View as:
View as:

Commentary High Income Alternatives Fund First Quarter 2020 Commentary

The Litman Gregory Masters High Income Alternatives Fund opened the year with a 13.79% loss in the first quarter. Comparatively, the Bloomberg Barclays U.S. Aggregate Bond Index was up 3.15%, while the BofA Merrill Lynch US High Yield Cash Pay Index lost 13.12% in the same three-month period. For most of the quarter, the fund held up better than high-yield, only falling behind during the sharp risk-on rally late in the quarter. Since the fund’s inception (9/28/18), its annualized return is negative 6.38% compared to positive 9.07% and negative 3.49% for the Aggregate Bond and high-yield benchmarks, respectively.

Past performance does not guarantee future results.  Index performance is not illustrative of fund performance.  An investment cannot be made directly in an index. Short-term performance in particular is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns.The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. To obtain the performance of the funds as of the most recently completed calendar month, please visit Investment performance reflects fee waivers in effect. In the absence of such waivers, total return would be reduced.

Quarterly Review

In the first quarter of 2020, we saw extraordinary turbulence in the markets triggered by growing uncertainty surrounding the economic impact of COVID-19. Initially, investors fled riskier parts of the credit market, but the headlines eventually caught up to the higher-quality segments that had shown some resilience. By mid/late March, the turbulence reached all corners of the credit market. Nothing was immune. U.S. Treasuries, prime money market funds, investment-grade corporates, high-yield bonds, floating-rate loans, municipal bonds, mortgage-backed securities, and collateralized loan obligations were all impacted. Investors wanted out. Their exit was swift and indiscriminate as investors scrambled for cash and cash-equivalent assets.

The fund’s performance over the three-month period was disappointing, but a closer look reveals that the fund behaved as we would expect. As the market fell abruptly and sharply, the fund held up better than high-yield thanks to relatively conservative positioning. The fund’s flexible credit managers came into the year emphasizing higher-quality, shorter-duration, and liquid assets believing valuations were expensive. But ultimately, even these assets were punished amid the indiscriminate selling. They got caught up in the forced selling from funds that were deleveraging and/or liquidating, pushing prices down far below what they should be based on fundamentals. In many cases, it was precisely these types of higher-quality assets that were hurt more in the short term by forced selling, as managers facing withdrawals or margin calls sold what they could at the highest dollar price, even if that meant far below a realistic fundamental value, rather than sell less liquid/lower-quality assets at pennies on the dollar.

Our equity-sensitive managers Ares and Neuberger Berman also faced sharp headwinds to their strategies and asset classes. Coming into the crisis period, Ares was also defensive relative to their benchmark and what they would consider their strategic positioning, holding over 20% cash and 10% in preferred securities (senior to the equity of the companies in their target sectors). But similarly, those securities sold off as badly or worse than riskier parts of the capital structure, while there was little to no differentiation between higher-quality and lower-quality business development companies (BDCs), mortgage real estate investment trusts (mREITs), and midstream energy companies. (Ares was focused on higher-quality players in these sectors.)

The Neuberger Berman out-of-the-money put-write strategy also struggled as COVID-19 set fire to global volatility markets. March 2020 was the most volatile month on record for the S&P 500, with the VIX jumping to a record close of just over 82 in mid-March. We think it’s important to note, however, that the Neuberger Berman strategy is essentially insuring equity markets on a fully collateralized basis. (It is not betting against the volatility of volatility—the strategy that blew up short volatility ETNs in early 2018). The strategy’s active risk management enabled it to outperform the relevant CBOE index significantly, and it stands to benefit going forward from the dramatically higher option (insurance) premiums associated with the high-volatility regime in which we are currently living.

As prices declined in March and opportunities arose, the fund’s managers started to selectively take advantage of attractive valuations. Guggenheim and Brown Brothers opportunistically added to investment-grade corporate bonds, higher-quality structured securities, and floating-rate secured loans. Ares got back to fully invested as they felt valuations were too cheap to sit on the sidelines. Neuberger executed its systematic process and started collecting elevated premiums. The fund rebounded strongly from its trough in mid-late March.

While we have always said the fund is long risk assets/exposures and that it would experience periods of drawdowns, we are of course not pleased with the losses during the quarter. We understand why they happened, and we believe they are reasonable in the context of an unprecedented, global pandemic-driven economic shutdown. But as investors in the fund ourselves, we recognize the experience is quite disappointing. Looking ahead, it’s difficult to predict market reactions next week or next month, and nearly impossible to predict how things will play out in the global economy in the short run, although we expect a medium- to long-term recovery as treatments for COVID-19 emerge and economies reopen. But we are confident the skill of our managers in security/credit selection and risk management will prove out with higher risk-adjusted returns than high-yield, while still providing attractive absolute levels of income and total return. The setup for performance going forward appears strong, with attractive valuations/yields for all components of the fund. Having added to the fund personally, we fully expect to report much better results to fellow shareholders in the future.

Performance of Managers

During the first quarter, the two flexible credit managers, Brown Brothers Harriman and Guggenheim, lost 9.26% and 7.60%, respectively. Ares Management’s Alternative Equity Income sleeve fell by 38.65%, while Neuberger Berman’s Option Income strategy declined 11.97%. (All sub-advisor returns in this report are net of the management fees charged to the fund.)

Manager Commentaries


The rapid economic shutdown of the U.S. and global economy has led to concerns in credit quality for both BDCs and mREITs, particularly in industries directly and immediately impacted by stay at home orders including, hotels, gaming, leisure, restaurants, and retail. With the escalation of stay at home orders around the globe during the quarter, the global supply/demand outlook for oil, natural gas, and natural gas liquids significantly deteriorated which put pressure on domestic exploration and production companies and their level of drilling plans for the remainder of 2020.

Liquidity issues have been at the forefront of our target industries with particular exposure in the mREITs using 3-6x leverage on their balance sheets. Several residential mREITs experienced margin calls with their credit facilities and were forced to sell investments at discounted prices which materially negatively impacted book values.

Levered exchange-traded funds (ETFs) and closed-end funds (CEFs) have experienced dramatic forced liquidations which led to significant sell pressure across all three asset classes. A large BDC 2x levered ETF and two large mREIT 2x levered ETFs triggered liquidation events in late March and a significant number of levered master limited partnership CEFs largely unwinding caused hundreds of millions of dollars in selling pressure.

While there has been some differentiation between high quality managers and weak mangers during the sell-off it is along magnitudes of declines with high quality managers across all three asset classes still showing 40-50% declines while weaker players are off much more.

Believing that technical selling pressures overwhelmed fundamentals, we have been upgrading in quality and moved the portfolio to fully invested, acknowledging that we might be a bit early. As of quarter end, the portfolio was yielding over 17%.

Brown Brothers Harriman

The BBH sleeve of the fund’s net of fee performance was negative 9.3% for a tumultuous first quarter of 2020. We are never pleased to post a negative performance result, but this was clearly an unprecedented quarter in the history of financial markets. The extraordinary drawdown in credit prices was driven by massive spread widening (amidst bond selling) at a speed that was worse than what occurred during the great financial crisis of 2008. For context, investment grade BBB-rated credit suffered a 10.3% performance decline in March, with high yield BB-rated credit falling a similar 9.7% decline. This was the bad news.

The good news is that credit prices are recovering quickly in these first two weeks of April while the yield on the strategy is over 7%. With wide swaths of the credit markets currently trading at attractive entry points, we are hard at work sifting through potential purchase opportunities that will be survivors through this sharp economic interruption. Throughout the first quarter, we were seeking to deploy capital into new ideas and maintain the spread duration of the strategy. As the spread widening storm of March became more intense, we continued to lean into the wind and add slowly to our existing credit positions at lower prices. We expect these additions will be additive to future performance as economic activity begins to recover, albeit with very uncertain timing.

Entering the first quarter of this year, valuations for credit were quite expensive and there were few new ideas that met our valuation requirements. Opportunities began to slowly emerge as bond prices began to fall in the middle of February. The speed of the sell-off over the following 30 days was so severe that almost the entire credit universe would pass our valuation hurdles and be flagged as a “buy” in our valuation framework as we exited the quarter. Through this volatility we slowly added more corporate exposure to the portfolio.

Investing Activity

In the early part of the quarter we were able to add new opportunities across floating-rate secured loans, corporate bonds, and asset-backed securities (ABS). As the market volatility increased, portfolio additions were focused on adding exposure to existing positions that were now available at discounted prices. Descriptions of the new purchase activity for the quarter are included below.

New Purchases

We purchased the secured term loan of Allen Media at a coupon of 562 basis points (bps) over 3-month London Interbank Offering Rate (LIBOR) for a 7.1% yield. The company is a diversified media company that owns the Weather Channel, seven television networks, and 15 broadcast television stations that reach 150 million U.S. subscribers. The loan has low starting leverage, a significant unsecured debt cushion beneath our debt, plus an engaged CEO that owns 100% of the business.

We initiated a position in Kraft Heinz after the company was downgraded to high yield in February. The company’s stable product portfolio of well-known brands in the packaged food category produces significant recurring revenues and industry leading margins. A new management team has been brought in to re-invigorate product innovation and lower the leverage on the business, with a target of regaining its investment grade credit profile. We purchased long-dated 2039 bonds at a spread of 320 bps for a yield of 5.5%.

Stericycle is an industrial services company whose primary business line is the collection and disposal of regulated medical waste. The company was seeking to reduce leverage via asset sales the past two quarters, with slow progress. We were able to purchase a secondary piece of the two-year senior secured term loan at discount to par, which offered 380 bps of spread over 3-month LIBOR or a 6.3% yield to maturity. Shortly thereafter, the company announced a large asset sale that was just completed after the end of this quarter and should significantly pay down the discounted term loan at par.

Trinity Capital is a well-established venture debt lender that specializes in making loans to late-stage technology venture firms. With a conservative underwriting process as their foundation, the management team has a solid history of producing strong loan performance and low loss experience. The company also has a low leverage profile that will continue as it completes the process of shifting to a BDC. The five-year notes were purchased at an attractive spread of 535 bps for a 7% yield.

In structured products, we purchased an aircraft engine lease ABS from seasoned Asian issuer Total Engine Asset Management. SUNBD 2020-1A B finances a portfolio of long-term spare engine leases to global airlines that are critical to the operation of aircraft fleets. Spare engines are utilized to keep aircraft flying when installed engines are removed for repair and overhaul. The engine collateral for this deal service the most popular and current generation of narrow-body aircraft. Aircraft engines are the most valuable part of an airframe and hold their value over time due to their constant refurbishment. We were able to purchase the 5.7-year BBB-rated bonds at a spread of 330 bps for a 5.2% yield.

The remaining purchases were additions to existing positions or loan refinancings. As mentioned earlier in this commentary, over the course of the quarter we began slowly adding to favored credits in the fast-moving market. While we were consciously leaning into the volatility with our purchases, we were also mindful not to go “all-in” with position sizing. With such attractively discounted prices on offer in March, we were able to add to our positions in Western Digital, Power Solutions (Panther), and Alliance Data Systems. The only sale in the quarter was our loan position in hospital company HCA, which was executed in early March at an attractive price before the health and economic news became so deeply negative.

Finally, our investment process has always focused on investing in durable credits. For every credit we own we consider how it might perform in its industry’s worst historical episode. This pandemic is, obviously, a unique test case. Entire industries will not disappear, but stronger competitors will have better access to capital markets and can consolidate the weaker players. We are constantly reviewing our credits with a focus on those companies that can be consolidators and/or have high recovery values for creditors in stressed markets like we are experiencing. We thank you for being investors in the fund.


Business closures, shelter-in-place orders, and social distancing efforts have caused economic activity to plummet. Industries such as travel, hospitality, restaurants, and retail have seen the earliest impacts, but every sector of the economy is being affected. Layoffs over the past month already exceed total net job creation over the previous expansion. The unemployment rate is heading to 20% in the coming weeks, double what we saw in the last recession. Rising layoffs will weigh on incomes and depress consumer confidence further, leaving lasting scars on the economy even after the virus is contained. Business investment was already stalling out due to falling profits, the trade war, and political uncertainty. Now, the coronavirus shock will further depress capital expenditures, and the sharp decline in oil prices will severely curtail activity in the energy sector.

The virus is also wreaking havoc with global supply chains as production is shut down abroad. Many industries are already reporting shortages of key intermediate goods. The most impacted industries from supply chain disruptions include electronics, autos, machinery, metals, and apparel.

The coronavirus shock hit a U.S. economy that was already showing late cycle symptoms and rising recession risk. Corporate debt has climbed to record highs. With a sharp hit to demand unfolding, businesses will be forced into more cost cuts and layoffs in the months ahead, further weighing on the recovery. Expectations for a V-shaped economic recovery in the second half of 2020 will prove to be too optimistic. Output could be 10-15% lower than 2019 by the end of the year.

Unprecedented monetary and fiscal response, still not enough

The Federal Reserve has acted quickly to restore market functioning and cushion the economy, cutting rates to zero, engaging in massive asset purchases, and launching an array of lending facilities. With quantitative easing set to continue and the lending programs scaling up, the Fed’s balance sheet is headed to $9 trillion, more than double what it was to start the year.

The Fed’s policies are necessary, but not sufficient to deal with the current crisis. They can help prevent conditions from worsening, but have limited ability to lift economic demand. Congress has also acted much faster than in previous downturns, passing the $2 trillion CARES Act. This package included support for Fed lending, expanded unemployment benefits, small business support, and aid for state and local governments, hospitals, airlines, and households, among other measures.

Despite the unprecedented size of this fiscal response, it’s quickly becoming clear that it was not big enough and more will be needed. Additionally, processing delays in areas like unemployment benefits and small business lending are limiting the effectiveness of these policies at a time when every day counts.

Rates are headed lower and more downside is ahead for risk assets

With the Fed set for a protracted period at the zero bound, Treasury yields have further room to fall, with the possibility of much of the curve falling into negative rate territory.

Credit spreads are starting to offer some value, but the selloff is not over. A large number of investment grade bonds already have leverage ratios equivalent to high yield, and rating agency forbearance is dissipating. This would force as much as $1 trillion of investment grade bonds into high yield, driving further spread widening. Losses in corporate bonds will also be amplified by a coming wave of corporate defaults. The corporate sector went into this downturn with a record high leverage relative to gross domestic product. Equities also have further downside as the market wakes up to the full scale of the economic contraction. High valuations heading into this bear market and a severe recession suggest the peak-to-trough decline could be well over 50%.

Slowly increasing risk tolerance. Nibbling at value.

Coming into this year, we were very conservative, concerned that valuations were too high. This left our portfolios in a great position to opportunistically add risk in the current environment. One area we have been adding to is investment-grade credit.

We expect volatility to remain elevated due to concerns that the coronavirus will continue to have a negative impact on global growth. These concerns are made worse by the oil price war causing chaos in the energy markets. We continue to expect to see more dispersion within investment grade credit and its various sub-sectors. At this point, we are opportunistically trying to move from some of our more conservative investments to securities that, in our view, look attractive. This includes investment grade bonds where spreads have widened and prices have dropped – yet, with fundamentals that still look attractive. We will be avoiding sectors most negatively affected by the coronavirus, such as autos and hospitality.

The sleeve was yielding almost 7% at the end of the quarter.

Neuberger Berman

In March, the S&P 500 Index lost a notable 12.35%, bettering the Russell 2000 Index’s decline of 21.73% by 938 bps. This resulted in quarter-to-date losses for the indices of 19.60% and 30.61%, respectively. In March, the CBOE S&P 500 PutWrite Index (PUT) lost a notable 13.42%, outperforming the CBOE Russell 2000 PutWrite Index (PUTR)’s loss of 23.59%, pushing their quarter-to-date declines to 20.68% and 30.16%, respectively.

For the quarter, the sleeve of the portfolio tumbled 11.97% (net of fees), underperforming its benchmark (40% CBOE S&P 500 PutWrite Index / 60% ICE BofA 0-3M US Treasury Bill Index) decline of 8.30%. Over the past 12 months, the return of the sleeve has decreased 5.82%, underperforming its benchmark decline of 4.60%, but bettering the CBOE S&P 500 2% OTM PutWrite Index (“PUTY”) decline of 15.51%. Average option notional exposure over the quarter remained consistent with strategic targets of 85% S&P 500 Index and 15% Russell 2000 Index.

Quarter to date, the sleeve’s S&P 500 Index put writing strategy has declined approximately 11.29%, achieving a better result than the 20.45% decline of the PUTY and substantially outperforming the S&P 500 Index’s decline of 19.60%.

The CBOE S&P 500 Volatility Index (“VIX”) surged 14.4 points to end the month at 53.5, averaging 56.2 over the period. A realized annual volatility for the S&P 500 Index of 91.3 resulted in an estimated negative implied volatility premium of 35.1. (Negative implied volatility premium is of course a bad environment for the strategy.) On the year, the VIX level has spiked 39.8 points from 13.8 at the start of the year, averaging 30.9 for the full period. Meanwhile, volatility on the S&P 500 Index has realized at 56.9, leading to a negative average implied volatility premium of 26.0 year to date.

Quarter to date, the sleeve’s Russell 2000 Index put writing strategy has lost approximately 18.35%, achieving a materially better result than the 30.16% decline of the PUTR and managing to avoid a portion of the Russell 2000 Index’s 30.61% loss. For the last twelve months, the sleeve’s Russell 2000 Index put writing strategy has declined approximately 11.87%, substantially outperforming the 23.79% decline of the PUTR and the Russell 2000 Index’s decline of 23.99%.

The CBOE Russell 2000 Volatility Index (“RVX”) soared 22.4 points to end the month at 60.5, averaging 57.8 over the period. A realized annual volatility for the Russell 2000 Index of 102.5 resulted in a staggering estimated negative implied volatility premium of 44.6. On the year, the RVX level has spiked 44.4 points from 16.0 at the start of the year, averaging 32.7 for the period. Meanwhile, volatility on the Russell 2000 Index has realized at 63.5, leading to a negative average implied volatility premium of 30.9 year to date.

Quarter to date, 2-Year US Treasury yields have declined 132 bps. The collateral portfolio has gained a modest 2.08%, lagging the 2.81% return of the ICE BofA 1-3 Year US Treasury Index over the period. 2-Year US Treasury yields have declined 202 bps over the past twelve months. As a result, the collateral portfolio has gained 4.37%.

As of quarter end, the annualized yield for writing 1-month, 3% out-of-the-money put options on the S&P 500 Index (a reasonable, though overly simplified proxy for the fund’s strategy) was over 55%. This compares very favorably to an annualized yield of less than 10% at the beginning of the year.

Sub-Advisor Portfolio Composition as of March 31, 2020

Ares Alternative Equity Income Strategy
Midstream Energy0.0%

Brown Brothers Harriman Credit Value Strategy
Bank Loans17%
Corporate Bonds50%
Guggenheim Multi-Credit Strategy
Bank Loans22%
Corporate Bonds42%
Non-Agency RMBS9%
Preferred Stock5%
Reverse Repo-2%
Net Credit Derivatives-9%
Neuberger Berman Option Income Strategy
Equity Index Put Writing100.0%

Stay Informed

iMGP Funds emails provide investors a way to stay in touch with us and receive information regarding the funds and investment principles in general. Topics may include updates on the funds and managers, further insights into our investment team’s processes, and commentary on various aspects of investing.


This material must be preceded or accompanied by a
prospectus. Please read it carefully before investing.

Dividends, if any, of net
investment income are declared and paid monthly. The Fund intends to distribute
capital gains, if any, to shareholders on a quarterly basis. There is no
assurance that the funds will be able to maintain a certain level of
distributions. Dividend yield is the weighted average dividend yield of the
securities in the portfolio (including cash). The number is not intended to
demonstrate income earned or distributions made by the Fund.

Though not an international
fund, the fund may invest in foreign securities. Investing in foreign
securities exposes investors to economic, political and market risks, and
fluctuations in foreign currencies. Investments in debt securities typically
decrease when interest rates rise. This risk is usually greater for longer-term
debt securities. Investments in mortgage-backed securities include additional
risks that investor should be aware of including credit risk, prepayment risk,
possible illiquidity, and default, as well as increased susceptibility to
adverse economic developments. Investments in lower-rated and non-rated
securities present a greater risk of loss to principal and interest than
higher-rated securities. Derivatives may involve certain costs and risks such
as liquidity, interest rate, market, credit, management, and the risk that a
position could not be closed when most advantageous. Investing in derivatives
could lose more than the amount invested. The fund may invest in master limited
partnership units. Investing in MLP units may expose investors to additional
liability and tax risks. Multi-investment management styles may lead to higher
transaction expenses compared to single investment management styles. Outcomes
depend on the skill of the sub-advisors and advisor and the allocation of
assets amongst them. The fund may make short sales of securities, which
involves the risk that losses may exceed the original amount invested. Merger
arbitrage investments risk loss if a proposed reorganization in which the fund
invests is renegotiated or terminated.

Diversification does not
assure a profit nor protect against loss in a declining market.

security (ABS)
is a financial security collateralized by a pool of
assets such as loans, leases, credit card debt, royalties or receivables. 

A basis point is a value equaling one on-hundredth of a percent (1/100 of

development company (BDC)
is an organization that invests in
and helps small- and medium-size companies grow in the initial stages of their

expenditures, commonly known as CAPEX
, are funds used
by a company to acquire, upgrade, and maintain physical assets such as
property, buildings, an industrial plant, technology, or equipment.

Closed-end fund (CEF) is a
publicly traded, pooled investment fund with a manager overseeing the
portfolio. It is then structured, listed, and traded like a stock on a stock

Collateralized Loan
Obligation (CLO)
is a security backed by
a pool of debt, often low-rated corporate loans. Collateralized loan
obligations (CLOs) are similar to collateralized mortgage
obligations, except for the different type of underlying loan. 

Collateralized put-write is an
options trading strategy that involves short positions in put
options and the use of the underlying stock as collateral.

A coupon or coupon payment is the annual interest rate paid
on a bond, expressed as a percentage of the face value and paid from issue date
until maturity.

Dry Powder is a
slang term referring to marketable securities that are highly liquid and
considered cash-like. It can also refer to cash reserves kept on hand.

Duration is a commonly used
measure of the potential volatility of the price of a debt security, or the aggregate
market value of a portfolio of debt securities, prior to maturity. Securities
with a longer duration generally have more volatile prices than securities of
comparable quality with a shorter duration.

Floating interest rate, also known as
a variable or adjustable rate,
refers to any type of debt instrument, such as a loan, bond, mortgage, or credit, that does not have a fixed rate of interest over the life of
the instrument.

cash flow
is the amount of cash a company has after expenses, debt
service, capital expenditures and dividends.

Investment grade bond is a bond with a rating of AAA to BBB

Below Investment Grade bond is a bond with a rating lower than BBB.

Master limited partnership (MLP) is a
type of business venture that exists in the form of a publicly traded limited partnership. It combines the tax benefits of a partnership —
profits are taxed only when investors actually receive distributions — with the
liquidity of a public company.

Mortgage-backed security (MBS) is a
type of asset-backed
security that is secured by a
mortgage or collection of mortgages

Mortgage real estate investment
trusts (mREITs)
deal in investment and ownership of property mortgages; they
loan money for mortgages to owners of real estate, or purchase existing
mortgages or mortgage-backed securities.

Non-index-eligible securities are securities that are not eligible for inclusion in an

are a financial derivative sold by an option writer to an option buyer. The contract offers the buyer the
right, but not the obligation, to buy (call option) or sell (put option) the
underlying asset at an agreed-upon price during a certain period of time or on
a specific date.

The CBOE Russell 2000 PutWrite Index (PUTR) is designed to track the
performance of a hypothetical strategy that sells a monthly at-the-money (ATM)
Russell 2000 Index put option.

The CBOE Russell 2000
Volatility Index
is a key measure of market expectations of near-term volatility conveyed
by Russell 2000® Index (RUT) option
prices. The RVX Index measures the
market’s expectation of 30-day volatility implicit
in the prices of near-term RUT options traded at CBOE.

S&P 500 PutWrite Index
 (ticker symbol PUT) is a
benchmark index that measures the performance of a hypothetical portfolio that sells S&P 500 Index
(SPX) put options against
collateralized cash reserves held in a money market account.

The CBOE S&P 500 2% OTM PutWrite Index (PUTY℠ Index) is
designed to track the performance of a hypothetical passive investment strategy
that collects option premiums from writing a 2% Out-of-the Money (OTM) SPX Put
option on a monthly basis and holds a rolling money market account invested in
one-month T-bills to cover the liability from the short SPX Put option
Bloomberg Barclays Aggregate U.S. Bond Index
is a
market capitalization-weighted index, meaning the securities in the index are
weighted according to the market size of each bond type. Most U.S. traded
investment grade bonds are represented. The index includes US Treasury
Securities (non-TIPS), Government agency bonds, Mortgage backed bonds,
Corporate bonds, and a small amount of foreign bonds traded in U.S.The HFRX Fixed Income – Credit Index is an
unmanaged index that includes strategies with exposure to credit across a broad
continuum of credit sub-strategies, including Corporate, Sovereign, Distressed,
Convertible, Asset Backed, Capital Structure Arbitrage, Multi-Strategy and
other Relative Value and Event Driven sub-strategies.

ICE BofAML 0-3 Year U.S. Treasury Index tracks the
performance of U.S. dollar denominated sovereign debt publicly
issued by the U.S. government in its domestic market with
maturities less than three years.

Merrill Lynch 1-3 US Year Treasury Index
 is an unmanaged index that
tracks the performance of the direct sovereign debt of
the U.S. Government
 having a maturity of at least one year and
less than three years.

ICE BofAML U.S. High Yield TR USD Index
is an unmanaged index that measures
the performance of short-term U.S. dollar denominated below investment grade
corporate debt publicly issued in the U.S. domestic market.

The Russell 2000 Index measures the performance of the 2,000 smallest
companies in the Russell 3,000 Index.

The S&P 500 Index consists of 500 stocks that represent a sample of the leading companies
in leading industries. This index is widely regarded as the standard for
measuring large-cap U.S. stock market performance.

VIX is a trademarked ticker symbol for the Chicago Board Options Exchange
Market Volatility Index
, a popular measure of the implied
volatility of S&P 500 index options. Often referred to as the fear index or
the fear gauge,
it represents one measure of the market’s expectation of stock market
volatility over the next 30 day period.

You cannot invest
directly in an index.

ratings apply the underlying holdings of the fund, and not to the fund itself.
S&P and Moody s study the financial condition of an entity to ascertain its
creditworthiness. The credit ratings reflect the rating agency’s opinion of the
holdings financial condition and histories. The ratings shown are all
considered investment grade and are listed by highest to lowest in percentage
of what the fund holds.

fund investing involves risk. Principal loss is possible.

Gregory Fund Advisors, LLC has ultimate responsibility for the performance of
the iMGP Funds due to its responsibility to oversee the
funds’ investment managers and recommend their hiring, termination, and