Dunham Alternative Strategy Fund to liquidate

TheShadow

https://www.sec.gov/Archives/edgar/data/1420040/000158064216011182/dunhamaltstrat497s.htm

497 1 dunhamaltstrat497s.htm 497
DUNHAM FUNDS

Dunham Alternative Strategy Fund

Class A (DAASX)

Class C (DCASX)

Class N (DNASX)

Supplement dated September 26, 2016 to the Statutory Prospectus (the “Prospectus”)

and the Summary Prospectus both dated February 26, 2016

This Supplement updates and supersedes any contrary information contained in the Prospectus and Summary Prospectus.

The Board of Trustees of the Dunham Funds (the “Trust”) has approved a Plan of Liquidation for the Dunham Alternative Strategy Fund (the “Fund”) pursuant to which the Fund will be liquidated (the “Liquidation”) on or about October 28, 2016 (“Liquidation Date”). This date may be changed without notice at the discretion of the Trust’s officers.

Suspension of Sales. Effective the close of business on September 30, 2016, the Fund will no longer sell shares to new investors or existing shareholders, including through exchanges into the Fund from other Dunham Funds. Also, as of September 30, 2016, the Fund will no longer pursue its investment objective and will invest in cash equivalents such as money market funds until all shares have been redeemed.

Mechanics. In connection with the Liquidation, any shares of the Fund outstanding on the Liquidation Date will be automatically redeemed as of the close of business on the Liquidation Date. The proceeds of any such redemption will be equal to the net asset value of such shares after the Fund has paid or provided for all of its charges, taxes, expenses and liabilities. The distribution to shareholders of these liquidation proceeds will occur as soon as practicable, and will be made to all shareholders of the Fund of record at the time of the Liquidation. Additionally, the Fund must declare and distribute to shareholders any realized capital gains and all net investment income no later than the final Liquidation distribution. Dunham & Associates Investment Counsel, Inc., the Fund’s investment adviser (the “Adviser”), intends to distribute substantially all of the Fund’s net investment income prior to the Liquidation. The Adviser will bear all expenses in connection with the Liquidation to the extent such expenses exceed the amount of the Fund’s normal and customary fees and expenses accrued by the Fund through the Liquidation Date, provided that such accrued amounts are first applied to pay for the Fund’s normal and customary fees and expenses.

Other Alternatives. At any time prior to the Liquidation Date, shareholders of the Fund may redeem their shares of the Fund and receive the net asset value thereof, pursuant to the procedures set forth under “HOW TO REDEEM SHARES” in the Prospectus. Shareholders may also exchange their Fund shares for shares of the same class of any other Dunham Fund, as described in and subject to any restrictions set forth under “HOW TO EXCHANGE SHARES” in the Prospectus.

U.S. Federal Income Tax Matters. Although the Liquidation is not expected to be a taxable event for the Fund, for shares held in a taxable account, the automatic redemption of shares of the Fund on the Liquidation Date will generally be treated as any other redemption of shares (i.e., as a sale that may result in gain or loss for federal income tax purposes). Instead of waiting until the Liquidation Date, a shareholder may voluntarily redeem his or her shares prior to the Liquidation Date to the extent that the shareholder wishes to realize any such gains or losses prior thereto. See “TAX STATUS, DIVIDENDS AND DISTRIBUTIONS” in the Prospectus. Shareholders should consult their tax advisors regarding the tax treatment of the Liquidation.

If you have any questions regarding the Liquidation, please contact the Fund at (888) 3DUNHAM (338-6426).

Investors Should Retain This Supplement For Future Reference


2

BrianW

I don't understand why this ever existed.

jptak

It's in midst of ~20% drawdown which began in earnest in Feb. 2015. Very unusual situation in that the subadvisor, Market Concepts LLC, seems to run almost no money outside of the fund. When comparing assets in their ADV to assets reported for fund, fund accounted for nearly everything. While that's not unheard of, this subadvisor doesn't appear to have a long/distinguished track record of running managed futures money elsewhere previously. (There was another alts fund, Sherwood Forest Alternative, that same managers ran for a time but it was launched after Dunham fund (6/09 inception) and killed off in Jan. 2013 having never surpassed $1MM in assets.) Kind of hard to understand why they were hired to begin with and how the advisor could be comfortable offering a fund whose subadvisor was seemingly so dependent on the fund for AUM/viability.

Jeff Ptak
Morningstar

msf

The SAI says "the Dunham Alternative Strategy Fund is considered the successor to the Sherwood Forest Alternative Strategy Fund" as a result of a reorganization (Feb 22, 2013) that moved the fund from the World Funds Trust to the Dunham Funds.

Morningstar's data on DNSAX says that the fund's inception date was Feb. 12, 2009. So M* seems to agree that Sherwood wasn't killed, but rather reorganized and renamed. Dunham became legal manager, with Sherwood moving from advisor to subadvisor keeping the same day-to-day managers.

Here's the reorganization (proxy) notice. According to its financials, the class A shares (launched June 11, 2009) never reached $1M AUM (except pro forma when combined with P shares). But class A that was the smallest share class. The oldest shares, class I, peaked over $18M in 2010 and still had nearly $11M in 2012. After 2010, all the share classes were in free fall.

The SAI says that the "Trust" (Dunham Funds) was formed Nov. 28, 2007. But Dunham apparently didn't contain any funds until March 3, 2008, when it acquired a number of AdvisorOne funds. It acquired more funds from Kelmoore on Sept. 29, 2008. It seems Dunham is basically just a fund scavenger.

jptak

Good catch. It appears that the C, I, and P shareclasses of the Sherwood Forest fund were wiped from our DB for whatever reason, maybe at the time of the merger. (The assets were mostly in the I shares, as you correctly note.) That's why I didn't see them. I say 'kill' mainly because Sherwood Forest version ceased to exist from point of merger forward. Usually in mergers the record of fund being merged into surviving fund is lost. This is a little different in that appears they handled it more like an adoption/rebranding, with the Sherwood Forest Fund's record retained.

Jeff Ptak
Morningstar

msf

Thanks for the follow up. $1M or $18M, it was still a tiny fund. As part of the reorganization, the fund terminated fee waivers, so that the shareholders wound up paying higher expenses. Not exactly a good strategy for acquiring or retaining assets.