Mangrove Partners
`
`645 Madison Avenue
`14th Floor
`New York, NY 10022
`http://www.mangrovepartners.com
`
`
`
`March 27, 2015
`
`
`This Brochure provides information about the qualifications and business practices of Mangrove
`Partners (“Mangrove” or the “Firm”). Mangrove is an investment adviser registered with the
`Securities and Exchange Commission (the “SEC”). The information in this brochure has not been
`approved or verified by the SEC or by any state securities authority. Registration of an
`investment adviser does not imply any level of skill or training. The oral and written
`communications of an adviser provide you with information with which you can determine
`whether you wish to hire or retain such adviser.
`
`This document is not an advertisement, an offer to sell or the solicitation of an offer to purchase
`interests in any fund managed by Mangrove. Offers to invest in any such interests or accounts
`may be made only pursuant to appropriate offering documents. Investors must be qualified and
`approved prior to investing.
`
`If you have any questions about the contents of this Brochure, please contact us at (212) 897-
`9535 or compliance@MangrovePartners.com.
`
`information about Mangrove
`Additional
`www.adviserinfo.sec.gov.
`
`the SEC’s website at
`
`is available on
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`
`
`
`
`VIRNETX EXHIBIT 2001
`Mangrove v. VirnetX
`Trial IPR2015-01047
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`Mangrove Partners
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`Item 2: Material Changes
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`Since our last Brochure dated March 31, 2014, we have made certain updates to the information
`contained in the Brochure. The following summary is a list of only those changes that we deem
`as material in nature.
`
`Assets under management (AUM) information has been updated to reflect values as of January
`1, 2015.
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`Item 3: Table of Contents
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`ITEM 2: MATERIAL CHANGES
`ITEM 4: ADVISORY BUSINESS
`ITEM 5: FEES AND COMPENSATION
`ITEM 6: PERFORMANCE-BASED FEES AND SIDE-BY-SIDE MANAGEMENT
`ITEM 7: TYPES OF CLIENTS
`ITEM 8: METHODS OF ANALYSIS, INVESTMENT STRATEGIES AND RISK OF LOSS
`ITEM 9: DISCIPLINARY INFORMATION
`ITEM 10: OTHER FINANCIAL INDUSTRY ACTIVITIES AND AFFILIATIONS
`ITEM 11: CODE OF ETHICS, PARTICIPATION OR INTEREST IN CLIENT TRANSACTIONS
`AND PERSONAL TRADING
`ITEM 12: BROKERAGE PRACTICES
`ITEM 13: REVIEW OF ACCOUNTS
`ITEM 14: CLIENT REFERRALS AND OTHER COMPENSATION
`ITEM 15: CUSTODY
`ITEM 16: INVESTMENT DISCRETION
`ITEM 17: VOTING CLIENT SECURITIES
`ITEM 18: FINANCIAL INFORMATION
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`4
`6
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`12
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`14
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`Item 4: Advisory Business
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`Mangrove Partners, a Cayman Islands exempted company established in 2010, provides
`investment management services on a discretionary basis to the Funds (defined below) which
`are privately offered pooled investment vehicles intended for sophisticated individual and
`institutional investors. (Mangrove Partners is referred to as “Mangrove” or the “Firm” in this
`Brochure and references to “us”, “we” and “our” also refer to Mangrove.)
`
`Mangrove is the investment manager for The Mangrove Partners Fund, L.P., a Delaware limited
`partnership (the “US Feeder”), The Mangrove Partners Fund (Cayman), Ltd., a Cayman Islands
`exempted company (the “Cayman Feeder”), The Mangrove Partners Master Fund, Ltd., a
`Cayman Islands exempted company (the “Cayman Master”) and MP OpportunityCo 1, LLC
`(“MPOC1”), a Delaware limited liability company. (Each of the foregoing funds is referred to
`individually as a “Fund” and collectively as the “Funds”. “Investor” refers to any investor in any
`of the Funds.)
`
`An affiliate of Mangrove, Mangrove Capital, a Cayman Islands exempted company (“Mangrove
`Capital”), serves as the general partner of the US Feeder and the managing member to MPOC1.
`The US Feeder and the Cayman Feeder are constituents of a “master-feeder” structure for which
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`Mangrove Partners
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`the Cayman Master serves as the master fund. Each of the Funds is exempt from the registration
`requirements of the Investment Company Act of 1940 (the “Investment Company Act”).
`
`The Funds’ shared investment objective is to organically compound their net worth while
`minimizing the chances of a permanent loss of capital. Mangrove’s investment strategy
`concentrates on an
`identified subset of systematically underfollowed
`investments and
`inefficient markets. Our goal is to generate positive returns from both long and short
`investments as opposed to employing a relative value or market hedging strategy. Our
`investment process involves in-depth analysis and valuation work at the company level while
`being cognizant of underlying industry dynamics. Our deep value discipline in combination with
`our focus on underfollowed securities gives us our edge.
`
`Mangrove neither tailors its advisory services to the individual needs of investors in the Funds
`(“Investors”), nor accepts investor-imposed investment restrictions.
`
`For further details on the Mangrove’s investment strategy, please see Item 7 (“Types of Clients”)
`and Item 8 (“Methods of Analysis, Investment Strategies and Risk of Loss”) below.
`
`The principal owner of Mangrove is Nathaniel August.
`
`As of January 1, 2015, Mangrove manages approximately $449,210,433 of client assets, in net
`equity terms, on a discretionary basis. Mangrove does not currently manage any client assets on
`a non-discretionary basis.
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`Item 5: Fees and Compensation
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`Management Fees
`
`Other than MPOC1, Mangrove receives fees for its advisory services based on a percentage
`(generally, approximately 2% annually) of assets under management. In general, Mangrove
`deducts fees from Fund assets. Management fees are payable monthly in advance and are
`calculated by a third party administrator. Management fees are prorated for any month during
`which Mangrove does not serve as investment manager for the entire month. Mangrove has
`discretion to waive, reduce or rebate management fees.
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`Performance-Based Compensation
`
`Except for MPOC1, Mangrove Capital is allocated 20% of the annual increase in the net worth of
`an Investor’s interest in a Fund (the “Performance Allocation”). If, however, there is a decrease
`in the net worth of an Investor’s interest in a Fund (other than MPOC1) at the conclusion of a
`calendar year the Performance Allocation will be reduced to 10% until the net worth of the
`Investor’s interest increases by an amount equal to twice the decrease.
`
`Mangrove Capital structures Performance Allocation subject to Section 205(a)(1) of the Advisers
`Act in accordance with the available exemptions thereunder, including the exemption set forth
`in Rule 205-3. In measuring clients’ profits for the calculation of Performance Allocation,
`Mangrove Capital includes realized and unrealized gains and losses.
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`The Performance Allocation is allocated at the end of each calendar year to a separate series of
`Cayman Master shares issued by the Cayman Master to Mangrove Capital. Mangrove Capital
`reserves the right (i) to receive such compensation in any form or manner, including from the
`Cayman Master, U.S. Feeder and/or Cayman Feeder, so long as such change does not negatively
`and adversely affect any investor and (ii) to waive, reduce or rebate the Performance Allocation
`or to pay or reallocate a portion of the Performance Allocation to certain Investors and/or other
`third parties.
`
`With respect to MPOC1, performance-based compensation is paid on a realized basis using a
`waterfall structure. Distributable cash is first allocated to investors until they have received a
`return of their capital plus an 8% preferred return. Distributable cash flow is then allocated to
`Mangrove Capital as a “catch-up” until Mangrove Capital has received an amount equal to 25%
`of the investors’ 8% preferred return. Thereafter, 80% of distributable cash is allocated to
`investors and 20% is allocated to Mangrove Capital.
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`Other Fees and Expenses
`
`Each Fund bears, or reimburses Mangrove and its affiliates for, its organization, operating and
`investment expenses and, in the case of the US Feeder and the Cayman Feeder, their respective
`allocable share of the organization and operating expenses of the Cayman Master. Expenses and
`fees borne by the Funds include, among other things, (i) all operating and administrative fees
`and expenses of the Funds; (ii) all costs and expenses associated with the Funds’ investment
`program; (iii) all costs and expenses related to the Funds’ portfolio and trade management
`systems, risk management systems and other similar systems; (iv) all expenses related to the
`indemnification of any person; and (v) taxes, fees or other governmental charges levied against
`the Funds. Expenses and fees are allocated among the Funds in such manner as Mangrove and
`Mangrove Capital deem to be fair and reasonable.
`
`Side Letters
`
`Mangrove may from time to time enter into agreements with certain Fund investors that may
`provide for terms of investment that are more favorable than the terms described in the
`relevant Fund offering documents. Such terms may include the waiver, reduction or rebate of
`management fees, Fund expenses and/or performance-based allocations, the provision of
`additional information or reports or more favorable transfer rights. No such agreement will
`necessarily entitle any other Fund investor to the same terms of investment.
`
`Item 12 describes the factors that Mangrove considers in selecting or recommending broker-
`dealers for transactions and determining the reasonableness of their compensation (e.g.,
`commissions).
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`No supervised person of Mangrove accepts compensation for the sale of securities or other
`investment products, including interests in or shares of the Funds.
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`Item 6: Performance-Based Fees and Side-By-Side Management
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`Please see Item 5 above for a description of the performance-based compensation allocated to
`Mangrove Capital. Because a Mangrove affiliate is allocated performance-based compensation
`from each of Mangrove’s clients, Mangrove does not face the conflicts of interest that may arise
`when an investment adviser accepts performance-based fees from some clients but not from
`others. Mangrove does face conflicts that arise from the fact that the calculation of its
`performance-based compensation differs from MPOC1, on the one hand, and the other Funds,
`on the other hand.
`
`Conflicts
`
`Mangrove recognizes that these types of arrangements may create an incentive for Mangrove (i)
`to make investments on behalf of the Funds that are riskier or more speculative than would be
`the case in the absence of such an arrangements and (ii) to favor accounts for which the
`principals of Mangrove have greater personal capital investments. In order to address the
`second of these potential conflicts, Mangrove has developed and implemented the appropriate
`policies and procedures (e.g., trade allocation) to ensure that all clients are treated fairly and
`equally.
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`Item 7: Types of Clients
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`Mangrove provides portfolio management services to private investment funds. A minimum
`initial investment of $1,000,000 is generally required to invest in any of our private funds, with
`additional capital contributions equal to at least $50,000. However, Mangrove has discretion to
`reduce the minimum initial or additional investment to not less than $100,000 for one or more
`investors (or prospective investors) as long as they qualify to invest based on all other suitability
`and regulatory requirements.
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`US persons must satisfy certain minimum income or asset standards in order to purchase an
`interest in a Fund.
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`Mangrove may decline to accept an investment even if the proposed investor satisfies such
`suitability and regulatory requirements.
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`Item 8: Methods of Analysis, Investment Strategies and Risk of
`Loss
`
`The Funds’ shared investment objective is to organically compound their net worth while
`minimizing the chances of a permanent loss of capital. Mangrove’s investment strategy
`concentrates on an
`identified subset of systematically underfollowed
`investments and
`inefficient markets. Our goal is to generate positive returns from both long and short
`investments as opposed to employing a relative value or market hedging strategy. Our
`investment process involves in-depth analysis and valuation work at the company level while
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`being cognizant of underlying industry dynamics. Our deep value discipline in combination with
`our focus on underfollowed securities gives us our edge.
`
`We believe that the day to day movements of markets and the valuations of securities to be
`highly inefficient as a result of the emotions of the people participating in markets and trading
`securities. Markets tend to set a dear price for the comfort of investing in familiar businesses,
`popular industries, fast-growing companies, liquid securities, and steady streams of earnings,
`dividends, and/or coupons. Conversely, market participants often overlook and undervalue
`industries that are unfashionable, securities that are small, illiquid, or not covered by brokerage
`firms, investments where there exists complexity or uncertainty on the outcome of events, the
`debt (and occasionally equity) of firms subject to bankruptcy proceedings or risk, and companies
`that are in distress, experiencing setbacks, stagnating, or declining. We believe that investors
`often confuse investments that are characterized by having uncertain outcomes, complex
`analysis, or unpopular dynamics with investments that are unsafe to own or unattractive in risk.
`
`In order to profit from these core beliefs, we build portfolios that concentrate on an identified
`subset of systematically underfollowed investments and inefficient markets. Our goal is to
`generate positive returns from both long and short investments as opposed to employing a
`relative value or market hedging strategy. Our investment process involves in-depth analysis and
`valuation work at the company level while being cognizant of underlying industry dynamics.
`Where and when we invest is driven by our deep value discipline in combination with our focus
`on underfollowed securities. Presiding over all of the investment and portfolio management
`decisions is a rigorous risk management discipline focused on taking intentional and defined
`risks at the position, industry, and portfolio level.
`
`MPOC1, unlike the other Funds, was formed and capitalized to invest, directly or indirectly, in
`the securities issued by, or instruments for which the obligor or reference asset is, one
`company. Mangrove may sponsor other funds to pursue a specific investment opportunity.
`
`The Funds are likely to devote a portion of their capital to selling securities short. Mangrove
`believes that short selling, when practiced in a disciplined manner, has the ability to
`simultaneously generate attractive returns and reduce the Funds’ market risk. The Funds will
`endeavor to sell short the securities of companies Mangrove believes are executing a flawed
`business or funding plan, capitalizing on a fad or engaging in fraud. The Funds will endeavor to
`be sensitive to the risks of engaging in short sales, including the unlimited potential for loss, the
`importance of maintaining borrow on securities sold short, and the historic (and likely future)
`broad upward price trend to securities markets. Accordingly, the Funds will employ risk controls,
`including limiting position sizes, actively trading shorted securities, and concentrating on limited
`duration short investments with anticipated catalysts.
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`Investments in securities of any kind involve risk of loss that investors should be prepared to
`bear. The Funds may make investments or engage in certain strategies that involve specific risks
`associated with those investments or strategies, including, but not limited to the following:
`
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`
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`Leverage. The Funds may employ leverage, which increases both the possibilities for
`profit and the risk of loss.
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` Short Sales. The Funds may sell short. Selling short risks losing an amount greater than
`the proceeds received. Theoretically, securities or other financial instruments sold short
`are subject to unlimited risk of loss because there is no limit on the price that such
`security or other financial instrument may appreciate before the short position is closed.
`In addition, the supply of securities and other financial instruments that can be
`borrowed fluctuates from time to time. The Funds may be subject to losses if a lender
`demands return of the lent security or other financial instrument and an alternative
`lending source cannot be found or if the Funds are otherwise unable to borrow when
`necessary to cover their positions.
` Distressed Investing. The Funds may invest in equities or other securities of companies
`that are experiencing significant financial or business difficulties, including companies
`involved in debt restructurings, in bankruptcy or other reorganization and liquidation
`proceedings. Although such investments may result in significant returns, they typically
`involve a high degree of risk. Among the problems involved in investments in such
`issuers is the fact that it frequently may be difficult to obtain information as to the
`conditions of such issuers.
` Small and Medium Capitalization. The Funds may invest in the securities of companies
`with small to medium sized market capitalizations. While Mangrove believes that such
`companies may provide significant potential for appreciation, such securities generally
`involve higher risk in some respect than the securities of larger capitalization companies.
` Derivatives. The Funds may invest in derivative instruments, or “derivatives,” which
`include futures, options, puts, contracts for difference, swaps, structured securities and
`other instruments and contracts that are derived from, or the value of which is related
`to, one or more underlying securities, financial benchmarks, currencies, or indices. The
`value of a derivative depends largely upon price movements in the underlying asset.
`Therefore, many of the risks applicable to trading the underlying asset are also
`applicable to derivatives of such asset. However, there are a number of other risks
`associated with derivatives trading. For example, because many derivatives are
`“leveraged,” and thus provide significantly more market exposure than the money paid
`or deposited when the transaction is entered into, a relatively small adverse market
`movement can not only result in the loss of the entire investment, but may also expose
`the Funds to the possibility of a loss exceeding the original amount invested. Derivatives
`may also expose investors to liquidity risk, as there may not be a liquid market within
`which to close or dispose of outstanding derivatives contracts, and to counterparty risk.
` Real Estate. The Funds may invest in real estate. Real estate investments generally will
`be subject to the risks incident to the ownership and operation of commercial real
`estate, including (i) risks associated with the domestic and international general
`economic climate; (ii) local real estate conditions; (iii) risks due to dependence on cash
`flow; (iv) risks and operating problems arising out of the absence of certain construction
`materials; (v) changes in supply of, or demand for, competing properties in an area (as a
`result, for instance, of overbuilding); (vi) the financial condition of tenants, buyers and
`sellers of property; (vii) changes in availability of debt financing; (viii) energy and supply
`shortages; (ix) changes in the tax, real estate, environmental and zoning laws and
`regulations; (x) various uninsured or uninsurable risks; (xi) natural disasters; and (xii) the
`ability of the Funds to manage the real properties.
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` Private Equity and Private Debt Securities. The Funds may invest in private equity and
`private debt securities which involve an extraordinarily high degree of business and
`financial risk and can result in substantial or complete losses. Some portfolio companies
`in which the Funds invest may be operating at a loss or with substantial variations in
`operating results from period to period and may need substantial additional capital to
`support expansion or to achieve or maintain competitive positions.
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`
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`Litigation & Regulatory Based Investments. The Funds may invest in securities that
`depend upon favorable legal or regulatory rulings. There is no guarantee that any
`litigation will be successful, or that the issuer will obtain a favorable regulatory ruling.
` Arbitrage Investments. The Funds may engage in various types of arbitrage and relative
`value trading strategies. These strategies are based on the apparent presence of pricing
`inefficiencies and the expectation that these anomalies will revert to historical averages
`over time.
` Concentration of Holdings. Other than with respect to MPOC1 which pursues a highly
`concentrated strategy, while Mangrove intends to allocate the other Funds’ equity
`among a number of investments, there are no fixed allotments. At any given time, the
`Funds’ assets may become, and in the case of MPOC1, are, highly concentrated within a
`particular company, industry, asset category, trading style or financial or economic
`market. In that event, the Funds’ portfolio will be, and in the case of MPOC1, are, more
`susceptible to fluctuations in value resulting from adverse economic conditions affecting
`the performance of that particular company, industry, asset category, trading style or
`financial or economic market, than a less concentrated portfolio would be. Therefore,
`although the Funds (other than MPOC1) seek a diversified portfolio, there is a risk that
`one of the investments may have a disproportionate share of the Funds’ assets and/or
`that the Funds’ portfolio will be concentrated and more susceptible to adverse
`conditions, poor investment decisions or other factors which negatively affect the
`performance of the Fund. As a result, if the Funds’ (other than MPOC1) investment
`portfolio becomes concentrated, its aggregate return may be volatile and may be
`affected substantially by the performance of only one or a few holdings. Concentrated
`holdings may also subject the Funds to specific risks in the industries in which the
`investment operates. With respect to MPOC1, because its investment portfolio is
`concentrated, its aggregate return may be volatile and will be affected substantially by
`the performance of the Target and the industry in which it operates.
` Catalyst and Event Driven Investing. The Funds may invest in securities of companies
`which it believes will likely engage in, or are potential candidates for, extraordinary
`events, including, but not limited to, mergers, liquidations, bankruptcies, restructurings
`or recapitalizations, spin-offs or carve-outs and tender offers. Such securities may have
`significant exposure to overall market movements.
` Activist Strategy. The Funds may effect shareholder activism strategies, which activism
`may not be successful and may result in significant costs and expenses. If Mangrove
`concludes the commitment of time, energy and capital is justified in light of the
`potential for reward, it may seek to be a catalyst to realize value from a targeted
`investment (a “Target”) by taking an active role in effectuating corporate change either
`working alone or in conjunction with other investors. These activist techniques may
`include working with management of a Target or other more aggressive steps such as
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`acquiring substantial publicly disclosed stakes in a Target, proposing a restructuring,
`recapitalization, sale, or other change in strategic direction, seeking potential acquirers,
`engaging in proxy contests, making tender offers, changing management and other
`related activities. In pursuit of an activist strategy, the Investment Manager may
`determine to use litigation as a course of action. The Funds may be parties to lawsuits
`initiated by third parties, including the Target, other shareholders, or governmental
`bodies. There can be no assurance that any litigation, once begun, will be resolved in
`favor of the Funds. As a result, the Funds may be exposed to the risk of monetary
`damages and other sanctions or remedies. In addition, as an activist investor, the Funds
`are subject from time to time (and especially in the context of a proxy contest) to formal
`or informal investigations or inquiries by the SEC and other governmental and self-
`regulatory organizations in connection with its activities. Litigation and regulatory
`investigations may require significant amounts of Mangrove’s time and result in
`significant expenses to the Funds. The Funds may take controlling stakes in Targets.
`Activist investments may involve a number of risks, such as the risk of liability for
`environmental damage, product defect, failure to supervise management, violation of
`governmental regulations and other types of liability in which the limited liability
`characteristic of business operations may be ignored. In addition, in connection with the
`disposition of this investment, the Funds may make representations and warranties
`about such investment’s business and financial affairs typical of those made in
`connection with the sale of any business, or may be responsible for the contents of
`disclosure documents under applicable securities law. The Funds may also be required
`to indemnify the purchasers of such investment or underwriters to the extent that any
`such representations and warranties or disclosure documents turn out to be incorrect,
`inaccurate or misleading. All of these risks or arrangements may create contingent or
`actual liabilities and materially affect the Funds and any investment in the Funds.
` Risk Arbitrage Investments. Risk arbitrage strategies attempt to exploit merger activity
`to capture (or sell short) the spread between current market values of securities and
`their values after successful completion of a merger, restructuring or similar corporate
`transaction. Merger arbitrage
`investments often
`incur significant
`losses when
`anticipated merger or acquisition transactions are not consummated.
` Hedging Transactions. Mangrove may utilize a variety of financial instruments, such as
`derivatives, options, interest rate swaps, caps and floors, futures and forward contracts,
`both for investment purposes and for risk management purposes in order to: (i) protect
`against possible changes in the market value of the investment portfolios resulting from
`fluctuations in the securities markets and changes in interest rates, (ii) protect against
`the reduction of unrealized gains in the value of the investment portfolios, (iii) facilitate
`the sale of any such investments, (iv) enhance or preserve returns, spreads or gains on
`any investment, (v) hedge the interest rate or currency exchange rate on any liability or
`asset, (vi) protect against any increase in the price of any securities Mangrove
`anticipates purchasing at a later date or (vii) for any other reason that Mangrove deems
`appropriate. Mangrove is not required to hedge portfolio positions and may determine
`not to do so. Furthermore, Mangrove may not anticipate a particular risk so as to hedge
`against it. While Mangrove may enter into hedging transactions to seek to reduce risk,
`such transactions may result in a poorer overall performance for the Funds than if it had
`not engaged in any such hedging transaction.
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`
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`Loans of Portfolio Securities. The Funds may lend their portfolio securities. In the event
`of the bankruptcy of the other party to a securities loan, the Funds could experience
`delays in recovering the loaned securities. The Funds could experience a loss if such
`securities are not recovered.
` Counterparty Creditworthiness. The Funds may engage in transactions in securities and
`other financial instruments that may involve counterparties, and no counterparty
`exposure limits have been imposed on these transactions. Any nonperformance,
`whether due to insolvency, bankruptcy or other causes, could subject the Funds to
`substantial losses.
` Non-U.S. Investments. The Funds may
`in securities and other financial
`invest
`instruments on markets located outside the United States, including, without limitation,
`in non-U.S. markets. Such investments require consideration of certain risks not typically
`associated with investing in securities or other financial instruments traded in the
`United States, including, without limitation, unfavorable currency exchange rate
`developments, restrictions on repatriation of investment income and capital, imposition
`of exchange control regulation, confiscatory taxation and economic or political
`instability in foreign nations. Liquidity and trading costs can vary significantly over time
`and across markets, particularly in emerging market countries. Non-U.S. trading costs
`generally are higher than in the United States. Non-U.S. settlement procedures and
`trade regulations may involve certain risks (such as delay in payment or delivery of
`securities or in the recovery of assets held abroad) and expenses not present in the
`settlement of domestic investments. In addition, legal remedies available to investors in
`certain foreign countries may be more limited than those available to investors in the
`United States or in other foreign countries. The laws of some foreign countries may limit
`the ability to invest in, or repatriate investments in, non-U.S. securities or other financial
`instruments. In addition, there may be less publicly available information about certain
`non-U.S. companies than would be the case for comparable companies in the United
`States, and certain non-U.S. companies may not be subject to accounting, auditing and
`financial reporting standards and requirements comparable to or as uniform as those of
`U.S. companies.
` American Depositary Receipt and Global Depositary Receipt Securities. The Funds may
`invest
`in sponsored or unsponsored American Depositary Receipts and Global
`Depositary Receipts typically issued by a bank or trust company which evidence
`ownership of underlying Securities issued by a corporation. Generally, Depositary
`Receipts in registered form are designed for use in the US Securities market and
`Depositary Receipts in bearer form are designed for use in Securities markets outside
`the United States. Depositary Receipts may not necessarily be denominated in the same
`currency as the underlying Securities into which they may be converted. Depositary
`Receipts may be issued pursuant to sponsored or unsponsored programs. In sponsored
`programs, an issuer has made arrangements to have its Securities trade in the form of
`Depositary Receipts. In unsponsored programs, the issuer may not be directly involved
`in the creation of the program. Although regulatory requirements with respect to
`sponsored and unsponsored programs are generally similar, in some cases it may be
`easier to obtain financial information from an issuer that has participated in the creation
`of a sponsored program. Accordingly, there may be less information available regarding
`issuers of Securities' underlying unsponsored programs and there may not be a
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`correlation between such information and the market value of the Depositary Receipts.
` Currency Risk. The Funds may make investments denominated in one or more
`currencies other than U.S. Dollars. Mangrove may, to the degree it deems appropriate,
`cause the Funds to enter into arrangements in an attempt to hedge the exposure to
`significant currency fluctuations between the U.S. Dollar and the applicable currency or
`currencies. Such arrangements may subject the Funds to additional transaction costs.
`However, price movements of currencies are difficult to predict accurately because they
`are influenced by, among other things, changing supply and demand relationships;
`governmental, trade, fiscal, monetary and exchange control programs and policies;
`national and international political and economic events; and changes in interest rates.
`Governments from time to time intervene in certain markets in order to influence prices
`directly. Accordingly, Mangrove cannot guarant