Re: |
Trust
for Professional Managers (the
“Trust”) |
1. |
The
Trust acknowledges that in connection with the comments made by the Staff
of the SEC, the Staff has not passed on the accuracy or adequacy of the
disclosure made herein, and the Fund and its management are solely
responsible for the content of such
disclosure; |
2. |
The
Trust acknowledges that the Staff’s comments and changes in disclosure in
response to the Staff’s comments do not foreclose the SEC or other
regulatory body from the opportunity to seek enforcement or take other
action with respect to the disclosure made herein;
and |
3. |
The
Trust represents that neither the Fund nor its management will assert the
Staff’s comments or changes in disclosure in response to the Staff’s
comments as a defense in any action or proceeding initiated by the SEC or
any person under the federal securities laws of the United
States. |
1. |
Please
include a statement as to the extent to which the Fund will invest in
bonds and other debt instruments. |
The
Fund responds by revising the first paragraph in this section to read, in
part: |
2. |
In
the fifth sentence of the first paragraph in this section, please explain
what is meant by the phrase “invests significantly” (i.e.,
state to what extent the Fund may invest in these types of
investments). |
The
Fund responds by revising the sentence to
read: |
3. |
Please
include a description of what is meant by “junk bonds” and state to what
extent the Fund may invest in junk
bonds. |
The
Fund responds by revising the second paragraph in this section to
read: |
4. |
With
respect to the second paragraph in this section, please explain what is
included in “asset-backed” securities, and include a risk disclosure in
the “Principal Risks” section regarding asset-backed and mortgage-backed
securities. |
The
Fund responds by revising the second paragraph as
follows: |
“Additionally,
the Fund may invest in asset-backed securities, such
as automobile receivables, credit-card receivables, equipment leases,
health-care receivables, home-equity loans, litigation-finance notes and
student loans, as well as
mortgage-backed securities
and Federal Home Loan Bank securities,
and other fixed-income securities of higher credit quality, derivative
securities of traditional fixed-income instruments, reverse repurchase
agreements and warrants.” |
5. |
If
the Fund will invest in Federal Home Loan Bank securities, please state so
and include risk disclosure in the “Principal Risks” section regarding the
risks of investing in such
securities. |
The
Fund responds by including the requested disclosure in this section (see
the Fund’s response to Comment 4) and adding the following to the
“Principal Risks” section: |
“U.S.
Government Obligations.
The Fund may invest in various types of U.S. Government obligations. U.S.
Government obligations include securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities, such as the U.S. Treasury. Payment of principal and
interest on U.S. Government obligations may be backed by the full faith
and credit of the United States or may be backed solely by the issuing or
guaranteeing agency or instrumentality itself. In the latter case, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the
U.S. Government would provide financial support to its agencies or
instrumentalities (including government-sponsored enterprises) where it is
not obligated to do so.” |
6. |
With
respect to the subsection entitled “Portfolio Turnover Rate,” please
include a statement that high portfolio turnover could result in short
term gains that will be taxable at ordinary income
rates. |
7. |
Under
the subsection entitled “Foreign Securities Risk,” please state if there
is a limit on the Fund’s ability to invest in foreign
securities. |
The
Fund has added the following statement as the last sentence in this
subsection: |
“The
Fund may have up to 30% of its net assets invested directly or indirectly
in foreign securities.” |
8. |
With
respect to the subsection entitled “Short Sale Risk,” please include a
statement as to whether there are any limits on the Fund’s ability to
engage in short sales, and clarify that short sale strategies may involve
high levels of risk. In addition, regarding the statement “Short sale
strategies are often characterized as a form of leveraging or hedging,”
please clarify that leveraging and hedging are separate types of
strategies. |
9. |
We
note that you included a subsection entitled “Borrowing Risks” in this
section. Please indicate any intended limits on such investments.
|
The
Fund responds by adding the following to the end of the third paragraph in
the “Principal Investment Strategies”
section: |
10. |
Please
include a statement in the subsection entitled “High Portfolio Turnover
Rate Risk” clarifying that short-term capital appreciation is a tax term
that implies that high portfolio turnover may result in significant short
term gains which are taxable at ordinary income
rates. |
The
Fund responds by revising this subsection as
follows: |
11. |
Please
revise the third sentence in footnote 2 of the fee table to read, “Such
additional expenses (including
dividends on short positions) associated
with these investments cannot
be estimated
and therefore, actual Fund expenses may be higher than those
shown.” |
12. |
Please
remove the phrase “high-value-added” from the second sentence of the first
paragraph in this section, as this is a prediction and is
objectionable. |
The
Fund responds by making the requested
revision. |
13. |
Please
include a statement in the Fund’s disclosure pursuant to Item 5 of Form
N-1A (“Item 5”) that a discussion of the approval of the investment
advisory contract will be included in the Fund’s next annual or
semi-annual report. |
The
Fund responds by including the following as a new third paragraph in this
section: |
“A
discussion regarding the basis for the Board of Trustees’ approval of the
Fund’s investment advisory agreement with the Advisor will be available in
the Fund’s next annual or semi-annual
report.” |
14. |
Please
include a statement as to how many investment companies are managed by Mr.
Lipp and the Advisor as part of the Fund’s Item 5
disclosure. |
15. |
Please
add the following statement as appropriate to this section: “The Board of
Trustees will regularly evaluate whether its fair valuation pricing
procedures continue to be appropriate in light of the specific
circumstances of the Fund and the quality of prices obtained through their
application by the Trust’s valuation
committee.” |
16. | Please add disclosure explaining the effects of fair value pricing. |
17. |
With
respect to the list of shares that will not be subject to redemption fees,
please revise to indicate that the redemption fee will be imposed
uniformly, except in the circumstances
listed. |
The
Fund responds by revising the statement immediately preceding the
applicable list as follows: |
18. |
Please
include a statement that policies and procedures relating to frequent
transactions have been adopted by the Board of Trustees and are applied
uniformly, indicating any
exceptions. |
19. |
Please
remove from the subsection entitled “Mortgage-Backed Securities” the
statement “The corporation’s stock is owned by savings institutions across
the United States and is held in trust by the Federal Home Loan Bank
System.” This is an incorrect statement as the stock is owned publicly. In
addition, please state whether the Fund will invest in home loan bank
debt, and if so, include any applicable
risks. |
The
Fund responds by removing the applicable statement, and revising the
applicable risk disclosure as follows: |
20. |
Please
indicate whether writing calls is a principal investment strategy of the
Fund, and if so, include appropriate disclosure in the Prospectus, and
include a discussion of writing call options (whether on an index or on
individual securities) in the tax section of the
SAI. |
The
Fund responds by stating that writing call options is not a principal
investment strategy of the Fund. |
21. |
Please
update the disclosure regarding approval of the investment advisory
agreement by the Board of Trustees so that it reflects the factors
considered and conclusions made regarding the
approval. |
The
Fund responds by revising the disclosure
accordingly. |
22. |
Please
provide a description of any material conflicts of interest that may arise
in connection with the Portfolio Manager’s management of the Fund and the
other accounts managed by the Portfolio Manager, including, for example,
conflicts between the strategy of the other accounts and the Fund or
conflicts in the allocation of investment opportunities between the Fund
and the accounts. Alternatively, supplementally confirm that all such
conflicts are currently disclosed.
|
23. |
Please
clarify in the discussion of the Portfolio Manager’s salary what is meant
by the phrase “industry standards.” Additionally,
with respect to the discussion of the Portfolio Manager’s bonus, please
identify any benchmarks used, and what the specific criteria exist for the
performance-based bonus structure. |
The
Fund responds by revising the applicable disclosure as
follows: |
“Although
Mr. Lipp is not currently drawing a salary, it is anticipated that the
Fund’s Portfolio Manager will eventually receive a base salary that
approximates the industry median for equity portfolio managers. It is also
anticipated that a bonus pool will eventually be established for the
investment-management team, which includes the Portfolio Manager. The
bonus pool is expected to equal 25% to 30% of the net revenue derived from
all accounts (including the Fund) managed by the team. Mr. Lipp will
determine how to divide the bonus pool among the team members based on his
assessment of individual contributions. The
Advisor values people who are unselfish and team-oriented., and willing to
mentor new and less-experienced employees. These
characteristics, along with the quality of investment research and
recommendations, will be factors in Mr. Lipp’s determination of how to
divide the bonus pool. The
Advisor currently offers a 401(k) plan that is available to all employees
as of the date of hire; however, Mr. Lipp does not currently participate
in the 401(k) plan. Additionally, each of the investment professionals of
the Advisor may have an opportunity to earn an ownership position in the
Advisor. The level of ownership would be based on factors such as
investment performance and overall contributions to the organization. Mr.
Lipp currently owns 80% of the Advisor.” |
24. |
Please
include a statement in this section that the Fund may invest in
corporations of any size. |
The
Fund responds by adding the following as the fourth sentence in the first
paragraph of this section: |
“The
Fund may invest in companies of any size.” |
25. |
Please
disclose the Fund’s maturity and duration strategy for investment in debt
securities in this section. |
The
Fund responds by adding the following disclosure to the second paragraph
in this section: |
26. |
With
regard to investment in debt securities, if there is a minimum debt rating
that the Fund will not go below, please state so in this
section. |
The
Fund responds by revising the second paragraph in this section to read, in
part: |
“The
Fund may invest in debt securities (up to 30% of its net assets) that fall
below investment grade debt (securities rated below BBB by Standard &
Poors (“S&P”) or below Baa by Moody’s Investors Service (“Moody’s”)) —
commonly referred to as “junk bonds.” However,
the Fund will not invest in debt securities rated below D by S&P or
Moody’s.
The
Fund may hold a debt security rated below D if a downgrade occurs after
the security has been purchased.” |
27. |
Please
include a statement in this section that Section 18(f)(1) of the 1940 Act
applies to both borrowing through banks and
leveraging. |
28. |
Please
provide a statement in the prospectus something to the effect that “The
Fund’s Board of Trustees has considered the Fund’s short sales strategy
and its attendant risks and has determined that the strategy does not
impair the Fund’s ability to meet redemptions or meet other regulatory
requirements. Furthermore, the Board of Trustees has adopted guidelines
that ensure that the Fund’s investment advisor continuously monitors the
Fund’s short positions and the Fund’s compliance with regulatory
requirements, including the segregation of assets and margin requirements
of Section 18(f) of the Investment Company Act of 1940, as amended (the
“1940 Act”), in the best interest of shareholders.”
|
29. |
With
regard to the last sentence of the first paragraph in this section, please
include a statement that leveraging may also result in losses that are
larger than would be generated on the assets invested without
leveraging. |
The
Fund has revised the last sentence of the first paragraph in this section
to read: |
“The
Fund uses these investments to produce “leveraged” investment results,
which generates
returns that are more pronounced, both positively and negatively, than
what would be generated on the invested capital without leverage, thus
changing small market movements into larger changes in the value of the
investments.” |
30. |
With
respect to the subsection entitled “Small- and Medium-Sized Companies
Risk,” please clarify what is meant by the word “indirectly.” If
“indirectly” means that the Fund may invest in these companies through
investment in other investment companies and exchange-traded funds, please
indicate so. |
The
Fund responds by revising the first sentence of this disclosure to
read: |
“The
Fund may invest directly or indirectly (through
other investment companies or ETFs) in
any size company including small- and medium-sized companies.”
|
31. |
With
respect to the Fund’s response to Comment 8, please clarify that short
sales will be used for both speculative and non-speculative purposes.
Also, please include a statement to the effect that the Board will
continuously monitor the Fund to ensure that it is in compliance with
regulatory requirements. |
32. |
With
respect to the subsection entitled “Derivative Securities Risks,” please
indicate what the limit is on the Fund’s investment in such
securities. |
The
Fund responds by revising the first sentence in this subsection to
read: |
33. |
With
respect to the subsections entitled “Options and Futures Risks,”
“Privately Negotiated Options Risks” and “Swap Agreements Risks,” please
indicate that the Fund’s investments in synthetic and privately negotiated
options contracts and swap agreements may be treated as illiquid, and thus
subject to the 15% limit on investment in illiquid
securities. |
The
Fund responds by adding the requested disclosure to each of these
subsections. For example, the following disclosure has been added as the
last sentence under the subsection “Options and Futures
Risks”: |
34. |
Please
include a statement in the fee table disclosure that the investor will
indirectly bear a proportionate share of any fees and expenses charged by
the ETFs or other investment companies in which the Fund may
invest. |
The
Fund responds by adding the following disclosure to the paragraph
immediately preceding the fees and expenses
table: |
35. |
With
respect to the subsection entitled “Fixed-Income Securities,” please
indicate whether there is a minimum rating that the Fund will not invest
below. |
The
Fund responds by revising the second paragraph of this subsection to read,
in part: |
“The
Fund will not invest in securities that are rated below D by S&P or
Moody’s. The Fund may hold a debt security rated below D if a downgrade
occurs after the security has been
purchased.” |
36. |
With
respect to the subsection entitled “Illiquid Securities,” please describe
what criteria will be used to determine whether a security (including
privately negotiated options and derivatives) is liquid or illiquid. Also,
please delete the word “knowingly” from the last sentence in this
subsection. |