FORM N-1A
THIRD AMENDMENT TO REGISTRATION STATEMENT FOR OPEN-ENDED,
MANAGEMENT INVESTMENT COMPANIES
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933: THIRD
PRE-EFFECTIVE AMENDMENT TO REGISTRATION STATEMENT.
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940:
THIRD PRE-EFFECTIVE AMENDMENT TO REGISTRATION STATEMENT.
Registrant Exact Name as Specified in Charter:
Kestenbaum Capital, LLC
Address of Principal Executive Offices:
11710 Old Georgetown Road, Apt. 601, North Bethesda, Maryland,
20852, USA
Phone Number:
3016741670
Name and Address of Agent for Service:
Roy Kestenbaum, 11710 Old Georgetown Road, Apt. 601, North
Bethesda, Maryland, 20852, USA.
Approximate Date of Proposed Public Offering:
As soon as possible
PART A
Prospectus
KC Low Volatility PutWrite-CallWrite Q Fund
PROPOSED TICKER: KCLVQ
December 18, 2023
The information in this prospectus and SAI is not complete and
may be changed. The Fund may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
The KC Low Volatility PutWrite-CallWrite Q Fund optimizes
alternative investment strategies on the NASDAQ-100 Index which
lowers volatility while maintaining favorable returns.
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
This prospectus represents a fund in its pre-effective
registration stages; thus, the fund has not earned any revenue
yet. Furthermore, the fund has not yet initiated its investment
strategy and therefore this prospectus will lack historical
performance of the Fund.
The Fund will make amendments to this prospectus and SAI as
further developments are made.
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission acting
pursuant to said Section 8(a), may determine.
This Fund makes reference to the NASDAQ-100 index solely for the
purpose of describing its investment strategy. The Fund is not
sponsored, endorsed, or associated with NASDAQ or its
affiliates. Any use of the term "NASDAQ-100" in this prospectus
is for informational purposes only and does not imply any
affiliation, endorsement, or licensing agreement with NASDAQ.
Prospectus
Table of Contents
Investment Objectives and Goals..........................5
Fees and Expenses........................................6
Investments, Risks, And Performance......................10
Management...............................................17
Purchase and Sale of Fund Shares.........................18
Tax Information..........................................19
Financial Intermediary Compensation......................20
Investment Objectives, Principal Investment Strategies, Related
Risks, and Disclosure of Portfolio
Holdings.................................................21
Management, Organization, and Capital Structure..........44
Shareholder Information..................................45
Distribution Arrangements................................53
Financial Highlights Information.........................54
Investment Objectives and Goals
The KC PutWrite-CallWrite Q Fund ("The Fund") is an open-ended,
non-diversified, alternative fund, derived from the price action
of the NASDAQ-100 Index.
The Fund seeks to provide attractive investment results based on
the market movements of the NASDAQ-100 Index. By utilizing an
active "PutWrite-CallWrite" investing strategy, the Fund's
primary objective aims to decrease volatility relative to the
NASDAQ-100 Index while simultaneously providing relatively
predictable growth of principle. The Fund has a secondary
objective of distributing premium income gained from shorting
(selling) secured options. The Fund aims to achieve these
objectives while decreasing the Investor's (the Fund's
shareholders) exposure to market volatility.
The Fund's performance is derived from the price action of the
NASDAQ-100 Index (The "Reference Index"), therefore the
Reference Index will be an appropriate benchmark to use in order
to compare and evaluate the Fund's relative performance. It is
important to note however, that due to the Fund's investment
strategy and objectives, the Fund's performance may fluctuate
above or below the Reference Index.
See the "Investment Objectives, Principal Investment Strategies,
Related Risks, and Disclosure of Portfolio Holdings" section
below for a more thorough explanation regarding the Fund's
investment strategies and policies.
Fees And Expenses
The table below describes the fees and expenses that you may pay
if you buy, hold, or sell shares of the Fund. You may pay other
fees, such as brokerage commissions and other fees to financial
intermediaries which are not represented in the table or example
below.
SHAREHOLDER FEES:
Maximum Sales Charge (Load) Imposed on Purchases...........0.00%
Maximum Deferred Sales Charge (Load).......................0.00%
Maximum Sales Charge Imposed on Reinvested Dividends.......0.00%
Maximum Redemption Fee* (As a Percentage of Amount
Redeemable)................................................2.00%
Exchange Fee...............................................0.00%
Maximum Account Fee........................................0.00%
ANNUAL FUND OPERATING EXPENSES (Expenses that are paid each year
as a percentage of the value of your investment in the Fund):
Management Fees........................................... 1.75%
Distribution & Service Fees (12b-1)....................... 0.25%
Acquired Fund Fees And Expenses (AFFE).................... 0.10%
TOTAL ANNUAL FUND OPERATING EXPENSES...................... 2.10%
*The Fund is intended to be used as a long-term investment
vehicle, therefore the Fund imposes Redemption Fees to
discourage short-term trading of the Fund's shares. Investors
will pay a Redemption Fee of 2% of the amount to be redeemed for
securities redeemed within a year of purchase and a 1%
Redemption Fee for securities held for more than one but less
than two years. Any shares held for longer than two years will
not incur a Redemption Fee. Shares purchased via the Fund's
Dividend Re-Investment Plan (DRIP) can be redeemed at any time
at a 0% Redemption Fee rate. Under certain circumstances, such
as financial or medical hardships, the Fund may waive or reduce
the Redemption Fee.
ACQUIRED FUND FEES AND EXPENSES (AFFE)-
As part of the Fund's investment strategy, the Fund will write
options underlying leveraged and unleveraged ETFs that track the
NASDAQ-100 Index. Thus exists a possibility of assignment on the
options and the Fund may be required to purchase shares of the
Underlying ETF. A fund that invests in the shares of another
fund is considered a Fund of Funds and is required to disclose
the expenses paid to the acquired fund (Underlying ETF) under
the Investment Company Act of 1940.
See "Equity Strategy" below for more details.
The Fund is currently in its pre-effective registration phase
and thus is considered a "New Fund" (for this prospectus, the
term "New Fund" refers to a fund that has not yet issued,
offered, or sold securities, nor has it begun to implement its
principal investment strategy and therefore has not yet accrued
any revenue or historical performance data). Due to this, the
Fund has made estimations regarding the expenses charged by
acquired funds for the fiscal year.
EXAMPLE:
The following example is intended to be used to help the
Investor compare the costs of investing in this Fund relative to
other funds. The example does not take into consideration any
account brokerage commissions that you may pay while purchasing
or redeeming shares of the Fund. The example assumes a $10,000
investment in the Fund for the time periods indicated and a sale
of all shares at the end of each period. The example assumes the
Fund's operating expenses remain the same, as well as a 5%
return each year on the investment and that all dividends and
distributions are reinvested in the Fund. The example excludes
forgone earnings. Although your actual costs may be higher or
lower, based on these assumptions, your expenses paid for
holding the Fund's shares would be:
YEAR 1**......................................$323
YEAR 3........................................$680
**Assuming a Redemption Fee of 1%.
You would pay the following expenses if you do not redeem (sell)
your shares:
YEAR 1........................................$221
YEAR 3........................................$680
The Fund's management will accrue expenses from the Fund's
Assets Under Management (AUM) on each trading day based on the
formula:
AUM * Fund Annual Expenses/252
The Fund's expenses will accumulate on a daily basis (trading
day) and will be calculated using the daily AUM. Expense
accruals are taken out of the Fund's AUM and are represented by
a lower Net Asset Value (NAV) per share for the investor.
Portfolio Turnover-
The Fund may pay transaction costs, such as commissions,
whenever it buys and sells securities. Since the Fund's
methodology involves frequent options trading, it is likely that
the Fund will have a high turnover ratio relative to other
investment strategies. A higher turnover may indicate higher
transaction costs and may result in higher taxes when shares are
held in a taxable account. These costs, which are not reflected
in the Fund's annual expenses, affect the Fund's performance.
The Fund's advisers and management do NOT receive any payments
or commissions for any transactions made as part of the Fund's
investment strategy.
Furthermore, being a New Fund, the Fund is incapable of
calculating its turnover ratio since it has not yet initiated
its investment strategy. Therefore, at this point in time, it
can only be estimated that the Fund will have a relatively high
portfolio turnover ratio.
Investments, Risks, and Performance
A. Principal Investment Strategy of the Fund
The Fund's primary investment objective is to seek attractive
total returns with less volatility than the NASDAQ-100 Index
(The "Reference Index"). The Fund's secondary objective consists
of distributing a portion of the income received from shorting
options. The Fund cannot guarantee that it will achieve its
investment objectives. The Fund's investment objectives are
considered fundamental and may only be changed with a majority
vote of outstanding shares.
In applying the Option and Equity Strategy, the Fund's adviser
is responsible for determining the terms, timing, type, and
notional value of the options strategy used by the Fund. Options
and Equity Strategy refers to the strategy the Fund utilizes as
it relates to how the Fund intends to invest in options (Options
Strategy) and what equity should those options underlie (Equity
Strategy). The Fund's adviser actively manages the Fund's
options.
The Fund intends to achieve its objectives and goals by selling
short-term, deep OTM (Out of The Money) put options (these put
options are more likely to expire profitably towards the seller)
on securities tracking the NASDAQ-100 Index, specifically and
exclusively the Invesco QQQ Trust Series 1 ETF and the ProShares
Ultrapro QQQ ETF. Deep OTM options refers to options contracts
where the market price of the underlying asset is in a position
where exercising the contract would be unfavorable for the owner
of the option contract and where the strike price of the option
contract is significantly distant from the current market price
of the option's underlying asset. The term "deep" is used
arbitrarily as there is no exact measurement of the difference
between the current market price of the underlying asset and the
option's strike price in order to be considered "deep" OTM. If
any put options are assigned and the Fund is required to
purchase share of the put option's underlying asset, the Fund
will also sell covered call options. All options sold will be
covered, meaning that the Fund will never enter option positions
that impose infinite risk on the Fund and its shareholders. The
Fund will re-invest the premium income generated from selling
options on additional investments. A portion of the premium
income generated by the Fund will be distributed to shareholders
via quarterly dividend distributions.
The Fund may purchase back put or call options or allow them to
expire. In determining the strategies used, the Fund and its
advisers consider economic and market factors, including but not
limited to market levels, market volatility, economic climate,
and option-specific factors including option premium, strike
price, required collateral, and expiration date.
Consistent with the Fund's investment objective, strategy, and
policies, the Fund will invest in securities of other investment
companies such as Exchange-Traded Funds (ETFs) subject to
limitations imposed by the Investment Company Act of 1940
(Section 12(d)(1)(F)). The Fund will invest in ETFs that are
composed of securities that track the technology-heavy NASDAQ-
100 Index. The Fund's decision to invest in these ETFs rather
than the individual stocks that comprise the ETFs is so that the
Fund can gain exposure to more companies' equity securities (and
the options underlying them) without the need for the high
liquidity necessary to sell options on each individual company's
equity securities. An option underlying the appropriate ETF will
indirectly expose the Fund to many different companies and
requires much less buying power (cash on hand) to establish the
investment position than it would to open numerous option
positions, each deriving from a different company's equity
securities.
The Fund will actively pursue its investment objective by
utilizing a dynamic options strategy that primarily involves
selling puts, holding equity, and writing calls. Under normal
circumstances, the Fund will hold its managed assets in the form
of cash to be used as collateral for cash-secured puts (put
contracts fully backed by cash collateral). Ideally, these cash-
secured puts will expire worthless and the cash collateral will
be released. The Fund will then re-open new short put positions.
The Fund's advisers typically seek to construct a portfolio of
put options that are diversified across multiple strike prices
and expiration dates.
If, however, a cash-secured put expires ITM (In The Money), the
Fund will be assigned to use the cash held as collateral to
purchase 100 shares (per each option contract assigned) of the
shares underlying the put contract. ITM options could be
considered the inverse of OTM options, referring to an option
contract that the exercise of which would be profitable and
thus, favorable, to the owner of the ITM option contract. Under
this scenario, the Fund will begin to write covered calls on the
underlying shares, using the newly acquired 100 shares as
collateral. The Fund will aim to sell ITM covered calls in order
to generate higher premium income, as well as to increase the
likelihood that the call options expire ITM, thus liquidating
the Fund's position in holding the ETF. The Fund will prioritize
holding cash rather than equity.
To clarify, the Fund will only hold ETF equities if the cash-
secured puts deriving from those equities expire ITM or if the
buyer of the puts exercises the options early. Similarly, the
Fund will sell covered calls only if it is currently holding
shares of ETF equities (that have been assigned via a cash-
secured put), regardless of whether or not some of the Fund's
open put positions are ITM or OTM. There is a possibility that
at any given time the Fund's portfolio will be composed of short
put positions, short call positions, and held ETF equities
simultaneously.
The strategies the Fund deploys may generate taxable income.
Rule 18f-4-
The Fund will utilize written options in its investment strategy
and as such the Fund must adopt and implement a written
derivatives risk management program in accordance with Rule 18f-
4 under the 1940 Investment Company Act.
The Fund's board of directors, as well as the non-interested
board of directors, has voted in a non-portfolio manager officer
of the Fund to take the role of the Fund's derivatives risk
manager. The Fund's board (including non-interested members) has
voted to approve the 18f-4 plan as well as the designation of
the derivatives risk manager, Ariela Kestenbaum.
The Fund's derivatives risk management program includes several
elements:
i. Risk identification and assessment of the Fund's
derivatives risk.
ii. Imposition of risk limits and Value at Risk (VaR) tests.
iii. Stress testing of the Fund's derivatives.
iv. Weekly backtesting on the results of the program's VaR
against the Fund's designated reference portfolio (the
NASDAQ-100 Index).
v. Internal reporting of the program to the Fund's board of
directors and portfolio manager.
vi. Annual review of the program and its effectiveness.
Investment in Acquired Funds-
As part of the Fund's investment strategy, the Fund will write
options underlying leveraged and unleveraged ETFs that track the
NASDAQ-100 Index. Thus exists a possibility of assignment on the
options and the Fund may be required to purchase shares of the
Underlying ETF. A fund that invests in the shares of another
fund is considered a Fund of Funds and is required to disclose
the expenses paid to the acquired fund (Underlying ETF) under
the Investment Company Act of 1940.
It is important to note that the Fund will only be paying
expenses to the acquired fund if it becomes a shareholder in the
Underlying ETF. Since the Fund's strategy prioritizes selling
puts on the Underlying ETF, the Fund will not hold shares of the
acquired fund for a large portion of the time and may not always
be required to pay the expenses of the acquired fund.
However, whenever the Fund acquires an ETF, it will be charged
the respective ETF's expense ratio for the duration of the time
the Fund has held onto the ETF's shares. These expense charges
can affect the Fund's performance.
The Fund generally intends to write options on two different
funds, ProShares UltraPro QQQ (NASDAQ Ticker: TQQQ) and Invesco
QQQ Trust Series 1 (NASDAQ Ticker: QQQ).
See "Equity Strategy" below for more details.
The expenses of the above ETFs as of this prospectus are as
follows:
PROSHARES ULTRAPRO QQQ (TQQQ) ............................ 0.95%
INVESCO QQQ TRUST SERIES 1 (QQQ) ......................... 0.20%
While the Invesco QQQ Trust Series 1 ETF is a non-leveraged
index-tracking ETF, the ProShares Ultrapro QQQ ETF is a
leveraged ETF that seeks a return that is 3x the return of its
underlying benchmark (the NASDAQ-100 Index) for a single day.
Due to the compounding of daily returns, holding shares of the
leveraged ETF for longer periods can lead to the adverse
performance of the underlying leveraged ETF. As is the case with
all other securities in the Fund's portfolio, the Fund does not
intend to hold any of its leveraged ETF securities for the long-
term, and intends for its exposure to the ETF to be as short-
term as possible (the Fund will sell deep ITM covered calls with
relatively little time to expiration, as soon as possible once
shares of an ETF have been acquired by the Fund). Similarly, the
Fund's indirect exposure to such ETFs via options will also be
limited in the time left until expiration of such options. The
shorter the duration the Fund is exposed to the leveraged ETF,
the less pronounced the compounding effect of the leveraged
ETF's 3x daily compounding returns will be.
The Fund intends that at least 50% of its non-cash holdings be
invested in the unleveraged Invesco QQQ Trust Series 1 ETF,
either directly (holding shares) or indirectly (options
underlying the ETF). No more than 50% of the Fund's non-cash
holdings will be invested in the leveraged ProShares Ultrapro
QQQ ETF, either directly or indirectly.
^Disclaimer: This Fund references the Invesco and ProShares
names solely for the purpose of describing its investment
strategy. The Fund is not sponsored, endorsed, or associated
with Invesco or Proshares, or their affiliates. Any use of the
terms "Invesco" or "ProShares" in this prospectus is for
informational purposes only and does not imply any affiliation,
endorsement, or licensing agreement with Invesco or ProShares.
The Fund will buy and sell securities issued by Invesco and
ProShares as part of its investment strategy.
B. Principal Risks of Investing in the Fund
The Fund is an actively managed, non-diversified, open-end
management investment company designed primarily as a long-term
investment vehicle.
As with any investment, you could lose all or part of your
investment in the Fund. At any point, your shares may be worth
less than your original investment, even when considering the
reinvestment of distributions made by the Fund. There is no
guarantee that the Fund will achieve its investment objectives
and the Fund's performance could trail the performance of
alternative available investments.
An investment in the Fund is not a bank deposit and is not
guaranteed by the Federal Deposit Insurance Corporation (FDIC),
any other government agency, the Fund's adviser, or any of its
affiliates.
Although the Fund is intended to be used as a long-term
investment vehicle, it is not intended to be a complete
investment program. It is best advised to talk with your
personal investment adviser or do your own due diligence
regarding if the Fund is an appropriate addition to your total
investment portfolio.
An investment in the Fund's shares represents an indirect
investment in the securities owned by the Fund. Therefore, at
any point, the market value of the securities owned by the Fund
may decline, causing the Fund's value to decline with it. Thus,
making market risk the most significant risk for the Investor.
It is also important to note that a significant increase in the
market value of the securities held by the Fund may not increase
the value of the Fund by the same amount. Due to the Fund's use
of derivatives, the Fund trades off potential growth for safety
of principal and lower volatility.
The Fund's investment strategy will make use of writing equity
options. Investments in options carry inherent risks. An
option's value may be negatively affected by factors such as the
implied volatility of the underlying security, the time horizon
of the option, and general economic and market changes such as
changes to interest rates.
Furthermore, the Fund may lose money if the covered calls and
cash secured puts it sells expire In The Money (ITM), this
includes the loss of potential future gains.
Finally, the Fund is classified as a non-diversified investment
company under the 1940 Act, therefore it can invest a larger
portion of its assets in securities of a single issuer than a
diversified fund would. As such, the Fund will be more
susceptible than a diversified fund to fluctuations in the
prices of securities of a single issuer.
C. Performance
The Fund is currently in its pre-effective registration stages
and as such is considered a New Fund. Because the Fund has not
yet begun implementing its investment strategy, there is no
historical data available regarding the Fund's Performance.
Management
Investment Adviser: Kestenbaum Capital, LLC
Portfolio Manager: Roy Kestenbaum
Kestenbaum Capital, LLC is the Fund's investment adviser and is
responsible for the Fund's overall investment strategy and its
implementation.
Roy Kestenbaum is the Fund's portfolio manager and is
responsible for the Fund's day-to-day operation. Roy has been
the Fund's portfolio manager since its inception in 2023 and is
solely responsible for the development of the Fund's investment
strategy.
Purchase and Sale of Fund Shares
New investors in the Fund's shares have an initial mandatory
minimum investment of $2,500. Any subsequent investment made by
that individual is NOT limited to any minimum investment
requirement.
The Fund is organized as an open-end fund, meaning that the Fund
will issue new shares as new investors invest additional capital
into the Fund. Shares of the Fund will not be exchanged on a
national securities exchange as the Fund's offerings will be
made directly through the Fund.
Fund shares can be redeemed directly from the Fund at the Fund's
NAV (Net Asset Value). Similarly, shares of the Fund are also
purchased at the Fund's current NAV.
Shares of the Fund may only be redeemed after markets close,
when the daily closing NAV has been determined. Any request to
redeem shares during market hours will be postponed until
markets close and will be calculated according to the Fund's
post-close NAV.
To redeem shares, the Investor will have to notify the Fund on
any business day by written request via e-mail or by phone.
As mentioned in the "Fees and Expenses" section, shares held for
less than 1 year upon redemption will incur a 2% redemption fee.
Shares held for more than 1 year but less than 2 will incur a 1%
redemption fee. Share held for over 2 years will NOT be charged
a redemption fee upon redemption.
Shares purchased via the Fund's Dividend Reinvestment Plan will
not pay a redemption fee upon redemption, regardless of the
amount of time the shares are held by the investor.
Tax Information
The Fund intends to make distributions (dividends) that may be
taxable to the investor as ordinary income or capital gains
unless the Investor is investing through a tax-advantaged
arrangement such as an Individual Retirement Account (IRA) or a
401(K) plan.
Financial Intermediary Compensation
At the time of this prospectus, all of the Fund's shares are
purchased and redeemed directly through the Fund.
The Fund is currently looking into the possibility of hiring the
services of a third party such as a financial intermediary or
broker-dealer to help distribute the Fund's shares. As of this
prospectus, the Fund has not yet entered into any agreement with
such parties.
If the Fund enters into an underwriting agreement with any third
party, then the Fund's Adviser and its related companies may pay
financial intermediaries or broker-dealers for the sale of Fund
Shares and related services. These payments may create a
conflict of interest by influencing your broker-dealer,
salesperson, or other intermediary employee to recommend the
Fund over another investment.
Upon entering into an underwriting agreement with any third
party, this prospectus will be updated to disclose the relevant
information.
Ask your financial adviser or visit your financial
intermediary's website for more information.
Investment Objectives, Principal Investment Strategies,
Related Risks, and Disclosure of Portfolio Holdings
A. Investment Objectives
The Fund's primary investment objective is to seek attractive
total returns with less volatility than the NASDAQ-100 Index
(The "Reference Index"). The Fund's secondary objective consists
of distributing a portion of the income received from shorting
options. The Fund cannot guarantee that it will achieve its
investment objectives. The Fund's investment objectives are
considered fundamental and may only be changed via a majority
vote of outstanding shares.
B. Implementation of Investing Objectives
The Fund is an alternative fund that utilizes a complex
investment strategy that takes advantage of both options and
equity in order to meet its goals and objectives. Because of
this, this section of "Implementation of Investing Objectives"
will be divided into "Option Strategy", to explain and
illustrate the Fund's investment strategy as it relates to
options, and "Equity Strategy", in order to explain the Fund's
investment strategy as it relates to its choice of equity
securities.
The Fund does not prescribe specific allocations of the Fund's
AUM to its equity strategy or to its options strategy. The Fund
will attempt to allocate as close to 100% of its AUM to the
option strategy, however investing in options will almost
inevitably lead to an investment in equity due to the
possibility of assignment on a short put position. Once this
happens, the Fund is in ownership of equity and will attempt to
convert the equity back to cash via covered calls (an in-depth
explanation of this can be found below in this section).
The option strategy and equity strategy operate tandemly and are
only mentioned separately in this section for the sake of
simplicity in explaining the Fund's investment strategy.
OPTIONS STRATEGY
The Fund employs an active and dynamic "PutWrite-CallWrite"
options strategy consisting of continuously writing (selling)
cash-secured puts on leveraged and unleveraged ETFs ("The
Underlying ETF") and subsequently writing covered calls on the
Underlying ETF, assuming the cash-secured puts have been
assigned.
Under a more ideal scenario, the cash-secured puts expire
worthless and the Fund will reinvest the released cash
collateral and a portion of the generated premium income in
additional cash-secured puts.
The Fund's options strategy begins with the Fund selling put
options on the Underlying ETF. The Fund will typically aim to
sell puts with up to 6 weeks left until expiration, this is so
that the Fund can take advantage of the exponentially increasing
"Theta Decay" (Time Decay) that occurs as an option gets closer
to its expiration date. Assuming all other variables remain the
same, the closer an option gets to its expiration date, the more
its value decreases each day due to the "Time Decay" effect of
options. Since the Fund intends to hold a short position on its
option contracts, a decrease in the value of an option will lead
to an increase in the value of the Fund.
Furthermore, the Fund will write puts ONLY if the premium income
received from each put contract is worth at least 0.4% of the
cash collateral needed to open that short put position. This
allows for a more predictable return under certain market
conditions, but more importantly, this also allows for the Fund
to invest in deep OTM (Out of The Money) short put positions.
The deeper OTM a put option is, the less likely it is for that
option to be exercised. It is mainly due to this fact that the
Fund manages to lower volatility for the Investor.
The example below will help illustrate how the use of shorting
options lower volatility for the Fund's shareholders:
EXAMPLE:
Shares of XYZ are trading at $34 a share. The Fund sells a
cash-secured put on the underlying XYZ with an exercise
price (strike price) of $27 a share and receives $0.15 a
share as premium income for selling the option. The put
option has 6 days left until expiration.
The cash collateral required for this one put option is
equal to $27*100= $2,700 (REMINDER: Each option contract
represents 100 shares of the underlying security) and the
total premium income received from this put contract is
$0.15*100= $15.
Since 15/2,700= 0.56% (the put position's maximum potential
return), the put option would be appropriate and in line
with the Fund's option's strategy.
Furthermore, the breakeven point ("B/E"- the price at which
the underlying security's share price must be in order to
net a 0% return on the investment, also referred to as
"cost basis") for this put option contract is $26.85
(premium per share subtracted by the exercise price [$27-
$0.15=$26.85]). As long as XYZ's share price is above
$26.85 at expiration, the Fund nets a positive return on
the investment. Therefore, at the time of writing the put,
XYZ's share price could drop 21% before the Fund will take
on any losses from the investment on the date of expiration
((Stock price - B/E) / Current Price = Change in % [34-
26.85=7.15/34= 21%]).
Once the Fund sells a cash-secured put, one of two likely
outcomes will occur. Either, (i) the put expires worthless, or
(ii) the put is exercised and the Fund exchanges its held cash
collateral for 100 shares of the Underlying ETF.
Under the former (i), the cash collateral is released and the
Fund will reinvest the released collateral, along with a portion
of the premium income generated, into another cash-secured put.
Under the second (ii) outcome, the Fund is assigned to purchase
100 shares of the Underlying ETF at the exercise price. This
will happen either due to the Underlying ETF's market price
dropping below the exercise price on or before the expiration
date or the option's buyer simply decided to exercise the
option's terms early.
If the Fund is assigned on the put and is required to purchase
shares of the Underlying ETF, the Fund will begin selling
covered calls with the newly purchased shares locked as
collateral for the call options. The covered call options will
be sold at the lowest possible exercise price that allows for a
Total Return* (Premium Income + Capital Gains) that is in line
with the Fund's targeted investment returns.
The Fund aims to realize a weekly return of at least 0.4% of the
capital invested in cash secured puts, which in monthly terms
comes out to be approximately between 1.6% and 2%. This means
that if a put option is assigned, the Fund will aim to sell
covered calls that allow for the original cash invested in the
put to grow at least 0.4% weekly, even if it means selling the
shares at a lower price than it was purchased. This could be
achieved by leveraging the extra premium income generated from
the sale of the covered call to counterbalance any potential
capital gains loss resulting from the sale of shares in the
event of the covered call option being assigned.
So, if the Fund sells a put with a week remaining until
expiration and the Fund ends up being assigned on that put, the
Fund will then sell a covered call that seeks to net a total
return equal to at least 1.004^2= 0.802%.
The Fund intends to invest at least 95% of its Assets Under
Management in cash-secured puts and, upon the potential
assignment of such puts, covered calls. When calculated over a
year, the Fund targets a gross annual return of approximately
20%. It is important to note that this is a targeted return and
not a guaranteed return. More information regarding the factors
that could lead the Fund to fail to achieve its 0.4% weekly goal
could be found in this prospectus' "Risks" section.
*For this section, "Total Return" refers to the sum of the
total premium income generated and any capital appreciation
or depreciation over the life cycle of a single Cash
Secured Put. A life cycle of a Cash Secured Put begins when
the Fund writes a put and ends either when the put expires
worthless or when the Fund is assigned on a covered call
and is required to sell shares initially purchased via an
assigned Cash Secured Put.
Similar to the cash-secured puts, once the Fund sells a covered
call there are two possible outcomes. Either, (i) the call
expires worthless and the share collateral is released back to
the Fund, or (ii) the call is exercised and the Fund exchanges
100 shares of the Underlying ETF for cash at the stated exercise
price.
If outcome (ii) happens, the Fund will repeat its investment
cycle and begin to sell cash-secured puts using the newly
acquired cash from the assigned covered call as collateral for
the put. However, if outcome (i) happens and the covered call
expires worthless, the Fund will continue to sell covered calls
but will adjust the call's exercise price to be in line with the
Fund's 0.4% weekly growth goal (0.4% return is a projection and
not a guarantee).
Every time a covered call is sold against the Underlying ETF
shares, those shares' cost basis are decreased by the amount of
total premium income received throughout the "lifetime" of the
original cash collateral that was first invested as a cash-
secured put. The cost basis is primarily used by the Fund to
quantify the appropriate prices to sell shares.
As the cost basis drops, so does the covered call's exercise
price needed in order to sell the Underlying ETF shares at a
price that is in line with the Fund's objectives and goals. When
dealing with calls, a lower exercise price increases the chances
of being assigned to sell the shares and also increases the
amount of cash received as premium income for selling the call.
Therefore, the Fund will aim to sell calls with lower exercise
prices. This however has the drawback of limiting the potential
gains of the investment if the Underlying ETF's market value
were to rally rapidly.
The Fund may sell covered calls with up to 6 weeks left until
expiration.
The Fund intends to achieve profitability without relying solely
on the increase in the value of the options' Underlying ETF. The
Fund achieves this through careful management of each cash
secured put's cost basis.
As mentioned above, the Fund manages to lower cost basis by
implementing an options strategy that involves selling call
options on the held shares. The premium income received for
shorting each covered call lowers the cost basis for that
respective bundle of 100 shares (originally purchased via an
assigned cash-secured put).
In applying the covered call portion of the Fund's options
strategy, the Fund calculates the appropriate exercise price for
selling the covered call based on a weekly targeted return of
0.4% (or 1.6%-2% monthly). The importance of calculating an
appropriate exercise price for the shorted covered call is to
ensure a minimum profit while maintaining some level of
stability to the Fund's value.
If the Fund sells a covered call with an exercise price that is
too low, the Fund may lock itself in an option position that
could ensure a decrease in the Fund value (regardless of whether
or not the option expires ITM [In The Money] or OTM [Out The
Money]).
If the Fund sells a covered call with an exercise price that is
too high, then the option's cost basis won't be lowered enough
in order to sufficiently offset a potential decrease in the
value of the Underlying ETF because as a call option's exercise
price increases, the premium received for that option will
decrease relative to other covered calls on the same underlying
security with the same time to expiration. The Fund uses premium
income to lower cost basis which acts to partially protect the
Fund from a potential decrease in the value of its held
securities.
When calculating the appropriate exercise price for a covered
call, the Fund will consider 3 different exercise prices for
options, an In The Money (ITM) option, an Out The Money (OTM)
option, and an At The Money (ATM) option (Reminder: ITM call
options are options where the exercise price is lower than the
underlying security's current market value, OTM calls are when
the exercise price is above the underlying's current market
value, and ATM calls are when the exercise price is about equal
to the underlying's current market value). Depending on the
difference between the option's Underlying ETF's current market
value and the Fund's current cost basis for the assigned
Underlying ETF, the Fund will be able to determine which type of
covered call would be optimal for the Fund to sell (ITM, OTM, or
ATM).
If the market value of the Underlying ETF is above the Fund's
cost basis for the same Underlying ETF, then it is most likely
that the Fund will attempt to sell an ITM covered call. An ITM
call will earn the Fund the most premium income thus lowering
the cost basis even more, this enables the largest protection
for the Fund if the Underlying ETF's value were to decline. An
ITM covered call also increases the likelihood for the call to
be assigned (relative to ATM and OTM calls), converting the
Fund's owned ETF shares back to cash.
If the market value of the Underlying ETF is below the Fund's
cost basis for the same Underlying ETF, then it would be most
likely for the Fund to sell an OTM covered call option. When the
Underlying ETF's current market value is below the Fund's cost
basis then that is indicative that the Fund is currently
experiencing a negative Total Return on the assignment of the
respective Underlying ETF shares. Therefore, in order to not
lock the Fund into an option position that will necessarily
cause the Fund to lose value, the Fund will opt to sell an OTM
covered call that yields a lower premium income than an ATM or
ITM covered call. Selling an OTM option in this scenario does
not do much to protect the Fund from a continuing decline in the
market value of the Underlying ETF but it does enable the Fund
to acquire a smaller amount of premium income without
potentially forcing the Fund to sell the Underlying ETF shares
at a significant loss.
Finally, if the market value of the Underlying ETF is
approximately equal to the Fund's cost basis for the same
Underlying ETF, then the Fund may sell either an ITM, OTM, or
ATM covered call, depending on the amount of time that the Fund
has owned the Underlying ETF. The longer the amount of time that
the Fund has owned the Underlying ETF shares, the likelihood the
Fund will sell an OTM covered call option increases. The inverse
to this logic can be also be applied; the less time the Fund has
owned the Underlying ETF shares, the more likely the Fund will
sell an ITM covered call. This is because the Fund will only
sell its assigned ETF shares if the Total Return on the original
cash-secured put is in line with the Fund's targeted return
because the longer the Underlying ETF shares are held by the
Fund, then the higher the Fund's targeted return should be.
EXAMPLE-
A $1,000 initial investment in an assigned cash-secured put
made 12 weeks ago should only be liquidated if doing so
will net the Fund with a Total Return of about $49, or
4.9%. This is because the Fund aims to return a compounding
0.4% a week, $1,000 * 1.004^12 = $1,049.
Similarly, a $1,000 initial investment in an assigned cash-
secured put made 48 weeks ago should only be liquidated if
doing so will net the Fund with a Total Return of about
$211, or 21.1% ($1,000 * 1.004^48 = $1,211).
ITM options are generally better used for protection against a
market decline and OTM options are generally better used for
enabling a higher Total Return. ATM options can be utilized as a
buffer between the ITM and OTM options, taking advantages and
disadvantages from both. The Fund uses this logic to help
calculate the optimal exercise price of its covered calls (ITM,
OTM, or ATM).
The three most considerable factors for the Fund in deciding the
appropriate exercise price for a covered call are the Underlying
ETF's market value, the duration of time the Underlying ETF has
been owned by the Fund, and the Fund's cost basis for the
Underlying ETF. The above explains the Fund's general
methodology for pricing and selling covered call options,
however, the Fund may at times deviate from exactly implementing
the above strategy as it relates to ITM, OTM, and ATM options
due to fluctuations in the Underlying ETF's and the option's
volatility and price. The Fund may sell an ITM option when an
OTM option would be expected and vice versa. This is usually
done to either mitigate risk or to take advantage of an
arbitrage opportunity.
The Fund's overarching strategy revolves around achieving
consistent and predictable returns. This is done by leveraging
options to manage volatility and gradually decrease the cost
basis. The Fund recognizes that limiting potential gains can be
a trade-off for lowering risks. This aligns with the Fund's
broader goal of decreasing volatility while simultaneously
realizing positive returns over time.
Remember, the Fund isn't aiming to maximize its profit via
speculation. Instead, it aims to produce relatively predictable
and attractive returns while lowering volatility.
The Fund's portfolio will consist of many separate cash-secured
put investments diversified by time left until expiration and
strike price.
On days when stock prices are up, the price of calls on those
stock rise. On days when stock prices are down, the price of
puts on those stocks rise. Ideally, the Fund will prefer to sell
calls on days when stock prices are up and sell puts on days
when stock prices are down.
Unfortunately, the stock market is unpredictable and therefore
it is impossible to know when there will be a green day (a day
closing with a positive return) or a red day (a day closing with
a negative return) in the Reference Index (The NASDAQ-100
Index).
As it relates to selling puts, it is likely that the Fund will
sell cash-secured puts with a maximum potential gain that is
higher than the aforementioned weekly goal of a 0.4% return on
days when Reference Index suffers a sharp decline. At any other
time, the Fund will aim to sell cash-secured puts that return
approximately 0.4% of the investment.
As for call writing discipline, the Fund will generally sell a
call as soon as possible after an assignment on a put option.
This is done in order to hedge against the possibility of a
continuous decline in the underlying shares' value.
The Fund will allocate over 95% of its assets under management
(AUM) towards implementing the above investment strategy. Any
remaining assets will be allocated towards cash holdings and Put
Credit Spreads.
Although the vast majority of the Fund's investment strategy
will involve allowing options to mature to their expiration
dates, the Fund may also make use of "Option Rolling" and "Put
Credit Spreads" at times when necessary.
Both Rolling Options and Put Credit Spreads require the Fund to
purchase ("long") options, however, it is important to note that
the Fund will NOT buy standalone options to open new long
positions on the options. The Fund will only purchase options if
it is part of a larger strategy, such as an options spread.
Option Rolling is the strategy of simultaneously purchasing to
close an option, and selling to open a different option with a
different exercise price and/or expiration date but on the same
underlying shares. This allows the Fund to reap additional
premiums while using the same collateral. The Fund will only
utilize Rolling Options in situations where the Underlying ETF's
value drops or rises to an extreme degree, rendering the opened
short option position near worthless while still having several
days remaining until expiration. The Fund will always prioritize
allowing its positions to expire worthless and therefore the
Fund will only Roll Options under rare circumstances, such as
when the market value of the Underlying ETF drops or rises
significantly and the Fund's buying power is low (rolling the
option will release the cash collateral from the original
option, to then be used on a new shorted option).
Additionally, the Fund may choose to utilize Put Credit Spreads.
Put credit spreads are the simultaneous purchase of a put and
selling of a put with a higher exercise price on the same
underlying security with the same expiration date. Put credit
spreads could be a useful tool since they allow for the
possibility of profiting with much less capital needed for
collateral. This benefit comes at a cost however.
If the put credit spread expires OTM (Out of The Money), the
Fund will lose 100% of the collateral. Compared to traditional
cash secured puts, if a cash secured put option plays out
unfavorably towards the investor, the investor will then own 100
shares of the Underlying ETF that may rise in value in the
future. A put credit spread that goes unfavorably towards the
investor will net the investor a permanent loss of the
collateral. Because of this, the Fund will limit its use of put
credit spreads.
Under normal circumstances, the Fund will invest no more than 5%
of its managed assets in put credit spreads.
Under no circumstance will the Fund sell Naked Puts or Naked
Call options. Naked puts are puts written without any cash taken
as collateral and Naked Calls ("uncovered calls") are calls
written without owning the proper amount of shares needed to
cover the shares upon the potential assignment.
Both are inherently risky as they can cause the Fund to suffer
an investment loss larger than the investment amount itself and
therefore the Fund will not engage in any investment practices
involving Naked Calls or Naked Puts.
During temporary defensive periods, the Fund may deviate from
its principal investment objectives and enable temporary
defensive strategies.
More information can be found within the Fund's Statement of
Additional Information (SAI).
EQUITY STRATEGY-
The Fund's equity strategy involves investing in options
underlying equity that track the NASDAQ-100 Index ("The
Reference Index").
Under normal circumstances, the Fund will sell options deriving
from the unleveraged "INVESCO QQQ TRUST SERIES 1" ETF
(NASDAQ:QQQ). QQQ tracks the NASDAQ-100 Index and therefore
grants the Fund exposure to the relevant index sectors and
holdings.
Furthermore, QQQ options trade at a high volume with more
available expiration dates, including mid-week expiration
contracts. The increased volume allows for more liquidity in the
options market and the wider range of expiration dates allows
for more flexibility when writing options.
Under normal circumstances, the Fund will invest a portion of
its managed assets in options deriving from the leveraged
"PROSHARES ULTRAPRO QQQ" ETF (Ticker: NASDAQ:TQQQ), the exact
amount the Fund will invest in these options fluctuates and
depends on market conditions, specifically on the NASDAQ-100
index. As volatility increases on the NASDAQ-100 Index, the Fund
will invest a smaller portion of its assets in options deriving
from the TQQQ ETF, and more of its assets in options deriving
from the relatively less volatile QQQ ETF. TQQQ comprises
securities that correspond to three times the daily performance
of the NASDAQ-100 Index and is therefore more volatile than the
QQQ ETF.
TQQQ is an appropriate match for the Fund's investment
objectives and strategies, as it (i) tracks the NASDAQ-100 and
is (ii) naturally more volatile than the Reference Index. Its
inherent volatility, rather counterintuitively, helps lower the
Fund's volatility when implementing the Fund's methodology.
(i) Tracks the NASDAQ-100 Index-
TQQQ allows for the Fund to gain exposure to business sectors
and companies that are tracked under the Reference Index. It is
due to this that it is necessary for the Fund to invest a
significant portion of its managed assets in a single ETF. As
mentioned above, the exact amount of assets the Fund intends on
investing in options deriving from the TQQQ ETF will fluctuate
depending on market volatility.
As of the date of this prospectus, TQQQ is not concentrated in
any industry. However, a significant portion of the securities
represented in the Reference Index is in the technology sector.
As a result, the Fund will have a significant portion of its
assets invested in technology companies.
(ii)More Volatile Than The NASDAQ-100 Index-
TQQQ is a leveraged ETF that seeks 3 times the daily return of
the NASDAQ-100 Index, making it more volatile than the Reference
Index. Volatility is one of many factors that cause option
prices to rise and since the Fund mainly intends to sell
options, higher volatility works in the Fund's favor.
The increased volatility also allows for larger fluctuations in
the Reference Index before the Fund may be assigned on any put
options. In other words, the three times leveraged ETF allows a
bit more "wriggle room" before assignment than an unleveraged
ETF.
This could be best explained using an example involving the
leveraged TQQQ and the unleveraged QQQ:
EXAMPLE-
Let's assume two different options that both track the
NASDAQ-100 Index, one deriving from the TQQQ ETF and the
other deriving from the QQQ ETF. Both options are
considered appropriate options for the Fund to sell with
regard to the Fund's goal of a 0.4% weekly return on the
cash held as collateral on a cash-secured put. Both options
expire in a week.
I. TQQQ- 22 strike put that generate $0.09 a share of
premium income, or $9 total. TQQQ is currently trading at
$30 a share.
II. QQQ- 281 strike put that generates $1.16 a share of
premium income, or $116 total. QQQ is currently trading at
$300 a share.
Both options track the NASDAQ-100 Index (albeit at
different levels of exposure) and both options' total
premium income is approximately 0.4% of the cash collateral
needed for the investment as shown:
I. TQQQ- $9/$2,200= 0.4%
II. QQQ- $116/$28,100= 0.4%
In order for the Fund to be assigned on the first (I)
option, TQQQ needs to drop to $22 a share by the expiration
date, or 26.67% (=(30-22)/30).
In order to be assigned on the unleveraged option (II), QQQ
needs to drop to $281 a share by expiration, or 6.33%
(=(300-281)/300).
Since the leveraged ETF (TQQQ) seeks a 3x daily return of
the NASDAQ-100 Index, we can ROUGHLY estimate the amount
the Reference Index will need to drop in order to be
assigned on the TQQQ option: 26.67%/3= 8.89%. Compared with
the 6.33% drop needed in order to be assigned on the
unleveraged option (QQQ), the TQQQ option grants the Fund
more flexibility when selling a deep OTM put option.
It is important to note that the 3x return on the Reference
Index for TQQQ is calculated for A SINGLE DAY, as measured
from one NAV calculation to the next. Due to the
compounding of daily returns, periods longer than one day
can result in returns that are significantly different from
the 3x return target of the Reference Index. The more
compounding periods there are, the more likely the
leveraged ETF will mismatch a perfect 3x return on the
Reference Index and therefore dividing the percentage drop
in TQQQ by 3 will only give a rough estimate of how much
the NASDAQ-100 Index will need to drop in order for the
Fund to be assigned on the above put.
^Disclaimer: This Fund references the Invesco, ProShares, and
NASDAQ names solely for the purpose of describing its investment
strategy. The Fund is not sponsored, endorsed, or associated
with Invesco, ProShares, NASDAQ, or their affiliates. Any use of
the terms "Invesco", "ProShares", or "NASDAQ" in this prospectus
is for informational purposes only and does not imply any
affiliation, endorsement, or licensing agreement with Invesco,
ProShares, or NASDAQ. The Fund will buy and sell shares from
Invesco and ProShares as part of its investment strategy.
Shares Of Acquired Funds-
As part of the Fund's principal investment strategy, the Fund
will acquire shares of other funds for short term periods of
time. The Fund has no intention of holding acquired shares for
prolonged periods. The shares of the acquired companies the Fund
intends to purchase are all shares of closed-end exchange traded
funds (ETFs). Therefore, the Fund will not redeem any shares
from the acquired fund, instead the Fund will exchange shares of
the acquired fund for cash in the secondary market.
Furthermore, because the Fund is a small fund (less than $10
million AUM), it would be very unlikely for the Fund to own more
than 3% of an acquired fund, as the ETFs the Fund intends to
acquire have an AUM of over $10 billion.
Section 12(d)(1) of the Investment Company Act of 1940
establishes certain restrictions for investing in other
investment management companies. However, Section 12(d)(1)(F) of
the Act establishes some exemptions to these restrictions upon
certain conditions.
The Fund shall exercise voting rights by proxy with respect to
any security purchased or acquired pursuant to Section
12(d)(1)(F) in the manner prescribed by Section 12(d)(1)(E)(iii)
of the Act.
The Fund has no intention of redeeming acquired securities
directly from the issuer of such acquired investment company and
the Fund has no intention of investing in a complex multi-tier
structure (the Fund will not invest in funds that own shares of
other funds).
C. Risks-
The Fund is a non-diversified, open-end management investment
company designed primarily as a long-term investment.
As with any investment, you could lose all or part of your
investment in the Fund. At any point, your shares may be worth
less than your original investment, even when considering the
reinvestment of distributions made by the Fund. There are no
guarantees that the Fund will achieve its investment objective
and the Fund's performance could trail the performance of
alternative available investments.
An investment in the Fund is not a bank deposit and is not
guaranteed by the Federal Deposit Insurance Corporation (FDIC),
any other government agency, the Fund's adviser, or any of its
affiliates.
Although the Fund is intended as a long-term investment, it is
not intended to be a complete investment program. It is best
advised to talk with your personal investment adviser, or do
your own due diligence, regarding if the Fund is an appropriate
addition to your total investment portfolio.
The following risks are principal risks associated with
investing in the Fund.
Investment and Market Risk-
As it is with any investment, an investment in the Fund's shares
is subject to investment and market risk, including the possible
loss of the entire invested principal. An investment in the
Fund's shares represents an indirect investment in the
securities owned by the Fund. At any point, shares of the Fund
can be worth less than your original investment, even when
taking the reinvestment of Fund distributions into account.
Common Stock Risk-
Common stock represents an equity ownership in a corporation or
issuer. Over the long term, common stocks have historically
generated higher average total returns than fixed income
securities, however common stocks have also experienced a
significantly higher degree of volatility in producing those
returns.
Therefore, adverse events may cause common stocks to
underperform relative to other fixed income securities during
certain periods.
The prices of common stocks are sensitive to general movements
in the stock market and a drop in the stock market may depress
the value of common stocks to which the Fund is exposed to. The
value of common stock generally tends to fluctuate due to
changes in the stock market, economy, legislature, and
investors' perception of the current and upcoming conditions of
the market and economy as a whole. Furthermore, the value of
common stock may be sensitive to rising interest rates, which
increases the cost of capital and the costs associated with
borrowing funds.
As it is with any security, an investor may lose part or all of
her investment when purchasing common stock.
Investment Companies Risk-
In the pursuit of achieving the Fund's objectives and goals, the
Fund will invest in the securities of other investment
companies, primarily companies offering Exchange Traded Funds
(ETFs). Some of these securities may be leveraged and as such,
the Fund may be directly or indirectly exposed to leverage
through an investment in such a security, thus magnifying the
Fund's leveraged risk.
The utilization of leverage is a speculative investment
technique and involves certain risks. An investment in leveraged
investment companies may expose the Fund to higher volatility in
the value of the shares of such companies and may increase the
possibility that the Fund's returns on such securities will be
diminished.
Investing in leveraged ETFs involves unique risks related to
leverage and the single-day, compounding effect on investment
returns. Leverage and compounding effects can amplify both
potential gains and losses, which may not be intuitive over
extended periods.
The compounding effect occurs when the leveraged ETF seeks to
achieve its investment objective daily and reset its leverage
ratio. This means that the ETF's performance is based on a daily
rebalancing process, and over time, the performance can deviate
from the multiple of the underlying index's returns. The
compounding effect may lead to significant divergence from the
expected returns over longer periods, especially during periods
of high market volatility. Therefore, the returns of leveraged
ETFs over periods longer than one day are dependent on the
sequence of the daily returns of the underlying security that
the leveraged ETF is tracking.
An investment in an investment company exposes the investor to
all of the risks that the investment company is exposed to. As a
holder of the securities of other investment companies, the Fund
will bear its proportional amount of the other investment
companies' expenses and advisory fees. These expenses are in
addition to the Fund's own expenses and as a result, the cost of
investing in investment company shares may exceed the costs of
investing directly in its underlying investments.
Furthermore, all of the risks inherent to the acquired
investment company will apply to the Fund's strategy as well.
View the Acquired Fund Fees and Expenses (AFFE) subsection under
the "Fees and Expenses" section for more information.
Put Option Risks-
As the writer of a put option, the Fund takes on the risk of
declines in the value of the option's underlying security, up to
a possible maximum loss of the entire exercise price of the
option minus the premium income received. The Fund receives a
premium for writing the put, however the premium may not be
enough to completely offset the loss in value caused by a
decrease in the value of the option's underlying security.
Alternatively, if the underlying security increases in value,
the Fund will not have the opportunity to completely benefit
from its increase in value.
Whenever writing a put option, the writer assumes the risk that
it must purchase the underlying security at the option's
exercise price that may be higher than the underlying security's
market price.
The value of the options written by the Fund will be affected by
changes in the dividend rate, value, time remaining until
expiration, and actual or perceived volatility of the stock
market and the option's underlying security. The value of
options may also be adversely affected if the market for options
becomes less liquid.
Options can be listed on an exchange or traded in the OTC (Over
The Counter) market. Exchange traded options usually have
standardized exercise prices and expiration dates. Buyers' and
sellers' obligations related to such options are guaranteed by
the exchange or a related clearing corporation such as the
Options Clearing Corporation (OCC).
OTC options are more flexible as the terms are negotiated
between the buyer and the seller, however they are subject to
counterparty risk. Due to the lack of independent evaluation and
regulated markets, the risk of potential losses with OTC options
increase. Because of these risks, the Fund will greatly limit
any use of OTC options.
Call Option Risk-
When writing a call option, the Fund relinquishes the
opportunity to profit from increases in the value of the
option's underlying security above the sum of the total premium
received and the exercise price of the option, while still
retaining the risk of negative returns should the market value
of the underlying security decline.
As the Fund opens more short call positions, its ability to
benefit from capital appreciation becomes more limited and
increases the risk of NAV volatility. Under such a scenario, the
Fund may end up with a reduced asset base over which it uses as
collateral to write calls. This could eventually lead to reduced
distributions to the Fund's shareholders and a decrease in the
Fund's NAV.
Furthermore, the Fund bears a risk that the value of the
securities held by the Fund will vary from the value of the
Reference Index (NASDAQ-100).
The value of the options written by the Fund will be affected by
changes in the dividend rate, value, time remaining until
expiration, and actual or perceived volatility of the stock
market and the option's underlying security. The value of
options may also be adversely affected if the market for options
becomes less liquid.
Options can be listed on an exchange or traded in the OTC (Over
The Counter) market. Exchange traded options usually have
standardized exercise prices and expiration dates. Buyers' and
sellers' obligations related to such options are guaranteed by
the exchange or a related clearing corporation such as the
Options Clearing Corporation (OCC).
OTC options are more flexible as the terms are negotiated
between the buyer and the seller, however they are subject to
counterparty risk. Due to the lack of independent evaluation and
regulated markets the risk of potential losses with OTC options
increase. Because of these risks, the Fund will greatly limit
any use of OTC options.
Options Strategy Risk-
When utilizing the Fund's option strategy, the Fund seeks to
reduce volatility and downside risk relative to the NASDAQ-100
Index. The strategy may not work as intended and may result in
periods of underperformance when market values are increasing or
losses in general.
The option strategy's success is dependent on the Fund's ability
to appropriately assess the correlation between the performance
of the Reference Index and the metrics used by the Fund's
advisers to measure volatility. Since the characteristics of
securities change as time passes and markets fluctuate, the
successful implementation of the Fund's option strategy will
also depend on the Fund's ability to continuously readjust,
recalculate, and efficiently execute volatility management
techniques. Additionally, market conditions can sometimes change
rapidly and unpredictably and therefore the Fund's advisers may
not be able to execute its volatility management strategy in a
timely manner or at all.
Volatility management strategies may often require a higher
volume of transactions and therefore may increase transaction
costs for the Fund which can lead to decreased gains.
As is with any security-based strategy, it is impossible to
perfectly manage volatility. The aforementioned factors may
prevent the Fund from achieving its investment objective and
could cause the Fund to realize losses or underperform the
Reference Index.
Furthermore, volatility management techniques do not guarantee
protection against considerable market declines and may cause
the Fund to underperform, even during periods when the stock
market rallies. The Fund's performance may be lower than the
performance of similar funds that do not employ the volatility
reducing options strategy that the Fund employs.
Failure to Reach Targeted Return Risk-
The Fund's principal investment strategy has a weekly return
goal of 0.4%. This is only a targeted weekly return and not a
guaranteed return.
The most likely factor that would cause the Fund to miss its
return target would be a continuous decline in the market price
of the securities underlying the options that the Fund has sold.
If the market decline is short-term (just a few days or weeks
long), the Fund should not have much difficulties reaching its
cumulative targeted return retroactively.
However, a long-term decline on the options' underlying
securities can make it more difficult for the Fund to
continuously reach its targeted return goal and may even cause
the Fund to incur negative returns.
Open Options Risk-
As per the Fund's investment strategy, the Fund will invest in
shorting equity options. While short option positions are open,
the value of the option may fluctuate due to the numerous
factors that affect the price of an option nearing expiration,
these value fluctuations may negatively affect the Fund's NAV.
The numerous factors affecting the value of an open option
position include, volatility of the option's underlying stock,
volatility of the stock market as a whole, the time remaining
until expiration of the option, changes in the economy's overall
interest rates, and the market value of the option's underlying
security.
An additional risk of open short option positions is the
possibility of an early assignment. If the buyer of an open
option decides to exercise the option before the expiration
date, the Fund will then be assigned to commit to its
contractual obligation on an earlier date. This may lead to
fluctuations in the Fund's NAV.
Inaccurate Valuation of Options Risk-
Investing in the Fund involves risks related to the valuation of
options, which may be inaccurately priced by the market,
potentially leading to misrepresentations in the value of the
option and, consequently, a possible misrepresentation in the
Fund's Net Asset Value (NAV). Options are financial derivatives
whose values are influenced by various factors, including the
underlying security's price, time to expiration, volatility, and
prevailing interest rates. Due to market dynamics, bid-ask
spreads, and other uncertainties, options with wide bid-ask or
limited trading activity might be subject to inaccurate
valuation.
On some thinly traded options exhibiting a wide bid-ask spread,
the market price of the option may not accurately represent the
actual value of the option, potentially leading to the
misrepresentation of the option's value and impacting the Fund's
NAV.
Inaccurate valuations could lead to discrepancies between the
Fund's reported NAV and its actual economic value, potentially
affecting the Fund's overall performance and investor returns.
Put Spreads Risk-
The Fund may invest in put spreads. A put spread involves the
simultaneous purchase and sale of a put option on the same
underlying security and expiration date but with different
strike prices.
There may be times when the Fund may not be able to close out or
enter these transactions because of the potential lack of market
participants that are willing to take opposing positions to that
of the Fund. Under such a scenario, the Fund wouldn't be able to
enter into a Put Spread position or close a Put Spread position,
which could decrease the Fund's liquidity and may adversely
impact the Fund's NAV.
Not An Index Fund-
The Fund is not intended to be, nor is, an index fund.
Therefore, the Fund's performance will differ from the
performance of its Reference Index, the NASDAQ-100 Index. The
main reason for this is because the Fund will write cash-secured
put options on securities tracking the NASDAQ-100 Index.
By writing put options, the Fund gives up the opportunity to
benefit from potential increases in the Reference Index above
the premium received from the option, but will continue to bear
the risk of declines in value upon a significant drop in the
underlying security's value.
Non-Diversification Risk-
The Fund is classified as a non-diversified investment company
under the 1940 Act, therefore it can invest a larger portion of
its assets in securities of a single issuer than a diversified
fund. As such, the Fund will be more susceptible than a
diversified fund to fluctuations in the prices of securities of
a single issuer.
Technology Company Investment Risk-
The Fund invests a significant portion of its assets in
technology companies due to a substantial portion of the
securities represented in the NASDAQ-100 Index being in the
technology sector.
Technology related corporations tend to exhibit a greater degree
of market volatility as it relates to their market value,
relative to other types of investment. Investor sentiment
towards these stocks may fluctuate substantially and can cause
the sudden buying and selling of the stocks which could lead to
substantial price fluctuations of the security's value.
Technology stocks are also sensitive to changes in technology,
government regulation, consumer and business purchasing
patterns, and obsolete and dated products and services.
Furthermore, an increase in interest rate tends to negatively
affect the earnings of technology companies due to the increase
in costs of borrowing money used to expand the company's
operations.
Management Risks-
The Fund actively manages its portfolio and therefore is subject
to management risk. The Fund's advisers will apply risk analysis
and investment techniques in making investment decisions for the
Fund, however there is no guarantee that these techniques and
analyses will produce the Fund's desired results.
As is the case with any actively managed investment vehicle, the
Fund's advisers may err in the methodologies and strategies
chosen when seeking to implement its principal investment
strategy.
D. Portfolio Holdings-
A description of the Fund's policies and procedures with respect
to the disclosure of the Fund's portfolio securities can be
found in the Fund's Statement of Additional Information (SAI).
Management, Organization, and Capital Structure
Investment Adviser-
Kestenbaum Capital, LLC is the Fund's investment adviser and is
located at 11710 Old Georgetown Road, Apt 601, North Bethesda,
Maryland, 20852.
The Adviser provides the Fund with all of its advisory services
including but not limited to, the development of the investment
strategy and the implementation of the Fund's investment
strategy.
The Fund's investment adviser's compensation is the 1.75%
management fee mentioned above in the "Fees and Expenses"
section.
Portfolio Manager-
Roy Kestenbaum- Roy has been individually responsible for the
development of the Fund's principal investment strategy. Roy's
main business experience in the past 5 years involved trading
and investing in options and equity.
The SAI (Statement of Additional Information) below provides
additional information about the Portfolio Manager's
compensation, other accounts managed by the Portfolio Manager,
and the Portfolio Manager's ownership of securities in the Fund.
The Investment Advisor has been approved by a majority vote of
the board of directors, including a majority approval of the
non-interested board members as defined by Section 2(a)(19) of
the Act. The basis for the approval of the investment advisory
contract of the Fund is available in the Fund's annual report to
shareholders.
Shareholder Information
A. Pricing Of Fund Shares-
The Fund is organized as an open-end fund, meaning the Fund will
issue new shares as new investors invest capital in the Fund.
Shares of the Fund will not be exchanged on a national
securities exchange as all of the Fund's current offerings will
be made directly through the Fund.
Shares of the Fund can be redeemed directly from the Fund at the
Fund's NAV (Net Asset Value). Similarly, shares of the Fund are
also purchased at the Fund's current NAV.
Shares of the Fund can only be redeemed after markets close,
when the current daily NAV has been determined. Any request to
redeem shares during market hours will be postponed until
markets close and will be calculated according to the Fund's
post-close NAV. Fund shares can be redeemed or purchased at NAV
on any business day, excluding holidays, past market hours.
Net Asset Value (NAV)-
The Fund's NAV per share is determined at the close of each
regular trading session (normally 4:00 PM Eastern Time) on each
day the New York Stock Exchange (NYSE) is open for business.
NAV is calculated by subtracting all liabilities (including
accrued expenses and dividends declared but unpaid) from all
assets (including accrued interest and dividends) and then
dividing that value by the total number of common shares
outstanding.
NAV = (Net Assets - Net Liabilities)/# of Common Shares
Outstanding
In determining NAV, assets and other securities for which market
quotations are available are valued at market value. Equity
securities traded on an exchange are generally valued at the
last sales price on which such securities are traded.
Securities reported on NASDAQ are valued at the NASDAQ Official
Closing Price.
Options listed on national exchanges are valued using the mark
(the value exactly between the option's highest bid and lowest
ask price) at the end of the trading day.
On thinly traded options, the bid-ask spread may be very wide
resulting in an inaccurate valuation of the option, therefore
the Fund's NAV will be closest to its true value on the
weekends, when it is most likely to have the least number of
open positions on options. It should be noted that the listed
options markets typically close at 4:15 PM Eastern Time. Changes
in the value of the Fund's portfolio after 4:00 PM would not be
reflected in that day's NAV.
OTC options are valued based on prices from a third-party
evaluation service.
The value of any purchase or redemption of Fund shares will be
based on the next calculation of NAV after the order is placed.
B. Purchase Of Fund Shares
Fund shares can be purchased at the Fund's NAV per share. When
purchasing or redeeming new shares the relevant NAV will be
calculated according to the next day's NAV.
At the time of this prospectus, all of the Fund's shares are
purchased and redeemed directly through the Fund.
The Fund is currently looking into the possibility of hiring the
services of a third party such as a financial intermediary or
broker-dealer to help distribute the Fund's shares. As of this
prospectus, the Fund has not yet entered into any agreement with
such parties.
If the Fund enters into a distribution agreement with any third
party, then shares of the Fund will be redeemed or purchased
either directly through the Fund or via a third-party
intermediary service such as a broker-dealer or bank.
Upon entering into an underwriting agreement with any third
party, this prospectus will be updated to disclose the relevant
information.
C. Redemption Of Fund Shares-
Fund shares can be redeemed in exchange for the cash value of
each share according to the Fund's NAV. Redemption of Fund
shares can only be made on business days past market hours and
the relevant NAV used to calculate value of redemption is based
on the following day's NAV.
The Fund is intended to be used as a long-term investment
vehicle, therefore the Fund imposes Redemption Fees to
discourage short-term trading of the Fund's shares. The
following Redemption Fee arrangement has been voted upon and
approved by the Fund's interested and non-interested board of
directors.
Any shares owned by the Investor for less than two years will
incur a redemption fee upon redemption of Fund shares. If the
redeeming owner has held the shares for over 1 year but less
than 2, the Investor will incur a redemption fee of 1% of the
assets to be redeemed. If the Investor has owned Fund shares for
less than 1 year, the Investor will incur a redemption fee of 2%
of the assets to be redeemed. Any redemption made for shares
held longer than 2 years will not incur any redemption fee.
Furthermore, any share purchased via the Fund's Dividend
Reinvestment Program (DRIP) will not incur any redemption fees
upon redemption, regardless of the amount of time the Investor
has owned the shares.
The Fund may also choose to ignore redemption fees upon certain
emergency circumstances such as financial or medical hardships.
An investor can submit to the Fund's management a written
request to waive the Redemption Fee, The Fund's management will
then review the request and approve or deny the request to
waive.
Redemption of Fund shares can be done directly via the Fund's
investment company, or indirectly via a third-party financial
intermediary such as a broker-dealer or bank.
Under normal circumstances, a shareholder requesting redemption
of Fund shares can typically expect the transfer of payment to
her account within one week, or five business days.
When a shareholder requests to redeem her shares, the Fund will
deduct the amount of its outstanding shares by the amount of
shares to be redeemed. The Fund will then liquidate the
appropriate amount of assets in proportions to the Fund's total
asset allocation. This means that if the Fund's assets are
allocated as 60% option positions, 25% equity, and 15% cash,
then 60% of the redemption's value will come from liquidating
options, 25% from liquidating equity, and 15% will come from the
Fund's held cash.
The Fund has adopted and implemented a written liquidity risk
management program that complies with Rule 22e-4 of the
Investment Company Act of 1940.
The primary holdings in the Fund's portfolio are expected to be
cash and publicly listed market securities and as such most, if
not all, of the Fund's securities will be considered highly
liquid. The Fund also has no intention to borrow money to invest
in securities. Nevertheless, the Fund has developed a liquidity
management program that has been approved by the interested and
uninterested members of the Fund's board of directors. The board
has approved the designation of Ariela Kestenbaum to administer
the liquidity risk management program.
The Fund's liquidity management program will be reviewed at
least annually.
D. Dividend And Distributions-
The Fund will pay quarterly distributions in terms of a fixed
percentage of the Fund's NAV per share. The distributions paid
by the Fund will be composed of net premium income and
supplemental amounts representing realized capital gains. Such
quarterly distributions are sometimes referred to as "managed
distributions".
The Fund will seek to distribute payments at a rate that roughly
corresponds to the Fund's investment adviser's projection of the
total return that could reasonably be expected to be generated
by the Fund's common shares. However, the distribution rate will
not be solely dependent on the amount of premium income earned
or capital gains realized. The Fund may consider long term
historical returns and a variety of other factors when making
such projections.
Furthermore, the Fund intends on distributing a portion of its
generated premium income. Retaining a portion of the Fund's
premium income is generally what helps the Fund's NAV grow
exponentially over time.
If net premium income and net realized capital gains were less
than the distribution made by the Fund for a quarterly period,
the difference would be distributed from the Fund's assets. In
order to raise the necessary cash for such distributions, the
Fund would either close option positions to release collateral
or sell portfolio securities. Such sales of securities may occur
regardless of the Fund's investment strategy.
It is likely that the Fund's actual financial performance will
vary significantly from month to month and from year to year and
it is possible that the distribution rate will exceed the Fund's
actual total returns over an extended period. The Fund's actual
or projected distribution rate is NOT a prediction or guarantee
of what the Fund's actual total returns will be over any future
period.
As market conditions and the Fund's portfolio change, the
distribution rate and the Fund's distribution policy could
change. As such, the Fund reserves the right to alter the
distribution rate without a shareholder vote.
For tax purposes and when viable, distributions made by the Fund
may consist in part of a return of capital to the Fund's
Shareholders. The exact tax characteristics of the Fund's
distributions will not be known until the fiscal year end. The
Fund's shareholders should not confuse a return of capital
distribution with distribution yield or total return.
At the time of the quarterly distribution, the Fund will make
available a notice of the estimated sources and tax
characteristics of the Fund's distributions, in compliance with
federal securities laws requiring any fund paying a distribution
from sources other than net investment income disclose to
shareholders the composition of the sources of the distributions
made.
Projections made by the Fund to determine its distribution yield
may be based on certain assumptions about the Fund's expected
returns and the realization of any net gains over the remainder
of the year. These projections will likely vary over time based
on the activities of the Fund and the changes in market
conditions and Fund assets.
The final determination of the source and tax characteristics of
all distributions will be made following December 31 in each
year and will be reported to the Fund's shareholders early in
the following year.
The Fund intends to distribute a portion of net capital gains
and premium income for each taxable year through its managed
distributions.
A return of capital distribution reduces a shareholder's tax
basis, which could result in more taxable gain when the Fund's
shareholder sells her shares. This could lead to the shareholder
paying taxes even if she sells shares of the Fund for less than
the original price.
The Fund reserves the right to alter its distribution policy and
yield at any time upon notice to its shareholders.
Dividend Reinvestment Plan (DRIP)-
The Fund participates in an "Opt-Out" Dividend Reinvestment Plan
(DRIP). If your shares are registered directly with the Fund,
your distributions, including any capital gain distributions and
return of capital distributions, will automatically be
reinvested in additional shares under the Fund's DRIP, unless
your request to opt out of the plan. If you choose to not
participate in the DRIP, you will receive all distributions in
cash.
Under the DRIP, the number of the Fund's shares you will receive
will be determined by the Fund's NAV. Shares received could
either be whole or fractional depending on the distribution
amount and the current NAV. Distributions will be reinvested at
the current NAV on the day they are paid, after market hours.
There is no brokerage charge for reinvestment of your
distributions in shares and there is no direct service charge to
participants in the Fund's DRIP.
Automatically reinvesting distributions back into the Fund does
not mean that you do not have to pay income taxes due upon
receiving distributions, nor does it mean that you will realize
premium income or capital gains simply because you are not
receiving cash but instead participating in the Fund's DRIP.
You may withdraw from the Fund's DRIP at any time by giving
written or telephonic notice to the Fund's advisers. If you
withdraw, shares purchased from the plan will remain under your
ownership, however future distributions will be paid in cash and
not reinvested.
E. Frequent Purchases and Redemption of Fund Shares-
The Fund is an open-ended investment management company and is
intended to be used as a long-term investment vehicle. The
Fund's shares are not intended to be used for short term
investments and trades, and doing such could present significant
risks towards the Fund's shareholder.
The Fund's NAV fluctuates according to changes in the stock
market and sometimes the Fund's financial behavior can be
roughly projected based on historical financial events the Fund
may endure.
Due to the nature of the Fund's investment strategy, the Fund's
value may rise or drop significantly after a significant change
in the NASDAQ-100 Index (The Reference Index). These sharp
changes in value may be more or less than the fluctuations of
the Reference Index. Shareholders of the Fund should carefully
consider their investment objectives, risk tolerance, and time
horizon before making any decision regarding the holding or
trading of the Fund's shares. It is important to understand that
short-term trading of the Fund's shares may not align with the
Fund's investment strategy and may expose shareholders to higher
levels of volatility and risks.
The Fund has not adopted any policies or procedures with respect
to frequent purchases and redemption of Fund shares by Fund
shareholders. The Fund's philosophy believes that the Investor
should have the liberty to decide the method and frequency of
investing her assets and as such has not adopted any policies
regulating the Investor's use of assets. The Investor is fully
responsible for any risks and losses associated with frequent
purchases and redemptions of Fund shares.
F. Tax Consequences-
The Fund intends to make distributions (dividends) that may be
taxable to the investor as ordinary income or capital gains
unless the Investor is investing through a tax-advantaged
arrangement such as an Individual Retirement Account (IRA) or a
401(K) plan.
The Fund's distributions, whether received in cash or reinvested
in additional shares of the Fund, may be subject to federal
income tax.
An exchange of the Fund's shares for shares of another fund will
be treated as a sale of the Fund's shares and any gain on the
transaction may be subject to federal income tax.
The Fund may pay an excise tax under the Internal Revenue Code
(IRC 4982) with respect to its distributions. This could
increase the costs of the Fund.
Distribution Arrangements-
A. Sales Load-
The Fund does not apply to any purchases of shares any sales
loads. There will be no front-end, back-end, or any other form
of sales load expense when purchasing or redeeming shares of the
Fund, with the exception of redemption fees for shareholders
redeeming shares owned for less than two years, as mentioned in
the "Fees and Expenses" section of the prospectus.
B. Rule 12b-1 Fees-
Rule 12b-1 of the Investment Company Act of 1940 allows fund
companies to act as distributors of their own shares. The rule
further permits fund companies to charge a fee to pay
distribution and marketing costs.
The Fund intends to adopted a plan under rule 12b-1 that allows
the Fund to pay distribution fees for the sale and distribution
of its shares.
The Fund has a 12b-1 fee of 0.25%.
Because these fees are paid out of the Fund's assets on an on-
going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of
sales charges.
The Fund's 12b-1 plan has been approved by a vote of the Fund's
interested and non-interested directors.
Financial Highlights Information-
This prospectus represents a fund in its pre-effective
registration stages and is thus considered a New Fund. The Fund
is currently in the process of registration and as such does not
have any historical financial or investment data to report on as
of now.
BACK COVER PAGE
The Fund's Statement of Additional Information (SAI) includes
additional information about the Fund not found in the Fund's
prospectus.
Additional information about the Fund's investments will be
available in the Fund's annual and semiannual reports to
shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its
last fiscal year.
The Fund's prospectus, SAI, and any future annual and semiannual
reports will be available upon request and without charge at
KestenbaumCapital.com. The information can also be requested via
email by contacting KestenbaumCapital@gmail.com or by phone at
3016741670.
Reports and other information about the Fund are available on
the EDGAR database on the SEC's website at SEC.gov. Copies of
this information may be obtained after paying a duplication fee,
by electronic request by contacting the following email:
PublicInfo@sec.gov.
40 Act File Number: 811-23830
PART B
Statement of Additional Information (SAI)
KC Low Volatility PutWrite-CallWrite Q Fund
PROPOSED TICKER: KCLVQ
The information in this Statement of Additional Information
(SAI) is not complete and may be changed. We may not sell these
securities until the registration statement filed with the
Securities and Exchange Commission is effective. This SAI is not
an offer to sell these securities and is not soliciting an offer
to buy these securities in any state where the offer or sale is
not permitted.
This Statement of Additional Information is Not a Prospectus.
This Fund's Prospectus Can Be Requested from the Fund's
Management Company's Email at KestenbaumCapital@gmail.com.
December 18, 2023
This Statement of Additional Information relates to the KC Low
Volatility PutWrite-CallWrite Q Fund by Kestenbaum Capital, LLC.
This Fund makes reference to the NASDAQ-100 index solely for the
purpose of describing its investment strategy. The Fund is not
sponsored, endorsed, or associated with NASDAQ or its
affiliates. Any use of the term "NASDAQ-100" in this statement
of additional information is for informational purposes only and
does not imply any affiliation, endorsement, or licensing
agreement with NASDAQ.
Table Of Contents
Statement of Additional Information
Fund History............................................58
Description of The Fund and its Investments and Risks...59
Management of The Fund..................................68
Control Persons and Principal Holders of Securities.....77
Investment Advisory and Other Services..................78
Portfolio Managers......................................84
Brokerage Allocation and Other Practices................85
Capital Stock and Other Securities......................86
Purchase, Redemption, And Pricing of Shares.............87
Taxation of The Fund....................................88
Underwriters............................................89
Calculation of Performance Data.........................90
Financial Statements....................................91
Fund History
The Fund is an open-end management investment company registered
under the 1940 Investment Company Act. The Fund is operated by
Kestenbaum Capital, LLC, a limited liability company formed in
the state of Maryland on the first of September, 2022.
Description Of the Fund and its Investments and Risks-
A. Classification-
The Fund is a non-diversified, open-end, management investment
company.
B. Investment Strategies and Risks-
As mentioned in the prospectus, the Fund's primary investment
objective is to seek attractive total returns with less
volatility than the NASDAQ-100 Index ("The Reference Index").
The Fund's secondary objective consists of distributing a
portion of the income received from shorting options. The Fund
cannot guarantee that it will achieve its investment objectives.
In achieving these goals, the Fund will allocate a significant
majority (over 95%) of its Assets Under Management to the Fund's
principal investment strategy, as mentioned in detail in the
Fund's prospectus.
The Fund will also allocate up to 5% of its Assets Under
Management to invest in Put Credit Spreads. The Fund will only
utilize this investment strategy if the Fund's current buying
power is too low to sell a Cash-Secured Put and if the
securities underlying the options drop or rise significantly.
Put Credit spreads are the simultaneous purchase and sale of two
different puts with different strike prices and the same
expiration date and underlying security. Put credit spreads
could be a useful tool since they allow for the possibility of
profiting with much less capital needed for collateral.
The downside to this is if the put credit spread expires Out of
The Money (OTM), the Fund will lose 100% of the collateral. It
is due to this reason that the Fund will severely limit its use
of put credit spreads to up to 5% of its Assets Under
Management.
The Fund is a non-diversified, open-end management investment
company designed primarily as a long-term investment vehicle.
As with any investment, you could lose all or part of your
investment in the Fund. At any point, your shares may be worth
less than your original investment, even when considering the
reinvestment of distributions made by the Fund. There is no
guarantee that the Fund will achieve its investment objective
and the Fund's performance could trail the performance of
alternative available investments.
An investment in the Fund's shares represents an indirect
investment in the securities owned by the Fund. Therefore, at
any point, the market value of the securities owned by the Fund
may decline, causing the Fund's value to decline with it. Thus,
making market risk the most significant risk for the Investor.
It is also important to note that a significant increase in the
market value of the securities held by the Fund may not increase
the value of the Fund by the same amount. Due to the Fund's use
of derivative strategies, the Fund trades off potential growth
for safety and lower volatility.
Other risks related to Put Credit Spreads include:
Put Options Risk-
Writing put options exposes the Fund to the risk of declining
values in the underlying security, potentially resulting in a
loss equal to the exercise price minus the premium income
received. While the premium offers some cushion, it may not
fully offset losses caused by the drop in the value of the
underlying security.
Conversely, gains from rising security values might be limited.
Put option writers face the risk of having to buy the underlying
security at a strike price above market value. Option values are
influenced by dividends, time, volatility, and market liquidity
changes.
Options Strategy Risk-
The Fund's option strategy aims to mitigate volatility and
downside risk compared to the NASDAQ-100 Index. However, it
might not consistently perform as intended, leading to
underperformance during market growth or losses. The strategy's
effectiveness relies on accurately gauging the correlation
between the Reference Index and volatility metrics, adaptively
adjusting to changing market conditions. Swift changes could
hinder executing the strategy timely, potentially increasing
transaction costs and impeding gains.
Despite efforts, volatility management does not guarantee
absolute market decline protection.
Put Spreads Risk-
Investing in put spreads involves simultaneous purchase and sale
of put options with varying strike prices. However, market
conditions might limit the Fund's ability to enter or exit such
transactions, affecting liquidity and potentially impacting the
Fund's Net Asset Value (NAV). In scenarios where opposing
positions are unavailable, the Fund could be unable to establish
or close put spread positions, potentially impacting its
liquidity and NAV.
C. Fund Policies-
The Fund will not leverage its capital structure by issuing
senior securities or debt instruments.
The Fund will not borrow money for investment purposes, unless
the Fund is acting in a temporarily defensive manner.
The Fund has no intention to underwrite securities of any other
issuers.
The Fund does not have a predetermined limit or policy that
restricts its investments from being concentrated in a specific
industry or group of industries.
The Fund invests a significant portion of its assets in
technology companies due to a substantial portion of the
securities represented in the NASDAQ-100 Index being in the
technology sector.
It is important for investors to recognize that the Fund's
concentrated exposure to the technology sector may lead to
potential risks tied to the technology industry's
characteristics, such as the volatility associated with
technological advancements, shifts in regulation, and market
sentiment impacting technology companies.
Shareholder approval is not mandated for adjustments to the
Fund's industry concentration policy.
The Fund has no intention to purchase or sell any real estate or
commodities.
The Fund has no intention of taking loans or loaning money.
The Fund considers the implementation of its investment strategy
and policy fundamental, as well as its investment objectives. As
such, Fundamental policies may not be changed unless authorized
by a majority vote of the Fund's outstanding securities.
D. Temporary Defensive Positions-
The Fund may borrow up to 5% of its total AUM (Assets Under
Management) for temporary or emergency purposes and may enter
into certain derivatives transactions that have the economic
effect of leverage by creating additional investment exposure.
As the Fund pursues its investment objective, it may encounter
several possible scenarios as a result of the implementation of
the Fund's strategy that could affect the Fund's principal
investment strategy and Net Asset Value (NAV).
The following will illustrate several possible scenarios that
may arise and the Fund's defensive reactions to such scenarios.
I. Puts Are Assigned and the Underlying ETF's Shares Value
Continue to Drop Considerably-
Upon the assignment of a put, the Fund will begin selling
covered calls at a low strike, high premium, however the Fund
will not sell a covered call at a strike lower than a certain
threshold. If the underlying shares were to continuously drop
after assignment, the Fund may reach a scenario where it is
"Grinding For Premium".
In such a scenario, the underlying shares have dropped
significantly to the point where the only options the Fund could
sell that are still in line with the Fund's strategy are at a
strike price that are deep OTM (Out of The Money). In this case,
the Fund will continue to sell covered calls on the underlying
security, however due to the significant decline in the value of
the underlying security, the Fund will only manage to generate
low premium income per option. The Fund labels this scenario as
"Grinding Premiums", since it is willing to continuously accept
low premiums for contracts as it anticipates a rise in value of
the underlying security. If the Fund were to write a call with a
low strike subsequent to a sharp decline in the value of the
underlying, a risk of realizing a total loss upon assignment
will arise. Therefore, in order to minimize the risk of a
realized loss, the Fund will continue to sell the appropriate
strike price covered calls regardless of how big or little the
premiums received are.
The longer it would take for the underlying security's value to
recover, the longer the Fund "Grinds For Premiums". Since the
Fund attempts to maintain its weekly compounded 0.4% returns
regardless of assignment, for every additional week that passes
since the cash-secured put's assignment, the Fund will have to
raise the exercise price of the covered calls it sells by 0.4%
(assuming the investment's cost basis doesn't change). Given
enough time, the Fund may find itself in a position where the
only exercise prices that correspond to the Fund's investment
strategy for covered calls are deep OTM, to a point where it is
simply unfeasible to assume the underlying security will reach
that value in the near-mid future.
Fund's defensive reaction to the scenario:
If the Fund is "Grinding Premiums" for a significant period of
time and the targeted exercise price for covered calls get too
high, the Fund may choose to recalculate its expected total
return for the original cash-secured put investment from a 0.4%
weekly return to a 0.25% weekly return.
In extreme situations, the Fund may also choose to eliminate the
target weekly return and instead write covered calls with the
cost basis of the investment as the exercise price, thus
eliminating the potential of gains while also avoiding losses.
The Fund may also choose to go lower than the cost basis while
determining an exercise price for a covered call, this however,
greatly increases the probability of realizing a loss for the
Fund.
Due to the Fund's adviser's philosophy that eventually all major
US indices tend to ultimately rise throughout the passage of
time, the Fund will choose to sell assigned shares for a loss
only under the most extreme market conditions.
EXAMPLE:
The Fund gets assigned on a cash-secured put and purchases
100 shares of XYZ at $50 a share.
1 year (50 weeks) have passed since the assignment and the
Fund still hasn't managed to get assigned on the covered
calls it has sold throughout the year. XYZ is now currently
trading at $30 and the Fund's cost basis for that original
cash-secured put investment is $40. Since the Fund's
original investment in the cash-secured put was $50*100=
$5,000, after 50 weeks the Fund expects to make a total
gain of $1,105 on the original $5,000 investment (using a
0.4% weekly return target):
$5,000*1.004^50= $6,105
Phrased differently, as long as the Fund profits at least
($6,105-$5,000=) $1,105 at the end of the 50 weeks, it will
be in line with its goal.
Since the original investment's cost basis is at $40 a
share ($4,000 total), the Fund could reach its goal by
selling the total 100 shares at ($4,000+$1,105=) $5,105, or
$51.05 a share. However, since XYZ is currently trading at
$35, it would seem very unlikely for the Fund to rise over
$15 (46%) within the week, therefore selling a covered call
at a $51 exercise price would net the Fund with very little
premium income. The low premium income only marginally
affects the cost basis and therefore every week that goes
by without assignment only further increases the gap
between the cost basis and the Fund's target selling price
for XYZ.
To combat this, the Fund may choose to retroactively
decrease its target weekly goal from 0.4% to 0.25%, thus
changing the Fund's target profit from $1,105 to:
$5,000*1.0025^50= $5,665-$5,000= $665
Therefore, lowering the Fund's ideal covered call exercise
price from $51.05 a share to:
$665+$4,000= $4,665, or $46.65 a share
Although the Fund's expected return decreases, its weekly
premium income generated will increase as the Fund will
sell lower exercise price covered calls.
In the most extreme situations, the Fund may choose to
simply sell covered calls at an exercise price equal to the
original investment's cost basis. In this case, $40. The
lower exercise price means higher premiums and as long as
the Fund sells the underlying shares at or above the cost
basis, the Fund will not realize a loss.
Additionally, the Fund may also choose to react by writing
covered calls with longer expiration dates. An option with more
time left until expiration will net a larger premium and under
certain circumstances, it may be more efficient for the Fund to
write covered calls with greater periods of time until
expiration.
II. Underlying Securities Rally Rapidly-
A significant disadvantage regarding the Fund's put writing
strategy is that the Fund's maximum potential returns are capped
due to the nature of shorting options. This means that if the
underlying security surges in value, the Fund will only profit a
portion of that. The limited potential gain is a side effect of
the Fund's risk-decreasing investment strategy.
Fund's defensive reaction to the scenario-
To counter the loss in opportunity costs stemming from writing
puts, the Fund may choose to write puts that net a higher
premium relative to the cash collateral needed for the
investment. During periods of economic prosperity, the Fund may
choose to temporarily increase its weekly return goal on
individual Cash-Secured Puts from 0.4% to 0.75% in an attempt to
minimize trailing behind in returns relative to the underlying
security.
The Fund identifies period of economic prosperity as periods in
which general economic indicators are trending towards a bullish
sentiment. This encompasses economic indicators such as lower
interest rates, lower unemployment rates, GDP growth, increased
consumer spending and business investment, and stable inflation
rates.
The Fund's Adviser will carefully assess the current economic
conditions to determine if it would be beneficial and safe for
the Fund to increase the weekly return target of some of its
Cash-Secured Puts from 0.4% to 0.75% based on the aforementioned
economic indicators. In making this decision, the Fund will also
consider how much the Fund's Reference Index (the NASDAQ-100
Index) is outperforming the Fund and for how long of a time
period. The Fund does not have an exact definition as towards
how much the Reference Index has to outperform the Fund or how
long the outperforming period has to last before increasing
weekly return targets. This is because often times the stock
market may be unpredictable relative to economic factors
(bullish even though the economy is weak and vice versa) and
therefore it would be unwise to determine the Fund's goals based
on stock market movements.
Even during periods of economic prosperity, the Fund will
continue to sell Cash-Secure Puts with a weekly return goal of
0.4%. Nonetheless, as economic conditions strengthen, the Fund
will incrementally increase the quantity of Cash-Secured Puts it
writes that return a 0.75% weekly return. Despite this, the Fund
will never exclusively sell Cash-Secured Puts that return a
0.75% weekly return and therefore the Fund's overall weekly
return goal will always remain at 0.4%. No more than 50% of the
Fund's managed assets will be allocated towards Cash-Secured
Puts with a 0.75% weekly return.
The Fund will revert back to 0.4% weekly return once the Fund
resumes to outperform the Reference Index for a period of at
least 6 months. Furthermore, this transition will be triggered
by shifts in economic indicators towards a bearish sentiment in
the stock market, such as increased interest rates, high
unemployment rates, negative GDP growth, decreased consumer
spending and business investment, and more.
E. Portfolio Turnover-
This prospectus represents a fund in its pre-effective
registration stage and is thus considered a "New Fund" (for this
statement of additional information, the term "New Fund" refers
to a fund that has not yet issued, offered, or sold securities,
nor has it begun to implement its principal investment strategy
and therefore has not yet accrued any revenue or historical
performance data). The Fund is currently in the process of
registration and as such does not have any historical financial
or investment data to report on as of now.
F. Disclosure of Portfolio Holdings-
This prospectus represents a fund in its pre-effective
registration stages and is thus considered a New Fund. The Fund
is currently in the process of registration and as such does not
have any historical financial or investment data to report on as
of now.
As such, the Fund's portfolio holdings will be available at any
given time on the Fund's website at KestenbaumCapital.com when
available.
Management Of The Fund
A. Management Information-
1. Interested Director of the Fund
Name......................Roy Kestenbaum
Address..................11710 Old Georgetown Road, Rockville,
MD
Age.......................29
Positions Held
With Fund.................Portfolio Manager, Director, and
President of Kestenbaum Capital, LLC
Term of Office and
Length of Time Served.....No Term Limit of Office,
Served the Fund Since its Inception
Principal Occupation
During Last 5 Years..........Self Employed Options and Equity
Investor and Trader
Number of Portfolios
in Fund Complex
Overseen By Director.............1
Other Directorships
Held by Director..............0
2. Non-Director Officer of the Fund
Name......................Ariela Kestenbaum*
Address..................11710 Old Georgetown Road, Rockville,
MD
Age.......................56
Positions Held
With Fund.................Chief Accounting Officer
Term of Office and
Length of Time Served..........No Term Limit of Office,
Served the Fund Since May 2023.
Principal Occupation
During Last 5 Years............Certified Public Accountant
Number of Portfolios
in Fund Complex
Overseen By Director...............0
Other Directorships
Held by Director...................0
3. Non-Interested Director of the Fund
Name......................Herbert M. Gutterman
Address..................717 D. Street N.W, Washington DC
Age.......................69
Positions Held
With Fund...................Director, Non-Interested Board
Member
Term of Office and
Length of Time Served.......No Term Limit of Office,
Served the Fund Since May 2023
Principal Occupation
During Last 5 Years.............Private Practice Attorney at Law
Number of Portfolios
in Fund Complex
Overseen By Director.......1
Other Directorships
Held by Director..........0
*Roy Kestenbaum is the son of Ariela Kestenbaum.
B. Leadership Structure and The Board of Directors-
The Fund's board of directors currently consists of the two
members mentioned above, Roy Kestenbaum and Herbert Gutterman.
Roy Kestenbaum is the chairman of the board and is an interested
person of the Fund (as defined by Section 2(a)(19) of the Act).
Herbert Gutterman is a non-interested director. Consistent with
Section 10(a) of the Investment Company Act of 1940, at least
40% of the Fund's board of directors are non-interested
directors. The Fund's board does not currently have a lead
independent director.
The responsibilities of the Fund's board of directors with
respects to the Fund's management include, but are not limited
to, approving risk management programs and appointing designated
program managers, approving advisory contracts, approving fees
paid by and to the Fund, and providing oversight to the Fund's
investment strategy and the execution of the strategy.
The Fund is considered a New Fund that is in its pre-effective
registration stages and has not yet issued securities.
Therefore, as a new and developing Fund, the board has
determined that the small board leadership structure is suitable
and efficient for addressing the specific characteristics of the
Fund. The current structure enables agile decision making and
facilitates close collaboration between the board and the Fund's
management. As such, the Fund finds the leadership structure of
its board of directors appropriate.
As the Fund continues to grow and attract more shareholders and
AUM, it intends to expand its board to accommodate the increased
responsibilities and complexities associated with a larger
shareholder base and AUM. The board recognizes the importance of
augmenting its membership and structure to uphold strong
governance and to ensure that it continues to effectively serve
the interests of the Fund's increasing shareholder base.
The board will oversee the Fund's portfolio management to ensure
consistency with the Fund's principal investment strategy.
Furthermore, the board will function to oversee any defined
limit breaches of the Fund as it relates to the Fund's liquidity
risk management (Rule 22e-4 of the Act) and derivatives risk
management (Rule 18f-4 of the Act) programs. The Fund and the
board will report to one another upon irregularities in the
Fund's portfolio management and risk management (as defined in
the Fund's liquidity and derivatives risk management programs).
The board's focus remains on fostering sound governance
practices and preserving the Fund's ability to deliver value to
its shareholders while upholding the highest standards of
transparency and accountability.
The board will also hold annual meetings to examine the
effectiveness of the board's governance.
Currently, the Fund's board of directors does not have any
standing committees due to its status as a new and small Fund.
With only two board members at present, the Fund's governance
structure reflects its current scale and operational focus.
As the Fund grows and attracts more shareholders, the board's
composition is expected to expand, allowing for the development
of specialized committees of the board. The possibility of
establishing standing committees will be considered with the
growth of the Fund and its board, subject to the decisions made
by both the Fund's shareholders and board members.
As the Fund grows and evolves, the board remains committed to
enhancing its governance framework to best serve the interests
of its shareholders while maintaining transparency,
accountability, and prudent management of the Fund's operations.
1.
Name of Director...........Roy Kestenbaum
Dollar Range of
Equity Securities
in Fund....................Not Applicable**
Aggregate Dollar Range
of Equity Securities in
All Registered Investment
Companies Overseen by
Director in Family of
Investment Companies.......Not Applicable**
2.
Name of Director...........Herbert M. Gutterman
Dollar Range of
Equity Securities
in Fund....................Not Applicable**
Aggregate Dollar Range
of Equity Securities in
All Registered Investment
Companies Overseen by
Director in Family of
Investment Companies.......Not Applicable**
** The Fund is considered a New Fund that is in its pre-
effective registration stages and as such has not yet issued any
shares.
C. Compensation-
Name.......................Roy Kestenbaum
Position...................Portfolio Manager
Aggregate Compensation
from Fund.....................$0*
Pension Benefit
Accrued As Part
of Fund's Expenses............$0*
Estimated Annual
Benefits Upon
Retirement....................$0*
Total Compensation
From Fund and Fund
Complex Paid to Directors.....$0*
* The Fund is considered a New Fund that is in its pre-effective
registration stages and as such has not yet accrued any revenue
from the Fund's fees and expenses. Furthermore, and pursuant to
the Fund's current agreement with Roy Kestenbaum, no future
payments are expected to be made to Roy Kestenbaum or to any
pension account of Roy Kestenbaum in the current fiscal year as
Roy Kestenbaum has agreed to retain any earnings taken from the
Fund's management fees within the Fund's company.
Name.......................Herbert Gutterman
Position...................Non-Interested Board Member of the
Fund
Aggregate Compensation
from Fund.....................$0**
Pension Benefit
Accrued As Part
of Fund's Expenses............$0**
Estimated Annual
Benefits Upon
Retirement....................$0**
Total Compensation
From Fund and Fund
Complex Paid to Directors.....$0**
** The Fund is considered a New Fund that is in its pre-
effective registration stages and as such has not yet accrued
any revenue from the Fund's fees and expenses. Furthermore, and
pursuant to the Fund's current agreement with Herbert Gutterman,
no future payments are expected to be made to Herbert Gutterman
or to any pension account of Herbert Gutterman in the current
fiscal year as Herbert Gutterman has agreed to decline any
compensation taken from the Fund this current fiscal year.
D. Sales Loads-
The Fund does not apply to any purchases of Fund shares any
sales loads. There will be no front-end, back-end, or any other
form of sales load expense when purchasing or redeeming shares
of the Fund, with the exception of redemption fees for
shareholders redeeming shares owned for less than two years, as
mentioned in the Fund's prospectus.
There are no arrangements between the Fund and any director or
affiliated person of the Fund that result in breakpoints in, or
elimination of, the Fund's redemption fee.
E. Codes of Ethics-
The Fund has adopted a code of ethics that allows for affiliated
persons of the Fund, and the Fund itself, to purchase and invest
in the Fund's shares.
That said, any purchase of the Fund's shares by an affiliated
person or by the Fund itself, will be treated equally as a
purchase made by an unaffiliated investor in the Fund.
F. Proxy Voting Policy-
The Fund intends to invest in the Invesco QQQ Trust Series 1 ETF
(QQQ), the ProShares Ultrapro QQQ ETF (TQQQ), and options
deriving from these ETFs. As such, the Fund recognizes that
options are non-voting securities and that both the ETFs
typically do not grant voting rights to their shareholders, as
proxy voting is facilitated by the ETFs themselves. However, in
the rare event that QQQ or TQQQ allow their shareholders to vote
on an issue, the Fund will take a proportional voting approach
to ensure impartiality and avoid conflicts of interest.
If, exceptionally, the ETF issuer (QQQ or TQQQ) provides the
Fund with the right to vote on any matter, the Fund commits to
exercising this voting right in proportion to the consensus of
all other shareholder votes. This approach ensures that the
Fund's voting decisions align with the majority consensus of all
ETF shareholders, mitigating conflicts of interest.
Additionally, the Fund finds it highly unlikely for it to
encounter conflicts of interest in relation to proxy votes. The
Fund has no publicly traded affiliates, no investment banking
activities, and does not provide research recommendations.
Consequently, the Fund's proxy voting decisions are made with
the primary objective of safeguarding shareholder interests and
maintaining impartiality.
Information regarding how the Fund voted proxies related to
portfolio securities during the most recent 12-month period
ended June 30 is available without charge on the Fund's website
at KestenbaumCapital.com and on the Securities and Exchange
Commission's website at SEC.gov.
Control Persons and Principal Holders of Securities
A. Control Persons-
The Fund is wholly controlled by Kestenbaum Capital, LLC.
Kestenbaum Capital, LLC is a limited liability company organized
under the jurisdiction of the state of Maryland.
B. Principal Holders-
The Fund is considered a New Fund that is in its pre-effective
registration stage and as such has not yet issued any shares and
thus has no shareholders yet.
C. Management Ownership-
The Fund is considered a New Fund that is in its pre-effective
registration stage and as such has not yet issued any shares and
thus has no shareholders yet.
Investment Advisory and Other Services
A. Investment Adviser-
Kestenbaum Capital, LLC is the Fund's investment adviser. Roy
Kestenbaum is the full owner and president of the Fund's
investment advising company. Roy Kestenbaum is also an
affiliated person of the Fund as well as the Fund's portfolio
manager.
The advisory fee charged to the Fund is 1.75% of the Fund's
Assets Under Management. The charge is made before any dividends
are declared.
As the Fund is currently in its pre-effective registration
stage, it is considered a New Fund and as such no advisory fees
have been charged to the Fund yet.
It is necessary to note that the Fund's Investment Advisory firm
and the Fund's managing company are the same entity, Kestenbaum
Capital, LLC.
B. Principal Underwriter-
The Fund is intended to be an open-ended, self-distributing,
registered investment company and as such, the Fund will act as
its own distributor (underwriter).
Distribution of the Fund's shares will be done via the Fund's
managing company, Kestenbaum Capital LLC and is located at 11710
Old Georgetown Road, North Bethesda, Maryland.
At the time of this prospectus, all of the Fund's shares are
purchased and redeemed directly through the Fund.
As the principal and only distributor of the Fund, the Fund will
take on Anti-Money Laundering (AML) and Know Your Client (KYC)
responsibilities including but not limited to developing and
implementing a written AML and KYC program, appointment of an
AML officer, ongoing monitoring, and risk assessment.
The Fund is currently looking into the possibility of hiring the
services of a third party such as a financial intermediary or
broker-dealer to help distribute the Fund's shares. As of this
prospectus, the Fund has not yet entered into any agreement with
such parties.
If the Fund enters into a distribution agreement with any third
party, then shares of the Fund will be redeemed or purchased
either directly through the Fund or via a third-party
intermediary service such as a broker-dealer or bank.
Upon entering into an underwriting agreement with any third
party, this prospectus will be updated to disclose the relevant
information.
C. Services Provided by Each Investment Adviser and Fund
Expenses Paid by Third Parties-
The Fund's investment adviser, Kestenbaum Capital, LLC, is
responsible for the development and implementation of the Fund's
investment strategy and policy.
No third party will pay or is paying any of the Fund's expenses.
D. Service Agreements-
Interactive Brokers, LLC is aware that it will serve as a
service provider and custodian of the Fund's securities and
investments.
The Fund will be a registered investment company and not an
operating company.
The Fund will act as its own transfer agency, distributor, and
dividend paying agent.
As this registered investment management company is the Fund's
and its Investment Adviser's inaugural registered Fund, the Fund
and its Adviser have limited previous experience in acting as a
transfer agent, distributor, dividend paying agent, and
providing accounting and administrative services. This Fund
represents the Fund's and its Investment Adviser's initial
venture into these roles.
However, the Fund and its Investment Adviser are committed to
ensuring the efficient and effective operation of the Fund.
While the relevant experience is nascent in these capacities,
the Fund has established a robust operational framework and
continues to invest in the development of the Fund's
infrastructure to meet the evolving needs of the Fund's
shareholders. The Fund will diligently strive to fulfill these
responsibilities with the highest standards of professionalism
and competence.
Furthermore, as the Fund's assets grow and its operational
requirements expand, the Fund intends to engage the services of
third-party service providers with proven expertise in these
areas. This strategic approach will enable us to leverage
specialized knowledge and resources, thereby enhancing the
overall quality of services provided to the Fund's shareholders.
As of this prospectus, the only third-party service provider the
Fund will retain will be its custodian.
The Fund's custodian is Interactive Brokers, LLC. The custodian
does not charge the Fund any custodian fees. However, the
custodian does charge the Fund a small transaction fee whenever
purchasing or selling securities for the Fund's portfolio.
E. Other Investment Advice-
The Fund receives all of its investment advice from the Fund's
investment adviser, Kestenbaum Capital, LLC.
F. Dealers Re-Allowances-
The Fund's shares have no sales loads upon purchase.
G. Rule 12b-1 Plans-
Under the provisions of Rule 12b-1 of the Investment Company Act
of 1940, fund companies are empowered to serve as distributors
of their own shares, with flexibility to levy a fee aimed at
covering distribution and marketing expenses. In adherence to
Rule 12b-1, the Fund has instituted a comprehensive plan
enabling the payment of distribution and marketing fees
pertaining to the sale and promotion of its shares.
As a strategic initiative to broaden the Fund's reach among
potential investors, the Fund aims to judiciously invest the
proceeds from the 12b-1 fee to increase the exposure of the
Fund. This strategic investment is designed to augment the
Fund's AUM by attracting new investors. The overarching goal is
to optimize and increase efficiencies of scale in order to
eventually and permanently lower the Fund's management fees.
The Fund's 12b-1 fee is established at an annual rate of 0.25%
of the Fund's AUM. The accrual of 12b-1 expenses from the Fund's
AUM takes place on each trading day, computed using the formula:
AUM * 12b-1 Annual Fee/252
The Fund's 12b-1 expenses will accumulate on a daily basis
(trading day basis) and will be calculated using the daily AUM.
12b-1 expense accruals are taken out of the Fund's AUM and are
represented by a lower Net Asset Value (NAV) for the investor.
Because these fees are paid out of the Fund's assets on an on-
going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of
sales charges.
The Fund's 12b-1 fee is reviewed and assessed on an annual
basis. With shareholder and board approval, the Fund may adjust
the fee percentage under certain conditions, such as significant
changes in AUM, distribution strategy, or regulatory
requirements.
As part of the Fund's 12b-1 plan, the Fund is committed to
utilizing the proceeds of the 12b-1 fee to reinvest in
additional shares of the Fund. The shares will be held in a
"12b-1 Fee Account" so that the capital gained from the 12b-1
fees can grow with the Fund. This could potentially enable the
Fund with greater flexibility and a marketing and distribution
budget greater than the total 12b-1 expenses charged on the
Fund's shareholders.
The assets in the Fund's "12b-1 Fee" account will be used
exclusively for distribution and marketing expenses, including,
but not limited to, advertising efforts, printing and delivering
prospectuses to potential efforts, and compensating future
third-party distributors. Any value not currently being used to
finance the Fund's advertising and distribution efforts will
remain in the Fund's "12b-1 Fee" account where it could
potentially grow.
The total value of the Fund's "12b-1 Fee" account will determine
the operating budget of the Fund's marketing and distribution
operations. The Fund currently does not have any active
distribution agreement with a third-party distributor nor has
the Fund begun any marketing operations, therefore the Fund does
not yet have a specific dollar amount it expects to invest in
marketing and distributing activities.
The Fund's commitment to communication involves updates to
investors regarding the purpose and impact of 12b-1 fees. Any
information regarding the status of the "12b-1 Fee" account's
balance in terms of account value, purchases and redemptions of
shares will be available upon shareholder request by contacting
KestenbaumCapital@gmail.com. Similarly, information regarding
marketing and distribution expenses taken from the "12b-1 Fee"
account will also be available upon shareholder request.
Furthermore, any transactions involving capital gained from the
redemption of shares from the "12b-1 Fee" account will be
reported to shareholders in the Fund's annual shareholder
report. Periodic reports are furnished to shareholders,
enhancing transparency regarding the utilization of these fees
and their effects on Fund expenses.
The Fund conducts an annual review of its "12b-1 Account" to
assess any remaining expenses that were not covered during the
previous year. The accumulated assets in the "12b-1 Account"
from the prior year will be carefully considered. Depending on
the available funds in the "12b-1 Account", these assets will be
either reinvested into the next year's 12b-1 budget for
marketing and distribution expenses or, if deemed appropriate,
distributed back to the Fund's investors in the form of
dividends. This approach ensures a diligent management of the
"12b-1 Account" to optimize its use for the benefit of the Fund
and its investors.
The Fund's 12b-1 plan has received approval through a vote of
the Fund's interested and non-interested directors. Any changes
to the 12b-1 plan will undergo thorough review and approval by
the board of directors. Shareholder approval is sought for
significant changes, ensuring alignment with investor
expectations.
The Fund's 12b-1 plan will continue in effect only if
specifically approved at least annually by the Fund's board of
directors (interested and non-interested members) and
shareholders via a majority vote of the Fund's outstanding
share. Significant plan amendments require approval from both
interested and non-interested members of the board.
The Fund's 12b-1 plan is subject to termination through a
majority vote either by the non-interested members of the board
or by the majority of outstanding voting securities.
As the Fund is yet to begin its investing operations, it has not
yet accrued any funds from the Fund's 12b-1 fees.
As of the date of this plan, the Fund does not currently
participate in joint distribution activities with another series
or investment company. The plan will be updated promptly to
reflect any changes in this regard.
No interested or non-interested director of the Fund has a
direct or indirect financial interest in the operation of the
Fund's 12b-1 plan.
H. Other Service Providers-
Not Applicable
I. Securities Lending-
The Fund has no intention on any activities relating to lending
securities.
Portfolio Managers
A. Other Accounts Managed-
Not Applicable
B. Compensation-
As both the Fund's portfolio manager and the owner of the Fund's
investment adviser are the same person, no compensation will be
made to the Fund's portfolio manager. Instead, the entirety of
the Fund's paid management fees will be allocated towards the
Fund's investment adviser.
As the Fund is in its pre-effective registration stage, it is
considered a New Fund, therefore the Fund hasn't earned any
revenue and thus no compensation has yet been made to anyone.
C. Ownership of Securities-
As the Fund is in its pre-effective registration stage, it is
considered a New Fund and thus the Fund has not issued any of
its securities to anybody yet.
Brokerage Allocation and Other Practices
A. Brokerage Transactions-
The Fund may pay brokerage fees or commissions on the
transactions of portfolio securities. The Fund may be charged a
fee for every purchase and sale of portfolio securities, as well
as additional fees relating to the purchase and sale of options,
such as OCC (Options Clearing Corporation) fees.
As the Fund is in its pre-effective registration stage it is
considered a New Fund and as such has not initiated its
investment strategy yet. Therefore, there is no historical data
relating to brokerage transactions to report on yet.
B. Commissions-
The Fund is in its pre-effective registration stage and thus is
considered a New Fund. Therefore, no brokerage commissions have
been paid yet.
C. Brokerage Selection-
The Fund will evaluate brokerages and decide on an appropriate
brokerage based on the brokerage's commission price and
availability.
The Fund currently does not have any specific set of policies or
procedures regarding brokerage selection.
D. Directed Brokerage-
Not Applicable.
E. Regular Broker-Dealers-
Not Applicable.
Capital Stock and Other Securities
A. Capital Stock-
The Fund will only provide one class of common shares. The
provisions and characteristics of the Fund's offered common
shares are consistent with the information provided by the
Fund's prospectus.
B. Other Securities-
The Fund will not offer any authorized security other than
capital stock.
Purchase, Redemption, And Pricing of Shares
A. Purchase of Shares-
As mentioned in the prospectus, purchases of the Fund's shares
can be made at the Fund's NAV per share.
B. Fund Reorganizations-
Not Applicable.
C. Offering Price-
As per the Fund's prospectus, shares of the Fund will be offered
at the Fund's NAV per share with no sales load or additional
offering price.
D. Redemption In Kind-
Not Applicable.
E. Arrangements Permitting Frequent Purchases and Redemptions-
Not Applicable.
Taxation Of The Fund
The Fund intends to qualify under Subchapter M of the Internal
Revenue Code.
Underwriters
The Fund is intended to be an open-ended, self-distributing,
registered investment company and as such, the Fund will act as
its own distributor (underwriter).
Calculation Of Performance Data
The Fund is currently in its pre-effective registration stage
and as such is considered a New Fund, therefore the relevant
information for this section does not yet exist. The Fund has
not yet initiated its investment strategy and therefore has no
performance data to calculate as of now.
The Fund will notify the SEC as well as update the prospectus
and SAI appropriately when new developments are made.
Financial Statements
The Fund is in its pre-effective registration stage and as such
is considered a New Fund. Furthermore, Kestenbaum Capital, LLC,
the Fund's management company, is in its inception and has not
yet amassed a financial record. Therefore, the Fund does not yet
have any financial statements to report yet.
This prospectus will be updated as developments are made.
The Fund will retain an auditor meeting the independence
requirements of Rule 2-01 of Regulation S-X.
PART C
OTHER INFORMATION
Exhibits
Exhibits A, B, C, D, E, G, I, M, O, and P are filed as separate
documents.
F. Bonus or Profit-Sharing Contracts- Not Applicable.
H. Other Material Contracts- Not Applicable.
J. Other Opinions- Not Applicable.
K. Omitted Financial Statements- Not Applicable.
L. Initial Capital Agreements- Not Applicable.
N. Rule 18f-3 Plan- Not Applicable.
Persons Controlled by Or Under Common Control with The Fund
Kestenbaum Capital, LLC, is the Fund's Investment Adviser as
well as the Fund's management company.
The Fund is fully controlled by Kestenbaum Capital, LLC.
As of this registration statement, Kestenbaum Capital, LLC does
not control any other fund or business organization.
Indemnification
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, 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 (SEC) such indemnification is against public policy
as expressed in the 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 director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, 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
the Act and will be governed by the final adjudication of such
issue.
No director, officer, underwriter or affiliated person of the
Fund is insured or indemnified against any liability incurred in
their official capacity.
Business And Other Connections of Investment Adviser
Not Applicable.
Principal Underwriters
The Fund is intended to be an open-ended, self-distributing,
registered investment company and as such, the Fund will act as
its own distributor (underwriter).
Location of Accounts and Records
Kestenbaum Capital, LLC maintains physical possession of
accounts and records required to be maintained by section 31(a)
[15 U.S.C. 80a-30(a)].
Kestenbaum Capital LLC is located at 11710 Old Georgetown Road,
Apt. 601, North Bethesda, Maryland.
Management Services
Not Applicable.
Undertakings
The Fund may raise its initial capital under the provisions of
section 14 of the United States Code (14(a)(3)[15 U.S.C. 80a-
14(a)(3)]). If so, the Fund will file an amendment to the
registration statement with certified financial statements
showing the initial capital received before accepting
subscriptions from more than 25 persons.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Fund has duly caused
this registration statement to be signed on its behalf by the
undersigned, duly authorized, in the city of Rockville, and
State of Maryland, on the 18th day of December, 2023.
Kestenbaum Capital, LLC
Roy Kestenbaum, CEO and Board Member
ROY KESTENBAUM
Ariela Kestenbaum, Chief Accounting Officer
ARIELA KESTENBAUM
Herbert Gutterman, Non-Interested Board Member
HERBERT GUTTERMAN
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
Kestenbaum Capital, LLC
Roy Kestenbaum, CEO and Board Member, December 18, 2023
ROY KESTENBAUM
Ariela Kestenbaum, Chief Accounting Officer, December 18, 2023
ARIELA KESTENBAUM
Herbert Gutterman, Non-Interested Board Member, December 18,
2023
HERBERT GUTTERMAN
Acknowledgement Number: 5000000007122590
STATE OF MARYLAND
Department ofAssessments and Taxation
I, Michael L. Higgs, Director of the State Department of
Assessments and Taxation, hereby certify that the
attached document, consisting of I pages, inscribed with
the same
Authentication Code, is a true copy of the public record of the
Articles of Organization
for
KESTENBAUM CAPITAL,
LLC
(Department ID: W23222920
I further certify that this document is a true copy generated
from the online service with the State Department of
Assessments and Taxation.
In witness whereof, I have hereunto subscribed my signature and
affixed the seal of the State Department of Assessments and
Taxation of Maryland at Baltimore on this September 01, 2022.
Michael L. Higgs
Director
301 West Preston Street, Baltimore, Maryland 21201
Telephone Baltimore Metro (410) 767-1344 /
Outside Baltimore Metro (888) 246-5941
MRS (Ma,yland Relay Service) (800) 735-2258 TT/V0ice
Online Certificate Authentication Code: WkyLIULQFUK6411mWPftWQ
To verify the Authentication Code, visit http://dat.maryland.gov/verify
Filing Date and Time: 8/19/2022 AM Acknowledgment Number: 5000000007122590
ARTICLES OF ORGANIZATION
The undersigned, with the intention of creating a Maryland Limited
Liability Company files the following
Articles of Organization:
(1) The name of the Limited Liability Company is:
Kestenbaum Capital, LLC (W23222920)
(2) The address of the Limited Liability Company in Maryland is:
11710 Old Georgetown Road, Apt 601, North Bethesda, MD, 20852
(3) In order to operate in Maryland, will the registering entity
require a business or industry license that is issued
by the state or any other local agency?
Uncertain
(4) The Resident Agent of the Limited Liability Company in Maryland is:
Roy Kestenbaum
whose address is:
11710 Old Georgetown Road, Apt 601, North Bethesda, MD, 20852
(5) Signature(s) of Authorized Person(s):
(6) Signature(s) of Resident
Agent(s):
Roy Kestenbaum
Roy Kestenbaum
(7) Filing party's name and return address:
I hereby consent to my designation in this
document.
Roy Kestenbaum, 11710 Old Georgetown Road, Apt 601 ,
North Bethesda, MD, 20852
MARYLAND STATE DEPARTMENT OF ASSESSMENTS & TAXATION
CHANGING 301 WEST PRESTON STREET, BALTIMORE, MARYLAND 21201-2395
SDAT40.2 Maryland for
the Better
Authentication Number: WkyLIULQFUK6411mWPftWQ Page I of I
KC Low Volatility PutWrite-CallWrite Q Fund
Kestenbaum Capital, LLC
12/18/2023
Exhibits
A. Articles of Incorporation-
*Uploaded As Separate PDF*
Operating Agreement-
Kestenbaum Capital LLC Operating Agreement
Updated May 9th, 2023
1. Formation of Kestenbaum Capital, LLC-
Kestenbaum Capital, LLC ("The LLC") is a Maryland limited
liability company formed on the first of September, 2022. The
initial member of the LLC is Roy Kestenbaum.
2. Kestenbaum Capital, LLC's Business Purpose and
Objectives- The LLC is in the business of developing,
managing, and maintaining investment funds and strategies. The
LLC also provides investment advisory services and acts as the
portfolio manager for the funds.
3. Member's Contributions and Interests-
The LLC's initial member has provided the LLC's initial capital
contributions. In the future, new members may be added to the
LLC. Their ownership stake will be dependent on their financial
and non-financial contributions to the LLC and their profit
sharing will be proportional to their ownership percentage of
the LLC.
4. Allocation of Profits and Losses-
All profits and losses will be held under the LLC.
If the LLC were to become insolvent or were to dissolve, the
LLC's profits would be distributed proportionally to its members
based on their equity stake in the corporation. Any unsettled
debt the LLC may owe will be paid off by the LLC's members
proportionally to their ownership stake in the LLC.
5. Management Structure and Decision Making-
As of this Operating Agreement, the LLC's sole member and
employee is Roy Kestenbaum, and as such all managerial decisions
are done by him. As the LLC recruits new members in the future,
managerial decisions will be agreed upon based on a vote by the
LLC's members. A 50% majority is needed in order to pass new
decisions. A member's voting power is proportional to the
member's ownership stake in the LLC. For example, a member with
20% ownership in the company will have 20% of the total voting
power.
6. Transfer of Membership Interests-
Membership in the LLC is non-transferrable. An individual who
becomes a member in the LLC cannot transfer their membership
interest to a third party.
All new potential members of the LLC will have to be approved by
a majority vote (>50%) of the existing members of the LLC.
7. Differentiation Between LLC Members and Fund
Shareholders- The LLC is in the business of developing and
managing investment management companies and as such, there
will be shareholders of the LLC's underlying funds.
It is important to differentiate between members of the LLC and
shareholders of the LLC's underlying funds.
Shareholders of the LLC's underlying funds become shareholders of
the underlying funds by purchasing shares of the LLC's fund at
that fund's respective NAV. Fund shareholders are NOT considered
members of the LLC.
Members of the LLC are NOT shareholders of the LLC's underlying
funds (unless they have previously purchased shares at the
fund's NAV) and do NOT become shareholders of any underlying
fund of the LLC by becoming members of the LLC.
LLC members are considered owners of Kestenbaum Capital, LLC and
NOT owners of any shares in any of the LLC's underlying funds.
Upon meeting certain requirements and conditions set forth by
the existing LLC members, new potential LLC members can be voted
into that position by a simple majority vote of the existing LLC
members.
8. Dissolution and Termination-
The LLC has no expiration date and will only dissolve under the
following circumstances:
a. Severe insolvency.
b. Unanimous member agreement- if all of the LLC's
members unanimously agree to dissolve the LLC.
c. Lack of LLC members- if, for any reason, the LLC does
not have any members available for the continuation of
the LLC's operations.
d. Court order
Upon termination of the LLC, the LLC's assets will be liquidated,
liabilities will be paid off proportionately by its members, and
any remaining assets leftover will be distributed to the LLC's
members proportionate to each member's ownership stake of the
LLC.
9. Dispute Resolution-
Any dispute arising from disagreements between members will be
resolved by a vote of the LLC's members.
LLC members may agree to appoint a third-party mediator to help
resolve the dispute if the disputing parties both agree to such.
10. Amendments to the Operating Agreement-
The LLC's members will be given notice of any proposed amendment
to the LLC's operating agreement. Once all members have been
notified of the proposed amendment, the proposal will be voted
upon by the LLC's members. The vote will be a majority vote
(over 50%), where each member's voting power is proportionate to
their individual ownership stake in the LLC.
KC Low Volatility PutWrite-CallWrite Q Fund
Kestenbaum Capital, LLC
12/18/2023
Exhibits
B. By-Laws- Kestenbaum Capital, LLC Bylaws
Kestenbaum Capital, LLC Bylaws Updated
May 9th, 2023
1. Name and Purpose of the LLC-
Kestenbaum Capital, LLC ("The LLC"). The primary purpose of the
LLC is to generate positive returns by developing, managing, and
maintaining investment companies registered under the Investment
Company Act of 1940.
2. Management Structure-
The LLC is wholly owned by its founder, Roy Kestenbaum. Roy
Kestenbaum will act as the LLC's president, as such he will be
responsible for the allocation of the LLC's working staff and
assets.
3. Member's Voting-
The LLC has only one current member. Upon the inclusion of
additional members, the LLC will hold votes upon arising issues
relevant to the LLC's operation. Voting will be done on a pro
rata basis, such that each member's voting power is
proportionate to its ownership stake in the LLC.
4. Recordkeeping and Reporting-
As the LLC is in the business of developing and managing
investment companies registered under the Investment Company Act
of 1940, the LLC will comply with the recordkeeping and
reporting requirements pursuant to the SEC, IRS, the Investment
Company Act of 1940, and other regulatory bodies and acts.
5. Differentiation Between LLC Members and Fund Shareholders-
The LLC is in the business of developing and managing investment
management companies and as such, there will be shareholders of
the LLC's underlying funds.
It is important to differentiate between members of the LLC and
shareholders of the LLC's underlying funds.
Shareholders of the LLC's underlying funds become shareholders of
the underlying funds by purchasing shares of the LLC's fund at
that fund's respective NAV. Fund shareholders are NOT considered
members of the LLC.
Members of the LLC are NOT shareholders of the LLC's underlying
funds (unless they have previously purchased shares at the
fund's NAV) and do NOT become shareholders of any underlying
fund of the LLC by becoming members of the LLC.
LLC members are considered owners of Kestenbaum Capital, LLC and
NOT owners of any shares in any of the LLC's underlying funds.
Upon meeting certain requirements and conditions set forth by
the existing LLC members, new potential LLC members can be voted
into that position by a simple majority vote of the existing LLC
members.
6. Dissolution and Termination-
The LLC has no expiration date and will only dissolve under the
following circumstances:
a. Severe insolvency.
b. Unanimous member agreement- if all of the LLC's
members unanimously agree to dissolve the LLC.
c. Lack of LLC members- if, for any reason, the LLC does
not have any members available for the continuation of
the LLC's operations.
d. Court order
Upon termination of the LLC, the LLC's assets will be liquidated,
liabilities will be paid off proportionately by its members, and
any remaining assets leftover will be distributed to the LLC's
members proportionate to each member's ownership stake of the
LLC.
7. Amendments to Bylaws-
The LLC's members will be given notice of any proposed amendment
to the LLC's bylaws. Once all members have been notified of the
proposed amendment, the proposal will be voted upon by the LLC's
members. The vote will be a majority vote (at least 50%), where
each member's voting power is proportionate to their individual
ownership stake in the LLC.
KC Low Volatility PutWrite-CallWrite Q Fund
Kestenbaum Capital, LLC
12/18/2023
Exhibits
C. Instruments Defining Rights of Security Holders
All rights and instruments defining the rights of the Fund's
security holders are explained in their entirety in the Fund's
prospectus.
KC Low Volatility PutWrite-CallWrite Q Fund
Kestenbaum Capital, LLC
12/18/2023
Exhibits
D. Investment Advisory Contract
INVESTMENT ADVISORY CONTRACT
Kestenbaum Capital, LLC ("The Investment Adviser"), hereby agrees
to provide investment advice for the "KC LOW VOLATILITY
PUTWRITE-CALLWRITE Q Fund" ("The Fund"). Kestenbaum Capital,
LLC, will develop, implement, and modify the Fund's investment
strategy as deemed fit by The Investment Adviser and the Fund's
board of directors, ensuring that any alteration or
modifications to the Fund's principal investment strategy are
approved by the Fund's board of directors prior to execution by
the Investment Adviser.
The Investment Adviser will act in a fiduciary capacity to the
Fund and will prioritize the Fund's investment objectives and
goals over The Investment Adviser's objectives and goals. The
Investment Adviser will provide its services to the Fund
indefinitely, and such provision shall remain in effect only if
expressly approved at least annually by the board of directors
or by the affirmative vote of a majority of the outstanding
voting securities of the Fund. The advisory services shall
continue until such time as either party decides to terminate
this Investment Advisory agreement. In the event of termination,
the party initiating termination shall provide written notice to
the other party.
This Investment Advisory contract may be terminated at any time,
without the payment of any penalty, by the board of directors of
the Fund or by vote of a majority of the Fund's outstanding
shares on not more than sixty days written notice to the
Investment Adviser.
The Investment Adviser has the right to provide investment advice
and other related services to any other fund, individual,
organization, or business.
Similarly, the Fund has the right to employ the services of other
investment advisory firms in order to meet its investment
objectives and goals.
The Investment Adviser will be compensated according to the
Fund's prospectus. The Fund's management fee, as mentioned in
the prospectus, will be the Investment Adviser's compensation
for its services to the Fund.
The Investment Adviser does not charge a prepaid fee and as such
no prepaid fee will be returned in the event of contract
termination or nonperformance.
This contract grants the Investment Adviser the authority to
exercise full discretionary power over the day-to-day management
of the Fund's investments, subject to oversight and approval by
the Fund's board of directors. "Full discretionary power" means
that the Investment Adviser is empowered to make independent
investment decisions and execute transactions on behalf of the
Fund within established guidelines and the Fund's stated
objective. Major decisions and changes made by the Investment
Adviser are subject to review and approval by the Fund's board
of directors to ensure alignment with the Fund's overall
strategy and goals.
This contract shall be automatically terminated upon assignment
by the Investment Adviser. Such termination shall take effect
without the need for consent from the Fund.
SIGNATURES
I, Roy Kestenbaum, President and Authorized Person of Kestenbaum
Capital, LLC, agree to the terms and conditions set forth in
this Investment Advisory Contract.
ROY KESTENBAUM
I, Roy Kestenbaum, portfolio manager of the "KC LOW VOLATILITY
PUTWRITE-CALLWRITE Q Fund", agree to the terms and conditions
set forth in this Investment Advisory Contract
ROY KESTENBAUM
KC Low Volatility PutWrite-CallWrite Q Fund
Kestenbaum Capital, LLC
12/18/2023
Exhibits
E. Underwriting Contracts
The Fund will self-distribute and as such will not employ the
services of a third-party underwriter.
As a self-distributing fund, the Fund must comply with Anti-
Money Laundering (AML) and Know Your Client (KYC) requirements
by implementing an AML and KYC program. The program is as
follows:
Anti-Money Laundering and Know Your Client Program-
The following program outlines the policies, procedures, and
controls that the Fund will implement in order to comply with
applicable Anti-Money Laundering (AML) and Know Your Client
(KYC) laws and regulations.
The program applies to all employees and agents who conduct
business on behalf of the Fund.
1. Designation of AML Officer-
The Fund will ensure that it has a designated AML officer who
will be responsible for the oversight and administration of the
AML program.
The AML officer will ensure that the program is updated as
necessary and that all employees and relevant parties are
trained on its policies and procedures.
2. Customer Identification Program (CIP)-
The Fund will establish and maintain a CIP to identify and
verify the identity of the investors.
The CIP will include procedures for verifying the identity of
individuals and legal entities, including beneficial owners,
through reliable sources and applies to all investors who open a
new account with the Fund or any other investment companies in
the Fund's family.
The Fund's CIP is as follows:
a. Identification Procedures for Individuals-
The Fund will obtain the following information from
each individual investor:
1. Full name
2. Date of birth
3. Residential address
4. Taxpayer identification number or social security
number
5. Any other identifying information as required by
law or regulation
The Fund will verify the identity of each individual
investor using reliable and independent sources of
information.
b. Identification Procedures for Legal Entities- The Fund
will obtain the following information from each new
legal entity investor:
1. Name
2. Legal form (i.e., corporation, partnership,
trust)
3. Address
4. Employer identification number or other
identifying number as required by law or
regulation
5. Any other identifying information as required by
law or regulation
The Fund will verify the identity of each legal entity
investor using reliable and independent sources of
information, such as a corporate charter or articles
of incorporation.
c. Beneficial Ownership Identification and Verification-
The Fund will identify and verify the identity of
beneficial owners of legal entity investors, as required
by law or regulation.
The Fund will obtain the following information about
each beneficial owner:
1. Full name
2. Date of birth
3. Residential address
4. Taxpayer identification number or social security
number
5. Any other identifying information as required by
law or regulation
The Fund will verify the identity of each beneficial
owner using reliable and independent sources of
information, such as a government issued ID.
3. Risk Assessment-
The Fund will conduct a periodic risk assessment to identify the
specific money laundering and terrorist financing risks that it
faces. The Fund will tailor its policies, procedures, and
controls to mitigate risks based on the risk assessment.
4. Ongoing Monitoring-
The Fund will monitor its investor's accounts for suspicious
activity and/or transactions. The Fund will establish procedures
for reporting any suspicious activity, including the filing of
suspicious activity reports (SARs) with the relevant regulatory
authorities.
5. Employee Training-
The Fund will provide regular training to its employees on AML
and KYC policies and regulations, including identification of
red flags, suspicious activity reporting, and the importance of
maintaining the confidentiality of customer information.
6. Recordkeeping-
The Fund will maintain records of all investor's identification
and verification activities, as well as monitoring and reporting
of suspicious activity. The Fund will retain these records in
accordance with applicable laws and regulations.
7. Testing and Review-
The Fund will periodically review and test the effectiveness of
its AML and KYC program.
8. Reporting and Oversight-
The Fund will report on its AML and KYC program to its board of
directors on a regular basis. The Fund's AML officer will be
responsible for overseeing the program and ensuring that it
remains effective and in compliance with all applicable laws and
regulations.
3204 | 12/20/2022
Interactive Brokers Institutional Services Customer Agreement
A. GENERAL PROVISIONS:
1. Customer Agreement: This Agreement ("Agreement") governs
the relationship between Customer and Interactive
Brokers LLC ("IB") for Execution and/or Settlement and
Carrying Services. If provisions of this Agreement vary
from the IB website or from other agreements between the
parties, including but not limited to the FIA Uniform
Brokerage Services Agreement or the SIA Prime Brokerage
Agreement, this Agreement controls. This Agreement
cannot be amended or waived except in writing by an IB
officer. Customer Service employees cannot amend or
waive any part of this Agreement.
2. Order Execution: Orders subject to this Agreement may be
executed: a) by IB or b) by an Executing Broker and
given up to IB for settlement and carrying by IB but
only if that Executing
Broker and IB (as Prime Broker) have signed an agreement
(such as the SIA Prime Brokerage Agreement and/or FIA
Uniform Brokerage Services Give Up Agreement) providing
for IB to take up Customer trades executed by that
Executing Broker.
3. Trade Settlement and Carrying of Account: Trades may be:
a) settled and carried by IB or b) given up by IB for
settlement and carrying by such other broker-dealers or
futures commission merchants as Customer may designate
as Customer's Prime Brokers, but only if IB has entered
into an agreement (such as the SIA Prime Brokerage
Agreement and/or FIA Uniform Brokerage Services Give Up
Agreement) with Customer's Prime Brokers with respect to
such transactions.
4. No Investment, Tax or Trading Advice: IB representatives
are not authorized to provide investment, tax or trading
advice or to solicit orders. Nothing on IB's website is
a recommendation or solicitation to buy or sell
securities, futures or other investments.
5. Customer Qualification: Customer and its authorized
representatives warrant that Customer: (i) is authorized
under its governing document(s) and in the jurisdictions
in which it is organized and/or regulated to enter this
Agreement and trade (including on margin if applicable);
(ii) is under no legal incapacity; and (iii) that
persons identified to enter orders have proper authority
and have sufficient knowledge and experience to
understand the nature and risks of the products to be
traded.
6. Responsibility for Customer Orders/Trades: Customer
acknowledges that IB does not know whether someone
entering orders with Customer's user name/password is
Customer. Unless IB is notified and agrees, Customer
will not allow anyone to access Customer's account.
Customer is responsible for the confidentiality and use
of Customer's user name/password and agrees to report
any theft/loss of such user name/password, or any
unauthorized access to Customer's account, immediately
by telephone or electronically through the IB website.
Customer remains responsible for all transactions
entered using Customer's user name/password.
7. IB-Executed Orders: IB shall execute Customer orders as
agent, unless otherwise confirmed. IB can execute
Customer orders as principal. IB may use another broker,
or an affiliate, to execute orders, and they have
benefit of all IB's rights hereunder. Unless otherwise
directed, IB will select the market/dealer to which to
route Customer's orders. For products traded at multiple
markets, IB may provide "Smart Routing", which seeks the
best market for each order through a computerized
algorithm. Customer should choose Smart Routing if
available. If Customer directs orders to a particular
market, Customer assumes responsibility for knowing and
trading in accordance with the rules and policies of
that market (e.g., trading hours, order types, etc.).
Customer acknowledges that it may not be possible to
cancel/modify an order and that Customer is responsible
for executions notwithstanding a cancel/modify request.
Customer understands that IB, in its sole discretion,
may refuse to accept or execute transactions on
Customer's behalf or restrict or prohibit trading in
Customer's account(s).
8. Proprietary Trading - Display of Customer Orders:
Subject to all laws and regulations and subject to
information barriers in place between IB and its
affiliates engaged in proprietary trading, Customer
authorizes IB to execute proprietary trades of itself
and its affiliates, though IB may simultaneously hold
unexecuted Customer orders for the same products at the
same price.
9. Confirmations: Customer agrees to monitor each order
until IB confirms execution or cancellation. Customer
acknowledges that confirmations of executions or
cancellations may be delayed or may be erroneous (e.g.
due to computer system issues) or may be
cancelled/adjusted by an exchange. Customer is bound by
the actual order execution, if consistent with
Customer's order. Customer agrees to notify IB
immediately by telephone or electronically through the
IB website if: i) Customer fails to receive an accurate
confirmation of an execution or cancellation; ii)
Customer receives a confirmation that is different than
Customer's order; iii) Customer receives a confirmation
for an order that Customer did not place; or iv)
Customer receives an account statement, confirmation, or
other information reflecting inaccurate orders, trades,
balances, positions, margin status or transaction
history. Customer acknowledges that IB may adjust
Customer's account to correct any error. Customer agrees
to promptly return to IB any assets erroneously
distributed to Customer. All transactions are subject to
rules and policies of relevant markets and
clearinghouses, and applicable laws and regulations.
IB IS NOT LIABLE FOR ANY ACTION OR DECISION OF ANY
EXCHANGE, MARKET, DEALER, CLEARINGHOUSE OR REGULATOR.
10. Commissions and Fees, Interest Charges, Funds:
Commissions and fees are at the rates specified on the
IB website unless a specific commission/fee schedule has
been agreed in writing between Customer and IB. If no
written commission/fee schedule has been agreed between
Customer and IB, changes to commissions/fees are
effective immediately upon either of: posting on the IB
website or email or other written notice to Customer.
Unpaid balances and account deficits accrue interest at
the rate of 1% per month. Customer agrees to pay
reasonable costs of collection for any unpaid Customer
deficit or balance, including attorneys' and collection
agent fees.
a. For accounts carried by IB: Customer acknowledges
that IB deducts commissions/fees from Customer
accounts, which will reduce account equity.
Positions will be liquidated if commissions or
other charges cause a margin deficiency. IB shall
pay credit interest to and charge debit interest
from Customer at interest rates and terms on the
IB website, unless otherwise agreed in writing.
Customer funds will not be disbursed until after
transactions are settled. Terms and conditions for
deposit and withdrawal of funds (including holding
periods) are as specified on the IB website.
b. For accounts not carried by IB: Customer shall pay
commissions and fees within ten days of receipt of
IB's statement.
11. Suspicious Activity: If IB in its sole discretion
believes that a Customer account has been involved in
any fraud or crime or violation of laws or regulations,
or has been accessed unlawfully, or is otherwise
involved in any suspicious activity (whether victim or
perpetrator or otherwise), IB may suspend or freeze the
account or any privileges of the account, may freeze or
liquidate funds or assets or may utilize any of the
remedies in this Agreement for a "Default".
12. Security Interest: All Customer assets of any kind held
by or on behalf of IB for Customer's account are hereby
pledged to IB and are subject to a perfected first
priority lien and security interest in IB's favor to
secure performance of obligations and liabilities to IB
arising under this or any other Agreement.
13. No Restricted Securities: Unless Customer has notified
IB to the contrary, no assets held as Collateral are
restricted securities, as such term is defined pursuant
to Rule 144 under the Securities Act of 1933, (the
Securities Act), or securities of an issuer with which
Customer is an affiliate, and Customer will not attempt
to sell such shares through IB without prior notice to
and consent of IB.
14. Event of Default: A "Default" occurs automatically,
without notice upon: (i) Customer breach/repudiation of
any agreement with IB; (ii) Customer failure to provide
assurance satisfactory to IB of performance of an
obligation, after request from IB in IB's sole
discretion; (iii) proceedings by/against Customer under
any bankruptcy, insolvency, or similar law; (iv)
assignment for the benefit of Customer's creditors; (v)
appointment of a receiver, trustee, liquidator or
similar officer for Customer or Customer property; (vi)
Customer representations being untrue or misleading when
made or later becoming untrue; (vii) legal incompetence
of Customer; (viii) proceeding to suspend Customer
business or license by any regulator or organization;
(ix) IB having reason to believe that any of the
foregoing is likely to occur imminently.
Customer unconditionally agrees that, upon a Default, IB
may terminate any or all IB's obligations to Customer
and IB shall have the right in its discretion, but not
the obligation, without prior notice, to liquidate all
or any part of Customer's positions in any IB account,
individual or joint, at any time and any manner and
through any market or dealer. Customer shall reimburse
and hold IB harmless for all actions, omissions, costs,
fees (including, but not limited to, attorney's fees),
or liabilities associated with any Customer Default or
any transaction undertaken by IB upon Default.
15. Risks of Foreign Markets; After Hours Trading: Customer
acknowledges that trading securities, options, futures,
currencies, or any product on a foreign market is
speculative and involves high risk. There also are
special risks of trading outside ordinary market hours,
including risk of lower liquidity, higher volatility,
changing prices, un-linked markets, news announcements
affecting prices, and wider spreads. Customer represents
that Customer is knowledgeable and able to assume these
risks.
16. Risks Regarding Political and Governmental Actions:
Governments of countries in which IBKR clients reside,
or countries in which IBKR clients invest, may take
economic and/or political actions that are adverse to
investors and such actions may negatively affect
Customer's account. Customer agrees that IBKR is not
liable for such actions. For example, if Customer
invests in securities, futures, foreign currency or
other investment products in a foreign jurisdiction,
such assets, or cash to secure such assets, typically
will be held at a bank, clearinghouse or other facility
in such foreign jurisdiction. Assets and cash held in
foreign jurisdictions are inherently vulnerable to the
risk that the government in such jurisdiction could
freeze or confiscate or take some other action against
such assets for some purpose, temporarily or
permanently. Likewise, even with respect to investments
within Customer's own country, governments may freeze or
take other action against such assets on the basis of
political, economic, or military conflict. Customer
acknowledges and agrees that IBKR (and its affiliates)
cannot and will not protect Customer from actions by any
governmental, political, military, or economic actor
that may adversely impact Customer's assets held by
IBKR, its agents or subcustodians. Customer agrees that
that IBKR (and its affiliates) is not liable for any
losses or damages Customer may incur as a result of any
such action.
17. Knowledge of Securities, Warrants and Options; Corporate
Actions: Customer acknowledges Customer's responsibility
for knowing the terms of any securities, futures
contracts, options, warrants or other products in
Customer's account, including upcoming corporate actions
(e.g., tender offers, reorganizations, stock splits,
etc.). IB has no obligation to notify Customer of
deadlines or required actions or dates of meetings, nor
is IB obligated to take any action without specific
written instructions sent by Customer to IB
electronically through the IB website.
18. Quotes, Market Information, Research and Internet Links:
Quotes, news, research and information accessible
through IB (including through links to outside websites)
("Information") may be prepared by independent
Providers. The Information is the property of IB, the
Providers or their licensors and is protected by law.
Customer agrees not to reproduce, distribute, sell or
commercially exploit the Information in any manner
without written consent of IB or the Providers. IB
reserves the right to terminate access to the
Information. None of the Information constitutes a
recommendation by IB or a solicitation to buy or sell.
Neither IB nor the Providers guarantee
accuracy, timeliness, or completeness of the
Information, and Customer should consult an advisor
before making investment decisions. RELIANCE ON QUOTES,
DATA OR OTHER
INFORMATION IS AT CUSTOMER'S OWN RISK. IN NO EVENT WILL
IB OR THE PROVIDERS
BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR
INDIRECT DAMAGES
ARISING FROM USE OF THE INFORMATION. THERE IS NO
WARRANTY OF ANY KIND,
EXPRESS OR IMPLIED, REGARDING THE INFORMATION, INCLUDING
WARRANTY OF MERCHANTIBILITY, WARRANTY OF FITNESS FOR A
PARTICULAR USE OR WARRANTY OF NON-INFRINGEMENT.
19. License to Use IB Software: IB grants Customer a non-
exclusive, non-transferable license to use IB Software
solely as provided herein. Title to IB Software and
updates shall remain the sole property of IB, including
all patents, copyrights and trademarks. Customer shall
not sell, exchange or transfer the IB Software to
others. Customer shall not copy, modify, translate,
decompile, reverse engineer, disassemble or reduce to a
human readable form, or adapt, the IB Software or use it
to create a derivative work, unless authorized in
writing by an officer of IB. IB is entitled to immediate
injunctive relief for threatened breaches of these
undertakings.
20. LIMITATION OF LIABILITY AND LIQUIDATED DAMAGES
PROVISION: CUSTOMER ACCEPTS
THE IBKR SYSTEM "AS IS", AND WITHOUT WARRANTIES, EXPRESS
OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR
FITNESS FOR A PARTICULAR USE, PURPOSE OR APPLICATION;
TIMELINESS; FREEDOM
FROM INTERRUPTION; OR ANY IMPLIED WARRANTIES ARISING
FROM TRADE USAGE,
COURSE OF DEALING OR COURSE OF PERFORMANCE. UNDER NO
CIRCUMSTANCES
SHALL IB BE LIABLE FOR ANY PUNITIVE, INDIRECT,
INCIDENTAL, SPECIAL OR
CONSEQUENTIAL LOSS OR DAMAGES, INCLUDING LOSS OF
BUSINESS, PROFITS OR
GOODWILL. IB SHALL NOT BE LIABLE TO CUSTOMER FOR ANY
SYSTEM FAILURE (AS
DEFINED IN PARAGRAPH A.21), DELAYS OR INTERRUPTIONS OF
SERVICE OR
TRANSMISSIONS, OR FAILURES OF PERFORMANCE OF THE IBKR
SYSTEM,
REGARDLESS OF CAUSE, INCLUDING, BUT NOT LIMITED TO,
THOSE CAUSED BY
HARDWARE OR SOFTWARE MALFUNCTION; HUMAN ERROR;
GOVERNMENTAL,
EXCHANGE OR OTHER REGULATORY ACTION; ACTS OF GOD; WAR,
TERRORISM, OR
IB'S INTENTIONAL ACTS. CUSTOMER RECOGNIZES THAT THERE
MAY BE DELAYS OR INTERRUPTIONS IN THE USE OF THE IBKR
SYSTEM, INCLUDING, FOR EXAMPLE, THOSE
CAUSED INTENTIONALLY BY IB FOR PURPOSES OF SERVICING THE
IBKR SYSTEM, OR
BY IB'S FAILURE TO ACT TO PREVENT SERVICE DISRUPTION OR
SYSTEM FAILURE (AS
DEFINED IN PARAGRAPH A.21). IN NO EVENT SHALL IB'S
LIABILITY, REGARDLESS OF
THE FORM OF ACTION AND DAMAGES SUFFERED BY CUSTOMER,
EXCEED THE AGGREGATE COMMISSIONS PAID BY CUSTOMER TO IB
OVER THE 6 MONTHS PRIOR TO THE EVENT GIVING RISE TO
CUSTOMER'S CLAIM. .
21. System Failure and Alternative Trading Arrangements:
Customer acknowledges that IBKR uses computer-based
automated systems in connection with providing services,
including but not limited to: the receipt and handling
of orders; the execution and cancellation of orders;
order and trade confirmation; the clearing and
settlement of transactions; tax-related reporting; the
delivery of corporate action information; account
management; storing and processing account information;
and risk management, (collectively, "IBKR System").
Customer understands that the use of IBKR System entails
risks, including but not limited to: interruption or
delays of service and systems, network or communications
failures; cyberattacks; and errors in the design or
functionality of such IBKR Systems (collectively, a
"System Failure") that could cause damage, expense, or
liability to Client.
IBKR is not liable to Customer for any loss Customer may
suffer due to any System Failure. In order to mitigate
the risk of loss to Customer that may be caused by a
System Failure, Customer acknowledges that it should
maintain alternative trading arrangements of sufficient
capacity and utility to allow Customer to open, close or
change positions as necessary to modify risk of loss to
Client during a System Failure. By not maintaining
alternative trading arrangements, Customer expressly
assumes the risk of not being able to process
transactions, including executing trades, through
Customer's account at IBKR in the event of a System
Failure. Customer agrees that IBKR's commissions and
fees charged under this Agreement reflect the allocation
of risk between the parties, including the allocation of
risk under this Paragraph A.21 and the limitation of
liability in Paragraph A.20. Customer acknowledges that
IBKR's commissions and fees charged by IBKR would be
higher or IBKR would not have entered into this
Agreement without this allocation of risk and limitation
of liability.
22. Consent To Accept Electronic Records And Communications:
IB provides electronic trade confirmations, account
statements, tax information, proxy materials and other
Customer records and communications (collectively,
"Records and Communications") in electronic form to the
maximum extent permitted by applicable law. Electronic
Records and Communications may be sent to Customer's
Trader Workstation ("TWS") or to Customer's e-mail
address, or for security purposes may be posted on the
IB website or on the secure website of one of IB's
service providers and customer will need to log in and
retrieve the Communication. By entering into this
Agreement, Customer consents to the receipt of
electronic Records and Communications. Such consent will
apply on an ongoing basis and for every tax year unless
withdrawn by Customer. Customer may withdraw such
consent at any time by providing electronic notice to IB
through the
IB website. If Customer withdraws such consent, IB will
provide required Records and Communications (e.g., tax
documents, proxy materials, etc.) in paper form upon
request by telephone or via the IB website. However, IB
reserves the right to require Customer to close
Customer's account if Customer withdraws consent to
receiving electronic delivery of Records and
Communications. In order to trade using the IB TWS, and
to receive Records and
Communications through the TWS, there are certain system
hardware and software requirements, which are described
on the IB Website at www.interactivebrokers.com. Since
these requirements may change, Customer must
periodically refer to the IB website for current system
requirements. To receive electronic mail from IB,
Customer is responsible for maintaining a valid Internet
e-mail address and software allowing customer to read,
send and receive e-mail. Customer must notify IB
immediately of a change in Customer's e-mail address by
using those procedures to change a Customer e-mail
address that may be available on the IB website.
B. PROVISIONS RELATING TO TRADES AND POSITIONS TO BE SETTLED OR
CARRIED BY IB:
1. Application: The provisions of this Section B shall
apply to trades and positions: a) executed, settled and
carried by IB; or b) executed by another Executing
Broker and given up to IB for settlement and carrying;
or c) trades or positions that Customer's Prime Broker
indicates its intention not to settle or take up, or
fails to settle or take up.
2. Margin:
a. Requirement to Maintain Sufficient Margin
Continuously: Margin transactions are subject to
initial and maintenance margin requirements of
exchanges, clearinghouses and regulators and also
to any additional margin requirement of IB, which
may be greater ("Margin Requirements"). IB MAY
MODIFY MARGIN REQUIREMENTS FOR ANY OR ALL
CUSTOMERS FOR ANY OPEN OR NEW POSITIONS AT ANY
TIME, IN IB'S SOLE DISCRETION.
CUSTOMER SHALL MAINTAIN, WITHOUT NOTICE OR DEMAND,
SUFFICIENT EQUITY AT ALL TIMES TO CONTINUOUSLY MEET
MARGIN REQUIREMENTS.
CUSTOMER SHALL MONITOR ITS ACCOUNT SO THAT AT ALL
TIMES THE ACCOUNT CONTAINS SUFFICIENT EQUITY TO
MEET MARGIN REQUIREMENTS. IF THE ACCOUNT HAS
INSUFFICIENT EQUITY TO MEET MARGIN
REQUIREMENTS, IB MAY REJECT ANY ORDER SUBMITTED BY CUSTOMER OR
DECLINE TO ACCEPT FOR SETTLEMENT (OR MAY "DK" OR
DISAFFIRM OR
RETURN) OR MAY LIQUIDATE ANY POSITION SUBMITTED TO
IB BY EXECUTING BROKER FOR SETTLEMENT. Formulas
for calculating Margin Requirements on the IB
website are indicative only and may not reflect
actual Margin Requirements. Customer must at all
times satisfy whatever Margin Requirement is
calculated by IB.
b. IB Will Not Issue Margin Calls: IB does not have
to notify Customer of any failure to meet Margin
Requirements prior to IB exercising its rights
under this Agreement. Customer acknowledges that
IB generally will not issue margin calls;
generally will not credit Customer's account to
meet intraday or overnight margin deficiencies;
and is authorized to liquidate account positions
in order to satisfy Margin Requirements without
prior notice.
c. Liquidation of Positions and Offsetting
Transactions:
i. IF AT ANY TIME CUSTOMER'S ACCOUNT HAS INSUFFICIENT EQUITY
TO MEET MARGIN REQUIREMENTS OR IS IN
DEFICIT, IB HAS THE
RIGHT, IN ITS SOLE DISCRETION, BUT NOT THE
OBLIGATION, TO
LIQUIDATE ALL OR ANY PART OF CUSTOMER'S
POSITIONS IN ANY OF
CUSTOMER'S IB ACCOUNTS, AT ANY TIME AND IN
ANY MANNER AND THROUGH ANY MARKET OR DEALER,
WITHOUT PRIOR NOTICE OR
MARGIN CALL TO CUSTOMER. CUSTOMER SHALL BE
LIABLE AND
WILL PROMPTLY PAY IB FOR ANY DEFICIENCIES IN
CUSTOMER'S
ACCOUNT THAT ARISE FROM SUCH LIQUIDATION OR
REMAIN AFTER
SUCH LIQUIDATION. IB HAS NO LIABILITY FOR
ANY LOSS SUSTAINED
BY CUSTOMER IN CONNECTION WITH SUCH
LIQUIDATIONS (OR IF
THE IBKR SYSTEM DELAYS EFFECTING, OR DOES
NOT EFFECT, SUCH LIQUIDATIONS) EVEN IF
CUSTOMER RE-ESTABLISHES ITS POSITION AT A
WORSE PRICE.
ii. IB may allow Customer to pre-request the
order of liquidation in event of a margin
deficiency, but such requests are not
binding on IB and IB retains sole discretion
to determine the assets to be liquidated and
the order/manner of liquidation. IB may
liquidate through any market or dealer, and
IB or its affiliates may take the other side
of the transactions consistent with laws and
regulations. If IB liquidates any/all
positions in Customer's account, such
liquidation shall establish Customer's
gain/loss and remaining indebtedness to IB,
if any. Customer shall reimburse and hold IB
harmless for all actions, omissions, costs,
fees (including, but not limited to,
attorney's fees), or liabilities associated
with any such transaction undertaken by IB.
If IB executes an order (or receives for
settlement from Customer's Executing Broker
a position) for which Customer did not have
sufficient equity, IB has the right, without
notice, to liquidate the position (or to
liquidate any other positions in Customer's
account sufficient to restore account equity
to comply with margin requirements) and
Customer shall be responsible for any
resulting loss.
iii. If IB does not, for any reason, liquidate
under-margined positions, and issues a
margin call, Customer must satisfy such call
immediately by depositing funds. Customer
acknowledges that even if a call is issued,
IB still may liquidate positions at any
time.
iv. Customer acknowledges that IB also has the
right to liquidate all or part of Customer's
positions without prior notice: (i) if any
dispute arises concerning any Customer
trade, (ii) upon any "Default" as described
in this Agreement, or (iii) whenever IB
deems liquidation necessary or advisable for
IB's protection.
3. Universal Accounts: An IB Universal Account is two
underlying accounts: an SEC-regulated securities account
and a CFTC-regulated commodity account. Customer
authorizes transfers between the securities and
commodity accounts to cover Margin Requirements and
other obligations, and acknowledges IB may liquidate
positions to cover obligations in the other account.
Customer authorizes IB to provide combined
confirmations/statements for both accounts. Customer
acknowledges that only assets in the securities account
are covered by SIPC protection and excess coverage and
not assets in the commodity account.
4. Short Sales: Customer acknowledges that short sales must
be done in a margin account, subject to Margin
Requirements; that prior to selling short, IB must
believe it can borrow stock for delivery; and that if IB
cannot borrow stock (or re-borrow after a recall notice)
IB may buy-in stock on Customer's behalf, without notice
to Customer, to cover short positions and Customer is
liable for any losses/costs.
5. IB's Right to Loan/Pledge Customer Assets: As allowed by
law, IB is authorized by Customer to lend to itself or
others Customer securities or assets. IB may, without
notice, pledge, re-pledge, hypothecate or re-hypothecate
Customer securities and assets, separately or together
with those of other customers, for any amount due in any
IB account in which Customer has an interest, without
retaining in IB's possession or control a like amount of
assets. For loans of securities, IB may receive
financial and other benefits to which Customer is not
entitled. Such loans could limit Customer's ability to
exercise securities' voting rights.
6. Multi-Currency Function in IB Accounts:
a. Customers may be able to trade products
denominated in different currencies using a
base currency chosen by Customer. Upon purchase of
a product denominated in a different currency from
the base currency, a margin loan is created to
fund the purchase, secured by the assets in
Customer's accounts. If Customer maintains
positions denominated in foreign currencies, IB
will calculate Margin Requirements by applying
exchange rates specified by IB. IB WILL APPLY
"HAIRCUTS" (A
PERCENTAGE DISCOUNT ON THE FOREIGN CURRENCY EQUITY
AMOUNT) TO
REFLECT THE POSSIBILITY OF FLUCTUATING EXCHANGE
RATES BETWEEN
THE BASE CURRENCY AND THE FOREIGN CURRENCY.
CUSTOMER MUST
CLOSELY MONITOR MARGIN REQUIREMENTS AT ALL TIMES,
PARTICULARLY
FOR POSITIONS DENOMINATED IN FOREIGN CURRENCIES,
BECAUSE FLUCTUATION IN THE CURRENCY AND THE VALUE
OF THE UNDERLYING POSITION CAN CAUSE A MARGIN
DEFICIT.
b. Customer agrees that IB's obligations to Customer
shall be denominated in: (i) the United States
dollar; (ii) a currency in which funds were
deposited by Customer or were converted at the
request of Customer, to the extent of such
deposits and conversions; or (iii) a currency in
which funds have accrued to the customer as a
result of trading conducted on a designated
contract market or registered derivatives
transaction execution facility, to the extent of
such accruals. Information regarding Customer's
currency conversions is provided on the IB
customer statements. Customer further agrees that
IB may hold customer funds in: (i) the United
States; (ii) a money center country as defined by
the US Commodity Exchange Act & regulations
thereunder; or (iii) the country of origin of the
currency. In addition, Customer acknowledges and
authorizes IB to hold Customer's funds outside the
United States, in a jurisdiction that is neither a
money center country nor the country of origin of
the currency in order to facilitate Customer's
trading in investments denominated in that
currency.
7. Foreign Currency Exchange ("Forex") Transactions:
a. HIGH RISKS OF FOREX TRADING: FOREX TRADING IS
GENERALLY
UNREGULATED, IS HIGHLY RISKY DUE TO THE LEVERAGE
(MARGIN)
INVOLVED, AND MAY RESULT IN LOSS OF FUNDS GREATER
THAN CUSTOMER
DEPOSITED IN THE ACCOUNT. Customer acknowledges
the "Risk Disclosure Statement for Forex Trading
and Multi-Currency Accounts" provided separately
by IB.
b. For Forex transactions, IB generally will act as
agent or riskless principal and charge a fee. IB
may effect Forex transactions through an affiliate
or third party, which may profit or lose from such
transactions. Customer agrees that IB may transfer
to or from Customer's regulated futures or
securities account(s) from or to any of Customer's
nonregulated Forex account any funds or assets
that may be required to avoid margin calls, reduce
debit balances or for any other lawful reason.
c. Netting : (i) Netting by Novation. Each Forex
transaction between Customer and IB will
immediately be netted with all then existing Forex
transactions between Customer and IB for the same
currencies to constitute one transaction. (ii)
Payment Netting. If on any delivery date more than
one delivery of a currency is due, each party
shall aggregate the amounts deliverable and only
the difference shall be delivered. (iii) Close-Out
Netting . If Customer: (a) incurs a margin deficit
in any IB account, (b) defaults on any obligation
to IB, (c) becomes subject to bankruptcy,
insolvency or other similar proceedings, or (d)
fails to pay debts when due, IB has the right but
not the obligation to close-out Customer's Forex
transactions, liquidate all or some of Customer's
collateral and apply the proceeds to any debt to
IB. (iv) Upon Close-Out Netting or any "Default",
all outstanding Forex transactions will be deemed
terminated as of the time immediately preceding
the triggering event, petition or proceeding. (v)
IB's rights herein are in addition to any other
rights IB has (whether by agreement, by law or
otherwise).
d. Nothing herein constitutes a commitment of IB to
offer Forex transactions generally or to enter
into any specific Forex transaction. IB reserves
the unlimited right to refuse any Forex order or
to decline to quote a two-way market in any
currency.
8. Commodity Options and Futures Not Settled in Cash:
Customer acknowledges that: (A) commodity options cannot
be exercised and must be closed out by offset; and (B)
for futures contracts that settle not in cash but by
physical delivery of the commodity (including currencies
not on IB's Deliverable Currency List), Customer cannot
make or receive delivery. If Customer has not offset a
commodity option or physical delivery futures position
prior to the deadline on the IB website, IB is
authorized to roll or liquidate the position or
liquidate any position or commodity resulting from the
option or futures contract, and Customer is liable for
all losses/costs.
C. PROVISIONS RELATING TO TRADES TO BE EXECUTED BY IB AND GIVEN
UP TO CUSTOMER'S PRIME BROKER FOR SETTLEMENT:
1. Application: The provisions of this Section C shall
apply to trades and positions to be executed by IB and
given up for settlement to Customer's Prime Broker.
2. Securities Transactions: IB will clear Customer's
securities transactions in a broker-dealer credit
account established in the name of Prime Broker and
designated for Customer's benefit. On the settlement
date for each transaction, IB will deliver or receive
Customer's securities to or from Prime Broker against
payment in full by or to Prime Broker on Customer's
behalf.
3. Commodities Transactions: Commodity transactions will be
handled in accordance with a GiveUp Agreement to be
executed separately herefrom.
4. Customer Trade Data: Customer hereby authorizes IB to
inform Prime Broker of all the details of each
transaction for Customer's account ("Trade Data"), and
Customer hereby agrees to inform Prime Broker of the
Trade Data on trade date by the time designated to
Customer by Prime Broker. In the event of any
discrepancy in the Trade Data reported to Prime Broker
by Customer and the Trade Data reported to Prime Broker
by IB, Customer shall be responsible for resolving such
discrepancy promptly, and Customer shall be liable to IB
for any loss, cost or expense sustained by IB arising
out of such transaction.
5. Short, Short Exempt and Long Sales: When placing any
order to sell securities short, Customer is responsible
for designating the order as such, and Customer hereby
authorizes IB to mark the order as being "short" or
"short exempt". In placing any long sell order, Customer
will designate the order as such and hereby authorizes
IB to mark the order as being "long." The designation of
a sell order as being "long" shall constitute a
representation by Customer that (i) Customer owns the
security with respect to which the sale order has been
placed and (ii) if Prime Broker does not have the
security in its possession at the time Customer places
the sell order, Customer shall deliver the security to
Prime Broker by settlement date in good deliverable form
and if Customer fails to deliver as such, pay to IB any
losses and expenses it may incur or sustain as a result
of Prime Broker's failure to settle any such transaction
on Customer's behalf. Customer further agrees to provide
IB with information concerning any securities borrowing
arrangements made by Customer and/or Prime Broker in
connection with any short sales.
6. Customer Qualification:
a. Customer shall be required to maintain in
Customer's securities account with Prime Broker
such minimum net equity in cash or securities as
may be required, from time to time, by Prime
Broker (the "Minimum Net Equity"), which shall in
no event be less than the minimum net equity
required by the SEC's 1994 Prime Brokerage No-
Action Letter, as such requirement may be amended
from time to time (initially: (i) $100,000 in cash
or securities with a ready market, for trades
executed on behalf of a customer account managed
by an investment adviser registered under Section
203 of the Investment Advisors Act of 1940 (a
"Registered Investment Adviser"), or (ii) $500,000
in cash or securities with a ready market for
trades executed on behalf of an account not
managed by a Registered Investment Advisor).
Customer further understands that, in the event
Customer's account falls below such Minimum Net
Equity, Customer shall bring Customer's account
into compliance in a timely fashion. Each time
Customer enters an order with IB, Customer hereby
represents that Customer shall be in compliance
with such Minimum Net Equity or will notify IB
otherwise.
b. In the event that Prime Broker indicates its
intention to disaffirm or fail to take up any
trade, Customer hereby authorizes and instructs
Prime Broker to provide to IB, upon the request of
IB, the following information: (i) the account or
accounts to which any of Customer's orders or
trades relate; (ii) the instructions, if any,
provided to Prime Broker regarding the allocation
of any orders or trades to any subaccounts; and
(iii) information available to Prime Broker with
respect to any net equity in the account. In
addition, this Agreement will serve as further
authorization and instruction to Prime Broker to
furnish to IB in the event of a disaffirmance or
failure to take up all such further and additional
information concerning an account as IB shall
request. This paragraph shall remain in effect so
long as this Agreement is in effect, shall survive
the termination of this Agreement and shall apply
to all orders and trades given by Customer to IB
for clearance and settlement through Prime Broker.
Customer hereby agrees to release and discharge
Prime Broker from all responsibility and liability
arising out of or incurred in connection with
Prime Broker furnishing any information to IB
pursuant to this paragraph.
7. Confirmations: IB shall confirm the Trade Data to Prime
Broker and shall issue a confirmation for each
transaction by the morning of the next business day
after trade date. Customer may direct IB to send
confirmations to Customer in care of Prime Broker.
8. Customer's Settlement Obligation: In the event Prime
Broker indicates its intention not to settle or take up,
or fails to settle or take up, any of Customer's
transactions, Customer shall be responsible and liable
to IB for settling such transactions directly with IB in
a securities margin account or commodities account that
IB will open or has opened in Customer's name on its
books in accordance with applicable regulations. The
provisions of Section B of this Agreement shall apply to
such transactions.
D. OTHER PROVISIONS:
1. DISCLOSURE STATEMENT: THIS STATEMENT IS FURNISHED TO YOU
BECAUSE RULE 190.10(c) OF THE COMMODITY FUTURES TRADING
COMMISSION REQUIRES IT FOR
REASONS OF FAIR NOTICE UNRELATED TO IB'S CURRENT
FINANCIAL CONDITION: (A)
YOU SHOULD KNOW THAT IN THE UNLIKELY EVENT OF THIS
COMPANY'S BANKRUPTCY,
PROPERTY, INCLUDING PROPERTY SPECIFICALLY TRACEABLE TO
YOU, WILL BE
RETURNED, TRANSFERRED OR DISTRIBUTED TO YOU, OR ON YOUR
BEHALF, ONLY TO
THE EXTENT OF YOUR PRO RATA SHARE OF ALL PROPERTY
AVAILABLE FOR
DISTRIBUTION TO CUSTOMERS; (B) NOTICE CONCERNING THE
TERMS FOR THE
RETURN OF SPECIFICALLY IDENTIFIABLE PROPERTY WILL BE
MADE BY PUBLICATION
IN A NEWSPAPER OF GENERAL CIRCULATION; (C) THE
COMMISSION'S REGULATIONS CONCERNING BANKRUPTCIES OF
COMMODITY BROKERS CAN BE FOUND AT 17 CODE OF FEDERAL
REGULATIONS PART 190.
2. Miscellaneous:
a. A. This Agreement is governed by the laws of the
State of New York, without giving effect to
conflict of laws provisions. Courts of New York
have exclusive jurisdiction over disputes relating
to this Agreement, except when arbitration is
provided. IN ALL JUDICIAL ACTIONS, ARBITRATIONS OR
DISPUTE RESOLUTION METHODS, THE PARTIES WAIVE ANY
RIGHT TO PUNITIVE DAMAGES.
b. Customer agrees to the provision of this Agreement
in English and represents that Customer
understands its terms and conditions. This
Agreement contains the entire agreement between
the parties, who have made no other
representations or warranties. If any provision of
this Agreement is unenforceable, it shall not
invalidate other provisions. Failure of IB to
enforce any term or condition of this Agreement is
not a waiver of the term/condition.
c. Customer consents to recording of all telephone
conversations. Customer acknowledges the IBG
Privacy Statement and consents to collection/use
of Customer information as described therein.
d. Customer may not assign or transfer any rights or
obligations hereunder without the prior written
consent of IB. Upon notice to Customer IB may
assign this Agreement to another broker-dealer or
futures commission merchant. This Agreement shall
inure to the benefit of IB's successors and
assigns. IB may terminate this Agreement or its
services to Customer at any time. Customer may
close its account upon notice to IB electronically
through the IB website, but only after all
positions are closed and all other requirements
specified on the IB website regarding account
closure are satisfied.
3. Mandatory Arbitration:
a. This agreement contains a pre-dispute arbitration
clause. By signing an arbitration agreement the
parties agree as follows:
ALL PARTIES TO THIS AGREEMENT ARE GIVING UP THE
RIGHT TO SUE
EACH OTHER IN COURT, INCLUDING THE RIGHT TO A TRIAL BY JURY,
EXCEPT AS PROVIDED BY THE RULES OF THE
ARBITRATION FORUM IN WHICH A CLAIM IS FILED.
ARBITRATION AWARDS ARE GENERALLY FINAL
AND BINDING; A PARTY'S ABILITY TO HAVE A
COURT REVERSE OR MODIFY AN ARBITRATION
AWARD IS VERY LIMITED.
THE ABILITY OF THE PARTIES TO OBTAIN
DOCUMENTS, WITNESS STATEMENTS AND OTHER
DISCOVERY IS GENERALLY MORE LIMITED IN
ARBITRATION THAN IN COURT PROCEEDINGS.
THE ARBITRATORS DO NOT HAVE TO EXPLAIN THE
REASON(S) FOR
THEIR AWARD. UNLESS, IN AN ELIGIBLE CASE, A
JOINT REQUEST FOR
AN EXPLAINED DECISION HAS BEEN SUBMITTED BY
ALL PARTIES TO THE PANEL AT LEAST 20 DAYS
PRIOR TO THE FIRST SCHEDULED HEARING DATE.
THE PANEL OF ARBITRATORS WILL TYPICALLY
INCLUDE A MINORITY OF ARBITRATORS WHO WERE OR
ARE AFFILIATED WITH THE SECURITIES INDUSTRY.
THE RULES OF SOME ARBITRATION FORUMS MAY
IMPOSE TIME LIMITS FOR BRINGING A CLAIM IN
ARBITRATION.
IN SOME CASES, A CLAIM THAT IS INELIGIBLE FOR
ARBITRATION MAY BE BROUGHT IN COURT.
THE RULES OF THE ARBITRATION FORUM IN WHICH
THE CLAIM IS FILED, AND ANY AMENDMENTS
THERETO, SHALL BE INCORPORATED INTO THIS
AGREEMENT.
b. Customer agrees that any controversy, dispute,
claim, or grievance between IB, any IB affiliate
or any of their shareholders, officers, directors
employees, associates, or agents, on the one hand,
and Customer or, if applicable,
Customer's shareholders, officers, directors
employees, associates, or agents on the other
hand, arising out of, or relating to, this
Agreement, or any account(s) established hereunder
in which securities may be traded; any
transactions therein; any transactions between IB
and Customer; any provision of the Customer
Agreement or any other agreement between IB and
Customer; or any breach of such transactions or
agreements, shall be resolved by arbitration, in
accordance with the rules then prevailing of any
one of the following: (a) The Financial Industry
Regulatory Authority; or (b) any other exchange of
which IB is a member; as the true claimant-in-
interest may elect. If Customer is the claimantin-
interest and has not selected an arbitration forum
within ten days of providing notice of Customer's
intent to arbitrate, IB shall select the forum.
The award of the arbitrators, or a majority of
them, shall be final, and judgment upon the award
rendered may be entered in any court, state or
federal, having jurisdiction.
c. No person shall bring a putative or certified
class action to arbitration, nor seek to enforce
any pre-dispute arbitration agreement against any
person who has initiated in court a putative class
action; or who is a member of a putative class who
has not opted out of the class with respect to any
claims encompassed by the putative class action
until:
the class certification
is denied; or the class
is decertified; or
the customer is excluded from the class by the
court. Such forbearance to enforce an agreement
to arbitrate shall not constitute a waiver of
any rights under this Agreement except to the
extent stated herein.
THIS AGREEMENT CONTAINS A PRE-DISPUTE ARBITRATION CLAUSE IN
PARAGRAPH D.3. BY SIGNING THIS AGREEMENT I ACKNOWLEDGE THAT THIS
AGREEMENT CONTAINS A PRE-DISPUTE ARBITRATION CLAUSE AND THAT I HAVE
RECEIVED, READ AND UNDERSTOOD THE TERMS THEREOF.
KC Low Volatility PutWrite-CallWrite Q Fund
Kestenbaum Capital, LLC
12/18/2023
Exhibits
G. Custodian Agreements
The Fund's portfolio assets and securities will be held by
Interactive Brokers LLC. Interactive Broker's client agreement
can be found at:
https://gdcdyn.interactivebrokers.com/Universal/servlet/Registra
tion_v2.formSampleView?formdb=3204
KC Low Volatility PutWrite-CallWrite Q Fund
Kestenbaum Capital, LLC
12/18/2023
Exhibits
I. Legal Opinion
The Fund will provide an opinion and consent of counsel
regarding the legality of the securities being registered. The
opinion will state whether the securities, when sold, be legally
issued, fully paid, and nonassessable.
KC Low Volatility PutWrite-CallWrite Q Fund
Kestenbaum Capital, LLC
12/18/2023
Exhibits
M. Rule 12b-1 Plan
Under the provisions of Rule 12b-1 of the Investment Company Act
of 1940, fund companies are empowered to serve as distributors of
their own shares, with flexibility to levy a fee aimed at
covering distribution and marketing expenses. In adherence to
Rule 12b-1, the Fund has instituted a comprehensive plan enabling
the payment of distribution and marketing fees pertaining to the
sale and promotion of its shares.
As a strategic initiative to broaden the Fund's reach among
potential investors, the Fund aims to judiciously invest the
proceeds from the 12b-1 fee to increase the exposure of the Fund.
This strategic investment is designed to augment the Fund's AUM
by attracting new investors. The overarching goal is to optimize
and increase efficiencies of scale in order to eventually and
permanently lower the Fund's management fees.
The Fund's 12b-1 fee is established at an annual rate of 0.25% of
the Fund's AUM. The accrual of 12b-1 expenses from the Fund's AUM
takes place on each trading day, computed using the formula:
AUM * 12b-1 Annual Fee/252
The Fund's 12b-1 expenses will accumulate on a daily basis
(trading day basis) and will be calculated using the daily AUM.
12b-1 expense accruals are taken out of the Fund's AUM and are
represented by a lower Net Asset Value (NAV) for the investor.
Because these fees are paid out of the Fund's assets on an
ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of
sales charges.
The Fund's 12b-1 fee is reviewed and assessed on an annual basis.
With shareholder and board approval, the Fund may adjust the fee
percentage under certain conditions, such as significant changes
in AUM, distribution strategy, or regulatory requirements.
As part of the Fund's 12b-1 plan, the Fund is committed to
utilizing the proceeds of the 12b-1 fee to reinvest in additional
shares of the Fund. The shares will be held in a "12b-1
Account" so that the capital gained from the 12b-1
fees can grow with the Fund. This could potentially enable the
Fund with greater flexibility and a marketing and distribution
budget greater than the total 12b-1 expenses charged on the
Fund's shareholders.
The assets in the Fund's 12b-1 Account will be used
exclusively for distribution and marketing expenses, including,
but not limited to, advertising efforts, printing and delivering
prospectuses to potential efforts, and compensating future third-
party distributors. Any value not currently being used to finance
the Fund's advertising and distribution efforts will remain in
the Fund's 12b-1 Account where it could potentially grow.
The total value of the Fund's 12b-1 Account will determine
the operating budget of the Fund's marketing and distribution
operations. The Fund currently does not have any active
distribution agreement with a third-party distributor nor has the
Fund begun any marketing operations, therefore the Fund does not
yet have a specific dollar amount it expects to invest in
marketing and distributing activities.
The Fund's commitment to communication involves updates to
investors regarding the purpose and impact of 12b-1 fees. Any
information regarding the status of the 12b-1 Account's
balance in terms of account value, purchases and redemptions of
shares will be available upon shareholder request by contacting
KestenbaumCapital@gmail.com. Similarly, information regarding
marketing and distribution expenses taken from the 12b-1 Account
will also be available upon shareholder request.
Furthermore, any transactions involving capital gained from the
redemption of shares from the 12b-1 Account will be
reported to shareholders in the Fund's annual shareholder report.
Periodic reports are furnished to shareholders, enhancing
transparency regarding the utilization of these fees and their
effects on Fund expenses.
The Fund conducts an annual review of its 12b-1 Account to
assess any remaining expenses that were not covered during the
previous year. The accumulated assets in the 12b-1 Account from
the prior year will be carefully considered. Depending on the
available funds in the 12b-1 Account, these assets will be
either reinvested into the next year's 12b-1 budget for marketing
and distribution expenses or, if deemed appropriate, distributed
back to the Fund's investors in the form of dividends. This
approach ensures a diligent management of the 12b-1 Account to
optimize its use for the benefit of the Fund and its investors.
The Fund's 12b-1 plan has received approval through a vote of the
Fund's interested and non-interested directors. Any changes to
the 12b-1 plan will undergo thorough review and approval by the
board of directors. Shareholder approval is sought for
significant changes, ensuring alignment with investor
expectations.
The Fund's 12b-1 plan will continue in effect only if
specifically approved at least annually by the Fund's board of
directors (interested and non-interested members) and
shareholders via a majority vote of the Fund's outstanding share.
Significant plan amendments require approval from both interested
and non-interested members of the board.
The Fund's 12b-1 plan is subject to termination through a
majority vote either by the non-interested members of the board
or by the majority of outstanding voting securities.
As the Fund is yet to begin its investing operations, it has not
yet accrued any funds from the Fund's 12b-1 fees.
As of the date of this plan, the Fund does not currently
participate in joint distribution activities with another series
or investment company. The plan will be updated promptly to
reflect any changes in this regard.
No interested or non-interested director of the Fund has a direct
or indirect financial interest in the operation of the Fund's
12b-1 plan.
KC Low Volatility PutWrite-CallWrite Q Fund
Kestenbaum Capital, LLC
12/18/2023
Exhibits
P. Code of Ethics
Kestenbaum Capital, LLC
Code of Ethics
November 2, 2022
Kestenbaum Capital LLC has adopted a code of ethics in which it
follows and adheres to the following fundamental ethical
principles which shall be consistently applied across Kestenbaum
Capital and everything else we do. Kestenbaum Capital aims to
build and maintain a sustainable, ethical, and profitable
business.
Our fundamental policies:
*Competence- We commit to excellence. As such, Kestenbaum
Capital is committed to flexibility, continuous learning and
improvement, and proficiency in any domain we endeavor.
*Transparency- We are committed to providing our clients and
stakeholders with total transparency regarding our portfolio
holdings, strategies, and policies. We are aware that in the
securities and finance industry trust between clients and their
respective firms and service providers is essential, therefore
we believe that transparency is a major trust-building factor.
*Fairness- We act in an equitable and just manner towards all of
our shareholders, stakeholders, clients, and affiliates.
*Confidentiality- Kestenbaum Capital will respect and protect
the sensitivity and confidentiality of its shareholders,
stakeholders, clients, and affiliates.
*Objectivity- We do not allow unwarranted influence, bias, or
any conflicts of interest to override the professional judgment
of Kestenbaum Capital.