatically available to all new accounts, except retirement accounts. If you do not want the telephone redemption privilege, you must indicate this in the appropriate area on your account application or you must
write to the Fund and instruct it to remove this privilege from your account.
The proceeds will be sent by mail to the address designated on your
account or wired directly to your existing account in any commercial bank or brokerage firm in the United States as designated on your application. To redeem by telephone, call 1-888-643-3431. The redemption proceeds normally will be sent by mail or
by wire within three business days after receipt of your telephone instructions. IRA accounts are not redeemable by telephone.
The Fund reserves the
right to suspend the telephone redemption privileges with respect to your account if the name(s) or the address on the account has been changed within the previous 30 days. None of the Fund, GFS, or their
22
respective affiliates will be liable for complying with telephone instructions they reasonably believe to be genuine or for any loss, damage, cost or expenses in acting on such telephone
instructions and you will be required to bear the risk of any such loss. The Fund, GFS, or both, will employ reasonable procedures to determine that telephone instructions are genuine. If the Fund and/or GFS do not employ these procedures, they may
be liable to you for losses due to unauthorized or fraudulent instructions. These procedures may include, among others, requiring forms of personal identification prior to acting upon telephone instructions, providing written confirmation of the
transactions and/or tape recording telephone instructions.
WIRE REDEMPTIONS
If you request your redemption by wire transfer, you will be required to pay a $15.00 wire transfer fee to GFS to cover costs associated with the transfer but GFS does not charge a fee when transferring redemption
proceeds by electronic funds transfer. In addition, your bank may impose a charge for receiving wires.
SYSTEMATIC WITHDRAWAL PLAN
If your individual account, IRA, or other qualified plan account has a current account value of at least $10,000, you may adopt a Systematic Withdrawal Plan to
provide for monthly, quarterly or other periodic checks for any designated amount of $100 or more. If you wish to open a Systematic Withdrawal Plan, please indicate on your application or contact the Fund at 1-888-643-3431.
REDEMPTIONS IN KIND
The Fund reserves the right to
honor requests for redemption or repurchase orders by making payment in whole or in part in readily marketable securities (redemption in kind). The securities will be chosen by the Fund and valued under the Funds net asset value
procedures. A shareholder will be exposed to market risk until these securities are converted to cash and may incur transaction expenses, including taxes, in converting these securities to cash.
WHEN REDEMPTIONS ARE SENT
Once the Fund receives your
redemption request in good order (as described below), it will issue a check based on the next determined NAV following your redemption request. Before selling recently purchased shares, please note that if the Funds transfer agent
has not yet collected payment for the shares you are selling, it may delay sending the proceeds until the payment is collected, which may take up to 10 calendar days from the purchase date. This procedure is intended to protect the Fund and its
shareholders from loss.
GOOD ORDER
Your
redemption request will be processed if it is in good order. To be in good order, the following conditions must be satisfied:
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The request should be in writing, unless redeeming by telephone, indicating the number of shares or dollar amount to be redeemed;
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The request must identify your account number;
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The request should be signed by you and any other person listed on the account, exactly as the shares are registered; and
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If you request that the redemption proceeds to be sent to an address other than that of record, or if the address was changed within the last 30 days, or if the
proceeds of a requested redemption exceed $50,000, the signature(s) on the request must be medallion signature guaranteed by an eligible signature guarantor.
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WHEN YOU NEED MEDALLION SIGNATURE GUARANTEES
A medallion signature guarantee assures that a signature is
genuine and protects you from unauthorized account transfers. You will need your signature guaranteed if:
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you wish to change the bank or brokerage account that you have designated on your account;
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you request a redemption to be made payable to a person not on record with the Fund;
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you request that a redemption be mailed to an address other than that on record with the Fund;
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the proceeds of a requested redemption exceed $50,000; or
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any redemption is transmitted by federal wire transfer to a bank other than the bank of record; or
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your address was changed within 30 days of your redemption request.
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Signatures may be guaranteed by any eligible guarantor institution (including banks, brokers and dealers, credit
unions, national securities exchanges, registered securities associations, clearing agencies, and savings associations) or by completing a supplemental telephone redemption authorization form. Contact the Fund to obtain this form. Further
documentation will be required to change the designated account if shares are held by a corporation, fiduciary, or other organization.
A notary public cannot guaranty signatures
.
Where shares are held in the name of an accredited bank, Medallion Signature Guarantee requirements may be waived at the discretion of the Fund.
REDEEMING THROUGH BROKERS
If shares of the Fund are held by a broker-dealer, financial institution, or other
servicing agent, you must contact that servicing agent to redeem shares of the Fund. The servicing agent may charge a fee for this service.
LOW
BALANCES
For regular accounts, if at any time your account balance falls below $1,000 or there has been no shareholder activity in the account for
the past 12 months, the Fund may notify you that, unless the account is brought up to at least $1,000 or you initiate activity in the account within 60 days of the notice; your account could be closed. After the notice period, the Fund may redeem
all of your shares and close your account by sending you a check to the address of record. Your account will not be closed if the account balance drops below $1,000 due to a decline in NAV.
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
The Fund discourages and does not accommodate market
timing. Frequent trading into and out of the Fund can harm all Fund shareholders by disrupting the Funds investment strategies, increasing Fund expenses, decreasing tax efficiency and diluting the value of shares held by long-term
shareholders. The Fund is designed for long-term investors and is not intended for market timing or other disruptive trading activities. Accordingly, the Funds Board of Trustees has approved policies that seek to curb these disruptive
activities while recognizing that shareholders may have a legitimate need to adjust their Fund investments as their financial needs or circumstances change. The Fund currently commits staff to review, on a continuing basis, recent trading activity
in order to identify trading activity that may be contrary to the Funds Market Timing Trading Policy.
Such reviews involve judgments
that are inherently subjective and involve some selectivity in their application; the Fund seeks to make judgments and applications that are consistent with the interests of the Funds shareholders.
Based on the frequency of redemptions in your account, the Adviser or transfer agent may in its sole discretion determine that your trading activity is detrimental
to the Fund as described in the Funds Market Timing Trading Policy and elect to (i) reject or limit the amount, number, frequency or method for requesting future purchases into the Fund and/or (ii) reject or limit the amount, number,
frequency or method for requesting future exchanges or redemptions out of the Fund.
The Fund reserves the right to reject or restrict purchase requests
for any reason, particularly when the shareholders trading activity suggests that the shareholder may be engaged in market timing or other disruptive trading activities. Neither the Fund nor the Adviser will be liable for any losses resulting
from rejected purchase orders. The Adviser may also bar an investor who has violated these policies (and the investors financial advisor) from opening new accounts with the Fund.
Although the Fund attempts to limit disruptive trading activities, some investors use a variety of strategies to hide their identities and their trading practices. There can be no guarantee that the Fund will be
able to identify or limit these activities. Omnibus account arrangements are common forms of holding shares of the Fund. While the Fund will encourage financial intermediaries to apply the Funds Market Timing Trading Policy to their customers
who invest indirectly in the Fund, the Fund is limited in its ability to monitor the trading activity or enforce the Funds Market Timing Trading Policy with respect to customers of financial intermediaries. For example, should it occur, the
Fund may not be able to detect market timing that may be facilitated by financial intermediaries or made difficult to identify in the omnibus accounts used by those intermediaries for aggregated purchases, exchanges and redemptions on behalf of all
their customers. More specifically, unless the financial intermediaries have the ability to apply the Funds Market Timing Trading Policy to their customers through such methods as implementing short-term trading limitations or restrictions and
monitoring trading activity for what might be market timing, the Fund may not be able to determine whether trading by customers of financial intermediaries is contrary to the Funds Market Timing Trading Policy. Brokers maintaining omnibus
24
accounts with the Fund have agreed to provide shareholder transaction information to the extent known to the broker to the Fund upon request. If the Fund or its transfer agent or shareholder
servicing agent suspects there is market timing activity in the account, the Fund will seek full cooperation from the service provider maintaining the account to identify the underlying participant. At the request of the Adviser, the service
providers may take immediate action to stop any further short-term trading by such participants.
MORE INFORMATION ABOUT
TAXES
The tax information in this
Prospectus is provided for general information only and should not be considered as tax advice or relied on by a shareholder or prospective investor.
General.
The Fund intends to qualify annually to be treated as a regulated investment company (RIC) under the Code. As
such, the Fund will not be subject to federal income taxes on the earnings it distributes to shareholders provided it satisfies certain requirements and restrictions of the Code. If for any taxable year the Fund fails to qualify as a RIC:
(1) it will be subject to tax in the same manner as an ordinary corporation and thus will be subject to tax on a graduated basis with a maximum tax rate of 35% (for taxable years beginning prior to January 1, 2013); and
(2) distributions from its earnings and profits (as determined under federal income tax principles) will be taxable as ordinary dividend income eligible for the 15% non-corporate shareholder long-term capital gain rate (for taxable years
beginning prior to January 1, 2013) and the dividends-received deduction for corporate shareholders. For tax years beginning after January 1, 2013, the long-term capital gain rate is 20% for U.S. individuals with taxable income in excess
of $400,000 ($450,000 if married and filing jointly) and 15% for U.S. individuals with income less than the threshold amounts.
Distributions.
The Fund will make distributions to you that may be taxed as ordinary income or capital gains (which may be taxed at
different rates depending on the length of time the Fund holds its assets). The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions are taxable whether you
reinvest such distributions in additional shares of the Fund or choose to receive cash.
Ordinary Income.
Net investment
income, except for qualified dividends, and short-term capital gains that are distributed to you are taxable as ordinary income for federal income tax purposes regardless of how long you have held your Fund shares. Certain dividends distributed to
non-corporate shareholders in taxable years beginning before January 1, 2013 and designated by the Fund as qualified dividend income are eligible for the long-term capital gains rate of 15% (0% for individuals in lower tax
brackets). For tax years beginning after January 1, 2013, the long-term capital gain rate applicable to qualified dividends is 20% for U.S. individuals with taxable income in excess of $400,000 ($450,000 if married and filing
jointly) and 15% for U.S. individuals with income less than the threshold amounts. Short-term capital gains that are distributed to you are taxable as ordinary income for federal income tax purposes regardless of how long you have held your Fund
shares.
Net Capital Gains.
Net capital gains (i.e., the excess of net long-term capital gains over net short-term capital
losses) distributed to you, if any, are taxable as long-term capital gains for federal income tax purposes regardless of how long you have held your Fund shares. For tax years beginning before January 1, 2013, the maximum individual tax rate on
net long-term capital gains is 15%. For tax years beginning after January 1, 2013, the long-term capital gain rate is 20% for U.S. individuals with taxable income in excess of $400,000 ($450,000 if married and filing jointly) and 15% for U.S.
individuals with income less than the threshold amount.
Sale or Exchange of Shares.
It is a taxable event for you if you
sell shares of the Fund. Depending on the purchase price and the sale price of the shares you sell, you may have a taxable gain or loss on the transaction. Any realized gain will be taxable to you; and, generally, will be capital gain, assuming you
held the shares of the Fund as a capital asset. The capital gain will be long-term or short-term depending on how long you have held your shares in the Fund. Sales of shares of the Fund that you have held for twelve months or less will be a
short-term capital gain or loss and if held for more than twelve months will constitute a long-term capital gain or loss. Any loss realized by a shareholder on a disposition of shares held for six months or less will be treated as a long-term
capital loss to the extent of any distributions of capital gain dividends received by the shareholder and disallowed to the extent of any distributions of exempt-interest dividends, if any, received by the shareholder with respect to such shares.
Medicare Contribution Tax.
Under current law, beginning in 2013, U.S. individuals with income exceeding $200,000
($250,000, if married and filing jointly) will be subject to a 3.8% Medicare contribution tax on net investment income including interest, dividends, and capital gains. If applicable, the tax will be imposed on the lesser of your (i) net
investment income or (ii) the excess of modified adjusted gross income over $200,000 ($250,000 if married and filing jointly).
25
Tax Risks of Investing in the Fund.
One of the requirements for favorable tax
treatment as a RIC under the Code is that the Fund derive at least 90% of its gross income from certain qualifying sources of income. On December 16, 2005, the Internal Revenue Service (the IRS) issued Revenue Ruling 2006-01, which
held that income from certain derivative swap securities is not qualifying income; accordingly the Funds ability to utilize certain derivative swap securities as part of its investment strategy will be limited to a maximum of 10% of its gross
income. This limitation, however, will not protect the Fund against the risk of losing its RIC status should any other income be reclassified as non-qualifying income or any commodity related income that is not qualifying income. Revenue Ruling
2006-31 clarifies the holding of Revenue Ruling 2006-01 by providing that income from alternative instruments (such as certain commodity index-linked notes) that create commodity exposure may be considered qualifying income under the Code. Prior to
July 2011, the IRS issued private letter rulings in which it concluded that income from certain commodity index-linked notes is qualifying income and that income derived from subsidiaries similar to the Subsidiary will be qualifying income whether
received in the form of current distributions or as undistributed subpart F income. In July 2011, the IRS announced that it would no longer issue private letter rulings regarding whether income from subsidiaries similar to the Subsidiary is
qualifying income. Public statements of IRS officials indicate that the IRS is reviewing its positions underlying these private letter rulings. It is not known as of the date of this prospectus whether the IRS will resume issuing private letter
rulings, issue more broadly applicable guidance or change its position underlying the issuance of such rulings. There is no authority directly addressing some of the issues of law considered in these rulings. Consequently there can be no assurance
that the IRS will not change its position with respect to some or all of these issues or, if the IRS did so, that a court would not sustain, such contrary positions. If the IRS were to change its position on some or all of these issues, and if such
contrary positions were upheld, the Fund might cease to qualify as a RIC. A private letter ruling may only be relied upon by the taxpayer to whom it was provided and the IRS is not bound by any private letter ruling in making an assessment against
any other taxpayer. The Fund does not plan to seek a private letter ruling. Therefore, to the extent the Fund invests directly in commodity-index-linked derivative instruments or in the Subsidiary, the IRS may contest the Funds
characterization of the income produced by such assets as qualifying income which, if successful, could cause the Fund to fail to qualify as a RIC. The Fund and its Adviser plan to direct investments of the Funds assets in conformance with
Revenue Ruling 2006-31, IRS guidance, and the advice of counsel.
Backup Withholding.
The Fund may be required to
withhold U.S. federal income tax on all taxable distributions and sales payable to shareholders who fail to provide their correct taxpayer identification number or to make required certifications, or who have been notified by the IRS that they are
subject to backup withholding. The current backup withholding rate is 28%.
Statements and
Notices.
You will receive an annual statement outlining the tax status of your distributions.
State and Local Income
Taxes.
This Prospectus does not discuss the state and local tax consequences of an investment in the Fund. You are urged and advised to consult your own tax adviser concerning state and local taxes, which may have
different consequences from those of the federal income tax laws.
Non-U.S. Shareholders:
Non-U.S. shareholders may be
subject to U.S. taxes due to their investment in the Fund. This Prospectus does not discuss the U.S. or foreign country tax consequences of an investment by a non-U.S. shareholder in the Fund. Accordingly, non-U.S. shareholders are urged and advised
to consult their own tax advisers as to the U.S. and foreign country tax consequences of an investment in the Fund.
This section is only a
summary of some important income tax considerations that may affect your investment in the Fund. More information regarding these considerations appears in the Funds SAI. You are urged and advised to consult your own tax adviser regarding the
effects of an investment in the Fund on your tax situation.
DISTRIBUTION OF SHARES
Dividends from net investment income and distributions of
net capital gain, if any, are declared and paid annually to you. The amount of any distribution will vary and there is no guarantee that the Fund will pay either an income dividend or a capital gain distribution.
Distributions are payable to the shareholders of record at the time the distributions are declared (including holders of shares being redeemed, but excluding
holders of shares being purchased). Shares become entitled to receive distributions on the day after the shares are issued. If you invest in the Fund shortly before the ex-dividend date of a taxable distribution, the distribution will lower the
value of the Funds shares by the amount of the distribution and, in effect, you will receive some of your investment back in the form of a taxable distribution
26
CHOOSING A DISTRIBUTION OPTION
When you complete your account application, you may choose from three distribution options:
1.
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You may invest all income dividends and capital gains distributions in additional shares of the Fund. This option is assigned automatically if no other choice is made.
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2.
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You may elect to receive income dividends and capital gains distributions in cash.
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3.
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You may elect to receive income dividends in cash and to reinvest capital gains distributions in additional shares of the Fund.
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If you elect to receive distributions and dividends by check and the post office cannot deliver your check and your proper address cannot be determined, the Fund
reserves the right to reinvest the distribution check in your account at the Funds then current NAV per share and to reinvest all subsequent distributions in shares of the Fund until an updated address is received. You may change your election
at any time. Your request for a change must be received in writing by the transfer agent prior to the record date for the distribution for which a change is requested.
DISTRIBUTOR
Northern Lights Distributors, LLC, 17605 Wright Street, Omaha, NE
68130, is the distributor for the shares of the Fund. Northern Lights Distributors, LLC is a registered broker-dealer and member of the Financial Industry Regulatory Authority, Inc. (FINRA). Shares of the Fund are offered on a continuous
basis.
DISTRIBUTION FEES
The Board of Trustees, on behalf of the Funds Class C shares, has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (Rule 12b-1 Plan) that allows the Fund to pay distribution fees for the
sale and distribution of its shares and for services provided to its shareholders. Because these fees are paid out of the Funds assets on an ongoing basis, over time, these fees will increase the cost of your investment and may cost more than
paying other types of sales charges. The Rule 12b-1 Plan provides for maximum payments of up to 1.00% of the average daily net assets of Class C shares
ADDITIONAL COMPENSATION TO FINANCIAL INTERMEDIARIES
The Funds
distributor, its Adviser and their affiliates may, at their own expense and out of their own legitimate profits, provide additional cash payments to financial intermediaries who sell shares of the Fund. Financial intermediaries include brokers,
dealers, banks (including bank trust departments), insurance companies, investment advisers, financial advisers, financial planners, retirement or 401(k) plan administrators, their designated intermediaries, and any other firm having a selling,
administration or similar agreement with the Fund. These payments are over and above
Rule 12b-1
fees, sales charges or servicing fees which are disclosed elsewhere in this Prospectus. These payments are
generally made to financial intermediaries that provide shareholder or administrative services or marketing support. Marketing support may include access to sales meetings, sales representatives and financial intermediary management representatives,
inclusion of the Fund on a sales list, including a preferred or select sales list, or other sales programs. These payments may also be made as an expense reimbursement in cases where the financial intermediary provides shareholder services to Fund
shareholders. The Adviser and its affiliates may also pay cash compensation in the form of finders fees that vary depending on the dollar amount of shares sold. The distributor may, from time to time, provide promotional incentives, including
reallowance and/or payment of up to the entire sales charge, to certain investment firms. Such incentives may, at the distributors discretion, be limited to investment firms who allow their individual selling representatives to participate in
such additional commissions.
If investment advisers, underwriters/distributors or affiliates of mutual funds (including those of the Fund) pay
bonuses and incentives in differing amounts, intermediaries and their representatives may have financial incentives for recommending a particular mutual fund over other mutual funds. In addition, depending on the arrangements in place at any
particular time, a financial intermediary and its representatives may also have a financial incentive for recommending a particular share class over other share classes. You should consult with your financial advisor and review carefully any
disclosure by the intermediary as to compensation received by your financial advisor.
Although the Fund may use firms that sell Fund shares to effect
portfolio transactions for the Fund, the Fund and the Adviser will not consider the sale of Fund shares as a factor when choosing firms to effect those transactions.
HOUSEHOLDING
To reduce expenses, the Fund will mail only one copy of the Prospectus
and each annual and semi-annual report to those addresses share by two or more accounts. If you wish to receive individual copies of these documents, please call the Fund at 1-888-643-3431 on days the Fund is open for business or contact your
financial institution. The Fund will begin sending you individual copies thirty days after receiving your request.
27
Equinox Campbell Strategy Fund
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Adviser
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Equinox Fund Management, LLC
1775 Sherman Street, Suite 2500
Denver, CO 80203
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Independent Registered Public Accountant
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McGladrey LLP
555 Seventeenth Street
Suite 1000
Denver, CO 80202
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Custodian
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Union Bank, NA
350 California Street, 6th Floor
San Francisco, California
94104
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Distributor
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Northern Lights Distributors, LLC
17605 Wright Street
Omaha, NE 68130
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Legal Counsel
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Pepper Hamilton LLP
3000 Two Logan Square
18
th
& Arch Streets
Philadelphia, PA 19103
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Transfer Agent
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Gemini Fund Services, LLC
17605 Wright Street, Suite 2
Omaha, Nebraska 68130
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Additional information about the Fund is included in the Funds SAI. The SAI is incorporated into this Prospectus by
reference (i.e., legally made a part of this Prospectus). The SAI provides more details about the Funds policies and management. Additional information about the Funds investments will also be available in the Funds Annual and
Semi-Annual Reports to Shareholders. In the Funds Annual Report, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds performance during its last fiscal year.
To obtain a free copy of the SAI and, when issued, the Annual and Semi-Annual Reports to Shareholders, or other information about the Fund, or to make shareholder
inquiries about the Fund, please call 1-888-643-3431 or visit the Funds website at www.EquinoxFundManagement.com. You may also write to:
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Address for Regular Mail:
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Address for Overnight Mail:
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Equinox Campbell Strategy Fund
c/o Gemini Fund Services, LLC
P.O. Box 541150
Omaha, Nebraska 68154-1150
1-888-643-3431
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Equinox Campbell Strategy Fund
c/o Gemini Fund Services, LLC
17605 Wright Street, Suite 2
Omaha, Nebraska 68130
1-888-643-3431
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You may review and obtain copies of the Funds information at the SEC Public Reference Room in Washington, D.C. Please
call 1-202-551-8090 for information relating to the operation of the Public Reference Room. Reports and other information about the Fund are available on the EDGAR Database on the SECs Internet site at http://www.sec.gov. Copies of the
information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the Public Reference Section, Securities and Exchange Commission, Washington, D.C. 20549-1520.
Investment Company Act File # 811-22447
EQUINOX FUNDS TRUST (CLASS A SHARES) (CLASS C SHARES) (CLASS I SHARES) (CLASS P SHARES)
STATEMENT OF ADDITIONAL INFORMATION
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August 15, 2013
EQUINOX FUNDS TRUST
EQUINOX ABRAHAM STRATEGY FUND
Class I Shares: EABIX
EQUINOX ABSOLUTE RETURN PLUS
STRATEGY FUND
Class I Shares: EMEIX
EQUINOX CAMPBELL STRATEGY FUND
Class A Shares:
EBSAX
Class C Shares: EBSCX
Class I Shares:
EBSIX
Class P Shares: EBSPX
EQUINOX
CHESAPEAKE STRATEGY FUND
Class I Shares: EQCHX
EQUINOX CRABEL STRATEGY FUND
Class I Shares: EQCRX
EQUINOX ECLIPSE STRATEGY FUND
Class I Shares: EECIX
EQUINOX JOHN LOCKE STRATEGY FUND
Class
I Shares: EJLIX
EQUINOX QCM STRATEGY FUND
Class I Shares: EQQCX
EQUINOX TIVERTON STRATEGY
FUND
Class I Shares: EQTVX
Investment Adviser:
Equinox Fund Management, LLC
This Statement
of Additional Information (SAI) is not a prospectus. It is intended to provide additional information about the activities and operations of Equinox Funds Trust (the Trust) and the Equinox Abraham Strategy Fund, Equinox
Absolute Return Plus Strategy Fund, Equinox Campbell Strategy Fund, Equinox Chesapeake Strategy Fund, Equinox Crabel Strategy Fund, Equinox Eclipse Strategy Fund, Equinox John Locke Strategy Fund, Equinox QCM Strategy Fund and Equinox Tiverton
Strategy Fund (each, a Fund and collectively, the Funds), each a series of the Trust. This SAI should be read in conjunction with each Funds (except the Equinox Campbell Strategy Fund) Prospectus dated February 1,
2013 or, the Equinox Campbell Strategy Funds Prospectuses dated March 1, 2013 with respect to Class A, Class I and Class P Shares and August 15, 2013 with respect to Class C Shares.
This SAI has been incorporated by reference in its entirety into each Funds Prospectus. A copy of each Prospectus and annual reports to shareholders (when
available) may be obtained without charge, upon request, by calling toll-free 1-888-643-3431 or by visiting the Funds website at www.EquinoxFundManagement.com.
TABLE OF CONTENTS
THE TRUST
The Trust is an open-end management investment company
established under Delaware law as a statutory trust, and was organized on June 2, 2010. Each Fund is a separate series of the Trust, which may offer other mutual fund series in addition to the Fund. Each Fund issues Class I shares, and the
Equinox Campbell Strategy Fund also issues Class A shares, Class C shares and Class P shares. The Trust is governed by its Board of Trustees (the Board or Trustees). Each Fund is classified as a
non-diversified investment company under the Investment Company Act of 1940, as amended (1940 Act), meaning it may invest in fewer companies than diversified investment companies. Each share of each Fund represents an equal
proportionate interest in such Fund. See Capital Stock and Other Securities.
DESCRIPTION OF PERMITTED
INVESTMENTS
Each Fund will only invest
in any of the following instruments or engage in any of the following investment practices if such investment or activity is consistent with such Funds investment objective and permitted by such Funds stated investment policies.
Subsidiary.
Generally, each Fund may invest in a wholly-owned and controlled Cayman Islands subsidiary (each, a
Subsidiary), which is expected to invest primarily in (i) pooled investment vehicles, including those that are not registered under the 1940 Act, (ii) commodity futures, option and swap contracts, (iii) financial futures,
option and swap contracts; (iv) fixed income securities, (v) structured notes; and (vi) other investments intended to serve as margin or collateral for the Subsidiarys derivatives positions. As a result, each Fund may be
considered to be investing indirectly in these investments through its Subsidiary. For that reason, and for the sake of convenience, references in this SAI to a Fund may also include its Subsidiary. Applicable federal tax requirements generally
limit the degree to which each Fund may invest in its Subsidiary to an amount not exceeding 25% of such Funds total assets.
Each Subsidiary is a
company organized under the laws of the Cayman Islands, whose registered office is located at the offices of Northern Lights SPC, c/o Maples and Calder, PO Box 309, Ugland House, South Church Street, George Town, Grand Cayman KY1-1104, Cayman
Islands. Each Subsidiarys affairs are overseen by a board of directors consisting of two directors. Each Fund is the sole shareholder of its Subsidiary. It is not currently expected that shares of a Subsidiary will be sold or offered to other
investors. If, at any time, a Subsidiary proposes to offer or sell its shares to any investor other than a Fund, such Funds shareholders will receive 60 days prior notice of such offer or sale.
Each Subsidiary has entered into a separate contract with the Adviser for the management of such Subsidiarys portfolio pursuant to which the Subsidiary pays
the Adviser a management fee for its services. The Adviser has contractually agreed to waive the management fee it receives from each Fund in an amount equal to the management fee paid to the Adviser by each Funds Subsidiary. This undertaking
will continue in effect for so long as a Fund invests in its Subsidiary, and may not be terminated by the Adviser unless the adviser first obtains the prior approval of such Funds Board of Trustees for such termination. Each Subsidiary will
bear the fees and expenses incurred in connection with the custody, transfer agency, and audit services that it receives. Each Fund expects that the expenses borne by its Subsidiary will not be material in relation to the value of such Funds
assets. It is also anticipated that each Funds own expense will be reduced to some extent as a result of the payment of such expenses at the Subsidiary level. It is therefore expected that each Funds investment in its Subsidiary will not
result in such Fund paying duplicative fees for similar services provided to such Fund and its Subsidiary. Please refer to the section in this SAI titled
Taxes Taxation of the Subsidiary
for information
about certain tax aspects of each Funds investment in its Subsidiary.
Each Subsidiary will not be registered under the 1940 Act but will be
subject to certain of the investor protections of that Act, as noted in this SAI. Each Fund, as the sole shareholder of its Subsidiary, will not have all of the protections offered to investors in registered investment companies. However, since each
Fund wholly owns and controls its Subsidiary, and each Fund and its Subsidiary are both managed by the Adviser, it is unlikely that a Subsidiary will take action contrary to the interests of a Fund or its shareholders. The Trusts Board has
oversight responsibility for the investment activities of each Fund, including its investment in each Funds Subsidiary, and each Funds role as the sole shareholder of its Subsidiary. Also, in managing each Subsidiarys portfolio,
the Adviser will be subject to the same investment restrictions and operational guidelines that apply to the management of the Fund that owns and controls the Subsidiary, including any collateral or segregation requirements in connection with
various investment strategies.
Changes in the laws of the United States and/or the Cayman Islands, under which a Fund and its Subsidiary, respectively,
are organized, could result in the inability of a Fund and/or its Subsidiary to operate as described in this
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SAI and could negatively affect a Fund and its shareholders. For example, the Cayman Islands does not currently impose any income, corporate or capital gains tax, estate duty, inheritance tax,
gift tax or withholding tax on the Subsidiary. If Cayman Islands law changes such that a Subsidiary must pay Cayman Islands taxes, a Funds shareholders would likely suffer decreased investment returns.
Each Fund, as a regulated investment company (RIC) under the Internal Revenue Code of 1986, as amended (the IRC), is required to derive at
least 90 percent of its annual gross income from investment-related sources, specifically from dividends, interest, proceeds from securities lending, gains from the sales of stock, securities and foreign currencies, other income (including, but not
limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies, or certain types of publicly traded partnerships (referred to as qualifying income). Direct
investments by a RIC in certain commodity-related instruments do not, under published Internal Revenue Service (IRS) rulings, produce qualifying income. However, the IRS has in the past issued private letter rulings to other RICs in
which it concluded that income from certain commodity index-linked notes is qualifying income and that income derived from subsidiaries similar to the Subsidiaries will be qualifying income whether received in the form of current distributions or as
undistributed subpart F income. There is no law or authority directly addressing some of the issues of the law considered in these rulings. There can be no assurance that the IRS will not change its position with respect to some or all of these
issues or, if the IRS did so, that a court would not sustain, such contrary positions. If the IRS were to change its position on some or all of these issues, and if such contrary positions were upheld, the Funds might cease to qualify as RICs. A
private letter ruling may only be relied upon by the taxpayer to whom it was provided. The Funds do not plan to seek private letter rulings. Therefore, to the extent a Fund invests directly in commodity-index-linked derivative instruments or in a
Subsidiary, the IRS may contest the Funds characterization of the income produced by such assets as qualifying income which, if successful, could cause the Fund to fail to qualify as a RIC. Each Fund and its Adviser plan to direct investments
of the Funds assets in conformance with Revenue Ruling 2006-31, IRS guidance, and the advice of counsel. A more detailed description of the risks and tax consequences associated with the Funds investment in the Subsidiaries is included
in the section entitled
Taxes Taxation of the Subsidiary
below.
Each Subsidiary intends to conduct its affairs
in a manner such that it will not be subject to U.S. federal income tax. It will, however, be considered a controlled foreign corporation, and each Fund will be required to annually include in its income amounts earned by its Subsidiary during that
year, whether or not distributed by such Subsidiary. Furthermore, each Fund will be subject to the RIC qualification distribution requirements with respect to its Subsidiarys income, whether or not its Subsidiary makes a distribution to such
Fund during the taxable year; and, thus, such Fund may not have sufficient cash on hand to make such required distribution. As a result, such Fund may need to make untimely sales of its investments, borrow funds or risk losing its status as a RIC.
Derivatives.
Derivatives are financial instruments whose value is based on an underlying asset, such as a stock or a bond,
or an underlying economic factor, such as an interest rate or a market benchmark. Unless otherwise stated in a Funds prospectus, each Fund may use derivatives to gain exposure to the asset classes and for risk management purposes, including to
gain exposure to various markets in a cost efficient manner, to reduce transaction costs or to remain fully invested. Each Fund may also invest in derivatives to protect from broad fluctuations in market prices, interest rates or foreign currency
exchange rates (a practice known as hedging). When hedging is successful, a Fund will have to offset any depreciation in the value of its portfolio securities by the appreciation in the value of the derivative position. Although
techniques other than the sale and purchase of derivatives could be used to control the exposure of a Fund to market fluctuations, the use of derivatives may be a more effective means of hedging this exposure. To the extent that each Fund engages in
hedging, there can be no assurance that any hedge will be effective or that there will be a hedge in place at any given time.
Because many derivatives
have a leverage or borrowing component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the derivative itself. Certain derivatives have
the potential for unlimited loss, regardless of the size of the initial investment. Accordingly, certain derivative transactions may be considered to constitute borrowing transactions for purposes of the 1940 Act. Such a derivative transaction
will not be considered to constitute the issuance of a senior security by a Fund, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a Fund, if a Fund covers
the transaction or segregates sufficient liquid assets in accordance with the 1940 Act requirements or the rules and SEC interpretations thereunder.
Types of Derivatives:
Futures.
A futures contract is an agreement between two parties whereby one party sells and the other party agrees to buy a specified
amount of a financial instrument at an agreed upon price and time. The financial instrument underlying the contract may be a stock, stock index, bond, bond index, interest rate, foreign exchange rate or other similar
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instrument. Agreeing to buy the underlying financial instrument is called buying a futures contract or taking a long position in the contract. Likewise, agreeing to sell the underlying financial
instrument is called selling a futures contract or taking a short position in the contract.
Futures contracts are traded in the U.S. on commodity
exchanges or boards of trade known as contract markets approved for such trading and regulated by the Commodity Futures Trading Commission (CFTC). These contract markets standardize the terms, including the
maturity date and underlying financial instrument, of all futures contracts.
Unlike other securities, the parties to a futures contract do not have to
pay for or deliver the underlying financial instrument until some future date (the delivery date). Contract markets require both the purchaser and seller to deposit initial margin with a futures broker, known as a futures commission
merchant or custodian bank, when they enter into the contract. Initial margin deposits are typically equal to a percentage of the contracts value. After they open a futures contract, the parties to the transaction must compare the purchase
price of the contract to its daily market value. If the value of the futures contract changes in such a way that a partys position declines, that party must make additional variation margin payments so that the margin payment is
adequate. On the other hand, the value of the contract may change in such a way that there is excess margin on deposit, possibly entitling the party that has a gain to receive all or a portion of this amount. This process is known as marking
to the market.
Although the actual terms of a futures contract calls for the actual delivery of and payment for the underlying security, in many
cases the parties may close the contract early by taking an opposite position in an identical contract. If the sale price upon closing out the contract is less than the original purchase price, the person closing out the contract will realize a
loss. If the sale price upon closing out the contract is more than the original purchase price, the person closing out the contract will realize a gain. If the purchase price upon closing out the contract is more than the original sale price, the
person closing out the contract will realize a loss. If the purchase price upon closing out the contract is less than the original sale price, the person closing out the contract will realize a gain.
Each Fund may incur commission expenses when it opens or closes a futures position.
Options.
An option is a contract between two parties for the purchase and sale of a financial instrument for a specified price (known as the strike price or exercise
price) at any time during the option period. Unlike a futures contract, an option grants a right (not an obligation) to buy or sell a financial instrument. Generally, a seller of an option can grant a buyer two kinds of rights: a
call (the right to buy the security) or a put (the right to sell the security). Options have various types of underlying instruments, including specific securities, indices of securities prices, foreign currencies, interest
rates and futures contracts. Options may be traded on an exchange (exchange-traded-options) or may be customized agreements between the parties (over-the-counter or OTC options). Like futures, a financial intermediary, known as a
clearing corporation, financially backs exchange-traded options. However, OTC options have no such intermediary and are subject to the risk that the counterparty will not fulfill its obligations under the contract.
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Purchasing Put and Call Options
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When a
Fund purchases a put option, it buys the right to sell the instrument underlying the option at a fixed strike price. In return for this right, a Fund pays the current market price for the option (known as the option premium). Each Fund
may purchase put options to offset or hedge against a decline in the market value of its securities (protective puts) or to benefit from a decline in the price of securities that it does not own. Each Fund would ordinarily realize a gain
if, during the option period, the value of the underlying securities decreased below the exercise price sufficiently to cover the premium and transaction costs. However, if the price of the underlying instrument does not fall enough to offset the
cost of purchasing the option, a put buyer would lose the premium and related transaction costs.
Call options are similar to put options, except that a
Fund obtains the right to purchase, rather than sell, the underlying instrument at the options strike price. Each Fund would normally purchase call options in anticipation of an increase in the market value of securities it owns or wants to
buy. Each Fund would ordinarily realize a gain if, during the option period, the value of the underlying instrument exceeded the exercise price plus the premium paid and related transaction costs. Otherwise, a Fund would realize either no gain or a
loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
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Allowing it to expire and losing its entire premium;
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Exercising the option and either selling (in the case of a put option) or buying (in the case of a call option) the underlying instrument at the strike price; or
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Closing it out in the secondary market at its current price.
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Selling (Writing) Put and Call Options
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When a Fund writes a call option, it assumes an obligation to sell specified securities to the holder of the option at a specified price if the option is exercised
at any time before the expiration date. Similarly, when a Fund writes a put option, it assumes an obligation to purchase specified securities from the option holder at a specified price if the option is exercised at any time before the expiration
date. A Fund may terminate its position in an exchange-traded put option before exercise by buying an option identical to the one it has written. Similarly, it may cancel an over-the-counter option by entering into an offsetting transaction with the
counterparty to the option.
A Fund could try to hedge against an increase in the value of securities it would like to acquire by writing a put option on
those securities. If security prices rise, a Fund would expect the put option to expire and the premium it received to offset the increase in the securitys value. If security prices remain the same over time, a Fund would hope to profit by
closing out the put option at a lower price. If security prices fall, a Fund may lose an amount of money equal to the difference between the value of the security and the premium it received. Writing covered put options may deprive a Fund of the
opportunity to profit from a decrease in the market price of the securities it would like to acquire.
The characteristics of writing call options are
similar to those of writing put options, except that call writers expect to profit if prices remain the same or fall. A Fund could try to hedge against a decline in the value of securities it already owns by writing a call option. If the price of
that security falls as expected, each Fund would expect the option to expire and the premium it received to offset the decline of the securitys value. However, a Fund must be prepared to deliver the underlying instrument in return for the
strike price, which may deprive it of the opportunity to profit from an increase in the market price of the securities it holds.
Each Fund is permitted
only to write covered options. At the time of selling the call option, a Fund may cover the option by owning, among other things:
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The underlying security (or securities convertible into the underlying security without additional consideration), index, interest rate, foreign currency or
futures contract;
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A call option on the same security or index with the same or lesser exercise price;
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A call option on the same security or index with a greater exercise price and segregating cash or liquid securities in an amount equal to the difference between
the exercise prices;
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Cash or liquid securities equal to at least the market value of the optioned securities, interest rate, foreign currency or futures contract; or
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In the case of an index, the portfolio of securities that corresponds to the index.
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At the time of selling a put option, each Fund may cover the put option by, among other things:
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Entering into a short position in the underlying security;
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Purchasing a put option on the same security, index, interest rate, foreign currency or futures contract with the same or greater exercise price;
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Purchasing a put option on the same security, index, interest rate, foreign currency or futures contract with a lesser exercise price and segregating cash or
liquid securities in an amount equal to the difference between the exercise prices; or
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Maintaining the entire exercise price in liquid securities.
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Options on Securities Indices
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Options
on securities indices are similar to options on securities, except that the exercise of securities index options requires cash settlement payments and does not involve the actual purchase or sale of securities. In addition, securities index options
are designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single security.
An option on a
futures contract provides the holder with the right to buy a futures contract (in the case of a call option) or sell a futures contract (in the case of a put option) at a fixed time and price. Upon exercise of the option by the holder, the contract
market clearing house establishes a corresponding short position for the writer of the option (in the case of a call option) or a corresponding long position (in the case of a put option). If the option is exercised, the parties will be subject to
the futures contracts. In addition, the writer of an option on a futures contract is subject to initial and variation margin requirements on the option position. Options on futures contracts are traded on the same contract market as the underlying
futures contract.
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The buyer or seller of an option on a futures contract may terminate the option early by purchasing or selling an
option of the same series (
i.e.
, the same exercise price and expiration date) as the option previously purchased or sold. The difference between the premiums paid and received represents the traders profit or loss on the transaction.
Each Fund may purchase put and call options on futures contracts instead of selling or buying futures contracts. A Fund may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It also may purchase such put options in order to hedge a long position in the underlying futures contract. A Fund may buy call options on futures contracts for the same purpose
as the actual purchase of the futures contracts, such as in anticipation of favorable market conditions.
Each Fund may write a call option on a futures
contract to hedge against a decline in the prices of the instrument underlying the futures contracts. If the price of the futures contract at expiration were below the exercise price, a Fund would retain the option premium, which would offset, in
part, any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase of the futures
contracts, except that, if the market price declines, a Fund would pay more than the market price for the underlying instrument. The premium received on the sale of the put option, less any transaction costs, would reduce the net cost to a Fund.
Each Fund may
purchase and write options in combination with each other, or in combination with futures or forward contracts, to adjust the risk and return characteristics of the overall position. For example, a Fund could construct a combined position whose risk
and return characteristics are similar to selling a futures contract by purchasing a put option and writing a call option on the same underlying instrument. Alternatively, a Fund could write a call option at one strike price and buy a call option at
a lower price to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close
out.
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Forward Foreign Currency Exchange Contracts
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A forward foreign currency contract involves an obligation to purchase or sell a specific amount of currency at a future date or date range at a specific price. In the case of a cancelable forward contract, the
holder has the unilateral right to cancel the contract at maturity by paying a specified fee. Forward foreign currency exchange contracts differ from foreign currency futures contracts in certain respects. Unlike futures contracts, forward
contracts:
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Do not have standard maturity dates or amounts (i.e., the parties to the contract may fix the maturity date and the amount).
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Are traded in the inter-bank markets conducted directly between currency traders (usually large commercial banks) and their customers, as opposed to futures
contracts which are traded only on exchanges regulated by the CFTC.
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Do not require an initial margin deposit.
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May be closed by entering into a closing transaction with the currency trader who is a party to the original forward contract, as opposed to a commodities
exchange.
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Foreign Currency Hedging Strategies.
A settlement hedge or transaction
hedge is designed to protect a Fund against an adverse change in foreign currency values between the date a security is purchased or sold and the date on which payment is made or received. Entering into a forward contract for the purchase or
sale of the amount of foreign currency involved in an underlying security transaction for a fixed amount of U.S. dollars locks in the U.S. dollar price of the security. Each Fund may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities denominated in foreign currency, even if it has not yet selected the specific investments.
Each Fund may use forward contracts to hedge against a decline in the value of existing investments denominated in foreign currency. Such a hedge, sometimes referred to as a position hedge, would tend
to offset both positive and negative currency fluctuations, but would not offset changes in security values caused by other factors. Each Fund could also hedge the position by selling another currency expected to perform similarly to the currency in
which a Funds investment is denominated. This type of hedge, sometimes referred to as a proxy hedge, could offer advantages in terms of cost, yield, or efficiency, but generally would not hedge currency exposure as effectively as a
direct hedge into U.S. dollars. Proxy hedges may result in losses if the currency used to hedge does not perform similarly to the currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities that a Fund owns or intends to purchase or sell. They simply establish a rate of exchange that one can
achieve at some future
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point in time. Additionally, these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency and to limit any potential gain that might result from the
increase in value of such currency.
Each Fund may enter into forward contracts to shift its investment exposure from one currency into another. Such
transactions may call for the delivery of one foreign currency in exchange for another foreign currency, including currencies in which its securities are not then denominated. This may include shifting exposure from U.S. dollars to a foreign
currency, or from one foreign currency to another foreign currency. This type of strategy, sometimes known as a cross-hedge, will tend to reduce or eliminate exposure to the currency that is sold, and increase exposure to the currency
that is purchased. Cross-hedges may protect against losses resulting from a decline in the hedged currency, but will cause a Fund to assume the risk of fluctuations in the value of the currency it purchases. Cross hedging transactions also involve
the risk of imperfect correlation between changes in the values of the currencies involved.
It is difficult to forecast with precision the market value
of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, a Fund may have to purchase additional foreign currency on the spot market if the market value of a security it is hedging is less than the amount
of foreign currency it is obligated to deliver. Conversely, a Fund may have to sell on the spot market some of the foreign currency it received upon the sale of a security if the market value of such security exceeds the amount of foreign currency
it is obligated to deliver.
To the extent that a Fund engages in foreign currency hedging, there can be no assurance that any hedge will be effective or
that there will be a hedge in place at any given time.
Swaps, Caps, Collars and Floors
Swap Agreements.
A swap is a financial instrument that typically involves the exchange of cash flows between two parties on specified
dates (settlement dates), where the cash flows are based on agreed-upon prices, rates, indices, etc. The nominal amount on which the cash flows are calculated is called the notional amount. Swaps are individually negotiated and structured to include
exposure to a variety of different types of investments or market factors, such as interest rates, foreign currency rates, mortgage securities, corporate borrowing rates, security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the investments of each Fund and its share price. The performance of swap agreements may be
affected by a change in the specific interest rate, currency, or other factors that determine the amounts of payments due to and from each Fund. If a swap agreement calls for payments by a Fund, such Fund must be prepared to make such payments when
due. In addition, if the counterpartys creditworthiness declined, the value of a swap agreement would be likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed upon by the parties. The agreement can be terminated before the maturity date under certain circumstances, such as default by one of the
parties or insolvency, among others, and can be transferred by a party only with the prior written consent of the other party. A Fund may be able to eliminate its exposure under a swap agreement either by assignment or by other disposition, or by
entering into an offsetting swap agreement with the same party or a similarly creditworthy party. If the counterparty is unable to meet its obligations under the contract, declares bankruptcy, defaults or becomes insolvent, a Fund may not be able to
recover the money it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify a Funds gains or
losses. In order to reduce the risk associated with leveraging, each Fund may cover its current obligations under swap agreements according to guidelines established by the U.S. Securities and Exchange Commission (SEC). If a Fund enters
into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of a Funds accrued obligations under the swap agreement over the accrued amount a Fund is entitled to receive under the
agreement. If a Fund enters into a swap agreement on other than a net basis, it will segregate assets with a value equal to the full amount of a Funds accrued obligations under the agreement.
Total return swaps
are contracts in which one party agrees to make payments of the total return from the underlying asset during the specified period, in return for payments equal to a fixed or floating rate of interest or the total return from another underlying
asset. The total return includes appreciation or depreciation on the underlying asset, plus any interest or dividend payments. Payments under the swap are based upon an agreed upon principal amount but since the principal amount is not exchanged, it
represents neither an asset nor a liability to either counterparty, and is referred to as notional. Total return swaps are marked to market daily using different sources, including quotations from counterparties, pricing services, brokers or market
makers. The unrealized appreciation (depreciation) related to the change in the valuation of the notional amount of the swap is combined with the amount due to a Fund at termination or settlement. The primary risks associated with total returns
swaps are credit risks (if the counterparty fails to meet its obligations) and market risk (if there is no liquid market for the agreement or unfavorable changes occur to the underlying asset).
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In a typical equity swap,
one party agrees to pay another party the return on a stock, stock index or basket of stocks in return for a specified interest rate. By entering into an equity index swap, for example, the index receiver can gain exposure to stocks making up the
index of securities without actually purchasing those stocks. Equity index swaps involve not only the risk associated with investment in the securities represented in the index, but also the risk that the performance of such securities, including
dividends, will not exceed the return on the interest rate that a Fund will be committed to pay.
Interest rate
swaps are financial instruments that involve the exchange of one type of interest rate for another type of interest rate cash flow on specified dates in the future. Some of the different types of interest rate swaps are fixed-for floating rate
swaps, termed basis swaps and index amortizing swaps. Fixed-for floating rate swaps involve the exchange of fixed interest rate cash flows for floating rate cash flows. Termed basis swaps entail cash flows to both
parties based on floating interest rates, where the interest rate indices are different. Index amortizing swaps are typically fixed-for floating swaps where the notional amount changes if certain conditions are met.
Like a traditional investment in a debt security, a Fund could lose money by investing in an interest rate swap if interest rates change adversely. For example, if
a Fund enters into a swap where it agrees to exchange a floating rate of interest for a fixed rate of interest, such Fund may have to pay more money than it receives. Similarly, if a Fund enters into a swap where it agrees to exchange a fixed rate
of interest for a floating rate of interest, such Fund may receive less money than it has agreed to pay.
A currency swap is an
agreement between two parties in which one party agrees to make interest rate payments in one currency and the other promises to make interest rate payments in another currency. Each Fund may enter into a currency swap when it has one currency and
desires a different currency. Typically the interest rates that determine the currency swap payments are fixed, although occasionally one or both parties may pay a floating rate of interest. Unlike an interest rate swap, however, the principal
amounts are exchanged at the beginning of the contract and returned at the end of the contract. Changes in foreign exchange rates and changes in interest rates, as described above may negatively affect currency swaps.
Caps, Collars and Floors.
Caps and floors have an effect similar to buying or writing options. In a typical cap or floor agreement,
one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified
interest rate exceeds an agreed-upon level. The seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap
and selling a floor.
Risks of Derivatives:
While transactions in derivatives may reduce certain risks, these transactions themselves entail certain other risks. For example, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in a poorer overall performance of a Fund than if it had not entered into any derivatives transactions. Derivatives may magnify a Funds gains or losses, causing it to make or lose
substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a Fund holds or intends to acquire should
offset any losses incurred with a derivative. Purchasing derivatives for purposes other than hedging could expose a Fund to greater risks.
Correlation of Prices.
A Funds ability to hedge its securities through derivatives depends on the degree to which price
movements in the underlying index or instrument correlate with price movements in the relevant securities. In the case of poor correlation, the price of the securities a Fund is hedging may not move in the same amount, or even in the same direction
as the hedging instrument. The Adviser will try to minimize this risk by investing only in those contracts whose behavior it expects to resemble with the portfolio securities it is trying to hedge. However, if a Funds prediction of interest
and currency rates, market value, volatility or other economic factors is incorrect, a Fund may lose money, or may not make as much money as it expected.
Derivative prices can diverge from the prices of their underlying instruments, even if the characteristics of the underlying instruments are very similar to the derivative. Listed below are some of the factors that
may cause such a divergence:
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current and anticipated short-term interest rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract;
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a difference between the derivatives and securities markets, including different levels of demand, how the instruments are traded, the imposition of daily price
fluctuation limits or trading of an instrument stops; and
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differences between the derivatives, such as different margin requirements, different liquidity of such markets and the participation of speculators in such
markets.
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Derivatives based upon a narrow index of securities, such as those of a particular industry group, may present greater
risk than derivatives based on a broad market index. Since narrower indices are made up of a smaller number of securities, they are more susceptible to rapid and extreme price fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with exchange rates, they may not reflect other factors that affect the value of
the investments of a Fund. A currency hedge, for example, should protect a yen-denominated security from a decline in the yen, but will not protect a Fund against a price decline resulting from deterioration in the issuers creditworthiness.
Because the value of a Funds foreign-denominated investments changes in response to many factors other than exchange rates, it may not be possible to match the amount of currency options and futures to the value of a Funds investments
precisely over time.
Lack of Liquidity.
Before a futures contract or option is exercised or expires, a Fund can terminate
it only by entering into a closing purchase or sale transaction. Moreover, a Fund may close out a futures contract only on the exchange on which the contract was initially traded. If there is no secondary market for the contract, or the market is
illiquid, a Fund may not be able to close out its position. In an illiquid market, a Fund may:
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have to sell securities to meet its daily margin requirements at a time when it is disadvantageous to do so;
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have to purchase or sell the instrument underlying the contract;
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not be able to hedge its investments; and
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not be able to realize profits or limit its losses.
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Derivatives may become illiquid (i.e., difficult to sell at a desired time and price) under a variety of market conditions. For example:
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an exchange may suspend or limit trading in a particular derivative instrument, an entire category of derivatives or all derivatives, which sometimes occurs
because of increased market volatility;
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unusual or unforeseen circumstances may interrupt normal operations of an exchange;
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the facilities of the exchange may not be adequate to handle current trading volume;
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equipment failures, government intervention, insolvency of a brokerage firm or clearing house or other occurrences may disrupt normal trading activity; or
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investors may lose interest in a particular derivative or category of derivatives.
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Management Risk.
If the Adviser incorrectly predicts stock market and interest rate trends, a Fund may lose money by investing in derivatives. For example, if a Fund were to write a
call option based on the Advisers expectation that the price of the underlying security would fall, but the price were to rise instead, a Fund could be required to sell the security upon exercise at a price below the current market price.
Similarly, if a Fund were to write a put option based on the Advisers expectation that the price of the underlying security would rise, but the price were to fall instead, a Fund could be required to purchase the security upon exercise at a
price higher than the current market price.
Pricing Risk.
At times, market conditions might make it hard to value some
investments. For example, if a Fund has valued its securities too highly, you may end up paying too much for Fund shares when you buy into a Fund. If a Fund underestimates its price, you may not receive the full market value for your Fund shares
when you sell.
Margin.
Because of the low margin deposits required upon the opening of a derivative position, such
transactions involve an extremely high degree of leverage. Consequently, a relatively small price movement in a derivative may result in an immediate and substantial loss (as well as gain) to a Fund and it may lose more than it originally invested
in the derivative.
If the price of a futures contract changes adversely, a Fund may have to sell securities at a time when it is disadvantageous to do
so to meet its minimum daily margin requirement. A Fund may lose its margin deposits if a broker with whom it has an open futures contract or related option becomes insolvent or declares bankruptcy.
8
Volatility and Leverage.
The prices of derivatives are volatile (i.e., they may change
rapidly, substantially and unpredictably) and are influenced by a variety of factors, including:
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actual and anticipated changes in interest rates;
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fiscal and monetary policies; and
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national and international political events.
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Most exchanges limit the amount by which the price of a derivative can change during a single trading day. Daily trading limits establish the maximum amount that
the price of a derivative may vary from the settlement price of that derivative at the end of trading on the previous day. Once the price of a derivative reaches this value, a Fund may not trade that derivative at a price beyond that limit. The
daily limit governs only price movements during a given day and does not limit potential gains or losses. Derivative prices have occasionally moved to the daily limit for several consecutive trading days, preventing prompt liquidation of the
derivative.
Because of the low margin deposits required upon the opening of a derivative position, such transactions involve an extremely high degree of
leverage. Consequently, a relatively small price movement in a derivative may result in an immediate and substantial loss (as well as gain) to a Fund and it may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a Fund may have to sell securities at a time when it is disadvantageous to do so to meet its minimum daily
margin requirement. A Fund may lose its margin deposits if a broker-dealer with whom it has an open futures contract or related option becomes insolvent or declares bankruptcy.
Tax Risk.
Each Fund intends to qualify annually to be treated as a RIC under the IRC. To qualify as a RIC under the IRC, a Fund must invest in assets which produce the types of income
specified in the IRC and the Treasury regulations (Qualifying Income). Whether the income from certain derivatives, swaps, commodity-linked derivatives and other commodity/natural resource-related securities, including income from a
Funds investment in its subsidiary, is Qualifying Income is unclear. If a Fund invests in these types of securities and the income is determined to not be Qualifying Income, it may cause a Fund to fail to qualify as a RIC under the IRC. See
Taxes
below for additional information related to these restrictions.
Fixed Income Securities.
Fixed
income securities include bonds, notes, debentures and other interest-bearing securities that represent indebtedness. The market value of the fixed income investments in which a Fund invests will change in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Conversely, during periods of rising interest rates, the values of such securities generally decline. Moreover, while securities
with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. Changes by recognized agencies in the rating of any fixed income
security and in the ability of an issuer to make payments of interest and principal also affect the value of these investments. Changes in the value of these securities will not necessarily affect cash income derived from these securities but will
affect a Funds net asset value.
Investment Company Shares.
Each Fund may invest in shares of other investment
companies. Such investments are subject to limitations prescribed by the 1940 Act, the rules thereunder and applicable SEC staff interpretations thereof, or applicable exemptive relief granted by the SEC. These investment companies typically incur
fees that are separate from those fees incurred directly by a Fund. A Funds purchases of such investment company securities results in the layering of expenses, such that shareholders would indirectly bear a proportionate share of the
operating expenses of such investment companies, including advisory fees, in addition to paying a Funds expenses. Under the 1940 Act, unless an exception is available, each Fund is prohibited from acquiring the securities of another investment
company if, as a result of such acquisition: (1) a Fund owns more than 3% of the total voting stock of the other company; (2) securities issued by any one investment company represent more than 5% of a Funds total assets; or
(3) securities (other than treasury stock) issued by all investment companies represent more than 10% of the total assets of a Fund.
Money
Market Securities.
Money market securities include short-term U.S. government securities; custodial receipts evidencing separately traded interest and principal components of securities issued by the U.S. Treasury;
commercial paper rated in the highest short-term rating category by a nationally recognized statistical ratings organization (NRSRO), such as Standard & Poors or Moodys, or determined by the Adviser to be of
comparable quality at the time of purchase; short-term bank obligations (certificates of deposit, time deposits and bankers acceptances) of U.S. commercial banks with assets of at least $1 billion as of the end of their most recent fiscal
year; and repurchase agreements involving such securities. Each of these money market securities are described below. For a description of ratings, see Appendix A Ratings to this SAI.
9
U.S. Government Securities.
Examples of types of U.S. government obligations in
which each Fund may invest include U.S. Treasury Obligations and the obligations of U.S. government agencies such as Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business Administration, Federal National Mortgage Association, Government National Mortgage Association, General Services Administration, Student Loan Marketing Association, Central
Bank for Cooperatives, Freddie Mac (formerly Federal Home Loan Mortgage Corporation), Federal Intermediate Credit Banks, Maritime Administration, and other similar agencies. Whether backed by the full faith and credit of the U.S. Treasury or not,
U.S. government securities are not guaranteed against price movements due to fluctuating interest rates.
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U.S. Treasury Obligations.
U.S. Treasury obligations consist of bills, notes and bonds issued by the U.S. Treasury and separately
traded interest and principal component parts of such obligations that are transferable through the federal book-entry system known as Separately Traded Registered Interest and Principal Securities (STRIPS) and Treasury Receipts
(TRs).
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Receipts.
Interests in separately traded interest and principal component parts of U.S. government obligations that are issued by
banks or brokerage firms and are created by depositing U.S. government obligations into a special account at a custodian bank. The custodian holds the interest and principal payments for the benefit of the registered owners of the certificates or
receipts. The custodian arranges for the issuance of the certificates or receipts evidencing ownership and maintains the register. TRs and STRIPS are interests in accounts sponsored by the U.S. Treasury. Receipts are sold as zero coupon securities.
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U.S. Government Zero Coupon Securities.
STRIPS and receipts are sold as zero coupon securities, that is, fixed income securities
that have been stripped of their unmatured interest coupons. Zero coupon securities are sold at a (usually substantial) discount and redeemed at face value at their maturity date without interim cash payments of interest or principal. The amount of
this discount is accreted over the life of the security, and the accretion constitutes the income earned on the security for both accounting and tax purposes. Because of these features, the market prices of zero coupon securities are generally more
volatile than the market prices of securities that have similar maturity but that pay interest periodically. Zero coupon securities are likely to respond to a greater degree to interest rate changes than are non-zero coupon securities with similar
maturity and credit qualities.
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U.S. Government Agencies.
Some obligations issued or guaranteed by agencies of the U.S. government are supported by the full faith
and credit of the U.S. Treasury, others are supported by the right of the issuer to borrow from the Treasury, while still others are supported only by the credit of the instrumentality. Guarantees of principal by agencies or instrumentalities of the
U.S. government may be a guarantee of payment at the maturity of the obligation, so that in the event of a default prior to maturity, there might not be a market and thus no means of realizing on the obligation prior to maturity. Guarantees as to
the timely payment of principal and interest do not extend to the value or yield of these securities nor to the value of each Funds shares.
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Commercial Paper.
Commercial paper is the term used to designate unsecured short-term promissory notes issued by corporations and other entities. Maturities on these issues vary from a
few to 270 days.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S. Banks.
Each Fund may invest in
obligations issued by banks and other savings institutions. Investments in bank obligations include obligations of domestic branches of foreign banks and foreign branches of domestic banks. Such investments in domestic branches of foreign banks and
foreign branches of domestic banks may involve risks that are different from investments in securities of domestic branches of U.S. banks. These risks may include future unfavorable political and economic developments, possible withholding taxes on
interest income, seizure or nationalization of foreign deposits, currency controls, interest limitations, or other governmental restrictions which might affect the payment of principal or interest on the securities held by a Fund. Additionally,
these institutions may be subject to less stringent reserve requirements and to different accounting, auditing, reporting and recordkeeping requirements than those applicable to domestic branches of U.S. banks. Bank obligations include the
following:
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Bankers Acceptances.
Bankers acceptances are bills of exchange or time drafts drawn on and accepted by a commercial
bank. Corporations use bankers acceptances to finance the shipment and storage of goods and to furnish dollar exchange. Maturities are generally six months or less.
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Certificates of Deposit.
Certificates of deposit are interest-bearing instruments with a specific maturity. They are issued by
banks and savings and loan institutions in exchange for the deposit of funds and normally can be traded in the secondary market prior to maturity. Certificates of deposit with penalties for early withdrawal will be considered illiquid.
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10
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Time Deposits.
Time deposits are non-negotiable receipts issued by a bank in exchange for the deposit of funds. Like a certificate
of deposit, it earns a specified rate of interest over a definite period of time; however, it cannot be traded in the secondary market. Time deposits with a withdrawal penalty or that mature in more than seven days are considered to be illiquid
securities.
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Repurchase Agreements.
Each Fund may enter into repurchase agreements with financial
institutions. Each Fund follows certain procedures designed to minimize the risks inherent in such agreements. These procedures include effecting repurchase transactions only with creditworthy financial institutions whose condition will be
continually monitored by the Adviser. The repurchase agreements entered into by each Fund will provide that the underlying collateral at all times shall have a value at least equal to 102% of the resale price stated in the agreement (the Adviser
monitors compliance with this requirement). Under all repurchase agreements entered into by each Fund, the custodian or its agent must take possession of the underlying collateral. In the event of a default or bankruptcy by a selling financial
institution, each Fund will seek to liquidate such collateral. However, the exercising of a Funds right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the
obligation to repurchase were less than the repurchase price, such Fund could suffer a loss. It is the current policy of each Fund, not to invest in repurchase agreements that do not mature within seven days if any such investment, together with any
other illiquid assets held by such Fund, amounts to more than 15% of such Funds total assets. The investments of a Fund in repurchase agreements, at times, may be substantial when, in the view of the Adviser, liquidity or other considerations
so warrant.
Securities Lending.
Each Fund may lend portfolio securities to brokers, dealers and other financial
organizations that meet capital and other credit requirements or other criteria established by each Funds Board of Trustees. These loans, if and when made, may not exceed 33 1/3% of the total asset value of each Fund (including the loan
collateral). A Fund will not lend portfolio securities to its investment adviser or affiliates unless they have applied for and received specific authority to do so from the SEC. Loans of portfolio securities will be fully collateralized by cash,
letters of credit or U.S. government securities, and the collateral will be maintained in an amount equal to at least 100% of the current market value of the loaned securities by marking to market daily. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the account of the Fund.
Each Fund may pay a part of the interest earned
from the investment of collateral, or other fee, to an unaffiliated third party for acting as such Funds securities lending agent.
By lending its
securities, each Fund may increase its income by receiving payments from the borrower that reflect the amount of any interest or any dividends payable on the loaned securities as well as by either investing cash collateral received from the borrower
in short-term instruments or obtaining a fee from the borrower when U.S. government securities or letters of credit are used as collateral. Each Fund will adhere to the following conditions whenever its portfolio securities are loaned: (i) a
Fund must receive at least 100% cash collateral or equivalent securities of the type discussed in the preceding paragraph from the borrower; (ii) the borrower must increase such collateral whenever the market value of the securities rises above
the level of such collateral; (iii) a Fund must be able to terminate the loan on demand; (iv) a Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities and any
increase in market value; (v) a Fund may pay only reasonable fees in connection with the loan (which fees may include fees payable to the lending agent, the borrower, a Funds administrator and the custodian); and (vi) voting rights
on the loaned securities may pass to the borrower, provided, however, that if a material event adversely affecting the investment occurs, a Fund must terminate the loan and regain the right to vote the securities. The Board has adopted procedures
reasonably designed to ensure that the foregoing criteria will be met. Loan agreements involve certain risks in the event of default or insolvency of the borrower, including possible delays or restrictions upon a Funds ability to recover the
loaned securities or dispose of the collateral for the loan, which could give rise to loss because of adverse market action, expenses and/or delays in connection with the disposition of the underlying securities.
Illiquid Securities.
Illiquid securities are securities that cannot be sold or disposed of in the ordinary course of business (within
seven days) at approximately the prices at which they are valued. Because of their illiquid nature, illiquid securities must be priced at fair value as determined in good faith pursuant to procedures approved by the Trusts Board of Trustees.
Despite such good faith efforts to determine fair value prices, a Funds illiquid securities are subject to the risk that the securitys fair value price may differ from the actual price which such Fund may ultimately realize upon their
sale or disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to a Fund. Under the supervision of the Trusts Board of Trustees, the Adviser determines the liquidity of each Funds investments. In
determining the liquidity of a Funds investments, the Adviser may consider various factors, including (1) the frequency and volume of trades and quotations, (2) the number of dealers and prospective purchasers in the marketplace,
(3) dealer undertakings to make a market, and (4) the nature of the security and the market in which it trades
11
(including any demand, put or tender features, the mechanics and other requirements for transfer, any letters of credit or other credit enhancement features, any ratings, the number of holders,
the method of soliciting offers, the time required to dispose of the security, and the ability to assign or offset the rights and obligations of the security). No Fund will invest more than 15% of its net assets in illiquid securities.
Restricted Securities.
Restricted securities are securities that may not be sold freely to the public absent registration under the
Securities Act of 1933, as amended (1933 Act) or an exemption from registration. As consistent with each Funds investment objectives, a Fund may invest in Section 4(2) commercial paper. Section 4(2) commercial paper is
issued in reliance on an exemption from registration under Section 4(2) of the Act and is generally sold to institutional investors who purchase for investment. Any resale of such commercial paper must be in an exempt transaction, usually to an
institutional investor through the issuer or investment dealers who make a market in such commercial paper. The Trust believes that Section 4(2) commercial paper is liquid to the extent it meets the criteria established by the Board of Trustees
of the Trust. The Trust intends to treat such commercial paper as liquid and not subject to the investment limitations applicable to illiquid securities or restricted securities.
Short Sales.
As consistent with each Funds investment objectives, a Fund may engage in short sales that are either uncovered or against the box. A short
sale is against the box if at all times during which the short position is open, a Fund owns at least an equal amount of the securities or securities convertible into, or exchangeable without further consideration for, securities of the
same issue as the securities that are sold short. A short sale against the box is a taxable transaction to a Fund with respect to the securities that are sold short.
Uncovered short sales are transactions under which a Fund sells a security it does not own. To complete such a transaction, a Fund must borrow the security to make delivery to the buyer. A Fund then is obligated to
replace the security borrowed by purchasing the security at the market price at the time of the replacement. The price at such time may be more or less than the price at which the security was sold by a Fund. Until the security is replaced, a Fund
is required to pay the lender amounts equal to any dividends or interest that accrue during the period of the loan. To borrow the security, a Fund also may be required to pay a premium, which would increase the cost of the security sold. The
proceeds of the short sale will be retained by the broker, to the extent necessary to meet margin requirements, until the short position is closed out.
Until a Fund closes its short position or replaces the borrowed security, a Fund will: (a) maintain a segregated account containing cash or liquid securities
at such a level that (i) the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current value of the security sold short; and (ii) the amount deposited in the segregated account plus the
amount deposited with the broker as collateral will not be less than the market value of the security at the time the security was sold short, or (b) otherwise cover a Funds short position.
INVESTMENT LIMITATIONS
The following investment limitations are in addition
to those described in the Prospectus. These investment limitations are fundamental and may be changed with respect to each Fund only with the approval of the holders of a majority of a Funds outstanding voting
securities as defined in the 1940 Act. Except with respect to the asset coverage requirement under Section 18(f)(1) of the 1940 Act with respect to borrowing, if a percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in value of portfolio securities or amount of net assets will not be considered a violation of the investment limitation. In the case of borrowing, however, a Fund will promptly take action
to reduce the amount of such Funds borrowings outstanding if, because of changes in the net asset value of such Fund due to market action, the amount of such borrowings exceeds one-third of the value of such Funds net assets.
The Equinox Eclipse Strategy Fund, Equinox John Locke Strategy Fund, Equinox QCM Strategy Fund and Equinox Tiverton Strategy Fund will not:
1.
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Issue senior securities or borrow money, except as permitted under the 1940 Act and the rules and regulations thereunder, and then not in excess of 33-1/3% of the Funds
total assets (including the amount of the senior securities issued but reduced by any liabilities not constituting senior securities) at the time of the issuance or borrowing, except that the Fund may borrow up to an additional 5% of its total
assets (not including the amount borrowed) for temporary purposes such as clearance of portfolio transactions and share redemptions. For purposes of these restrictions, the purchase or sale of securities on a when-issued, delayed delivery or forward
commitment basis, the purchase and sale of options and futures contracts and collateral arrangements with respect thereto are not deemed to be the issuance of a senior security, a borrowing or a pledge of assets;
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12
2.
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Engage in the business of underwriting securities issued by others, except to the extent that the Fund may be considered an underwriter within the meaning of the 1933 Act in the
disposition of restricted securities or in connection with its investments in other investment companies;
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3.
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Make loans, except to the extent permitted under the 1940 Act, the rules and regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be
amended or interpreted from time to time. For purposes of this restriction, the acquisition of bonds, debentures, other debt securities or instruments, or participations or other interests therein and investments in government obligations,
commercial paper, certificates of deposit, bankers acceptances or similar instruments will not be considered the making of a loan. In addition, a Fund may (i) lend portfolio securities, (ii) enter into repurchase agreements, and
(iii) participate in an interfund lending program with other registered investment companies;
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4.
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Purchase or sell real estate, except that a Fund may (i) invest in securities of issuers that invest in real estate or interests therein, (ii) invest in
mortgage-related securities and other securities that are secured by real estate or interests therein, and (iii) hold and sell real estate acquired by a Fund as a result of the ownership of securities;
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5.
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Purchase or sell commodities, unless acquired as a result of owning securities or other instruments, but it may purchase, sell or enter into financial options and futures,
forward and spot currency contracts, swap transactions and other financial contracts or derivative instruments and may invest in securities or other instruments backed by commodities; and
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6.
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Purchase any security if, as a result of that purchase, 25% or more of its total assets would be invested in securities of issuers having their principal business activities in
the same industry. This limit does not apply to securities issued or guaranteed by the U.S. government, its agencies or instrumentalities.
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The Equinox Abraham Strategy Fund, Equinox Absolute Return Plus Strategy Fund, Equinox Campbell Strategy Fund, Equinox Chesapeake Strategy Fund and Equinox Crabel
Strategy Fund will not:
1.
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Invest 25% or more of the value of the Funds total assets in the securities of one or more issuers conducting their principal business activities in the same industry or
group of industries. This limit does not apply to securities issued or guaranteed by the U.S. government, its agencies or instrumentalities.
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2.
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Borrow money or issue senior securities (as defined under the 1940 Act), except to the extent permitted under the 1940 Act, the rules and regulations thereunder or any exemption
therefrom, as such statute, rules or regulations may be amended or interpreted from time to time.
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3.
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Make loans, except to the extent permitted under the 1940 Act, the rules and regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be
amended or interpreted from time to time.
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4.
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Purchase or sell commodities or real estate, except to the extent permitted under the 1940 Act, the rules and regulations thereunder or any exemption therefrom, as such statute,
rules or regulations may be amended or interpreted from time to time.
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5.
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Underwrite securities issued by other persons, except to the extent permitted under the 1940 Act, the rules and regulations thereunder or any exemption therefrom, as such
statute, rules or regulations may be amended or interpreted from time to time.
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When engaging in options, futures and forward currency
contract strategies, each Fund will either: (1) earmark or set aside cash or liquid securities in a segregated account with the custodian in the prescribed amount; or (2) hold securities or other options or futures contracts whose values
are expected to offset (cover) its obligations thereunder. Securities, currencies or other options or futures contracts used for cover cannot be sold or closed out while the strategy is outstanding, unless they are replaced with similar
assets.
THE ADVISER
General.
Equinox Fund
Management, LLC (the Adviser), is a Delaware limited liability company, formed in 2003 as a commodity pool operator and registered with the SEC as a registered investment adviser in 2007. The Advisers principal place of business is
located at 1775 Sherman Street, Suite 2500 Denver, CO 80203. The Adviser may be deemed to be controlled by Plimpton Capital, LLC through such entitys ownership interest in the Adviser. The Adviser manages and supervises the investment of each
Funds assets on a discretionary basis. As of June 30, 2013, the Adviser had approximately $1.289 billion in assets under management.
13
Advisory Agreement with the Trust.
The Trust and the Adviser have entered into an
investment advisory agreement with respect to each Fund (the Advisory Agreement). Under the Advisory Agreement, the Adviser serves as the investment adviser and makes the investment decisions for each Fund and continuously reviews,
supervises and administers each Funds investment program, subject to the supervision of, and policies established by, the Trustees of the Trust. After its initial two-year term, the continuance of the Advisory Agreement must be specifically
approved at least annually (i) by the vote of the Trustees or by a vote of the shareholders of a Fund and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory Agreement or interested persons of any
party thereto, cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement will terminate automatically in the event of its assignment, and is terminable at any time without penalty by the Trustees of the
Trust or, with respect to each Fund, by a majority of the outstanding shares of a Fund, on not less than 60 days written notice to the Adviser, or by the Adviser on 60 days written notice to the Trust. The Advisory Agreement provides that the
Adviser shall not be protected against any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or
duties thereunder.
Advisory Fees Paid to the Adviser.
For its services, the Adviser is entitled to an investment advisory
fee, which is calculated daily and paid monthly, at an annual rate of 0.75% of each Funds average daily net assets. The Adviser has contractually agreed that from commencement of each Funds operations through January 31, 2014, it
will reduce its compensation and/or reimburse certain expenses for a Fund, to the extent necessary to ensure that such Funds total operating expenses, excluding taxes, any class-specific fees and expenses (such as Rule 12b-1 distribution fees,
shareholder service fees, or transfer agency fees), interest, extraordinary items, Acquired Fund fees and expenses and brokerage commissions, do not exceed, 1.10% (on an annual basis) of average daily net assets of each of the Equinox
Abraham Strategy Fund, Equinox Absolute Return Plus Strategy Fund, Equinox Chesapeake Strategy Fund, Equinox Crabel Strategy Fund, Equinox Eclipse Strategy Fund, Equinox John Locke Strategy Fund, Equinox QCM Strategy Fund and Equinox Tiverton
Strategy Fund, and do not exceed 0.90% of average daily net assets of the Equinox Campbell Strategy Fund (the Expense Limitation). Prior to May 20, 2013, the Expense Limitation with respect to the Equinox Campbell Strategy Fund was
1.10%. The Expense Limitation with respect to each Fund will remain in place until January 31, 2014, unless the Board of Trustees approves its earlier termination, subject to 60 days written notice to the Adviser. The Adviser shall be
entitled to recover, subject to approval by the Board of Trustees of the Trust, such waived or reimbursed amounts for a period of up to three (3) years from the year in which the Adviser reduced its compensation and/or assumed expenses for a
Fund. The table below sets forth the advisory fees earned and reimbursed by the Adviser for the fiscal period ended September 30, 2012:
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Fund
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Gross
Advisory Fee
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Advisory Fee
Waived
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Advisor Fee
Waivers and
Expenses Waived
or Reimbursed
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Equinox Abraham Strategy Fund*
|
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$
|
7
|
|
|
$
|
7
|
|
|
$
|
13,067
|
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Equinox Absolute Return Plus Strategy Fund*
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|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
13,101
|
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Equinox Chesapeake Strategy Fund*
|
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$
|
5
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|
|
$
|
5
|
|
|
$
|
13,810
|
|
Equinox Crabel Strategy Fund*
|
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$
|
3
|
|
|
$
|
3
|
|
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$
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18,610
|
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Equinox Eclipse Strategy Fund**
|
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$
|
232
|
|
|
$
|
232
|
|
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$
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58,839
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Equinox John Locke Strategy Fund**
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$
|
6,811
|
|
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$
|
6,811
|
|
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$
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73,283
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Equinox QCM Strategy Fund**
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$
|
37
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|
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$
|
37
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|
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$
|
61,012
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Equinox Tiverton Strategy Fund*
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$
|
33
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|
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$
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33
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|
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$
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46,429
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*
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The Fund commenced operations on April 19, 2012.
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**
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The Fund commenced operations on January
25, 2012.
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PORTFOLIO MANAGERS
This section supplements the information about Richard
Bornhoft, Ajay Dravid, Sue Osborne, Afroz Qadeer, and Rufus Rankin, the Funds portfolio management team, provided in the Prospectus under the heading Portfolio Managers, and includes information about other accounts managed, the
dollar range of Fund shares owned and compensation. Effective April 1, 2013, Afroz Qadeer and Sue Osborne were added as portfolio managers of the Funds and are, together with Richard Bornhoft, Ajay Dravid and Rufus Rankin primarily responsible
for the day-to-day management of the Fund.
14
Compensation.
Mr. Bornhoft is the controlling principal of The Bornhoft Group
Corporation, an owner of the Adviser. Mr. Bornhoft is compensated through an indirect ownership stake in the Adviser. As of Mr. Bornhoft, Dr. Dravid, Mr. Rankin, Ms. Osborne and Mr. Qadeer are each paid a fixed salary
and discretionary bonus by the Adviser, which is contingent upon the overall performance of the Adviser and each individuals contribution to the Advisers performance, and is not directly contingent upon the performance of the Funds.
Fund Shares Owned by the Portfolio Managers.
As of September 30, 2012, the funds most recently completed fiscal year
end, none of Mr. Bornhoft, Dr. Dravid or Mr. Rankin own shares of a Fund. As of April 1, 2013, none of Ms. Osborne or Mr. Qadeer owned shares of the Funds.
Other Accounts.
In addition to each Fund, Mr. Bornhoft, Dr. Dravid, Mr. Rankin, Ms. Osborne and Mr. Qadeer are responsible for the day-to-day management of
certain other accounts, as listed below. The information below with respect to Mr. Bornhoft, Dr. Dravid and Mr. Rankin is provided as of September 30, 2012, the Funds most recent fiscal year end.
Richard Bornhoft
|
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|
|
|
|
|
|
|
|
|
Account Type
|
|
Number of
Accounts by
Account Type
|
|
|
Total Assets By
Account Type
|
|
|
Number of
Accounts by Type
Subject to a
Performance Fee
|
|
|
Total Assets By
Account Type
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
|
|
2
|
|
|
$
|
927,047,846
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Other Pooled Investment Vehicles
|
|
|
4
|
|
|
$
|
582,878,000
|
|
|
|
4
|
|
|
$
|
582,878,000
|
|
Other Accounts
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Ajay Dravid
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|
|
Account Type
|
|
Number of
Accounts by
Account Type
|
|
|
Total Assets By
Account Type
|
|
|
Number of
Accounts by Type
Subject to a
Performance Fee
|
|
|
Total Assets By
Account Type
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
|
|
2
|
|
|
$
|
927,047,846
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Other Pooled Investment Vehicles
|
|
|
1
|
|
|
$
|
345,925,403
|
|
|
|
1
|
|
|
$
|
345,925,403
|
|
Other Accounts
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rufus Rankin
|
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|
|
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|
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|
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|
|
Account Type
|
|
Number of
Accounts by
Account Type
|
|
|
Total Assets By
Account Type
|
|
|
Number of
Accounts by Type
Subject to a
Performance Fee
|
|
|
Total Assets By
Account Type
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
|
|
2
|
|
|
$
|
927,047,846
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Other Pooled Investment Vehicles
|
|
|
1
|
|
|
$
|
345,925,403
|
|
|
|
1
|
|
|
$
|
345,925,403
|
|
Other Accounts
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The information below with respect to Mr. Qadeer and Ms. Osborne is provided as of April 1, 2013, the date
each commenced serving as portfolio managers to the Funds.
Afroz Qadeer
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|
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|
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Account Type
|
|
Number of
Accounts by
Account Type
|
|
|
Total Assets By
Account Type
|
|
|
Number of
Accounts by Type
Subject to a
Performance Fee
|
|
|
Total Assets By
Account Type
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
|
|
0
|
|
|
$
|
0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Other Pooled Investment Vehicles
|
|
|
0
|
|
|
$
|
0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Other Accounts
|
|
|
N/A
|
|
|
$
|
271,000,000
|
|
|
|
2
|
|
|
$
|
271,000,000
|
|
15
Sue Osborne
|
|
|
|
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|
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Account Type
|
|
Number of
Accounts by
Account Type
|
|
|
Total Assets By
Account Type
|
|
|
Number of
Accounts by Type
Subject to a
Performance Fee
|
|
|
Total Assets By
Account Type
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
|
|
0
|
|
|
$
|
0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Other Pooled Investment Vehicles
|
|
|
0
|
|
|
$
|
0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Other Accounts
|
|
|
N/A
|
|
|
$
|
271,000,000
|
|
|
|
2
|
|
|
$
|
271,000,000
|
|
Conflicts of Interests.
The portfolio managers management of other accounts
may give rise to potential conflicts of interest in connection with their management of each Funds investments, on the one hand, and the investments of the other accounts referenced above, on the other. The other accounts may have the same
investment objective as a Fund. Therefore, a potential conflict of interest may arise as a result of the identical investment objectives, whereby the portfolio managers could favor one account over another. Another potential conflict could include
the portfolio managers knowledge about the size, timing and possible market impact of a Funds trade, whereby the portfolio managers could use this information to the advantage of other accounts and to the disadvantage of the Fund.
However, the Adviser has established policies and procedures to ensure that the purchase and sale of securities among all accounts it manages are fairly and equitably allocated.
Proxy Voting Policies.
The Board has adopted Proxy Voting Policies and Procedures (Policies) on behalf of the Trust, which delegate the responsibility for voting proxies of
securities held by each Fund to the Adviser, subject to the Boards continuing oversight. The Policies require that the Adviser vote proxies received in a manner consistent with the best interests of each Fund and its shareholders. The Policies
also require the Adviser to present to the Board, at least annually, the Advisers Proxy Policies and a record of each proxy voted by the Adviser on behalf of each Fund, including a report on the resolution of all proxies identified by the
Adviser as involving a conflict of interest. A copy of the Advisers Proxy Voting Policies is attached hereto as Appendix B.
More
information.
Information regarding how a Fund voted proxies relating to portfolio securities held by the Fund during the most recent 12-month period ending June 30th will be available (1) without charge, upon
request, by calling the Fund at 1-888-643-3431; and (2) on the U.S. Securities and Exchange Commissions website at http://www.sec.gov. In addition, a copy of the Funds proxy voting policies and procedures are also available by
calling 1-888- 643-3431; and will be sent within three business days of receipt of a request.
THE DISTRIBUTOR
Northern Lights Distributors, LLC,
located at 17605 Wright Street, Omaha, Nebraska 68130 (the Distributor) serves as the principal underwriter and national distributor for the shares of each Fund pursuant to an Underwriting Agreement with the Trust (the Underwriting
Agreement). The Distributor is registered as a broker-dealer under the Securities Exchange Act of 1934 and each states securities laws and is a member of the Financial Industry Regulatory Authority, Inc. (FINRA). The offering
of each Funds shares is continuous. The Underwriting Agreement provides that the Distributor, as agent in connection with the distribution of Fund shares, will use its best efforts to distribute each Funds shares.
The Underwriting Agreement provides that, unless sooner terminated, it will continue in effect for two years initially and thereafter shall continue from year to
year, subject to annual approval by (a) the Board or a vote of a majority of the outstanding shares, and (b) by a majority of the Trustees who are not interested persons of the Trust or of the Distributor by vote cast in person at a
meeting called for the purpose of voting on such approval.
The Underwriting Agreement may be terminated by a Fund at any time, without the payment
of any penalty, by vote of a majority of the entire Board of the Trust or by vote of a majority of the outstanding shares of a Fund on 60 days written notice to the Distributor, or by the Distributor at any time, without the payment of any penalty,
on 60 days written notice to a Fund. The Underwriting Agreement will automatically terminate in the event of its assignment.
The Distributor may enter
into selling agreements with broker-dealers that solicit orders for the sale of shares of the Equinox Campbell Strategy Fund and may allow concessions to dealers that sell shares of the Fund. The Distributor receives the portion of the sales charge
on all direct initial investments in the Equinox Campbell Strategy Fund and on all investments in accounts with no designed dealer of record. If a class of the Equinox Campbell Strategy Fund has a
16
contingent deferred sales charge, the Distributor retains the contingent deferred sales charge on redemptions of shares of the Fund that are subject to a contingent deferred sales charge. The
Distributor will be compensated for distribution services according to the Rule 12b-1 Plan (defined below) applicable to a specific class regardless of the Distributors expenses. If such compensation exceeds the Distributors expenses,
the Distributor may realize a profit from these arrangements. If a class of the Funds charges a contingent deferred sales charges, the Distributor may retain the contingent deferred sales charge on redemptions of shares of the Fund that are subject
to a contingent deferred sales charge.
Rule 12b-1 Plan and Agreement.
The Trust has adopted a distribution plan and
related agreement pursuant to Rule 12b-1 under the 1940 Act with respect to Class A shares, Class C shares and Class P shares for the Equinox Campbell Strategy Fund (the Rule 12b-1 Plan) pursuant to which the Fund is authorized
to compensate the Distributor for providing distribution and/or shareholder services to the Fund. Additionally, the Rule 12b-1 Plan authorizes payments to the Distributor as compensation for providing account maintenance services to Fund
shareholders, including arranging for certain securities dealers or brokers, administrators and others (Recipients) to provide these services and paying compensation for these services. The Distributor or other entities also receive the
proceeds and contingent deferred sales charges imposed on certain redemptions of shares, which are separate and apart from payments made pursuant to the Rule 12b-1 Plan.
Selling brokers, or other financial intermediaries that have entered into selling and/or distribution agreements with the Distributor, will receive a commission of 1.00% of the purchase price of Class C shares at
the time of purchase. The Funds adviser has agreed to assist the Funds Distributor by financing such commission payments from the advisers own resources. As consideration for this financing, the Funds Distributor has assigned
its right to receive the Class C shares distribution and/or shareholder service fee and any contingent deferred sales charge, during the first year after purchase, to the Funds adviser. The Funds Distributor will pay the Class C shares
distribution and/or shareholder service fees to selling brokers, or other financial intermediaries that have entered into selling and/or distribution agreements with the Distributor, for Class C shares held for over a year.
With respect to Class A shares, the Rule 12b-1 Plan allows for the payment of a distribution fee of up to 0.25% of average daily net assets of the Class A
shares of the Equinox Campbell Strategy Fund to pay for distribution activities and expenses primarily intended to result in the sale of Class A shares.
With respect to Class C shares, the Rule 12b-1 Plan allows for the payment of a distribution fee of up to 1.00% of average daily net assets of the Class C shares of the Equinox Campbell Strategy Fund to
pay for distribution activities and expenses primarily intended to result in the sale of Class C shares
With respect to Class P shares, the Rule
12b-1 Plan allows for the payment of a distribution fee of up to 0.25% of aver- age daily net assets of the Class P shares of the Equinox Campbell Strategy Fund to pay for distribution activities and expenses primarily intended to result in the sale
of Class P shares. Currently, the Equinox Campbell Strategy Fund is not making payments under the Rule 12b-1 Plan with respect to Class P shares.
The
services to be provided by Recipients may include, but are not limited to, the following: assistance in the offering and sale of Fund shares and in other aspects of the marketing of the shares to clients or prospective clients of the respective
recipients; answering routine inquiries concerning the Funds; assisting in the establishment and maintenance of accounts or sub-accounts in a Fund and in processing purchase and redemption transactions; making each Funds investment plan and
shareholder services available; and providing such other information and services to investors in shares of the Funds as the Adviser or the Trust, on behalf of the Fund, may reasonably request. The distribution services shall also include any
advertising and marketing services provided by or arranged by the Distributor with respect to the Fund.
Under the Rule 12b-1 Plan, if any payments made
by the Adviser out of its advisory fee, not to exceed the amount of that fee, to any third parties (including banks), including payments for shareholder servicing and transfer agent functions, were deemed to be indirect financing by the Equinox
Campbell Strategy Fund of the distribution of its Class A Shares, Class C Shares or Class P Shares, such payments are authorized. The Equinox Campbell Strategy Fund may execute portfolio transactions with and purchase securities issued by
depository institutions that receive payments under the Rule 12b-1 Plan. No preference for instruments issued by such depository institutions is shown in the selection of investments.
Dealer Reallowances.
Class A Shares of the Equinox Campbell Strategy Fund are sold subject to a front-end sales charge as described in such Funds Prospectus. Selling dealers
are normally reallowed a portion of the sales charge by the Distributor. The following table shows the amount of the front-end sales charge that is reallowed to dealers as a percentage of the offering price of Class A Shares of the Equinox
Campbell Strategy Fund.
17
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Amount Invested
|
|
Sales Charge as a %
of Offering Price
|
|
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Sales Charge as a %
of Amount Invested
|
|
|
Dealer Reallowance
|
|
Under $25,000
|
|
|
5.75
|
%
|
|
|
6.10
|
%
|
|
|
5.00
|
%
|
$25,000 to $49,999
|
|
|
5.00
|
%
|
|
|
5.26
|
%
|
|
|
4.25
|
%
|
$50,000 to $99,999
|
|
|
4.75
|
%
|
|
|
4.99
|
%
|
|
|
4.00
|
%
|
$100,000 to $249,999
|
|
|
3.75
|
%
|
|
|
3.90
|
%
|
|
|
3.25
|
%
|
$250,000 to $499,999
|
|
|
2.50
|
%
|
|
|
2.56
|
%
|
|
|
2.00
|
%
|
$500,000 to $999,999
|
|
|
2.00
|
%
|
|
|
2.04
|
%
|
|
|
1.75
|
%
|
$1,000,000 and above
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
See Below
|
|
Northern Lights Distributors, LLC is the Equinox Campbell Strategy Funds distributor. The distributor may pay
authorized dealers commissions on purchases of Class A shares over $1 million calculated as follows: For sales of $1 million or more, payments may be made to those broker-dealers having at least $1 million of assets invested in the Equinox
Campbell Strategy Fund, a fee of up to 1% of the offering price of such shares up to $2.5 million, 0.5% of the offering price from $2.5 million to $5 million, and 0.25% of the offering price over $5 million. The commission rate is determined
based on the purchase amount combined with the current market value of existing investments in Class A shares.
Shareholder Services
Fees.
The Equinox Campbell Strategy Fund may enter into shareholder services arrangements with broker-dealers, banks, trust companies, and other financial services firms under which such firms agree to provide certain
support services to Class A and Class P shareholders for a fee of up to 0.25% of the Funds average daily net assets attributable to Class A shares and Class P shares, respectively.
PAYMENTS TO FINANCIAL INTERMEDIARIES
The Adviser and/or its affiliates, at their
discretion, may make payments from their own resources and not from Fund assets to affiliated or unaffiliated brokers, dealers, banks (including bank trust departments), trust companies, registered investment advisers, financial planners, retirement
plan administrators, insurance companies, and any other institution having a service, administration, or any similar arrangement with each Fund, its service providers or their respective affiliates, as incentives to help market and promote each Fund
and/or in recognition of their distribution, marketing, administrative services, and/or processing support.
These additional payments may be made to
financial intermediaries that sell Fund shares or provide services to each Fund, the Distributor or shareholders of each Fund through the financial intermediarys retail distribution channel and/or fund supermarkets. Payments may also be made
through the financial intermediarys retirement, qualified tuition, fee-based advisory, wrap fee bank trust, or insurance (e.g., individual or group annuity) programs. These payments may include, but are not limited to, placing a Fund in a
financial intermediarys retail distribution channel or on a preferred or recommended fund list; providing business or shareholder financial planning assistance; educating financial intermediary personnel about a Fund; providing access to sales
and management representatives of the financial intermediary; promoting sales of Fund shares; providing marketing and educational support; maintaining share balances and/or for sub-accounting, administrative or shareholder transaction processing
services. A financial intermediary may perform the services itself or may arrange with a third party to perform the services.
The Adviser and/or
its affiliates may also make payments from their own resources to financial intermediaries for costs associated with the purchase of products or services used in connection with sales and marketing, participation in and/or presentation at
conferences or seminars, sales or training programs, client and investor entertainment and other sponsored events. The costs and expenses associated with these efforts may include travel, lodging, sponsorship at educational seminars and conferences,
entertainment and meals to the extent permitted by law.
Revenue sharing payments may be negotiated based on a variety of factors, including the
level of sales, the amount of Fund assets attributable to investments in a Fund by financial intermediaries customers, a flat fee or other measures as determined from time to time by the Adviser and/or its affiliates. A significant purpose of
these payments is to increase the sales of Fund shares, which in turn may benefit the Adviser through increased fees as Fund assets grow.
18
THE ADMINISTRATOR
The Administrator for each Fund is Gemini Fund
Services, LLC, (GFS), which has its principal office at 80 Arkay Drive, Suite 110, Hauppauge, New York 11788, and is primarily in the business of providing administrative, fund accounting and transfer agent services to retail and
institutional mutual funds. GFS is an affiliate of the Distributor.
Pursuant to the Fund Services Agreement with the Trust, GFS provides administrative
services to each Fund, subject to the supervision of the Board. GFS may provide persons to serve as officers of each Fund. Such officers may be directors, officers or employees of the Administrator or its affiliates.
The Fund Services Agreement was initially approved by the Board at a meeting held on December 20, 2010. The Agreement shall remain in effect for two years from
the effective date of each Fund, and subject to annual approval of the Board for one-year periods thereafter. The Fund Services Agreement is terminable at the end of the initial term or subsequent renewal period by the Board or GFS on ninety
days written notice. The Fund Services Agreement provides that, in the absence of GFS lack of good faith, negligence, willful misconduct or reckless disregard of its duties with respect to GFSs performance under or in connection
with this Agreement, GFS shall be without liability for any action taken or omitted pursuant to this Agreement.
Under the Fund Services Agreement, the
GFS provides facilitating administrative services, including: (i) providing services of persons competent to perform such administrative and clerical functions as are necessary to provide effective administration of each Fund;
(ii) facilitating the performance of administrative and professional services to a Fund by others, including a Funds Custodian; (iii) preparing, but not paying for, the periodic updating of a Funds Registration Statement,
Prospectuses and SAI in conjunction with Fund counsel, including the printing of such documents for the purpose of filings with the SEC and state securities administrators, and preparing reports to a Funds shareholders and the SEC;
(iv) preparing in conjunction with Fund counsel, but not paying for, all filings under the securities or Blue Sky laws of such states or countries as are designated by the Distributor, which may be required to register or
qualify, or continue the registration or qualification, of a Fund and/or its shares under such laws; (v) preparing notices and agendas for meetings of the Board and minutes of such meetings in all matters required by the 1940 Act to be acted
upon by the Board; and (vi) monitoring daily and periodic compliance with respect to all requirements and restrictions of the 1940 Act, the IRC and the Prospectus.
For the services rendered to a Fund by GFS, each Fund pays GFS an asset based fee for fund administration services. Each Fund also pays GFS for any out-of-pocket expenses. The table below sets forth the
administrative fees paid by the Fund to GFS for administrative services provided during the fiscal period ended September 30, 2012:
|
|
|
|
|
Fund
|
|
|
|
Equinox Abraham Strategy Fund*
|
|
$
|
1
|
|
Equinox Absolute Return Plus Strategy Fund*
|
|
$
|
1
|
|
Equinox Chesapeake Strategy Fund*
|
|
$
|
1
|
|
Equinox Crabel Strategy Fund*
|
|
$
|
0
|
|
Equinox Eclipse Strategy Fund**
|
|
$
|
793
|
|
Equinox John Locke Strategy Fund**
|
|
$
|
1,581
|
|
Equinox QCM Strategy Fund**
|
|
$
|
678
|
|
Equinox Tiverton Strategy Fund*
|
|
$
|
668
|
|
*
|
The Fund commenced operations on April 19, 2012.
|
**
|
The Fund commenced operations on January 25, 2012.
|
FUND ACCOUNTING
GFS pursuant to the Fund Services Agreement, provides each Fund with accounting services, including: (i) daily computation of net asset value;
(ii) maintenance of security ledgers and books and records as required by the 1940 Act; (iii) production of a Funds listing of portfolio securities and general ledger reports; (iv) reconciliation of accounting records;
(v) calculation of yield and total return for a Fund; (vi) maintaining certain books and records described in Rule 31a-1 under the 1940 Act, and reconciling account information and balances among a Funds custodian or Adviser;
and (vii) monitoring and evaluating daily income and expense accruals, and sales and redemptions of shares of a Fund.
19
For the services rendered to each Fund by the Fund Services Agreement, each Fund pays GFS an asset based fee for
fund accounting services. Each Fund also pays GFS for any out-of-pocket expenses.
The table below sets forth the fees paid by the Fund to GFS for
accounting services provided during the fiscal period ended September 30, 2012:
|
|
|
|
|
Fund
|
|
|
|
Equinox Abraham Strategy Fund*
|
|
$
|
1,355
|
|
Equinox Absolute Return Plus Strategy Fund*
|
|
$
|
1,354
|
|
Equinox Chesapeake Strategy Fund*
|
|
$
|
1,355
|
|
Equinox Crabel Strategy Fund*
|
|
$
|
2,764
|
|
Equinox Eclipse Strategy Fund**
|
|
$
|
9,369
|
|
Equinox John Locke Strategy Fund**
|
|
$
|
12,191
|
|
Equinox QCM Strategy Fund**
|
|
$
|
12,191
|
|
Equinox Tiverton Strategy Fund*
|
|
$
|
8,917
|
|
*
|
The Fund commenced operations on April 19, 2012.
|
**
|
The Fund commenced operations on January
25, 2012.
|
TRANSFER AGENT
GFS, 17605 Wright Street, Suite 2, Omaha, NE 68130,
acts as transfer, dividend disbursing, and shareholder servicing agent for each Fund pursuant to a written agreement with each Fund. Under the agreement, GFS is responsible for administering and performing transfer agent functions, dividend
distribution, shareholder administration, and maintaining necessary records in accordance with applicable rules and regulations. For the transfer, dividend disbursing, and shareholder servicing agent services rendered to a Fund, each Fund pays GFS
an asset based fee for fund accounting services. Each Fund also pays GFS for certain activity based fees and any out-of-pocket expenses.
THE CUSTODIAN
Union Bank, N.A.,
350 California Street, 6th Floor, San Francisco, CA 94104, acts as custodian (the Custodian) of each Fund. The Custodian holds cash, securities and other assets of each Fund as required by the 1940 Act.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
McGladrey LLP, located at 555 Seventeenth Street,
Suite 1000, Denver, Colorado 80202, serves as independent registered public accounting firm for each Fund. McGladrey LLP performs annual audits of each Funds financial statements and provides other audit, tax and related services for each
Fund.
LEGAL COUNSEL
Pepper Hamilton LLP, 3000 Two Logan Square
18th & Arch Streets, Philadelphia, PA 19103-2799 serves as the Trusts legal counsel.
COMPLIANCE SERVICES
Northern Lights Compliance Services, LLC
(NLCS), an affiliate of GFS and the Distributor, provides a Chief Compliance Officer to the Trust as well as related compliance services pursuant to a consulting agreement between NLCS and the Trust. Each Fund pays a compliance service
fee to NLCS.
20
TRUSTEES AND OFFICERS OF THE TRUST
The following tables present certain information
regarding the Board of Trustees and officers of the Trust. Each person listed under Interested Trustees below is an interested person of the Trust, the Adviser, or Distributor, within the meaning of the 1940 Act. Each person
who is not an interested person of the Trust, the Adviser or the Distributor within the meaning of the 1940 Act is referred to as an Independent Trustee and is listed under such heading below. Unless otherwise noted, the
address of each Trustee and Officer is P.O. Box 541150, Omaha, Nebraska 68154-1150.
|
|
|
|
|
|
|
|
|
|
|
Name, Address and Age
|
|
Position(s)
Held/Term
of Office*
|
|
Principal Occupation
During the Past Five Years
|
|
Number of
Portfolios in Fund
Complex**
Overseen by
Trustee
|
|
|
Other Directorships*** held by
Trustee During Last 5
Years
|
|
|
|
|
Independent Trustees
|
|
|
|
|
|
|
|
|
David P. Demuth
Date of Birth: 9/1945
|
|
Trustee
Since
December
2010
|
|
Consultant, CFO Consulting
Partners, LLC from May
2006 to present.
|
|
|
12
|
|
|
None
|
Kevin R. Green
Date of Birth: 7/1954
|
|
Trustee
Since
December
2010
|
|
Founding Managing
Director, TripleTree, LLC
(investment banking
consulting firm) from 1997
to present.
|
|
|
12
|
|
|
Director of BlueCross BlueShield of Minnesota (healthcare services).
|
Jay Moorin
Date of Birth: 7/1951
|
|
Trustee
Since
December
2010
|
|
Managing Partner,
ProQuest Management,
LLC from September 1998
to present.
|
|
|
12
|
|
|
Director of Novacea Inc. (pharmaceutical company; now Transcept Pharmaceuticals, Inc.) from May 2006 to October 2008.
|
|
|
|
|
Interested Trustee
|
|
|
|
|
|
|
|
|
Robert J. Enck
Date of Birth: 9/1962
|
|
Chairman,
Trustee,
President and
Principal
Executive
Officer
Since
December
2010
|
|
President and Chief
Executive Officer, Equinox
Fund Management, LLC
from March 2007 to
present; and Sr. Managing
Director, The
Hermes
Group, LLC from July 2004
to March 2007.
|
|
|
12
|
|
|
Executive Committee Member of The Frontier Fund (commodity pool).
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
Name, Address and Age
|
|
Position(s)
Held/Term
of Office*
|
|
Principal Occupation
During the Past Five Years
|
|
Number of
Portfolios in Fund
Complex**
Overseen by
Trustee
|
|
|
Other Directorships*** held by
Trustee During Last 5 Years
|
|
|
|
|
|
Executive Officers
|
|
|
|
|
|
|
|
|
|
|
Vance J. Sanders
Date of Birth: 3/1967
|
|
Treasurer and Principal Financial Officer
Since December 2010
|
|
Controller and Chief
Technology Officer,
Equinox Fund Management
(since 2008); Consultant,
Ajilon Consulting
(2007);
Senior Manager/
Consultant, K-Financial
(2005 2007).
|
|
|
N/A
|
|
|
|
N/A
|
|
Philip Liu
Date of Birth: 3/1973
|
|
Secretary
Since December 2010
|
|
General Counsel, Equinox
Fund Management, LLC
(since 2009); Sr. Vice
President, HSBC Bank
USA, N.A. from (2007
2009);
Attorney-at-Law,
Cadwalader LLP from
(2006 2007); Attorney-
at-Law, Shearman &
Sterling LLP
(2001 2006).
|
|
|
N/A
|
|
|
|
N/A
|
|
Kevin E. Wolf
Date of Birth: 11/1969
|
|
Assistant Treasurer
Since December 2010
|
|
Director of Fund
Administration, Gemini
Fund Services, LLC
(since 2006); President,
Fund Administration,
Gemini Fund Services, LLC
(2004 2006); Vice-
President, GemCom, LLC
(since 2004).
|
|
|
N/A
|
|
|
|
N/A
|
|
James P. Ash
Date of Birth: 9/1976
|
|
Assistant Secretary Since December 2010
|
|
Director of Legal
Administration, Gemini
Fund Services, LLC
(since 2009); Assistant
Senior Vice President of
Legal Administration,
Gemini Fund Services, LLC
(2006 2008).
|
|
|
N/A
|
|
|
|
N/A
|
|
Emile R. Molineaux
Date of Birth: 9/1962
|
|
Chief Compliance Officer and Anti- Money Laundering Officer Since December 2010
|
|
General Counsel, CCO and
Senior Vice President,
Gemini Fund Services,
LLC; Secretary and CCO,
Northern Lights
Compliance Services,
LLC;
(since 2003).
|
|
|
N/A
|
|
|
|
N/A
|
|
*
|
Each Trustee and Officer shall serve until death, resignation or removal.
|
**
|
The term Fund Complex refers to the Equinox Funds Trust.
|
***
|
Directorships are held in a company with a class of securities registered pursuant to section 12 of the Securities Exchange Act or subject to the requirements of section 15(d) of
the Securities Exchange Act or a company registered as an investment company under the 1940 Act.
|
22
As of the date of this SAI, none of the Independent Trustees or any of their immediate family members (i.e.,
spouse or dependent children) serves as an officer or trustee or is an employee of the Trust, the Adviser or the Distributor, or of any of their respective affiliates. Nor do any of such persons serve as an officer or director or is an employee of
any company controlled by or under common control with such entities.
Leadership Structure and Responsibilities of the Board and
Its Committees.
Under Delaware law, the Trusts Board of Trustees is responsible for establishing each Funds policies and for
overseeing the management of each Fund. The Board also elects the Trusts officers who conduct the daily business of each Fund.
Currently the
Board is comprised of four individuals, one of whom is considered an interested person of the Trust as defined by the 1940 Act. The remaining Trustees are Independent Trustees.
The Board has adopted a Statement of Policy on the Qualifications for Selection as Chairman of the Board that sets forth the following required skills of a Chairman in addition to the basic qualifications for all
members of the Board: (i) the ability to exercise leadership among the Trustees; (iii) the ability to chair Board meetings in an evenhanded and open manner; (iv) the ability to communicate effectively with a Funds shareholders,
service providers, regulatory agencies, the press and other relevant parties; (v) the ability to represent a Funds interests effectively in all dealings with a Funds adviser and other service providers; and (vi) the ability to
evaluate and prioritize issues for consideration by the Board. Independent Trustees exercise their informed business judgment to appoint an individual of their choosing to serve as Chairman, regardless of whether the Trustee happens to be
independent or a member of management.
Mr. Enck, an interested person (as such term is defined in the 1940 Act) currently serves as the
Chairman of the Board. The Trustees have determined that Mr. Enck satisfies the principles set forth in the statement of policy and that Mr. Encks service as Chairman is appropriate and benefits shareholders due to his personal and
professional stake in the quality of services provided to each Fund. The Independent Trustees have determined that they can act independently and effectively without having an Independent Trustee serve as Chairman. Nonetheless, as currently
composed, the Independent Trustees constitute a substantial majority of the Board.
Each Trustee was appointed to serve on the Board because of his
experience, qualifications, attributes and/or skills as set forth in the subsection Trustee Qualifications, below. Based on a review of the Board and its function, the Trustees have determined that the leadership structure of the Board
is appropriate and that the Boards role in the risk oversight of the Trust, a discussed below, allows the Board to effectively administer its oversight function. Currently, the Board has an Audit Committee and a Nominating and Governance
Committee. The responsibilities of each committee and its members are described below.
The Audit Committee is comprised of Messrs. DeMuth, Green and
Moorin, each an Independent Trustee. Mr. DeMuth serves as the chairman of the Committee. Pursuant to its charter, the Audit Committee has the responsibility, among other things, to: (1) approve in advance the appointment, compensation and
oversight of the Trusts independent registered public accounting firm; (2) review and approve the scope of the independent registered public accounting firms audit activity; (3) review the financial statements which are the
subject of the independent registered public accounting firms certifications; and (4) review with such independent registered public accounting firm the adequacy of the Trusts basic accounting system and the effectiveness of the
Trusts internal accounting controls. During the fiscal year ended September 30, 2012, the Audit Committee met twice.
The Nominating and
Governance Committee is comprised of Messrs. DeMuth, Green and Moorin, each an Independent Trustee. Pursuant to its charter, the Nominating and Governance Committee is responsible for assessing the size, structure and composition of the Board;
determining trustee qualification guidelines as well as compensation, insurance and indemnification of trustees; and identifying qualified candidates to serve as Trustee candidates. Since the formation of the Trust and as of September 30, 2012,
there have been no meetings of the Nominating and Governance Committee. The Nominating and Governance Committee will consider nominee candidates recommended by shareholders. Shareholders who wish to recommend individuals for consideration by the
Committee as nominee candidates may do so by submitting a written recommendation to the Secretary of the Trust at: Equinox Funds Trust, P.O. Box 541150, Omaha, Nebraska 68154-1150. Submissions must include sufficient biographical information
concerning the recommended individual, including age, at least twenty years of employment history with employer names and a description of the employers business, and a list of board memberships (if any). The submission must be accompanied by
a written consent of the individual to stand for election if nominated by the Board and to serve if elected. Recommendations must be received in a sufficient period of time, as determined by the Committee in its sole discretion, prior to the date
proposed for the consideration of nominee candidates by the Board. Upon the written request of shareholders holding at least 10% of the Trusts shares in the aggregate, the Secretary shall present to any special meeting of shareholders such
nominees for election as Trustees as specified in such written request.
23
The Trust does not have a lead Independent Trustee. As noted above, the Boards leadership structure features all
of the Independent Trustees serving as members of each Board Committee. Inclusion of all Independent Trustees in the Committees allows them to participate in the full range of the Boards oversight duties, including oversight of the risk
management process. In addition, although the Independent Trustees recognize that having a lead Independent Trustee may in some circumstances help coordinate communications with management and otherwise assist a board in the exercise of its
oversight duties, the Independent Trustees believe that because of the relatively small size of the Board, the ratio of Independent Trustees to Interested Trustees and the good working relationship among the Board members, it has not been necessary
to designate a lead Independent Trustee.
Trustee Qualifications
The following is a brief discussion of the experience, qualifications, attributes and/or skills that led to the Board of Trustees conclusion that each
individual identified below is qualified to serve as a Trustee of the Trust. In determining that a particular Trustee was qualified to serve as a Trustee, the Board has considered a variety of criteria, none of which was controlling. The Board
believes that the Trustees ability to review critically, evaluate, question and discuss information provided to them, to interact effectively with the Adviser, other service providers, counsel and independent auditors, and to exercise
effective business judgment in the performance of their duties, support the conclusion that each Trustee is qualified to serve as a Trustee of the Trust. In addition, the following specific experience, qualifications, attributes and/or skills apply
as to each Trustee:
Mr. David P. DeMuth, CPA/MBA
, is a Co-Founder of CFO Consulting Partners LLC, a consulting firm
that provides interim CFO services to public and private companies. Mr. DeMuth has held senior financial positions with companies in a wide range of industries, including real estate development, financial services, specialty chemicals, global
manufacturing/distribution, graphic arts and consumer products. Mr. DeMuth also has held positions with KPMG, LLP and other auditing firms.
Mr. Kevin R. Green, MBA
, is the Founding Managing Director of TripleTree, LLC, an investment bank providing merger and acquisition, principal investing and strategic advisory services. Prior to
co-founding TripleTree, Mr. Green held several senior executive roles at private and public companies within the healthcare and technology industries.
Mr. Jay Moorin
is a founding General Partner at ProQuest Management, LLC. He is a healthcare executive with senior management experience in biotech, investment banking and pharmaceutical industry. Prior
to founding ProQuest, Mr. Moorin served as CEO of Magainin Pharmaceuticals. Previously, he was Managing Director of Health Care Banking at Bear, Stearns & Co. Mr. Moorin has also held various positions in strategy and general
management at E.R. Squibb & Sons Pharmaceuticals. He has served on the Board of Directors of ACMI, Aires Pharmaceuticals, Epic Therapeutics, Gloucester Pharmaceuticals, Guava Technologies, Mersana Therapeutics, MethylGene, Novacea (now
Transcept Pharmaceuticals, Inc.) and Pharmion. Currently, Mr. Moorin serves on the Board of Directors of Acurian, Eagle Pharmaceutical and Predictive Biosciences. He is also an observer on the Board for Clovis Oncology. Mr. Moorin holds
the position of Adjunct Senior Fellow of the Leonard Davis Institute of Health Economics at the University of Pennsylvania. He received a B.A. in economics with distinction from the University of Michigan.
Mr. Robert J. Enck, MBA
, is the President and Chief Executive Officer of the Adviser. Before joining the Adviser, Mr. Enck
held senior management positions at companies within the merchant banking and pharmaceutical services industries.
In its periodic self-assessment of the
effectiveness of the Board, the Board considers the complementary individual skills and experience of the individual Trustees primarily in the broader context of the Boards overall composition so that the Board, as a body, possesses the
appropriate (and appropriately diverse) skills and experience to oversee the business of the Trust. The summaries set forth above as to the experience, qualifications, attributes and/or skills of the Trustees do not constitute holding out the Board
or any Trustee as having any special expertise or experience, and do not impose any greater responsibility or liability on any such person or on the Board as a whole than would otherwise be the case.
Risk Oversight
Through
its direct oversight role, and indirectly through its Committees, of officers and service providers, the Board performs a risk oversight function for each Fund consisting, among other things, of the following activities: (1) at regular and
special Board meetings, and on an ad hoc basis as needed, receiving and reviewing reports related to the performance and operations of a Fund; (2) reviewing and approving, as applicable, the compliance policies and procedures of the Trust;
(3) meeting with the portfolio management team to review investment strategies, techniques
24
and the processes used to manage related risks; (4) meeting the representatives of key service providers, including the investment adviser, administrator, the distributor, the transfer
agent, the custodian and the independent registered public accounting firm of a Fund, to review and discuss the activities of a Fund and to provide direction with respect thereto; and (5) engaging the services of the Chief Compliance Officer of
a Fund to test the compliance procedures of the Trust and its service providers.
Compensation
Each Trustee who is not affiliated with the Trust or Adviser will receive an annual retainer of $20,000 (payable quarterly), as well as reimbursement for any
reasonable expenses incurred attending the meetings. The interested persons who serve as Trustees of the Trust receive no compensation for their services as Trustees. None of the executive officers receive compensation from the Trust.
The table below details the amount of compensation received by Trustees from the Trust for the fiscal year ended September 30, 2012. The Trust does not have a bonus, profit sharing, pension or retirement plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Trustee
|
|
Aggregate
Compensation
From Trust
|
|
|
Pension or
Retirement
Benefits Accrued
as Part of Fund
Expenses
|
|
|
Annual
Benefits Upon
Retirement
|
|
|
Total
Compensation
From Fund
Complex** Paid
to Trustees
|
|
David P. DeMuth
|
|
$
|
20,000
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
20,000
|
|
Robert J. Enck*
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Kevin R. Green
|
|
$
|
20,000
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
20,000
|
|
Jay Moorin
|
|
$
|
20,000
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
20,000
|
|
*
|
Interested Trustee by virtue of his position with the Trusts investment adviser.
|
**
|
The term Fund Complex refers to the Equinox Funds Trust.
|
Trustee Ownership
The following table indicates the dollar range of equity securities that each Trustee
beneficially owned in each Fund as of the date of this SAI.
|
|
|
|
|
Name of Trustee
|
|
Dollar Range of Equity
Securities in the Fund
|
|
Aggregate Dollar Range of Equity Securities
in All Registered
Investment Companies
Overseen by Trustee in Family of Investment
Companies
|
David P. DeMuth
|
|
None
|
|
None
|
Robert J. Enck*
|
|
None
|
|
None
|
Kevin R. Green
|
|
None
|
|
None
|
Jay Moorin
|
|
None
|
|
None
|
*
|
Interested Trustee by virtue of his position with the Trusts investment adviser.
|
Management Ownership
As
of December 31, 2012, the Trustees or officers of the Trust as a group owned less than 1% of any class of outstanding shares of Equinox Campbell Strategy Fund, Equinox Chesapeake Strategy Fund and Equinox John Locke Strategy Fund. As of the
same date, the Trustees or officers of the Trust as a group owned 20.08% of Equinox Abraham Strategy Fund Class I shares, 40.05% of Equinox Absolute Return Plus Strategy Fund Class I shares, 100% of Equinox Crabel Strategy Fund Class I shares, 6.73%
of Equinox Eclipse Strategy Fund Class I shares, 9.78% of Equinox QCM Strategy Fund Class I shares and 49.62% of Equinox Tiverton Strategy Fund Class I shares.
Control Persons and Principal Holders
A principal shareholder is any person who owns (either of record or beneficially) 5% or more of the outstanding shares of a 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 control. As of December 31, 2012, the Equinox Campbell Strategy Fund could be deemed under control of the Adviser, which had voting authority with respect to approximately 100% of
the value of the outstanding interests in the Fund on such date. However, it is expected that the Advisers control will be diluted over time until the Fund is controlled by its unaffiliated shareholders.
25
As of February 1, 2013, other than the Adviser and its affiliates, no shareholders of record owned 5% or more
of the outstanding shares of any class of the Equinox Campbell Strategy Fund. As of December 31, 2012, the name, address and percentage ownership of each entity or person that owned of record 5% or more of the outstanding shares of any class of
each Fund were as follows:
EQUINOX ABRAHAM STRATEGY FUND
|
|
|
|
|
|
|
|
|
Name & Address
|
|
Class
|
|
|
Percentage of Class
|
|
Equinox Fund Management LLC, 1775 Sherman Street,
Suite 2500, Denver, CO 80203
|
|
|
I
|
|
|
|
20.08
|
%
|
Ameritrade, Inc., P.O. Box 2226, Omaha, NE 68103-2226
|
|
|
I
|
|
|
|
54.23
|
%
|
NFS, 3 Sunrise Hill Lane, Santa Barbara, CA 93108
|
|
|
I
|
|
|
|
20.45
|
%
|
NFS, FBO Sean R. Stickler, 13406 River Ridge Lane,
Ashland, VA 23005
|
|
|
I
|
|
|
|
5.24
|
%
|
EQUINOX ABSOLUTE RETURN PLUS STRATEGY FUND
|
|
|
|
|
|
|
|
|
Name & Address
|
|
Class
|
|
|
Percentage of Class
|
|
Equinox Fund Management LLC, 1775 Sherman Street,
Suite 2500, Denver, CO 80203
|
|
|
I
|
|
|
|
40.05
|
%
|
NFS, 3 Sunrise Hill Lane, Santa Barbara, CA 93108
|
|
|
I
|
|
|
|
59.95
|
%
|
EQUINOX CHESAPEAKE STRATEGY FUND
|
|
|
|
|
|
|
|
|
Name & Address
|
|
Class
|
|
|
Percentage of Class
|
|
Chesapeake Holding Company, 701 East Byrd Street,
17
th
Floor, Richmond, VA 23219
|
|
|
I
|
|
|
|
98.61
|
%
|
EQUINOX CRABEL STRATEGY FUND
|
|
|
|
|
|
|
|
|
Name & Address
|
|
Class
|
|
|
Percentage of Class
|
|
Equinox Fund Management LLC, 1775 Sherman Street,
Suite 2500, Denver, CO 80203
|
|
|
I
|
|
|
|
100
|
%
|
EQUINOX ECLIPSE STRATEGY FUND
|
|
|
|
|
|
|
|
|
Name & Address
|
|
Class
|
|
|
Percentage of Class
|
|
Charles Schwab & Co., 101 Montgomery Street,
San Francisco, CA 94104-4122
|
|
|
I
|
|
|
|
18.07
|
%
|
Equinox Fund Management LLC, 1775 Sherman Street,
Suite 2500, Denver, CO 80203
|
|
|
I
|
|
|
|
6.73
|
%
|
Jeff Serafin, 7748 Watson Road, St. Louis, MO 63119
|
|
|
I
|
|
|
|
39.18
|
%
|
NFS, FBO David Regan, 10-55 47
th
Avenue, Apt. 6E,
Long Island City, NY 11101
|
|
|
I
|
|
|
|
10.31
|
%
|
NFS, FBO Michael Peter Regan, 411 East 86
th
Street,
Apt. 4D, New York, NY 10028
|
|
|
I
|
|
|
|
6.57
|
%
|
NFS, 1055
47
th
Ave, Apt 6E, Long Island City, NY 11101
|
|
|
I
|
|
|
|
19.15
|
%
|
EQUINOX JOHN LOCKE STRATEGY FUND
|
|
|
|
|
|
|
|
|
Name & Address
|
|
Class
|
|
|
Percentage of Class
|
|
Charles Schwab & Co., 101 Montgomery Street,
San Francisco, CA 94104-4122
|
|
|
I
|
|
|
|
99.38
|
%
|
26
EQUINOX QCM STRATEGY FUND
|
|
|
|
|
|
|
|
|
Name & Address
|
|
Class
|
|
|
Percentage of Class
|
|
Charles Schwab & Co., 101 Montgomery Street,
San Francisco, CA 94104-4122
|
|
|
I
|
|
|
|
90.22
|
%
|
Equinox Fund Management LLC, 1775 Sherman Street,
Suite 2500, Denver, CO 80203
|
|
|
I
|
|
|
|
9.78
|
%
|
EQUINOX TIVERTON STRATEGY FUND
|
|
|
|
|
|
|
|
|
Name & Address
|
|
Class
|
|
|
Percentage of Class
|
|
Equinox Fund Management LLC, 1775 Sherman Street,
Suite 2500, Denver, CO 80203
|
|
|
I
|
|
|
|
49.62
|
%
|
NFS, 3 Sunrise Hill Lane, Santa Barbara, CA 93108
|
|
|
I
|
|
|
|
50.38
|
%
|
PURCHASE, REDEMPTION AND PRICING OF SHARES
Calculation of Share Price.
The following
information supplements and should be read in conjunction with the section in the Prospectus entitled How Shares are Priced. The NAV of a Fund serves as the basis for the purchase and redemption price of a Funds shares. The NAV of
a Fund is calculated by dividing the market value of a Funds securities, including the market value of the Subsidiarys securities, plus the value of a Funds other assets, less all liabilities, by the number of outstanding shares of
a Fund. If market quotations are not readily available for any security in a Funds or a Subsidiarys portfolio, the security will be valued at fair value by the Adviser using methods established or ratified by the Board.
Options on securities and indices purchased by a Fund generally are valued at their last bid price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter (OTC) market, the average of the last bid price as obtained from two or more dealers unless there is only one dealer, in which case that dealers price is used. Futures contracts and options on futures
contracts are valued at the last trade price prior to the end of a Funds pricing cycle.
A Fund will regularly value its investments in structured
notes at fair value and other investments at market prices.
OTC securities, if any, held by a Fund shall be valued at the NASDAQ Official Closing Price
(NOCP) on the valuation date or, if no NOCP is reported, the last reported bid price is used, and quotations shall be taken from the market/exchange where the security is primarily traded. Securities listed on the Nasdaq Global Select
Market and Nasdaq Global Market shall be valued at the NOCP; which may differ from the last sales price reported. The portfolio securities of a Fund that are listed on national exchanges, if any, are taken at the last sales price of such securities
on such exchange; if no sales price is reported, the last reported bid price is used. For valuation purposes, all assets and liabilities initially expressed in foreign currency values will be converted into U.S. Dollar values at the rate at
which local currencies can be sold to buy U.S. Dollars as last quoted by any recognized dealer. If these quotations are not available, the rate of exchange will be determined in good faith by the Adviser based on guidelines adopted by the Board.
Dividend income and other distributions are recorded on the ex-dividend date, except for certain dividends from foreign securities which are recorded as soon as the Trust is informed after the ex-dividend date.
The value of domestic equity index and credit default swap agreements entered into by a Fund are accounted for using the unrealized gain or loss on the agreements
that is determined by marking the agreements to the last quoted value of the index that the swap pertains to at the close of the NYSE, usually 4:00 p.m., Eastern Time. The swaps market value is then adjusted to include dividends accrued,
financing charges and/or interest associated with the swap agreement. The value of foreign equity index and currency index swap agreements entered into by a Fund are accounted for using the unrealized gain or loss on the agreements that is
determined by marking the agreements to the price at which orders are being filled at the close of the NYSE, usually 4:00 p.m., Eastern Time. In the event that no order is filled at 4:00 p.m., Eastern Time, a Fund values a swap based on a quote
provided by a dealer in accordance with a funds pricing procedures. The swaps market value is then adjusted to include dividends accrued, financing charges and/or interest associated with the swap agreements.
Illiquid securities, securities for which reliable quotations or pricing services are not readily available, and all other assets will be valued either at the
average of the last bid price of the securities obtained from two or more dealers or
27
otherwise at their respective fair value as determined in good faith by, or under procedures established by the Board. The Board has adopted fair valuation procedures for a Fund and has delegated
responsibility for fair value determinations to the Fair Valuation Committee. The members of the Fair Valuation Committee report, as necessary, to the Board regarding portfolio valuation determination. The Board, from time to time, will review these
methods of valuation and will recommend changes which may be necessary to assure that the investments of a Fund are valued at a fair value.
The
Trust expects that the holidays upon which the New York Stock Exchange will be closed are as follows: New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
Purchase of Shares.
Orders for shares received by a Fund in good order prior to the close of business on the NYSE on each
day during such periods that the NYSE is open for trading are priced at NAV per share or offering price (NAV plus a sales charge, if applicable) computed as of the close of the regular session of trading on the NYSE. Orders received in good order
after the close of the NYSE, or on a day it is not open for trading, are priced at the close of such NYSE on the next day on which it is open for trading at the next determined NAV or offering price per share.
Redemption of Shares.
A Fund will redeem all or any portion of a shareholders shares in a Fund when requested in accordance with the procedures set
forth in the Redemptions section of the Prospectus. Under the 1940 Act, a shareholders right to redeem shares and to receive payment therefore may be suspended at times:
(a)
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when the NYSE is closed, other than customary weekend and holiday closings;
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(b)
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when trading on that exchange is restricted for any reason;
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(c)
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when an emergency exists as a result of which disposal by a Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for a Fund
fairly to determine the value of its net assets, provided that applicable rules and regulations of the SEC (or any succeeding governmental authority) will govern as to whether the conditions prescribed in (b) or (c) exist; or
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(d)
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when the SEC by order permits a suspension of the right to redemption or a postponement of the date of payment on redemption.
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In case of suspension of the right of redemption, payment of a redemption request will be made based on the NAV next determined after the termination of the
suspension.
Supporting documents in addition to those listed under Redemptions in the Prospectus will be required from executors,
administrators, Trustees, or if redemption is requested by someone other than the shareholder of record. Such documents include, but are not restricted to, stock powers, Trust instruments, certificates of death, appointments as executor,
certificates of corporate authority and waiver of tax required in some states when settling estates.
The Trust reserves the right to honor requests
for redemption or repurchase orders by making payment in whole or in part in readily marketable securities (redemption in kind) if the amount is greater than (the lesser of) $250,000 or 1% of a Funds assets. The securities will be
chosen by a Fund and valued under a Funds net asset value procedures. A shareholder will be exposed to market risk until these securities are converted to cash and may incur transaction expenses in converting these securities to cash.
Use of Third-Party Independent Pricing Agents.
Pursuant to contracts with the Administrator, market prices for most
securities held by a Fund are provided daily by third-party independent pricing agents that are approved by the Board. The valuations provided by third-party independent pricing agents are reviewed daily by the Administrator.
TAXES
The following discussion summarizes certain U.S. federal income tax considerations affecting the Funds and their shareholders. This discussion is for general
information only and does not purport to consider all aspects of U.S. federal income taxation that might be relevant to beneficial owners of shares of the Funds. Therefore, the summary discussion that follows may not be considered to be individual
tax advice and may not be relied upon by any shareholder. The summary is based upon current provisions of the IRC, applicable U.S. Treasury Regulations promulgated thereunder (the Regulations), and administrative and judicial
interpretations thereof, all of which are subject to change, which change could be retroactive, and may affect the conclusions expressed herein. The summary applies only to beneficial owners of a Funds shares in whose hands such shares are
capital assets within the meaning of
28
Section 1221 of the IRC, and may not apply to certain types of beneficial owners of a Funds shares, including, but not limited to insurance companies, tax-exempt organizations,
shareholders holding a Funds shares through tax-advantaged accounts (such as an individual retirement account (an IRA), a 401(k) plan account, or other qualified retirement account), financial institutions, pass-through entities,
broker-dealers, entities that are not organized under the laws of the United States or a political subdivision thereof, persons who are neither a citizen nor resident of the United States, shareholders holding a Funds shares as part of a
hedge, straddle or conversion transaction, and shareholders who are subject to the alternative minimum tax. Persons who may be subject to tax in more than one country should consult the provisions of any applicable tax treaty to determine the
potential tax consequences to them.
No Fund has requested nor will any Fund request an advance ruling from the Internal Revenue Service (the
IRS) as to the federal income tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions could be sustained. In addition, the following discussion applicable to shareholders of a Fund
addresses only some of the federal income tax considerations generally affecting investments in such Fund.
Shareholders are urged and advised to consult their own tax advisor with respect to the tax consequences of the ownership, purchase and
disposition of an investment in a Fund including, but not limited to, the applicability of state, local, foreign and other tax laws affecting the particular shareholder and to possible effects of changes in federal or other tax laws
.
GENERAL.
For federal tax purposes, each Fund is treated as a separate corporation. Each Fund has elected, and intends to continue to
qualify for, taxation as a RIC under the IRC. By qualifying as a RIC, a Fund (but not the shareholders) will not be subject to federal income tax on that portion of its investment company taxable income and net realized capital gains that it
distributes to its shareholders.
Shareholders should be aware that investments made by a Fund, some of which are described below, may involve complex
tax rules some of which may result in income or gain recognition by a shareholder without the concurrent receipt of cash. Although each Fund seeks to avoid significant noncash income, such noncash income could be recognized by a Fund, in which case
it may distribute cash derived from other sources in order to meet the minimum distribution requirements described below. Cash to make the required minimum distributions may be obtained from sales proceeds of securities held by a Fund (even if such
sales are not advantageous) or, if permitted by its governing documents and other regulatory restrictions, through borrowing the amounts required to be distributed.
QUALIFICATION AS REGULATED INVESTMENT COMPANY.
Qualification as a RIC under the IRC requires, among other things, that each Fund: (a) derive at least 90% of its gross income for
each taxable year from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including but not limited to gains from options, futures
and forward contracts) derived with respect to its business of investing in such stock, securities or currencies (the Qualifying Income Requirement), and net income from certain qualified publicly traded partnerships; (b) diversify
its holdings so that, at the close of each quarter of the taxable year: (i) at least 50% of the value of its assets is comprised of cash, cash items (including receivables), U.S. government securities, securities of other RICs and other
securities, with those other securities limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of its total assets and that does not represent more than 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 securities of other RICs) of any one issuer or the securities (other than the securities of other RICs) of two or more
issuers controlled by it and engaged in the same, similar or related trades or businesses, or one or more qualified publicly traded partnerships (together with (i) the Diversification Requirement); and
(c) distribute for each taxable year the sum of (i) at least 90% of its investment company taxable income (which includes dividends, taxable interest, taxable original issue discount income, market discount income, income from securities
lending, net short-term capital gain in excess of net long-term capital loss, certain net realized foreign currency exchange gains, and any other taxable income other than net capital gain as defined below and is reduced by deductible
expenses all determined without regard to any deduction for dividend paid); and (ii) 90% of its tax-exempt interest, if any, net of certain expenses allocable thereto (net tax-exempt interest).
The Treasury Department is authorized to promulgate regulations under which gains from foreign currencies (and options, futures, and forward contracts on foreign
currency) would constitute qualifying income for purposes of the Qualifying Income Requirement only if such gains are directly related to the principal business of a Fund in investing in stock or securities or options and futures with respect to
stock or securities. To date, such regulations have not been issued.
As a RIC, a Fund generally will not be subject to U.S. federal income tax on the
portion of its income and capital gains that it distributes to its shareholders in any taxable year for which it distributes, in compliance with the IRCs timing
29
and other requirements at least 90% of its investment company taxable income and at least 90% of its net tax-exempt interest). Each Fund may retain for investment all or a portion of its net
capital gain (i.e., the excess of its net long-term capital gain over its net short-term capital loss). If a Fund retains any investment company taxable income or net capital gain, it will be subject to tax at regular corporate rates on the amount
retained. If a Fund retains any net capital gain, it may designate the retained amount as undistributed net capital gain in a notice to its shareholders, who will be (i) required to include in income for federal income tax purposes, as
long-term capital gain, their shares of such undistributed amount; and (ii) entitled to credit their proportionate shares of tax paid by such Fund against their federal income tax liabilities, if any, and to claim refunds to the extent the
credit exceeds such liabilities. For federal income tax purposes, the tax basis of the shares owned by a shareholder of a Fund will be increased by the amount of undistributed net capital gain included in the shareholders gross income and
decreased by the federal income tax paid by such Fund on that amount of capital gain.
The qualifying income and asset requirements that must be met
under the IRC in order for a Fund to qualify as a RIC, as described above, may limit the extent to which a Fund will be able to engage in derivative transactions. As described in the Prospectus, each Fund seeks to provide investment results that
correspond to a particular managed futures program through investments directly or indirectly, through the Subsidiary, in commodity-linked derivative instruments and directly or indirectly, through the Subsidiary, by investing in the securities of
one or more private investment vehicles or commodity pools that have access to a particular trading program. Rules governing the federal income tax aspects of derivatives, including swap agreements, are not entirely clear in certain respects,
particularly in light of two IRS revenue rulings issued in 2006. Revenue Ruling 2006-1 held that income from a derivative contract with respect to a commodity index is not qualifying income for a RIC. Accordingly, a Funds ability to invest in
commodity related derivatives is limited to a maximum of 10% of its gross income. This limitation, however, will not protect a Fund against the risk of losing its RIC status should any other income be reclassified as non-qualifying income. In
Revenue Ruling 2006-31, the IRS stated that the holding in Revenue Ruling 2006-1 was not intended to preclude a conclusion that the income from certain instruments (such as certain structured notes) that create a commodity exposure for the
holder is qualifying income.
As described above in this SAI, generally, each Fund intends to invest in a Subsidiary. As described below, each
Subsidiary will be classified as a controlled foreign corporation (CFC) for federal income tax purposes. As a result, each Fund will be required to include in its gross income for federal income tax purposes all or a significant portion
of the income of its Subsidiary, referred to as subpart F income, whether or not the Subsidiary makes a distribution to a Fund. Distributions by a Subsidiary to a Fund will not be taxable to the Fund to the extent that the Fund has previously
recognized subpart F income. This subpart F income is generally treated as ordinary income, regardless of the character of the Subsidiarys underlying income.
Prior to July 2011, the IRS issued private letter rulings in which it concluded that income from certain commodity index-linked notes is qualifying income and that income derived from subsidiaries similar to the
Subsidiaries will be qualifying income whether received in the form of current distributions or as undistributed subpart F income. In July 2011, the IRS announced that it would no longer issue private letter rulings regarding whether income from
subsidiaries similar to the Subsidiary is qualifying income. There is no law or authority directly addressing some of the issues considered in these rulings. There can be no assurance that the IRS will not change its position with respect to some or
all of these issues or, if the IRS did so, that a court would not sustain such contrary positions. If the IRS were to change its position on some or all of these issues, and if such contrary positions were upheld, a Fund might cease to qualify as a
RIC. A private letter ruling may only be relied upon by the taxpayer to whom it was provided. No Fund plans to seek a private letter ruling. As a result, the prior private letter rulings issued by the IRS may not be relied upon by any Fund.
Therefore, to the extent a Fund invests directly in commodity-index-linked derivative instruments or in a Subsidiary, the IRS may contest the Funds characterization of the income produced by such assets as qualifying income which, if
successful, could cause the Fund to fail to qualify as a RIC. Each Fund and its Adviser plan to direct investments of each Funds assets in conformance with Revenue Ruling 2006-31, IRS guidance, and the advice of counsel.
In addition, each Fund may not have more than 25% of the value of its assets invested in its Subsidiary to meet the Diversification Requirement. The value of a
Funds Subsidiary may be volatile and it may be difficult for a Fund to continue to have less than 25% of the value of its assets invested in its Subsidiary.
In general, for purposes of the Qualifying Income Requirement described above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of
income of the partnership which would be qualifying income if realized directly by the RIC. However, all of the net income of a RIC derived from an interest in a qualified publicly traded partnership (defined as a partnership (x) the interests
in which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof, and (y) that derives less than 90% of its income from the qualifying income described in clause
(i) of the Qualifying Income
30
Requirement described above) will be treated as qualifying income. In general, such entities will be treated as partnerships for federal income tax purposes if they meet the passive income
requirement under Section 7704(c)(2) of the IRC. In addition, although in general the passive loss rules of the IRC do not apply to RICs, such rules do apply to a RIC with respect to items attributable to an interest in a qualified publicly
traded partnership. For purposes of the Diversification Requirement described above, the term Outstanding voting securities of such issuer will include the equity securities of a qualified publicly traded partnership.
If a Fund fails to satisfy the Qualifying Income Requirement or the Diversification Requirement in any taxable year, such Fund may be eligible for relief provisions
if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures to satisfy the
Diversification Requirements where the Fund corrects the failure within a specified period of time. If the applicable relief provisions are not available or cannot be met, such Fund will be subject to tax in the same manner as an ordinary
corporation subject to tax on a graduated basis with a maximum tax rate of 35% and all distributions from earnings and profits (as determined under the U.S. federal income tax principles) to its shareholders will be taxable as ordinary dividend
income eligible for the dividends received deduction for corporate shareholders and the 15% non-corporate long-term capital gain shareholder rate (for taxable years beginning prior to January 1, 2013. After January 1, 2013, the long-term
capital gain rate is 20% for non-corporate shareholders with taxable income in excess of $400,000 ($450,000 if married and filing jointly) and 15% for non-corporate shareholders with taxable income of less than the threshold amounts.
EXCISE TAX.
If a Fund fails to distribute by December 31 of each calendar year an amount equal to the sum of (1) at least
98% of its taxable ordinary income (excluding capital gains and losses) for such year, (2) at least 98.2% of the excess of its capital gains over its capital losses (as adjusted for certain ordinary losses) for the twelve month period ending on
October 31 of such year, and (3) all taxable ordinary income and the excess of capital gains over capital losses for the prior year that were not distributed during such year and on which it did not pay federal income tax, such Fund will
be subject to a nondeductible 4% excise tax (the Excise Tax) on the undistributed amounts. A distribution will be treated as paid on December 31 of the calendar year if it is declared by a Fund in October, November, or December of
that year to shareholders of record on a date in such month and paid by it during January of the following year. Such distributions will be taxable to shareholders (other than those not subject to federal income tax) in the calendar year in which
the distributions are declared, rather than the calendar year in which the distributions are received. Each Fund generally intends to actually distribute or be deemed to have distributed substantially all of its net income and gain, if any, by the
end of each calendar year in compliance with these requirements so that it will generally not be required to pay the Excise Tax. A Fund may in certain circumstances be required to liquidate its investments in order to make sufficient distributions
to avoid the Excise Tax liability at a time when its Adviser might not otherwise have chosen to do so. Liquidation of investments in such circumstances may affect the ability of a Fund to satisfy the requirements for qualification as a RIC. However,
no assurances can be given that a Fund will not be subject to the Excise Tax and, in fact, in certain instances if warranted, a Fund may choose to pay the Excise Tax as opposed to making an additional distribution.
CAPITAL LOSS CARRYFORWARDS.
A Fund may carry forward capital losses indefinitely. The excess of a Funds net short-term capital
losses over its net long-term capital gain is treated as short-term capital losses arising on the first day of the Funds next taxable year and the excess of a Funds net long-term capital losses over its net short-term capital gain is
treated as long-term capital losses arising on the first day of the Funds net taxable year. Capital gains arising in subsequent years are offset by carried forward capital losses and are not subject to Fund-level federal income taxation,
regardless of whether they are distributed to shareholders. A Fund cannot carry back or carry forward any net operating losses.
TAXATION OF THE
SUBSIDIARY.
Foreign corporations, such as the Subsidiary, will generally not be subject to U.S. federal income taxation unless they are deemed to be engaged in a U.S. trade or business. It is expected that the Subsidiary
will conduct its activities in a manner so as to meet the requirements of a safe harbor under IRC Section 864(b)(2) pursuant to which the Subsidiary may engage in trading in stocks or securities or certain commodities without being deemed to be
engaged in a U.S. trade or business. However, if certain of the Subsidiarys activities were determined not to be of the type described in the safe harbor, then the activities of the Subsidiary may constitute a U.S. trade or business, or be
taxed as such.
In general, foreign corporations, such as the Subsidiary, that do not conduct a U.S. trade or business are nonetheless subject to tax at
a flat rate of 30 percent (or lower tax treaty rate), generally payable through withholding, on the gross amount of certain U.S.-source income that is not effectively connected with a U.S. trade or business. There is presently no tax treaty in force
between the U.S. and the Cayman Islands that would reduce this rate of withholding tax. The 30% tax does not apply to U.S.-source capital gains (whether long-term or short-term) or to interest paid to a foreign
31
corporation on its deposits with U.S. banks. The 30% tax also does not apply to interest which qualifies as portfolio interest. The term portfolio interest generally
includes interest (including original issue discount) on an obligation in registered form issued after July 18, 1984 and with respect to which the person, who would otherwise be required to deduct and withhold the 30% tax, received the required
statement that the beneficial owner of the obligation is not a U.S. person as defined by the IRC. Under certain circumstances, interest on bearer obligations may also be considered portfolio interest. It is not expected that the Subsidiary will
derive income subject to such withholding tax.
As described above, the Subsidiary will be treated as a CFC. Each Fund will be treated as a
U.S. shareholder of the Subsidiary. As a result, each Fund will be required to include in gross income for U.S. federal income tax purposes all of its Subsidiarys subpart F income, whether or not such income is
distributed by the Subsidiary. It is expected that all of each Subsidiarys income will be subpart F income. Subpart F income generally includes interest, original issue discount, dividends, net gains from the
disposition of stocks or securities, receipts with respect to securities loans and net payments received with respect to equity swaps and similar derivatives. Subpart F income also includes the excess of gains over losses from
transactions (including futures, forward and similar transactions) in any commodities. A Funds recognition of its Subsidiarys subpart F income will increase the Funds tax basis in the Subsidiary. Distributions by a
Subsidiary to a Fund will be tax-free, to the extent of its previously undistributed subpart F income, and will correspondingly reduce the Funds tax basis in the Subsidiary. Subpart F income is generally treated as
ordinary income, regardless of the character of the Subsidiarys underlying income. If a net loss is realized by a Subsidiary, such loss is not generally available to offset the income earned by the Fund.
In general, each U.S. Shareholder is required to file IRS Form 5471 with its U.S. federal income tax (or information) returns providing information
about its ownership of the CFC and the CFC. In addition, a U.S. Shareholder may in certain circumstances be required to report a disposition of shares in the Subsidiary by attaching IRS Form 5471 to its U.S. federal income tax (or
information) return that it would normally file for the taxable year in which the disposition occurs. In general, these filing requirements will apply to a shareholder of a Fund if such shareholder is a U.S. person who owns directly, indirectly or
constructively (within the meaning of Sections 958(a) and (b) of the IRC) 10% or more of the total combined voting power of all classes of voting stock of a foreign corporation that is a CFC for an uninterrupted period of 30 days or more during
any tax year of the foreign corporation, and who owned that stock on the last day of that year. Whether a shareholder of a Fund is a U.S. Shareholder with respect to a Subsidiary depends on an application of the constructive ownership
rules of the IRC. You are urged and advised to consult your own tax advisor with respect to whether you are a U.S. Shareholder.
ORIGINAL ISSUE
DISCOUNT AND MARKET DISCOUNT.
A Fund may acquire debt securities that are treated as having original issue discount (OID) (generally a debt obligation with a purchase price less than its principal amount).
Generally, a Fund will be required to include the OID in income over the term of the debt security, even though it will not receive cash payments for such OID until a later time, usually when the debt security matures. A Fund may make one or more of
the elections applicable to debt securities having OID which could affect the character and timing of recognition of income. Inflation-protected bonds generally can be expected to produce OID income as their principal amounts are adjusted upward for
inflation. A portion of the OID includible in income with respect to certain high-yield corporate debt securities may be treated as a dividend for federal income tax purposes if the securities are characterized as equity for federal income tax
purposes.
A debt security acquired in the secondary market by a Fund may be treated as having market discount if acquired at a price below redemption
value or adjusted issue price if issued with original issue discount. Market discount generally is accrued ratably, on a daily basis, over the period from the date of acquisition to the date of maturity even though no cash will be received. Absent
an election by a Fund to include the market discount in income as it accrues, gain on its disposition of such an obligation will be treated as ordinary income rather than capital gain to the extent of the accrued market discount.
In addition, pay-in-kind securities will give rise to income which is required to be distributed and is taxable even though a Fund holding such securities receives
no interest payments in cash on such securities during the year.
Each Fund generally will be required to make distributions to shareholders representing
the income accruing on the debt securities, described above, that is currently includable in income, even though cash representing such income may not have been received by such Fund. Cash to pay these distributions may be obtained from sales
proceeds of securities held by a Fund (even if such sales are not advantageous) or, if permitted by such Funds governing documents, through borrowing the amounts required to be distributed. In the event a Fund realizes net capital gains from
such transactions, its shareholders may receive a larger capital gain distribution, if any, than they would have in the absence of such transactions. Borrowing to fund any distribution also has tax implications, such as potentially creating
unrelated business taxable income (UBTI).
32
OPTIONS, FUTURES AND FORWARD CONTRACTS.
The writing (selling) and purchasing of
options and futures contracts and entering into forward currency contracts, involves complex rules that will determine for income tax purposes the amount, character and timing of recognition of the gains and losses a Fund realizes in connection with
such transactions.
Gains and losses on the sale, lapse, or other termination of options and futures contracts, options thereon and certain forward
contracts (except certain foreign currency options, forward contracts and futures contracts) will generally be treated as capital gains and losses. Some regulated futures contracts, certain foreign currency contracts, and certain non-equity options
(such as certain listed options or options on broad based securities indexes) held by a Fund (Section 1256 contracts), other than contracts on which it has made a mixed-straddle election, will be required to be
marked-to-market for federal income tax purposes, that is, treated as having been sold at their market value on the last day of such Funds taxable year. These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed sales of Section 1256 contracts will be treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss, although certain foreign currency gains
and losses from such contracts may be treated as ordinary income or loss as described below. Transactions that qualify as designated hedges are exempt from the mark-to-market rule, but may require a Fund to defer the recognition of losses on futures
contracts, foreign currency contracts and certain options to the extent of any unrecognized gains on related positions held by it.
The tax provisions
described above applicable to options, futures and forward contracts may affect the amount, timing, and character of a Funds distributions to its shareholders. For example, the Section 1256 rules described above may operate to increase
the amount a Fund must distribute to satisfy the minimum distribution requirement for the portion treated as short-term capital gain which will be taxable to its shareholders as ordinary income, and to increase the net capital gain it recognizes,
without, in either case, increasing the cash available to such Fund. A Fund may elect to exclude certain transactions from the operation of Section 1256, although doing so may have the effect of increasing the relative proportion of net
short-term capital gain (taxable as ordinary income) and thus increasing the amount of dividends it must distribute. Section 1256 contracts also may be marked-to-market for purposes of the Excise Tax.
When a covered call option written (sold) by a Fund expires such Fund will realize a short-term capital gain equal to the amount of the premium it received for
writing the option. When a Fund terminates its obligations under such an option by entering into a closing transaction, it will realize a short-term capital gain (or loss), depending on whether the cost of the closing transaction is less than (or
exceeds) the premium received when it wrote the option. When a covered call option written by a Fund is exercised, such Fund will be treated as having sold the underlying security, producing long-term or short-term capital gain or loss, depending
upon the holding period of the underlying security and whether the sum of the option price received upon the exercise plus the premium received when it wrote the option is more or less than the basis of the underlying security.
STRADDLES.
Section 1092 deals with the taxation of straddles which also may affect the taxation of options in which a Fund may
invest. Offsetting positions held by a Fund involving certain derivative instruments, such as options, futures and forward currency contracts, may be considered, for federal income tax purposes, to constitute straddles. Straddles are
defined to include offsetting positions in actively traded personal property. In certain circumstances, the rules governing straddles override or modify the provisions of Section 1256, described above. If a Fund is treated as entering into a
straddle and at least one (but not all) of its positions in derivative contracts comprising a part of such straddle is governed by Section 1256, then such straddle could be characterized as a mixed straddle. A Fund may make one or
more elections with respect to mixed straddles. Depending on which election is made, if any, the results with respect to a Fund may differ. Generally, to the extent the straddle rules apply to positions established by a Fund, losses realized by it
may be deferred to the extent of unrealized gain in any offsetting positions. Moreover, as a result of the straddle rules, short-term capital loss on straddle positions may be characterized as long-term capital loss, and long-term capital gain may
be characterized as short-term capital gain. In addition, the existence of a straddle may affect the holding period of the offsetting positions and cause such sales to be subject to the wash sale and short sale rules. As a
result, the straddle rules could cause distributions that would otherwise constitute qualified dividend income to fail to satisfy the applicable holding period requirements, described below, and therefore to be taxed as ordinary income.
Further, a Fund may be required to capitalize, rather than deduct currently, any interest expense and carrying charges applicable to a position that is part of a straddle. Because the application of the straddle rules may affect the character and
timing of gains and losses from affected straddle positions, the amount which must be distributed to shareholders, and which will be taxed to shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as
compared to the situation where a Fund had not engaged in such transactions.
In circumstances where a Fund has invested in certain pass-through
entities, the amount of long-term capital gain that it may recognize from certain derivative transactions with respect to interests in such pass-through entities is limited
33
under the IRCs constructive ownership rules. The amount of long-term capital gain is limited to the amount of such gain a Fund would have had if it directly invested in the pass-through
entity during the term of the derivative contract. Any gain in excess of this amount is treated as ordinary income. An interest charge is imposed on the amount of gain that is treated as ordinary income.
CONSTRUCTIVE SALES.
Certain rules may affect the timing and character of gain if a Fund engages in transactions that reduce or
eliminate its risk of loss with respect to appreciated financial positions. If a Fund enters into certain transactions (including a short sale, an offsetting notional principal contract, a futures or forward contract, or other transactions
identified in Treasury regulations) in property while holding an appreciated financial position in substantially identical property, it will be treated as if it had sold and immediately repurchased the appreciated financial position and will be
taxed on any gain (but not loss) from the constructive sale. The character of gain from a constructive sale will depend upon a Funds holding period in the appreciated financial position. Loss from a constructive sale would be recognized when
the position was subsequently disposed of, and its character would depend on a Funds holding period and the application of various loss deferral provisions of the IRC.
In addition, if the appreciated financial position is itself a short sale or such a contract, acquisition of the underlying property or substantially identical property by a Fund will be deemed a constructive sale.
The foregoing will not apply, however, to a Funds transaction during any taxable year that otherwise would be treated as a constructive sale if the transaction is closed within 30 days after the end of that year and such Fund holds the
appreciated financial position unhedged for 60 days after that closing (i.e., at no time during that 60-day period is such Funds risk of loss regarding the position reduced by reason of certain specified transactions with respect to
substantially identical or related property, such as having an option to sell, being contractually obligated to sell, making a short sale or granting an option to buy substantially identical stock or securities).
WASH SALES.
A Fund may in certain circumstances be impacted by special rules relating to wash sales. In general, the wash
sale rules prevent the recognition of a loss by a Fund from the disposition of stock or securities at a loss in a case in which identical or substantially identical stock or securities (or an option to acquire such property) is or has been acquired
by it within 30 days before or 30 days after the sale.
SHORT SALES.
A Fund may make short sales of securities. Short sales
may increase the amount of short-term capital gain realized by a Fund, which is taxed as ordinary income when distributed to its shareholders. Short sales also may be subject to the Constructive Sales rules, discussed above.
SWAPS AND DERIVATIVES.
As a result of entering into swap or derivative agreements, a Fund may make or receive periodic net payments. A
Fund may also make or receive a payment when a swap or derivative is terminated prior to maturity through an assignment of the swap, derivative or other closing transaction. Periodic net payments will generally constitute ordinary income or
deductions, while termination of a swap or derivative will generally result in capital gain or loss (which will be a long-term capital gain or loss if a Fund has been a party to a swap or derivative for more than one year). The Funds
transactions in swaps or other derivatives may be subject to one or more of the special tax rules (e.g., notional principal contract, straddle, constructive sales, wash sales, and short sale rules). These rules may affect whether gains and losses
recognized by a Fund are treated as ordinary or capital or as short-term or long-term, accelerate the recognition of income or gains to the Fund, defer losses to the Fund, and cause adjustments in the holding periods of the Funds securities.
These rules could therefore affect the amount, timing and/or character of distributions to shareholders.
With respect to certain types of swap
agreements or derivative securities, a Fund may be required to currently recognize income or loss with respect to future payments on such swaps or derivatives or may elect under certain circumstances to mark to market such swaps or derivatives
annually for tax purposes as ordinary income or loss.
The applicability of these rules to swap agreements or other derivative securities is not entirely
clear in certain respects under current law. In addition, whether income generated from swaps and other derivatives is Qualifying Income is not entire certain. Accordingly, while the Funds intend to account for such transactions in a manner it deems
appropriate, the IRS might not accept such treatment. If the IRS did not accept such treatment, the status of the Funds as RICs might be adversely affected. The Funds intend to monitor developments in this area. Certain requirements that must be met
under the IRC in order for each Fund to qualify as a RIC may limit the extent to which the Funds will be able to engage in swap agreements and certain other derivatives securities.
PASSIVE FOREIGN INVESTMENT COMPANIES.
A Fund may invest in a non-U.S. corporation, which could be treated as a passive foreign investment company (PFIC) or become a PFIC
under the IRC. A PFIC is generally defined as a foreign corporation that meets either of the following tests: (1) at least 75% of its gross income for its taxable year is income from passive sources (such as interest, dividends, certain rents
and royalties, or capital gains); or (2) an average of at least 50% of its assets produce, or are held for the production of, such passive income. If a Fund acquires
34
any equity interest in a PFIC, such Fund could be subject to federal income tax and interest charges on excess distributions received with respect to such PFIC stock or on any gain
from the sale of such PFIC stock (collectively PFIC income), plus interest thereon even if such Fund distributes the PFIC income as a taxable dividend to its shareholders. The balance of the PFIC income will be included in such
Funds investment company taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its shareholders. A Funds distributions of PFIC income will be taxable as ordinary income even though, absent
the application of the PFIC rules, some portion of the distributions may have been classified as capital gain.
A Fund will not be permitted to pass
through to its shareholders any credit or deduction for taxes and interest charges incurred with respect to a PFIC. Payment of this tax would therefore reduce a Funds economic return from its investment in PFIC shares. To the extent a Fund
invests in a PFIC, it may elect to treat the PFIC as a qualified electing fund (QEF), then instead of the tax and interest obligation described above on excess distributions, such Fund would be required to include in income
each taxable year its pro rata share of the QEFs annual ordinary earnings and net capital gain. As a result of a QEF election, a Fund would likely have to distribute to its shareholders an amount equal to the QEFs annual ordinary
earnings and net capital gain to satisfy the IRCs minimum distribution requirement described herein and avoid imposition of the Excise Tax even if the QEF did not distribute those earnings and gain to such Fund. In most instances it will be
very difficult, if not impossible, to make this election because of certain requirements in making the election.
A Fund may elect to
mark-to-market its stock in any PFIC. Marking-to-market, in this context, means including in ordinary income each taxable year the excess, if any, of the fair market value of the PFIC stock over such Funds adjusted
basis therein as of the end of that year. Pursuant to the election, a Fund also may deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in the PFIC stock over the fair market value thereof as of the taxable year-end,
but only to the extent of any net mark-to-market gains with respect to that stock it included in income for prior taxable years under the election. A Funds adjusted basis in its PFIC stock subject to the election would be adjusted to reflect
the amounts of income included and deductions taken thereunder. In either case, a Fund may be required to recognize taxable income or gain without the concurrent receipt of cash.
FOREIGN CURRENCY TRANSACTIONS.
Foreign currency gains and losses realized by a Fund in connection with certain transactions involving foreign currency-denominated debt instruments,
certain options, futures contracts, forward contracts, and similar instruments relating to foreign currency, foreign currencies, and foreign currency-denominated payables and receivables are subject to Section 988 of the IRC, which causes such
gains and losses to be treated as ordinary income or loss and may affect the amount and timing of recognition of such Funds income. In some cases elections may be available that would alter this treatment, but such elections could be
detrimental to a Fund by creating current recognition of income without the concurrent recognition of cash. If a foreign currency loss treated as an ordinary loss under Section 988 were to exceed a Funds investment company taxable income
(computed without regard to such loss) for a taxable year the resulting loss would not be deductible by it or its shareholders in future years. The foreign currency income or loss will also increase or decrease a Funds investment company
income distributable to its shareholders.
FOREIGN TAXATION.
Income received by a Fund from sources within foreign
countries may be subject to foreign withholding and other taxes. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. If more than 50% of a Funds total assets at the close of any taxable year
consist of stock or securities of foreign corporations and it meets the distribution requirements described above, such Fund may file an election (the pass-through election) with the IRS pursuant to which shareholders of the Fund would
be required to (i) include in gross income (in addition to taxable dividends actually received) their pro rata shares of foreign income taxes paid by the Fund even though not actually received by such shareholders; and (ii) treat such
respective pro rata portions as foreign income taxes paid by them. Each Fund will furnish its shareholders with a written statement providing the amount of foreign taxes paid by the Fund that will pass-through for the year, if any.
Generally, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholders U.S. tax attributable to his or her
total foreign source taxable income. For this purpose, if the pass-through election is made, the source of a Funds income will flow through to shareholders. The limitation on the foreign tax credit is applied separately to foreign source
passive income, and to certain other types of income. Shareholders may be unable to claim a credit for the full amount of their proportionate share of the foreign taxes paid by a Fund. Various limitations, including a minimum holding period
requirement, apply to limit the credit and deduction for foreign taxes for purposes of regular federal tax and alternative minimum tax.
DISTRIBUTIONS.
Distributions paid out of a Funds current and accumulated earnings and profits (as determined at the end of the
year), whether reinvested in additional shares or paid in cash, are generally taxable and must be reported by each shareholder who is required to file a federal income tax return. Distributions in excess of a Funds
35
current and accumulated earnings and profits, as computed for federal income tax purposes, will first be treated as a return of capital up to the amount of a shareholders tax basis in his
or her Fund shares and then as capital gain.
For federal income tax purposes, distributions of investment company taxable income are generally
taxable as ordinary income, and distributions of gains from the sale of investments that a Fund owned for one year or less will be taxable as ordinary income. Distributions designated by a Fund as capital gain dividends (distributions
from the excess of net long-term capital gain over short-term capital losses) will be taxable to shareholders as long-term capital gain regardless of the length of time they have held their shares of such Fund. Such dividends do not qualify as
dividends for purposes of the dividends received deduction described below.
Noncorporate shareholders of a Fund may be eligible for the 15% long-term
capital gain rate applicable to distributions of qualified dividend income received by such noncorporate shareholders in taxable years beginning before January 1, 2013. After January 1, 2013, the long-term capital gain rate is
20% for non-corporate shareholders with taxable income in excess of $400,000 ($450,000 if married and filing jointly), 15% for non-corporate shareholders with taxable income of less than the threshold amounts and 0% for non-corporate shareholders in
lower brackets. A Funds distribution will be treated as qualified dividend income and therefore eligible for the long-term capital gain rate to the extent it receives dividend income from taxable domestic corporations and certain qualified
foreign corporations, provided that certain holding periods and other requirements are met. A corporate shareholder of a Fund may be eligible for the dividends received deduction on such Funds distributions attributable to dividends received
by such Fund from domestic corporations, which, if received directly by the corporate shareholder, would qualify for such a deduction. For eligible corporate shareholders, the dividends received deduction may be subject to certain reductions, and a
distribution by a Fund attributable to dividends of a domestic corporation will be eligible for the deduction only if certain holding period and other requirements are met.
Under current law, beginning in 2013, a new 3.8% Medicare contribution tax on net investment income including interest, dividends, and capital gains of U.S. individuals with income exceeding $200,000 ($250,000 if
married and filing jointly) and of estates and trusts.
Each Fund will furnish a statement to shareholders providing the federal income tax status of
its dividends and distributions including the portion of such dividends, if any, that qualifies as long-term capital gain.
Different tax treatment,
including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions, and certain prohibited transactions, is accorded to accounts maintained as qualified retirement plans.
Shareholders are
urged and advised to consult their own tax advisors for more information.
PURCHASES OF FUND SHARES.
Prior to
purchasing shares in a Fund, the impact of dividends or distributions which are expected to be or have been declared, but not paid, should be carefully considered. Any dividend or distribution declared shortly after a purchase of shares of a Fund
prior to the record date will have the effect of reducing the per share net asset value by the per share amount of the dividend or distribution, and to the extent the distribution consists of the Funds taxable income, the purchasing
shareholder will be taxed on the taxable portion of the dividend or distribution received even though some or all of the amount distributed is effectively a return of capital.
SALES, EXCHANGES OR REDEMPTIONS.
Upon the disposition of shares of a Fund (whether by redemption, sale or exchange), a shareholder may realize a capital gain or loss. Such capital gain
or loss will be long-term or short-term depending upon the shareholders holding period for the shares. The capital gain will be long-term if the shares were held for more than 12 months and short-term if held for 12 months or less.
If a shareholder sells or exchanges Fund shares within 90 days of having acquired such shares and if, before January 31 of the calendar year following the
calendar year of the sale or exchange, as a result of having initially acquired those shares, the shareholder subsequently pays a reduced sales charge on a new purchase of shares of the Fund or another Fund, the sales charge previously incurred in
acquiring the Funds shares generally shall not be taken into account (to the extent the previous sales charges do not exceed the reduction in sales charges on the new purchase) for the purpose of determining the amount of gain or loss on the
disposition, but generally will be treated as having been incurred in the new purchase. Any loss realized on a disposition will be disallowed under the wash sale rules to the extent that the shares disposed of by the shareholder are
replaced by the shareholder within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by
a shareholder on a disposition of shares held by the shareholder for six months or less will be treated as a long-term capital loss to the extent of any distributions of capital gain dividends received by the shareholder and disallowed to the extent
of any distributions of exempt-interest dividends received by the shareholder with respect to such shares. Capital losses are generally deductible only against capital gains except that individuals may deduct up to $3,000 of capital losses against
ordinary income.
36
The 3.8% Medicare contribution tax (described above) will apply to gains from the sale or exchange of a
Funds shares.
BACKUP WITHHOLDING.
Each Fund generally is required to withhold, and remit to the U.S. Treasury,
subject to certain exemptions, an amount equal to 28% of all distributions and redemption proceeds paid or credited to a shareholder of such Fund if (i) the shareholder fails to furnish such Fund with the correct taxpayer identification number
(TIN) certified under penalties of perjury, (ii) the shareholder fails to provide a certified statement that the shareholder is not subject to backup withholding, or (iii) the IRS or a broker has notified such Fund that the
number furnished by the shareholder is incorrect or that the shareholder is subject to backup withholding as a result of failure to report interest or dividend income. If the backup withholding provisions are applicable, any such distributions or
proceeds, whether taken in cash or reinvested in shares, will be reduced by the amounts required to be withheld. Backup withholding is not an additional tax. Any amounts withheld may be credited against a shareholders U.S. federal income tax
liability.
STATE AND LOCAL TAXES.
State and local laws often differ from federal income tax laws with respect to the
treatment of specific items of income, gain, loss, deduction and credit.
Shareholders are urged and advised to consult their own tax advisors as to
the state and local tax rules affecting investments in the Funds.
NON-U.S. SHAREHOLDERS.
Distributions made to
non-U.S. shareholders attributable to net investment income generally are subject to U.S. federal income tax withholding at a 30% rate (or such lower rate provided under an applicable income tax treaty). Notwithstanding the foregoing, if a
distribution described above is effectively connected with the conduct of a trade or business carried on by a non-U.S. shareholder within the United States (or, if an income tax treaty applies, is attributable to a permanent establishment in the
United States), federal income tax withholding and exemptions attributable to foreign persons will not apply and such distribution will be subject to the federal income tax, reporting and withholding requirements generally applicable to U.S. persons
described above.
Under U.S. federal tax law, a non-U.S. shareholder is not, in general, subject to federal income tax or withholding tax on capital
gains (and is not allowed a deduction for losses) realized on the sale of shares of a Fund and on long-term capital gains dividends, provided that the Fund obtains a properly completed and signed certificate of foreign status, unless (i) such
gains or distributions are effectively connected with the conduct of a trade or business carried on by the non-U.S. shareholder within the United States (or, if an income tax treaty applies, are attributable to a permanent establishment in the
United States of the non-U.S. shareholder); (ii) in the case of an individual non-U.S. shareholder, the shareholder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale and certain
other conditions are met; or (iii) the shares of the Fund constitute U.S. real property interests (USRPIs).
Distributions of the Fund when at least
50% of its assets are USRPIs, as defined in the IRC and Treasury regulations, to the extent the distributions are attributable to gains from sales or exchanges of USRPIs (including gains on the sale or exchange of shares in certain U.S. real
property holding corporations, which may include certain REITS, among other entities, and certain REIT capital gain dividends) generally will cause a non-U.S. shareholder to treat such gain as income effectively connected to a trade or
business within the United States subject to tax at the graduated rates applicable to U.S. shareholders. Such distributions may be subject to U.S. withholding tax and may require the non-U.S. shareholders to file a federal income tax return.
Subject to the additional rules described herein, federal income tax withholding will apply to distributions attributable to dividends and other
investment income distributed by the Funds. The federal income tax withholding rate may be reduced (and, in some cases, eliminated) under an applicable tax treaty between the United States and the non-U.S. shareholders country of residence or
incorporation. In order to qualify for treaty benefits, a non-U.S. shareholder must comply with applicable certification requirements relating to its foreign status (generally by providing a Fund with a properly completed Form W-8BEN).
All
non-U.S. shareholders are urged and advised to consult their own tax advisors as to the tax consequences of an investment in a Fund.
Recently
enacted rules require the reporting to the IRS of direct and indirect ownership of foreign financial accounts and foreign entities by U.S. persons.
The
IRS has issued final guidance with respect to these new rules. However, since they have been recently promulgated, all aspects of their application and scope are not yet clear as to their implementation. Pursuant to that guidance, a 30% withholding
tax will be imposed on dividends paid after December 31, 2013 and redemption proceeds paid after December 31, 2014, to (i) foreign financial institutions including non-U.S. investment funds unless they agree to collect and disclose to
the IRS information regarding their direct and indirect U.S. account holders and (ii) certain other foreign entities unless they certify certain information regarding their direct and indirect U.S. owners.
37
To avoid withholding, a foreign financial institution will need to enter into agreements with the IRS regarding providing the IRS information including the name, address and taxpayer
identification number of direct and indirect U.S. account holders, to comply with due diligence procedures with respect to the identification of U.S. accounts, to report to the IRS certain information with respect to U.S. accounts maintained, to
agree to withhold tax on certain payments made to non-compliant foreign financial institutions or to account holders who fail to provide the required information, and to determine certain other information as to their account holders. Other foreign
entities will need to provide the name, address, and TIN of each substantial U.S. owner or certifications of no substantial U.S. ownership unless certain exceptions apply. Shareholders are urged and advised to consult their own tax advisor regarding
the application of this new reporting and withholding regime to their own tax situation.
FOREIGN BANK AND FINANCIAL ACCOUNTS AND FOREIGN FINANCIAL
ASSETS REPORTING REQUIREMENTS.
A shareholder that owns directly or indirectly more than 50% by vote or value of a Fund, is urged and advised to consult its own tax adviser regarding its filing obligations with respect to
IRS Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts.
Also, under recently enacted rules, subject to exceptions, individuals (and, to
the extent provided in forthcoming future U.S. Treasury regulations, certain domestic entities) must report annually their interests in specified foreign financial assets on their U.S. federal income tax returns. It is currently unclear
whether and under what circumstances shareholders would be required to report their indirect interests in a Funds specified foreign financial assets (if any) under these new rules.
Shareholders may be subject to substantial penalties for failure to comply with these reporting requirements.
Shareholders are urged and advised to consult their
own tax advisers to determine whether these reporting requirements are applicable to them.
TAX-EXEMPT
SHAREHOLDERS.
A tax-exempt shareholder could realize UBTI by virtue of its investment in a Fund as a result of such Funds investments and if shares in the Fund constitute debt financed property in the hands of the
tax-exempt shareholder within the meaning of IRC Section 514(b).
Any investment in a residual interest of a CMO that has elected to be treated as a
REMIC can create complex tax consequences, especially if a Fund has state or local governments or other tax-exempt organizations as shareholders.
All
tax-exempt shareholders are urged to consult their tax advisors as to the tax consequences of an investment in a Fund.
TAX SHELTER REPORTING
REGULATIONS.
Under Treasury regulations, if a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the
IRS a disclosure statement on Form 8886. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers treatment of the loss is proper. Shareholders are urged and advised to consult
their own tax advisors to determine the applicability of these regulations in light of their individual circumstances.
Shareholders are urged and
advised to consult their own tax advisor with respect to the tax consequences of an investment in a Fund including, but not limited to, the applicability of state, local, foreign and other tax laws affecting the particular shareholder and to
possible effects of changes in federal or other tax laws.
BROKERAGE ALLOCATION AND OTHER FUND BROKERAGE
PRACTICES
Brokerage
Transactions.
Generally, equity securities are bought and sold through brokerage transactions for which commissions are payable. Purchases from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealers mark-up or reflect a dealers mark-down. The purchase price for securities bought from dealers serving as market makers will similarly include the dealers mark
up or reflect a dealers mark down. When a Fund executes transactions in the over-the-counter market, it will generally deal with primary market makers unless prices that are more favorable are otherwise obtainable.
In addition, the Adviser may place a combined order for two or more accounts it manages, including a Fund, engaged in the purchase or sale of the same security if,
in its judgment, joint execution is in the best interest of each participant and will result in best price and execution. Transactions involving commingled orders are allocated in a manner deemed equitable to each account or a Fund. Although it is
recognized that, in some cases, the joint execution of orders could adversely affect the price or volume of the security that a particular account or a Fund may obtain, it is the
38
opinion of the Adviser that the advantages of combined orders outweigh the possible disadvantages of separate transactions. Nonetheless, the Adviser believes that the ability of a Fund to
participate in higher volume transactions will generally be beneficial to a Fund.
Brokerage Selection.
The Trust does not
expect to use one particular broker or dealer, and when one or more brokers is believed capable of providing the best combination of price and execution, a Funds Adviser may select a broker based upon brokerage or research services provided to
the Adviser. The Adviser may pay a higher commission than otherwise obtainable from other brokers in return for such services only if a good faith determination is made that the commission is reasonable in relation to the services provided.
Section 28(e) of the Securities Exchange Act of 1934 (the 1934 Act) permits the Adviser, under certain circumstances, to cause a Fund
to pay a broker or dealer a commission for effecting a transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction in recognition of the value of brokerage and research services
provided by the broker or dealer. In addition to agency transactions, the Adviser may receive brokerage and research services in connection with certain riskless principal transactions, in accordance with applicable SEC guidance. Brokerage and
research services include: (1) furnishing advice as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities; (2) furnishing
analyses and reports concerning issuers, industries, securities, economic factors and trends, Fund strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions incidental thereto (such as
clearance, settlement, and custody). In the case of research services, the Adviser believes that access to independent investment research is beneficial to its investment decision-making processes and, therefore, to a Fund.
To the extent that research services may be a factor in selecting brokers, such services may be in written form or through direct contact with individuals and may
include information as to particular companies and securities as well as market, economic, or institutional areas and information which assists in the valuation and pricing of investments. Examples of research-oriented services for which the Adviser
might utilize Fund commissions include research reports and other information on the economy, industries, sectors, groups of securities, individual companies, statistical information, political developments, technical market action, pricing and
appraisal services, credit analysis, risk measurement analysis, performance and other analysis. The Adviser may use research services furnished by brokers in servicing all client accounts and not all services may necessarily be used in connection
with the account that paid commissions to the broker providing such services. Information so received by the Adviser will be in addition to and not in lieu of the services required to be performed by each Funds Adviser under the Advisory
Agreement. Any advisory or other fees paid to the Adviser are not reduced as a result of the receipt of research services.
In some cases the
Adviser may receive a service from a broker that has both a research and a non-research use. When this occurs, the Adviser makes a good faith allocation, under all the circumstances, between the research and non-research uses
of the service. The percentage of the service that is used for research purposes may be paid for with client commissions, while the Adviser will use its own funds to pay for the percentage of the service that is used for non-research purposes. In
making this good faith allocation, the Adviser faces a potential conflict of interest, but the Adviser believes that its allocation procedures are reasonably designed to ensure that it appropriately allocates the anticipated use of such services to
their research and non-research uses.
From time to time, each Fund may purchase new issues of securities in a fixed price offering. In these
situations, the seller may be a member of the selling group that will, in addition to selling securities, provide the Adviser with research services. FINRA has adopted rules expressly permitting these types of arrangements under certain
circumstances. Generally, the seller will provide research credits in these situations at a rate that is higher than that which is available for typical secondary market transactions. These arrangements may not fall within the safe
harbor of Section 28(e).
Brokerage with Fund Affiliates.
Each Fund may execute brokerage or other agency transactions
through registered broker-dealer affiliates of either a Fund, the Adviser or the Distributor for a commission in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC. These rules further require that commissions paid to
the affiliate by a Fund for exchange transactions not exceed usual and customary brokerage commissions. The rules define usual and customary commissions to include amounts which are reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time. The
Trustees, including those who are not interested persons of a Fund, have adopted procedures for evaluating the reasonableness of commissions paid to affiliates and review these procedures periodically.
Portfolio Turnover.
Each Funds portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio
securities for the fiscal year by the monthly average of the value of the portfolio securities owned by a Fund
39
during the fiscal year. The calculation excludes from both the numerator and the denominator securities with maturities at the time of acquisition of one year or less. High portfolio turnover
rate involves correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by a Fund. A 100% turnover rate would occur if all of a Funds portfolio securities were replaced once within a one-year
period.
The table below sets forth each Funds portfolio turnover rate as a percentage of the average value of its portfolio for the fiscal period
ended September 30, 2012:
|
|
|
|
|
Fund
|
|
Portfolio Turnover Rate
|
|
Equinox Abraham Strategy Fund*
|
|
|
0
|
%
|
Equinox Absolute Return Plus Strategy Fund*
|
|
|
0
|
%
|
Equinox Chesapeake Strategy Fund*
|
|
|
0
|
%
|
Equinox Crabel Strategy Fund*
|
|
|
0
|
%
|
Equinox Eclipse Strategy Fund**
|
|
|
51
|
%
|
Equinox John Locke Strategy Fund**
|
|
|
45
|
%
|
Equinox QCM Strategy Fund**
|
|
|
65
|
%
|
Equinox Tiverton Strategy Fund*
|
|
|
0
|
%
|
*
|
The Fund commenced operations on April 19, 2012.
|
**
|
The Fund commenced operations on January
25, 2012.
|
PORTFOLIO HOLDINGS DISCLOSURE
The Trust has adopted policies and procedures that
govern the disclosure of a Funds portfolio holdings. These policies and procedures are designed to ensure that such disclosure is in the best interests of Fund shareholders.
A Fund will disclose its portfolio holdings by mailing its annual and semi-annual reports to shareholders approximately two months after the end of the fiscal year and semi-annual period. A Fund may also disclose
its portfolio holdings by mailing a quarterly report to its shareholders. In addition, each Fund will disclose its portfolio holdings in reports filed with the Securities and Exchange Commission (SEC) on Forms N-CSR and N-Q two months
after the end of each quarter/semi-annual period.
The Fund will publish a schedule of its 10 largest portfolio holdings, which shall include its
holding of the Subsidiary. Such schedule shall be published as of the most recent calendar month-end on the Funds website at www.EquinoxFundManagement.com generally within 10 business days after the end of the calendar month. This information
will remain on the website until new information for the next month is posted, or at least until the Fund files its Form N-Q or Form N-CSR for the period that includes the dates of the posted holdings.
Each Fund may choose to make its holdings available to rating agencies such as Lipper, Morningstar or Bloomberg more frequently on a confidential basis.
Under limited circumstances, as described below, each Funds portfolio holdings may be disclosed to, or known by, certain third parties in advance of their
filing with the SEC on Form N-CSR or Form N-Q. In each case, a determination has been made that such advance disclosure is supported by a legitimate business purpose and that the recipient is subject to a duty to keep the information confidential.
|
|
The Adviser.
Personnel of the Adviser, including personnel responsible for managing each Funds portfolio, may have full daily
access to Fund portfolio holdings since that information is necessary in order for the Adviser to provide its management, administrative, and investment services to each Fund. As required for purposes of analyzing the impact of existing and future
market changes on the prices, availability, demand and liquidity of such securities, as well as for the assistance of portfolio managers in the trading of such securities, Adviser personnel may also release and discuss certain portfolio holdings
with various broker-dealers.
|
|
|
Gemini Fund Services, LLC.
Gemini Fund Services, LLC is the transfer agent, fund accountant and administrator for each Fund;
therefore, its personnel have full daily access to each Funds portfolio holdings since that information is necessary in order for them to provide the agreed-upon services for each Fund.
|
40
|
|
Union Bank, N. A.
Union Bank is the custodian for each Fund; therefore, its personnel have full daily access to each Funds
portfolio holdings since that information is necessary in order for them to provide the agreed-upon services for each Fund.
|
|
|
McGladrey LLP.
McGladrey LLP is each Funds registered independent public accounting firm; therefore, its personnel have
access to each Funds portfolio holdings in connection with auditing of each Funds annual financial statements and providing assistance and consultation in connection with SEC filings.
|
|
|
Counsel.
Pepper Hamilton, LLP is counsel to each Fund; therefore its personnel have access to each Funds portfolio holdings
in connection with the review of each Funds annual and semi-annual shareholder reports and SEC filings.
|
Additions to List of
Approved Recipients.
The Trusts Chief Compliance Officer is the person responsible, and whose prior approval is required, for any disclosure of each Funds portfolio securities at any time or to any persons
other than those described above. In such cases, the recipient must have a legitimate business need for the information and must be subject to a duty to keep the information confidential. There are no ongoing arrangements in place with respect to
the disclosure of portfolio holdings. In no event shall a Fund, the Adviser or any other party receive any direct or indirect compensation in connection with the disclosure of information about a Funds portfolio holdings.
Compliance with Portfolio Holdings Disclosure Procedures.
The Trusts Chief Compliance Officer will report periodically to the
Board with respect to compliance with the portfolio holdings disclosure procedures, and from time to time will provide the Board any updates to the portfolio holdings disclosure policies and procedures.
There is no assurance that the Trusts policies on disclosure of portfolio holdings will protect each Fund from the potential misuse of holdings information by
individuals or firms in possession of that information.
CAPITAL STOCK AND OTHER SECURITIES
The Trust issues and offers Class I Shares of each
Fund, and also offers Class A Shares, Class C Shares and Class P shares of the Equinox Campbell Strategy Fund. The shares of a Fund, when issued and paid for in accordance with the Prospectus, will be fully paid and non-assessable shares, with
equal voting rights and no preferences as to conversion, exchange, dividends, redemption or any other feature.
The separate classes of shares of the
Equinox Campbell Strategy Fund represent interests in the same portfolio of investments, have the same rights and are identical in all respects, except that Class A shares, Class C shares and Class P shares bear distribution and/or service fees
and have exclusive voting rights with respect to their respective Rule 12b-1 Plan pursuant to which the distribution fee may be paid. Currently, the Equinox Campbell Strategy Fund is not making payments under the Rule 12b-1 plan with respect to
Class P shares.
The net income attributable to a class of shares and the dividends payable on such shares will be reduced by the amount of any
applicable shareholder service or Rule 12b-1 distribution fees. Accordingly, the NAV of the Class A Shares, Class C Shares and Class P shares of the Equinox Campbell Strategy Fund will be reduced by such amount to the extent the Fund has
undistributed net income.
Shares of a Fund entitle holders to one vote per share and fractional votes for fractional shares held. Shares have
non-cumulative voting rights, do not have preemptive or subscription rights and are transferable. Each share class of the Equinox Campbell Strategy Fund takes separate votes on matters affecting only that class.
The Trust does not hold annual meetings of shareholders. The Trustees are required to call a meeting of shareholders for the purpose of voting upon the question of
removal of any Trustee when requested in writing to do so by the shareholders of record owning not less than 10% of a Funds outstanding shares.
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 Trusts 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. The Trusts Secretary serves as its Anti-Money Laundering compliance officer.
41
Procedures to implement the Program include, but are not limited to, determining that a Funds Distributor
and Transfer Agent have established proper anti-money laundering procedures, reported suspicious and/or fraudulent activity and a complete and thorough review of all new opening account applications. The Trust will not transact business with any
person or entity whose identity cannot be adequately verified under the provisions of the USA PATRIOT Act.
As a result of the Program, the Trust
may be required to freeze the account of a shareholder if the shareholder appears to be involved in suspicious activity or if certain account information matches information on government lists of known terrorists or other suspicious
persons, or the Trust may be required to transfer the account or proceeds of the account to a governmental agency.
LIMITATION OF TRUSTEES LIABILITY
The Trusts Declaration of Trust provides that a
Trustee shall be liable only for his or her own willful defaults and, if reasonable care has been exercised in the selection of officers, agents, employees or investment advisers, shall not be liable for any neglect or wrongdoing of any such person.
The Declaration of Trust also provides that a Fund will indemnify its Trustees and officers against liabilities and expenses incurred in connection with actual or threatened litigation in which they may be involved because of their offices with the
Trust unless it is determined in the manner provided in the Declaration of Trust that they have not acted in good faith in the reasonable belief that their actions were in the best interests of the Trust. However, nothing in the Declaration of Trust
shall protect or indemnify a Trustee against any liability for his or her willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. Nothing contained in this section attempts to disclaim a Trustees individual
liability in any manner inconsistent with the federal securities laws.
CODES OF ETHICS
The Trust, the Adviser and the Distributor each have
adopted codes of ethics under Rule 17j-1 under the 1940 Act that govern the personal securities transactions of their board members, officers and employees who may have access to current trading information of the Trust. Under the code of ethics,
the Trustees are permitted to invest in securities that may also be purchased by a Fund.
In addition, the Trust has adopted a code of ethics, which
applies only to the Trusts executive officers to ensure that these officers promote professional conduct in the practice of corporate governance and management. The purpose behind these guidelines is to promote i) honest and ethical conduct,
including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; ii) full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or
submits to, the Securities and Exchange Commission and in other public communications made by a Fund; iii) compliance with applicable governmental laws, rule and regulations; iv) the prompt internal reporting of violations of this Code to an
appropriate person or persons identified in the Code; and v) accountability for adherence to the Code.
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements and
report of the independent registered public accounting firm required to be included in this SAI are hereby incorporated by reference to the Annual Report for the Funds for the fiscal period ended September 30, 2012. You can obtain a copy
of the Annual Report without charge by calling the Fund at 1-888-643-3431.
42
APPENDIX ARATINGS
Moodys Investors Service, Inc.
(Moodys), Standard & Poors
®
(S&P) and Fitch Ratings, Inc. (Fitch)
are private services that provide ratings of the credit quality of debt obligations. A description of the ratings assigned by Moodys, S&P
®
and Fitch are provided below. These ratings represent the opinions of these rating services as to the quality of the securities that they undertake to rate. It should
be emphasized, however, that ratings are general and are not absolute standards of quality.
Moodys credit ratings are current opinions of the
relative future credit risk of entities, credit commitments, or debt or debt-like securities. Moodys defines credit risk as the risk that an entity may not meet its contractual, financial obligations as they come due and any estimated
financial loss in the event of default. Credit ratings do not address any other risk, including but not limited to: liquidity risk, market value risk, or price volatility. Credit ratings are not statements of current or historical fact. Credit
ratings do not constitute investment or financial advice, and credit ratings are not recommendations to purchase, sell, or hold particular securities. Credit ratings do not comment on the suitability of an investment for any particular investor.
Moodys issues its credit ratings with the expectation and understanding that each investor will make its own study and evaluation of each security that is under consideration for purchase, holding, or sale.
An S&P issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial obligation, a specific
class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit
enhancement on the obligation and takes into account the currency in which the obligation is denominated. The opinion reflects S&Ps view of the obligors capacity and willingness to meet its financial commitments as they come due, and
may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default.
Fitch credit ratings
provide an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, and repayment of principal, insurance claims or counterparty obligations. Fitch credit ratings are used by investors as
indications of the likelihood of receiving their money owed to them in accordance with the terms on which they invested. Fitchs credit-ratings cover the global spectrum of corporate, sovereign (including supranational and sub-national),
financial, bank, insurance, municipal and other public finance entities and the securities or other obligations they issue, as well as structured finance securities backed by receivables or other financial assets.
Short-Term Credit Ratings
Moodys
Moodys short-term ratings are opinions of the ability of issuers to honor short-term financial obligations. Ratings may be assigned to issuers, short-term
programs or to individual short-term debt instruments. Such obligations generally have an original maturity not exceeding thirteen months, unless explicitly noted.
Moodys employs the following designations to indicate the relative repayment ability of rated issuers:
P-1
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Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
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P-2
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Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
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P-3
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Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
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NP
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Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
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Note: Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced by the senior-most long-term rating of the issuer, its guarantor or support-provider.
S&P
S&Ps short-term ratings are generally
assigned to those obligations considered short-term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 daysincluding commercial paper. Short-term ratings are also used to
indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a dual rating, in which the short-term rating addresses the put feature, in addition to the usual long-term rating.
A-1
The following summarizes the rating categories used by S&P for short-term issues:
A-1
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Obligations are rated in the highest category and indicate that the obligors capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligors capacity to meet its financial commitment on these obligations is extremely strong.
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A-2
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Obligations are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligors capacity to
meet its financial commitment on the obligation is satisfactory.
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A-3
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Obligations exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
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B
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Obligations are regarded as vulnerable and having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing
uncertainties which could lead to the obligors inadequate capacity to meet its financial commitments.
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C
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Obligations are currently vulnerable to nonpayment and are dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation.
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D
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Obligations are in payment default. The D rating category is used when payments on an obligation are not made on the date due, unless S&P believes that such payments will be made within
any stated grace period. However, any stated grace period longer than five business days will be treated as five business days. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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Local Currency and Foreign Currency Risks
Country risk considerations are a
standard part of S&Ps analysis for credit ratings on any issuer or issue. Currency of repayment is a key factor in this analysis. An obligors capacity to repay foreign currency obligations may be lower than its capacity to repay
obligations in its local currency due to the sovereign governments own relatively lower capacity to repay external versus domestic debt. These sovereign risk considerations are incorporated in the debt ratings assigned to specific issues.
Foreign currency issuer ratings are also distinguished from local currency issuer ratings to identify those instances where sovereign risks make them different for the same issuer.
Fitch
A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to
default of the rated entity or security stream, and relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant obligation. Short-Term Ratings are assigned to obligations whose initial maturity
is viewed as short term based on market convention. Typically, this means up to 13 months for corporate, sovereign and structured obligations, and up to 36 months for obligations in U.S. public finance markets.
The following summarizes the rating categories used by Fitch for short-term obligations:
F1
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Highest short-term credit quality. This designation indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added + to denote any exceptionally
strong credit feature.
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F2
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Good short-term credit quality. This designation indicates good intrinsic capacity for timely payment of financial commitments.
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F3
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Fair short-term credit quality. This designation indicates that the intrinsic capacity for timely payment of financial commitments is adequate.
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A-2
B
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Speculative short-term credit quality. This designation indicates minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and
economic conditions.
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C
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High short-term default risk. This designation indicates that default is a real possibility.
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RD
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Restricted default. This designation indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Or, the default of a
specific short-term obligation.
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D
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Default. This designation indicates a broad-based default event for an entity, or the default of all short-term obligations.
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Specific limitations relevant to the Short-Term Ratings scale include:
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The ratings do not predict a specific percentage of default likelihood over any given time period.
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The ratings do not opine on the market value of any issuers securities or stock, or the likelihood that this value may change.
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The ratings do not opine on the liquidity of the issuers securities or stock.
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The ratings do not opine on the possible loss severity on an obligation should an obligation default.
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The ratings do not opine on any quality related to an issuer or transactions profile other than the agencys opinion on the relative vulnerability to
default of the rated issuer or obligation.
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Ratings assigned by Fitch Ratings articulate an opinion on discrete and specific areas of
risk. The above list is not exhaustive.
Long-Term Credit Ratings
Moodys
Moodys long-term ratings are opinions of the relative credit risk of financial obligations
with an original maturity of one year or more. They address the possibility that a financial obligation will not be honored as promised. Such ratings use Moodys Global Scale and reflect both the likelihood of default and any financial loss
suffered in the event of default.
The following summarizes the ratings used by Moodys for long-term debt:
Aaa
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Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
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Aa
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Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
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A
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Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
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Baa
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Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
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Ba
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Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
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B
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Obligations rated B are considered speculative and are subject to high credit risk.
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Caa
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Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
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Ca
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Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
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C
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Obligations rated C are the lowest rated class and are typically in default, with little prospect for recovery of principal or interest.
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A-3
Note: Moodys appends numerical modifiers 1, 2, and 3 to each generic rating classification from
Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
S&P
Issue
credit ratings are based, in varying degrees, on S&Ps analysis of the following considerations:
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Likelihood of payment capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the
obligation;
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Nature of and provisions of the obligation;
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Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors rights.
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Issue ratings are an assessment of default risk, but may incorporate an assessment of
relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has
both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
The following
summarizes the ratings used by S&P for long-term issues:
AAA
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An obligation rated AAA has the highest rating assigned by S&P. The obligors capacity to meet its financial commitment on the obligation is extremely strong.
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AA
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An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligors capacity to meet its financial commitment on the obligation is very strong.
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A
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An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the
obligors capacity to meet its financial commitment on the obligation is still strong.
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BBB
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An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation.
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Obligations rated BB, B, CCC, CC, and
C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB
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An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic
conditions which could lead to the obligors inadequate capacity to meet its financial commitment on the obligation.
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B
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An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation.
Adverse business, financial or economic conditions will likely impair the obligors capacity or willingness to meet its financial commitment on the obligation.
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CCC
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An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on
the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
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CC
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An obligation rated CC is currently highly vulnerable to nonpayment.
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A-4
C
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A C rating is assigned to obligations that are currently highly vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an
issuer that is the subject of a bankruptcy petition or similar action which have not experienced a payment default. Among others, the C rating may be assigned to subordinated debt, preferred stock or other obligations on which cash
payments have been suspended in accordance with the instruments terms or when preferred stock is the subject of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other
instruments having a total value that is less than par.
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D
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An obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due, unless S&P believes that such payments
will be made within five business days, irrespective of any grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. An
obligations rating is lowered to D upon completion of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than
par.
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Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within the major rating categories.
NR
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This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular obligation as a matter of policy.
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Local Currency and Foreign Currency Risks
Country risk considerations are a standard part of S&Ps analysis for
credit ratings on any issuer or issue. Currency of repayment is a key factor in this analysis. An obligors capacity to repay foreign currency obligations may be lower than its capacity to repay obligations in its local currency due to the
sovereign governments own relatively lower capacity to repay external versus domestic debt. These sovereign risk considerations are incorporated in the debt ratings assigned to specific issues. Foreign currency issuer ratings are also
distinguished from local currency issuer ratings to identify those instances where sovereign risks make them different for the same issuer.
Fitch
Rated entities in a number of sectors, including financial and non-financial corporations, sovereigns and insurance companies, are generally
assigned Issuer Default Ratings (IDRs). IDRs opine on an entitys relative vulnerability to default on financial obligations. The threshold default risk addressed by the IDR is generally that of the financial obligations whose
non-payment would best reflect the uncured failure of that entity. As such, IDRs also address relative vulnerability to bankruptcy, administrative receivership or similar concepts, although the agency recognizes that issuers may also make
pre-emptive and therefore voluntary use of such mechanisms.
In aggregate, IDRs provide an ordinal ranking of issuers based on the agencys view of
their relative vulnerability to default, rather than a prediction of a specific percentage likelihood of default. For historical information on the default experience of Fitch-rated issuers, please consult the transition and default performance
studies available from the Fitch Ratings website.
The following summarizes long-term IDR categories used by Fitch:
AAA
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Highest credit quality. AAA ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This
capacity is highly unlikely to be adversely affected by foreseeable events.
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AA
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Very high credit quality. AA ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
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A-5
A
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High credit quality. A ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more
vulnerable to adverse business or economic conditions than is the case for higher ratings.
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BBB
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Good credit quality. BBB ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or
economic conditions are more likely to impair this capacity.
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BB
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Speculative. BB ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or
financial flexibility exists which supports the servicing of financial commitments.
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B
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Highly speculative. B ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for
continued payment is vulnerable to deterioration in the business and economic environment.
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CCC
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Substantial credit risk. CCC ratings indicate that default is a real possibility.
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CC
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Very high levels of credit risk. CC ratings indicate default of some kind appears probable.
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C
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Exceptionally high levels of credit risk. C ratings indicate default is imminent or inevitable, or the issuer is in standstill. Conditions that are indicative of a C category
rating for an issuer include:
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a.
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the issuer has entered into a grace or cure period following non-payment of a material financial obligation;
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b.
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the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or
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c.
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Fitch otherwise believes a condition of RD or D to be imminent or inevitable, including through the formal announcement of a distressed debt exchange.
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RD
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Restricted default. RD ratings indicate an issuer that in Fitchs opinion has experienced an uncured payment default on a bond, loan or other material financial obligation but which has
not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased business. This would include:
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a.
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the selective payment default on a specific class or currency of debt;
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b.
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the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other
material financial obligation;
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c.
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the extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; or
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d.
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execution of a distressed debt exchange on one or more material financial obligations.
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D
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Default. D ratings indicate an issuer that in Fitch Ratings opinion has entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure,
or which has otherwise ceased business.
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Default ratings are not assigned prospectively to entities or their obligations; within this
context, non-payment on an instrument that contains a deferral feature or grace period will generally not be considered a default until after the expiration of the deferral or grace period, unless a default is otherwise driven by bankruptcy or other
similar circumstance, or by a distressed debt exchange.
A-6
Imminent default typically refers to the occasion where a payment default has been intimated by the
issuer, and is all but inevitable. This may, for example, be where an issuer has missed a scheduled payment, but (as is typical) has a grace period during which it may cure the payment default. Another alternative would be where an issuer has
formally announced a distressed debt exchange, but the date of the exchange still lies several days or weeks in the immediate future.
In all cases, the
assignment of a default rating reflects the agencys opinion as to the most appropriate rating category consistent with the rest of its universe of ratings, and may differ from the definition of default under the terms of an issuers
financial obligations or local commercial practice.
Note: The modifiers + or - may be appended to a rating to denote
relative status within major rating categories. Such suffixes are not added to the AAA Long-Term IDR category, or to Long-Term IDR categories below B.
Specific limitations relevant to the issuer credit rating scale include:
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The ratings do not predict a specific percentage of default likelihood over any given time period.
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The ratings do not opine on the market value of any issuers securities or stock, or the likelihood that this value may change.
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The ratings do not opine on the liquidity of the issuers securities or stock.
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The ratings do not opine on the possible loss severity on an obligation should an issuer default.
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The ratings do not opine on the suitability of an issuer as a counterparty to trade credit.
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The ratings do not opine on any quality related to an issuers business, operational or financial profile other than the agencys opinion on its
relative vulnerability to default.
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Ratings assigned by Fitch Ratings articulate an opinion on discrete and specific areas of risk. The
above list is not exhaustive.
Municipal Note Ratings
Moodys
Moodys uses three rating categories for short-term municipal obligations that are
considered investment grade. These ratings are designated as Municipal Investment Grade (MIG) and are divided into three levelsMIG 1 through MIG 3. In addition, those short-term obligations that are of
speculative quality are designated SG, or speculative grade. MIG ratings expire at the maturity of the obligation.
The following summarizes
the ratings used by Moodys for these short-term obligations:
MIG 1
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This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the market for
refinancing.
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MIG 2
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This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.
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MIG 3
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This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for refinancing is likely to be less well-established.
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SG
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This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
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In the case of variable rate demand obligations (VRDOs), a two-component rating is assigned: a long or short-term debt rating and a demand obligation
rating. The first element represents Moodys evaluation of risk associated with scheduled principal and interest payments. The second element represents Moodys evaluation of risk associated with the ability to receive purchase price upon
demand (demand feature). The second element uses a rating from a variation of the MIG scale called the Variable Municipal Investment Grade or VMIG scale.
When either the long- or short-term aspect of a VRDO is not rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
VMIG rating expirations are a function of each issues specific structural or credit features.
A-7
VMIG 1
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This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term credit strength of the liquidity provider and structural and legal protections that ensure the
timely payment of purchase price upon demand.
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VMIG 2
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This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely
payment of purchase price upon demand.
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VMIG 3
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This designation denotes acceptable credit quality. Adequate protection is afforded by the satisfactory short-term credit strength of the liquidity provider and structural and legal protections that
ensure the timely payment of purchase price upon demand.
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SG
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This designation denotes speculative-grade credit quality. Demand features rated in this category may be supported by a liquidity provider that does not have an investment grade short-term rating or may
lack the structural and/or legal protections necessary to ensure the timely payment of purchase price upon demand.
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S&P
An S&P U.S. municipal note rating reflects S&Ps opinion about the liquidity factors and market access risks unique to notes. Notes due
in three years or less will likely receive a note rating. Notes with an original maturity of more than three years will most likely receive a long-term debt rating. In determining which type of rating, if any, to assign, S&Ps analysis will
review the following considerations:
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Amortization schedule the larger the final maturity relative to other maturities, the more likely it will be treated as a note; and
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Source of payment the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note.
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Note rating symbols are as follows:
SP-1
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The issuers of these municipal notes exhibit a strong capacity to pay principal and interest. Those issues determined to possess a very strong capacity to pay debt service are given a plus
(+) designation.
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SP-2
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The issuers of these municipal notes exhibit a satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
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SP-3
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The issuers of these municipal notes exhibit speculative capacity to pay principal and interest.
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Fitch
Fitch uses the same ratings for municipal securities as described above for other short-term credit
ratings.
A-8
APPENDIX B ADVISERS PROXY VOTING POLICIES
EQUINOX FUND MANAGEMENT, LLC
PROXY VOTING POLICIES AND PROCEDURES
(Adopted September 2008)
Pursuant to the recent adoption by the Securities and Exchange Commission (the
Commission) of Rule 206(4)-6 (17 CFR 275.206(4)-6) and amendments to Rule 204-2 (17 CFR 275.204-2) under the Investment Advisers Act of 1940 (the Act), it is a fraudulent, deceptive, or manipulative act, practice or
course of business, within the meaning of Section 206(4) of the Act, for an investment adviser to exercise voting authority with respect to client securities, unless (i) the adviser has adopted and implemented written policies and
procedures that are reasonably designed to ensure that the adviser votes proxies in the best interests of its clients, (ii) the adviser describes its proxy voting procedures to its clients and provides copies on request, and (iii) the
adviser discloses to clients how they may obtain information on how the adviser voted their proxies.
In order to fulfill its responsibilities under the
Act, Equinox Fund Management, LLC (hereinafter, Equinox, we or our) has adopted the following policies and procedures for proxy voting with regard to direct investments in companies held in investment portfolios
of our clients.
KEY OBJECTIVES
The key objectives of these policies and procedures
recognize that a companys management is entrusted with the day-to-day operations and longer term strategic planning of the company, subject to the oversight of the companys board of directors. While ordinary business matters
are primarily the responsibility of management and should be approved solely by the corporations board of directors, these objectives also recognize that the companys shareholders must have final say over how management and directors are
performing, and how shareholders rights and ownership interests are handled, especially when matters could have substantial economic implications to the shareholders.
Therefore, we will pay particular attention to the following matters in exercising our proxy voting responsibilities as a fiduciary for our clients:
Accountability. Each company should have effective means in place to hold those entrusted with running a companys business accountable for their actions. Management of a company should be accountable to its
board of directors and the board should be accountable to shareholders.
Alignment of Management and Shareholder Interests. Each company should endeavor
to align the interests of management and the board of directors with the interests of the companys shareholders. For example, we generally believe that compensation should be designed to reward management for doing a good job of creating value
for the shareholders of the company.
Transparency. Promotion of timely disclosure of important information about a companys business operations
and financial performance enables investors to evaluate the performance of a company and to make informed decisions about the purchase and sale of a companys securities.
DECISION METHODS
We generally believe that portfolio managers that invest in and track particular companies have a unique perspective to make decisions with regard to proxy votes. Therefore, we rely on that perspective to make the
final decisions on how to cast proxy votes.
No set of proxy voting guidelines can anticipate all situations that may arise. In special cases, we may
seek insight and expertise from outside sources as to how a particular proxy proposal will impact the financial prospects of a company, and vote accordingly.
In some instances, a proxy vote may present a conflict between the interests of a client, on the one hand, and our interests or the interests of a person affiliated with us, on the other. In such a case, we will
abstain from making a voting decision and will forward all of the necessary proxy voting materials to the client to enable the client to cast the votes.
B-1
SUMMARY OF PROXY VOTING GUIDELINES
Election of the Board of Directors
We believe that good corporate governance generally starts with a board composed primarily of independent directors, unfettered by significant ties to management,
all of whose members are elected annually. We also believe that some measure of turnover in board composition typically promotes more independent board action and fresh perspectives on governance. Of greater importance is the skill set of the
proposed board member. We will also look at the backgrounds of the directors to gauge their business acumen and any special talent or experience that may add value to their participation on the board.
The election of a companys board of directors is one of the most fundamental rights held by shareholders. Because a classified board structure prevents
shareholders from electing a full slate of directors annually, we will pay special attention to efforts to declassify boards or other measures that permit shareholders to remove a majority of directors at any time.
Approval of Independent Auditors
We believe that the
relationship between a company and its auditors should be limited primarily to the audit engagement, although it may include certain closely related activities that do not raise an appearance of impaired independence.
We will evaluate on a case-by-case basis instances in which the audit firm has a substantial non-audit relationship with a company to determine whether we believe
independence has been, or could be, compromised.
Equity-based compensation plans
We believe that 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, we are opposed to plans that substantially dilute ownership interests in the company, provide participants with excessive awards, or have inherently objectionable
structural features.
We will generally support measures intended to increase stock ownership by executives and the use of employee stock purchase plans
to increase company stock ownership by employees. These may include:
1.
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Requiring senior executives to hold stock in a company.
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2.
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Requiring stock acquired through option exercise to be held for a certain period of time.
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These are guidelines, and we consider other factors, such as the nature of the industry and size of the company, when assessing a plans impact on ownership interests.
Corporate Structure
We view the exercise of
shareholders rights, including the rights to act by written consent, to call special meetings and to remove directors, to be fundamental to good corporate governance.
Because classes of common stock with unequal voting rights limit the rights of certain shareholders, we generally believe that shareholders should have voting power equal to their equity interest in the company and
should be able to approve or reject changes to a companys by-laws by a simple majority vote.
We will generally support the ability of shareholders
to cumulate their votes for the election of directors.
Shareholder Rights Plans
There are arguments both in favor of and against shareholder rights plans, also known as poison pills. For example, such measures may tend to entrench or provide undue compensation to current management, which we
generally consider to have a negative impact on shareholder value. Therefore, our preference is for a plan that places shareholder value in a priority position above interests of management.
SUMMARY OF PROXY VOTING PROCEDURES
As a fiduciary to its investors, Equinox recognizes the need to actively manage and vote proxies and other shareholder actions and consents that may arise in the course of its investment advisory activities on
behalf of its clients.
B-2
However, due to the nature of the investments of the mutual funds advised and indirect exposure to underlying equity investments, we believe that it would be rare that Equinox would be in a
position to cast a vote or called upon to vote a proxy.
In the event that Equinox does receive a proxy notice, shareholder consent, or is otherwise
entitled to vote on any issue related to the investments of its advisory client accounts, Equinox will process and vote all shareholder proxies and other actions in a timely manner insofar as Equinox can determine based on the facts available to
Equinox at the time of its action, in the best interests of the affected Equinox advisory client(s). Although Equinox expects that proxies will generally be voted in a manner consistent with the guidelines set forth in this policy, there may be
individual cases where, based on facts available to Equinox, voting according to policy would not be in the best interests of the Fund and its shareholders. In such cases, Equinox may vote counter to the stated policy.
Proxy Voting Procedure
1)
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Notices received are reviewed by the Compliance Department;
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2)
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Forwarded to the Research & Asset Allocation Department for review and voting decision;
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3)
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Vote or consent entered according to Equinoxs best judgment under the facts and circumstances presented. Such decision shall be made, documented and approved by the
Research & Asset Allocation Department and at least one member of the Executive Committee;
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4)
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Final review and sign-off by Compliance Department and filing with a copy in the Proxy Voting Log.
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Equinox may at any time, outsource Proxy Voting responsibilities to Institutional Shareholder Services (ISS) or similar service provider that the Executive Committee may approve, provided that such
service provider votes each proxy based on decisions made by Equinox.
CLIENT INFORMATION
A copy of these Proxy Voting Policies and Procedures is
available to our clients, without charge, upon request, by calling 1-800-643-3431 and can also be found on the EDGAR database on the web at http://www.sec.gov. We will send a copy of these Proxy Voting Policies and Procedures within three business
days of receipt of a request, by first-class mail or other means designed to ensure equally prompt delivery.
In addition, we will provide each client,
without charge, upon request, information regarding the proxy votes cast by us with regard to the clients securities.
B-3
EQUINOX FUNDS TRUST
PART C
OTHER INFORMATION
ITEM 28.
EXHIBITS.
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(a)(1)
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Amended and Restated Agreement and Declaration of Trust filed as exhibit 28(a)(1) to the Registrants Post-Effective Amendment No. 43 to the
Registrants Registration Statement on Form N-1A filed with the Securities and Exchange Commission (SEC) on November 28, 2012 (PEA No. 43) and incorporated herein by reference.
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(a)(2)
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Certificate of Trust filed as exhibit 28(a)(2) to the Registrants Initial Registration Statement on Form N-1A filed with the SEC on August 5, 2010 (the
Registration Statement) and incorporated herein by reference.
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(a)(3)
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Amended and Restated Schedule A to the Amended and Restated Agreement and Declaration of Trust is filed herewith.
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(b)
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By-Laws filed as exhibit 28(b) to the Registration Statement and incorporated herein by reference.
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(c)
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Instruments Defining Rights of Security Holders.
See Article 3, Shares and Article 7 Shareholders Voting Powers and Meetings of the Registrants Amended
and Restated Agreement and Declaration of Trust. See also, Article II, Meetings of Shareholders of the Registrants By-Laws.
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(d)(1)(A)
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Investment Advisory Agreement between the Registrant and Equinox Fund Management LLC (EFM) filed as exhibit 28(d)(1) to the Registrants
Post-Effective Amendment No. 1 to the Registrants Registration Statement filed with the SEC on April 6, 2011 (PEA No. 1) and incorporated herein by reference.
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(d)(1)(B)
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Amended Schedules A and B to Investment Advisory Agreement between the Registrant and EFM is filed as exhibit 28(d)(1)(B) to PEA No. 43 and incorporated
herein by reference.
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(d)(2)
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Investment Advisory Agreement between the Registrant and EFM, on behalf of the Equinox Commodity Strategy Fund, is filed as exhibit 28(d)(2) to PEA No. 43 and
incorporated herein by reference.
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(d)(3)
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Form of Investment Advisory Agreement between the Registrant and Equinox Institutional Asset Management, LP (EIAM) with respect to the Equinox
EquityHedge U.S. Strategy Fund (EquityHedge Fund) filed as exhibit 28(d)(3) to the Registrants Post-Effective Amendment No. 49 to the Registrants Registration Statement filed with the SEC on January 31, 2013 (PEA No.
49) and incorporated herein by reference.
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(d)(4)
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Form of Sub-Advisory Agreement with respect to the EquityHedge Fund filed as exhibit 28(d)(3) to PEA No. 49 and incorporated herein by
reference.
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(e)(1)(A)
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Underwriting Agreement between the Registrant and Northern Lights Distributors LLC (NLD) filed as exhibit 28(e)(1)(A) to PEA No. 51 and
incorporated herein by reference.
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(f)
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Bonus or Profit Sharing Contracts NONE
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(g)(1)(A)
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Custody Agreement between the Registrant and Union Bank, N.A filed as exhibit 28(g) to PEA No. 1 and incorporated herein by
reference.
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(g)(1)(B)
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Amended Appendix C to the Custody Agreement between the Registrant and Union Bank, N.A is filed as exhibit 28(g)(1)(B) to PEA No. 43 and incorporated herein
by reference.
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(h)(1)(A)
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Fund Services Agreement between the Registrant and Gemini Fund Services, LLC (GFS) filed as exhibit 28(h)(1) to PEA No. 1 and incorporated herein
by reference.
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(h)(1)(B)
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Amendment to the Fund Services Agreement between the Registrant and GFS is filed as exhibit 28(h)(1)(B) to PEA No. 43 and incorporated herein by
reference.
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(h)(2)(A)
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Consulting Agreement between the Registrant and Northern Lights Compliance Services, LLC filed as exhibit 28(h)(2) to PEA No. 1 and incorporated herein by
reference.
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(h)(2)(B)
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Amendment to the Consulting Agreement between the Registrant and Northern Lights Compliance Services, LLC is filed as exhibit 28(h)(2)(B) to PEA No. 43 and
incorporated herein by reference.
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(h)(3)(A)
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Expense Limitation Agreement between the Registrant, with respect to the Equinox Abraham Strategy Fund; Equinox Chesapeake Strategy Fund; Equinox Crabel
Strategy Fund (formerly, Equinox Crabel Two Plus Strategy Fund); Equinox Eclipse Strategy Fund; Equinox John Locke Strategy Fund; Equinox Absolute Return Plus Strategy Fund; Equinox QCM Strategy Fund; Equinox QIM/WNTN Strategy Fund; Equinox Tiverton
Strategy Fund; Equinox Commodity Strategy Fund; and Equinox Campbell Strategy Fund, and EFM is filed as exhibit 28(h)(3) to PEA No. 43 and incorporated herein by reference.
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(h)(3)(B)
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Form of Amended and Restated Schedule A to the Expense Limitation Agreement between the Registrant and EFM is filed herewith.
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(h)(4)
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Form of Expense Limitation Agreement between the Registrant, with respect to the EquityHedge Fund, and EIAM filed as exhibit 28(h)(4) to PEA No. 51 and
incorporated herein by reference.
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(h)(5)
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Fee Waiver Agreement between the Registrant and EFM filed as exhibit 28(h)(5) to PEA No. 51 and incorporated herein by reference.
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(i)
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None.
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(j)
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Consent of Independent Registered Public Accountant is filed herewith.
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(k)
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Omitted Financial Statements. None
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(l)
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Initial Capital Agreement between the Registrant and the Initial Investor filed as exhibit 28(l) to PEA No. 1 and incorporated herein by
reference.
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(m)(1)
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Distribution Plan Pursuant to Rule 12b-1 filed as exhibit 28(m) to the Registrants Pre-Effective Amendment No. 1 to the Registrants Registration
Statement filed with the SEC on December 29, 2010 (Pre-No. 1) and incorporated herein by reference.
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(m)(2)
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Amended and Restated Schedule A to Distribution Plan Pursuant to Rule 12b-1 is filed herewith.
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(n)(1)
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Amended and Restated Multiple Class Plan Pursuant to Rule 18f-3 is filed as exhibit 28(n) to PEA No. 43 and incorporated herein by
reference.
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(n)(2)
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Amended and Restated Schedule A to Multiple Class Plan Pursuant to Rule 18f-3 is filed herewith.
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(o)
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Reserved.
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(p)(1)
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Code of Ethics of the Registrant filed as exhibit 28(p)(1) to Pre-No. 1 and incorporated herein by reference.
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(p)(2)
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Code of Ethics of the Adviser is filed as exhibit 28(p)(2) to PEA No. 43 and incorporated herein by reference.
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(p)(3)
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Code of Ethics of NLD filed as exhibit 28(p)(3) to Pre-No. 1 and incorporated herein by reference.
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(p)(4)
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Code of Ethics of EIAM (Formerly, Tapestry Asset Management, LP) filed as exhibit 28(p)(4) to PEA No. 51 and incorporated herein by
reference.
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(p)(5)
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Code of Ethics of Confluence Investment Management, LLC filed as exhibit 28(p)(5) to PEA No. 51 and incorporated herein by
reference.
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(p)(6)
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Code of Ethics of Equity Investment Corporation filed as exhibit 28(p)(6) to PEA No. 51 and incorporated herein by reference.
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(p)(7)
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Code of Ethics of Logan Capital Management, Inc. filed as exhibit 28(p)(7) to PEA No. 51 and incorporated herein by reference.
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(p)(8)
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Code of Ethics of Polen Capital Management, LLC filed as exhibit 28(p)(8) to PEA No. 51 and incorporated herein by reference.
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(p)(9)
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Code of Ethics of Quantum Capital Management Co. filed as exhibit 28(p)(9) to PEA No. 51 and incorporated herein by reference.
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(p)(10)
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Code of Ethics of Turner Investments, L.P. filed as exhibit 28(p)(10_) to PEA No. 51 and incorporated herein by reference.
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(q)
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Powers of Attorney of the Registrant (and a Certificate with respect thereto) and certain Trustees and Officers of the Registrant filed as exhibit 28(q) to
Pre-No. 1 and incorporated herein by reference.
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ITEM 29. Control Persons.
The Trust through the Equinox Commodity Strategy Fund, a separate series of the Trust, wholly owns and controls the Equinox MNCS Fund Limited, a company organized under the laws of the Cayman Islands. The
Equinox MNCS Fund Limiteds financial statements will be included, on a consolidated basis, in the Equinox Commodity Strategy Funds annual and semi-annual reports to shareholders.
The Trust through the Equinox Abraham Strategy Fund, a separate series of the Trust, wholly
owns and controls the Equinox Abraham Strategy Fund Limited, a company organized under the laws of the Cayman Islands. The Equinox Abraham Strategy Fund Limiteds financial statements will be included, on a consolidated basis, in the Equinox
Abraham Strategy Funds annual and semi-annual reports to shareholders.
The Trust through the Equinox Chesapeake
Strategy Fund, a separate series of the Trust, wholly owns and controls the Equinox Chesapeake Strategy Fund Limited, a company organized under the laws of the Cayman Islands. The Equinox Chesapeake Strategy Fund Limiteds financial statements
will be included, on a consolidated basis, in the Equinox Chesapeake Strategy Funds annual and semi-annual reports to shareholders.
The Trust through the Equinox Crabel Strategy Fund, a separate series of the Trust, wholly owns and controls the Equinox Crabel Two Plus Strategy Fund Limited, a company organized under the laws of the
Cayman Islands. The Equinox Crabel Two Plus Strategy Fund Limiteds financial statements will be included, on a consolidated basis, in the Equinox Crabel Two Plus Strategy Funds annual and semi-annual reports to shareholders.
The Trust through the Equinox Eclipse Strategy Fund, a separate series of the Trust, wholly owns and controls the Equinox Eclipse
Strategy Fund Limited, a company organized under the laws of the Cayman Islands. The Equinox Eclipse Strategy Fund Limiteds financial statements will be included, on a consolidated basis, in the Equinox Eclipse Strategy Funds annual and
semi-annual reports to shareholders.
The Trust through the Equinox John Locke Strategy Fund, a separate series of the Trust,
wholly owns and controls the Equinox John Locke Strategy Fund Limited, a company organized under the laws of the Cayman Islands. The Equinox John Locke Strategy Fund Limiteds financial statements will be included, on a consolidated basis, in
the Equinox John Locke Strategy Funds annual and semi-annual reports to shareholders.
The Trust through the Equinox
Absolute Return Plus Strategy Fund, a separate series of the Trust, wholly owns and controls the Equinox Mesirow Strategy Fund Limited, a company organized under the laws of the Cayman Islands. The Equinox Mesirow Strategy Fund Limiteds
financial statements will be included, on a consolidated basis, in the Equinox Absolute Return Plus Strategy Funds annual and semi-annual reports to shareholders.
The Trust through the Equinox QCM Strategy Fund, a separate series of the Trust, wholly owns and controls the Equinox QCM Strategy Fund Limited, a company organized under the laws of the Cayman Islands.
The Equinox QCM Strategy Fund Limiteds financial statements will be included, on a consolidated basis, in the Equinox QCM Strategy Funds annual and semi-annual reports to shareholders.
The Trust through the Equinox QIM/WNTN Strategy Fund, a separate series of the Trust, wholly owns and controls the Equinox QIM/WNTN
Strategy Fund Limited, a company organized under the laws of the Cayman Islands. The Equinox QIM/WNTN Strategy Fund Limiteds financial statements will be included, on a consolidated basis, in the Equinox QIM/WNTN Strategy Funds annual
and semi-annual reports to shareholders.
The Trust through the Equinox Tiverton Strategy Fund, a separate series of the Trust, wholly
owns and controls the Equinox Tiverton Strategy Fund Limited, a company organized under the laws of the Cayman Islands. The Equinox Tiverton Strategy Fund Limiteds financial statements will be included, on a consolidated basis, in the Equinox
Tiverton Strategy Funds annual and semi-annual reports to shareholders.
The Trust through the Equinox Campbell Strategy
Fund, a separate series of the Trust, wholly owns and controls the Equinox Campbell Strategy Fund Limited, a company organized under the laws of the Cayman Islands. The Equinox Campbell Strategy Fund Limiteds financial statements will be
included, on a consolidated basis, in the Equinox Campbell Strategy Funds annual and semi-annual reports to shareholders.
ITEM 30.
Indemnification.
The Registrants Amended and Restated Agreement and Declaration of Trust (the Agreement)
and by-laws provide, among other things, that the trustees shall not be responsible or liable in any event for any neglect or wrong-doing of any officer, agent, employee, investment adviser or distributor of the Registrant, nor shall any trustee be
responsible for the act or omission of any other trustee, and the Registrant out of its assets may indemnify and hold harmless each trustee and officer of the Registrant from and against any and all claims, demands, costs, losses, expenses and
damages whatsoever arising out of or related to such trustees performance of his or her duties as a trustee or officer of the Registrant; provided that the trustees and officers of the Registrant shall not be entitled to an indemnification or
held harmless if such liabilities were a result of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. (See Article 5 and 9 of the Agreement which has been incorporated
by reference as Exhibit 28(a)(1) and the Registrants By-Laws which have been incorporated by reference as Exhibit 28(b).)
The Investment Advisory Agreement between the Registrant and EFM provides, among other things, that an investment adviser shall not be
liable for any loss suffered by the Registrant with respect to its duties under the agreement, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the investment adviser in the performance of its duties or from reckless disregard by it of its obligations and duties under the agreement (disabling conduct). In addition, the
Registrant has agreed to indemnify EFM against and hold it harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action or suit not resulting
from disabling conduct by the investment adviser. (See the Investment Advisory Agreements which are incorporated by reference as Exhibits 28(d)(1)-(2).)
The Investment Advisory Agreement between the Registrant and the EIAM provides, among other things, that an investment adviser shall not be liable for any loss suffered by the Registrant with respect to
its duties under the agreement, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the
investment adviser in the performance of its duties or from reckless disregard by it of its obligations and duties under the agreement (disabling conduct). In addition, the Registrant has agreed to indemnify
EIAM against and hold it harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action or
suit not resulting from disabling conduct by the investment adviser. (See the Investment Advisory Agreement which is incorporated by reference as Exhibit 28(d)(3).)
The form of Sub-Advisory Agreement to be entered into among the Registrant, on behalf of the EquityHedge Fund, EIAM and each sub-adviser provides, among other things, that a sub-adviser shall not be
liable for any loss suffered by the Registrant with respect to its duties under the agreement, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the sub-adviser in the performance of its duties or from reckless disregard by it of its obligations and duties under the agreement (disabling conduct). In addition, the
Registrant has agreed to indemnify EIAM against and hold it harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action or suit not resulting
from disabling conduct by the sub-adviser. (See the Sub-Advisory Agreement which is incorporated by reference as Exhibit 28(d)(4).)
The Underwriting Agreement with NLD provides, among other things, that the Registrant will indemnify, defend and hold harmless NLD, its several officers and managers, and any person who controls NLD
within the meaning of Section 15 of the Securities Act of 1933 free and harmless from and against any and all claims, demands, liabilities and expenses (including the reasonable cost of investigating or defending such claims, demands or
liabilities and any reasonable counsel fees incurred in connection therewith) which NLD, its officers and managers, or any such controlling persons, may incur under the Securities Act of 1933, the Investment Company Act of 1940, or common law or
otherwise, arising out of or based upon: (i) any untrue statement, or alleged untrue statement, of a material fact required to be stated in either any registration statement of the Registrant or any prospectus, (ii) any omission, or
alleged omission, to state a material fact required to be stated in any registration statement or any prospectus or necessary to make the statements in any of them not misleading, (iii) the Trusts failure to maintain an effective
registration statement and prospectus with respect to shares of the Trust that are the subject of the claim or demand, (iv) the Trusts failure to provide NLD with advertising or sales materials to be filed with the Financial Industry
Regulatory Authority on a timely basis, (v) the Trusts failure to properly register its shares under applicable state laws, (vi) the Trusts failure to perform its duties under the Underwriting Agreement or any inaccuracy of its
representations, or (vii) actions taken by NLD resulting from NLDs reliance on instructions received from an officer, agent or legal counsel of the Registrant.
ITEM 31. Activities of Investment Adviser
Certain information pertaining to
the business and other connections of EFM of each series of the Trust is hereby incorporated herein by reference to the section of the respective Prospectus captioned Investment Adviser and to the section of the respective Statement of
Additional Information captioned Investment Advisory and Other Services. The information required by this Item 31 with respect to each director, officer or partner of EFM is incorporated by reference to EFMs Uniform
Application for Investment Adviser Registration (Form ADV) on
file with the Securities and Exchange Commission (SEC). EFMs Form ADV may be obtained, free of charge, at the SECs website at www.adviserinfo.sec.gov., and may be
requested by File No. 801-67852.
Certain information pertaining to the business and other connections of EIAM of each
series of the Trust is hereby incorporated herein by reference to the section of the respective Prospectus captioned Investment Adviser and to the section of the respective Statement of Additional Information captioned Investment
Advisory and Other Services. The information required by this Item 31 with respect to each director, officer or partner of EIAM is incorporated by reference to the EIAMs Uniform Application for Investment Adviser Registration (Form
ADV) on file with the Securities and Exchange Commission (SEC). EIAMs Form ADV may be obtained, free of charge, at the SECs website at www.adviserinfo.sec.gov., and may be requested by File No. 801-64917.
ITEM 32. Principal Underwriter.
(a) NLD, the principal underwriter of certain series of the Registrant, also acts as principal underwriter for the following:
AdvisorOne Funds, The North Country Funds, Northern Lights Fund Trust, Northern Lights ETF Trust, Rogé Partners Funds, Miller Investment Trust, The Saratoga Advantage Trust, Northern Lights
Variable Trust, Northern Lights Fund Trust II, Northern Lights Fund Trust III, Dominion Funds, Inc., OCM Mutual Fund, Epiphany Funds, Nile Capital Investment Trust, The Multi-Strategy Growth & Income Fund, GL Beyond Income Fund, Copeland
Trust and Vertical Capital Income Fund.
(b) NLD is registered with Securities and Exchange Commission as a broker-dealer and
is a member of the Financial Industry Regulatory Authority, Inc. The principal business address of NLD is 17605 Wright Street, Omaha, Nebraska 68130. NLD is an affiliate of Gemini Fund Services, LLC. Unless otherwise noted, the address of the
persons named below is 17605 Wright Street, Omaha, Nebraska 68130. To the best of Registrants knowledge, the following are the members and officers of NLD:
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Name
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Positions and Offices with
Underwriter
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Positions and Offices with
the
Registrant
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Brian Nielsen
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Manager, President, Secretary
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None
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Daniel Applegarth
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Treasurer , FINOP
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None
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Mike Nielsen
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CCO
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None
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ITEM 33. Location of Accounts and Records.
All accounts, books and documents required to be maintained by the Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3 thereunder are maintained
at the office of the Registrant, 1775 Sherman Street, Suite 2500, Denver, Colorado 80203, GFS, 17605 Wright Street, Suite 2, Omaha, Nebraska 68130 and Union Bank, N.A., 350 California Street, 6th Floor, San Francisco, CA 94104.
ITEM 34. Management Services. Not applicable.
ITEM 35. Undertakings.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in such Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred
or paid by a trustee, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in such
Act and will be governed by the final adjudication of such issue. The Registrant may maintain a standard mutual fund and investment advisory professional and directors and officers liability policy. The policy, if maintained, would provide coverage
to the Registrant, its Trustees and officers, and could cover its advisers, among others. Coverage under the policy would include losses by reason of any act, error, omission, misstatement, misleading statement, neglect or breach of duty.
Certain of the Registrants series may invest up to 25% of its respective total assets in a wholly-owned and controlled
subsidiary (each, a Subsidiary). Each Subsidiary will operate under the supervision of the Registrant. The Registrant hereby undertakes that each Subsidiary will submit to inspection by the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets
all of the requirements for effectiveness of this Post-Effective Amendment No. 53 to its Registration Statement on Form N-1A under Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 53 to its
Registration Statement on Form N-1A to be signed on its behalf by the undersigned, duly authorized, in the City of Princeton, State of New Jersey on the 15th day of August, 2013.
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EQUINOX FUNDS TRUST
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By:
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/s/ Robert J. Enck
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Robert J. Enck, President and Principal
Executive Officer
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Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment
No. 53 to the Registrants Registration Statement on Form N-1A has been signed below by the following persons in the capacities and on the dates indicated.
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/s/ David P. DeMuth*
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Trustee
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August 15, 2013
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David P. DeMuth
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/s/ Kevin R. Green*
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Trustee
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August 15, 2013
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Kevin R. Green
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/s/ Jay Moorin*
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Trustee
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August 15, 2013
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Jay Moorin
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/s/ Robert J. Enck
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Trustee, President and Principal
Executive Officer
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August 15, 2013
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Robert J. Enck
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/s/ Vance J. Sanders
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Treasurer and Principal Financial Officer
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August 15, 2013
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Vance J. Sanders
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* By:
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/s/ Robert J. Enck
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Robert J. Enck
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Attorney-in-Fact
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EXHIBIT INDEX
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Exhibit No.
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Exhibit
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(a)(3)
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Amended and Restated Schedule A to the Amended and Restated Agreement and Declaration of Trust.
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(h)(3)(B)
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Form of Amended and Restated Schedule A to the Expense Limitation Agreement between the Registrant and EFM.
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(j)
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Consent of Independent Registered Public Accountant.
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(m)(2)
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Amended and Restated Schedule A to Distribution Plan Pursuant to Rule 12b-1.
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(n)(2)
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Amended and Restated Schedule A to Multiple Class Plan Pursuant to Rule 18f-3.
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