TCM SMALL CAP GROWTH FUND

INVESTMENT OBJECTIVE

The investment objective of the TCM Small Cap Growth Fund (“Small Cap Fund”) is to seek long-term capital appreciation. The Fund is managed by Tygh Capital Management (the “Adviser”).

PRINCIPAL INVESTMENT STRATEGY

Small Cap Fund. Under normal market conditions, the Small Cap Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in stocks of small capitalization (“small cap”) companies. The Fund defines small cap companies as those whose market capitalization, at the time of purchase, are consistent with the market capitalizations of companies in the Russell 2000® Index. Companies whose capitalizations rise above this level after purchase are still considered small cap for purposes of this 80% policy. As of December 31, 2014, the largest company’s market capitalization in that index was $7.3 billion. Companies whose capitalization rise above this level after purchase continue to be considered small cap companies for purposes of the 80% policy. New purchases of companies that rise above the Small Cap Fund’s definition of small cap are not considered small cap companies for purposes of the 80% policy. As of December 31, 2014, the average weighted market cap of the Small Cap Fund was $3.0 billion, while the average weighted market cap of the Russell 2000® Growth Index was $2.1 billion.

INVESTMENT PHILOSOPHY AND PROCESS

The Adviser believes that stock prices follow earnings over the long term and use fundamental research to identify companies with superior earnings growth potential and sustainable valuations. The investment process focuses on identifying stocks with a minimum of 20% revenue and earnings growth potential for at least the next two years, sustainable valuations, and a 20% upside to price target over a 12 month time horizon. Intensive bottom-up fundamental research drives stock selection, which we believe is most likely to generate excess returns. The investment process uses a team-oriented approach, where members of the team leverage the expertise of their colleagues in an environment that facilitates the exchange of ideas and insights.

There are four main steps to the Adviser’s investment process for the Fund:

1. Idea Generation. The first step in the investment process is idea generation, and the entire team is involved in this step. Candidates are screened for specific growth characteristics regarding revenue and earnings, valuation, and expected price appreciation. Previously owned companies are a source of ideas that leverages prior experience and knowledge base. Conferences and meetings with company managements offer opportunities to monitor existing holdings and prospect for new ones. The investment team visits with company managements in our offices, at conferences, or at company locations. These visits are in addition to phone calls and conference calls with management teams. In addition, observation of trends in the environment focuses research into sectors or industries that are expected to experience superior relative growth. As a result of this process, the team identifies companies for further analysis.

2. Research and Analysis. Stock ideas undergo in-depth fundamental and valuation analysis. Seeking companies with the ability to grow revenues and earnings 20% annually, the Adviser examines growth of market, share trends, competition, and trends in margins and expenses. With a strong emphasis on the quality of earnings, it also evaluates trends in operating cash flow versus reported net income. While a company may pass scrutiny in terms of potential earnings, it is only a candidate for a Fund portfolio if the Adviser believes it has a sustainable valuation. To reach that determination, the Adviser reviews a variety of financial metrics including P/E, enterprise value/EBITDA, price to sales and cash flow return on investment. At this stage, the team develops confidence in price targets based on earnings and associated risks.

3. Portfolio Construction. With a list of high conviction names in place that the team believes offer strong risk/reward potential, the team constructs the portfolios based on investment objectives and guidelines. General portfolio characteristics for the Fund are:

  Small Cap
Initial position size 0.75% - 1.5%
Maximum position 4%
Total positions 90 - 100

As a general rule, the sector weightings of a portfolio are a product of the Adviser’s bottom up stock selection process. Sector weights are monitored versus the appropriate benchmark (Russell 2000 Growth Index), and are maintained within plus or minus 10 percentage points of the Index. The portfolio is fully invested and a typical cash position is between 1% and 3%, as frictional cash.

4. Risk Management. The investment team is intent on seeking to maximize return while controlling risk. There is a daily review of the diversification and weighting limits discussed in the prior paragraph, as well as ongoing review of investment guidelines and pre/post trade compliance checks. In addition, the team sells a stock when the security exceeds its price target, the original investment thesis is broken, or a better investment idea is generated. It is at this level that our sell discipline and our “non-emotional check on selling”, a proprietary 10-point quantitative system to identify problem stocks, forces a review of poor performers. See “Sell Discipline.”

SELL DISCIPLINE

The team sells a stock when the security exceeds its price target, the original investment thesis is broken, or a better investment idea is generated. The investment team meets weekly to review a 10 point quantitative analysis that identifies stocks in the portfolio to consider selling. The analysis looks at various price and fundamental-based factors, including earnings or revenue revisions, relative strength, price action relative to market, and the change in price compared to the stock’s 52-week high. This review is intended to reduce the impact of emotions on the sell or hold decision. Any stock that has at least 5 of the 10 negative factors is subjected to a comprehensive review to determine whether or not the stock continues to meet the original investment criteria. The challenge of the investment thesis continues for as long as the stock stays on the list. In addition, stocks that have met their price objective are sold out of the portfolio on market strength.