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MAIRS
& POWER GROWTH FUND (Ticker:
MPGFX)
MAIRS
& POWER BALANCED FUND (Ticker:
MAPOX)
MAIRS
& POWER SMALL CAP FUND (Ticker:
MSCFX)
Statement
of Additional Information
April 30,
2024
This
Statement of Additional Information (SAI) provides general information about the
Mairs & Power Growth Fund (the “Growth Fund”), Mairs & Power Balanced
Fund (the “Balanced Fund”) and Mairs & Power Small Cap Fund (the “Small Cap
Fund”) (each, a “Fund”, and together, the “Funds”), each a series of Trust for
Professional Managers (the “Trust”). This SAI is not a prospectus and should be
read in conjunction with the Funds’ current prospectus dated April 30, 2024
(the “Prospectus”), as supplemented and amended from time to time, which is
incorporated herein by reference. The audited financial statements of the Funds
for the fiscal year ended December 31, 2023 are incorporated herein by
reference from the Funds’ 2023 annual report to shareholders. A copy of the
Prospectus and/or the Funds’ 2023 annual
report
to shareholders
may
be obtained without charge, by calling (855) 839-2800, by visiting
www.mairsandpower.com, or writing to the Funds, c/o U.S. Bank Global Fund
Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701.
Table
of Contents
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Cyber
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Redemptions
in-Kind |
33 |
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Purchases
in-Kind |
33 |
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Classification
of the Funds
The
Growth Fund, the Balanced Fund and the Small Cap Fund are series of Trust for
Professional Managers (the Trust). The Trust is a Delaware statutory trust
organized on May 29, 2001, and is registered with the Securities and Exchange
Commission (SEC) as an open-end management investment company.
The
Growth Fund, Balanced Fund, and Small Cap Fund are each one series of the Trust.
Each Fund is a diversified series of the Trust. Each Fund has its own investment
objective and policies. Shares of other series of the Trust are offered in
separate prospectuses and SAIs. The Trust may register additional series and
offer shares of a new fund or share class under the Trust at any time. The
Growth Fund is the successor to the Mairs & Power Growth Fund (the
Predecessor Growth Fund), the Balanced Fund is the successor to the Mairs &
Power Balanced Fund (the Predecessor Balanced Fund), and the Small Cap Fund is
the successor to the Mairs & Power Small Cap Fund (the Predecessor Small Cap
Fund, and together with the Predecessor Growth Fund and Predecessor Balanced
Fund, the Predecessor Funds). The Predecessor Funds were series of Mairs &
Power Funds Trust. Effective April 29, 2022, the Predecessor Growth Fund
reorganized into the Growth Fund, the Predecessor Balanced Fund reorganized into
the Balanced Fund and the Predecessor Small Cap Fund reorganized into the Small
Cap Fund (each, a Reorganization, and together, the Reorganizations). Prior to
the Reorganizations, each Fund was a “shell” fund with no assets and had not
commenced operations. The Funds have the same investment objectives and
investment strategies as the Predecessor Funds.
The
Trust is authorized to issue an unlimited number of interests (or shares).
Interests in the Funds are represented by shares of beneficial interest each
with a par value of $0.001. Each share of the Trust has equal voting rights and
liquidation rights, and is voted in the aggregate and not by the series or class
of shares, except in matters where a separate vote is required by the Investment
Company Act of 1940, as amended (the 1940 Act), or when the matters affect only
the interests of a particular series or class of shares. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each full share owned and fractional votes for fractional shares owned.
Shares of each series or class generally vote together, except when required
under federal securities laws to vote separately on matters that only affect a
particular class. The Trust does not normally hold annual meetings of
shareholders. The Trust’s Board of Trustees (the Board or the Board of Trustees)
shall promptly call and give notice of a meeting of shareholders for the purpose
of voting upon removal of any trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust’s outstanding shares.
With
respect to the Funds, the Trust may offer more than one class of shares. Each
share of a series or class represents an equal proportionate interest in that
series or class with each other share of that series or class.
Each
share of a Fund represents an equal proportionate interest in the assets and
liabilities belonging to the Fund and is entitled to such distributions out of
the income belonging to the Fund as are declared by the Board of Trustees. The
Board of Trustees has the authority from time to time to divide or combine the
shares of any series into a greater or lesser number of shares of that series so
long as the proportionate beneficial interests in the assets belonging to that
series and the rights of shares of any other series are in no way affected.
Additionally, in case of any liquidation of a series, the holders of shares of
the series being liquidated are entitled to receive a distribution out of the
assets, net of the liabilities, belonging to that series. Expenses attributable
to any series or class are borne by that series or class. Any general expenses
of the Trust not readily identifiable as belonging to a particular series or
class are allocated by, or under the direction of, the Board of Trustees on the
basis of relative net assets, the number of shareholders or another equitable
method. No shareholder is liable to further calls or to assessment by the Trust
without his or her express consent.
The
assets of a Fund received for the issue or sale of its shares, and all income,
earnings, profits and proceeds thereof, subject only to the rights of creditors,
shall constitute the underlying assets of the Fund. In the event of the
dissolution or liquidation of a Fund, the holders of shares of the Fund are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
Mairs
& Power, Inc. (the Adviser) is the investment adviser to the Funds. The
Adviser also serves as the investment adviser to the Mairs & Power Minnesota
Municipal Bond ETF, a separate series of the Trust.
Investment
Objectives and Policies
As
discussed in the sections entitled “Investment Objective,” “Principal Investment
Strategies,” and “Principal Risks of Investing in the Fund” in each Fund’s
summary section of the Prospectus, each Fund has its own distinct investment
objective.
The
fundamental objective of the Growth Fund is to provide shareholders with a
diversified portfolio of common stocks, which have the potential for
above-average, long-term appreciation.
The
fundamental objective of the Balanced Fund is to provide capital growth, current
income and preservation of capital.
The
fundamental objective of the Small Cap Fund is to seek above-average, long-term
appreciation.
Investment
Limitations
The
investment limitations described below have been adopted by the Trust, with
respect to each Fund. The investment limitations, together with each Fund’s
investment objective, are fundamental (Fundamental), i.e.,
they may not be changed without the affirmative vote of the majority of the
outstanding shares of a Fund. As used in the Prospectus and this SAI, the
term “majority of outstanding shares” of a Fund means (a) 67% or more of the
voting shares present at such meeting, if the holders of more than 50% of the
outstanding voting shares of the Fund are present or represented by proxy; or
(b) more than 50% of the outstanding voting shares of the Fund, whichever is
less. Other investment practices which may be changed by the Board of
Trustees without the approval of shareholders to the extent permitted by
applicable law, regulation or regulatory policy are considered non-fundamental
(Non-Fundamental).
Whenever
an investment limitation or strategy of a Fund set forth in the Prospectus or
SAI states a maximum (or minimum) percentage of the Fund’s assets that may be
invested in any type of security or asset class, the percentage is determined
immediately after the Fund’s acquisition of that investment, except with respect
to percentage limitations on temporary borrowing and illiquid investments.
Accordingly, any later increase or decrease resulting from a change in the
market value of a security or in the Fund’s assets (e.g., due to net sales or
redemptions of Fund shares) will not cause the Fund to violate a percentage
limitation. As a result, due to market fluctuations, cash inflows or
outflows or other factors, the Fund may exceed such percentage limitations from
time to time.
A.Fundamental.
1.Diversification.
The Funds may not with respect to 75% of a Fund’s total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities, or repurchase agreements
fully collateralized by such securities, or securities of other investment
companies) if, as a result, (a) more than 5% of a Fund’s total assets would be
invested in the securities of that issuer, or (b) a Fund would hold more than
10% of the outstanding voting securities of that issuer.
2.Senior
Securities.
The Funds may not issue senior securities, except as permitted under the
Investment Company Act of 1940.
(With
respect to this investment limitation, the 1940 Act currently permits a
registered open-end investment company such as a Fund to issue senior securities
evidencing borrowing from a bank if immediately after such borrowing the company
has asset coverage as defined in the Act of at least 300 percent for all of its
borrowings. Under the 1940 Act, the term “senior securities” does not include
borrowings for certain temporary purposes and certain “covered” transactions by
a company.)
3.Borrowing.
The Funds may not borrow money, except that a Fund may borrow money, directly or
through reverse repurchase agreements, for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 33 1/3% of its total
assets (including the amount borrowed).
4.Underwriting.
The Funds may not underwrite securities issued by others, except to the extent
that a Fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities or in
connection with investments in other investment companies.
5.Concentration.
The Funds may not purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, more than 25% of a Fund’s total assets would
be invested in the securities of companies whose principal business activities
are in the same industry.
6.Real
Estate.
The Funds may not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent a Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
7.Commodities.
The Funds may not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent a Fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities).
8.Loans.
The Funds may not lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties.
(For
the purpose of this restriction, a Fund’s acquisition of a company’s publicly
issued or privately placed debt securities would not be deemed the making of a
“loan,” nor would a Fund’s investment in repurchase agreements.)
B.Non-Fundamental.
1.Investment
in Small Cap Stocks (Small Cap Fund only).
The Small Cap Fund’s policy to normally invest at least 80% of its net assets
(including borrowings for investment purposes) in common stocks issued by
small-cap companies, as defined in the prospectus, is non-fundamental.
However, the Small Cap Fund will not change this policy unless it provides
shareholders with at least 60 days prior notice of the change, which must comply
with Rule 35d-1 under the Investment Company Act of 1940.
2.Short
Sales.
The Funds will not sell securities short, unless a Fund owns or has the right to
obtain securities equivalent in kind and amount to the securities sold
short.
3.Margin
Purchases.
The Funds will not purchase securities on margin, except that a Fund may obtain
such short-term credits as are necessary for the clearance of
transactions.
4.Borrowing.
The Funds will not purchase additional securities when money borrowed exceeds 5%
of total assets.
5.Illiquid
Investments.
The Funds will not purchase any security if, as a result, more than 15% of its
net assets would be invested in securities that are illiquid.
Investment
Strategies and Risks
In
seeking to meet their investment objectives, the Funds will invest in securities
or instruments whose investment characteristics are consistent with each Fund’s
investment program. The following further describes the portfolio
securities and strategies used by the Funds and their risks.
Asset-Backed
Securities.
The Balanced Fund may invest in asset-backed securities as part of its
non-principal investment strategy. Asset-backed securities are securities that
represent a participation in, or are secured by and payable from, pools of
underlying assets such as debt securities, bank loans, motor vehicle installment
sales contracts, installment loan contracts, leases of various types of real and
personal property, receivables from revolving credit (i.e.,
credit card)
agreements
and other categories of receivables. These underlying assets are securitized
through the use of trusts and special purpose entities. Payment of interest and
repayment of principal on asset-backed securities may be largely dependent upon
the cash flows generated by the underlying assets backing the securities and, in
certain cases, may be supported by letters of credit, surety bonds, or other
credit enhancements. The rate of principal payments on asset-backed securities
is related to the rate of principal payments, including prepayments, on the
underlying assets. The credit quality of asset-backed securities depends
primarily on the quality of the underlying assets, the level of credit support,
if any, provided for the securities, and the credit quality of the
credit-support provider, if any. The value of asset-backed securities may be
affected by the various factors described above and other factors, such as
changes in interest rates, the availability of information concerning the pool
and its structure, the creditworthiness of the servicing agent for the pool, the
originator of the underlying assets, or the entities providing the credit
enhancement.
Asset-backed
securities are often subject to more rapid repayment than their stated maturity
date would indicate, as a result of the pass-through of prepayments of principal
on the underlying assets. Prepayments of principal by borrowers or foreclosure
or other enforcement action by creditors shorten the term of the underlying
assets. The occurrence of prepayments is a function of several factors, such as
the level of interest rates, general economic conditions, the location and age
of the underlying obligations, and other social and demographic
conditions.
The
Fund’s ability to maintain positions in asset-backed securities is affected by
the reductions in the principal amount of the underlying assets because of
prepayments. The Fund’s ability to reinvest prepayments of principal (as well as
interest and other distributions and sale proceeds) at a comparable yield is
subject to generally prevailing interest rates at that time. The value of
asset-backed securities varies with changes in market interest rates generally
and the differentials in yields among various kinds of U.S. Government
securities, mortgage-backed securities, and asset-backed securities. In periods
of rising interest rates, the rate of prepayment tends to decrease, thereby
lengthening the average life of the underlying securities. Conversely, in
periods of falling interest rates, the rate of prepayment tends to increase,
thereby shortening the average life of such assets. Because prepayments of
principal generally occur when interest rates are declining, an investor, such
as the Fund, generally has to reinvest the proceeds of such prepayments at lower
interest rates than those at which the assets were previously invested.
Therefore, asset-backed securities have less potential for capital appreciation
in periods of falling interest rates than other income-bearing securities of
comparable maturity.
Because
asset-backed securities generally do not have the benefit of a security interest
in the underlying assets that is comparable to a mortgage, asset-backed
securities present certain additional risks that are not present with
mortgage-backed securities. For example, revolving credit receivables are
generally unsecured and the debtors on such receivables are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give debtors the right to set-off certain amounts owed, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles,
rather than by real property. Most issuers of automobile receivables permit loan
servicers to retain possession of the underlying assets. If the servicer of a
pool of underlying assets sells them to another party, there is the risk that
the purchaser could acquire an interest superior to that of holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issue of asset-backed securities and technical
requirements under state law, the trustee for the holders of the automobile
receivables may not have a proper security interest in the automobiles.
Therefore, there is the possibility that recoveries on repossessed collateral
may not be available to support payments on these securities.
Equipment
Trust Certificates (ETCs) and Enhanced Equipment Trust Certificates (EETCs) are
types of asset-backed securities that generally represent undivided fractional
interests in a trust whose assets consist of a pool of equipment retail
installment contracts or leased equipment. EETCs are similar to ETCs, except
that the securities have been divided into two or more classes, each with
different payment priorities and asset claims. ETCs and EETCs are typically
issued by specially-created trusts established by airlines, railroads, or other
transportation firms. The assets of ETCs and EETCs are used to purchase
equipment, such as airplanes, railroad cars, or other equipment, which may in
turn serve as collateral for the related issue of the ETCs or EETCs, and the
title to such equipment is held in trust for the holders of the issue. The
equipment generally is leased from the specially-created trust by the airline,
railroad or other firm, which makes rental or lease payments to the
specially-created trust to provide cash flow for payments to ETC and EETC
holders. Holders of ETCs and EETCs must look to the collateral securing the
certificates, typically together with a guarantee provided by the lessee firm or
its parent company for the payment of lease obligations, in the case of default
in the payment of principal and interest on the ETCs or EETCs. ETCs and EETCs
are subject to the risk that the lessee or
payor
defaults on its payments, and risks related to potential declines in the value
of the equipment that serves as collateral for the issue. ETCs and EETCs are
generally regarded as obligations of the company that is leasing the equipment
and may be shown as liabilities in its balance sheet as a capitalized lease in
accordance with generally accepted accounting principles. The lessee company,
however, does not own the equipment until all the certificates are redeemed and
paid. In the event the company defaults under its lease, the trustee may
terminate the lease. If another lessee is not available, then payments on the
certificates would cease until another lessee is available.
Common
Stock.
Each Fund may invest in common stocks as a principal investment strategy. Common
stocks represent an equity or ownership interest in an issuer. Common stock
typically entitles the owner to vote on the election of directors and other
important matters as well as to receive dividends on such stock. In the event an
issuer is liquidated or declares bankruptcy, the claims of owners of bonds,
other debt holders and owners of preferred stock take precedence over the claims
of those who own common stock.
Convertible
Securities.
The Balanced Fund may invest in convertible securities as a principal investment
strategy and the Growth Fund and the Small Cap Fund may invest in convertible
securities as part of their respective non-principal investment strategy.
Convertible securities are hybrid securities that combine the investment
characteristics of bonds and common stocks. Convertible securities typically
consist of debt securities or preferred stock that may be converted (on a
voluntary or mandatory basis) within a specified period of time (normally for
the entire life of the security) into a certain amount of common stock or other
equity security of the same or a different issuer at a predetermined price.
Convertible securities also include debt securities with warrants or common
stock attached and derivatives combining the features of debt securities and
equity securities. Other convertible securities with features and risks not
specifically referred to herein may become available in the future. Convertible
securities involve risks similar to those of both fixed income and equity
securities.
The
market value of a convertible security is a function of its “investment value”
and its “conversion value.” A security’s “investment value” represents the value
of the security without its conversion feature (i.e.,
a non-convertible fixed income security). The investment value may be determined
by reference to its credit quality and the current value of its yield to
maturity or probable call date. At any given time, investment value is dependent
upon such factors as the general level of interest rates, the yield of similar
non-convertible securities, the financial strength of the issuer and the
seniority of the security in the issuer’s capital structure. A security’s
“conversion value” is determined by multiplying the number of shares the holder
is entitled to receive upon conversion or exchange by the current price of the
underlying security. If the conversion value of a convertible security is
significantly below its investment value, the convertible security will trade
like non-convertible debt or preferred stock and its market value will not be
influenced greatly by fluctuations in the market price of the underlying
security. In that circumstance, the convertible security takes on the
characteristics of a bond, and its price moves in the opposite direction from
interest rates. Conversely, if the conversion value of a convertible security is
near or above its investment value, the market value of the convertible security
will be more heavily influenced by fluctuations in the market price of the
underlying security. In that case, the convertible security’s price may be as
volatile as that of common stock. Because both interest rates and market
movements can influence its value, a convertible security generally is not as
sensitive to interest rates as a similar fixed income security, nor is it as
sensitive to changes in share price as its underlying equity security.
Convertible securities are often rated below investment-grade or are not rated
and are generally subject to a high degree of credit risk.
While
all markets are prone to change over time, the generally high rate at which
convertible securities are retired (through mandatory or scheduled conversions
by issuers or voluntary redemptions by holders) and replaced with newly issued
convertibles may cause the convertible securities market to change more rapidly
than other markets. For example, a concentration of available convertible
securities in a few economic sectors could elevate the sensitivity of the
convertible securities market to the volatility of the equity markets and to the
specific risks of those sectors. Moreover, convertible securities with
innovative structures, such as mandatory conversion securities and equity-linked
securities, have increased the sensitivity of the convertible securities market
to the volatility of the equity markets and to the special risks of those
innovations, which may include risks different from, and possibly greater than,
those associated with traditional convertible securities.
Debt
Securities.
The Balanced Fund invests in debt securities as a principal investment strategy,
while the Growth and Small Cap Funds may invest in debt securities as part of
their respective non-principal investment strategies. A debt
security
is a security consisting of a certificate or other evidence of a debt (secured
or unsecured) on which the issuing company or governmental body promises to pay
the holder a fixed, variable, or floating rate of interest for a specified
length of time, and to repay the debt on the specified maturity date. Some debt
securities, such as zero-coupon bonds, do not make regular interest payments but
are issued at a discount to their principal or maturity value. Debt securities
include a variety of fixed income obligations, including, but not limited to,
corporate bonds, government securities, municipal securities, convertible
securities, mortgage-backed securities, and asset-backed securities. Debt
securities include investment-grade securities, non-investment-grade securities,
and unrated securities. Debt securities are subject to a variety of risks, such
as interest rate risk, income risk, call/prepayment risk, inflation risk, credit
risk, and (in the case of foreign securities) country risk and currency risk.
The reorganization of an issuer under the federal bankruptcy laws may result in
the issuer’s debt securities being cancelled without repayment, repaid only in
part, or repaid in part or whole through an exchange thereof for any combination
of cash, debt securities, convertible securities, equity securities, or other
instruments or rights in respect of the same issuer or a related
entity.
Debt
Securities — U.S. Government Securities.
The term “U.S. Government Securities” refers to a variety of debt securities
which are issued or guaranteed by the U.S. Treasury, by various agencies of the
U.S. Government, and by various instrumentalities which have been established or
sponsored by the U.S. Government. The term also refers to repurchase agreements
collateralized by such securities.
U.S.
Treasury securities are backed by the full faith and credit of the U.S.
Government. Other types of securities issued or guaranteed by Federal agencies
and U.S. Government-sponsored instrumentalities may or may not be backed by the
full faith and credit of the U.S. Government. The U.S. Government, however, does
not guarantee the market price of any U.S. Government securities. In the case of
securities not backed by the full faith and credit of the U.S. Government, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitment.
Some
of the U.S. Government agencies that issue or guarantee securities include the
Government National Mortgage Association, the Export-Import Bank of the U.S.,
the Farmers Home Administration, the Federal Housing Administration (FHA), the
Maritime Administration, the Small Business Administration, and the Tennessee
Valley Authority. An instrumentality of the U.S. Government is a government
agency organized under Federal charter with government supervision.
Instrumentalities issuing or guaranteeing securities include, among others, the
Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation (FHLMC) and
the Federal National Mortgage Association (FNMA).
FNMA
and FHLMC were previously government-sponsored corporations owned entirely by
private stockholders. In September 2008, at the direction of the U.S. Department
of the Treasury, FNMA and FHLMC were placed into conservatorship under the
Federal Housing Finance Agency (FHFA). The U.S. Government also took steps to
provide additional financial support to FNMA and FHLMC. No assurance can be
given that the U.S. Treasury initiatives with respect to FNMA and FHLMC will be
successful.
Debt
Securities — Variable and Floating Rate Securities.
Variable and floating rate securities are debt securities that provide for
periodic adjustments in the interest rate paid on the security. Variable rate
securities provide for a specified periodic adjustment in the interest rate,
while floating rate securities have interest rates that change whenever there is
a change in a designated benchmark rate or the issuer’s credit quality. There is
a risk that the current interest rate on variable and floating rate securities
may not accurately reflect existing market interest rates. Some variable or
floating rate securities are structured with put features that permit holders to
demand payment of the unpaid principal balance plus accrued interest from the
issuers or certain financial intermediaries. A demand instrument with a demand
notice exceeding seven days may be considered illiquid if there is no secondary
market for such security.
Debt
Securities — Zero-Coupon and Pay-in-Kind Securities.
Zero-coupon and pay-in-kind securities are debt securities that do not make
regular cash interest payments. Zero-coupon securities generally do not pay
interest. Pay-in-kind securities pay interest through the issuance of additional
securities. These securities are generally issued at a discount to their
principal or maturity value. Because such securities do not pay current cash
income, the price of these securities can be volatile when interest rates
fluctuate. While these securities do not pay current cash income, federal income
tax law
requires
the holders of zero-coupon and pay-in-kind securities to include in income each
year the portion of the original issue discount and other non-cash income on
such securities accrued during that year. A Fund holding zero-coupon or pay
in-kind securities may accordingly have to dispose of its portfolio investments
under disadvantageous circumstances in order to generate sufficient cash to
satisfy the distribution requirements for maintaining its status as a regulated
investment company under Section 851(a) of the Internal Revenue Code of 1986, as
amended (the Code).
Less
than Investment-Grade Securities.
The Balanced Fund may invest in debt securities rated less than investment grade
as a principal investment strategy, and the Growth Fund and Small Cap Fund may
invest in them as part of their respective non-principal investment strategy.
The convertible and non-convertible securities in which the Funds may invest
include non-investment-grade securities, also referred to as “high-yield” or
“junk bonds,” which are debt securities that are rated lower than the four
highest rating categories by a nationally recognized statistical rating
organization (for example, lower than Baa3 by Moody’s Investors Service, Inc. or
lower than BBB– by Standard & Poor’s) or are determined to be of comparable
quality by the Adviser. These securities are generally considered to be, on
balance, predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation and will
generally involve more credit risk than securities in the investment-grade
categories. Investment in these securities generally provides greater income and
increased opportunity for capital appreciation than investments in higher
quality securities, but they also typically entail greater price volatility and
principal and income risk.
Analysis
of the creditworthiness of issuers of high-yield securities may be more complex
than for issuers of investment-grade securities. Thus, reliance on credit
ratings in making investment decisions entails greater risks for high-yield
securities than for investment-grade debt securities. The success of the Adviser
in managing high-yield securities is more dependent upon its own credit analysis
than is the case with investment-grade securities.
Some
high-yield securities are issued by smaller, less-seasoned companies, while
others are issued as part of a corporate restructuring, such as an acquisition,
merger, or leveraged buyout. Companies that issue high-yield securities are
often highly leveraged and may not have available to them more traditional
methods of financing. Therefore, the risk associated with acquiring the
securities of such issuers generally is greater than is the case with
investment-grade securities. Some high-yield securities were once rated as
investment-grade but have been downgraded to junk bond status because of
financial difficulties experienced by their issuers.
The
market values of high-yield securities tend to reflect individual issuer
developments to a greater extent than do investment-grade securities, which in
general react to fluctuations in the general level of interest rates. High-yield
securities also tend to be more sensitive to economic conditions than are
investment-grade securities. A projection of an economic downturn or of a
sustained period of rising interest rates, for example, could cause a decline in
junk bond prices, because the advent of a recession could lessen the ability of
a highly leveraged company to make principal and interest payments on its debt
securities. If an issuer of high-yield securities defaults, in addition to
risking payment of all or a portion of interest and principal, a fund investing
in such securities may incur additional expenses to seek recovery.
The
secondary market on which high-yield securities are traded may be less liquid
than the market for investment-grade securities. Less liquidity in the secondary
trading market could adversely affect the ability of the Fund to sell a
high-yield security or the price at which the Fund could sell a high-yield
security, and could adversely affect the daily net asset value of Fund shares.
When secondary markets for high-yield securities are less liquid than the market
for investment-grade securities, it may be more difficult to value the
securities, because such valuation may require more research, and elements of
judgment may play a greater role in the valuation because there is less
reliable, objective data available.
Except
as otherwise provided in the Funds’ Prospectus, if a credit-rating agency
changes the rating of a portfolio security held by a Fund, then the Fund may
retain the portfolio security if the Adviser deems it in the best interests of
shareholders.
Foreign
Securities; American Depositary Receipts. As
a principal investment strategy, each Fund may invest in securities of foreign
issuers, which are either listed on a U.S. stock exchange or represented by
American Depositary Receipts (ADRs). The Adviser defines foreign issuers as
those whose operational leadership or headquarters is located
in
a foreign country; provided, however, if an issuer is believed by the Adviser to
be headquartered in a jurisdiction primarily for tax purposes, the Adviser will
consider the following additional factors:
•the
location of the primary exchange trading its securities;
•where
it derives the majority of its revenues; or
•where
it earns the majority of its profits.
Investment
in foreign securities is subject to special investment risks that differ in some
respects from those related to investments in securities of U.S. domestic
issuers. These risks include political, social or economic instability in
the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation and foreign trading practices (including
higher trading commissions, custodial charges and delayed settlements).
Foreign securities also may be subject to greater fluctuations in price than
securities issued by U.S. corporations. The principal markets on which
these securities trade may have less volume and liquidity, and may be more
volatile, than securities markets in the U.S.
In
addition, there may be less publicly available information about a foreign
company than about a U.S. domiciled company. Foreign companies generally
are not subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to U.S. domestic companies. There
is also generally less government regulation of securities exchanges, brokers
and listed companies abroad than in the U.S. Confiscatory taxation or
diplomatic developments could also affect investment in those
countries.
The
United Kingdom (UK) withdrew from the European Union (EU) on January 31, 2020
following a June 2016 referendum referred to as “Brexit.” Although the UK and EU
made a trade deal that was entered into force on May 1, 2021, certain post-EU
arrangements remain unresolved and subject to further negotiation and agreement.
There is significant market uncertainty regarding Brexit’s ramifications, and
the range of possible political, regulatory, economic and market outcomes are
difficult to predict. The uncertainty surrounding the UK’s economy, and its
legal, political, and economic relationship with the remaining member states of
the EU, may cause considerable disruption in securities markets, including
increased volatility and illiquidity, as well as currency fluctuations in the
British pound’s exchange rate against the U.S. dollar. Other geopolitical events
may also cause market disruptions. It is possible that geopolitical events could
have an adverse effect on the value of a Fund’s investments.
The
Russian invasion of Ukraine has resulted in an ongoing military conflict and
economic sanctions against certain Russian individuals and companies; this
conflict may expand and military attacks could occur elsewhere in Europe. This
conflict could also drive a rise in traditional and cyber terrorism in Europe
and other parts of the world. Further, sanctions against Russian individuals and
companies could adversely affect the price and availability of certain
commodities.
U.S.
dollar-denominated ADRs, which are traded in the U.S. on exchanges or
over-the-counter, are issued by domestic banks. ADRs represent the right
to receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate all the risk inherent in
investing in the securities of foreign issuers. However, by investing in
ADRs rather than directly in foreign issuers’ stock, the Fund can avoid currency
risks during the settlement period for either purchases or sales. In
general, there is a large, liquid market in the U.S. for many ADRs. The
information available for ADRs is subject to the accounting, auditing and
financial reporting standards of the domestic market or exchange on which they
are traded, which standards are more uniform and more exacting than those to
which many foreign issuers may be subject.
Certain
ADRs, typically those denominated as unsponsored, require the holders thereof to
bear most of the costs of the facilities, while issuers of sponsored facilities
normally pay more of the costs. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through the
voting rights to facility holders in respect to the deposited securities,
whereas the depository of a sponsored facility typically distributes shareholder
communications and passes through voting rights.
Unless
more than 50% of the value of a Fund’s total assets at the end of its taxable
year consists of foreign stock or securities, the Fund will not be able to make
an election to give shareholders the benefit of a foreign tax credit or
deduction with respect to foreign taxes paid by the Fund. If a Fund is unable to
make this election, shareholders will lose the benefit of claiming as a credit
or deduction their shares of any foreign taxes paid by a Fund.
Exchange-Traded
Funds.
Each Fund may purchase shares of exchange-traded funds (ETFs) as a non‑principal
investment strategy. Typically, a Fund would purchase ETF shares to obtain
exposure to all or a portion of the stock or bond market.
Most
ETFs are investment companies. Therefore, a Fund’s purchases of ETF shares
generally are subject to the limitations on, and the risks of, that Fund’s
investments in other investment companies. If a Fund invests in ETFs, then
shareholders will bear not only their proportionate share of the Fund’s expenses
(including operating expenses and the fees of the Adviser), but also,
indirectly, the similar expenses of the ETF.
An
investment in an ETF generally presents the same primary risks as an investment
in a conventional fund (i.e.,
one that is not exchange traded) that has the same investment objective,
strategies and policies. The price of an ETF can fluctuate within a wide range,
and the Fund could lose money investing in an ETF if the prices of the
securities owned by the ETF go down. In addition, ETFs are subject to the
following risks that do not apply to conventional funds:
•the
market price of an ETF’s shares may trade at a discount to its net asset
value;
•an
active trading market for an ETF’s shares may not develop or be maintained;
or
•trading
of an ETF’s shares may be halted if the listing exchange’s officials deem such
action appropriate, the shares are de-listed from the exchange, or the
activation of market-wide “circuit breakers” (which are tied to large decreases
in stock prices) generally halts stock trading.
Mortgage-Backed
Securities.
The Balanced Fund may invest in mortgage-backed securities as a non-principal
investment strategy. Mortgage-backed securities are securities that represent
direct or indirect participation in, or are collateralized by and payable from,
mortgage loans secured by real property or instruments derived from such loans.
Mortgage-backed securities include various types of securities such as
government stripped mortgage-backed securities, adjustable rate mortgage-backed
securities and collateralized mortgage obligations.
Generally,
mortgage-backed securities represent interests in pools of mortgage loans
assembled for sale to investors by various governmental agencies, such as the
Government National Mortgage Association (GNMA), by government related
organizations, such as FNMA and FHLMC, as well as by private issuers, such as
commercial banks, savings and loan institutions and mortgage bankers. The
average maturity of pass-through pools of mortgage-backed securities in which
the Fund may invest varies with the maturities of the underlying mortgage
instruments. In addition, a pool’s average maturity may be shortened by
unscheduled payments on the underlying mortgages. Factors affecting mortgage
prepayments include the level of interest rates, general economic and social
conditions, the location of the mortgaged property and age of the mortgage.
Because prepayment rates of individual mortgage pools vary widely, the average
life of a particular pool cannot be predicted accurately. (See “Debt Securities
— U.S. Government Securities” above.)
Mortgage-backed
securities may be classified as private, government, or government-related,
depending on the issuer or guarantor. Private mortgage-backed securities
represent an interest in pass-through pools consisting principally of
conventional residential mortgage loans created by non-government issuers, such
as commercial banks and savings and loan associations and private mortgage
insurance companies. Government mortgage-backed securities are backed by the
full faith and credit of the U.S. GNMA, the principal U.S. guarantor of these
securities, is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. Government-related mortgage-backed securities
are not backed by the full faith and credit of the U.S. Government including
FNMA and FHLMC. Pass-through securities issued by FNMA are guaranteed as to
timely payment of principal and interest by FNMA. Participation certificates
representing interests in mortgages from FHLMC’s national portfolio are
guaranteed as to the timely payment of interest and principal by FHLMC. Private,
government, or government-related entities may create mortgage loan pools
offering pass-through investments in addition to those described above. The
mortgages underlying these securities may be alternative mortgage instruments,
that is, mortgage instruments whose principal or interest payments may vary or
whose terms to maturity may be shorter than customary.
Mortgage-backed
securities are often subject to more rapid repayment than their stated maturity
date would indicate as a result of the pass-through of prepayments of principal
on the underlying loans. Prepayments of principal by mortgagors or mortgage
foreclosures shorten the term of the mortgage pool underlying the
mortgage-backed security. The occurrence of prepayments is a function of several
factors including the level of interest rates, general economic conditions, the
location of the mortgaged property, the age of the mortgage or other underlying
obligations, and other social and demographic conditions. The Fund’s ability to
maintain positions in mortgage-backed securities is affected by the reductions
in the principal amount of such securities resulting from prepayments. The
Fund’s ability to reinvest prepayments of principal at comparable yield is
subject to generally prevailing interest rates at that time. The values of
mortgage-backed securities vary with changes in market interest rates generally
and the differentials in yields among various kinds of U.S. Government
securities, mortgage-backed securities, and asset-backed securities. In periods
of rising interest rates, the rate of prepayment tends to decrease, thereby
lengthening the average life of a pool of mortgages supporting a mortgage-backed
security. Conversely, in periods of falling interest rates, the rate of
prepayment tends to increase thereby shortening the average life of such a pool.
Prepayments of principal generally occur when interest rates are declining, and
the Fund generally has to reinvest the proceeds of such prepayments at lower
interest rates than those at which its assets were previously invested.
Therefore, mortgage-backed securities have less potential for capital
appreciation in periods of falling interest rates than other income-bearing
securities of comparable maturity.
Mortgage-Backed
Securities — Adjustable Rate Mortgage-Backed Securities.
The Balanced Fund may invest in Adjustable Rate Mortgage-Backed Securities
(ARMBS) as a non-principal investment strategy. ARMBS have interest rates that
reset at periodic intervals. Acquiring ARMBSs permits a Fund to participate in
increases in prevailing current interest rates through periodic adjustments in
the coupons of mortgages underlying the pool on which ARMBSs are based. Such
ARMBSs generally have higher current yield and lower price fluctuations than is
the case with more traditional fixed income debt securities of comparable rating
and maturity. In addition, when prepayments of principal are made on the
underlying mortgages during periods of rising interest rates, the Fund can
reinvest the proceeds of such prepayments at rates higher than those at which
they were previously invested. Mortgages underlying most ARMBSs, however, have
limits on the allowable annual or lifetime increases that can be made in the
interest rate that the mortgagor pays. Therefore, if current interest rates rise
above such limits over the period of the limitation, the Fund holding an ARMBS
does not benefit from further increases in interest rates. Moreover, when
interest rates are in excess of coupon rates (i.e.,
the rates being paid by mortgagors) of the mortgages, ARMBSs behave more like
fixed income securities and less like adjustable rate securities and are subject
to the risks associated with fixed income securities. In addition, during
periods of rising interest rates, increases in the coupon rate of adjustable
rate mortgages generally lag current market interest rates slightly, thereby
creating the potential for capital depreciation on such securities.
Mortgage-Backed
Securities — Collateralized Mortgage Obligations.
The Balanced Fund may invest in Collateralized Mortgage Obligations (CMOs) as a
non-principal investment strategy. CMOs are mortgage-backed securities that are
collateralized by whole loan mortgages or mortgage pass-through securities. The
bonds issued in a CMO transaction are divided into groups, and each group of
bonds is referred to as a “tranche.” Under the traditional CMO structure, the
cash flows generated by the mortgages or mortgage pass-through securities in the
collateral pool are used to first pay interest and then pay principal to the CMO
bondholders. The bonds issued under a traditional CMO structure are retired
sequentially as opposed to the pro-rata return of principal found in traditional
pass-through obligations. Subject to the various provisions of individual CMO
issues, the cash flow generated by the underlying collateral (to the extent it
exceeds the amount required to pay the stated interest) is used to retire the
bonds. Under a CMO structure, the repayment of principal among the different
tranches is prioritized in accordance with the terms of the particular CMO
issuance. The “fastest-pay” tranches of bonds, as specified in the Prospectus
for the issuance, would initially receive all principal payments. When those
tranches of bonds are retired, the next tranche, or tranches, in the sequence,
as specified in the Prospectus, receive all of the principal payments until they
are retired. The sequential retirement of bond groups continues until the last
tranche is retired. Accordingly, the CMO structure allows the issuer to use cash
flows of long maturity, monthly-pay collateral to formulate securities with
short, intermediate, and long final maturities and expected average lives and
risk characteristics.
In
recent years, new types of CMO tranches have evolved. These include floating
rate CMOs, planned amortization classes, accrual bonds and CMO residuals. These
newer structures affect the amount and timing of principal and interest received
by each tranche from the underlying collateral. Under certain of these new
structures, given classes of CMOs
have
priority over others with respect to the receipt of prepayments on the
mortgages. Therefore, depending on the type of CMOs in which the Fund invests,
the investment may be subject to a greater or lesser risk of prepayment than
other types of mortgage-backed securities.
The
primary risk of CMOs is the uncertainty of the timing of cash flows that results
from the rate of prepayments on the underlying mortgages serving as collateral
and from the structure of the particular CMO transaction (that is, the priority
of the individual tranches). An increase or decrease in prepayment rates
(resulting from a decrease or increase in mortgage interest rates) will affect
the yield, average life, and price of CMOs. The prices of certain CMOs,
depending on their structure and the rate of prepayments, can be volatile. Some
CMOs may also not be as liquid as other securities.
Mortgage-Backed
Securities — Stripped Mortgage-Backed Securities.
The Balanced Fund may invest in Stripped Mortgage-Backed Securities (SMBSs) as a
non-principal investment strategy. SMBSs are derivative multi-class
mortgage-backed securities. SMBSs may be issued by agencies or instrumentalities
of the U.S. Government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks, and special purpose entities formed or sponsored by any
of the foregoing.
SMBSs
are usually structured with two classes that receive different proportions of
the interest and principal distributions on a pool of mortgage assets. A common
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In the most extreme case, one
class will receive all of the interest (the “IO” class), while the other class
will receive all of the principal (the principal-only or “PO” class). The price
and yield to maturity on an IO class is extremely sensitive to the rate of
principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on the Fund’s yield to maturity from these securities. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Fund may fail to recoup some or all of its initial investment in these
securities, even if the security is in one of the highest rating
categories.
Although
SMBSs are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not yet
developed and, accordingly, these securities may be deemed “illiquid” and
subject to the Fund’s limitations on investment in illiquid
investments.
Municipal
Securities. The
Balanced Fund may invest in debt obligations issued by or on behalf of states,
possessions and territories of the U.S., including political subdivisions (such
as counties, cities, towns and school and other districts), agencies and
authorities thereof (collectively, “municipal securities”) as a non-principal
investment strategy. Municipal obligations are issued by such governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities, not-for-profit organizations, businesses and
developers. Yields on municipal securities are the product of a variety of
factors, including the general conditions of the money market and of the
municipal bond and municipal note markets, the size of a particular offering,
the maturity of the obligation and the rating of the issue. Although the
interest on municipal securities may be exempt from federal income tax if
received by an individual, dividends paid by the Fund to its shareholders are
not expected to be tax-exempt unless at least 50% of the Balanced Fund’s total
assets at the end of each quarter of its taxable year consist of qualified
municipal securities. A brief description of some typical types of municipal
securities follows:
General
Obligation Securities.
General obligation bonds are supported by the issuer’s full faith and credit and
taxing authority. The issuer must levy and collect taxes sufficient to pay
principal and interest on the bonds. However, in some cases the issuer’s
authority to levy additional taxes may be limited by its charter or state
law.
Revenue
or Special Obligation Bonds.
Revenue bonds are payable solely from specific income or revenues received by
the issuer, often from its operation of a governmental enterprise or authority
such as an electric or water utility, sewer system, parks, hospitals or other
health authority, bus, train, subway, highway, airport or other transportation
system, or housing authority. Some revenue bonds may be issued for other public
purposes, such as financing the development of an industrial park or commercial
district or construction of a new stadium or parking structure. The revenues may
consist
of specific taxes, assessments, tolls, fees, or other types of municipal
revenues. Although issued by municipal authorities, revenue bonds are generally
not secured by the taxing power of the municipality but by the revenues of the
authority derived from payments by users of the services or owners and operators
of the facility financed with the proceeds of the bonds. Bonds or other
obligations of housing financing authorities may have various forms of security,
such as reserve funds, insured or subsidized mortgages and net revenues from
projects, but they are not backed by a pledge of the issuer’s credit. The credit
quality of revenue bonds is usually related to the credit standing of the
enterprise being financed but can, if applicable, be tied to the credit
worthiness of an institution which provides a guarantee, letter of credit or
other credit enhancement for the bond issue.
Municipal
Lease Obligations.
Municipal lease obligations may take the form of a lease, an installment
purchase or a conditional sale contract issued by state and local governments
and authorities to acquire land, equipment and facilities. Usually, the Balanced
Fund will purchase a participation interest in a municipal lease obligation from
a bank or other financial intermediary. The participation interest gives the
holder a pro-rata, undivided interest in the total amount of the obligation.
These obligations typically are not fully backed by the municipality’s credit,
and their interest may become taxable if the lease is assigned. If the funds are
not appropriated for the following year’s lease payments, the lease may
terminate, with the possibility of default on the lease obligation and
significant loss to the Fund. Finally, the lease may be illiquid.
The
Balanced Fund will generally invest in municipal securities that are rated “A”
or better at the time of purchase by a NRSRO or, if a rating is not available,
deemed to be of comparable quality by the Adviser.
Other
Investment Companies.
As a non-principal investment strategy, each Fund may invest in other investment
companies to the extent permitted by applicable law or SEC exemption. Under
Section 12(d)(1) of the 1940 Act, a Fund generally may invest up to 10% of its
assets in shares of investment companies and up to 5% of its assets in any one
investment company, as long as the investment does not represent more than 3% of
the voting stock of the acquired investment company. If the Fund invests in
other investment companies, shareholders will bear not only their proportionate
share of the Fund’s expenses (including operating expenses and the fees of the
Adviser), but also, indirectly, the similar expenses of the underlying
investment companies. Shareholders would also be exposed to the risks associated
not only with the investments of the Fund but also with the portfolio
investments of the underlying investment companies. Certain types of investment
companies, such as closed-end investment companies, issue a fixed number of
shares that typically trade on a stock exchange or over-the-counter at a premium
or discount to their net asset value. Others are continuously offered at net
asset value but also may be traded on the secondary market.
Section
12(d)(1)(F) of the 1940 Act provides that the provisions of paragraph 12(d)(1)
shall not apply to securities purchased or otherwise acquired by the Fund if (i)
immediately after such purchase or acquisition not more than 3% of the total
outstanding shares of such investment company is owned by the Fund and all
affiliated persons of the Fund; and (ii) the Fund has not offered or sold, and
is not proposing to offer or sell, its shares through a principal underwriter or
otherwise at a public or offering price that includes a sales load of more than
1 1/2%. SEC Rule 12d1-3 provides, however, that the Fund may rely on the Section
12(d)(1)(F) exemption and charge a sales load in excess of 1 1/2% provided that
the sales load and any service fee charged does not exceed limits set forth in
applicable rules of the Financial Industry Regulatory Authority, Inc.
(“FINRA”).
The
Funds may also rely on Rule 12d1-4 of the 1940 Act, which provides an exemption
from Section 12(d)(1) that allows a fund to invest its assets in excess of the
limits of Section 12(d)(1) of the 1940 Act (as described above) in other
registered investment companies, including ETFs, if the fund satisfies certain
conditions specified in the Rule, including, among other conditions, that the
fund and its advisory group will not control (individually or in the aggregate)
an acquired fund (e.g., hold more than 25% of the outstanding voting securities
of an acquired fund that is a registered open-end management investment
company).
Preferred
Stock.
Each Fund may invest in preferred stock as a non-principal investment strategy.
Preferred stock represents an equity or ownership interest in an issuer.
Preferred stock normally pays dividends at a specified rate and has precedence
over common stock in the event the issuer is liquidated or declares bankruptcy.
However, in the event an issuer is liquidated or declares bankruptcy, the claims
of owners of bonds take precedence over the claims of those who own preferred
and common stock. Preferred stock, unlike common stock, often has a stated
dividend rate payable from
the
corporation’s earnings. Preferred stock dividends may be cumulative or
non-cumulative, participating, or auction rate. “Cumulative” dividend provisions
require all or a portion of prior unpaid dividends be paid before dividends can
be paid to holders of the issuer’s common stock. “Participating” preferred stock
may be entitled to a dividend exceeding the stated dividend in certain cases. If
interest rates rise, the fixed dividend on preferred stocks may be less
attractive, causing the price of such stocks to decline. Preferred stock may
have mandatory sinking fund provisions, as well as provisions allowing the stock
to be called or redeemed, which can limit the benefit of a decline in interest
rates. Preferred stock is subject to many of the risks to which common stock and
debt securities are subject.
Repurchase
Agreements.
Each Fund may invest in repurchase agreements as a non-principal investment
strategy. A repurchase agreement is an agreement under which a Fund acquires a
fixed income security (generally a security issued by the U.S. Government or an
agency thereof, a banker’s acceptance, or a certificate of deposit) from a
commercial bank, broker, or dealer, and simultaneously agrees to resell such
security to the seller at an agreed upon price and date (normally, the next
business day). Because the security purchased constitutes collateral for the
repurchase obligation, a repurchase agreement may be considered a loan that is
collateralized by the security purchased. The resale price reflects an agreed
upon interest rate effective for the period the instrument is held by the Fund
and is unrelated to the interest rate on the underlying instrument. In these
transactions, the securities acquired by the Fund (including accrued interest
earned thereon) must have a total value in excess of the value of the repurchase
agreement and be held by a custodian bank until repurchased. In addition, the
Adviser will monitor the Fund’s repurchase agreement transactions generally and
will evaluate the creditworthiness of any bank, broker, or dealer party to a
repurchase agreement relating to a Fund. The aggregate amount of any such
agreements is not limited except to the extent required by law.
The
use of repurchase agreements involves certain risks. One risk is the seller’s
ability to pay the agreed-upon repurchase price on the repurchase date. If the
seller defaults, the Fund may incur costs in disposing of the collateral, which
would reduce the amount realized thereon. If the seller seeks relief under the
bankruptcy laws, the disposition of the collateral may be delayed or limited.
For example, if the other party to the agreement becomes insolvent and subject
to liquidation or reorganization under the bankruptcy or other laws, a court may
determine that the underlying security is collateral for a loan by the Fund not
within its control and, therefore, the realization by the Fund on such
collateral may be automatically stayed. Finally, it is possible that the Fund
may not be able to substantiate its interest in the underlying security and may
be deemed an unsecured creditor of the other party to the
agreement.
Reverse
Repurchase Agreements.
Each Fund may invest in reverse repurchase agreements as a non-principal
investment strategy. In a reverse repurchase agreement, a Fund sells a security
to another party, such as a bank or broker-dealer, in return for cash and agrees
to repurchase that security at an agreed-upon price and time. Under a reverse
repurchase agreement, the Fund continues to receive any principal and interest
payments on the underlying security during the term of the agreement. Reverse
repurchase agreements involve the risk that the market value of securities
retained by the Fund may decline below the repurchase price of the securities
sold by the Fund which it is obligated to repurchase.
A
reverse repurchase agreement may be considered a borrowing transaction for
purposes of the 1940 Act. A reverse repurchase agreement transaction will not be
considered to constitute the issuance of a “senior security” by the Fund, and
such transaction will not be subject to the 300% asset coverage requirement
otherwise applicable to borrowings by the Fund, if the Fund covers the
transaction in accordance with the requirements of the 1940 Act. The Fund will
enter into reverse repurchase agreements only with parties whose
creditworthiness has been reviewed and found satisfactory by the
Adviser.
Special
Purpose Acquisition Companies.
As a non-principal strategy, the Small Cap Fund may invest in stock and warrants
of special purpose acquisition companies (SPACs) or similar special purpose
entities that pool funds to seek potential acquisition opportunities. Unless and
until an acquisition is completed, a SPAC generally invests its assets (less a
portion retained to cover expenses) in U.S. Government securities, money market
fund securities, and cash. If an acquisition that meets the requirements for the
SPAC is not completed within a pre-established period of time, the invested
funds are returned to the entity’s shareholders, less certain permitted
expenses, and any warrants issued by the SPAC will expire worthless. Because
SPACs and similar entities are in essence blank check companies without an
operating history or ongoing business other than seeking acquisitions, the value
of their securities is particularly dependent on the ability of the entity’s
management to identify and complete a profitable acquisition. SPACs may pursue
acquisitions only within certain industries or regions, which may increase the
volatility of their prices. In addition, these
securities
may be traded in the over-the-counter market, may be considered illiquid and/or
be subject to restrictions on resale.
Temporary
Investments.
Each Fund may take temporary defensive measures that are inconsistent with the
Fund’s normal fundamental or non-fundamental investment limitations and
strategies in response to adverse market, economic, political, or other
conditions as determined by the Adviser. Such measures could include, but are
not limited to, investments in (1) highly liquid short-term fixed income
securities issued by or on behalf of municipal or corporate issuers, obligations
of the U.S. Government and its agencies, commercial paper and bank certificates
of deposit; (2) shares of other investment companies which have investment
objectives consistent with those of the Fund; (3) repurchase agreements
involving any such securities; and (4) money market funds or other money market
instruments. There is no limit on the extent to which a Fund may take temporary
defensive measures. In taking such measures, a Fund may fail to achieve its
investment objective.
Warrants.
Each Fund may purchase warrants as part of its non-principal investment
strategy. Warrants are instruments that give the holder the right, but not the
obligation, to buy an equity security at a specific price for a specific period
of time. Changes in the value of a warrant do not necessarily correspond to
changes in the value of its underlying security. The price of a warrant may be
more volatile than the price of its underlying security, and a warrant may offer
greater potential for capital appreciation as well as capital loss. Warrants do
not entitle a holder to dividends or voting rights with respect to the
underlying security and do not represent any rights in the assets of the issuing
company. A warrant ceases to have value if it is not exercised prior to its
expiration date. These factors can make warrants more speculative than other
types of investments.
When-Issued
or Delayed-Delivery Securities.
Each Fund may purchase securities on a when-issued or a delayed-delivery basis,
that is, for payment and delivery on a date later than normal settlement, but
generally within 30 days.
The
purchase price and yield on these securities are generally set at the time of
purchase. On the date that a security is purchased on a when-issued basis,
the Fund earmarks liquid assets with a value at least as great as the purchase
price of the security as long as the obligation to purchase continues. The
value of the delayed delivery security is reflected in the Fund’s net asset
value as of the purchase date, however, no income accrues to the Fund from these
securities prior to their delivery to the Fund. The Fund makes such
purchases for long-term investment reasons, but may actually sell the securities
prior to settlement date if the Fund deems it advisable in seeking to achieve
the objectives of the Fund. The purchase of these types of securities may
increase the Fund’s overall investment exposure and involves a risk of loss if
the value of the securities declines prior to the settlement date.
Unsettled securities purchased on a when-issued or delayed-delivery basis
(i.e.,
in excess of an established market practice) will not exceed 10% of the Fund’s
total assets at any one time.
Illiquid
Investments. The
Funds may invest in illiquid investments. However, none of the Funds will
acquire illiquid investments if, as a result, such securities would comprise
more than 15% of the value of that Fund’s net assets. Pursuant to Rule 22e-4
under the 1940 Act (the Liquidity Rule), the Trust has implemented a liquidity
risk management program and related procedures to identify illiquid investments
pursuant to the rule. Under the Liquidity Rule, the term “illiquid investment”
is defined as an investment which a Fund reasonably expects cannot be sold or
disposed of in current market conditions in seven calendar days or less without
the sale or disposition significantly changing the market value of the security.
Under the Funds’ liquidity risk management program, the Adviser, as each Fund’s
liquidity risk management program administrator, expects that illiquid
investments will include restricted securities (securities the disposition of
which is restricted under the federal securities laws), interest only and
principal only mortgage-backed securities issued by private issuers and
repurchase agreements with maturities in excess of seven days. Rule 144A
securities may be treated as liquid investments if they meet the criteria in the
Funds’ liquidity risk management program. The Adviser will look to factors
including but not limited to (i) the frequency of trades and quotes for the
security, (ii) the existence of an active market for the security, and (iii)
average daily trading volume of the security. If the limitation on illiquid
investments is exceeded, other than by a change in market values, the condition
will be reported to the Board and, when required, to the SEC.
Restricted
Securities. Restricted
securities may be sold only in privately negotiated transactions or in a public
offering with respect to which a registration statement is in effect under the
Securities Act of 1933, as amended. Where
registration
is required, a Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell a security and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than that which prevailed when it decided to sell. Restricted securities will be
priced at fair value as determined in good faith in accordance with
methodologies approved by the Board.
Cybersecurity
Risk
With
the increased use of technologies such as the Internet to conduct business, the
Funds are susceptible to operational, information security and related risks. In
general, cyber incidents can result from deliberate attacks or unintentional
events. Cyber attacks include, but are not limited to, gaining unauthorized
access to digital systems (e.g., through “hacking” or malicious software coding)
for purposes of misappropriating assets or sensitive information, corrupting
data, or causing operational disruption. Cyber attacks may also be carried out
in a manner that does not require gaining unauthorized access, such as causing
denial-of-service attacks on websites (i.e.,
efforts to make network services unavailable to intended users). Cyber incidents
affecting the Funds or their service providers have the ability to cause
disruptions and impact business operations, potentially resulting in financial
losses, interference with a Fund’s ability to calculate its NAV, impediments to
trading, the inability of Fund shareholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, or additional compliance
costs. Similar adverse consequences could result from cyber incidents affecting
issuers of securities in which a Fund invests, counterparties with which a Fund
engages in transactions, governmental and other regulatory authorities, exchange
and other financial market operators, banks, brokers, dealers, insurance
companies and other financial institutions (including financial intermediaries
and service providers for fund shareholders) and other parties. In addition,
substantial costs may be incurred in order to prevent any cyber incidents in the
future. While the Funds’ service providers have established business continuity
plans in the event of, and risk management systems to prevent, such cyber
incidents, there are inherent limitations in such plans and systems including
the possibility that certain risks have not been identified. Furthermore, the
Funds cannot control the cyber security plans and systems put in place by its
service providers or any other third parties whose operations may affect the
Funds or their shareholders. The Funds and their shareholders could be
negatively impacted as a result.
Portfolio
Turnover
The
Funds have not placed any limit on their portfolio turnover rates, and
securities may be sold without regard to the time they have been held when in
the opinion of the Adviser, investment considerations warrant such action.
Portfolio turnover rates are calculated by dividing the lesser of each Fund’s
annual sales or purchases of portfolio securities (exclusive of securities with
maturities of one year or less at a time the Fund acquired them) by the monthly
average value of the securities in each Fund’s portfolio during the year.
A higher portfolio turnover rate (100% or more) may indicate higher
transaction costs and may result in higher taxes when a Fund’s shares are held
in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the example set forth in each Fund’s prospectus, affect
a Fund’s performance.
The
following tables show the portfolio turnover rates for the fiscal years
indicated below:
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Portfolio
Turnover of the Funds During Fiscal Years Ended December
31, |
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|
2023 |
|
2022 |
Growth
Fund |
| 13.45% |
| 11.04% |
Balanced
Fund |
| 11.74% |
| 9.68% |
Small
Cap Fund |
| 19.05% |
| 19.81% |
Disclosure
of Portfolio Holdings
Disclosure
of the Funds’ complete holdings is required to be made public quarterly within
60 days of the end of each fiscal quarter either in the Annual and Semi-Annual
Reports to shareholders, filed with the SEC on Form N-CSR, and on Form N-PORT.
Form N-CSR and the public portion of Form N-PORT are available, free of charge,
on the
EDGAR
database on the SEC’s website at www.sec.gov.
You may also obtain copies of Fund documents by paying a duplicating fee and
sending an electronic request to the following e-mail address: [email protected].
A complete copy of each Fund’s portfolio holdings will be available on or about
15 days following each quarter-end on the Funds’ website. To view the Funds’
portfolio holdings, visit www.mairsandpower.com.
You may also obtain a copy of a Fund’s latest quarterly report without charge by
calling Shareholder Services at 800-304-7404.
The
Trust, on behalf of the Funds, has adopted portfolio holdings disclosure
policies (the Disclosure Policies) that govern the timing and circumstances of
disclosure of portfolio holdings of the Funds. Information about the Funds’
portfolio holdings will not be distributed to any third party except in
accordance with these Disclosure Policies.
The
Board of Trustees considered the circumstances under which the Funds’ portfolio
holdings may be disclosed under the Disclosure Policies, considering actual and
potential material conflicts that could arise in such circumstances between the
interests of the Funds’ shareholders and the interests of the Adviser,
Distributor or any other affiliated person of the Funds. After due
consideration, the Board determined that the Funds have a legitimate business
purpose for disclosing portfolio holdings to persons described in these
Disclosure Policies.
Information
about the Funds’ portfolio holdings will not be distributed to any third party
except as described below:
•the
disclosure is required to respond to a regulatory request, court order or other
legal proceeding;
•the
disclosure is to a mutual fund rating or evaluation services organization (such
as FactSet, Morningstar and Lipper), or statistical agency or person performing
similar functions, or due diligence department of a broker-dealer or wirehouse,
who has, if necessary, signed a confidentiality agreement, or is bound by
applicable duties of confidentiality imposed by law, with the
Funds;
•the
disclosure is made to the Funds’ service providers who generally need access to
such information in the performance of their contractual duties and
responsibilities, and who are subject to duties of confidentiality imposed by
law and/or contract, such as the Adviser, the Board of Trustees, the Funds’
independent registered public accountants, the Funds’ custodian (U.S. Bank,
N.A.), the Funds’ administrator, fund accountant and transfer agent (U.S. Bank
Fund Services, LLC, dba, U.S. Bank Global Fund Services), the Funds’ distributor
(Foreside Fund Services, LLC), regulatory authorities, counsel to the Funds or
the Board of Trustees, proxy voting service providers, and financial printers
involved in the reporting process;
•the
disclosure is made by the Adviser’s trading desk to broker-dealers in connection
with the purchase or sale of securities or requests for price quotations or bids
on one or more securities; in addition, the Adviser’s trading desk may
periodically distribute a holdings list (consisting of names only) to broker-
dealers so that such brokers can provide the Adviser with order flow
information;
•the
disclosure is made to institutional consultants evaluating the Funds on behalf
of potential investors;
•the
disclosure is (a) in connection with a quarterly, semi-annual or annual report
that is available to the public or (b) relates to information that is otherwise
available to the public; or
•the
disclosure is made pursuant to prior written approval of the Trust’s CCO, or
other person so authorized, is for a legitimate business purpose and is in the
best interests of the Funds’ shareholders.
For
purposes of the Disclosure Policies, portfolio holdings information does not
include descriptive information if that information does not present material
risks of dilution, arbitrage, market timing, insider trading or other
inappropriate trading for the Funds. Information excluded from the definition of
portfolio holdings information generally includes, without limitation: (i)
descriptions of allocations among asset classes, regions, countries or
industries/sectors; (ii) aggregated data such as average or median ratios, or
market capitalization, performance attributions by industry, sector or country;
or (iii) aggregated risk statistics. It is the policy of the Trust to prohibit
any person or entity from receiving any direct or indirect compensation or
consideration of any kind in connection with the disclosure of information about
the Funds’ portfolio holdings.
The
Trust’s CCO must document any decisions regarding non-public disclosure of
portfolio holdings and the rationale therefor. In connection with the oversight
responsibilities by the Board of Trustees, any documentation regarding decisions
involving the non-public disclosure of portfolio holdings of the Funds to third
parties must be provided to the full Board of Trustees or its authorized
committee. In addition, on a quarterly basis, the Board will review any
disclosures
of portfolio holdings outside of the permitted disclosures described above to
address any conflicts between the interests of Fund shareholders and those of
the Adviser or any other Fund affiliate.
Any
suspected breach of this policy must be reported immediately to the Trust’s CCO,
or to the chief compliance officer of the Adviser who must report it to the
Trust’s CCO. The Board of Trustees reserves the right to amend the Disclosure
Policies at any time without prior notice in its sole discretion.
The
Adviser provides investment advice to clients other than the Funds that have
investment objectives that may be substantially similar or identical to the
Funds. These clients may therefore have substantially similar, and in certain
cases nearly identical, portfolio holdings to those of certain Funds. These
clients generally have access to current portfolio holding information for their
accounts, but these clients may be subject to different portfolio holdings
disclosure policies and the Board of Trustees of the Funds does not exercise
control over such policies. The Adviser has adopted policies and procedures to
limit communications with the public about these clients’ portfolio
holdings.
Each
Fund will disclose its portfolio holdings in semi-annual and annual shareholder
reports and in required SEC filings such as Form N-PORT and Form N-CSR.
Each
Fund will post its full schedule of investments following each quarter end on
the Funds’ website at www.mairsandpower.com. Such schedule of investments
information will be posted on or about 15 days following each quarter end or
such other date as the Funds may determine. The day after the schedule of
investments is publicly available on the website or otherwise publicly
available, it may be mailed, e-mailed or otherwise transmitted to any person.
Each Fund’s top 10 holdings as of the calendar quarter end are included in each
Fund’s factsheet posted on the Funds’ website following the posting of the full
schedule of investments. In addition, each Fund’s top 10 holdings as of the
calendar quarter end are included in marketing materials for use with prospects,
consultants and shareholders following the posting of the full schedule of
investments on the Funds’ website.
Management
of the Funds
Board
of Trustees
The
management and affairs of the Funds are supervised by the Board of Trustees. The
Board of Trustees consists of seven individuals. The Trustees are fiduciaries
for the Funds’ shareholders and are governed by the laws of the State of
Delaware in this regard. The Board of Trustees establishes policies for the
operation of the Funds and appoints the officers who conduct the daily business
of the Funds.
Trustees
and Officers
The
Trustees and the officers of the Trust are listed below with their addresses,
present positions with the Trust and principal occupations over at least the
last five years.
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Name,
Address and Year of Birth |
Position(s)
Held with the Trust |
Term
of Office and Length of Time Served |
Number
of Portfolios in the Trust Overseen by Trustee |
Principal
Occupation(s) During the Past Five Years |
Other
Directorships Held by Trustee During the Past Five Years |
Independent
Trustees |
Michael
D. Akers, Ph.D. 615 E. Michigan St. Milwaukee, WI 53202 Year of
Birth: 1955 |
Trustee |
Indefinite
Term; Since August 22, 2001 |
32 |
Professor
Emeritus, Department of Accounting (June 2019-present), Professor,
Department of Accounting (2004-2019), Marquette University.
|
Independent
Trustee, USA MUTUALS (an open-end investment company)
(2001-2021).
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Gary
A. Drska 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1956 |
Trustee |
Indefinite
Term; Since August 22, 2001 |
32 |
Retired;
Former Pilot, Frontier/Midwest Airlines, Inc. (airline company)
(1986-2021).
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Independent
Trustee, USA MUTUALS (an open-end investment company)
(2001-2021).
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Vincent
P. Lyles 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1961 |
Trustee |
Indefinite
Term; Since April 6, 2022 |
32 |
Executive
Director, Milwaukee Succeeds (education advocacy organization)
(2023-present); System Vice President of Community Relations, Advocate
Aurora Health Care (health care provider) (2019-2022).
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Independent
Director, BMO Funds, Inc. (an open-end investment company)
(2017-2022). |
Erik
K. Olstein 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1967 |
Trustee
|
Indefinite
Term; Since April 6, 2022 |
32 |
Retired;
President and Chief Operating Officer (2000-2020), Olstein Capital
Management, L.P. (asset management firm).
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N/A |
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Name,
Address and Year of Birth |
Position(s)
Held with the Trust |
Term
of Office and Length of Time Served |
Number
of Portfolios in the Trust Overseen by Trustee |
Principal
Occupation(s) During the Past Five Years |
Other
Directorships Held by Trustee During the Past Five Years |
Lisa
Zúñiga Ramírez 615 E. Michigan St. Milwaukee, WI 53202 Year of
Birth: 1969 |
Trustee
|
Indefinite
Term; Since April 6, 2022 |
32 |
Retired;
Principal and Senior Portfolio Manager, Segall, Bryant & Hamill, LLC
(asset management firm) (2018-2020).
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Director,
Peoples Financial Services Corp. (a publicly-traded bank holding company)
(2022-present); Independent Director, Century Communities, Inc.
(publicly-traded homebuilding company) (October
2023-present).
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Gregory
M. Wesley 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1969 |
Trustee
|
Indefinite
Term; Since April 6, 2022 |
32 |
Senior
Vice President of Strategic Alliances and Business Development, Medical
College of Wisconsin (2016-present).
|
N/A |
Interested
Trustee and Officers |
John
P. Buckel* 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1957 |
Chairperson,
Trustee, President and Principal Executive Officer
|
Indefinite
Term; Chairperson and Trustee (since January 19, 2023); President and
Principal Executive Officer (since January 24, 2013)
|
32 |
Vice
President, U.S. Bancorp Fund Services, LLC (2004-present).
|
N/A |
Jennifer
A. Lima 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1974 |
Vice
President, Treasurer and Principal Financial and Accounting
Officer
|
Indefinite
Term; Since January 24, 2013 |
N/A |
Vice
President, U.S. Bancorp Fund Services, LLC (2002-present). |
N/A |
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Name,
Address and Year of Birth |
Position(s)
Held with the Trust |
Term
of Office and Length of Time Served |
Number
of Portfolios in the Trust Overseen by Trustee |
Principal
Occupation(s) During the Past Five Years |
Other
Directorships Held by Trustee During the Past Five Years |
Deanna
B. Marotz 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1965 |
Chief
Compliance Officer, Vice President and Anti-Money Laundering
Officer |
Indefinite
Term; Since October 21, 2021 |
N/A |
Senior
Vice President, U.S. Bancorp Fund Services, LLC (2021-present); Chief
Compliance Officer, Keeley-Teton Advisors, LLC and Teton Advisors, Inc
(2017-2021).
|
N/A |
Jay
S. Fitton 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1970 |
Secretary |
Indefinite
Term; Since July 22, 2019 |
N/A |
Vice
President, U.S. Bancorp Fund Services, LLC (2019-present); Partner,
Practus, LLP (2018-2019).
|
N/A |
Kelly
A. Strauss 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1987
|
Assistant
Treasurer |
Indefinite
Term; Since April 23, 2015 |
N/A |
Assistant
Vice President, U.S. Bancorp Fund Services, LLC
(2011-present).
|
N/A |
Laura
A. Carroll 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1985
|
Assistant
Treasurer |
Indefinite
Term; Since August 20, 2018 |
N/A |
Assistant
Vice President, U.S. Bancorp Fund Services, LLC
(2007-present).
|
N/A |
Shannon
Coyle 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1990
|
Assistant
Treasurer |
Indefinite
Term; Since August 26, 2022 |
N/A |
Officer,
U.S. Bancorp Fund Services, LLC (2015-present). |
N/A |
Marissa
Pawlinski 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1996 |
Assistant
Secretary |
Indefinite
Term; Since January 18, 2024 |
N/A |
Assistant
Vice President, U.S. Bancorp Fund Services, LLC (since 2023); Regulatory
Administration Attorney, U.S. Bancorp Fund Services, LLC (since 2022);
Judicial Law Clerk, Milwaukee County Circuit Court (2021-2022); Legal
Intern, City of Brookfield (2020-2021); Student, Marquette University Law
School (2019-2021). |
N/A |
*Mr.
Buckel is deemed to be an “interested person” of the Trust as defined by the
1940 Act due to his position and material business relationship with the
Trust.
Role
of the Board
The
Board of Trustees provides oversight of the management and operations of the
Trust. Like all funds, the day-to-day responsibility for the management and
operation of the Trust is the responsibility of various service providers to the
Trust and its individual series, such as the Adviser, Distributor (defined
below), Custodian (defined below), and the Funds’ administrator and transfer
agent, each of which are discussed in greater detail in this SAI. The Board
approves all significant agreements with the Adviser, Distributor, Custodian,
and the Funds’ administrator and transfer agent. The Board has appointed various
individuals of certain of these service providers as officers of the Trust, with
responsibility to monitor and report to the Board on the Trust’s day-to-day
operations. In conducting this oversight, the Board receives regular reports
from these officers and service providers regarding the Trust’s operations. The
Board has appointed a Chief Compliance Officer (“CCO”) who reports directly to
the Board and who administers the Trust’s compliance program and regularly
reports to the Board as to compliance matters, including an annual compliance
review. Some of these reports are provided as part of formal Board meetings,
which are generally held five times per year, and at such other times as the
Board determines is necessary, and involve the Board’s review of recent Trust
operations. From time to time, one or more members of the Board may also meet
with Trust officers in less formal settings, between formal Board meetings, to
discuss various topics. In all cases, however, the role of the Board and of any
individual Trustee is one of oversight and not of management of the day-to-day
affairs of the Trust and its oversight role does not make the Board a guarantor
of the Trust’s investments, operations or activities.
Board
Leadership Structure
The
Board has structured itself in a manner that it believes allows it to perform
its oversight function effectively. The Board is composed of six Independent
Trustees – Dr. Michael D. Akers, Gary A. Drska, Vincent P. Lyles, Erik K.
Olstein, Lisa Zúñiga Ramírez and Gregory M. Wesley – and one Trustee who is an
“interested person” (as defined by the 1940 Act) of the Trust (the “Interested
Trustee”) – John P. Buckel. Accordingly, more than 85% of the members of the
Board are Independent Trustees, Trustees who are not affiliated with the Adviser
or its affiliates, or any other investment adviser or service provider to the
Trust or any underlying fund. The Board of Trustees has established two standing
committees, an Audit Committee and a Nominating Committee, which are discussed
in greater detail under “Board Committees” below. Each of the Audit Committee
and the Nominating Committee is composed entirely of Independent Trustees. The
Independent Trustees have engaged their own independent counsel to advise them
on matters relating to their responsibilities in connection with the
Trust.
The
Trust’s Chairperson, Mr. Buckel, is deemed to be an “interested person” of the
Trust, as defined by the 1940 Act, due to his position and material business
relationship with the Trust. Mr. Buckel also serves as a Vice President of U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services
(“Fund Services”), the Funds’ administrator. The Trust has not appointed a lead
Independent Trustee.
In
accordance with the fund governance standards prescribed under the 1940 Act, the
Independent Trustees on the Nominating Committee select and nominate all
candidates for Independent Trustee positions. Each Trustee was appointed to
serve on the Board of Trustees because of his or her experience, qualifications,
attributes and skills as set forth in the subsection “Trustee Qualifications”
below.
The
Board reviews its structure regularly in light of the characteristics and
circumstances of the Trust, including the unaffiliated nature of each investment
adviser and the funds managed by such adviser; the number of funds that comprise
the Trust; the variety of asset classes that those funds reflect; the net assets
of the Trust; the committee structure of the Trust; and the independent
distribution arrangements of each of the Trust’s underlying funds.
The
Board has determined that the function and composition of the Audit Committee
and the Nominating Committee are appropriate to address any potential conflicts
of interest that may arise from the Chairperson’s status as an Interested
Trustee. In addition, the inclusion of all Independent Trustees as members of
the Audit Committee and the Nominating Committee allows these Trustees to
participate in the full range of the Board’s oversight duties, including
oversight of risk management processes discussed below. Given the specific
characteristics and circumstances of the Trust as described above, the Trust has
determined that the Board’s leadership structure is appropriate.
Board
Oversight of Risk Management
As
part of its oversight function, the Board receives and reviews various risk
management reports and assessments and discusses these matters with appropriate
management and other personnel, including personnel of the Trust’s service
providers. Because risk management is a broad concept composed of many elements
(such as, for example, investment risk, issuer and counterparty risk, compliance
risk, operational risks, business continuity risks, etc.) the oversight of
different types of risks is handled in different ways. For example, the CCO
regularly reports to the Board during Board meetings and meets in executive
session with the Independent Trustees and their legal counsel to discuss
compliance and operational risks. In addition, the Independent Trustee
designated as the Audit Committee’s “audit committee financial expert” meets
with the Treasurer and the Funds’ independent registered public accounting firm
to discuss, among other things, the internal control structure of the Trust’s
financial reporting function. The full Board receives reports from the
investment advisers to the underlying funds and the portfolio managers as to
investment risks as well as other risks that may be discussed during Audit
Committee meetings.
Trustee
Qualifications
The
Board believes that each of the Trustees has the qualifications, experience,
attributes and skills appropriate to his or her continued service as a Trustee
of the Trust in light of the Trust’s business and structure. The Trustees have
substantial business and professional backgrounds that indicate they have the
ability to critically review, evaluate and assess information provided to them.
Certain of these business and professional experiences are set forth in detail
in the table above. In addition, the Trustees have substantial board experience
and, in their service to the Trust, have gained substantial insight as to the
operation of the Trust. The Board annually conducts a “self-assessment” wherein
the effectiveness of the Board and the individual Trustees is
reviewed.
In
addition to the information provided in the table above, below is certain
additional information concerning each individual Trustee. The information
provided below, and in the table above, is not all-inclusive. Many of the
Trustees’ qualifications to serve on the Board involve intangible elements, such
as intelligence, integrity, work ethic, the ability to work together, the
ability to communicate effectively, the ability to exercise judgment, the
ability to ask incisive questions, and commitment to shareholder interests. In
conducting its annual self-assessment, the Board has determined that the
Trustees have the appropriate attributes and experience to continue to serve
effectively as Trustees of the Trust.
Michael
D. Akers, Ph.D., CPA.
Dr. Akers has served as an Independent Trustee of the Trust since 2001. Dr.
Akers previously served as an independent trustee of USA Mutuals, an open-end
investment company, from 2001 to June 2021. Dr. Akers has been a Professor
Emeritus, Department of Accounting at Marquette University since June 2019, was
Professor, Department of Accounting at Marquette University from 2004 to May
2019, was Chair of the Department of Accounting at Marquette University from
2004 to 2017, and was Associate Professor, Department of Accounting at Marquette
University from 1996 to 2004. Dr. Akers is a certified public accountant, a
certified fraud examiner, a certified internal auditor and a certified
management accountant. Through his experience as an investment company trustee
and his employment experience, Dr. Akers is experienced with financial,
accounting, regulatory and investment matters.
Gary
A. Drska.
Mr. Drska has served as an Independent Trustee of the Trust since 2001. Mr.
Drska previously served as an independent trustee of USA Mutuals from 2001 to
June 2021. Mr. Drska previously served as a Pilot of Frontier/Midwest Airlines,
Inc., an airline company, from 1986 to September 2021. Through his experience as
an investment company trustee, Mr. Drska is experienced with financial,
accounting, regulatory and investment matters.
Vincent
P. Lyles. Mr.
Lyles has served as an Independent Trustee of the Trust since 2022. Mr. Lyles
has served as Executive Director of Milwaukee Succeeds since January 2023. He
previously served as System Vice President of Community Relations at Advocate
Aurora Health Care from 2019 to 2022. He served as an Independent Director of
BMO Funds, Inc., an open-end investment company, from 2017 to 2022. Mr. Lyles is
a board member and finance committee member of Badger Mutual Insurance Company
and a Trustee and member of the Committee of Student Experience & Mission on
the Board of Trustees at Marquette University. Mr. Lyles previously served as
President and Chief Executive Officer of the Boys & Girls Club of Greater
Milwaukee from 2012 to 2018, President of M&I Community Development
Corporation from 2006 to 2011, and as a Director of Public Finance of Robert W.
Baird & Co. from 1995 to 2006. He received his Juris Doctor degree from the
University of Wisconsin-Madison Law School in
1987.
Through his experience as an investment company trustee and his employment
experience, Mr. Lyles is experienced with legal, financial, accounting,
regulatory and investment matters.
Erik
K. Olstein. Mr.
Olstein has served as an Independent Trustee of the Trust since 2022. Mr.
Olstein served as President and Chief Operating Officer from 2000 to 2020 and
Vice President of Sales and Chief Operating Officer from 1995 to 2000 at Olstein
Capital Management, L.P., an asset management firm he co-founded. During his
time at Olstein Capital Management, L.P., Mr. Olstein was responsible for
fiduciary oversight and management of The Olstein Funds, an open-end investment
company, where he served as Trustee, Secretary and Assistant Treasurer from 1995
to 2018. Mr. Olstein currently serves as President and Trustee of the Board of
Trustees of the Trinity-Pawling School and has previously held Board positions
with the American Friends of the National Museum of the Royal Navy, National
Maritime Historical Society and U.S. Naval Service Personal Education Assistance
Fund. Through his experience as an investment company trustee and his employment
experience, Mr. Olstein is experienced with financial, accounting, regulatory
and investment matters.
Lisa
Zúñiga Ramírez, CFA®,
FSA.
Ms. Ramírez has served as an Independent Trustee of the Trust since 2022. Ms.
Ramírez has served on the Board of Directors of Peoples Financial Services
Corp., a publicly-traded bank holding company, since 2022 and on the Board of
Directors of Century Communities, Inc. a publicly-traded homebuilding company
since October 2023. Ms. Ramírez served as Senior Portfolio Manager at Segall
Bryant & Hamill, LLC, an asset management firm, from 2018 to 2020. She
served as Partner and Senior Portfolio Manager from 2009 to 2018, Partner and
Senior Equity Analyst from 2002 to 2009 and Equity Analyst from 1997 to 2002 at
Denver Investments, LLC, an asset management firm that was acquired by Segall
Bryant & Hamill, LLC in 2018. Ms. Ramírez currently serves as an Independent
Director on the Bow River Capital Advisory Board, an asset management firm, and
is a Director of the Denver Employees Retirement Plan. In addition, she serves
on the boards of The Denver Foundation, NACD (National Association of Corporate
Directors) Colorado Chapter, the Boettcher Foundation and Vuela for Health. Ms.
Ramírez is a CFA®
charterholder (CFA®
is a registered trademark owned by the CFA Institute) and holds the Fundamentals
of Sustainability Accounting (FSA) credential from the Sustainability Accounting
Standards Board. Through her employment experience, Ms. Ramírez is experienced
with financial, accounting, ESG (environmental, social and governance),
regulatory and investment matters.
Gregory
M. Wesley. Mr.
Wesley has served as an Independent Trustee of the Trust since 2022. Mr. Wesley
has served as Senior Vice President of Strategic Alliances and Business
Development at the Medical College of Wisconsin since 2016. Prior to his current
role at the Medical College of Wisconsin, he was a Partner at MWH Law Group LLP,
a law firm during 2016, and a Partner at Gonzalez, Saggio & Harlan LLP, a
law firm from 2002 to 2016. Mr. Wesley serves on the Board of Directors of the
Metropolitan Milwaukee Association of Commerce, MHS Health Wisconsin, Versiti,
Inc., and the Greater Milwaukee Committee. He also serves on the Board of
Trustees of the Johnson Foundation at Wingspread and the Greater Milwaukee
Foundation. He previously sat on the Board of Trustees of the Medical College of
Wisconsin from 2009 to 2016 and the Board of Directors of Park Bank Milwaukee
from 2015 to 2020. Mr. Wesley received his Juris Doctor degree from the
University of Wisconsin-Madison Law School in 1997. Through his sustained
employment and board experience, Mr. Wesley is experienced with legal,
financial, accounting, regulatory and investment matters.
John
P. Buckel. Mr.
Buckel has served as a Trustee of the Trust since 2023 and has served as
President of the Trust since 2013. Mr. Buckel has served as a Vice President of
Fund Services, a multi-line service provider to investment companies, since
2004. Through his experience as an investment company trustee and his employment
experience, Mr. Buckel is experienced with financial, accounting, regulatory and
investment matters.
Trustee
Ownership of Fund Shares
As
of December 31, 2023, the following Trustee beneficially owned shares of certain
series of the Trust as follows, and no other Trustee owned shares of any series
of the Trust.
|
|
|
|
|
|
|
| |
Trustee |
Dollar
Range of Shares Owned in the Funds |
Aggregate
Dollar Range of Shares of Series of the Trust |
Lisa
Zúñiga Ramírez |
None |
Over
$100,000 |
Furthermore,
as of December 31, 2023, neither the Trustees who are not “interested” persons
of the Funds, nor members of their immediate families, owned securities
beneficially, or of record, in the Adviser, the Distributor or any of their
affiliates. Accordingly, neither the Trustees who are not “interested” persons
of the Funds nor members of their immediate families, have a direct or indirect
interest, the value of which exceeds $120,000, in the Adviser, the Distributor
or any of their affiliates. In addition, during the two most recently completed
calendar years, neither the Independent Trustees nor members of their immediate
families have had a direct or indirect interest, the value of which exceeds
$120,000 in (i) the Adviser, the Distributor or any of their affiliates, or (ii)
any transaction or relationship in which such entity, a Fund, any officer of the
Trust, or any of their affiliates was a party.
Board
Committees
Audit
Committee.
The Trust has an Audit Committee, which is composed of the Independent Trustees,
Dr. Michael D. Akers, Mr. Gary A. Drska, Mr. Vincent P. Lyles, Mr. Erik K.
Olstein, Ms. Lisa Zúñiga Ramírez and Mr. Gregory M. Wesley. The Audit Committee
reviews financial statements and other audit-related matters for the Funds. The
Audit Committee also holds discussions with management and with the Funds’
independent auditor concerning the scope of the audit and the auditor’s
independence. Dr. Akers is designated as the Audit Committee chairman and serves
as the Audit Committee’s “audit committee financial expert,” as stated in the
annual reports relating to the series of the Trust. During the past fiscal year,
the Audit Committee met twice with respect to the Funds.
Nominating
Committee.
The Trust has a Nominating Committee, which is composed of the Independent
Trustees, Dr. Michael D. Akers, Mr. Gary A. Drska, Mr. Vincent P. Lyles, Mr.
Erik K. Olstein, Ms. Lisa Zúñiga Ramírez and Mr. Gregory M. Wesley. The
Nominating Committee is responsible for seeking and reviewing candidates for
consideration as nominees for the position of trustee and meets only as
necessary. As part of this process, the Nominating Committee considers criteria
for selecting candidates sufficient to identify a diverse group of qualified
individuals to serve as trustees.
The
Nominating Committee will consider nominees recommended by shareholders for
vacancies on the Board of Trustees. Recommendations for consideration by the
Nominating Committee should be sent to the President of the Trust in writing
together with the appropriate biographical information concerning each such
proposed nominee, and such recommendation must comply with the notice provisions
set forth in the Trust’s Nominating Committee Charter. In general, to comply
with such procedures, such nominations, together with all required information,
must be delivered to and received by the President of the Trust at the principal
executive office of the Trust not later than 60 days prior to the shareholder
meeting at which any such nominee would be voted on. Shareholder recommendations
for nominations to the Board of Trustees will be accepted on an ongoing basis
and such recommendations will be kept on file for consideration when there is a
vacancy on the Board of Trustees. During the Funds’ past fiscal year, the
Nominating Committee met twice.
Trustee
Compensation
The
Independent Trustees receive from the Trust an annual retainer of
$100,000(1),
$4,500 for each regular Board meeting attended and $1,000 for each special Board
meeting attended, as well as reimbursement for expenses incurred in connection
with attendance at Board meetings(2).
Members of the Audit Committee receive $2,000 for each meeting of the Audit
Committee attended. The chairman of the Audit Committee receives an annual
retainer of $5,000(3).
Interested Trustees do not receive any compensation for their service as
Trustee. For the fiscal year ended December 30, 2023, the Trustees received the
following compensation from the Funds:
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name
of Person/Position |
Aggregate
Compensation From the |
Pension
or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Compensation from the Funds and the Trust(5)
Paid
to Trustees |
Growth
Fund(4) |
Balanced
Fund(4) |
Small
Cap Fund(4) |
Dr.
Michael D. Akers,
Independent
Trustee(6)(7) |
$4,234 |
$4,234 |
$4,234 |
None |
None |
$105,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name
of Person/Position |
Aggregate
Compensation From the |
Pension
or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Compensation from the Funds and the Trust(5)
Paid
to Trustees |
Gary
A. Drska,
Independent
Trustee(6) |
$4,208 |
$4,208 |
$4,208 |
None |
None |
$100,500 |
Vincent
P. Lyles
Independent
Trustee(6) |
$4,208 |
$4,208 |
$4,208 |
None |
None |
$100,500 |
Erik
K. Olstein
Independent
Trustee(6) |
$4,208 |
$4,208 |
$4,208 |
None |
None |
$100,500 |
Lisa
Zúñiga Ramírez
Independent
Trustee(6) |
$4,208 |
$4,208 |
$4,208 |
None |
None |
$100,500 |
Gregory
M. Wesley
Independent
Trustee(6) |
$4,208 |
$4,208 |
$4,208 |
None |
None |
$100,500 |
John
P. Buckel,
Interested
Trustee(8) |
None |
None |
None |
None |
None |
None |
(1) Prior
to January 1, 2024, the Independent Trustees received an annual retainer of
$65,000.
(2) Prior
to January 1, 2023, the Independent Trustees received an annual retainer of
$58,000 per year, and $4,500 for each regular Board meeting attended and $1,000
for each special Board meeting attended.
(3) Prior
to January 1, 2023, the chairman of the Audit Committee received an annual
retainer of $2,500.
(4) Trustees’
fees and expenses are allocated among the Funds and any other series comprising
the Trust.
(5) There
are currently twenty-nine other series comprising the Trust.
(6) Audit
Committee member.
(7) Audit
Committee chairman.
(8) Appointed
as an Interested Trustee and Chairperson of the Trust effective January 19,
2023.
Code
of Ethics
The
Trust and the Adviser have each adopted a Code of Ethics under Rule 17j-1 of the
1940 Act. These Codes of Ethics permit, subject to certain conditions, personnel
of the Adviser to invest in securities that may be purchased or held by the
Fund. The Distributor relies on the principal underwriter’s exception under Rule
17j-1(c)(3) from the requirement to adopt a code of ethics pursuant to Rule
17j-1 because the Distributor is not affiliated with the Trust or the Adviser,
and no officer, director, or general partner of the Distributor serves as an
officer or director of the Trust or the Adviser.
Proxy
Voting Procedures
The
Board of Trustees has adopted proxy voting policies and procedures (Proxy
Policies) on behalf of the Trust which has delegated to the Adviser, subject to
the Board of Trustee’s continuing oversight the responsibility for voting
proxies. The Adviser’s proxy voting policies are attached as Appendix A to the
SAI. Notwithstanding this delegation of responsibilities, however, the Funds
retain the right to vote proxies relating to its portfolio securities. The
fundamental purpose of the Proxy Policies is to ensure that each vote will be in
a manner that reflects the best interest of the Funds and their shareholders,
taking into account the value of the Funds’ investments.
In
the event of a conflict between the interests of the Adviser and a Fund, the
Proxy Policies provide that the conflict may be disclosed to the Board of
Trustees or its delegate, who shall provide direction on how to vote the proxy.
The Board of Trustees has delegated this authority to the Independent Trustees,
and the proxy voting direction in such a case shall be determined by a majority
of the Independent Trustees.
The
actual proxy voting records relating to portfolio securities during the most
recent 12-month period ended June 30 are available as soon as reasonably
practicable after filing the report with the SEC without charge, by visiting the
Funds’ website at www.mairsandpower.com or by accessing the SEC’s website at
www.sec.gov.
Control
Persons and Principal Holders of Securities
A
principal shareholder is any person who owns of record or beneficially 5% or
more of the outstanding shares of a Fund. A control person is one who owns
beneficially or through controlled companies more than 25% of the voting
securities
of a Fund or acknowledges the existence of control. A controlling person
possesses the ability to control the outcome of matters submitted for
shareholder vote by a Fund. As of March 31, 2024, to the best of the Trust’s
knowledge, no person was a control person of a Fund, and all Trustees and
officers as a group owned beneficially (as the term is defined in
Section 13(d) under the Securities Exchange Act of 1934, as amended) less
than 1% of the outstanding shares of a Fund. As of March 31, 2024, the following
shareholders were considered to be principal shareholders of the
Funds:
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| |
Growth
Fund |
|
|
| |
Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc. Special Custody A/C FBO Customers Attn:
Mutual Funds 211 Main Street San Francisco, CA
94105-1901
|
N/A |
N/A |
12.69% |
Record |
National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept.
499
Washington Boulevard
Jersey
City, NJ 07310-1995 |
N/A |
N/A |
10.06% |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balanced
Fund |
|
|
| |
Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc. Special Custody A/C FBO Customers Attn:
Mutual Funds 211 Main Street San Francisco, CA
94105-1901
|
The
Charles Schwab Corporation |
DE |
25.69% |
Record |
National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept.
499
Washington Boulevard
Jersey
City, NJ 07310-1995
|
N/A |
N/A |
13.53% |
Record |
Pershing
LLC 1 Pershing Plaza Jersey City, NJ 07399-0001 |
N/A |
N/A |
8.41% |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Small
Cap Fund |
|
|
| |
Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc. Special Custody A/C FBO Customers Attn:
Mutual Funds 211 Main Street San Francisco, CA
94105-1901
|
The
Charles Schwab Corporation |
DE |
37.72% |
Record |
Pershing
LLC 1 Pershing Plaza Jersey City, NJ 07399-0001
|
N/A |
N/A |
10.11% |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Small
Cap Fund |
|
|
| |
Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept.
499
Washington Boulevard
Jersey
City, NJ 07310-1995
|
N/A |
N/A |
10.05% |
Record |
UBS
WM USA Special Custody A/C EBOC UBSFSI 1000 Harbor
Boulevard Weehawken, NJ 07086-6761 |
N/A |
N/A |
5.15% |
Record |
Investment
Adviser
The
investment adviser to each Fund is Mairs & Power, Inc., 30 East 7th Street,
Suite 2500, Saint Paul, Minnesota 55101-1363. Mairs & Power, Inc. has served
as an investment advisory firm since 1931. In addition to the Funds, the Adviser
conducts investment research and supervises investment accounts for individuals,
trusts, pension and profit sharing funds, and charitable and educational
institutions. The Adviser is an employee-owned firm, with no one individual
owning 25% or more of the Adviser’s voting securities.
The
Adviser serves as investment adviser to the Funds under the terms of an
Investment Advisory Agreement effective April 29, 2022 (the Advisory
Agreement). The Adviser provided services to each Predecessor Fund under a
different advisory agreement with Mairs & Power Funds Trust (the Predecessor
Advisory Agreement). After an initial two-year period, the Advisory Agreement
will continue in effect from year to year with respect to a Fund, only if such
continuance is specifically approved at least annually by: (i) the Board of
Trustees or the vote of a majority of the outstanding voting securities of the
Fund; and (ii) the vote of a majority of the Trustees of the Trust who are not
parties to the Advisory Agreement nor interested persons thereof, cast in person
at a meeting called for the purpose of voting on such approval. The Advisory
Agreement is terminable without penalty by the Trust, on behalf of a Fund, upon
60 days’ written notice to the Adviser, when authorized by either: (i) a
majority vote of the outstanding voting securities of the Fund; or (ii) by a
vote of a majority of the Board of Trustees, or by the Adviser upon 60 days’
written notice to the Trust. The Advisory Agreement will automatically
terminate in the event of its “assignment,” as defined under the 1940 Act. The
Advisory Agreement provides that the Adviser under such agreement shall not be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in the execution of portfolio
transactions for a Fund, except for willful misfeasance, bad faith or negligence
in the performance of its duties, or by reason of reckless disregard of its
obligations and duties thereunder.
As
compensation for its services to the Funds, the Adviser receives monthly
compensation from the Funds. The investment management fees paid to the
Adviser by the Growth Fund is computed at an annual rate of 0.60% of the Growth
Fund’s average daily net assets up to $2.5 billion, and 0.50% of average daily
net assets on the balance. The investment management fees paid to the Adviser by
the Balanced Fund is computed at an annual rate of 0.60% of the Balanced Fund’s
average daily net assets. The investment management fees paid to the Adviser by
the Small Cap Fund is computed at an annual rate of 0.80% of the Small Cap
Fund’s average daily net assets. Under the Predecessor Advisory Agreement, each
Predecessor Fund paid the Adviser the same management fee as it receives from
the corresponding Fund under the Advisory Agreement. Prior to June 1, 2021, the
Predecessor Small Cap Fund paid to the Adviser an investment management fees
computed at an annual rate of 0.90% of the Predecessor Small Cap Fund’s average
daily net assets.
Under
the Advisory Agreement, the Adviser has agreed to reimburse the Growth Fund or
Balanced Fund in the event that the total expenses incurred by either Fund in
any fiscal year, excluding interest, taxes, brokerage commissions and
extraordinary litigation costs, but including payments to the Adviser, shall
exceed 1.50% of the first $30 million dollars and 1.00% of the balance of the
average value of the net assets of the Fund during said fiscal year, based upon
computations of such value made as of the close of business on the last
valuation day of each month during such fiscal year.
The
tables below set forth, for the fiscal years ended December 31, 2023, 2022 and
2021, the advisory fees accrued by the Funds under the Advisory Agreement and,
for the periods prior to April 29, 2022, the Predecessor Funds under the
Predecessor Advisory Agreement:
|
|
|
|
| |
Growth
Fund |
Fiscal
Year Ended |
Advisory
Fee Paid |
December
31, 2023 |
$25,793,690 |
December
31, 2022 |
$26,898,147 |
December
31, 2021 |
$29,931,085 |
| |
Balanced
Fund |
|
Fiscal
Year Ended |
Advisory
Fee Paid |
December
31, 2023 |
$4,627,073 |
December
31, 2022 |
$5,226,372 |
December
31, 2021 |
$5,848,143 |
| |
Small
Cap Fund |
|
Fiscal
Year Ended |
Advisory
Fee Paid |
December
31, 2023 |
$2,631,360 |
December
31, 2022 |
$2,921,144 |
December
31, 2021 |
$3,500,392 |
Under
the terms of the Advisory Agreement, the Adviser agrees to render investment
advisory services to the Funds. In addition, the Adviser pays fees to
financial intermediaries for the provision of administrative services to their
customers who hold shares of the Funds. Subject to the expense limitation
agreement discussed above, all other expenses, such as brokerage commissions,
fees charged by the SEC, custodian and transfer agent fees, legal and auditing
fees, trustee fees, premiums on fidelity bonds, supplies and all other
miscellaneous expenses are borne by the Funds.
The
Adviser, at its own expense and at its own discretion, currently pays for
services provided to Fund shareholders who hold their shares through accounts at
financial intermediaries. These services may include record-keeping, transaction
processing for shareholders’ accounts, sub-accounting and other administrative
services to banks, broker-dealers, financial advisers or record-keepers
(Financial Intermediaries). In addition, the Board has authorized the
Funds to pay a fee to Financial Intermediaries for the provision of sub-transfer
agent and other services of the type that are provided by the Funds’ transfer
agent. Such fees paid by a Fund to a Financial Intermediary will not exceed the
lesser of: (i) $18 per account or (ii) the annual limits approved by the Trust
on behalf of its series. Such fees paid by the Funds are included in the total
amount of “Other Expenses” listed in each Fund’s Fees and Expenses of the Fund
table in the Prospectus.
Fund
Administration Servicing Agreement
U.S.
Bancorp Fund Services, LLC (Fund Services), 615 East Michigan Street, Milwaukee,
WI 53202, serves as administrator pursuant to a Fund Administration Servicing
Agreement between the Trust and Fund Services. Fund Services is a
subsidiary of U.S. Bancorp, and an affiliate of U.S. Bank, N.A. The
services provided under the Fund Administration Servicing Agreement include
various compliance, oversight, administrative and accounting
services.
The
table below sets forth, for the fiscal years ended December 31, the fund
administration fees paid by the Funds and, for the periods prior to April 29,
2022, the Predecessor Funds, to Fund Services.
|
|
|
|
| |
Growth
Fund |
Fiscal
Year Ended |
Fund
Administration Fees |
December
31, 2023 |
$723,662 |
December
31, 2022 |
$755,137 |
December
31, 2021 |
$769,253 |
| |
Balanced
Fund |
|
Fiscal
Year Ended |
Fund
Administration Fees |
December
31, 2023 |
$133,909 |
December
31, 2022 |
$146,621 |
December
31, 2021 |
$150,084 |
| |
Small
Cap Fund |
|
Fiscal
Year Ended |
Fund
Administration Fees |
December
31, 2023 |
$64,446 |
December
31, 2022 |
$67,212 |
December
31, 2021 |
$70,051 |
Transfer
Agent, Custodian and Fund Accountant
Fund
Services acts as the Funds’ transfer agent and dividend disbursing agent.
Fund Services also serves as fund accountant for the Funds.
Custody
services for the Funds are provided by U.S. Bank, N.A., Custody Operations, 1555
North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212. As custodian,
U.S. Bank, N.A. controls all securities and cash for the Funds, receives
and pays for securities purchased, delivers against payment for securities sold,
receives and collects income from investments, makes all payments for Fund
expenses and performs other administrative services, as directed in writing by
authorized officers of the Funds. Fund Services and U.S. Bank, N.A. are
affiliates.
Independent
Registered Public Accounting Firm
Cohen
& Company, Ltd. (“Cohen”), 342 North Water Street, Suite 830, Milwaukee,
Wisconsin 53202 is the independent registered public accounting firm to the
Funds, and is subject to annual appointment by the Audit Committee. Cohen
audits and reports on the Funds’ annual financial statements and reviews certain
regulatory reports and the Funds’ federal income tax returns.
Legal
Counsel to the Funds
Godfrey
& Kahn, S.C., 833 East Michigan Street, Suite 1800, Milwaukee, Wisconsin
53202, serves as legal counsel to the Funds and the Independent
Trustees.
Portfolio
Managers
Other
Accounts Managed
The
portfolio managers for the Funds have responsibility for the day-to-day
management of accounts other than the Funds. Information regarding these other
accounts is set forth in the following table. The number of accounts and assets
is shown as of December 31, 2023.
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|
|
| |
|
Number
of Other Accounts Managed and Total Assets by Account Type |
Number
of Accounts and Total Assets for which Advisory Fee is
Performance-Based |
Name
of Portfolio Manager |
Registered
Investment Companies (in millions) |
Other
Pooled Investment Vehicles |
Other
Accounts (in millions) |
Registered
Investment Companies (in millions) |
Other
Pooled Investment Vehicles |
Other
Accounts (in millions) |
Andrew
R. Adams |
0 |
0 |
79 |
0 |
0 |
0 |
| $0 |
$0 |
$199 |
$0 |
$0 |
$0 |
|
|
|
|
|
| |
Kevin V.
Earley |
0 |
0 |
247 |
0 |
0 |
0 |
| $0 |
$0 |
$471 |
$0 |
$0 |
$0 |
|
|
|
|
|
| |
Peter
J. Johnson |
0 |
0 |
170 |
0 |
0 |
0 |
| $0 |
$0 |
$507 |
$0 |
$0 |
$0 |
|
|
|
|
|
| |
Christopher
D. Strom |
0 |
0 |
20 |
0 |
0 |
0 |
| $0 |
$0 |
$45 |
$0 |
$0 |
$0 |
|
|
|
|
|
| |
Robert
W. Thompson |
0 |
0 |
74 |
0 |
0 |
0 |
| $0 |
$0 |
$751 |
$0 |
$0 |
$0 |
|
|
|
|
|
| |
Michael
C. Marzolf |
0 |
0 |
49 |
0 |
0 |
0 |
| $0 |
$0 |
$159 |
$0 |
$0 |
$0 |
Compensation
The
following is a description of the Adviser’s portfolio manager compensation
policy as of the most recent fiscal year end. The Funds do not pay any salary,
bonus, deferred compensation, pension or retirement plan contributions on behalf
of the portfolio manager or any other employee of Mairs & Power, Inc.
The portfolio managers of the Funds receive compensation from the
Adviser. Compensation consists of a fixed salary and bonuses based on the
profitability of the Adviser. The portfolio managers also participate in
the profit sharing plan of the Adviser. Contributions are made
annually and are within the limitations of the Internal Revenue Service (IRS)
rules and regulations.
Potential
Conflicts of Interest
The
Adviser has adopted policies and procedures that address conflicts of interest
that may arise between a portfolio manager’s management of a Fund and their
management of other Funds and accounts. Potential areas of conflict
could involve allocation of investment opportunities and trades among Funds and
accounts, use of information regarding the timing of a Fund’s trades, personal
investing activities, and a portfolio manager’s compensation
structure. The Adviser has adopted policies and procedures that it
believes are reasonably designed to address these conflicts. However,
there is no guarantee that such policies and procedures will be effective or
that the Adviser will anticipate all potential conflicts of
interest.
Ownership
of Securities
The
following table sets forth the dollar range of Fund shares beneficially owned by
each portfolio manager as of December 31, 2023, stated using the following
ranges: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000, $100,001-$500,000,
$500,001-$1,000,000 or over $1,000,000.
|
|
|
|
| |
Fund
/ Portfolio Manager |
Dollar
Range of Shares Owned in Fund |
| |
Growth
Fund |
|
Andrew
R. Adams |
over
$1,000,000 |
Peter
J. Johnson |
over
$1,000,000 |
| |
Balanced
Fund |
|
Kevin V.
Earley |
over
$1,000,000 |
Robert
W. Thompson |
$500,001
- $1,000,000 |
| |
Small
Cap Fund |
|
Andrew
R. Adams |
over
$1,000,000 |
Christopher
D. Strom |
$100,001-$500,000 |
Michael
C. Marzolf |
$100,001-$500,000 |
Mairs
& Power’s profit sharing plan is entirely invested in shares of the Funds.
As of December 31, 2023, the profit sharing plan held $14,715,866 in the
Growth Fund, $2,530,169 in the Balanced Fund, and $5,545,025 in the Small Cap
Fund.
Brokerage
Allocation and Other Practices
Subject
to policies established by the Funds’ Board, the Adviser is responsible for each
Fund’s portfolio decisions and the placing of orders to effect a Fund’s
portfolio transactions. Equity securities are generally bought and sold in
brokerage transactions placed on U.S. stock exchanges, in over-the-counter
markets or on electronic trading platforms, in exchange for negotiated brokerage
commissions. Accordingly, the cost of transactions may vary among different
brokers. With respect to over-the-counter transactions, the Adviser will
normally deal directly with dealers who make a market in the securities
involved, except in those circumstances where better prices and execution are
available elsewhere.
Fixed
income securities purchased and sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e.
without commission) through dealers, on electronic trading platforms
(i.e.
Tradeweb), or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer’s mark-up or mark-down.
With
respect to portfolio transactions, the Adviser seeks to obtain the best net
results for the Funds taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved. While the
Adviser generally seeks reasonably competitive commission rates, the Funds will
not necessarily be paying the lowest commission or spread available. The
Funds have no obligation to deal with any broker or dealer in the execution of
portfolio transactions. Allocations of transactions to brokers and dealers
and the frequency of transactions are determined by the Adviser in its best
judgment and in a manner deemed to be in the best interest of each Fund, rather
than by any formula. The broker-dealers used by the Funds have no affiliation
with the Funds, the Adviser, or any of their officers or trustees.
Investment
decisions for a Fund are made independently from those for the other Funds also
managed by the Adviser. When the Funds are engaged in the purchase or sale
of the same securities, the transactions may be averaged as to price and
allocated as to amount in accordance with a formula deemed equitable to each
Fund. The decision to aggregate is only made after the Adviser determines
that it does not intentionally favor any Fund or account over another. Such
aggregation may reduce commission or transaction costs since larger orders tend
to have lower costs. In other cases, aggregation may adversely affect the
price paid or received by a Fund, or the size of the position obtainable for the
Fund.
Decisions
with respect to allocations of portfolio brokerage will be made by the
Adviser. Portfolio transactions may be placed with broker-dealers which
provide the Funds’ Adviser with research and statistical assistance. All such
research was prepared by the broker-dealers that provided the research. The
Adviser received written fundamental research on individual companies, written
research focused on investment strategy or economics, access to analysts who
write fundamental research, access to broker-dealer sponsored investor events
and access to company management roadshows. Recognizing the value of these
factors, the Funds may pay brokerage commissions in excess of those which
another broker might charge for effecting the same transaction. The research
services furnished by brokers through whom the Funds effect securities
transactions may benefit other clients of the Adviser; not all such research
services may be used by the Adviser in connection with the Funds. The Adviser
may also utilize a broker and pay a slightly higher commission if, for example,
the broker has specific expertise in a particular type of transaction (due to
factors such as size or difficulty), or it is efficient in trade
execution.
The
Adviser has entered into commission sharing arrangements with several
counterparties pursuant to which the Funds may execute transactions through a
broker and request that the broker allocate a portion of the commission or
commission credits to another firm that provides research and other products to
the Adviser. These arrangements allow the execution decision to be independent
of the research decision.
Each
Fund is required to identify any securities of its “regular brokers or dealers”
that the Fund has acquired during its most recent fiscal year. As of December
31, 2023, certain of the Funds owned the following securities of their
respective “regular brokers or dealers” or their parents, as defined in the 1940
Act:
|
|
|
|
|
|
|
| |
Fund |
Security
of “Regular Broker/Dealer” of the Fund |
Value
of Fund’s Aggregate Holding of Securities as of December 31,
2023 |
Growth
Fund |
JP
Morgan Chase & Co. |
$214,836,300 |
| Piper
Sandler Companies |
$11,751,264 |
Balanced
Fund |
Morgan
Stanley |
$1,941,353 |
| Wells
Fargo & Co. |
$10,088,200 |
Small
Cap Fund |
Piper
Sandler Companies |
$8,970,831 |
Each
Fund is also required to identify any brokerage transactions during its most
recent fiscal year that were directed to a broker because of research services
provided, along with the amount of any such transactions and any related
commissions paid by the Funds. No such transactions were made during the fiscal
year ended December 31, 2023.
For
the year/period indicated below, the Funds paid the following brokerage
commissions:
|
|
|
|
|
|
|
| |
Brokerage
Commissions Paid During Year/Period Ended: |
| December
31, 2023 |
April
30, 2022 through
December
31, 2022 |
Growth
Fund |
$640,362 |
$316,054 |
Balanced
Fund |
$43,369 |
$32,040 |
Small
Cap Fund |
$121,563 |
$84,196 |
For
the fiscal years/periods indicated below, the Predecessor Funds paid the
following brokerage commissions:
|
|
|
|
|
|
|
| |
|
| Brokerage
Commission Paid |
Predecessor
Growth Fund |
| |
January
1, 2022 through April, 29, 2022 |
| $169,399 |
January
1, 2021 through December 31, 2021 |
| $466,380 |
|
|
|
|
|
|
|
| |
|
| Brokerage
Commission Paid |
Predecessor
Balanced Fund |
| |
January
1, 2022 through April, 29, 2022 |
| $13,866 |
January
1, 2021 through December 31, 2021 |
| $40,756 |
Predecessor
Small Cap Fund |
| |
January
1, 2022 through April, 29, 2022 |
| $41,201 |
January
1, 2021 through December 31, 2021 |
| $171,226 |
Capital
Stock
Each
Fund offers for sale shares of beneficial interest of a single class. Each
share is equal in all respects and confers equal rights upon the shareholders as
to redemption, distribution and liquidation. When you invest in a Fund,
you acquire shares that entitle you to receive distributions as determined by
the Board of Trustees and to cast a vote for each share and fraction thereof at
shareholder meetings. The shares of a Fund do not have any preemptive
rights. All shares issued are fully paid and non-assessable, are
transferable, and are redeemable at net asset value upon demand of the
shareholder.
Purchasing,
Redeeming and Pricing Fund Shares
The
purchase, redemption and pricing of each Fund’s shares are subject to the
procedures described in “Shareholder Information – Pricing of Fund Shares,”
“Shareholder Information – How to Purchase Fund Shares,” “Shareholder
Information – How to Redeem or Exchange Fund Shares,” “Shareholder Information –
Redemption Fee (Small Cap Fund),” “Shareholder Information – How to Transfer
Registration,” and “Shareholder Information – Frequent Purchases and Redemptions
of Fund Shares” in the Funds’ Prospectus.
In
addition, the Funds will be deemed to have received a purchase or redemption
order when an authorized broker or, if applicable, a broker’s designee receives
the order.
Redemptions
in-Kind
The
Trust filed a notice of election under Rule 18f-1 of the 1940 Act that allows
the Funds to redeem, in kind, redemption requests of a certain amount.
Specifically, if the amount you are redeeming during any 90-day period is in
excess of the lesser of $250,000 or 1% of the net assets of the Funds, valued at
the beginning of such period, the Funds have the right to redeem your shares by
giving you the amount that exceeds $250,000 or 1% of the net assets of the Funds
in securities instead of cash. If a Fund pays your redemption proceeds by a
distribution of securities, you could incur brokerage or other charges in
converting the securities to cash, and will bear any market risks associated
with such securities until they are converted into cash. For federal income tax
purposes, redemptions made in-kind are taxed in the same manner to a redeeming
shareholder as redemptions made in cash. In addition, sales of securities
received in-kind may generate taxable gains.
Purchases
in-Kind
In
certain circumstances, shares of the Funds may be purchased “in-kind”
(i.e.
in exchange for securities, rather than cash). The securities rendered in
connection with an in-kind purchase are limited to securities traded on public
securities markets or for which quoted bid and asked prices are available. In
addition, the Funds will require, among other things, that the securities be
valued in accordance with the Trust’s valuation procedures. Securities accepted
by a Fund will be valued as of the time of the next determination of NAV after
such acceptance. The shares of the Fund that are issued to the investor in
exchange for the securities will be determined as of the same time. All
dividend, subscription, or other rights that are reflected in the market price
of accepted securities at the time of valuation become the property of the Fund
and must be delivered to the Fund by the investor upon receipt from the issuer.
The Funds will not accept securities in exchange for its shares unless such
securities are, at the time of the exchange, permissible investments for a Fund
as described in the Prospectus and satisfy any such other conditions as may be
imposed by the Adviser or the Funds. A shareholder may recognize a gain or loss
for federal income tax purposes on the securities transferred to the Fund.
Before purchasing shares by tendering payment in-kind, investors are urged and
advised to consult with their own
tax
advisor regarding the tax consequences of such a transaction. The Funds reserve
the right to amend or terminate this practice at any time.
Fund
Taxation
The
following discussion of current federal income taxation is not intended to be a
full discussion of income tax laws and their effect. Changes in income tax laws,
potentially with retroactive effect, could impact a Fund’s investments or the
tax consequence to you investing in a Fund. You should consult with your own tax
advisor regarding federal, state, local and foreign tax consequences of an
investment in the Funds.
Each
Fund intends to qualify each year as a regulated investment company under
Section 851(a) of the Code. As a regulated investment company, each Fund is
generally not subject to U.S. federal income tax on the investment company
taxable income and net capital gain that it distributes to shareholders, if at
least 90% of that Fund’s investment company taxable income (which includes, but
is not limited to, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed. To avoid a 4% federal excise tax, each Fund must distribute each
calendar year an amount equal to the sum of:
(a)at
least 98% of its ordinary income for the calendar year,
(b)at
least 98.2% of its capital gain net income for the one-year period generally
ending on October 31 of such calendar year, and
(c)all
ordinary income and capital gain net income for previous years that were not
distributed by the Fund during such years.
Each
Fund intends to distribute substantially all of its income each year.
To
qualify as a regulated investment company, each Fund must also fulfill the
source of income and asset diversification requirements as follows:
(a)derive
at least 90% of its gross income from dividends, interest, gains from the sale
or disposition of stock or from other qualified sources; and
(b)diversify
its holdings so that at the end of each fiscal quarter,
i.at
least 50% of the value of a Fund’s total assets is represented by cash and cash
items, U.S. Government securities, securities of other regulated investment
companies and other securities, with such other securities limited, in respect
of any one issuer, to an amount not greater in value than 5% of the value of a
Fund’s total assets and to an amount not more than 10% of the outstanding voting
securities of such issuer, and
ii.not
more than 25% of the value of its total assets is invested in the securities
(other than U.S. government securities or securities of other RICs) of any one
issuer or in two or more controlled issuers engaged in the same, similar or
related trades or businesses, or in certain publicly traded
partnerships.
If
a Fund does not qualify as a regulated investment company in any taxable year,
it would be taxed at the normal corporate rates on the entire amount of its
taxable income, if any, without a deduction for dividends or other distributions
made to shareholders. In addition, a Fund’s distributions, to the extent made
out of its current or accumulated earnings and profits, would be taxable to
shareholders as dividends regardless of whether they would otherwise have been
considered net capital gain distributions.
Each
Fund may carry forward capital losses indefinitely, and capital loss
carryforwards will retain their character as either short-term or long-term
capital losses.
Taxes
on Fund Redemptions, Sales and Exchanges
Upon
a redemption, sale or exchange of shares of a Fund, shareholders will realize a
taxable gain or loss depending upon their share basis. A gain or loss will
generally be treated as capital gain or loss and the tax treatment will depend
on the shareholder’s holding period. Any loss realized on a redemption, sale or
exchange will be disallowed to the extent the shares disposed of are replaced
with shares of the same Fund (including through reinvestment of distributions)
within a
period
of 61 days, beginning 30 days before and ending 30 days after, the shares are
disposed of. The basis of the acquired shares will be adjusted to reflect the
disallowed loss. These rules are commonly referred to as “wash
sales.”
In
January or February, shareholders will be sent a Form 1099 indicating the amount
of distributions made to shareholders during the prior year and reporting the
proceeds of any Fund shares that were sold by shareholders.
In
addition, Federal law requires that mutual fund companies report certain
shareholders’ cost basis, gain/loss, and holding period to such shareholders and
the IRS on Form 1099 when “covered” shares of the mutual funds are sold. Covered
shares are generally any Fund shares acquired by certain shareholders on or
after January 1, 2012.
Taxes
on Fund Distributions
The
following summary does not apply to certain retirement accounts, such as IRAs,
which may be tax-deferred until shareholders withdraw money from them, or
otherwise tax-advantaged.
Distributions
of investment company taxable income are generally taxable to shareholders as
ordinary income, whether paid in cash or reinvested in a Fund’s shares.
Distributions of net capital gain, which is the excess of net realized long-term
capital gains over net short-term capital losses, whether paid in cash or
reinvested in a Fund’s shares, will generally be taxable to shareholders as
long-term capital gain, regardless of how long a shareholder has held Fund
shares. Short-term capital gains from assets held by a Fund for one year or less
will be included in such Fund’s distributions of investment company taxable
income and taxed as ordinary income.
For
federal income tax purposes, a Fund’s distributions of investment company
taxable income are generally taxed as ordinary income and net capital gain
distributions are taxed as long-term capital gains. Non-corporate shareholders
may benefit from favorable tax treatment related to “qualified dividend income.”
If certain holding period requirements are satisfied, “qualified dividend
income” is taxed at long-term capital gain rates. Subject to certain
limitations, corporate shareholders may be eligible for the corporate
dividends-received deduction with respect to the portion, if any, of a Fund’s
distributions of investment company taxable income attributable to dividends
received by the Fund directly or indirectly from U.S. corporations, if such Fund
reports the amount distributed as eligible for deduction, and the corporate
shareholder meets certain holding period requirements.
In
addition to the federal income tax, certain individuals, trusts and estates may
be subject to a Net Investment Income (NII) tax of 3.8%. The NII tax is imposed
on the lesser of (i) the taxpayer’s investment income, net of deductions
properly allocable to such income, or (ii) the amount by which the taxpayer’s
modified adjusted gross income exceeds certain thresholds ($250,000 for married
individuals filing jointly, $200,000 for unmarried individuals, and $125,000 for
married individuals filing separately). The Funds’ distributions are includable
in a shareholder’s investment income for purposes of this NII tax. In addition,
any capital gain realized on the sale, exchange or redemption of Fund shares is
includable in a shareholder’s investment income for purposes of this NII
tax.
Under
the Foreign Account Tax Compliance Act (FATCA), a Fund may be required to
withhold a generally nonrefundable 30% tax on (i) distributions of investment
company taxable income and (ii) distributions of net capital gain and the gross
proceeds of a sale, exchange or redemption of Fund shares paid to (A) certain
“foreign financial institutions” unless such foreign financial institution
agrees to verify, monitor, and report to the IRS the identity of certain of its
accountholders, among other items (or unless such entity is otherwise deemed
compliant under the terms of an intergovernmental agreement with the United
States), and (B) certain “non-financial foreign entities” unless such entity
certifies to the Fund that it does not have any substantial U.S. owners or
provides the name, address, and taxpayer identification number of each
substantial U.S. owner, among other items. In December 2018, the IRS and
Treasury Department released proposed Treasury Regulations that would eliminate
FATCA withholding on Fund distributions of net capital gain and the gross
proceeds from a sale, exchange or redemption of Fund shares. Although
taxpayers are entitled to rely on these proposed Treasury Regulations until
final Treasury Regulations are issued, these proposed Treasury Regulations have
not been finalized, may not be finalized in their proposed form, and are
potentially subject to change. This FATCA withholding tax could also
affect the Fund’s return on its investments in foreign securities or affect a
shareholder’s return if the shareholder holds its Fund shares through a foreign
intermediary. You are urged to consult your tax adviser regarding the
application of this FATCA withholding tax to your investment in the Fund and
the
potential certification, compliance, due diligence, reporting, and withholding
obligations to which you may become subject in order to avoid this withholding
tax.
Principal
Underwriter
The
Trust entered into a Distribution Agreement, on behalf of each Fund, with
Foreside Fund Services, LLC, a wholly-owned subsidiary of Foreside Financial
Group, LLC d/b/a ACA Group (“Foreside”) pursuant to which Foreside acts as the
distributor for each Fund and acts as the agent for each Fund in selling its
shares to the public. Foreside is located at Three Canal Plaza, Suite 100,
Portland, Maine 04101. Foreside offers shares of the Funds on a continuous basis
and may engage in advertising and solicitation activities in connection
therewith. Foreside is not obligated to sell any certain number of shares of the
Funds. Foreside also reviews advertisements and acts as liaison for
broker-dealer relationships. Investors purchasing or redeeming shares of a Fund
through another financial institution should read any materials and information
provided by the financial institution to acquaint themselves with its procedures
and any fees that the institution may charge.
The
Distribution Agreement between the Trust and Foreside has an initial term of two
years and continues in effect for successive one-year periods provided such
continuance is specifically approved at least annually by (i) the Board or (ii)
the vote of a majority of outstanding shares of the Fund, and provided that in
either event the continuance is also approved by a majority of the Trust’s Board
who are not “interested persons” (as defined in the 1940 Act) of any party to
the Distribution Agreement.
The
Adviser has agreed to pay all fees and expenses which are payable to Foreside
under the Distribution Agreement, and the Funds will not pay any such fees and
expenses. During the fiscal years ended December 31, 2023, 2022 and 2021, the
Funds’ (and Predecessor Funds’) distributor during such times did not receive
any net underwriting discounts or commissions on the sale of Fund shares, any
compensation on the redemptions or repurchases of Fund shares, or any brokerage
commissions from the Funds.
Calculation
of Performance Data
Each
Fund may publish its total return information from time to time.
Quotations of a Fund’s average annual total rate of return, the Fund’s average
annual total return (after taxes on distributions) and the Fund’s average annual
total return (after taxes on distributions and redemptions), will be expressed
in terms of the average annual compounded rate of return on a hypothetical
investment in the Fund over periods of one, five and ten years. The
after-tax performance is calculated using the highest individual marginal
federal income tax rates in effect on the reinvestment date. The
calculation applies the ordinary income tax rate for net investment income
distributions, the short-term capital gain rate for short-term capital gain
distributions and the long-term capital gain rate for long-term capital gain
distributions. Performance data will reflect the deduction of a
proportional share of Fund expenses (on an annual basis) and will assume that
all net investment income and net capital gain distributions are reinvested when
paid.
Performance
information reflects only the performance of a hypothetical investment in a Fund
during the particular time periods on which the calculations are based.
Such information should not be considered as representative of the performance
of the Fund in the future. Performance of the Fund will vary based not
only on the current market value of the securities held in its portfolio, but
also on changes in its expenses and amount of assets.
Financial
Statements
The
audited financial statements, accompanying notes and report of the independent
registered public accounting firm appearing in the Funds’ 2023 annual
report
to
shareholders
are incorporated herein by reference in this SAI. Additional copies of the
Annual Report may be obtained, without charge, by writing or calling the Funds
at 800-304-7404 or by visiting the Funds’ website at
www.mairsandpower.com.
Appendix
A - Proxy Voting Policy and Procedures
As
a fiduciary, Mairs & Power, Inc. (“M&P”) exercises its responsibility to
vote its clients’ securities in a manner that, in the judgment of M&P, is in
the clients’ economic best interests. In accordance with that fiduciary
obligation and Rule 206(4)-6 under the Investment Advisers Act of 1940, as
amended, M&P has established the following proxy policy to ensure proxies
are voted in accordance with the best interest of the clients of M&P. In
addition to SEC requirements governing advisers, our proxy voting policies
reflect the fiduciary standards and responsibilities for ERISA accounts set out
by the Department of Labor, specifically the duty of loyalty, prudence,
compliance with the ERISA plan, as well as a duty to avoid prohibited
transactions.
The
interests represented by M&P with respect to proxy voting for its clients
(collectively, the “Clients”), are:
•The
interests of M&P’s investment advisory clients for which it has accepted
proxy voting discretion and is not expressly precluded from voting within the
advisory agreement.
M&P
will accept direction on certain policy issues as requested by a particular
Client on a case-by-case basis. For ERISA clients, this direction will be
accepted provided that said direction is in accordance with the proxy voting
guidelines specified within the clients’ Qualified Plan documents.
I.Responsibility
for Voting
M&P
will vote proxies solicited by or with respect to the issuers of securities in
which assets of a Client portfolio are invested, unless: 1.) The advisory
agreement between M&P and the Client expressly precludes the voting of
proxies by M&P; or 2.) M&P has determined, in its own judgment, that the
cost or disadvantages of voting the proxy would exceed the anticipated benefit
to the Client.
II.Proxy
Voting Team
M&P
has delegated its administrative duties with respect to analysis and voting
proxies to the Proxy Voting Team, which is currently comprised of individuals
representing investment management and trading. The Proxy Voting Team’s duties
consist of analyzing proxy statements of issuers whose stock is owned by
Clients. Unless otherwise directed by the Client, the Proxy Voting Team seeks to
vote all proxies in the best interests of the Client in terms of the perceived
effect of the vote on the value of the client’s investment and does not consider
any benefit to M&P or its employees. At their discretion, the Proxy Voting
Team will seek input on a proxy proposal as necessary from others within the
organization, including the M&P Investment Committee and/or the security’s
responsible investment manager. The Proxy Voting Team will vote proxies in
accordance with the Proxy Voting Guidelines.
III.Proxy
Voting Guidelines
One
of the primary factors M&P considers when determining the desirability of
investing in a particular company is the quality and depth of that company’s
management. Accordingly, the recommendation of management on any issue is a
factor that M&P considers in determining how proxies should be voted.
However, M&P does not consider recommendations from management to be
determinative of M&P’s ultimate decision. As a matter of practice, the votes
with respect to most issues are cast in accordance with the position of the
company's management. Each issue, however, is considered on its own merits, and
M&P will not support the position of a company's management in any situation
where it determines that the ratification of management's position would
adversely affect the investment merits of owning that company's
shares.
M&P
has adopted general guidelines for voting proxies as summarized below. In
keeping with its fiduciary obligations to its clients, M&P reviews all
proposals, even those that may be considered to be routine matters. Although
these guidelines are to be followed as a general policy, in all cases each proxy
and proposal will be considered based on the relevant facts and circumstances.
M&P may deviate from the general policies and procedures when it determines
that the particular facts and circumstances warrant such deviation to protect
the interests of the Client. These guidelines cannot provide an exhaustive list
of all the issues that may arise nor can M&P anticipate all future
situations. Corporate governance issues are diverse and continually evolving and
M&P devotes significant time and resources to monitor these
changes.
a.Board
of Directors
The board of directors is vital to good corporate governance. Directors are
expected to be competent individuals and they should be accountable and
responsible to shareholders. M&P seeks to ensure that the board of directors
of a company is sufficiently aligned with shareholders’ interests and provides
proper oversight of the company’s management. M&P will generally vote with
management on board member elections. Certain elections may be examined on a
case-by-case basis; however, will generally vote against any proposal to
declassify the board structure of a publicly-held company.
b.Auditors
M&P believes that the relationship between a public company and its auditors
should be limited primarily to the audit engagement, and it usually will vote in
favor of proposals to prohibit or limit fees paid to auditors for any services
other than auditing and closely related activities that do not raise any
appearance of impaired independence.
c.Equity
Based Compensation Plans
M&P believes that appropriately designed plans approved by a company’s
shareholders can be an effective way to align the interests of long-term
shareholders and the interests of management, employees and directors. M&P
will generally approve new employee incentive plans or amendments to existing
plans involving the issuance of new common shares representing less than 10% of
the then number of common shares outstanding. All other proposals will be
considered on a case-by-case basis.
d.Corporate
and Shareholder Rights
M&P believes that all shareholders of a company should have an equal voice
and that barriers that limit the ability of shareholders to effect corporate
change and to realize the full value of their investment are not desirable.
M&P will consider proposals related to corporate and shareholder rights on a
case-by-case basis, including proposals for supermajority voting rights,
anti-takeover measures, and different classes of stock with different voting
rights.
e.Mergers,
Acquisitions, Reincorporation and Other Transactions Companies
ask their shareholders to vote on an enormous variety of different types of
transactions, including mergers, acquisitions, reincorporations and
reorganizations involving business combinations, liquidations and the sale of
all or substantially all of the company’s assets. Voting on such proposals
involved considerations unique to each transaction. Therefore, M&P will vote
on proposals to effect these types of transactions on a case-by-case basis.
f.Social
Responsibility Issues
M&P believes that matters related to a company’s day-to-day business
operations are primarily the responsibility of management. All matters regarding
social responsibility issues will be assessed on a case-by-case basis based on
our assessment of the best interests of our clients and shareholders.
IV.Conflicts
of Interest
There
may be instances where our interests conflict, or appear to conflict with client
interests. For example, we may manage a pension plan for a company whose
management is soliciting proxies. There may be a concern that we would vote in
favor of management because of our relationship with the company. Or, for
example, we (or our staff) may have business or personal relationships with
corporate directors or candidates for directorship.
Our
duty is to vote proxies in the best interests of our clients. Due to the size
and nature of M&P’s business, it is anticipated that material conflicts of
interest will rarely occur. Whenever a material conflict of interest does exist,
it will be addressed in one of the following ways:
a.The
proxy will be voted according to the predetermined voting policy set forth
herein if the application of the policy to the matter presented involves little
discretion on our part;
b.The
proxy will be voted following consultation with the M&P Investment
Committee;
c.The
proxy will be voted following consultation with a proxy voting service, legal
counsel or other third party, as appropriate;
d.The
proxy will be referred to the Client or to a fiduciary of the Client for voting
purposes; or
e.The
conflict will be disclosed to the Client and M&P will obtain the Client’s
direction to vote the proxies.
V.Oversight
Oversight
of M&P’s proxy voting practices is performed by the Investment Committee,
which is comprised of the firm’s investment managers and equity analysts. The
firm’s Chief Compliance Officer is a non-voting member of the Committee.
VI.Disclosure
to Clients
With
respect to proxies voted on behalf of separately managed account clients,
information concerning how we voted proxies is available upon request.
M&P
will make its proxy voting record for the Funds available to Fund shareholders
on its website for each twelve month period ending June 30. The proxy voting
information will be made available on the Mairs & Power website as soon as
is reasonably practicable after filing Form N-PX with the SEC.
VII.Record
Retention Requirements
M&P
will maintain a record of documents in connection with this policy as required
in its Record Retention Policy
TRUST
FOR PROFESSIONAL MANAGERS