Cautionary Language
Winmill & Co. Incorporated (the “Company”) is engaged, through its subsidiaries, in the business of managing and distributing investment companies (“funds”), registered under the Investment Company Act, as amended (the “Act”). Investors are cautioned that the fund industry along with the entire financial services sector of the economy has been rapidly changing to meet the increasing needs of investors. Competition for management of financial resources has increased as banks, insurance companies and broker/dealers have introduced products and services traditionally offered by independent fund companies. There are also many fund groups with substantially more resources than the Company. While the Company's business is not seasonal, it is affected by the financial markets, which in turn, are dependent upon current and future economic conditions.
Drastic material declines in the securities markets can have a significant effect on the Company's business. Volatile stock markets may affect management and distribution fees earned by the Company's subsidiaries. If the market value of securities owned by the funds managed by the Company (“Funds”) declines, assets under management will decline and shareholder redemptions may occur. Lower asset levels in the Funds may also cause or increase reimbursements to the Funds pursuant to the expense limitations described below.
In general, fund services are rendered to the Funds pursuant to written contractual agreements. Such agreements relate to the general management of the affairs of each Fund, supervising the acquisition and sale of each Fund's portfolio investments, distribution and servicing of Fund accounts, and other matters. The Act requires that many important contractual agreements be initially approved by the Funds' Board of Directors, including a majority of all of the directors who are not "interested persons" (as defined in the Act), and by the vote of a majority of the outstanding shares of the Fund (as defined in the Act). Such agreements, if approved, typically must be approved at least annually by a majority of the directors of the Fund, including a majority of those directors of the Fund who are not "interested persons", or by such a vote of "disinterested" directors and the vote of a majority of the outstanding shares of the Fund. In addition, such agreements normally are subject to termination by majority vote of the Board of Directors or the shareholders and are subject to automatic termination in some events. Depending on the assets of the Fund involved and other factors, the termination of certain agreements for services between any of the Funds and subsidiaries of the Company may have a serious adverse impact upon the Company.
From time to time subsidiaries of the Company may waive or reimburse management and distribution fees or absorb certain Fund expenses to increase a Fund's performance.
Each of the open end Funds has adopted a plan of distribution pursuant to Rule 12b-1 under the Act (the "Plan"). Pursuant to the Plans, the Company’s wholly owned registered broker/dealer subsidiary may receive as compensation a certain percentage of a Funds' average daily net assets for distribution and service activities. The service fee portion is intended to cover services provided to shareholders in the Funds and the maintenance of shareholder accounts. The distribution fee portion is to cover all other activities and expenses primarily intended to result in the sale of the Funds' shares.
The Act requires that a plan of distribution be initially approved by the Fund's Board of Directors, including a majority of the directors who are not "interested persons" and who have no financial interest in the Plan, and by the vote of a majority of the outstanding shares of the Fund. If approved, a plan of distribution may be for a term of one year, and thereafter it must be approved at least annually by the entire Board of Directors and by a majority of the "disinterested" directors. In addition, all plans of distribution are subject to termination at any time by majority vote of the disinterested directors or shareholders.
The activities of certain Company subsidiaries and of the Funds are subject to regulation under Federal and state securities laws. The provisions of these laws, including those relating to the contractual arrangements between the Funds and their investment managers, are primarily designed to protect the shareholders of the Funds, and not the shareholders of the Company.
Moreover, we face many risk factors, several of which are inherent in the financial services industry and the investment advisory business, and many which are specific to the Company. Investors should carefully consider the risks described below, together with all of the other information available and similar information in evaluating us and our common stock. If any of the risks described below actually occur, our business, results of operations, financial condition and stock price could be materially adversely affected.
Volatility in and disruption of the capital markets and changes in the economy may significantly affect our revenues.
Investor behavior is influenced by short term investment performance of mutual funds.
We face intense competition in attracting investors and retaining net assets in the Funds.
Our investment advisory and shareholder servicing agreements can be terminated on short notice, are not freely assignable and must be renewed annually; the loss of such agreements would reduce our revenues.
Our investment advisory and shareholder servicing agreements can be terminated on short notice, are not freely assignable and must be renewed annually; the loss of such agreements would reduce our revenues.
We depend on third party investment professionals and the distribution channels they utilize to market the Funds.
Industry trends and market pressure to lower our investment advisory fees could reduce our profit margin.
We may be required to forego all or a portion of our fees under our management contracts covering the Funds.
The Funds are subject to risks of mining, resources, foreign exchange, and economic uncertainties.
We depend upon key personnel to manage our business and the loss of any of their services could materially adversely affect us. Additionally, the cost to retain our key personnel could put pressure on our operating margins.
We are highly dependent on various software applications and other technologies, as well as on third parties who utilize various software applications and other technologies, for our business to function properly and to safeguard confidential information; any significant limitation, failure or security breach could constrain our operations.
We are exposed to legal risk and litigation, which could increase our expenses and reduce our profitability.
Our business is extensively regulated and our failure to comply with regulatory requirements may harm our financial condition.
Our contracts contain contractual requirements; any failure to comply with such guidelines and requirements could result in claims, losses or regulatory sanctions.
Employee misconduct could harm us by impairing our ability to attract and retain investors in the Funds and by subjecting us to significant legal liability, regulatory scrutiny and reputational harm.
The historical performance of the Funds should not be considered indicative of the future results of the Funds or of any returns expected on our common stock.
Equity markets and our common stock have historically been volatile.
Our common stock has relatively limited trading volume, and ownership of a large percentage is concentrated with a small number of shareholders, which could increase the volatility in our stock trading and significantly affect our share price.
Our Class A common stock has no voting rights, no dividend has recently or is currently likely to be paid on the Class A common stock, and no annual or special meeting of Class A stockholders has recently or is currently likely to be called.
The Company has sought to qualify for the OTC Pink Current Information Tier market so that its common stock is eligible for public quotations in the OTC market pursuant to Exchange Act Rule 15c2-11. There is no assurance, however, that the Company will continue to seek to so qualify or that its common stock will be eligible for public quotations in the OTC market or otherwise.
Non-GAAP Financial Measures: From time to time the Company may provide investors with non-GAAP financial information, such as book value per share (collectively the "non-GAAP financial measures"). These non-GAAP financial measures are measurements of financial performance that are not prepared in accordance with U.S. generally accepted accounting principles and computational methods may differ from those used by other companies. Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP. Management uses both GAAP and non-GAAP measures when planning, monitoring and evaluating the Company's performance. The primary purpose of using non-GAAP measures is to provide supplemental information that may prove useful to investors and to enable investors to evaluate the Company's results in the same way management does. Management believes that supplementing GAAP disclosure with non-GAAP disclosure provides investors with a more complete view of the Company's operational performance and allows for meaningful period-to-period comparisons and analysis of trends in the Company's business. Further to the extent that other companies use similar methods in calculating non-GAAP measures, the provision of supplemental non-GAAP information can allow for a comparison of the Company's relative performance against other companies that also report non-GAAP operating results.
Forward-Looking Information
Information or statements provided by or on behalf of the Company from time to time, including those within this website, may contain certain "forward-looking information", including information relating to anticipated growth in revenues or earnings per share, anticipated changes in the amount and composition of assets under management, anticipated expense levels, and expectations regarding financial market conditions. The Company cautions readers that any forward-looking information provided by or on behalf of the Company is not a guarantee of future performance and that actual results may differ materially from those in forward-looking information as a result of various factors, including but not limited to those discussed below. Further, such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.
The Company's future revenues may fluctuate due to factors such as: the total value and composition of assets under management and related cash inflows or outflows in mutual funds; fluctuations in the financial markets resulting in appreciation or depreciation of assets under management; the relative investment performance of the Company's sponsored investment products as compared to competing products and market indices; the expense ratios and fees of the Company's sponsored products and services; investor sentiment and investor confidence in mutual funds; the ability of the Company to maintain investment management fees at current levels; competitive conditions in the mutual funds industry; the introduction of new mutual funds and investment products; the ability of the Company to contract with the Funds for payment for services offered to the Funds and Fund shareholders; the continuation of trends in the retirement plan marketplace favoring defined contribution plans and participant-directed investments; the amount and timing of income from the Company's proprietary securities trading portfolio; and the performance of its publicly traded affiliates.
The Company's future operating results are also dependent upon the level of operating expenses, which are subject to fluctuation for the following or other reasons: changes in the level of advertising expenses in response to market conditions or other factors; the level of expenses assumed by the Company for the Funds as a result of expense waiver or reimbursement of management or distribution fees or absorption of certain expenses to increase a Fund's performance; variations in the level of compensation expense incurred by the Company, including performance-based compensation based on the Company's financial results, as well as changes in response to the size of the total employee population, competitive factors, or other reasons; expenses and capital costs, including depreciation, amortization and other non-cash charges, incurred by the Company to maintain its administrative and service infrastructure; and unanticipated costs that may be incurred by the Company from time to time to protect investor accounts and client goodwill.
The Company's operating results will also depend on the results of its investments in securities.
The Company's revenues are dependent on revenues from the Funds, which could be adversely affected if the independent directors of one or more of the Funds determined to terminate or renegotiate the terms of one or more investment management or other agreements with a subsidiary of the Company.
The Company's business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax, and compliance requirements may have a substantial effect on the Company's business and results of operations, including but not limited to effects on the level of costs incurred by the Company and effects on investor interest in funds in general or in particular classes of funds.