* Shaker Financial Services, LLC claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this document in compliance with the GIPS standards. SFS has been independently verified for the periods June 30, 2004 through December 31, 2011by Ashland Partners & Company LLP. Returns are presented net of management fees and include the reinvestment of all income. 

CLOSED END FUNDS AND THE SFS DIFFERENCE

    Although some SFS strategies employ other investment vehicles, the majority of our client holdings are closed end funds (CEFs). CEFs are companies that do nothing other than invest in a portfolio of securities. Unlike exchange-traded-funds or mutual funds, CEFs trade at varying discounts or premiums to the value of the securities they hold. Because CEFs specialize in equities, bonds, sectors, foreign markets or investment strategies, they are excellent vehicles for crafting portfolios that are balanced, diversified and have the particular risk level and market exposure that an individual client desires.

     SFS does not simply buy and hold CEFs but instead takes advantage of their inefficiencies. Because of this, our investment strategy results in high portfolio turnover. In our fifteen years of experience with CEFs, we have formulated a number of strategies to identify and capitalize on these inefficiencies and convert them into profitable trades. In one of our core strategies, “discount trading,” we buy CEFs when their discounts are wider than their historic averages and sell them when the discounts narrow. Other SFS strategies take advantage of tenders and rights offerings; anticipate open-endings and liquidations, in which discounts are captured as profit; and arbitrage CEFs which have scheduled mergers or liquidations. We believe effective CEF-trading requires persistence and careful attention to detail. SFS actively follows over 300 CEFs daily. Our software tools and minute-by-minute monitoring of the markets help us recognize anomalies and convert them into opportunities for profit. We believe that our strategies and our work ethic are vital to the performance record we have achieved and to our future performance.

INDIVIDUALIZED ACCOUNTS

     Our intent is to manage for clients a diversified portfolio of closed end funds, consistent with their risk profile, and actively trade their accounts to take advantage of the value addition our strategies provide. Client portfolios are constructed and trades are allocated to clients with these two principles in mind:

(1) client portfolios should be well-diversified, with the sector mix respecting the client’s risk profile;

(2) client accounts should have similar portfolio turnover, to the extent possible.

To accomplish the latter, clients who have been least active in trading recently are given a priority in sales. To accomplish the former, buys are assigned to clients respecting limits in equity exposure, fixed income exposure and specific sector exposure within each of these broader classifications.

     Before initiating the investment program, clients are interviewed to determine their risk profile and any special requests that might result in a customized choice of risk parameters or any other special strategies. Although the choice lies with the client, factors that we encourage the client to take into account are:

             (1) age

             (2) future income prospects

             (3) total asset picture

             (4) risk level of investments the client is investing elsewhere

             (5) psychological risk tolerance

             (6) long term investment goals

             (7) short term need for funds .

The conclusion of this interview results in a choice of several parameters used in allocating trades, the most important being (1) target equity CEF exposure, (2) target fixed income CEF exposure, (3) target cash bogey equivalent (CBE) exposure. Each of these are expressed as a percentage of the accounts net value. Risk levels also affect the percentage of net value that are targeted for sectors of equity and fixed income CEFs. (For example, more aggressive investors on average target a higher percentage exposure to emerging market equity, although a conservative investor could request an increased exposure to this sector while retaining other conservative parameters.) CBEs are a special class of investments that we believe have little correlation with equity markets and significantly less volatility than the closed end funds purchased as part of our standard investment program.

      We encourage eligible (taxable) accounts to employ margin, as we believe the use of margin at the very favorable rates we have obtained allows us to enhance returns. Consequently, for accounts which give us permission to use margin, the sum of the three exposures can be greater than 1 (or 100%). We are careful with our use of leverage to not increase risk substantially, and, for the most part, use leverage to purchase CBEs. Our conservative clients typically purchase only CBEs on margin, and although other clients may target 20% of margin to purchase additional fixed income CEFs, only our most aggressive clients target more.

NOT TOO BIG, NOT TOO SMALL

     We currently use TD Ameritrade as our broker and custodian. We are large enough to negotiate favorable commission and margin interest rates. At the same time, we are small enough that we can find opportunities that benefit all our clients. And we are small enough to know all of our clients well.

     We are fee-only advisors in the strictest sense. We do not accept any “soft dollar” concessions for ourselves and any benefit we are able to obtain from our choice of brokers is directly targeted to our clients. Examples of such benefits are reduced commissions, reorganization fees and margin interest rates (a very favorable rate that we are able to provide all client margin accounts, no matter what their debit balance).

    As described more thoroughly in our disclosure forms, accounts opened now must total at least $200,000. Our standard annual fee, 2% of net asset value, charged in four quarterly installments, is discounted for larger accounts. Although minimum account value and fee structure are subject to change at any time, clients are guaranteed a fee structure no greater than when they open their accounts.