4:00pm EST on 03 July 2007
The Fund seeks to achieve capital growth while minimizing exposure to general equity market risk by investing in securities of issuers that are experiencing a corporate event, such as a corporate reorganization, a restructuring, a proxy fight, or whose securities are mispriced. The event-driven strategy that the Fund follows invests in securities of issuers going through such events. For some of these events, the Fund seeks to take advantage of such an event through a strategy known as arbitrage. Generally, arbitrage involves taking advantage of small price differences between two otherwise equivalent assets. The Fund will invest exclusively in events through the following strategies, each of which is associated with certain events as described below:
The Fund will invest in securities of companies involved in mergers, takeovers, tender offers, leveraged buyouts, spin-offs, liquidations, or similar events ("corporate reorganizations"). After the announcement of such a reorganization, securities of the target typically trade at less than the full value implied by the transaction. This discount reflects uncertainty about the completion of the reorganization and its timing. A variety of strategies can be employed to take advantage of this discount. For example, if a leveraged buy-out proposes to exchange shares for cash, the shares of the merger target often trade for less than the cash amount offered by the acquirer. Similarly, if a proposed transaction involves the exchange of stock, the Fund typically would buy the stock of a merger target and sell short the shares of the acquiring company. Upon successful completion of the merger, the shares purchased will be exchanged for the shares sold short, thereby terminating the investment. If proceeds from the short sale exceed the cost of the purchase, the Fund will realize a gain. Terms and conditions of reorganizations vary widely from transaction to transaction, and the Adviser examines each proposed transaction carefully.
Capital Structure Arbitrage
Many companies issue different types of securities in addition to equity securities, and sometimes issue different types of equity securities. Capital structure arbitrage involves investing in two different types of securities issued by the same company if they are mispriced relative to each other. Typically, one of these securities is purchased, while the other is sold short. For example, the Fund might purchase one class of common stock, while selling short a different class of common stock of the same issuer. It is expected that, over time, the relative mispricing of the securities will disappear, at which point the investment will be liquidated. In the meantime, while the Fund holds the investment, the simultaneous purchase and short sale employed in this strategy seeks to reduce the effect of large movements of the issuer's stock.
Distressed Securities Investments
Distressed investment strategies invest in the securities of
companies in various levels of financial distress, including bankruptcy,
exchange offers, workouts, financial reorganizations and other credit-related
situations. Corporate bankruptcy or distress often causes a company's securities
to trade at a discounted value. Through an analysis of the complex business and
legal procedures associated with the situation, the Fund may have the ability to
purchase these securities and to exit the investment at an attractive
risk-adjusted rate of return. Profits are expected
from the market's lack of understanding of the intrinsic
value of the discounted securities and because many institutional investors
cannot own below-investment grade securities. The Fund purchases below
investment grade securities, commonly referred to as "junk". Investments may be
acquired with the intention of remaining passive or with the intent to
participate actively in a restructuring. When participating actively in a
restructuring, the Adviser will attempt to modify or improve a restructuring
plan with the intent of improving the value of such securities upon consummation
of a restructuring. Investments may involve both U.S. and non-U.S. entities, may
involve both long and short positions and may utilize leverage. Investment in
the securities of financially and operationally troubled issuers may be
considered speculative and may present a potential for substantial loss. The
Fund's share price may be particularly volatile as a result of investments in
Proxy Fight Investments
The Fund may invest in securities of issuers that are subject to a change of control fight. These are typically proxy fights by minority investors seeking to have their representatives elected to the board of directors, often with the intention of replacing existing management or selling the company. Profits are expected from the eventual success of the new board of directors in increasing the company's value. The Fund may invest with the intention of participating actively in the change of control, or staying passive. Although some of the companies the Fund invests in may be considered potential candidates for a merger takeover, these situations differ from merger arbitrage in that no concrete acquisition has proposed yet, and may not be proposed in the future.
The Fund continuously monitors its investments and evaluates each investment's risk/return profile, not only for each investment by itself, but also in the context of the Fund's overall portfolio and in the light of other investment opportunities available in the market. As a result of this continuous examination of investment conditions, the Fund will not at all times invest in each of the strategies, but may allocate its investments to one or two of them.
The Pennsylvania Avenue Event-Driven Fund is offered only by prospectus. The prospectus contains more complete information about the Fund, including fees, expenses and risk factors. You should read it carefully before investing or sending money. The Fund is not available to residents of certain jurisdictions or countries.
2006 Annual Report
2006 Semi-Annual Report
2005 Annual Report
2005 Semi-Annual Report
2004 Annual Report
2004 Semi-Annual Report
2003 Annual Report
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