PROSPECTUS PUERTO RICO DIVERSIFIED TAX MANAGED TOTAL RETURN IRA TRUST The Trust has the following characteristics: Is a collective investment trust organized pursuant to a Deed of Trust, dated April 6, 1984, as amended and restated from time to time under the laws of Puerto Rico. Its purpose is to provide residents of Puerto Rico (the Participants ) with the tax benefits of an individual retirement account ( IRA ) and the potential of attaining the investment objectives of the Trust. Its investment objectives are to seek long-term capital appreciation and current income through a diversified portfolio of equity and fixed income securities with capital appreciation and current income potential. No assurance can be given that the Trust will achieve its investment objectives. Oriental Bank, through its trust department (known as Oriental Trust ) is the Sponsor, Investment Adviser, and Trustee of the Trust. Oriental Trust, as Sponsor of the Trust, and any securities broker or dealer authorized by Oriental Trust will act as the distributors of the Trust. The participation units (the Units ) of the Trust have the following characteristics: Represent fractional undivided interests in the assets of the Trust. Are offered and sold only to Participants at the public offering price with an annual minimum investment of $250. There is no minimum investment requirement for an employer or employee association sponsored IRA. All proceeds from the sale of the Units are deposited in the Trust. The public offering price of the Units at any given time is based upon the net asset value of the Trust, as determined by the Trustee on each day on which both the New York Stock Exchange and commercial banks in Puerto Rico are open for business. Are not transferable and may not be disposed of by a Participant, but through redemption by the Trust in connection with distributions made pursuant to the applicable provisions of the Puerto Rico Internal Revenue Code of 2011, as amended (the 2011 Code ). Are subject, in certain circumstances, to a rollover fee of $54.99 and a withdrawal fee of up to 5% of the amount withdrawn in the first five years if withdrawn for reasons other than the attainment of 60 years of age, death, disability or unemployment of the Participant. These securities entail investment risks, including the possible loss of any amounts invested. Before investing you should consider the Risk Factors beginning on page 7 of this Prospectus. The Units described herein are only offered for sale in Puerto Rico pursuant to a registration statement filed with the Office of the Commissioner of Financial Institutions of Puerto Rico ( OCFI ) under the Puerto Rico Uniform Securities Act. These securities have not been approved or disapproved by the OCFI. The OCFI has not made any determination regarding the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense. The Units have not been registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933, nor with any state. The Units are being offered exclusively to individuals having their principal residence in Puerto Rico. The Units are not deposits insured by the Federal Deposit Insurance Corporation, are not deposits or other obligations of, or guaranteed by, Oriental Bank, and are subject to investment risks, including the possible loss of the principal amount invested. The date of this Prospectus is February 10, 2016. Oriental Trust a Department of Oriental Bank
No person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Trust or the Distributors. This Prospectus does not constitute an offer by the Trust or the Distributors to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction other than Puerto Rico. In case of any discrepancy between the original text in English of this Prospectus and its translation to Spanish, the English text will prevail. TABLE OF CONTENTS TRUST EXPENSES TABLE... Error! Bookmark not defined. SUMMARY... Error! Bookmark not defined. THE TRUST... Error! Bookmark not defined. SPONSOR AND TRUSTEE... Error! Bookmark not defined. RISK FACTORS... Error! Bookmark not defined. TRANSACTIONS WITH AFFILIATES... Error! Bookmark not defined. PURCHASE AND VALUATION OF THE UNITS... Error! Bookmark not defined. FEES, CHARGES AND EXPENSES... Error! Bookmark not defined. REDEMPTION OF THE UNITS... Error! Bookmark not defined. PERFORMANCE CALCULATION... Error! Bookmark not defined. SUPERVISION OF THE TRUST... Error! Bookmark not defined. LEGAL AND REGULATORY REQUIREMENTS APPLICABLE TO IRAs... Error! Bookmark not defined. PORTFOLIO MANAGEMENT... Error! Bookmark not defined. TAXATION... Error! Bookmark not defined. DISTRIBUTORS... Error! Bookmark not defined. EXPERTS... Error! Bookmark not defined. ADDITIONAL INFORMATION... Error! Bookmark not defined. Page Appendix A Form of Adoption Agreement Appendix B IRA Disclosure Statement Appendix C Audited financial statements of the Trust
TRUST EXPENSES TABLE Annual Trust Operating Expenses * (As a percentage of total average assets of the Trust; these expenses are deducted from Trust assets) Trustee Fee 0.36% Administrative Fee 0.26% Investment Advisory Fee and Sub-advisory Fees ** 1.18% Total Annual Fund Operating Expenses 1.80% Account Fees (Fees are deducted from your investment) Withdrawal Fee *** 1.00% - 5.00% Rollover Fee *** $54.99 * Certain direct, legal and actuarial fees may be charged to a Participant s account when certain conditions are met. See, FEES, CHARGES AND EXPENSES. ** Estimated based, in part, on sub-advisory or money management fees of up to 0.75% of the Trust s assets invested in the United States. See, FEES, CHARGES AND EXPENSES. *** See, FEES, CHARGES AND EXPENSES for applicability.
SUMMARY The following summary does not purport to be complete and is qualified in its entirety by the more detailed information appearing elsewhere in this Prospectus and the provisions of the Deed of Trust (as defined below), all relevant documents, and all applicable statutory and regulatory provisions. This Prospectus speaks only as of its date and the information contained herein is subject to change. No person is authorized to detach this summary from this Prospectus or otherwise use it without the entire Prospectus. The Trust The Puerto Rico Diversified Tax Managed Total Return IRA Trust (the Trust ) is a collective investment trust organized under the laws of the Commonwealth of Puerto Rico (the Commonwealth or Puerto Rico ) pursuant to a certain Deed of Trust, dated April 6, 1984, as amended and restated from time to time (the Deed of Trust ), to provide individuals having their principal place of residence in the Commonwealth (the Participants ) with the tax benefits of an individual retirement account ( IRA ) and the potential of attaining the investment objectives of the Trust which are to seek long-term capital appreciation and current income consistent with the investment policies of the Trust and prudent investment management. The Trust offers the Participants an opportunity to acquire an interest in a trust that invests in a portfolio of equity and fixed income securities, with more diversification than each Participant might individually be able to obtain on his or her own. The Trust provides for the establishment thereunder of IRAs that are regular IRAs, that is, IRAs the contributions to which are deductible for Puerto Rico income tax purposes, as well as nondeductible IRAs, commonly referred to as Roth IRAs, the contributions to which will not give rise to a deduction for Puerto Rico income tax purposes but that nonetheless enjoy certain tax benefits outlined in this Prospectus. At December 31, 2015, the Trust had approximately $397.4 million in assets. See, THE TRUST. Sponsor and Trustee Oriental Bank, through its trust department (known as Oriental Trust ), acts as the Sponsor, Trustee and Investment Adviser of the Trust. See, THE TRUST Organization of the Trust, Change of Sponsor and Trustee and SPONSOR AND TRUSTEE. At December 31, 2015, total assets managed by Oriental Trust amounted to approximately $2.7 billion. Description of the Units Each participation unit to be issued by the Trust will represent a fractional undivided interest in the Trust (the Units ). The Units are not transferable and may not be disposed of by a Participant, but through redemption by the Trust. At December 31, 2015, there were approximately 34.8 million Units outstanding. The Units are sold to Participants at the public offering price with an annual minimum investment of $250, except for an employer or employee association sponsored IRA that is not subject to this minimum investment restriction; provided, however, that in no event shall any individual be permitted to invest more than the amount authorized by Commonwealth laws and regulations applicable to an IRA, namely, the lesser of the Participant s adjusted gross income derived from wages, salaries or earnings attributable to professions or occupations, or the maximum contribution amount of $5,000 per taxable year. In the case of married taxpayers who file a joint Puerto Rico income tax return, each spouse may contribute to his or her IRA up to the maximum contribution amount stated above per taxable year, even if one of the spouses did not derive any gross income from the above-mentioned sources, provided that their combined total contribution shall not exceed the combined adjusted gross income derived from wages, salaries or earnings attributable to professions or occupations, or the amount of $10,000 per taxable year, whichever is lower. See, LEGAL AND REGULATORY REQUIREMENTS APPLICABLE TO INDIVIDUAL RETIREMENT ACCOUNTS Special Characteristics of a Commonwealth IRA. ii
The investment made by or on behalf of spouses shall be made in a separate IRA. In any employer or employee association sponsored IRA through which the employer or employee association makes or channels contributions on behalf of its employees or their spouses, or members, to the Trust (provided that a separate account shall be established for each employee, spouse, or member), each employee, spouse, or member shall be the owner of a separate account and shall enter into a separate Adoption Agreement with the Trust. All contributions must be made in cash or by electronic funds transfer, check or money order payable to the order of Oriental Trust as Trustee of the Puerto Rico Diversified Tax Managed Total Return IRA Trust. See, Appendix A hereto. Offering of the Units The Units are being offered exclusively to individuals having their principal residence in Puerto Rico. The Units are being offered for sale in Puerto Rico pursuant to a certain registration statement filed under the Puerto Rico Uniform Securities Act, as amended ( PRUSA ), with the Office of the Commissioner of Financial Institutions of Puerto Rico (the OCFI ). The Units have not been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or the securities laws of any jurisdiction other than Puerto Rico. A Participant must immediately notify the Trustee and redeem his or her Units if he or she ceases to be a Puerto Rico resident. Upon learning that the Participant is no longer a resident of Puerto Rico, the Trustee may terminate the Participant s IRA and either distribute the balance in the IRA to the Participant or, if so instructed by the Participant, transfer the balance of the IRA to another IRA held by the Participant. In the event the Participant dies before the entire balance of his or her IRA has been distributed to the Participant, upon learning that any beneficiary of the Participant s IRA is not a resident of the Commonwealth, the Trustee may likewise terminate or transfer that portion of the Participant s IRA to which the beneficiary is entitled. See, REDEMPTION OF THE UNITS. The public offering price of the Units during the continuous offering is the Sales Price (as defined below), which is determined by the Trustee on each Business Day (as defined below). The number of Units credited to the Participant will be equal to the cash amount received by the Trustee divided by the net asset value per Unit of the Trust that is applicable on the day the funds are received (the Sales Price ). If such day is not a Business Day, the Sales Price will be determined on the next Business Day. A Business Day means a day on which both the New York Stock Exchange and commercial banks in Puerto Rico are open for business. Investment Objectives and Policies The investment objectives of the Trust are to seek for the Participants long-term capital appreciation and current income consistent with the investment policies of the Trust and prudent investment management. The Trust seeks to attain its investment objectives by investing, subject at all times to the applicable investment requirements for an IRA set forth in the Puerto Rico Internal Revenue Code of 2011, as amended (the 2011 Code ), and, as applicable, the rules and regulations issued thereunder by the Puerto Rico Treasury Department and the OCFI, including those concerning an IRA (the IRA Regulations ), in a diversified portfolio of equity and fixed income securities with capital appreciation and current income potential. The investment portfolio of the Trust may include investments in securities issued by OFG Bancorp, the parent company of the Trustee. Funds received by the Trust, whether by way of the proceeds from the sale of Units or as a result of interest income or the return on principal, are invested or reinvested in equity and debt securities which meet the investment requirements of the Trust, as well as the requirements of the 2011 Code and the IRA Regulations. See, THE TRUST Investment Objectives and Policies. iii
Risk Factors All investors in the Units should consider, among other things, the various risks to which an investment in the Units is subject and which are described in some detail herein. Investors are strongly encouraged to analyze such risks. See, RISK FACTORS. Transactions with Affiliates The Trust may purchase securities or other investments from or through the Trustee or its affiliates, including time deposits of the Trustee and securities that are offered in an underwriting in which an affiliate of the Trustee is a member of the underwriting syndicate or selling group. The Trust may also invest in securities issued by the parent company of the Trustee. See, THE TRUST Investment Objectives and Policies and TRANSACTIONS WITH AFFILIATES. Purchase and Valuation of the Units The value of the Units for purposes of the Sales Price and for purposes of redemption (the Redemption Price ) will be determined by the Trustee. The determination of the Sales Price and the Redemption Price is made as of the close of trading (presently 4:00 p.m., New York time) on the New York Stock Exchange on each Business Day and is accomplished by dividing the net assets (the excess of assets over liabilities) of the Trust by the number of outstanding Units. The Trust s assets will be valued by the Trustee based upon market quotations when such quotations are available. A security listed or traded on any exchange in the United States will be valued at its last sales price on the principal exchange on which it is traded prior to the time the assets of the Trust are valued. If no sale is reported at that time or the security is traded in the over-the-counter ( OTC ) market, the most recent bid will be used for purposes of the valuation. Securities and other assets which are not listed or traded on an exchange or traded in the OTC market, but for which quotations can be obtained from dealers, will be valued based on the bid provided to the Trustee by at least two dealers, one of which may be the Sponsor or any of its affiliates. Assets for which market quotations are not readily available will be valued at fair value by the Trustee utilizing quotations derived from recognized dealers in those assets or information regarding the trading spreads quoted by recognized dealers between such assets and United States Treasury securities whose maturities are determined to be most similar to the average life of the Trust s assets. Notwithstanding the above, assets with maturities of 60 days or less generally will be valued at amortized cost if their original term to maturity was 60 days or less, or by amortizing the difference between their fair value as of the 61st day prior to maturity and their maturity value if their original term to maturity exceeds 60 days, unless in either case the Trustee determines that this does not represent fair value. These prices may change depending on market conditions. See, PURCHASE AND VALUATION OF THE UNITS. Fees, Charges and Expenses Oriental Trust, as Trustee of the Trust, will charge service fees and expenses in accordance with the following schedule (the Trustee, Administrative and Investment Adviser fees disclosed herein apply to all IRAs established under the Trust): Trustee fee. The Trustee is entitled to a trustee fee equal to 0.36% of the total average assets of the Trust. Such fee is computed daily and paid on the last day of each month. Administrative fee. The Trustee is entitled to an administrative fee equal to 0.26% of the total average assets of the Trust. Such fee is computed daily and paid on the last day of each month. iv
Investment Adviser fee. Under the terms of the Deed of Trust, the Trustee is obligated to provide investment advisory services to the Trust in return for which it is entitled to an annual investment advisory fee equal to 0.93%, computed daily based on the total average assets of the Trust and paid on the last day of each month. Oriental Trust has entered into sub-investment advisory or money management agreements with third parties for sub-investment advice or money management services to the Trust with respect to its equity investments in the United States. The agreements provide for annual sub-advisory fees payable by the Trust for the services rendered by such sub-investment advisers or money managers. Withdrawal fee. All amounts invested by a Participant (and any additional Units credited thereon) will be subject to the following withdrawal fee upon the redemption of the Units from an IRA for reasons other than the attainment of 60 years of age, death, disability or unemployment of the Participant: (i) 5% if withdrawn during the first year; (ii) 4% if withdrawn during the second year; (iii) 3% if withdrawn during the third year; (iv) 2% if withdrawn during the fourth year; and (v) 1% if withdrawn during the fifth year. The number of years described above shall be those following each investment by the Participant, and any withdrawals shall be determined on a first-in first-out basis. The Trustee may waive or reduce the withdrawal fee for any transaction. Rollover fee. In addition to any other fees charged to a Participant for the withdrawal of amounts invested in the Trust (and any additional Units credited thereon), any rollover of amounts invested on or after December 1, 2003 (and any additional Units credited thereon) to an IRA at another institution will be subject to a charge of $54.99. Other fees. Certain direct, legal and actuarial fees may be charged to the account of a Participant in the event of: (i) a dispute as to entitlement to the participation by the beneficiaries and heirs of such Participant; (ii) the election of a periodic payment option requiring actuarial computations; or (iii) expenses which are incurred with respect to a particular IRA, including, but not limited to, those relating to court appearances and related attorneys fees. Expenses. Expenses incurred by the Trustee for the benefit of and related to the Trust, will be either paid, or reimbursed, to the Trustee from the income generated by the Trust. See, FEES, CHARGES AND EXPENSES. Performance Calculation The performance or yield of an investment made in the Trust can be determined only after the Participant s investment in the Trust is redeemed through a distribution based on the provisions of the 2011 Code and the IRA Regulations, and such proceeds are then compared to the amount invested. Only at that point can the actual or final yield for a particular investment in the Trust be computed. The monthly statements of account sent to each Participant for the months of April, July, October and January of each year contain an interim yield which describes the return on a particular investment for the quarter ended in the previous month. The Trust s actual or final yield may be higher or lower than the interim yield. See, PERFORMANCE CALCULATION. Redemption of the Units The Units are not transferable and may not be disposed of by a Participant, but through redemption by the Trust. Units will be redeemed as of a Business Day within seven Business Days following the Trustee s receipt of a distribution request by the Participant in writing; provided, however, that the Participant (or his or her heirs or beneficiaries, if the Participant has died) has submitted to the Trustee the required sworn statement, certification and/or documentation, as applicable, for such distribution. Units will be redeemed at the Redemption Price, which is calculated in the same manner described above for the Sales Price. The redemption of Units prior to attainment of age 60, and for reasons other than a timely repayment of excess contributions or a case described in the 2011 Code allowing for the early withdrawal, without penalty, of funds deposited in IRAs, will result in a tax penalty to the Participant of 10% of the amount v
distributed (15% in certain cases). See, PURCHASE AND VALUATION OF THE UNITS and REDEMPTION OF THE UNITS. Supervision of the Trust Oriental Trust, as the Trustee, is responsible for the overall supervision of the operations of the Trust, which include maintaining custody of the assets of the Trust, valuing the Units for purposes of determining the Sales Price and Redemption Price, maintaining record books for each IRA of the Participants and managing the Trust s investments. Under the terms of the Deed of Trust, Oriental Trust, as Trustee, acts as the Investment Adviser to the Trust. As Investment Adviser, Oriental Trust is responsible for recommending new investments and/or changes in existing investments of the Trust consistent with the investment policies of the Trust. See, PORTFOLIO MANAGEMENT. Oriental Trust has entered into sub-investment advisory or money management agreements with third parties to provide sub-investment advice or money management services to the Trust with respect to its equity investments in the United States. Oriental Trust selects various equity investment strategies in order to attain the investment objective of long-term capital appreciation consistent with prudent investment management. Such strategies include, but are not limited to, large capitalization companies, mid capitalization companies, small capitalization companies, growth companies and value companies. Money managers (or sub-advisers) are selected by Oriental Trust for each of these investment strategies based on their respective experience, reputation and long-term performance record. Performance benchmarks are selected by Oriental Trust to track the performance of such money managers, and Oriental Trust periodically reviews the performance of each money manager with respect to its performance benchmark and the overall performance of the Trust. Legal and Regulatory Requirements Applicable to Individual Retirement Accounts An IRA is an investment vehicle through which an individual can make annual contributions to a trust and accumulate income with respect thereto on a tax-favored basis in order to provide for his or her retirement. The Trust allows for the establishment thereunder of Diversified Growth IRAs, which are regular IRAs, that is, IRAs the contributions to which are deductible for Puerto Rico income tax purposes, as well as Roth Diversified Growth IRAs, which are nondeductible IRAs, commonly referred to as Roth IRAs, the contributions to which will not give rise to a deduction for Puerto Rico income tax purposes but that nonetheless enjoy certain tax benefits outlined below. In the case of the Diversified Growth IRA, the total amount of the permissible annual contribution is deductible from taxable income. In addition, no current Commonwealth taxes are paid by the investor on the income generated by an IRA investment, enabling it to compound and grow at an accelerated rate, although United States federal income taxes may be incurred by the Trust on its investments in the United States. In addition, to the extent a distribution represents income from Commonwealth tax-exempt investments (excluding gains on the disposition of such investments), that part of the distribution will be exempt from Commonwealth income taxes when distributed to the Participant or to the Participant s beneficiary. In the case of the Roth Diversified Growth IRA, contributions will not be deductible from the Participant s adjusted gross income, but the IRA (including income generated thereon) will be exempt from Puerto Rico income taxes, enabling it to compound and grow at an accelerated rate, although United States federal income taxes may be incurred by the Trust on its investments in the United States. Moreover, qualified distributions from the Roth Diversified Growth IRA will not be includible in gross income for Puerto Rico income tax purposes and will therefore be exempt from Puerto Rico taxation. See, REDEMPTION OF THE UNITS. Except as indicated below, the transfer of the Participant s Units in the IRA due to the Participant s death will not be subject to estate taxes imposed by the 2011 Code if the Participant is a: (i) United States citizen who acquired such citizenship solely by reason of birth or residence in Puerto Rico and (ii) is a resident of Puerto Rico for purposes of the 2011 Code as of the time of his or her death. If, however, the Participant is a United States citizen whose estate, vi
wherever located, is subject to the federal estate tax imposed under the United State Internal Revenue Code of 1986, as amended (the US Code ), the value of the Units held in an IRA at the time of the Participant s death shall be included in the Participant s taxable estate and subject to a Puerto Rico estate tax equal to the maximum amount that can be claimed as a tax credit against the federal estate tax imposed under the US Code. This rule, in general, covers a United States citizen born outside of Puerto Rico or who acquired United States citizenship for reasons other than his or her residency in Puerto Rico. An IRA is subject to further conditions and/or limitations which are discussed in this Prospectus in more detail. See, LEGAL AND REGULATORY REQUIREMENTS APPLICABLE TO INDIVIDUAL RETIREMENT ACCOUNTS. Tax Benefits A Participant s IRA offers the following tax benefits: In the case of the Diversified Growth IRA, (a) Current tax deduction an income tax deduction of (i) up to $5,000 per Participant (a total of $10,000 for married taxpayers filing a joint Commonwealth income tax return even if only one of the spouses is employed or receives any income from the rendering of personal services) per taxable year, or (ii) the aggregate adjusted gross income from salaries of the taxpayer (spouses, in the case of a joint tax return), whichever is less, for amounts invested in an IRA; (b) Tax deferral the contributions invested and the income and gains earned by the Trust are not subject to Commonwealth income taxes while held in the Trust, although United States federal income taxes may be incurred by the Trust on its investments in the United States; and (c) Exemption from income taxes any income earned by the Trust on Commonwealth tax-exempt investments (but not any gains on the disposition of these investments) will be exempt from Commonwealth income taxes to the Participant (or the Participant s beneficiary) when distributed by the Trust. In the case of the Roth Diversified Growth IRA, although the contributions will not be deductible, the income and gains earned by the Trust are not subject to Commonwealth income taxes while held in the Trust, although United States federal income taxes may be incurred by the Trust on its investments in the United States; and qualified distributions therefrom will be exempt from Commonwealth income taxes to the Participant (or the Participant s beneficiary) when distributed by the Trust. A qualified distribution for these purposes is any payment or distribution made with respect to the Roth Diversified Growth IRA that: (a) is made on or after the Participant attains 60 years of age, (b) is made to the Participant (or his or her estate or heirs) upon or after the Participant s death, or (c) constitutes a special purpose distribution, that is, a distribution for any of the purposes that constitute an exception for the imposition of the 10% tax penalty (15% in certain cases) on early distributions. See TAXATION herein for a discussion of certain material Puerto Rico tax consequences of an investment in the Trust. Distributors Oriental Trust, as Sponsor of the Trust, and any broker or dealer as may be authorized by the Trustee from time to time, will act as the distributors of the Units (the Distributors ). The Distributors will solicit subscriptions for the Units during the offering period. Experts Certain legal matters in connection with the issuance of the Units offered hereby were passed upon by Pietrantoni Méndez & Alvarez LLC, San Juan, Puerto Rico. The independent auditors of the Trust are FPV & Galindez P.S.C., San Juan, Puerto Rico. vii
Additional Information This Prospectus and its Appendices do not contain all the information filed by the Trustee with the OCFI in connection with the registration of the Units under PRUSA. Copies of such documents may be examined without charge at the corporate trust office of Oriental Trust located at Professional Offices Park, 997 San Roberto Street, 10 th Floor, San Juan, Puerto Rico. viii
PUERTO RICO DIVERSIFIED TAX MANAGED TOTAL RETURN IRA TRUST THE TRUST The Puerto Rico Diversified Tax Managed Total Return IRA Trust (the Trust ) is a collective investment trust organized under the laws of the Commonwealth of Puerto Rico (the Commonwealth or Puerto Rico ) pursuant to a certain Deed of Trust, dated April 6, 1984, as amended and restated from time to time (the Deed of Trust ), to provide individuals having their principal place of residence in the Commonwealth (the Participants ) with the tax benefits of an individual retirement account ( IRA ) and the potential of attaining the investment objectives of the Trust which are to seek long-term capital appreciation and current income. The Trust offers the Participants an opportunity to acquire an interest in a trust that invests in a diversified portfolio of equity and fixed income securities, with more diversification than each Participant might individually be able to obtain on his or her own. At December 31, 2015, the Trust had approximately $397.4 million in assets. Organization of the Trust, Change of Sponsor and Trustee The Trust is a collective investment trust organized under the laws of the Commonwealth in 1984 by A.G. Becker Paribas Puerto Rico, Inc. ( Becker ) pursuant to the Deed of Trust. As a result of the merger of Becker with and into Drexel Burnham Lambert Puerto Rico, Inc. ( Drexel ) as of December 4, 1984, Drexel became the Sponsor of the Trust and the Deed of Trust was amended to change the name of the Trust to the Drexel Burnham Lambert Puerto Rico Individual Retirement Account Tax Exempt Investment Trust. On January 29, 1988, the Deed of Trust was amended to reflect the amendments made to the Puerto Rico Income Tax Act of 1954, as amended, by Act No. 2 of October 6, 1987, which modified the provisions thereto applicable to individual retirement accounts, and to make certain other amendments to the Trust. On December 18, 1989, the Deed of Trust was further amended to change the name of the Trust to Puerto Rico Individual Retirement Account Tax Exempt Investment Trust, and to appoint Commercial Trust Company, Inc. ( CTC ), former Trustee of the Trust, as the Sponsor and Settlor of the Trust. The Deed of Trust was subsequently amended to provide that it is the obligation of the Trustee to provide investment advisory services to the Trust. On February 15, 1990, in connection with the sale of substantially all of CTC s assets and trust business to Oriental Bank ( Oriental ), acting through its trust department (known as Oriental Trust ), Oriental Trust succeeded CTC in its duties as Sponsor, Settlor and Trustee under the Deed of Trust. See, SPONSOR AND TRUSTEE. Oriental Trust is the Sponsor, Investment Adviser and Trustee of the Trust. Oriental, formerly Oriental Federal Savings Bank, underwent a conversion of its charter to that of a Commonwealth commercial bank, effective July 1, 1994. In addition, the Deed of Trust has been amended on various occasions to modify, among other provisions, those sections related to the list of permitted investments of the Trust, the fees and expenses that may be paid by the Trust and charged to the Participants, the minimum and maximum investment amounts per year, changes attributable to the enactment of the Puerto Rico Internal Revenue Code of 1994, as amended (the 1994 Code ), and the date in which the Sales Price and the Redemption Price (as both terms are defined below) are determined. On December 23, 1997, the Deed of Trust was amended and restated by Oriental Trust to change its name to Puerto Rico Diversified Tax Managed Total Return IRA Trust from Puerto Rico Individual Retirement Account Tax Exempt Investment Trust and to modify the Trust s investment objectives and policies in order to take advantage of certain changes made to the 1994 Code by Act No. 42 of July 22, 1997 ( Act No. 42 ). In general terms, Act No. 42 modified the 1994 Code s investment requirements for IRA trusts in Puerto Rico as follows: (i) it reduced the percentage from 50% to 34% of the assets of an IRA trust that must be invested in obligations of the Commonwealth and mortgage loans to finance the acquisition of real estate in Puerto Rico; (ii) it changed the requirement that the remaining assets of an IRA trust must be invested in general assets in Puerto Rico, as set forth in the IRA Regulations; and (iii) it added a provision to the effect that up to 33% of the assets of an IRA trust may be invested in assets in the United States, as set
forth in IRA Regulations. The modification of the Trust s investment policies and objectives was proposed and effected by Oriental Trust, with the concurrence of two-thirds of the Participants as required by the Deed of Trust, in order to allow the Participants to take advantage of these changes brought about by Act No. 42. On January 7, 2003, the Deed of Trust was further amended and restated by Oriental Trust to: (i) substitute Fitch Ratings for Duff & Phelps Credit Rating Co., (ii) change the valuation date of the Units, (iii) change the distribution date of the balances of the IRAs established thereunder, (iv) provide for the establishment of nondeductible or Roth IRAs thereunder, and (v) effect other minor conforming amendments which do not affect the rights of the Participants. On February 12, 2003, the Deed of Trust was further amended and restated by Oriental Trust to increase the annual trustee, administrative and investment adviser fees, and effect other minor conforming amendments which do not affect the rights of the Participants. On December 1, 2003, the Deed of Trust was further amended and restated by Oriental Trust to (a) eliminate the sponsor fee; (b) eliminate the withdrawal fee for all amounts withdrawn by any Participant for reason of attaining 60 years of age, for death, disability or unemployment of the Participant, and for any other reason after the fifth year of the date of investment of such amounts; (c) impose a rollover fee of $54.99 applicable to any rollover of amounts invested on or after December 1, 2003 to an individual retirement account at another institution; and (d) effect other minor conforming amendments which do not affect the rights of the Participants. On February 3, 2009, the Deed of Trust was further amended and restated by Oriental Trust to (a) change the valuation date of the Units, from the last Business Day of each calendar month, to each Business Day; (b) change the distribution date for all or any part of the balance of a Participant s IRA, from the 15 th day of the month following a distribution request, to no later than the 7 th Business Day following such distribution request; (c) provide, in accordance with the 1994 Code, for the early redemption of Units, without the 10% tax penalty, if the proceeds are used to pay expenses for the treatment of any terminal, degenerative, chronic or severe decease of the Participant or a family member of the Participant up to the fourth degree of consanguinity or up to the second degree of affinity, whose foreseeable effect certified by a physician is loss of life or permanent physical disability; and (d) effect other minor conforming amendments which do not affect the rights of the Participants. On February 11, 2011, the Deed of Trust was further amended and restated by Oriental Trust to (a) clarify the date for redemption of Units after the Trustee s receipt of a distribution request by a Participant; (b) provide, in accordance with the 1994 Code, for the early redemption of Units, without the 10% tax penalty, if the proceeds are used to prevent the imminent foreclosure or incurring in default of the mortgage on a Participant s principal residence including the refinancing, as a result of job loss or substantial verifiable income reduction, subject to presentation of evidence of such necessity, circumstance and use, provided that in such case and in relation to refinancing to avoid default, the Participant may withdraw up to one-half of the funds deposited in his or her IRA or up to a total of $20,000, whichever is greater; and (c) effect other minor conforming amendments which do not affect the rights of the Participants. On January 31, 2012, the Deed of Trust was further amended and restated to make appropriate references to the Puerto Rico Internal Revenue Code of 2011, as amended (the 2011 Code ). On January 16, 2013, the Deed of Trust was further amended and restated to (a) increase from 15% to 34% the amount of total assets of the Trust that may be invested in obligations of, or loans guaranteed by, the Commonwealth or any of its instrumentalities or political subdivisions, and (b) make appropriate references to the IRA regulations approved by the Puerto Rico Secretary of Treasury under the 2011 Code and other minor conforming amendments which do not affect the rights of the Participants. The Deed of Trust provides that the Settlor may amend its terms and provisions so long as any such amendment is not contrary to law and does not authorize that any part of the Trust be used or changed for a purpose other than for the exclusive benefit of the Participants or their beneficiaries. Written notice of any such amendment must be provided to the 2
Participants. In addition, the Settlor may terminate the Trust upon 30 days prior written notice to the Participants; provided, however, that no amendment or termination of the Trust shall be done retroactively so as to deprive the Participant, his or her spouse or their respective estates or beneficiaries, of any benefit to which they were entitled due to contributions made prior to the date of such amendment or termination, except for amendments made to comply with requirements imposed by law. Description of the Units Each participation unit issued by the Trust represents a fractional undivided interest in the Trust (the Units ). The Units are not transferable and may not be disposed of by a Participant, but through redemption by the Trust. At December 31, 2015, there were approximately 34.8 million Units outstanding. The Units will be sold to Participants at the public offering price with an annual minimum investment of $250, except for an employer or employee association sponsored IRA that is not subject to this minimum investment restriction; provided, however, that in no event shall any individual be permitted to invest more than the amount authorized by Commonwealth laws and regulations applicable to an IRA, namely, the lesser of the Participant s adjusted gross income derived from wages, salaries or earnings attributable to professions or occupations, or the maximum contribution amount of $5,000 per taxable year. In the case of married taxpayers who file a joint Puerto Rico income tax return, each spouse may contribute to his or her IRA up to the maximum contribution amount stated above per taxable year, even if one of the spouses did not derive any gross income from the above-mentioned sources, provided that their combined total contribution shall not exceed the combined adjusted gross income derived from wages, salaries or earnings attributable to professions or occupations, or the amount of $10,000 per taxable year, whichever is lower. See, LEGAL AND REGULATORY REQUIREMENTS APPLICABLE TO INDIVIDUAL RETIREMENT ACCOUNTS Special Characteristics of a Commonwealth IRA. The investment made by or on behalf of spouses shall be made in a separate IRA. In any employer or employee association sponsored IRA through which the employer or employee association makes or channels contributions on behalf of its employees or their spouses, or members, to the Trust (provided that a separate account shall be established for each employee, spouse, or member), each employee, spouse, or member shall be the owner of a separate account and shall enter into a separate Adoption Agreement with the Trust. All contributions must be made in cash or by electronic funds transfer, check or money order payable to the order of Oriental Trust as Trustee for the Puerto Rico Diversified Tax Managed Total Return IRA Trust. See, Appendix A hereto. Offering of the Units The Trust has had a continuous offering of its Units since 1984. The Units are being offered exclusively to individuals who have their principal residence in Puerto Rico (the Participants ). The Units are being offered for sale pursuant to a certain registration statement filed under the Puerto Rico Uniform Securities Act, as amended ( PRUSA ), with the Office of the Commissioner of Financial Institutions of Puerto Rico (the OCFI ). The Units have not been registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933, as amended, nor under the securities laws of any jurisdiction other than Puerto Rico. A Participant must immediately notify the Trustee and redeem his or her Units if he or she ceases to be a Puerto Rico resident. Upon learning that a Participant is no longer a resident of Puerto Rico, the Trustee may terminate the Participant s IRA and either distribute the balance in the IRA to the Participant or, if so instructed by the Participant, transfer the balance of the IRA to another IRA held by the Participant. In the event the Participant dies before the entire balance of his or her IRA has been distributed to the Participant, upon learning that any beneficiary of the Participant s IRA is not a resident of the Commonwealth, the Trustee may likewise terminate or transfer that portion of the Participant s IRA to which the beneficiary is entitled. See, REDEMPTION OF THE UNITS. 3
Participants may open an IRA and purchase Units through any of the Distributors. Oriental Trust, as Trustee and Sponsor, may enter into a distribution agreement with each of the Distributors providing for the sale of Units (collectively, the Distribution Agreements ). See, DISTRIBUTORS. The Trustee may cancel the offer and sale of the Units to the public at any time in response to conditions in the securities markets or for other reasons. The Distribution Agreements may be terminated upon 30 days prior written notice by the Trustee, or by vote of a majority of the outstanding Units of the Trust, or by the Distributor. The public offering price of the Units during the continuous offering is the Sales Price, which is determined by the Trustee on each Business Day. The number of Units credited to the Participant will be equal to the cash amount received by the Trustee divided by the net asset value per Unit of the Trust that is applicable on the day the funds are received (the Sales Price ). If such day is not a Business Day, the Sales Price will be determined on the next Business Day. The Sales Price applicable during any given Business Day is the Sales Price calculated as of the close of trading on the New York Stock Exchange on such Business Day. Computations will be done to three decimal points. Any employer or employee association may channel contributions of its employees, on behalf of any of its employees (including employees who are owners of the company) or members, to the Trust; provided, however, that each employee or member shall establish and be the owner of its separate IRA and shall enter into a separate Adoption Agreement. See, Appendix A hereto. Contributions by an employer or employee association sponsored IRA on behalf of the employees or members will not be subject to the $250 minimum investment restriction. Investment Objectives and Policies Objectives. The investment objectives of the Trust are to seek for the Participants long-term capital appreciation and current income consistent with the investment policies of the Trust and prudent investment management. The Trust seeks to attain its investment objectives by investing, subject at all times to the applicable investment requirements for an IRA under the 2011 Code and the rules and regulations issued thereunder by the Puerto Rico Treasury Department and the OCFI, including those concerning an IRA (the IRA Regulations ), in a diversified portfolio of equity and fixed income securities with capital appreciation and current income potential. The Trust s investment portfolio may include securities issued by OFG Bancorp, the parent company of the Trustee. Funds received by the Trust, whether by way of the proceeds from the sale of Units or as a result of interest or dividend income or the return on principal, are invested or reinvested in equity and debt securities which meet the investment requirements of the Trust, as well as the investment requirements of the 2011 Code and the IRA Regulations. The Trust offers the Participants the opportunity to acquire an interest in a trust that invests in a diversified portfolio of equity and fixed income securities, with more diversification than each Participant might individually be able to obtain on his or her own. The value of the Units at any particular time depends on the market value of the underlying investments held by the Trust, which in turn fluctuate with various factors, including changes in interest rates, stock market conditions in the United States, other general economic conditions and other factors affecting the issuer of any particular security held by the Trust. Therefore, individuals establishing an IRA under the Trust must be aware that there is no guarantee that the investment objectives of the Trust described above will be achieved, and that neither the Trustee nor any other person can guarantee the value of the Units at any particular time. The value of the Units may also be affected by certain investment strategies used by the Trust to provide protection against adverse price or yield effects from anticipated changes in prevailing interest rates. The Trust s leverage activities pose special risks for Participants including the possibility of higher volatility of the net asset value of the Trust. These activities may result in gains or losses to the Trust and higher volatility of net asset value of the Trust in the event of severe fluctuations in interest rates. Legal Requirements. The 2011 Code and the IRA Regulations contain provisions establishing the following investment requirements applicable to the Trust: (i) not less than 34% of the Trust s assets must be invested in obligations of the Commonwealth or any of its instrumentalities or political subdivisions, securities of exempt investment trusts eligible under Section 1112.02 of the 2011 Code, or in mortgage loans made to finance the acquisition or construction of residential properties located in the Commonwealth, or in certain loans to employee-owned special corporations, its 4
members or stockholders; (ii) not more than 66% of the Trust s assets may be invested in general assets in the Commonwealth; and (iii) up to 33% of the Trust s assets may be invested in assets in the United States, including certain equity securities and investment-grade debt securities, in accordance with the IRA Regulations. Pursuant to Act 231-2014, any investment made by an IRA in securities of an investment company or exempt investment trust registered under Act 93-2013, as amended, or an open-end investment company registered under Act No. 6 of October 19, 1954, as amended, will be deemed to automatically comply with the foregoing investment requirements. These investment requirements must be satisfied as to funds received in any given month for investment in the Trust by the 20th day of the following month. The IRA Regulations of the OCFI also contain limitations on the amount of borrowings ( leverage ) that an IRA trustee may undertake with respect to IRA funds. Pursuant to an administrative determination ( ruling ) by the OCFI, the Trustee may borrow an aggregate amount equal to no more than 25% of the total assets of the Trust. See, RISK FACTORS. Investment Policy. Subject to the requirements of the 2011 Code and the IRA Regulations, the Trust intends to primarily invest in the following equity and fixed income securities (collectively, the Eligible Securities ) in accordance with the investment objectives of the Trust described above: 1. Mortgages on real property located within the Commonwealth insured by the Federal Housing Administration ( FHA ), the Veterans Administration ( VA ) or any other agency or instrumentality of the United States Government ( FHA/VA Mortgages ); 2. Securities or certificates which: (i) evidence beneficial ownership interests in trust funds consisting of pools of FHA/VA Mortgages, which are further guaranteed as to the timely payment of principal and interest by the Government National Mortgage Association ( GNMA Certificates ), (ii) are guaranteed by the Federal National Mortgage Association ( FNMA Certificates ), (iii) are guaranteed as to the timely payment of scheduled principal and interest at the applicable certificate rate and as to the full collection of principal on the mortgages by the Federal Home Loan Mortgage Corporation ( FHLMC Certificates ), or (iv) evidence beneficial ownership interests (including zero coupon, floating-rate, interest only ( IO ), principal only ( PO ), and residual certificates) in trust funds consisting of GNMA Certificates, FNMA Certificates and/or FHLMC Certificates, all the above are collectively referred to hereinafter as Mortgage Securities; 3. Obligations of, or loans guaranteed by, the Commonwealth or any of its instrumentalities, agencies or political subdivisions, rated in the two highest rating categories by any of Standard & Poor s Ratings Services ( S&P ), Moody s Investors Service, Inc. ( Moody s ) or Fitch Ratings ( Fitch ), or with an implied equivalent rating; 4. Obligations of, or loans guaranteed by, the Commonwealth or any of its instrumentalities, agencies or political subdivisions, with an investment grade rating or investment grade implied rating, provided that no more than 34% of the total assets of the Trust may be invested in such obligations; 5. Securities or obligations issued by the Commonwealth or any of its instrumentalities, agencies or political subdivisions, provided that at the time of such purchase the Trust must have the absolute unconditional right to sell those securities to a bank or savings bank or association, whose deposits are insured by the Federal Deposit Insurance Corporation ( FDIC ), or a broker-dealer who is a member, or a guaranteed subsidiary of a member, of the New York Stock Exchange, at an agreed price and time, or has them guaranteed or insured by an entity whose obligations are rated in the two highest rating categories by either S&P, Moody s or Fitch, 6. Any security or obligation which is issued or guaranteed by the United States Government or an agency or instrumentality thereof; 5