seascape_corresp.htm
Please
note that this letter and other documents are in draft form, and in no way
reflect the Registrant’s or Fund management’s final intent with respect to the
filing discussed herein.
July
25,
2007
VIA
EDGAR TRANSMISSION
Mr.
Jim
O’Connor
United
States Securities and Exchange Commission
Division
of Investment Management
100
F
Street, N.E.
Washington,
D.C. 20549-1004
Re:
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Trust
for Professional Managers (the
“Trust”)
|
|
File
Nos.: 333-62298, 811-10401
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Dear
Mr.
O’Connor:
This
amendment is being filed under Rule 485(b) under the Securities Act of 1933
(the
“1933 Act”) in response to your oral comments and suggestions of July 10, 2007
and supplemental oral comments and suggestions provided on July 17, 2007,
regarding the Trust’s Post-Effective Amendment (“PEA”) No. 52 to its
registration statement. PEA No. 52 was filed pursuant to Rule
485(a) under the 1933 Act on Form N-1A on May 17, 2007, for the
purpose of adding one new series to the Trust: the Seascape Focus Growth Fund
(the “Fund”).
In
addition to responses to your comments, this amendment also includes certain
non-material changes as appropriate. For your convenience your
comments and suggestions are included in bold typeface immediately followed
by
the Trust’s responses.
In
addition, in connection with this filing, the Trust hereby states the
following:
1.
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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;
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2.
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The
Trust acknowledges that the Staff’s comments and changes in disclosure in
response to the Staff’s comments does 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
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3.
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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 by the SEC or any
person.
|
Please
note that this letter and other documents are in draft form, and in no way
reflect the Registrant’s or Fund management’s final intent with respect to the
filing discussed
herein.
The
Trust’s responses to your comments are as follows:
RESPONSES
TO ORAL COMMENTS DATED JULY 10, 2007
Prospectus
(Principal Investment Strategies)
1.
|
With
respect to the first paragraph, please revise this section to indicate
that “companies with capitalizations in excess of $1 billion may include
small cap, mid cap and large cap
companies.”
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The
Trust responds by revising this section of the Prospectus to read as
follows:
Under
normal market conditions, the Fund invests primarily in the equity securities
of
companies that have superior potential for growth. An equity
security, or stock, represents a proportionate share of the ownership of a
company. Its value is based on the success of the company’s business
and the value of its assets, as well as general market
conditions. The Fund’s investments in equity securities may include
common and preferred stocks as well as rights and warrants to subscribe for
the
purchase of such equity securities. The Fund normally invests in the
equity securities of U.S. companies with market capitalizations of more than
$1
billion at the time of purchase. Companies with market
capitalizations in excess of $1 billion may include small-cap, mid-cap and
large-cap companies. The Fund may also invest up to 40% of its
assets in foreign securities, in the form of American Depositary Receipts
(“ADRs”). ADRs are certificates typically issued by a bank or trust
company that represent one or more shares of a foreign stock, or a fraction
of a
share, and give their holders the right to obtain the securities issued by
a
foreign company that they represent.
2.
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Please
indicate specifically to what extent the Fund intends to invest in
foreign
securities, including emerging
markets.
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The
Trust responds by revising this section of the Prospectus to read as
follows:
The
Fund
may also invest up to 40% of its assets in foreign securities, in the form
of
American Depositary Receipts (“ADRs”), with up to 20% of its assets invested
in emerging markets. ADRs are certificates typically issued by a
bank or trust company that represent one or more shares of a foreign stock,
or a
fraction of a share, and give their holders the right to obtain the securities
issued by a foreign company that they represent. Emerging markets
are markets of countries in the initial stages of industrialization and that
generally have low per capita income. Countries in emerging markets
are generally more volatile and can have relatively unstable governments, social
and legal systems that do not protect shareholders, economies based on only
a
few industries and securities markets that trade a small number of
issues.
Please
note that this letter and other documents are in draft form, and in no way
reflect the Registrant’s or Fund management’s final intent with respect to the
filing discussed herein.
3.
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With
respect to the use of the term “growth” in the Fund’s name, please revise
this section to clarify what the meaning of this term is with respect
to
the Fund’s investment
strategy.
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The
Trust responds by revising this section of the Prospectus to read, in part,
as
follows:
To
achieve the Fund’s investment objective, the Adviser utilizes a “bottom-up”
approach, focusing primarily on individual securities, without regard to sector
weighting or economic outlook. The Adviser seeks to invest in
“growth” companies that it believes are poised to outperform the market
based on its proprietary quantitative analysis that evaluates companies for
potential growth in earnings, revenues or assets. Growth stocks
are securities of companies that have or are expected to have above-average
earnings growth, and are believed to be growing faster than the overall
economy.
4.
|
Please
indicate in the paragraph titled, “Portfolio Turnover Rate” that a “high
portfolio turnover rate could result in the payment of higher transaction
costs and the distribution of short-term capital gains to
shareholders.”
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The
Trust
responds by stating that the Fund’s investment strategy includes as a goal
holding all securities for a minimum of one year to minimize short-term capital
gains. Thus, while turnover at the approximately 70% annual rate
might be considered high, it is the Fund’s goal, whenever possible, to hold
appreciated securities so their gains when sold are taxed at long-term capital
gains rates. Notwithstanding the foregoing, short-term capital gains
may be taken as a result of raising cash to meet shareholder
redemptions.
The
Trust responds by revising this section of the Prospectus to read as
follows:
“Portfolio
Turnover Rate. The Fund’s annual portfolio turnover rate indicates changes
in its portfolio investments. The Adviser will sell a security when
appropriate and consistent with the Fund’s investment objective and policies,
regardless of the effect on the Fund’s portfolio turnover
rate. Please note that buying and selling securities generally
involves some expense to the Fund, such as broker commissions and other
transaction costs. It is the Fund’s goal to minimize short-term
capital gains by holding all securities for a minimum of one year; however,
short-term capital gains may be taken as a result of raising cash to meet
shareholder redemptions. To the extent that the Fund experiences
an increase in brokerage commissions due to a higher portfolio turnover
rate, the performance of the Fund could be negatively impacted by the increased
expenses incurred by the Fund. A high turnover rate in any year
will result in payment by the Fund of above-average transaction costs and could
generate capital gains that must be distributed to shareholders as short-term
capital gains taxed at ordinary income rates (as high as
35%). The Fund cannot accurately predict its future annual
portfolio turnover rate, but it expects it to be approximately
70%. Portfolio turnover may vary substantially from year to year
since portfolio adjustments are made when conditions affecting relevant markets,
particular industries or individual issuers warrant such action. In
addition, portfolio turnover may also be affected by sales of portfolio
securities necessary to meet cash requirements for redemptions of
shares.”
Please
note that this letter and other documents are in draft form, and in no way
reflect the Registrant’s or Fund management’s final intent with respect to the
filing discussed
herein.
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Prospectus
(Fees and Expenses)
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5.
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With
respect to footnote 4 of the Fees and Expenses table, please
revise the footnote to state that the operating expense limitation
agreement between the Adviser and the Fund can only be terminated
by the
Board of Trustees.
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The
Trust responds by revising the footnote to read as follows:
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(4)
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Pursuant
to a contractual operating expense limitation agreement between the
Adviser and the Fund, the Adviser has agreed to waive its fees and/or
absorb expenses of the Fund to ensure that Total Annual Operating
Expenses
do not exceed 1.50% and 1.25% of the Fund’s average net assets
attributable to Retail Class shares and Institutional Class shares,
respectively, for at least the three-year period shown in the example
below and for an indefinite period thereafter, subject to annual
re-approval of the agreement by the Board of Trustees. This
waiveroperating expense limitation agreement can
be terminated at any time only by the Board of Trustees. The
Adviser is permitted to seek reimbursement from the Fund, subject
to
limitations, for fees it waived and Fund expenses it paid. The
Adviser is permitted to seek reimbursement from the Fund for the
prior
three fiscal years, as long as the reimbursement does not cause the
Fund’s
operating expenses to exceed the applicable expense
cap.
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Prospectus
(Prior Performance of Similar Accounts)
6.
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With
respect to the table in this section, it appears that the performance
of
the Composite tracks more closely to the Russell 2000 Growth Index,
please
consider revising the table to reflect a comparison to the Russell
2000
Growth Index instead of the Russell 3000 Growth
Index.
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The
Trust
responds by stating that the Adviser’s investment process is designed to
identify undervalued stocks in all capitalization ranges that have growth
characteristics. The Fund may, at times, correlate more closely to
the Russell 3000 Growth Index or the Russell 2000 Growth Index depending upon
valuation levels within a given market capitalization range. However,
the model the Adviser uses to screen stocks for inclusion in its analysis uses
a
minimum capitalization level higher than the median market capitalization level
of the Russell 2000 Growth Index. Further, the median market
capitalization produced by the Adviser’s process is higher than the largest
company’s market capitalization in the Russell 2000 Growth Index and is
substantially higher than that of the smallest. Therefore, the
Adviser believes that the most appropriate benchmark reflecting the universe
of
stocks with most comparable growth and market capitalization characteristics
is
the broader Russell 3000 Growth Index.
Please
note that this letter and other documents are in draft form, and in no way
reflect the Registrant’s or Fund management’s final intent with respect to the
filing discussed
herein.
7.
|
Please
provide a statement indicating that the Board of Trustees has approved
the
use of the Russell 3000 Growth Index as a comparative benchmark index
for
the Adviser’s Composite accounts and include a statement in the document
which indicates that Fund’s performance may not match that of the
Composite accounts or the benchmark
index.
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In
order
to provide a statement from the Board of Trustees, we would need to call a
special meeting of the Board to adopt a resolution for this specific matter;
which is cost-prohibitive; moreover, the Trust believes that the information
provided below showing the market capitalizations of the Adviser’s Composite
accounts for the full calendar years 2004 through 2006 and year to date
2007 provides sufficient support to justify the use of the Russell
3000 Growth Index as a comparative benchmark based upon the recommendation
of
the Fund’s Adviser. Therefore, the Trust will not provide a statement
from the Board of Trustees with respect to the use of the Russell 3000 Growth
Index’s use as a comparative benchmark index for the Adviser’s Composite
accounts.
Adviser’s
Composite Accounts
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Market
Capitalizations
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2004
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2005
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2006
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2007
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Median
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$33.7
Billion
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$6
Billion
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$9
Billion
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$3.9
Billion
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Average
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$18.9
Billion
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$27
Billion
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$23
Billion
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$22.3
Billion
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The
Trust further responds by adding clarifying language to the disclosure as
follows:
The
Fund
recently commenced operations and, as a result, has no prior performance
history. The table below provides some indication of the risks of
investing in the Fund by showing changes in the performance of the Adviser’s
all-cap growth equity composite (the “Composite”) and by comparing its
performance with a broad measure of market performance. The
performance shown is the performance of all the Adviser’s fully discretionary
private accounts managed using investment strategies that are substantially
similar to the investment strategies that the Adviser uses to manage the
Fund. The Fund’s performance may not correspond with the
performance of the discretionary private accounts. Accounts
included in the Composite have substantially similar investment objectives,
policies and strategies to those of the Fund. These returns are
compared to indices that are broad measures of market
performance. The returns are calculated by the Adviser based on total
return, including gains or losses plus income, after deducting all costs and
management fees incurred by the accounts, and include reinvested
dividends. Actual account fees for the Composite have varied and
Composite performance during the periods shown in the table below was calculated
using a model fee of 1.50%. The model fee reflects the maximum fee
that a retail shareholder of the Fund might experience. The Composite
performance figures are no higher than those that would have resulted had actual
account fees been deducted. The private accounts are not subject to
certain investment limitations, diversification requirements and other
restrictions imposed by the Investment Company Act of 1940, as amended (the
“1940 Act”), and the Internal Revenue Code of 1986, as amended, and, if
applicable, such limitations, requirements and restrictions might have adversely
affected the performance results of the Composite. Past performance
of the Composite is not necessarily indicative of the Fund’s future
results.
Please
note that this letter and other documents are in draft form, and in no way
reflect the Registrant’s or Fund management’s final intent with respect to the
filing discussed
herein.
8.
|
With
respect to the first paragraph in this section, please define “model fee”
as used in the paragraph.
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The
Trust responds by adding clarifying language to the disclosure as
follows:
“The
returns are calculated by the Adviser based on total return, including gains
or
losses plus income, after deducting all costs and management fees incurred
by
the accounts, and include reinvested dividends. Actual account fees
for the Composite have varied and Composite performance during the periods
shown
in the table below was calculated using a model fee of 1.50%. The
model fee reflects the maximum fee that a Retail Class shareholder of the Fund
might experience. The Composite performance figures are no higher
than those that would have resulted had actual account fees been
deducted. The private accounts are not subject to certain investment
limitations, diversification requirements and other restrictions imposed by
the
Investment Company Act of 1940, as amended (the “1940 Act”), and the Internal
Revenue Code of 1986, as amended, and, if applicable, such limitations,
requirements and restrictions might have adversely affected the performance
results of the Composite. Past performance of the Composite is not
necessarily indicative of the Fund’s future results.”
Prospectus
(How to Purchase Shares)
9.
|
With
respect to the third paragraph in this section, please indicate that
a
shareholder will receive the next NAV after his or her Account Application
has been accepted.
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All
account applications (“Account Application”) to purchase Fund shares are subject
to acceptance by the Fund and are not binding until so
accepted. Shareholders will receive the next NAV calculated after
the Account Application has been accepted by the Fund. The Fund
reserves the right to reject any purchase order if, in its discretion, it is
in
the Fund’s best interest to do so. For example, a purchase order may
be refused if it appears so large that it would disrupt the management of the
Fund. Purchases may also be rejected from persons believed to be
“market timers,” as described under “Tools to Combat Frequent
Transactions.” A service fee, currently $25, will be deducted from a
shareholder’s account for any purchases that do not clear. The Fund
and the Transfer Agent will not be responsible for any loss, liability, cost
or
expense resulting from rejecting any purchase order. Your order will
not be accepted until the completed Account Application is received by the
Fund
or the Transfer Agent.
Please
note that this letter and other documents are in draft form, and in no way
reflect the Registrant’s or Fund management’s final intent with respect to the
filing discussed
herein.
Prospectus
(Redemption Fees)
10.
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With
respect to the third paragraph in this section, please revise this
disclosure to conform to the requirements of Rule 22c-2 under the
1940
Act.
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The
Trust responds by revising the applicable disclosure to read as
follows:
“Although
the Fund has the goal of applying this redemption fee to most redemptions of
shares held for less than 90 days, the Fund may not always be able to track
short-term trading effected through financial intermediaries in non-disclosed
or
omnibus accounts. While the Fund has entered into information sharing
agreements with such financial intermediaries as described under “Tools to
Combat Frequent Transactions” which contractually require such financial
intermediaries to provide the Fund with information relating to their customers
investing in the Fund through non-disclosed or omnibus accounts, the Fund cannot
guarantee the accuracy of the information provided to it from financial
intermediaries and may not always be able to track short-term trading effected
through these financial intermediaries. In addition, because the Fund
is required to rely on information from the financial intermediary as to the
applicable redemption fee, the Fund cannot ensure that the financial
intermediary is always imposing such fee on the underlying shareholder in
accordance with the Fund’s policies. The Fund also reserves the right
to waive the redemption fee, subject its sole discretion, in instances deemed
by
the Adviser not to be disadvantageous to the Fund or its shareholders and which
do not indicate market timing strategies.”
Additionally,
the Trust has revised the third paragraph under the “Tools to Combat Frequent
Transactions” section of the Prospectus to read as follows:
“Due
to
the complexity and subjectivity involved in identifying abusive trading activity
and the volume of shareholder transactions the Fund handles, there can be no
assurance that the Fund’s efforts will identify all trades or trading practices
that may be considered abusive. In particular, since the Fund
receives purchase and sale orders through financial intermediaries that use
group or omnibus accounts, the Fund cannot always detect frequent
trading. However, the Fund will work with financial institutions as
necessary to discourage shareholders from engaging in abusive trading practices
and to impose restrictions on excessive trades. In this regard, the
Fund has entered into information sharing agreements with financial
intermediaries pursuant to which these intermediaries are required to provide
to
the Fund, at the Fund’s request, certain information relating to their customers
investing in the Fund through non-disclosed or omnibus accounts. The
Fund will use this information to attempt to identify abusive trading
practices. Financial intermediaries are contractually required to
follow any instructions from the Fund to restrict or prohibit future purchases
from shareholders that are found to have engaged in abusive trading in violation
of the Fund’s policies. However, the Fund cannot guarantee the
accuracy of the information provided to it from financial intermediaries and
cannot ensure that it will always be able to detect abusive trading practices
that occur through non-disclosed and omnibus accounts. As a
result, the Fund’s ability to monitor and discourage abusive trading practices
in omnibus accounts may be limited.”
Please
note that this letter and other documents are in draft form, and in no way
reflect the Registrant’s or Fund management’s final intent with respect to the
filing discussed
herein.
1.
|
With
respect to the third paragraph in this section, please explain what
is
meant by the phrase, “a fixed salary and a bonus, which are based on the
overall profitability of the Adviser,” and further indicate whether or not
salary is consistent with industry
standards.
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The
Trust
responds by revising the disclosure to clarify its description of its portfolio
manager compensation structure as follows:
“Portfolio
Managers receive a base salary and bonus. Compensation of a Portfolio
Manager is determined at the discretion of the Adviser and is based on a
Portfolio Manager’s experience, responsibilities, the perception of the quality
of his or her work efforts, and other subjective
factors. General compensation guidelines are consistent with
industry standards. The compensation of Portfolio Managers is not
directly based upon the performance of the Fund or other accounts that the
Portfolio Managers oversee, nor upon the level of assets in those
accounts. The Adviser reviews the compensation of each Portfolio
Manager annually and may make modifications in compensation as necessary to
reflect changes in the market. Each Portfolio Manager’s compensation
consists of the following:
Base
salary. Each Portfolio Manager is paid a base
salary. The Adviser considers the factors described above to
determine each Portfolio Manager’s base salary.
Annual
bonus. Each Portfolio Manager may receive an annual
bonus. The amount of the bonus paid to each Portfolio Manager is
based upon the factors described above.”
2.
|
With
respect to the third paragraph in this section, please clarify the
computation method used to calculate bonuses and indicate whether
or not
bonuses are based on assets managed by the
Adviser.
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The
Trust
responds by directing the Staff’s attention to its response to Item No. 1
above.
Please
note that this letter and other documents are in draft form, and in no way
reflect the Registrant’s or Fund management’s final intent with respect to the
filing discussed
herein.
3.
|
With
respect to this section, please revise the disclosure to clarify
that
“high portfolio turnover may lead to higher transaction costs and
distributions to shareholders in the form of short-term capital gains
that
are taxable as ordinary income (as high as
35%).”
|
The
Trust
responds by stating that the Fund’s investment strategy includes as a goal
holding all securities for a minimum of a year to minimize short-term capital
gains. Thus, while turnover at the approximately expected 70% annual
rate might be considered high, it is the Fund’s goal, whenever possible, to hold
appreciated securities so their gains when sold are taxed at long-term capital
gains rates. Notwithstanding the foregoing, short-term capital gains
may be taken as a result of raising cash to meet shareholder
redemptions.
The
Trust further responds by revising
the applicable disclosure to read as follows:
Although
the Fund generally will not invest for short-term trading purposes, portfolio
securities may be sold without regard to the length of time they have been
held
when, in the opinion of the Adviser, investment considerations warrant such
action. Portfolio turnover rate is calculated by dividing (1) the
lesser of purchases or sales of portfolio securities for the fiscal year by
(2)
the monthly average of the value of portfolio securities owned during the fiscal
year. A 100% turnover rate would occur if all the securities in the
Fund’s portfolio, with the exception of securities whose maturities at the time
of acquisition were one year or less, were sold and either repurchased or
replaced within one year. A high rate of portfolio turnover (100% or
more) generally leads to above-average transaction costs and could generate
capital gains that must be distributed to shareholders as short-term capital
gains taxed at ordinary income rates (up to 35%). The Adviser
estimates that the portfolio turnover rate of the Fund will be 70%.
* * * * * *
I
trust
that the above responses adequately address your comments. If you
have any additional questions or require further information, please contact
me
by telephone at (414) 765-5384 or by facsimile at
1-866-535-4586.
Sincerely,
/s/
Rachel A. Spearo
Rachel
A.
Spearo
for
TRUST
FOR PROFESSIONAL MANAGERS
cc: Carol
Gehl, Godfrey & Kahn, S.C.
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