ck0001027596-20221031
EDGAR
LOMAX VALUE FUND
Investor
Class: LOMAX
A
series of Advisors Series Trust (the “Trust”)
Statement
of Additional Information
Dated
February 28, 2023
This
Statement of Additional Information (“SAI”) is not a prospectus. It should be
read in conjunction with the Prospectus dated February 28, 2023, as
may be amended from time to time, of the Edgar Lomax Value Fund (the “Fund”).
The Edgar Lomax Company (the “Advisor”) is the investment advisor to the Fund. A
copy of the Prospectus may be obtained on the Fund’s website at www.edgarlomax.com,
by contacting the Advisor at 5971 Kingstowne Village Parkway, Suite 240,
Alexandria, Virginia 22315, or by telephone at 1-866-205-0524.
The
Fund’s financial statements for the fiscal year ended
October 31, 2022, are incorporated herein by reference to the Fund’s
annual
report.
A copy of the annual report may be obtained without charge by calling the Fund
at the number listed above.
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THE
TRUST |
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INVESTMENT
POLICIES |
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INVESTMENT
RESTRICTIONS |
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PORTFOLIO
TURNOVER |
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PORTFOLIO
HOLDINGS INFORMATION |
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MANAGEMENT |
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CODE
OF ETHICS |
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PROXY
VOTING POLICY |
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CONTROL
PERSONS, PRINCIPAL SHAREHOLDERS, AND MANAGEMENT OWNERSHIP |
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THE
FUND’S INVESTMENT ADVISOR |
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THE
FUND’S PORTFOLIO MANAGERS |
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THE
FUND’S SERVICE PROVIDERS |
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PORTFOLIO
TRANSACTIONS AND BROKERAGE |
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ADDITIONAL
PURCHASE AND REDEMPTION INFORMATION |
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DETERMINATION
OF SHARE PRICE |
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TAX
MATTERS |
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DIVIDENDS
AND DISTRIBUTIONS |
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ANTI-MONEY
LAUNDERING PROGRAM |
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GENERAL
INFORMATION |
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FINANCIAL
STATEMENTS |
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APPENDIX |
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THE
TRUST
The
Trust is an open-end management investment company organized as a Delaware
statutory trust under the laws of the State of Delaware on
October 3, 1996. The Trust’s Agreement and Declaration of Trust (the
“Declaration of Trust”) permits the Trust’s Board of Trustees (the “Board” or
the “Trustees”) to issue an unlimited number of full and fractional shares of
beneficial interest, par value $0.01 per share, which may be issued in any
number of series. The Trust consists of various series that represent separate
investment portfolios. The Board may from time to time issue other series, the
assets and liabilities of which will be separate and distinct from any other
series. This SAI relates only to the Fund.
Registration
with the United States Securities and Exchange Commission (“SEC”) does not
involve supervision of the management or policies of the Fund. The Prospectus of
the Fund and this SAI omit certain of the information contained in the
Registration Statement filed with the SEC. Copies of such information may be
obtained from the SEC upon payment of the prescribed fee or may be accessed free
of charge at the SEC’s website at www.sec.gov.
The
Fund commenced operations on December 12, 1997.
INVESTMENT
POLICIES
The
discussion below supplements information contained in the Prospectus with
respect to the investment policies of the Fund.
Diversification
Under
applicable federal securities laws, the diversification of a mutual fund’s
holdings is measured at the time the Fund purchases a security. This means that,
as to 75% of the Fund’s total assets (1) no more than 5% may be invested in the
securities of a single issuer, and (2) the Fund may not hold more than 10% of
the outstanding voting securities of a single issuer. However, if the Fund
purchases a security and holds it for a period of time, the security may become
a larger percentage of the Fund’s total assets due to movements in the financial
markets. If the market affects several securities held by the Fund, the Fund may
have a greater percentage of its assets invested in securities of fewer issuers.
Accordingly, the Fund is subject to the risk that its performance may be hurt
disproportionately by the poor performance of relatively few securities despite
the Fund qualifying as a diversified mutual fund under applicable federal
securities laws.
Percentage
Limitations
Whenever
an investment policy or limitation states a maximum percentage of the Fund’s
assets that may be invested in any security or other asset, or sets forth a
policy regarding quality standards, such standards or percentage limitation will
be determined immediately after and as a result of the Fund’s acquisition or
sale of such security or other asset. Accordingly, except with respect to
borrowing, any subsequent change in values, net assets or other circumstances
will not be considered in determining whether an investment complies with the
Fund’s investment policies and limitations. In addition, if a bankruptcy or
other extraordinary event occurs concerning a particular investment by the Fund,
the Fund may receive stock, real estate or other investments that the Fund would
not, or could not buy. If this happens the Fund would sell such investments as
soon as practicable while trying to maximize the return to its
shareholders.
Market
and Regulatory Risk
Events
in the financial markets and economy may cause volatility and uncertainty and
affect performance. Such adverse effect on performance could include a decline
in the value and liquidity of securities held by the
Fund,
unusually high and unanticipated levels of redemptions, an increase in portfolio
turnover, a decrease in net asset value (“NAV”), and an increase in Fund
expenses. It may also be unusually difficult to identify both investment risks
and opportunities, in which case investment objectives may not be met. Market
events may affect a single issuer, industry, sector, or the market as a whole.
Traditionally liquid investments may experience periods of diminished liquidity.
During a general downturn in the financial markets, multiple asset classes may
decline in value and the Fund may lose value, regardless of the individual
results of the securities and other instruments in which the Fund invests. It is
impossible to predict whether or for how long such market events will continue,
particularly if they are unprecedented, unforeseen or widespread events or
conditions, pandemics, epidemics and other similar circumstances in one or more
countries or regions. Therefore, it is important to understand that the value of
your investment may fall, sometimes sharply and for extended periods, and you
could lose money.
Governmental
and regulatory actions, including tax law changes, may also impair portfolio
management and have unexpected or adverse consequences on particular markets,
strategies, or investments. Policy and legislative changes in the United States
and in other countries are affecting many aspects of financial regulation, and
may in some instances contribute to decreased liquidity and increased volatility
in the financial markets. The impact of these changes on the markets, and the
practical implications for market participants, may not be fully known for some
time. In addition, economies and financial markets throughout the world are
becoming increasingly interconnected. As a result, whether or not the Fund
invests in securities of issuers located in or with significant exposure to
countries experiencing economic and financial difficulties, the value and
liquidity of the Fund’s investments may be negatively affected.
The
Fund may invest in the following types of investments, each of which is subject
to certain risks, as discussed below.
Equity
Securities. Common
stocks, preferred stocks, and convertible securities are examples of equity
securities in which the Fund may invest. Investments in equity securities are
subject to market risks that may cause their prices to fluctuate over time
(sometimes substantially). Owning an equity security can also subject the Fund
to the risk that the issuer may discontinue paying dividends.
Common
Stock.
A
common stock represents a proportionate share of the ownership of a company, and
its value is based on the success of the company’s business, any income paid to
stockholders, the value of its assets, and general market conditions. In
addition to the general risks set forth above, investments in common stocks are
subject to the risk that, in the event a company in which the Fund invests is
liquidated, the holders of preferred stock and creditors of that company will be
paid in full before any payments are made to the Fund as a holder of common
stock. It is possible that all assets of that company will be exhausted before
any payments are made to the Fund.
Preferred
Stock.
Preferred
stocks are equity securities that often pay dividends at a fixed annual rate,
though it is subject to the risk that the dividend can be changed or omitted by
the issuer. Preferred stocks have preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer be dissolved. A preferred stock is a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has priority
over common stock in equity ownership, but does not have the seniority of a
bond. Unlike common stock, a preferred stock’s participation in the issuer’s
growth may be limited.
Convertible
Securities, Rights and Warrants.
The Fund may invest in convertible securities, rights and warrants. A
convertible security is a fixed income security (a debt instrument or a
preferred stock) which may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stocks in an
issuer’s capital
structure,
but are usually subordinated to similar non-convertible securities. While
providing a fixed income stream (generally higher in yield than the income
derivable from common stock but lower than that afforded by a similar
nonconvertible security), a convertible security also gives an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation of the issuing company depending upon a market price advance in the
convertible security’s underlying common stock.
A
right is a privilege allowing existing shareholders to buy shares of an issue of
common stock shortly before it is offered to the public, at a specified and
usually discounted price, and usually in proportion to the number of shares
already owned.
A
warrant gives the holder a right to purchase at any time during a specified
period a predetermined number of shares of common stock at a fixed price. Unlike
convertible debt securities or preferred stock, warrants do not pay a fixed
dividend. Investments in warrants involve certain risks, including the possible
lack of a liquid market for resale of the warrants, potential price fluctuations
as a result of speculation or other factors, and failure of the price of the
underlying security to reach or have reasonable prospects of reaching a level at
which the warrant can be prudently exercised (in which event the warrant may
expire without being exercised, resulting in a loss of the Fund’s entire
investment therein).
Short-Term
Investments.
The Fund may invest in any of the following securities and
instruments:
Bank
Certificates of Deposit, Bankers’ Acceptances and Time Deposits.
The Fund may acquire certificates of deposit, bankers’ acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers’ acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are “accepted” by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers’ acceptances acquired by the Fund will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and foreign
branches), based on latest published reports, or less than $100 million if
the principal amount of such bank obligations are fully insured by the U.S.
government. If the Fund holds instruments of foreign banks or financial
institutions, it may be subject to additional investment risks that are
different in some respects from those incurred by a fund that invests only in
debt obligations of U.S. domestic issuers (see “Non-U.S. Investments” below).
Such risks include future political and economic developments, the possible
imposition of withholding taxes by the particular country in which the issuer is
located on interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these
securities.
Domestic
banks and foreign banks are subject to different governmental regulations with
respect to the amount and types of loans that may be made and interest rates
that may be charged. In addition, the profitability of the banking industry
depends largely upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operations of
the banking industry.
As
a result of federal and state laws and regulations, domestic banks are, among
other things, required to maintain specified levels of reserves, limited in the
amount which they can loan to a single borrower, and subject to other
regulations designed to promote financial soundness. However, such laws and
regulations do not necessarily apply to foreign bank obligations that the Fund
may acquire.
In
addition to purchasing certificates of deposit and bankers’ acceptances, to the
extent permitted under its investment objectives and policies stated above and
in its Prospectus, the Fund may make interest-bearing time or other
interest-bearing deposits in commercial or savings banks. Time deposits are
non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
Savings
Association Obligations.
The Fund may invest in certificates of deposit (interest-bearing time deposits)
issued by savings banks or savings and loan associations that have capital,
surplus and undivided profits in excess of $100 million, based on latest
published reports, or less than $100 million if the principal amount of
such obligations is fully insured by the U.S. government.
Commercial
Paper, Short-Term Notes and Other Corporate Obligations. The
Fund may invest a portion of its assets in commercial paper and short-term
notes. Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper and short-term notes will normally have
maturities of less than nine months and fixed rates of return, although such
instruments may have maturities of up to one year.
Commercial
paper and short-term notes will consist of issues rated at the time of purchase
“A-2” or higher by S&P, “Prime-1” or “Prime-2” by Moody’s Investors Service,
Inc. (“Moody’s”), or similarly rated by another nationally recognized
statistical rating organization or, if unrated, will be determined by the
Advisor to be of comparable quality. These rating symbols are described in the
Appendix.
Corporate
obligations include bonds and notes issued by corporations to finance
longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, the Fund may
purchase corporate obligations which have remaining maturities of one year or
less from the date of purchase and which are rated “AA” or higher by S&P or
“Aa” or higher by Moody’s.
Investment
Company Securities.
The Fund may invest in shares of other investment companies or mutual funds,
including exchange-traded funds (“ETFs”). For example, the Fund may invest in
money market mutual funds in connection with its management of daily cash
positions and for temporary defensive purposes. The Fund currently intends to
limit its investments in securities issued by other investment companies (except
for money market funds) so that not more than 3% of the outstanding voting
shares of any one investment company will be owned by the Fund, or its
affiliated persons, as a whole. The Fund may invest unlimited amounts in money
market funds for management of its daily cash position, subject to certain
conditions. In addition to the advisory and operational fees the Fund bears
directly in connection with its own operation, the Fund would also bear its pro
rata portions of each other investment company’s advisory and operational
expenses.
Section
12(d)(1)(A) of the 1940 Act generally prohibits a fund from purchasing (1) more
than 3% of the total outstanding voting stock of another fund; (2) securities of
another fund having an aggregate value in excess of 5% of the value of the
acquiring fund; and (3) securities of the other fund and all other funds having
an aggregate value in excess of 10% of the value of the total assets of the
acquiring fund. There are some exceptions, however, to these limitations
pursuant to various rules promulgated by the SEC.
The
Fund may rely on Section 12(d)(1)(F) and Rule 12d1-3 of the 1940 Act, which
provide an exemption from Section 12(d)(1) that allows the Fund to invest all of
its assets in other registered funds, including ETFs, if, among other
conditions: (a) the Fund, together with its affiliates, acquires no more than 3%
percent of the outstanding voting stock of any acquired fund, and (b) the
sales load charged on the Fund’s shares is no greater than the limits set forth
in Rule 2341 of the Conduct Rules of the Financial Industry Regulatory
Authority, Inc. (“FINRA”) applicable to a fund of funds (e.g,
8.5%). In accordance with Rule 12d1-1 under the 1940 Act, the provisions of
Section 12(d)(1) shall not apply to shares of money market funds purchased by
the Fund, whether or not for temporary defensive purposes, provided that the
Fund does not pay a sales
charge,
distribution fee or service fee as defined in Rule 2341 of the Conduct Rules of
FINRA on acquired money market fund shares (or the Advisor must waive its
advisory fees in amount necessary to offset any sales charge, distribution fee
or service fee).
Rule
12d1-4 permits additional types of fund of fund arrangements without an
exemptive order. The rule imposes certain conditions, including limits on
control and voting of acquired funds’ shares, evaluations and findings by
investment advisers, fund investment agreements, and limits on most three-tier
fund structures.
Exchange-Traded
Funds. ETFs
are open-end investment companies whose shares are listed on a national
securities exchange. An ETF is similar to a traditional index mutual fund, but
trades at different prices during the day on a security exchange like a stock.
Similar to investments in other investment companies discussed above, the Fund’s
investments in ETFs will involve duplication of management fees and other
expenses since the Fund will be investing in another investment company. In
addition, the Fund’s investment in ETFs is also subject to its limitations on
investments in investment companies discussed above. To the extent the Fund
invests in ETFs which focus on a particular market segment or industry, the Fund
will also be subject to the risks associated with investing in those sectors or
industries. The shares of the ETFs in which the Fund will invest will be listed
on a national securities exchange and the Fund will purchase or sell these
shares on the secondary market at its current market price, which may be more or
less than its NAV per share.
As
a purchaser of ETF shares on the secondary market, the Fund will be subject to
the market risk associated with owning any security whose value is based on
market price. ETF shares historically have tended to trade at or near their NAV
per share, but there is no guarantee that they will continue to do so. ETFs that
seek to replicate a particular benchmark index are subject to “tracking risk”
which is the risk that an ETF will not be able to replicate exactly the
performance of the index it tracks. Unlike traditional mutual funds, shares of
an ETF may also be purchased and redeemed directly from the ETFs only in large
blocks and only through participating organizations that have entered into
contractual agreements with the ETF. The Fund does not expect to enter into such
agreements and therefore will not be able to purchase and redeem its ETF shares
directly from the ETF.
Government
Obligations.
The Fund may make short-term investments in U.S. government obligations. Such
obligations include Treasury bills, certificates of indebtedness, notes and
bonds, and issues of such entities as the Government National Mortgage
Association (“GNMA”), Export-Import Bank of the United States, Tennessee Valley
Authority, Resolution Funding Corporation, Farmers Home Administration, Federal
Home Loan Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks,
Federal Land Banks, Federal Housing Administration, Federal National Mortgage
Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and the
Student Loan Marketing Association.
Some
of these obligations, such as those of the GNMA, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Export-Import Bank
of the United States, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the FNMA, are supported by the
discretionary authority of the U.S. government to purchase the agency’s
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. government would provide financial support
to U.S. government-sponsored instrumentalities if it is not obligated to do so
by law.
Non-U.S.
Investments.
The Fund may invest in securities of non-U.S. issuers (“foreign securities”),
provided that they are publicly traded in the United States.
Depositary
Receipts.
Depositary Receipts (“DRs”) include American Depositary Receipts, European
Depositary Receipts, Global Depositary Receipts or other forms of depositary
receipts. DRs are receipts
typically
issued in connection with a U.S. or foreign bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation.
ADRs
are depositary receipts for foreign securities denominated in U.S. dollars and
traded on U.S. securities markets. These securities may not necessarily be
denominated in the same currency as the securities for which they may be
exchanged. These are certificates evidencing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial institutions.
Designed for use in U.S. securities markets, ADRs are alternatives to the
purchase of the underlying securities in their national market and currencies.
ADRs may be purchased through “sponsored” or “unsponsored” facilities. A
sponsored facility is established jointly by the issuer of the underlying
security and a depositary, whereas a depositary may establish an unsponsored
facility without participation by the issuer of the depositary security. Holders
of unsponsored depositary receipts generally bear all the costs of such
facilities, and the depositary of an unsponsored facility generally is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through voting rights to the holders of such
receipts of the deposited securities.
Risks
of Investing in Foreign Securities.
Investments in foreign securities involve certain inherent risks, including the
following:
•Political
and Economic Factors.
Individual foreign economies of certain countries may differ favorably or
unfavorably from the United States’ economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency, diversification and balance of payments position. The internal
politics of certain foreign countries may not be as stable as those of the
United States. Governments in certain foreign countries also continue to
participate to a significant degree, through ownership interest or regulation,
in their respective economies. Action by these governments could include
restrictions on foreign investment, nationalization, expropriation of goods or
imposition of taxes, and could have a significant effect on market prices of
securities and payment of interest. The economies of many foreign countries are
heavily dependent upon international trade and are accordingly affected by the
trade policies and economic conditions of their trading partners. Enactment by
these trading partners of protectionist trade legislation could have a
significant adverse effect upon the securities markets of such
countries.
•Taxes.
The interest and dividends payable on certain of the Fund’s foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to the Fund’s shareholders. Based on
the principal investment strategies of the Fund, it is not expected that the
Fund will be eligible to pass through to its shareholders any credits or
deductions against their U.S. federal income tax with respect to any foreign
withholding taxes paid by the Fund.
Brexit.
In a June 2016 referendum, citizens of the United Kingdom voted to leave the
European Union (“EU”). In March 2017, the United Kingdom formally notified the
European Council of its intention to withdraw from the EU (commonly known as
“Brexit”) by invoking Article 50 of the Treaty on European Union, which
triggered a two-year period of negotiations on the terms of Brexit. Brexit has
resulted in volatility in European and global markets and may also lead to
weakening in political, regulatory, consumer, corporate and financial confidence
in the markets of the United Kingdom and throughout Europe. The longer term
economic, legal, political, regulatory and social framework to be put in place
between the United Kingdom and the EU remains unclear and may lead to ongoing
political, regulatory and economic uncertainty and periods of exacerbated
volatility in both the United Kingdom and in wider European markets for some
time. Additionally, the decision made in the British referendum may lead to a
call for similar referenda in other European jurisdictions, which may cause
increased economic volatility in European and global markets. The mid-to
long-term uncertainty may have an adverse effect on the economy generally and on
the value of a Fund’s investments. This may be due to, among other things:
fluctuations in asset values and exchange rates;
increased
illiquidity of investments located, traded or listed within the United Kingdom,
the EU or elsewhere; changes in the willingness or ability of counterparties to
enter into transactions at the price and terms on which a Fund is prepared to
transact; and/or changes in legal and regulatory regimes to which certain of a
Fund’s assets are or become subject. Fluctuations in the value of the British
Pound and/or the Euro, along with the potential downgrading of the United
Kingdom’s sovereign credit rating, may also have an impact on the performance of
a Fund’s assets or investments economically tied to the United Kingdom or
Europe.
The
full impact of Brexit and the nature of the future relationship between the
United Kingdom and the European Union remains uncertain. The United Kingdom and
the European Union reached a trade agreement on December 31, 2020, which became
effective on May 1, 2021 after being approved by all applicable United Kingdom
and European Union governmental bodies in early 2021. The period following the
United Kingdom’s withdrawal from the European Union is expected to be one of
significant political and economic uncertainty particularly until the United
Kingdom government and European Union member states agree and implement the
terms of the United Kingdom’s future relationship with the European Union.
Brexit may create additional economic stresses for the United Kingdom, which may
include causing a contraction of the United Kingdom economy and price volatility
in United Kingdom stocks, decreased trade, capital outflows, devaluation of
pounds sterling, and wider corporate bond spreads due to uncertainty and
declines in business and consumer spending as well as foreign direct investment.
The Fund may be negatively impacted by changes in law and tax treatment
resulting from or following Brexit. Until the economic effects of Brexit become
clearer, and while a period of political, regulatory and commercial uncertainty
continues, there remains a risk that Brexit may negatively impact the value of
investments held by the Fund.
Repurchase
Agreements.
The Fund may enter into repurchase agreements with respect to the securities in
its portfolio. Pursuant to such agreements, the Fund acquires securities from
financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Advisor, subject to the seller’s agreement to repurchase and
the Fund’s agreement to resell such securities at a mutually agreed upon date
and price. The repurchase price generally equals the price paid by the Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the underlying portfolio security). Securities subject
to repurchase agreements will be held by the Fund’s custodian (the “Custodian”)
or in the Federal Reserve/Treasury Book-Entry System or an equivalent foreign
system. The seller under a repurchase agreement will be required to maintain the
value of the underlying securities at not less than 102% of the repurchase price
under the agreement. If the seller defaults on its repurchase obligation, the
Fund will suffer a loss to the extent that the proceeds from a sale of the
underlying securities are less than the repurchase price under the agreement.
Bankruptcy or insolvency of such a defaulting seller may cause the Fund’s rights
with respect to such securities to be delayed or limited. Repurchase agreements
are considered to be loans under the 1940 Act.
When-Issued
Securities, Forward Commitments and Delayed Settlements.
The Fund may purchase securities on a “when-issued,” forward commitment or
delayed settlement basis. In this event, the Custodian will segregate liquid
assets equal to the amount of the commitment in a separate account. Normally,
the Custodian will set aside portfolio securities to satisfy a purchase
commitment. In such a case, the Fund may be required subsequently to segregate
additional assets in order to assure that the value of the account remains equal
to the amount of the Fund’s commitment. It may be expected that the Fund’s net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside
cash.
The
Fund does not intend to engage in these transactions for speculative purposes
but only in furtherance of its investment objective. Because the Fund will
segregate liquid assets to satisfy its purchase commitments in the manner
described, the Fund’s liquidity and the ability of the Advisor to manage it may
be affected in the
event
the Fund’s forward commitments, commitments to purchase when-issued securities
and delayed settlements ever exceeded 15% of the value of its net
assets.
The
Fund will purchase securities on a when-issued, forward commitment or delayed
settlement basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, the Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases the Fund may realize a taxable
capital gain or loss. When the Fund engages in when-issued, forward commitment
and delayed settlement transactions, it relies on the other party to consummate
the trade. Failure of such party to do so may result in the Fund’s incurring a
loss or missing an opportunity to obtain a price credited to be
advantageous.
The
market value of the securities underlying a when-issued purchase, forward
commitment to purchase securities, or a delayed settlement and any subsequent
fluctuations in their market value is taken into account when determining the
market value of the Fund starting on the day the Fund agrees to purchase the
securities. The Fund does not earn interest on the securities it has committed
to purchase until they are paid for and delivered on the settlement
date.
The
Fund may purchase securities on a when-issued basis, for payment and delivery at
a later date, generally within one month. The price and yield are generally
fixed on the date of commitment to purchase, and the value of the security is
thereafter reflected in the Fund’s NAV. During the period between purchase and
settlement, no payment is made by the Fund and no interest accrues to the Fund.
At the time of settlement, the market value of the security may be more or less
than the purchase price.
Rule
18f-4 under the 1940 Act permits the Fund to invest in securities on a
when-issued or forward-settling basis, or with a non-standard settlement cycle,
notwithstanding the limitation on the issuance of senior securities in Section
18 of the 1940 Act, provided that a Fund intends to physically settle the
transaction and the transaction will settle within 35 days of its trade date
(the “Delayed-Settlement Securities Provision”). A when-issued,
forward-settling, or non-standard settlement cycle security that does not
satisfy the Delayed-Settlement Securities Provision is treated as a derivatives
transaction under Rule 18f-4.
Illiquid
Investments and Restricted Securities.
Pursuant to Rule 22e-4 under the 1940 Act, the Fund may not acquire any
“illiquid investment” if, immediately after the acquisition, the Fund would have
invested more than 15% of its net assets in illiquid investments that are
assets. An “illiquid investment” is any investment that the 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 investment. The Fund has implemented a liquidity risk
management program and related procedures to identify illiquid investments
pursuant to Rule 22e-4. The 15% limits are applied as of the date the Fund
purchases an illiquid investment. It is possible that the Fund’s holding of
illiquid investment could exceed the 15% limit, for example as a result of
market developments or redemptions.
The
Fund may purchase certain restricted securities that can be resold to
institutional investors and which may be determined not to be illiquid
investments pursuant to the Fund’s liquidity risk management program. In many
cases, those securities are traded in the institutional market pursuant to Rule
144A under the Securities act of 1933, as amended (the "1933 Act") and are
called Rule 144A securities.
Investments
in illiquid investments involve more risks than investments in similar
securities that are readily marketable. Illiquid investments may trade at a
discount from comparable, more liquid investments. Investment of the Fund’s
assets in illiquid investments may restrict the ability of the Fund to dispose
of its investments in a timely fashion and for a fair price as well as its
ability to take advantage of market opportunities. The risks associated with
illiquidity will be particularly acute where the Fund’s operations
require
cash, such as when the Fund has net redemptions, and could result in the Fund
borrowing to meet short-term cash requirements or incurring losses on the sale
of illiquid investments.
Restricted
securities sold in private placement transactions between issuers and their
purchasers are neither listed on an exchange nor traded in other established
markets and may be illiquid. In many cases, the privately placed securities may
not be freely transferable under the laws of the applicable jurisdiction or due
to contractual restrictions on resale. To the extent privately placed securities
may be resold in privately negotiated transactions, the prices realized from the
sales could be less than those originally paid by the Fund or less than the fair
value of the securities. A restricted security may be determined to be liquid
under the Fund's liquidity risk management program established pursuant to Rule
22e-4 depending on market, trading, or investment-specific considerations
related to the restricted security. In addition, issuers whose securities are
not publicly traded may not be subject to the disclosure and other investor
protection requirements that may be applicable if their securities were publicly
traded. If any privately placed securities held by the Fund are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expenses of registration. Private
placement investments may involve investments in smaller, less seasoned issuers,
which may involve greater risks than investments in more established companies.
These issuers may have limited product lines, markets or financial resources, or
they may be dependent on a limited management group. In making investments in
private placement securities, the Fund may obtain access to material non-public
information about an issuer of private placement securities, which may restrict
the Fund’s ability to conduct transactions in those securities.
Special
Risks Related to Cyber Security. The
Fund and its service providers are susceptible to cyber security risks that
include, among other things, theft, unauthorized monitoring, release, misuse,
loss, destruction or corruption of confidential and highly restricted data;
denial of service attacks; unauthorized access to relevant systems, compromises
to networks or devices that the Fund and its service providers use to service
the Fund’s operations; or operational disruption or failures in the physical
infrastructure or operating systems that support the Fund and its service
providers. Cyber attacks against or security breakdowns of the Fund or its
service providers may adversely impact the Fund and its shareholders,
potentially resulting in, among other things, financial losses; the inability of
Fund shareholders to transact business and the Fund to process transactions;
inability to calculate the Fund’s NAV; violations of applicable privacy and
other laws; regulatory fines, penalties, reputational damage, reimbursement or
other compensation costs; and/or additional compliance costs. The Fund may incur
additional costs for cyber security risk management and remediation purposes. In
addition, cyber security risks may also impact issuers of securities in which
the Fund invests, which may cause the Fund’s investment in such issuers to lose
value. There can be no assurance that the Fund or its service providers will not
suffer losses relating to cyber attacks or other information security breaches
in the future.
INVESTMENT
RESTRICTIONS
The
Trust (on behalf of the Fund) has adopted the following restrictions as
fundamental policies, which may not be changed without the favorable vote of the
holders of a “majority” of the Fund’s outstanding voting securities as defined
in the 1940 Act. Under the 1940 Act, the “vote of the holders of a majority of
the outstanding voting securities” means the vote of the holders of the lesser
of (i) 67% of the shares of the Fund represented at a meeting at which the
holders of more than 50% of its outstanding shares are represented or (ii) more
than 50% of the outstanding shares of the Fund.
As
a matter of fundamental policy, the Fund is diversified, as described on page
B-1. The Fund’s investment objectives are also fundamental.
As
a matter of fundamental policy, the Fund may not:
1. Issue
senior securities, borrow money or pledge its assets, except that (i) the
Fund may borrow from banks in amounts not exceeding one-third of its total
assets (not including the amount borrowed); and (ii) this restriction shall
not prohibit the Fund from engaging in options transactions;
2. Purchase
securities on margin, except such short-term credits as may be necessary for the
clearance of transactions and except that the Fund may borrow money from banks
to purchase securities;
3. Act
as underwriter (except to the extent the Fund may be deemed to be an underwriter
in connection with the sale of securities in its investment
portfolio);
4. Invest
25% or more of its total assets, calculated at the time of purchase and taken at
market value, in any one industry (other than U.S. government
securities);
5. Purchase
or sell real estate or interests in real estate or real estate limited
partnerships (although the Fund may purchase and sell securities which are
secured by real estate and securities of companies which invest or deal in real
estate);
6. Purchase
or sell commodities or commodity futures contracts;
7. Make
loans of money (except for purchases of debt securities consistent with the
investment policies of the Fund and except for repurchase agreements);
or
8. Make
investments for the purpose of exercising control or management.
The
Fund observes the following restrictions as a matter of operating but not
fundamental policy. Except as noted below, the Fund may not:
1. Invest
in the securities of other investment companies or purchase any other investment
company’s voting securities or make any other investment in other investment
companies except to the extent permitted by federal law;
2. Hold,
in the aggregate, more than 15% of its net assets in illiquid investments that
are assets pursuant to Rule 22e-4 under the 1940 Act;
3. Sell
securities short;
4. Make
loans of securities; or
5. Notwithstanding
fundamental restriction 1 above, borrow money, except from banks for temporary
or emergency purposes, and in amounts not to exceed 5% of net assets, and
subject to the further restriction that no additional investment in securities
will be made while any such loan is outstanding.
The
Fund is prohibited from investing in derivatives, excluding certain currency and
interest rate hedging transactions. This restriction is not fundamental and may
be changed by the Fund without a shareholder vote. If the Fund does determine to
invest in derivatives in the future, it will comply with Rule 18f-4 under the
1940 Act.
PORTFOLIO
TURNOVER
Although
the Fund generally will not invest for short-term trading purposes, portfolio
securities may be sold without regard to the length of time they have been held
when, in the opinion of the Advisor, investment considerations warrant such
action. Portfolio turnover rate is calculated by dividing (1) the lesser of
purchases or sales of portfolio securities for the fiscal year by (2) the
monthly average of the value of portfolio securities owned during the fiscal
year. A 100% turnover rate would occur if all the securities in the Fund’s
portfolio, with the exception of securities whose maturities at the time of
acquisition were one year or less, were sold and either repurchased or replaced
within one year. A high rate of portfolio turnover (100% or more) generally
leads to higher transaction costs and may result in a greater number of taxable
transactions, generally resulting in larger taxable distributions to
shareholders. The following table provides the portfolio turnover rate for the
past two fiscal years.
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Portfolio
Turnover During Fiscal Years Ended October 31, |
2022 |
2021 |
39.80% |
34.47% |
PORTFOLIO
HOLDINGS INFORMATION
The
Advisor and the Fund maintain portfolio holdings disclosure policies (the
“Disclosure Policies”) that govern the timing and circumstances of disclosure to
shareholders and third parties of information regarding the portfolio
investments held by the Fund. These Disclosure Policies have been approved by
the Board. Disclosure of the Fund’s complete holdings is required to be made
quarterly within 60 days of the end of each fiscal quarter in the annual report
and semi-annual report to Fund shareholders and in the quarterly holdings report
on Part F of Form N-PORT. These reports are available, free of charge, on the
EDGAR database on the SEC’s website at www.sec.gov.
The Fund also discloses on its website at www.edgarlomax.com
the Fund’s complete portfolio holdings at the end of each calendar quarter with
a 15-day lag and the Fund’s top ten holdings at the end of each month with a
seven-day lag.
From
time to time, rating and ranking organizations such as S&P and Morningstar,
Inc. may request complete portfolio holdings information in connection with
rating the Fund. The Fund believes that these third parties have legitimate
objectives in requesting such portfolio holdings information. To prevent such
parties from potentially misusing portfolio holdings information, the Fund will
generally only disclose such information at the end of the most recent calendar
quarter, with a lag of at least 15 days. In addition, the Trust, the Advisor, or
its designee, may grant exceptions to permit additional disclosure of portfolio
holdings information at differing times, and with differing lag times to rating
agencies and to pension plan sponsors and/or their consultants, provided that
(1) the recipient is subject to a confidentiality agreement, (2) the
recipient will utilize the information to reach certain conclusions about the
investment management characteristics of the Fund and will not use the
information to facilitate or assist in any investment programs, and (3) the
recipient will not provide third-party access to this information.
In
addition, the Fund’s administrator, accountant, custodian and transfer agent may
receive portfolio holdings information in connection with their services to the
Fund. In no event shall the Advisor, its affiliates or employees, or the Fund
receive any direct or indirect compensation in connection with the disclosure of
information about the Fund’s portfolio holdings.
The
furnishing of non-public portfolio holdings information to any third party
(other than authorized governmental and regulatory personnel) requires the
approval of the Chief Compliance Officer of the Trust.
The
Chief Compliance Officer or designated officers of the Trust will approve the
furnishing of non-public portfolio holdings to a third party only if they
consider the furnishing of such information to be in the best interest of the
Fund and its shareholders. No consideration may be received by the Fund, the
Advisor, any affiliate of the Advisor or their employees in connection with the
disclosure of portfolio holdings information. The Board receives and reviews
annually a list of the persons who receive non-public portfolio holdings
information and the purpose for which it is furnished.
MANAGEMENT
The
overall management of the business and affairs of the Trust is vested with its
Board. The Board approves all significant agreements between the Trust and
persons or companies furnishing services to it, including the agreements with
the Advisor, administrator, Custodian and transfer agent, each as defined
herein. The day-to-day operations of the Trust are delegated to its officers,
subject to the Fund’s investment objective and policies and to general
supervision by the Board.
The
Trustees and officers of the Trust, their ages, positions with the Trust, term
of office with the Trust and length of time served, their business addresses and
principal occupations during the past five years and other directorships or
trusteeships held during the past five years are listed in the table
below.
Independent
Trustees(1)
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Name,
Address and Age |
Position
Held with the Trust |
Term
of Office and Length of Time Served* |
Principal
Occupation During Past Five Years |
Number
of Portfolios
in
Fund Complex
Overseen
by Trustee(2) |
Other
Directorships Held During Past Five Years(3) |
David
G. Mertens (age 62) 615 E. Michigan Street Milwaukee, WI
53202 |
Trustee |
Indefinite
term; since March 2017. |
Partner
and Head of Business Development Ballast Equity Management, LLC (a
privately-held investment advisory firm) (February 2019 to present);
Managing Director and Vice President, Jensen Investment Management, Inc.
(a privately-held investment advisory firm) (2002 to 2017). |
1 |
Trustee,
Advisors Series Trust (for series not affiliated with the
Fund). |
Joe
D. Redwine (age 75) 615 E. Michigan Street Milwaukee, WI
53202 |
Trustee |
Indefinite
term; since September 2008. |
Retired;
formerly Manager, President, CEO, U.S. Bancorp Fund Services, LLC, and its
predecessors, (May 1991 to July 2017). |
1 |
Trustee,
Advisors Series Trust (for series not affiliated with the
Fund). |
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Name,
Address and Age |
Position
Held with the Trust |
Term
of Office and Length of Time Served* |
Principal
Occupation During Past Five Years |
Number
of Portfolios
in
Fund Complex
Overseen
by Trustee(2) |
Other
Directorships Held During Past Five Years(3) |
Raymond
B. Woolson (age 64) 615 E. Michigan Street Milwaukee, WI
53202 |
Chairman
of the Board
Trustee |
Indefinite
term; since January 2020.
Indefinite
term; since January 2016. |
President,
Apogee Group, Inc. (financial consulting firm) (1998 to
present). |
1 |
Trustee,
Advisors Series Trust (for series not affiliated with the Fund);
Independent Trustee, DoubleLine Funds Trust (an open-end investment
company with 19 portfolios), DoubleLine Opportunistic Credit Fund,
DoubleLine Income Solutions Fund, and DoubleLine Yield Opportunities Fund
from 2010 to present; Independent Trustee, DoubleLine ETF Trust (an
open-end investment company with 2 portfolios) from March 2022 to
present. |
Michele
Rackey (age 63) 615 E. Michigan Street Milwaukee, WI
53202 |
Trustee |
Indefinite
term; Since January 2023. |
Chief
Executive Officer, Government Employees Benefit Association (GEBA)
(benefits and wealth management organization) (2004 to 2020); Board
Member, Association Business Services Inc. (ABSI) (for-profit subsidiary
of the American Society of Association Executives) (2019 to
2020). |
1 |
Trustee,
Advisors Series Trust (for series not affiliated with the
Fund). |
Officers
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Name,
Address and Age |
Position
Held with the Trust |
Term
of Office and Length of Time Served |
Principal
Occupation During Past Five Years |
Jeffrey
T. Rauman (age 54) 615 E. Michigan Street Milwaukee, WI
53202 |
President,
Chief Executive Officer and Principal Executive Officer |
Indefinite
term; since December 2018. |
Senior
Vice President, Compliance and Administration, U.S. Bank Global Fund
Services (February 1996 to present). |
Kevin
J. Hayden (age 51) 615 E. Michigan Street Milwaukee, WI
53202 |
Vice
President, Treasurer and Principal Financial Officer |
Indefinite
term; since January 2023. |
Vice
President, Compliance and Administration, U.S. Bank Global Fund Services
(June 2005 to present). |
Cheryl
L. King (age 61) 615 E. Michigan Street Milwaukee, WI
53202 |
Assistant
Treasurer |
Indefinite
term; since January 2023. |
Vice
President, Compliance and Administration, U.S. Bank Global Fund Services
(October 1998 to present). |
Richard
R. Conner (age 40) 615 E. Michigan Street Milwaukee, WI
53202 |
Assistant
Treasurer |
Indefinite
term; since December 2018. |
Assistant
Vice President, Compliance and Administration, U.S. Bank Global Fund
Services (July 2010 to present). |
Michael
L. Ceccato (age 65) 615 E. Michigan Street Milwaukee, WI
53202 |
Vice
President, Chief Compliance Officer and AML Officer |
Indefinite
term; since September 2009. |
Senior
Vice President, U.S. Bank Global Fund Services and Senior Vice President,
U.S. Bank N.A. (February 2008 to present). |
Elaine
E. Richards (age 54) 2020 E. Financial Way, Suite 100 Glendora,
CA 91741 |
Vice
President and Secretary |
Indefinite
term; since September 2019. |
Senior
Vice President, U.S. Bank Global Fund Services (July 2007 to
present). |
* The
Trustees have designated a mandatory retirement age of 75, such that each
Trustee, serving as such on the date he or she reaches the age of 75, shall
submit his or her resignation not later than the last day of the calendar year
in which his or her 75th birthday occurs (“Retiring Trustee”). Upon request, the
Board may, by vote of a majority of Trustees eligible to vote on such matter,
determine whether or not to extend such Retiring Trustee’s term and on the
length of a one-time extension of up to three additional years. At a meeting
held December 7-8, 2022, by vote of the majority of Trustees (not including
Mr. Redwine), Mr. Redwine’s term as Trustee was extended for three additional
years.
(1)The
Trustees of the Trust who are not “interested persons” of the Trust as defined
under the 1940 Act (“Independent Trustees”).
(2)As
of October 31, 2022, the Trust was comprised of 34 active portfolios managed by
unaffiliated investment advisers. The term “Fund Complex” applies only to the
Fund. The Fund does not hold itself out as related to any other series within
the Trust for investment purposes, nor does it share the same investment adviser
with any other series.
(3)“Other
Directorships Held” includes only directorships of companies required to
register or file reports with the SEC under the Securities Exchange Act of 1934,
as amended, (that is, “public companies”) or other investment companies
registered under the 1940 Act.
Additional
Information Concerning Our Board of Trustees
The
Role of the Board
The
Board provides oversight of the management and operations of the Trust. Like all
mutual funds, the day-to-day responsibility for the management and operations of
the Trust is the responsibility of various service providers to the Trust, such
as the Trust’s investment advisers, distributor, administrator, custodian, and
transfer agent, each of whom are discussed in greater detail in this SAI. The
Board approves all significant agreements between the Trust and its service
providers, including the agreements with the investment advisers, distributor,
administrator, custodian and transfer agent. The Board has appointed various
senior 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
administers the Trust’s compliance program and
regularly
reports to the Board as to compliance matters. Some of these reports are
provided as part of formal “Board Meetings” which are typically held quarterly,
in person, 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
effectively perform its oversight function. It has established three standing
committees, an Audit Committee, a Nominating and Governance Committee and a
Qualified Legal Compliance Committee (the “QLCC”), which are discussed in
greater detail under “Board Committees,” below. Currently, all of the members of
the Board are Independent Trustees, which are Trustees that are not affiliated
with the Advisor or its affiliates or any other investment adviser in the Trust
or with its principal underwriter. The Independent Trustees have engaged their
own independent counsel to advise them on matters relating to their
responsibilities in connection with the Trust.
The
President, Chief Executive Officer and Principal Executive Officer of the Trust
is not a Trustee, but rather is a senior employee of the Administrator who
routinely interacts with the unaffiliated investment advisers of the Trust and
comprehensively manages the operational aspects of the Funds in the Trust. The
Trust has appointed Raymond Woolson, an Independent Trustee, as Chairman of the
Board, and he acts as a liaison with the Trust’s service providers, officers,
legal counsel, and other Trustees between meetings, helps to set Board meeting
agendas, and serves as Chairman during executive sessions of the Independent
Trustees.
The
Board reviews its structure annually. The Trust has determined that it is
appropriate to separate the Principal Executive Officer and Board Chairman
positions because the day-to day responsibilities of the Principal Executive
Officer are not consistent with the oversight role of the Trustees and because
of the potential conflict of interest that may arise from the Administrator’s
duties with the Trust. 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. Because risk management is a broad concept
comprised 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 Nominating and Governance Committee meets regularly with
the CCO to discuss compliance and operational risks and the Audit Committee
meets with the Treasurer and the Trust’s independent 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 Advisor
and portfolio managers as to investment risks as well as other risks that may be
also discussed in Audit Committee.
Information
about Each Trustee’s Qualification, Experience, Attributes or
Skills
The
Board believes that each of the Trustees has the qualifications, experience,
attributes and skills (“Trustee Attributes”) appropriate to their continued
service as Trustees of the Trust in light of the Trust’s business and structure.
Each of the Trustees has substantial business and professional backgrounds that
indicate they have
the
ability to critically review, evaluate and access information provided to them.
Certain of these business and professional experiences are set forth in detail
in the table above. In addition, the majority of the Trustees have served on
boards for organizations other than the Trust, as well as having served on the
Board of the Trust for a number of years. They therefore 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 individual Trustees
is reviewed.
In
addition to the information provided in the table above, below is certain
additional information concerning each particular Trustee and certain of their
Trustee Attributes. The information provided below, and in the table above, is
not all-inclusive. Many Trustee Attributes 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.
David
G. Mertens.
Mr. Mertens has substantial mutual fund experience and is experienced with
financial, accounting, investment and regulatory matters. He currently serves as
Partner and Head of Business Development of Ballast Equity Management, LLC, a
privately-held investment advisory firm. Mr. Mertens also gained substantial
mutual fund experience through his tenure as Managing Director and Vice
President of Jensen Investment Management, Inc. (“Jensen”) from 2002 to 2017.
Prior to Jensen, Mr. Mertens held various roles in sales and marketing
management with Berger Financial Group, LLC from 1995 to 2002, ending as Senior
Vice President of Institutional Marketing for Berger Financial Group and
President of its limited purpose broker-dealer, Berger
Distributors.
Joe
D. Redwine.
Mr. Redwine has substantial mutual fund experience and is experienced with
financial, accounting, investment and regulatory matters through his experience
as President and CEO of U.S. Bancorp Fund Services, LLC, (now known as U.S. Bank
Global Fund Services), a full-service provider to mutual funds and alternative
investment products. In addition, he has extensive experience consulting with
investment advisers regarding the legal structure of mutual funds, distribution
channel analysis and actual distribution of those funds. Mr. Redwine serves
as an Audit Committee Financial Expert for the Trust.
Raymond
B. Woolson.
Mr. Woolson has served on a number of mutual fund boards and is experienced with
financial, accounting, investment and regulatory matters through his experience
as Lead Independent Trustee and Audit Committee Chairman for the DoubleLine
Funds as well as through his service as President of Apogee Group, Inc., a
company providing financial consulting services. Mr. Woolson also has
substantial mutual fund operations, financial and investment experience through
his prior service in senior and management positions in the mutual fund
industry, including service as Senior Managing Director in Investment Management
for Mass Mutual Life Insurance Company, where he oversaw fund accounting, fund
administration and client services and also served as Chief Financial Officer
and Treasurer for various funds and other investment products. Mr. Woolson has
also served as a consultant for Coopers & Lybrand (now known as,
“PricewaterhouseCoopers” or “PWC”) where he provided management consulting
services to the mutual fund industry and the investment management areas of the
banking and insurance industries.
Michele
Rackey.
Ms. Rackey has
substantial experience in mutual funds and investment management through her
experience as CEO of Government Employees Benefits Association (GEBA) and also
with The ARK Funds. Ms. Rackey
is
experienced with financial, accounting, investment and regulatory matters and
serves as an Audit Committee Financial Expert for the Trust. Ms. Rackey
was
CEO of GEBA for 17 years and Chief Operating Officer of the ARK Funds for 9
years. Ms. Rackey
has
a BS in Business Administration from the University of Illinois at Chicago and
has an MBA from Keller Graduate School of Management in Chicago.
Ms. Rackey
previously
held FINRA series 6, 7 and 63 licenses as well as a Maryland Life and Health
License.
Board
Committees
The
Trust has established the following three standing committees and the membership
of each committee to assist in its oversight functions, including its oversight
of the risks the Trust faces: the Audit Committee, the QLCC, and the Nominating
and Governance Committee. There is no assurance, however, that the Board’s
committee structure will prevent or mitigate risks in actual practice. The
Trust’s committee structure is specifically not intended or designed to prevent
or mitigate the Fund’s investment risks. The Fund is designed for investors that
are prepared to accept investment risk, including the possibility that as yet
unforeseen risks may emerge in the future.
The
Audit Committee is comprised of all of the Independent Trustees.
Mr. Redwine is the Chairman of the Audit Committee. The Audit Committee
typically meets once per year with respect to the various series of the Trust.
The function of the Audit Committee, with respect to each series of the Trust,
is to review the scope and results of the audit and any matters bearing on the
audit or the Fund’s financial statements and to ensure the integrity of the
Fund’s pricing and financial reporting. The Audit Committee met once during the
Fund’s last fiscal year with respect to the Fund.
The
Audit Committee also serves as the QLCC for the Trust for the purpose of
compliance with Rules 205.2(k) and 205.3(c) of the Code of Federal
Regulations, regarding alternative reporting procedures for attorneys retained
or employed by an issuer who appear and practice before the SEC on behalf of the
issuer (the “issuer attorneys”). An issuer attorney who becomes aware of
evidence of a material violation by the Trust, or by any officer, director,
employee, or agent of the Trust, may report evidence of such material violation
to the QLCC as an alternative to the reporting requirements of
Rule 205.3(b) (which requires reporting to the chief legal officer and
potentially “up the ladder” to other entities). The QLCC meets as needed and did
not meet with respect to the Trust during the Fund’s last fiscal
year.
The
Nominating and Governance Committee is comprised of all, and only of, the
Independent Trustees. The Nominating and Governance Committee is responsible for
seeking and reviewing candidates for consideration as nominees for Trustees as
is considered necessary from time to time and meets only as necessary. The
Nominating and Governance Committee will consider nominees recommended by
shareholders for vacancies on the Board. Recommendations for consideration by
the Nominating and Governance 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 By-Laws. In general, to comply
with such procedures, such nominations, together with all required biographical
information, must be delivered to and received by the President of the Trust at
the principal executive office of the Trust between 120 and 150 days prior to
the shareholder meeting at which any such nominee would be voted
on.
The
Nominating and Governance Committee meets regularly with respect to the various
series of the Trust. The Nominating and Governance Committee is also responsible
for, among other things, assisting the Board in its oversight of the Trust’s
compliance program under Rule 38a-1 under the 1940 Act, reviewing and
making recommendations regarding Independent Trustee compensation and the
Trustees’ annual “self-assessment.” Mr. Mertens is the Chairman of the
Nominating and Governance Committee. The
Nominating and Governance Committee did not meet with respect to the Trust
during the Fund’s fiscal year ended October 31, 2022.
Trustee
Ownership of Fund Shares and Other Interests
The
following table shows the amount of shares in the Fund and the amount of shares
in other portfolios of the Trust owned by the Trustees as of the calendar year
ended December 31, 2022.
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|
|
|
|
|
|
| |
Independent
Trustees |
Dollar
Range of Equity Securities in the Fund |
Aggregate
Dollar Range of Fund Shares in the Trust |
(None,
$1-$10,000, $10,001-$50,000, $50,001-$100,000, Over
$100,000) |
|
David
G. Mertens |
None |
Over
$100,000 |
Raymond
B. Woolson |
None |
Over
$100,000 |
Joe
D. Redwine |
None |
Over
$100,000 |
Michele
Rackey(1) |
None |
None |
(1) Ms.
Rackey joined the Board as a Trustee effective as of January 1,
2023.
As
of December 31, 2022, neither the Independent Trustees nor members of their
immediate family, own securities beneficially or of record in the Advisor, the
distributor, as defined below, or an affiliate of the Advisor or distributor.
Accordingly, neither the Independent Trustees nor members of their immediate
family, have direct or indirect interest, the value of which exceeds $120,000,
in the Advisor, 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 conducted any transactions (or
series of transactions) in which the amount involved exceeds $120,000 and to
which the Advisor, the distributor or any affiliate thereof was a
party.
Compensation.
Effective
January 1, 2023, the Independent Trustees each receive an annual retainer
of $102,500 per year allocated among each of the various portfolios comprising
the Trust, an additional $6,000 per regularly scheduled Board meeting, and an
additional $500 per special meeting, paid by the Trust or applicable
advisors/portfolios, as well as reimbursement for expenses incurred in
connection with attendance at Board meetings. Prior to January 1, 2023, the
annual retainer was $100,000. The Trust Chairman, Chairman of the Audit
Committee, and Chairman of the Nominating and Governance Committee each receive
a separate annual fee of $10,000, $5,000, and $3,000, respectively, provided
that the separate fee for the Chairman of the Audit Committee will be waived if
the same individual serves as both Trust Chairman and Audit Committee Chairman.
The Trust has no pension or retirement plan. No other entity affiliated with the
Trust pays any compensation to the Trustees. Set forth below is the compensation
received by the Independent Trustees from the Fund for the fiscal year ended
October 31, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Aggregate
Compensation from the Fund |
Pension
or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Compensation from Fund Complex Paid to Trustees(1) |
Independent
Trustee |
|
|
| |
Gail
S. Duree(2) |
$167 |
None |
None |
$167 |
David
G. Mertens |
$3,890 |
None |
None |
$3,890 |
Raymond
B. Woolson |
$4,094 |
None |
None |
$4,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Aggregate
Compensation from the Fund |
Pension
or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Compensation from Fund Complex Paid to Trustees(1) |
Joe
D. Redwine |
$3,948 |
None |
None |
$3,948 |
Michele
Rackey(3) |
None |
None |
None |
None |
(1)There
are currently numerous portfolios comprising the Trust. The term “Fund Complex”
applies only to the Fund. For the fiscal year ended October 31, 2022, aggregate
Independent Trustees’ fees for the Trust were $415,500.
(2)Ms.
Duree retired from the Board as of December 31, 2021.
(3)Ms.
Rackey joined the Board as a Trustee effective as of January 1,
2023.
CODE
OF ETHICS
The
Trust and the Advisor have each adopted separate Codes of Ethics under Rule
17j-1 of the 1940 Act. These Codes permit, subject to certain conditions, access
persons of the Advisor to invest in securities that may be purchased or held by
the Fund. The Distributor, as defined below, relies on the principal
underwriter’s exception under Rule 17j-1(c)(3), of the 1940 Act, specifically
where the Distributor is not affiliated with the Trust or the Advisor, and no
officer, director or general partner of the Distributor serves as an officer,
director or general partner of the Trust or the Advisor.
PROXY
VOTING POLICY
The
Board has adopted Proxy Voting Policies and Procedures (the “Proxy Policies”) on
behalf of the Trust which delegate the responsibility for voting proxies to the
Advisor, subject to the Board’s continuing oversight. The Policies require that
the Advisor vote proxies received in a manner consistent with the best interests
of the Fund and its shareholders. The Proxy Policies also require the Advisor to
present to the Board, at least annually, the Advisor’s Proxy Voting Policies and
Procedures (“Advisor’s Proxy Policies”) and a record of each proxy voted by the
Advisor on behalf of the Fund, including a report on the resolution of all
proxies identified by the Advisor as involving a conflict of
interest.
The
Advisor has adopted proxy policies which underscore the Advisor’s concern that
all proxy voting decisions be made in the best interests of the Fund and that
the Advisor will act in a prudent and diligent manner intended to enhance the
economic value of the assets of the Fund.
A
general statement of voting policy and specific voting positions has been
established by the Advisor. The Advisor’s Proxy Policies are intended to serve
as a guideline and to further the economic value of each security held by the
Fund. The Advisor’s Chief Compliance Officer or designee will review the
Advisor’s Proxy Policies and update them as necessary. Each proxy will be
considered individually, after a review of the following: i) the Advisor’s Proxy
Policies; ii) the written analysis and recommendation of an independent third
party proxy service, currently Institutional Shareholder Services, Inc. (“ISS”);
and iii) the recommended vote of the subject corporation’s
management.
Where
a proxy proposal raises a material conflict between the Advisor’s interests and
the Fund’s interests, the Advisor will resolve the conflict by following the
recommendation of ISS.
The
Trust is required to annually file Form N-PX, which lists the Fund’s complete
proxy voting record for the 12-month period ending June 30. The Fund’s proxy
voting record is available without charge, upon request, by calling toll-free
1‑866‑205‑0524 and on the SEC’s website at www.sec.gov.
CONTROL
PERSONS, PRINCIPAL SHAREHOLDERS, AND MANAGEMENT OWNERSHIP
A
principal shareholder is any person who owns of record or beneficially 5% or
more of the outstanding shares of the Fund. A control person is one who owns
beneficially or through controlled companies more than 25% of the voting
securities of a company or acknowledges the existence of control. Shareholders
with a controlling interest could affect the outcome of voting or the direction
of management of the Fund. For control persons only, if a control person is a
company, the table also indicates the control person’s parent, if any, and the
jurisdiction under the laws of which the control person is organized.
As
of January 31, 2023, the following shareholders were considered to be
either a control person or principal shareholder of the Fund:
|
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|
|
|
|
|
|
|
|
|
|
| |
Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
The
Edgar Lomax Company 5971 Kingstowne Village Parkway Suite
240 Alexandria, VA 22315 |
N/A |
N/A |
22.11% |
Record |
Nationwide
Life Insurance Company
P.O.
Box 182029
Columbus,
OH 43218-2029 |
N/A |
N/A |
18.35% |
Record |
DC
Plus Model Portfolios 777 N. Capitol St. NE Washington, DC
20002-4239 |
N/A |
N/A |
16.60% |
Record |
National
Financial Services, LLC 499 Washington Blvd Jersey City, NJ
07310-1995 |
N/A |
N/A |
14.16% |
Record |
Empower
Trust FBO Empower Benefit Plans 8515 East Orchard Road
2T2 Greenwood Village, CO 80111-5002 |
N/A |
N/A |
11.67% |
Record |
Management
Ownership Information.
As of January 31, 2023, the Trustees and Officers of the Trust, as a group,
beneficially owned less than 1% of the outstanding shares of the
Fund.
THE
FUND’S INVESTMENT ADVISOR
The
Edgar Lomax Company, 5971 Kingstowne Village Parkway, Suite 240, Alexandria, VA
22315, serves as the Fund’s investment advisor. Subject to the supervision of
the Board, investment management and related services are provided by the
Advisor, pursuant to an investment advisory agreement (the “Advisory Agreement”)
between the Trust and the Advisor. Randall R. Eley controls the Advisor through
his ownership (over 50% of the Advisor). Mr. Eley is also the President and a
director of the Advisor, as well as a portfolio manager of the
Fund.
Under
the Advisory Agreement, the Advisor agrees to invest the assets of the Fund in
accordance with the Fund’s investment objective, policies and restrictions as
set forth in the Fund’s and Trust’s governing documents, including, without
limitation, the Trust’s Declaration of Trust and By-Laws; the Fund’s prospectus,
statement of additional information, and undertakings; and such other
limitations, policies and procedures as the Board may impose from time to time
in writing to the Advisor. In providing such services, the Advisor shall at all
times adhere to the provisions and restrictions contained in the federal
securities laws, applicable state securities laws, the Internal Revenue Code of
1986, as amended (the “Code”), and other applicable law.
Without
limiting the generality of the foregoing, the Advisor has agreed to
(i) furnish the Fund with advice and recommendations with respect to the
investment of the Fund’s assets, (ii) effect the purchase and sale of
portfolio securities; (iii) manage and oversee the investments of the Fund,
subject to the ultimate supervision and direction of the Board; (iv) vote
proxies and take other actions with respect to the Fund’s securities;
(v) maintain the books and records required to be maintained with respect
to the securities in the Fund’s portfolio; (vi) furnish reports, statements
and other data on securities, economic conditions and other matters related to
the investment of the Fund’s assets which the Trustees or the officers of the
Trust may reasonably request; and (vii) render to the Board such periodic
and special reports as the Board may reasonably request. The Advisor has also
agreed, at its own expense, to maintain such staff and employ or retain such
personnel and consult with such other persons as it shall from time to time
determine to be necessary to the performance of its obligations under the
Advisory Agreement. Personnel of the Advisor may serve as officers of the Trust
provided they do so without compensation from the Trust. Without limiting the
generality of the foregoing, the staff and personnel of the Advisor shall be
deemed to include persons employed or retained by the Advisor to furnish
statistical information, research, and other factual information, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Advisor or the Board may desire and reasonably request.
With
respect to the operation of the Fund, the Advisor has agreed to be responsible
for the expenses of printing and distributing extra copies of the Prospectus,
SAI, and sales and advertising materials (but not the legal, auditing or
accounting fees attendant thereto) to prospective investors (but not to existing
shareholders); and the costs of any special Board meetings or shareholder
meetings convened for the primary benefit of the Advisor.
As
compensation for its services, the Fund pays the Advisor a management fee at the
rate specified in the Prospectus. In addition to the fees payable to the
Advisor, the Fund is responsible for its own operating expenses, including: fees
and expenses incurred in connection with the issuance, registration and transfer
of its shares; brokerage and commission expenses; all expenses of transfer,
receipt, safekeeping, servicing and accounting for the cash, securities and
other property of the Trust for the benefit of the Fund including all fees and
expenses of its Custodian, shareholder services agent and accounting services
agent; interest charges on any borrowings; costs and expenses of pricing and
calculating its daily NAV per share and of maintaining its books of account
required under the 1940 Act; taxes, if any; a pro rata portion of expenditures
in connection with meetings of the Fund’s shareholders and the Board that are
properly payable by the Fund; salaries and expenses of officers and fees and
expenses of members of the Board or members of any advisory board or committee
who are not members of, affiliated with or interested persons of the Advisor or
administrator; insurance premiums on property or personnel of the Fund which
inure to its benefit, including liability and fidelity bond insurance; the cost
of preparing and printing reports, proxy statements, prospectuses and the
statement of additional information of the Fund or other communications for
distribution to existing shareholders; legal, auditing and accounting fees;
trade association membership dues (including membership dues in the Investment
Company Institute allocable to the Fund); fees and expenses (including legal
fees) of registering and maintaining registration of its shares for sale under
federal and applicable state and foreign securities laws; all expenses of
maintaining and servicing shareholder accounts, including all charges for
transfer, shareholder record keeping, dividend disbursing, redemption, and other
agents for the benefit of the Fund, if any; and all other charges and costs of
its operation plus any extraordinary and non-recurring expenses, except as
otherwise prescribed in the Advisory Agreement.
Though
the Fund is responsible for its own operating expenses, the Advisor has
contractually agreed to waive a portion of its management fees payable to it by
the Fund and/or pay Fund expenses (excluding acquired fund fees and expenses,
taxes, interest and extraordinary expenses) in order to limit the Fund’s
aggregate annual operating expenses to the limit set forth in the fees and
expense table contained in the Prospectus (the
“expense
cap”) through at least February 27, 2024. The term of the Fund’s operating
expense limitation agreement is indefinite and it can only be terminated upon a
vote of the Board. The Advisor may request recoupment of previously waived fees
and paid expenses in any subsequent month in the 36-month period from the date
of the management fee reduction and expense payment if the aggregate amount
actually paid by the Fund toward the operating expenses for such fiscal year
(taking into account the reimbursement) will not cause the Fund to exceed the
lesser of: (1) the expense limitation in place at the time of the management fee
reduction and expense payment; or (2) the expense limitation in place at the
time of the reimbursement. Any such recoupment is contingent upon the subsequent
review and ratification of the recouped amounts by the Board. The Fund must pay
current ordinary operating expenses before the Advisor is entitled to any
recoupment of fees and/or expenses. This recoupment may be requested by the
Advisor if the aggregate amount actually paid by the Fund toward operating
expenses for such period (taking into account the recoupment) does not exceed
the expense cap. In addition to the contractual expense cap, the Advisor has
voluntarily agreed to waive a portion of its management fee, as described in the
Prospectus, depending upon the Fund’s investment performance.
Under
the Advisory Agreement, the Advisor will not be liable to the Trust or the Fund
or any shareholder for any act or omission in the course of, or connected with,
rendering services or for any loss sustained by the Trust except in the case of
a breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages will be limited as provided in the
1940 Act) or of willful misfeasance, bad faith or gross negligence, or reckless
disregard of its obligations and duties under the Agreement.
The
Advisory Agreement, if not terminated, will continue automatically for
successive annual periods, provided that such continuance is specifically
approved at least annually (i) by a majority vote of the Independent
Trustees cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or by vote of a majority of the outstanding
voting securities of the Fund.
The
Advisory Agreement is terminable by vote of the Board or by the holders of a
majority of the outstanding voting securities of the Fund at any time without
penalty, on 60 days’ written notice to the Advisor. The Advisory Agreement also
may be terminated by the Advisor on 60 days’ written notice to the Trust. The
Advisory Agreement terminates automatically upon its assignment (as defined in
the 1940 Act).
|
|
|
|
|
|
|
|
|
|
| |
| Management
Fees For Fiscal Years Ended October 31, |
| 2022 |
2021 |
2020 |
Management
Fees Accrued |
$563,722 |
$555,369 |
$578,851 |
Management
Fees Waived (contractual waiver) |
$303,854 |
$284,842 |
$322,112 |
Management
Fees Waived (voluntary waiver) |
$204,990 |
$201,952 |
$168,895 |
Net
Management Fees Paid to Advisor |
$54,878 |
$68,575 |
$87,844 |
THE
FUND’S PORTFOLIO MANAGERS
Randall
R. Eley and Thomas B. Murray are responsible for the day-to-day management of
the Fund’s investment portfolio. The following table shows the number of other
accounts managed (not including the Fund) by Mr. Eley and Mr. Murray and the
total assets in the accounts managed within various categories as of October 31,
2022.
Mr.
Eley and Mr. Murray
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Type
of Accounts |
Number
of Accounts (excluding the Fund) |
Total
Assets |
Number
of Accounts with Management Fee Based on Performance |
Total
Assets |
Registered
Investment Companies |
0 |
$0 |
0 |
$0 |
Other
Pooled Investments |
0 |
$0 |
0 |
$0 |
Other
Accounts |
36 |
$1.5
billion |
0 |
$0 |
Material
Conflict of Interest.
The portfolio managers who have day-to-day management responsibilities with
respect to other accounts may be presented with potential or actual conflicts of
interest.
The
management of other accounts may result in a portfolio manager devoting unequal
time and attention to the management of the Fund and/or other accounts. In
approving the Advisory Agreement, the Board was satisfied that the portfolio
managers would be able to devote sufficient attention to the management of the
Fund, and that the Advisor seeks to manage such competing interests for the time
and attention of the portfolio managers.
All
equity accounts are managed with the same large-cap value style, and client/Fund
portfolios are substantially identical. Furthermore, allocation of shares of
stock is performed on a pro rata fashion across applicable accounts. With
respect to securities transactions for the Fund, the Advisor determines which
broker to use to execute each transaction, consistent with its duty to seek best
execution of the transaction. For buy or sell transactions considered
simultaneously for the Fund and other accounts, orders are placed at the same
time. The Fund and client accounts are not generally invested in thinly traded
or illiquid securities; therefore, there is not expected to be a conflict in
fulfilling investment opportunities.
Compensation.
The portfolio managers receive a fixed annual salary in cash. The portfolio
managers’ salaries are comparable to other managers that manage similar type
funds. Both portfolio managers receive a quarterly bonus related to Advisor
profitability. Mr. Eley participates in a deferred compensation plan on a
voluntary basis. The portfolio managers also participate in a retirement plan in
the form of a 401(k) profit sharing plan. Upon meeting certain tenure
requirements, all employees of the Advisor are awarded stock options in The
Edgar Lomax Company.
Securities
Owned in the Fund by Portfolio Managers.
As of October 31, 2022, the portfolio managers owned the following securities in
the Fund:
|
|
|
|
| |
Name
of Portfolio Manager |
Dollar
Range of Equity Securities Beneficially Owned in the Fund (None,
$1-$10,000, $10,001-$50,000, $50,001-$100,000, $100,001 - $500,000,
$500,001 to $1,000,000, Over $1,000,000) |
Randall
R. Eley |
$100,001
- $500,000 |
Thomas
B. Murray |
$10,001
- $50,000 |
THE
FUND’S
SERVICE
PROVIDERS
Fund
Administrator. Pursuant
to an Administration Agreement (the “Administration Agreement”), U.S. Bancorp
Fund Services, LLC, doing business as U.S. Bank Global Fund Services (“Fund
Services”), acts as administrator for the Fund. Fund Services provides certain
administrative services to the Fund, including, among other responsibilities,
coordinating the negotiation of contracts and fees with, and the monitoring of
performance
and billing of, the Fund’s independent contractors and agents; preparation for
signature by an officer of the Trust of all documents required to be filed for
compliance by the Trust and the Fund with applicable laws and regulations
including those of the securities laws of various states; arranging for the
computation of performance data, including NAV per share and yield; responding
to shareholder inquiries; arranging for the maintenance of books and records of
the Fund; monitoring the Fund’s compliance with the Fund’s investment objective
and restrictions; and providing, at its own expense, office facilities,
equipment and personnel necessary to carry out its duties. In this capacity,
Fund Services does not have any responsibility or authority for the management
of the Fund, the determination of investment policy, or for any matter
pertaining to the distribution of Fund shares.
The
Administration Agreement is terminable without penalty by the Trust on behalf of
the Fund or by Fund Services on 60 days’ written notice (as defined in the 1940
Act). The Administration Agreement also provides that neither Fund Services nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration of the Fund, except for willful
misfeasance, bad faith or negligence in the performance of its or their duties
or by reason of reckless disregard of its or their obligations and duties under
the Administration Agreement. Additionally, Fund Services provides Chief
Compliance Officer Services to the Trust under a separate agreement. The cost
for the Chief Compliance Officer services is charged to the Fund and approved by
the Board annually.
|
|
|
|
|
|
|
|
|
|
| |
Administration
Fees Paid During Fiscal Years Ended October 31, |
| 2022 |
2021 |
2020 |
Fund
Services |
$193,284 |
$187,750 |
$191,934 |
Custodian and
Transfer Agent. U.S.
Bank National Association, located at Custody Operations, 1555 North RiverCenter
Drive, Suite 302, Milwaukee, Wisconsin 53212, acts as Custodian of the
securities and other assets of the Fund, holds the Fund’s portfolio securities
in safekeeping and keeps all necessary records and documents relating to its
duties. The Custodian is compensated with an asset-based fee plus transaction
fees and is reimbursed for out-of-pocket expenses. U.S. Bank Global Fund
Services also acts as the Fund’s accountant and transfer and dividend disbursing
agent (“Transfer Agent”). The Custodian and Transfer Agent do not participate in
decisions relating to the purchase and sale of securities by the Fund. The
Custodian, Distributor, Transfer Agent, and Fund Services are affiliated
entities under the common control of U.S. Bancorp. The Custodian and its
affiliates may participate in revenue sharing arrangements with service
providers of mutual funds in which the Fund may invest.
Sub-Accounting
Service Fees. In
addition to the fees that the Fund may pay to the Transfer Agent, the Board has
authorized the Fund to pay service fees, at the annual rate of up to 0.15% of
applicable average net assets or $20 per account, to intermediaries such as
banks, broker-dealers, financial advisers or other financial institutions, for
sub-administration, sub-transfer agency, recordkeeping (collectively,
“sub-accounting services”) and other shareholder services associated with
shareholders whose shares are held of record in omnibus, networked, or other
group accounts or accounts traded through registered securities clearing agents.
Any sub-accounting fees paid by the Fund are included in the total amount of
“Other Expenses” listed in the Fund’s Fees and Expenses table in the
Prospectus.
The
Fund has policies and procedures in place for the monitoring of payments to
broker-dealers and other financial intermediaries for the following
non-distribution activities: sub-transfer agent, administrative, and other
shareholder servicing services.
Independent
Registered Public Accounting Firm and Legal Counsel. Tait,
Weller & Baker LLP, Two Liberty Place, 50 South 16th
Street, Suite 2900, Philadelphia, Pennsylvania 19102, is the independent
registered public accounting firm for the Fund, whose services include audit
services, tax services and assistance with respect to the preparation of filings
with the U.S. Securities and Exchange Commission for the Fund.
Sullivan
& Worcester LLP (“Sullivan and Worcester”), 1633 Broadway, 32nd Floor, New
York, New York 10019, is counsel to the Fund. Sullivan & Worcester also
serves as independent legal counsel to the Board.
Distributor.
The Trust has entered into a Distribution Agreement (the “Distribution
Agreement”) with Quasar Distributors, LLC, 111 East Kilbourn Avenue, Suite 2200,
Milwaukee, Wisconsin 53202 (“Quasar” or the “Distributor”),
pursuant
to which Quasar acts as the Fund’s distributor, provides certain administration
services and promotes and arranges for the sale of the Fund’s shares. The Fund
engages in a continuous offering of its shares. The Distributor is registered as
a broker-dealer under the Securities Exchange Act of 1934, as amended, and is a
member of FINRA.
The
Distribution Agreement continues in effect only if such continuance is
specifically approved at least annually by the Board or by vote of a majority of
the Fund’s outstanding voting securities and, in either case, by a majority of
the Trustees who are not parties to the Distribution Agreement or “interested
persons” (as defined in the 1940 Act) of any such party. The Distribution
Agreement is terminable without penalty by the Trust on behalf of the Fund on 60
days’ written notice when authorized either by a majority vote of the Fund’s
shareholders or by vote of a majority of the Board, including a majority of the
Trustees who are not “interested persons” (as defined in the 1940 Act) of the
Trust, or by the Distributor on 60 days’ written notice, and will automatically
terminate in the event of its “assignment” (as defined in the 1940
Act).
PORTFOLIO
TRANSACTIONS AND BROKERAGE
Pursuant
to the Advisory Agreement, the Advisor determines which securities are to be
purchased and sold by the Fund and which broker‑dealers will be used to execute
the Fund’s portfolio transactions. Purchases and sales of securities in the
over‑the‑counter market will be executed directly with a “market‑maker” unless,
in the opinion of the Advisor, a better price and execution can otherwise be
obtained by using a broker for the transaction.
Purchases
of portfolio securities for the Fund also may be made directly from issuers or
from underwriters. Where possible, purchase and sale transactions will be made
through dealers (including banks) which specialize in the types of securities
which the Fund will be holding, unless better executions are available
elsewhere. Dealers and underwriters usually act as principal for their own
account. Purchases from underwriters will include a concession paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the asked price. If the execution and price offered by more
than one broker, dealer or underwriter are comparable, the order may be
allocated to a broker, dealer or underwriter that has provided research or other
services as discussed below.
In
placing portfolio transactions, the Advisor will seek best execution. The full
range and quality of services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm’s risk in positioning a
block of securities, and other factors. The Advisor considers such information,
which is in addition to and not in lieu of the services required to be performed
by it under its Advisory Agreement with the Fund, to be useful in varying
degrees, but of indeterminable value. Portfolio transactions may be placed with
broker‑dealers who sell shares of the Fund subject to rules adopted by
FINRA.
While
it is the Advisor’s general policy to seek best execution to obtain the most
favorable price and execution available, in selecting a broker‑dealer to execute
portfolio transactions for the Fund, when it is determined that more than one
broker-dealer can deliver best execution, weight is also given to the ability of
a broker‑dealer to furnish brokerage and research services to the Fund or to the
Advisor, even if the specific services are not directly useful to the Fund and
may be useful to the Advisor in advising other clients. Brokerage and research
services include, but are not limited to, publications, analyses, and reports
concerning issuers, industries, securities, economic factors and trends. In
negotiating commissions with a broker or evaluating the spread to be paid to a
dealer, the Fund may therefore pay a higher commission or spread than would be
the case if no weight were given to the furnishing of these supplemental
services, provided that the amount of such commission or spread has been
determined in good faith by the Advisor to be reasonable in relation to the
value of the brokerage and/or research services provided by such broker‑dealer.
The standard of reasonableness is to be measured in light of the Advisor’s
overall responsibilities to the Fund. The Board will review quarterly the
Advisor’s performance of its responsibilities in connection with the placement
of portfolio transactions on behalf of the Fund. Such review is conducted for
the purpose of determining if the markups and commissions, if any, paid by the
Fund are reasonable in relation to the benefits received by the Fund taking into
account the competitive practices of the industry.
Investment
decisions for the Fund are made independently from those of other client
accounts managed or advised by the Advisor. Nevertheless, it is possible that at
times identical securities will be acceptable for both the Fund and one or more
of such client accounts. In such event, the position of the Fund and such client
account(s) in the same issuer may vary and the length of time that each may
choose to hold its investment in the same issuer may likewise vary. However, to
the extent any of these client accounts seeks to acquire the same security as
the Fund at the same time, the Fund may not be able to acquire as large a
portion of such security as it desires, or it may have to pay a higher price or
obtain a lower yield for such security. Similarly, the Fund may not be able to
obtain as high a price for, or as large an execution of, an order to sell any
particular security at the same time. If one or more of such client accounts
simultaneously purchases or sells the same security that the Fund is purchasing
or selling, each day’s transactions in such security will be allocated between
the Fund and all such client accounts in a manner deemed equitable by the
Advisor, taking into account the respective sizes of the accounts and the amount
being purchased or sold. It is recognized that in some cases this system could
have a detrimental effect on the price or value of the security insofar as the
Fund is concerned. In other cases, however, it is believed that the ability of
the Fund to participate in volume transactions may produce better executions for
the Fund.
The
Fund does not place securities transactions through brokers as compensation for
selling shares of the Fund, but broker‑dealers who execute brokerage
transactions may effect purchases of shares of the Fund for their
customers.
|
|
|
|
|
|
|
| |
Aggregate
Brokerage Commissions Paid during Fiscal Years Ended
October 31, |
2022 |
2021 |
2020 |
$37,439 |
$43,016 |
$52,133 |
The
table below indicates the portion of the Fund’s aggregate brokerage for fiscal
year ended October 31, 2022 (from the table above) that was directed
to brokers who, in addition to providing trade execution, also supplied the Fund
with research services.
|
|
|
|
| |
Fiscal
Year Ended October 31, 2022 |
Dollar
Value of Securities Traded |
Related
Soft Dollar Brokerage Commissions |
$26,989,245 |
$12,078 |
The
Fund may invest in the securities of its regular broker/dealers who have
executed trades for the Fund. During the fiscal year ended October 31, 2022, the
Fund did not own securities of its regular broker/dealers.
ADDITIONAL
PURCHASE AND REDEMPTION INFORMATION
The
information provided below supplements the information contained in the
Prospectus regarding the purchase and redemption of Fund shares.
How
to Buy Shares.
The public offering price of Fund shares is the NAV per share. Shares are
purchased at the public offering price next determined after the Transfer Agent
receives your order in proper form. In most cases, in order to receive that
day’s NAV per share, the Transfer Agent must receive your order in proper form
before the close of regular trading on the New York Stock Exchange (“NYSE”),
normally, 4:00 p.m., Eastern Time.
The
NYSE annually announces the days on which it will not be open for trading. The
most recent announcement indicates that it will not be open on the following
days: New Year’s Day, Martin Luther King Jr. Day, Washington’s
Birthday/Presidents’ Day, Good Friday, Memorial Day, Juneteenth National
Independence Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. However, the NYSE may close on days not included in that
announcement.
The
Trust reserves the right in its sole discretion to (i) suspend the
continued offering of the Fund’s shares and (ii) reject purchase orders in
whole or in part when in the judgment of the Advisor or the Distributor such
rejection is in the best interest of the Fund. The Advisor may reduce or waive
the minimum for initial and subsequent investments for certain fiduciary
accounts or under circumstances where certain economies can be achieved in sales
of the Fund’s shares.
How
to Sell Shares.
You can sell your Fund shares any day the NYSE is open for regular trading. The
Fund may require documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner. Contact the
Transfer Agent at 1-866-205-0524 for details. Certain redemption requests
require a signature guarantee as described in the Prospectus.
Delivery
of Redemption Proceeds.
Payments to shareholders for shares of the Fund redeemed directly from the Fund
will be made as promptly as possible but no later than seven days after receipt
by the Fund’s Transfer Agent of the written request in proper form, with the
appropriate documentation as stated in the Prospectus, except that the Fund may
suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the NYSE is restricted as determined by the SEC
or the NYSE is closed for other than weekends and holidays; (b) an
emergency exists as determined by the SEC making disposal of portfolio
securities or valuation of net assets of the Fund not reasonably practicable; or
(c) for such other period as the SEC may permit for the protection of the
Fund’s shareholders. Under unusual circumstances, the Fund may suspend
redemptions, or postpone payment for more than seven days, but only as
authorized by SEC rules.
The
value of shares on redemption or repurchase may be more or less than the
investor’s cost, depending upon the market value of the Fund’s portfolio
securities at the time of redemption or repurchase.
Telephone
Redemptions.
Upon receipt of any instructions or inquiries by telephone from a shareholder
or, if held in a joint account, from either party, or from any person claiming
to be the shareholder, the Fund or its agent is authorized, without notifying
the shareholder or joint account parties, to carry out the instructions or to
respond to the inquiries, consistent with the service options chosen by the
shareholder or joint shareholders in his or their latest account application or
other written request for services, including purchasing or
redeeming
shares of the Fund and depositing and withdrawing monies from the bank account
specified in the Bank Information section of the shareholder’s latest account
application or as otherwise properly specified to the Fund in
writing.
The
Transfer Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; if it fails to employ reasonable
procedures, the Fund and the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent instructions. If these procedures are followed, an
investor agrees, however, that to the extent permitted by applicable law,
neither the Fund nor its agents will be liable for any loss, liability, cost or
expense arising out of any redemption request, including any fraudulent or
unauthorized request. For information, consult the Transfer Agent.
During
periods of unusual market changes and shareholder activity, you may experience
delays in contacting the Transfer Agent by telephone. In this event, you may
wish to submit a written redemption request, as described in the Prospectus. The
telephone redemption privilege may be modified or terminated without
notice.
Redemptions
In-Kind.
The Trust has elected to be governed by Rule 18f-1 under the 1940 Act so that
the Fund is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any
shareholder of the Fund. The Fund has reserved the right to pay the redemption
price of its shares in excess of $250,000 or l% of its net asset value, either
totally or partially, by a distribution in-kind of portfolio securities (instead
of cash). The securities so distributed would be valued at the same amount as
that assigned to them in calculating the NAV per share for the shares being
sold. If a shareholder receives a redemption in-kind, the shareholder could
incur brokerage or other charges in converting the securities to cash. A
redemption, whether in cash or in-kind, is a taxable event for you.
The
Fund does not intend to hold any significant percentage of its portfolio in
illiquid securities, although the Fund, like virtually all mutual funds, may
from time to time hold a small percentage of securities that are illiquid. In
the unlikely event the Fund were to elect to make an in-kind redemption, the
Fund expects that it would follow the Trust protocol of making such distribution
by way of a pro rata distribution of securities that are traded on a public
securities market or are otherwise considered liquid pursuant to the Fund’s
liquidity policies and procedures. Except as otherwise may be approved by the
Trustees, the securities that would not be included in an in-kind distribution
include (1) unregistered securities which, if distributed, would be required to
be registered under the Securities Act of 1933 (the “1933 Act”), as amended; (2)
securities issued by entities in countries which (a) restrict or prohibit the
holding of securities by non-nationals other than through qualified investment
vehicles, such as a fund, or (b) permit transfers of ownership of securities to
be effected only by transactions conducted on a local stock exchange; and (3)
certain Fund assets that, although they may be liquid and marketable, must be
traded through the marketplace or with the counterparty to the transaction in
order to effect a change in beneficial ownership.
Automatic
Investment Plan.
As discussed in the Prospectus, the Fund provides an Automatic Investment Plan
for the convenience of investors who wish to purchase shares of the Fund on a
regular basis. All record keeping and custodial costs of the Automatic
Investment Plan are paid by the Fund. The market value of the Fund’s shares is
subject to fluctuation, so before undertaking any plan for systematic
investment, the investor should keep in mind that this plan does not assure a
profit nor protect against depreciation in declining markets.
DETERMINATION
OF SHARE PRICE
The
NAV of the Fund is determined as of the close of regular trading on the New York
Stock Exchange (the “NYSE”) (generally 4:00 p.m., Eastern Time), each day the
NYSE is open for trading. The NYSE annually
announces
the days on which it will not be open for trading. It is expected that the NYSE
will not be open for trading on the following holidays: New Year’s Day, Martin
Luther King, Jr. Day, Washington’s Birthday/Presidents’ Day, Good Friday,
Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
NAV
is calculated by adding the value of all securities and other assets
attributable to the Fund (including interest and dividends accrued, but not yet
received), then subtracting liabilities attributable to the Fund (including
accrued expenses). The net asset amount attributable to the share class is
divided by the number of shares held by investors of the applicable
class.
Generally,
the Fund’s investments are valued at market value or, in the absence of a market
value, at fair value as determined in good faith by the Fund’s valuation
designee. The Board has designated the Advisor as its “valuation designee” under
Rule 2a-5 of the 1940 Act, subject to its oversight. Fair value determinations
are then made in good faith in accordance with procedures adopted by the
Advisor. Pursuant to those procedures, the valuation designee considers, among
other things: (1) the last sales price on the securities exchange, if any,
on which a security is primarily traded; (2) the mean between the bid and
asked prices; (3) price quotations from an approved pricing service; and
(4) other factors as necessary to determine a fair value under certain
circumstances.
Securities
primarily traded in the NASDAQ Global Market®
for which market quotations are readily available shall be valued using the
NASDAQ®
Official Closing Price (“NOCP”). If the NOCP is not available, such securities
shall be valued at the last sale price on the day of valuation, or if there has
been no sale on such day, at the mean between the bid and asked prices. OTC
securities which are not traded in the NASDAQ Global Market®
shall be valued at the most recent sales price. Securities and assets for which
market quotations are not readily available (including restricted securities
which are subject to limitations as to their sale) are valued at fair value as
determined in good faith under the Advisor’s procedures.
Short-term
debt obligations with remaining maturities in excess of 60 days are valued at
current market prices, as discussed above. In order to reflect their fair value,
short-term securities with 60 days or less remaining to maturity are, unless
conditions indicate otherwise, amortized to maturity based on their cost to the
Fund if acquired within 60 days of maturity or, if already held by the Fund on
the 60th day, based on the value determined on the 61st day.
In
the case of foreign securities, the occurrence of certain events after the close
of foreign markets, but prior to the time a Fund’s NAV is calculated (such as a
significant surge or decline in the U.S. or other markets) often will result in
an adjustment to the trading prices of foreign securities when foreign markets
open on the following business day. If such events occur, the Fund will value
foreign securities at fair value, taking into account such events, in
calculating the NAV. In such cases, use of fair valuation can reduce an
investor’s ability to seek to profit by estimating a Fund’s NAV in advance of
the time the NAV is calculated. The Advisor anticipates that the Fund’s
portfolio holdings will be fair valued only if market quotations for those
holdings are considered unreliable or are unavailable.
The
Fund’s securities, including ADRs, EDRs and GDRs, which are traded on securities
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any reported sales, at the mean between the last
available bid and asked price. Securities that are traded on more than one
exchange are valued on the exchange determined by the Advisor to be the primary
market.
All
other assets of the Fund are valued in accordance with procedures adopted by the
Advisor.
TAX
MATTERS
Each
series of the Trust is treated as a separate entity for federal income tax
purposes. The Fund, as a series of the Trust, has elected and intends to
continue to qualify as a regulated investment company under Subchapter M of
the Code, and to comply with all applicable requirements regarding the source of
its income, diversification of its assets and the timing and amount of its
distributions. The Fund’s policy is to distribute to its shareholders all of its
net taxable income and any net realized long‑term capital gains for each taxable
year in a manner that complies with the distribution requirements of the Code,
so that the Fund will not be subject to federal income or excise taxes in any
year. However, the Fund can give no assurances that distributions will be
sufficient to eliminate all taxes in all periods. If the Fund does not qualify
as a regulated investment company, it will be subject to tax on its net income
as a regular corporation. To avoid the nondeductible 4% Federal excise tax, the
Fund must distribute (or be deemed to have distributed) by December 31 of
each calendar year (i) at least 98% of its ordinary income for such year,
(ii) at least 98.2% of the excess of its realized capital gains over its
realized capital losses for the 12‑month period ending on October 31 of
such year and (iii) any amounts from the prior calendar year that were not
distributed and on which the Fund paid no federal excise tax.
In
order to qualify as a regulated investment company, the Fund must, among other
things, derive at least 90% of its gross income each year from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock or securities or foreign currency gains
related to investments in stock or securities, or other income (generally
including gains from options, futures or forward contracts) derived with respect
to the business of investing in stock, securities or currency, and net income
derived from an interest in a qualified publicly traded partnership. The Fund
must also satisfy the following two asset diversification tests. At the end of
each quarter of each taxable year, (i) at least 50% of the value of the
Fund’s total assets must be represented by cash and cash items (including
receivables), U.S. government securities, the securities of other regulated
investment companies, and other securities, with such other securities being
limited in respect of any one issuer to an amount not greater than 5% of the
value of the Fund’s total assets and not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of the
Fund’s total assets may be invested in the securities of any one issuer (other
than U.S. government securities or the securities of other regulated investment
companies), the securities of any two or more issuers (other than the securities
of other regulated investment companies) that the Fund controls (by owning 20%
or more of their outstanding voting stock) and that are determined to be engaged
in the same or similar trades or businesses or related trades or businesses, or
the securities of one or more qualified publicly traded partnerships. The Fund
also must distribute each taxable year sufficient dividends to its shareholders
to claim a dividends paid deduction equal to at least the sum of 90% of the
Fund’s investment company taxable income before the dividends paid deduction
(which generally includes dividends, interest, and the excess of net short-term
capital gain over net long-term capital loss) and 90% of the Fund’s net
tax-exempt interest, if any.
Net
investment income generally consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carryforward of the Fund. Capital losses sustained
and not used in a taxable year may be carried forward indefinitely to offset
capital gains of the Fund in future years.
At
October 31, 2022, the Fund did not have any capital loss
carryforwards.
Distributions
of net investment income and net short‑term capital gains are taxable to
shareholders as ordinary income. For individual shareholders, a portion of the
distributions paid by the Fund may be qualified dividend income currently
eligible for taxation at long-term capital gain rates to the extent the Fund
reports the amount distributed as a qualifying dividend and certain holding
period requirements are met. In the case of corporate
shareholders,
a portion of the distributions may qualify for the intercorporate
dividends‑received deduction to the extent the Fund reports the amount
distributed as a qualifying dividend and certain holding period requirements are
met. The aggregate amount so reported to either individual or corporate
shareholders cannot, however, exceed the aggregate amount of qualifying
dividends received by the Fund for its taxable year. In view of the Fund’s
investment policies, it is expected that dividends from domestic corporations
will be part of the Fund’s gross income and that, accordingly, part of the
distributions by the Fund may be eligible for qualified dividend income
treatment for individual shareholders, or for the dividends‑received deduction
for corporate shareholders. However, the portion of the Fund’s gross income
attributable to qualifying dividends is largely dependent on the Fund’s
investment activities for a particular year and therefore cannot be predicted
with any certainty. Further, the dividends-received deduction may be reduced or
eliminated if Fund shares held by a corporate investor are treated as
debt‑financed or are held for less than 46 days.
Long‑term
capital gain distributions are taxable to shareholders as long‑term capital
gains regardless of the length of time a shareholder held his or her Fund
shares. Capital gain distributions are not eligible for qualified dividend
income treatment or the dividends‑received deduction referred to in the previous
paragraph. Distributions of any net investment income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders who choose to receive distributions in the form of additional
shares will have a cost basis for federal income tax purposes in each share so
received equal to the NAV of a share on the reinvestment date. Distributions
generally are taxable when received or deemed to be received. However,
distributions declared in October, November or December to shareholders of
record on a date in such a month and paid the following January are taxable as
if received on December 31. Distributions are includable in alternative
minimum taxable income in computing liability for the alternative minimum tax of
a shareholder who is an individual.
For
taxable years beginning after 2017 and before 2025, non-corporate taxpayers
generally may deduct 20% of “qualified business income” derived either directly
or through partnerships or S corporations. For this purpose, “qualified business
income” generally includes dividends paid by a real estate investment trust
(“REIT”) and certain income from publicly traded partnerships. Regulations
recently adopted by the United States Treasury allow non-corporate shareholders
of a Fund to benefit from the 20% deduction with respect to net REIT dividends
received by the Fund if the Fund meets certain reporting requirements, but do
not permit any such deduction with respect to publicly traded
partnerships.
Redemption
of Fund shares may result in recognition of a taxable gain or loss. Any loss
realized upon redemption or sale of shares within six months from the date of
their purchase will be treated as a long‑term capital loss to the extent of any
amounts treated as distributions of long‑term capital gains during such
six‑month period. Any loss realized upon a redemption or sale may be disallowed
under certain wash sale rules to the extent shares of the same Fund are
purchased (through reinvestment of distributions or otherwise) within
30 days before or after the redemption.
Under
the Code, the Fund will be required to report to the Internal Revenue Service
all distributions of taxable income and capital gains, as well as gross proceeds
from the redemption of Fund shares, except in the case of exempt shareholders,
which includes most corporations. Pursuant to the backup withholding provisions
of the Code, distributions of any taxable income and capital gains and proceeds
from the redemption of Fund shares may be subject to backup withholding of
federal income tax at a rate under Section 3406 of the Code, in the case of
non‑exempt shareholders who fail to furnish the Fund with their Social Security
or taxpayer identification numbers and with required certifications regarding
their status under the federal income tax law. If the backup withholding
provisions are applicable, any such distributions and proceeds, whether received
in cash or reinvested in additional shares, will be reduced by the amounts
required to be withheld. Corporate and other exempt shareholders should provide
the Fund with their taxpayer identification numbers or certify their exempt
status in order to avoid possible erroneous application of backup withholding.
Backup withholding is
not
an additional tax and any amount withheld may be credited against a
shareholder’s ultimate federal income tax liability if proper documentation is
provided. The Fund reserves the right to refuse to open an account for any
person failing to provide a certified taxpayer identification
number.
The
foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. citizens or residents and U.S. domestic
corporations, estates, the income of which is subject to United States federal
income taxation regardless of its source and trusts that (1) are subject to the
primary supervision of a court within the United States and one or more United
States persons have the authority to control all substantial decisions of the
trust or (2) have a valid election in effect under applicable United States
Treasury regulations to be treated as a United States person.
The
Fund may be subject to foreign taxes and withholding on income earned with
respect to securities of foreign corporations including ADRs. Based on the
principal investment strategies of the fund, it is not expected that the Fund
will be eligible to pass through to shareholders any credits or deductions with
respect to such foreign taxes.
The
Foreign Account Tax Compliance Act (“FATCA”) imposes a 30% withholding tax on
the Fund’s ordinary income distributions, if paid to a foreign entity unless:
(i) if the foreign entity is a “foreign financial institution,” it
undertakes certain due diligence, reporting, withholding and certification
obligations, (ii) if the foreign entity is not a “foreign financial
institution,” it identifies certain of its U.S. investors or (iii) the
foreign entity is otherwise excepted under FATCA. If applicable, and subject to
any intergovernmental agreement, withholding under FATCA is required generally
with respect to ordinary income distributions from the Fund. If withholding is
required under FATCA on a payment related to your shares, investors that
otherwise would not be subject to withholding (or that otherwise would be
entitled to a reduced rate of withholding) on such payment generally will be
required to seek a refund or credit from the IRS to obtain the benefits of such
exemption or reduction. The Fund will not pay any additional amounts in respect
to amounts withheld under FATCA. You should consult your tax advisor regarding
the effect of FATCA based on your individual circumstances.
This
discussion and the related discussion in the Prospectus have been prepared by
Fund management. The information above is only a summary of some of the tax
considerations generally affecting the Fund and its shareholders. No attempt has
been made to discuss individual tax consequences and this discussion should not
be construed as applicable to all shareholders’ tax situations. Investors should
consult their own tax advisors to determine the suitability of the Fund and the
applicability of any federal, state, local or foreign taxation. No rulings with
respect to tax matters of the Fund will be sought from the Internal Revenue
Service. Sullivan & Worcester has expressed no opinion in respect of the tax
information in the Prospectus and the SAI.
DIVIDENDS
AND DISTRIBUTIONS
The
Fund will receive income in the form of dividends and interest earned on its
investments in securities. This income, less the expenses incurred in its
operations, is the Fund’s net investment income, substantially all of which will
be declared as dividends to the Fund’s shareholders.
The
amount of income dividend payments by the Fund is dependent upon the amount of
net investment income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board. The Fund does not pay
“interest” or guarantee any fixed rate of return on an investment in its
shares.
The
Fund also may derive capital gains or losses in connection with sales or other
dispositions of its portfolio securities. Any net gain the Fund may realize from
transactions involving investments held less than the
period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from previous taxable years), although a distribution from
capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year the Fund realizes a
net gain on transactions involving investments held more than the period
required for long-term capital gain or loss recognition or otherwise producing
long-term capital gains and losses, the Fund will have a net long-term capital
gain. After deduction of the amount of any net short-term capital loss, the
balance (to the extent not offset by any capital losses carried over from
previous taxable years) will be distributed and treated as long-term capital
gains in the hands of the shareholders regardless of the length of time the
Fund’s shares may have been held by the shareholders. For more information
concerning applicable capital gains tax rates, see your tax
advisor.
Any
dividend or distribution paid by the Fund reduces the Fund’s NAV per share on
the date paid by the amount of the dividend or distribution per share.
Accordingly, a dividend or distribution paid shortly after a purchase of shares
by a shareholder would represent, in substance, a partial return of capital (to
the extent it is paid on the shares so purchased), even though it would be
subject to income taxes.
Dividends
and other distributions will be made in the form of additional shares of the
Fund unless the shareholder has otherwise indicated. Such distributions will be
taxable whether received in additional shares of the Fund or cash. Investors
have the right to change their elections with respect to the reinvestment of
dividends and in distributions by notifying the Transfer Agent in writing, but
any such change will be effective only as to dividends and other distributions
for which the record date is seven or more business days after the Transfer
Agent has received the written request.
ANTI-MONEY
LAUNDERING PROGRAM
The
Trust has established an Anti-Money Laundering Compliance Program (the
“Program”) as required by the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the
“USA PATRIOT Act”). In order to ensure compliance with this law, the Trust’s
Program provides for the development of internal practices, procedures and
controls, designation of anti-money laundering compliance officers, an ongoing
training program and an independent audit function to determine the
effectiveness of the Program.
Procedures
to implement the Program include, but are not limited to, determining that the
Fund’s Distributor and Transfer Agent have established proper anti-money
laundering procedures, reporting suspicious and/or fraudulent activity, checking
shareholder names against designated government lists, including Office of
Foreign Asset Control (“OFAC”), and a complete and thorough review of all new
opening account applications. The Trust will not transact business with any
person or legal entity whose identity and beneficial owners, if applicable,
cannot be adequately verified under the provisions of the USA PATRIOT
Act.
GENERAL
INFORMATION
Investors
in the Fund will be informed of the Fund’s progress through periodic reports.
Financial statements certified by the independent registered public accounting
firm will be submitted to shareholders annually.
The
Trust’s Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest and to divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interest in the Fund. Each share represents an
interest in the Fund proportionately equal to the interest of each other share.
Upon the Fund’s liquidation, all shareholders would share pro rata in the net
assets of the Fund available for distribution to shareholders.
The
Declaration of Trust does not require the issuance of stock certificates and no
stock certificates have been issued for the Fund.
The
Board has created numerous series of shares, and may create additional series in
the future, each of which has separate assets and liabilities. Income and
operating expenses not specifically attributable to a particular Fund are
allocated fairly among the Funds by the Trustees, generally on the basis of the
relative net assets of each Fund.
Rule 18f-2
under the 1940 Act provides that as to any investment company which has two or
more series outstanding and as to any matter required to be submitted to
shareholder vote, such matter is not deemed to have been effectively acted upon
unless approved by the holders of a “majority” (as defined in the Rule) of the
voting securities of each series affected by the matter. Such separate voting
requirements do not apply to the election of Trustees or the ratification of the
selection of accountants. The Rule contains special provisions for cases in
which an advisory contract is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not obtained as
to the holders of other affected series.
With
respect to the Fund, the Trust may offer more than one class of shares. The
Trust has reserved the right to create and issue additional series or classes.
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. Currently,
the Fund has only one class of shares.
The
shares of each series or class participate equally in the earnings, dividends
and assets of the particular series or class. Expenses of the Trust which are
not attributable to a specific series or class are allocated amount all the
series in a manner believed by management of the Trust to be fair and equitable.
Fund shares have no pre‑emptive or conversion rights. Shares, when issued, are
fully paid and non‑assessable, except as set forth below. Shareholders are
entitled to one vote for each share held. 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, such as the
approval of distribution plans for a particular class.
The
Trust is not required to hold annual meetings of shareholders but will hold
special meetings of shareholders of a series or class when, in the judgment of
the Trustees, it is necessary or desirable to submit matters for a shareholder
vote. Shareholders have, under certain circumstances, the right to communicate
with other shareholders in connection with requesting a meeting of shareholders
for the purpose of removing one or more Trustees. Shareholders also have, in
certain circumstances, the right to remove one or more Trustees without a
meeting. No material amendment may be made to the Declaration of Trust without
the affirmative vote of the holders of a majority of the outstanding shares of
each portfolio affected by the amendment. The Declaration of Trust provides
that, at any meeting of shareholders of the Trust or of any series or class, a
Shareholder Servicing Agent may vote any shares as to which such Shareholder
Servicing Agent is the agent of record and which are not represented in person
or by proxy at the meeting, proportionately in accordance with the votes cast by
holders of all shares of that portfolio otherwise represented at the meeting in
person or by proxy as to which such Shareholder Servicing Agent is the agent of
record. Any shares so voted by a Shareholder Servicing Agent will be deemed
represented at the meeting for purposes of quorum requirements. Any series or
class may be terminated at any time by vote of a majority of the shares of that
series or by the Trustees by written notice to the shareholders of that series.
Unless each series and class is so terminated, the Trust will continue
indefinitely.
The
Declaration of Trust also provides that the Trust shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its shareholders, Trustees, officers, employees and
agents covering possible tort and other liabilities.
FINANCIAL
STATEMENTS
The
annual
report
for the Fund for the fiscal year ended October 31, 2022, is available,
without charge, upon request by calling 1‑866‑205‑0524 and the financial
statements, accompanying notes and reports of the independent registered public
accounting firm appearing therein are incorporated by reference in this
SAI.
APPENDIX
SHORT-TERM
RATINGS
Standard
& Poor’s Short-Term Issue Credit Ratings
A
Standard & Poor’s issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations, or a specific financial program
(including ratings on medium-term note programs and commercial paper programs).
It takes into consideration the creditworthiness of guarantors, insurers, or
other forms of credit enhancement on the obligation and takes into account the
currency in which the obligation is denominated. The opinion evaluates the
obligor’s capacity and willingness to meet its financial commitments as they
come due, and may assess terms, such as collateral security and subordination,
which could affect ultimate payment in the event of default. The issue credit
rating is not a recommendation to purchase, sell, or hold a financial
obligation, inasmuch as it does not comment as to market price or suitability
for a particular investor.
Issue
credit ratings are based on current information furnished by the obligors or
obtained by Standard & Poor’s from other sources it considers reliable.
Standard & Poor’s does not perform an audit in connection with any credit
rating and may, on occasion, rely on unaudited financial information. Credit
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or based on other
circumstances.
Issue
credit ratings can be either long term or short term. Short-term ratings are
generally assigned to those obligations considered short-term in the relevant
market. In the U.S., for example, that means obligations with an original
maturity of no more than 365 days including commercial paper. Short-term ratings
are also used to indicate the creditworthiness of an obligor with respect to put
features on long-term obligations. The result is a dual rating, in which the
short-term rating addresses the put feature, in addition to the usual long-term
rating. Medium-term notes are assigned long-term ratings.
Short-Term
Issue Credit Ratings
A-1”
– A short-term obligation rated “A-1” is rated in the highest category and
indicates that the obligor’s capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor’s capacity to meet its
financial commitment on these obligations is extremely strong.
“A-2”
– A short-term obligation rated “A-2” is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor’s capacity to meet
its financial commitment on the obligation is satisfactory.
“A-3”
– A short-term obligation rated “A-3” exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
“B”
– A short-term obligation rated “B” is regarded as vulnerable and has
significant speculative characteristics. The obligor currently has the capacity
to meet its financial commitments; however, it faces major ongoing uncertainties
which could lead to the obligor’s inadequate capacity to meet its financial
commitments.
“C”
– A short-term obligation rated “C” is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
“D”
– A short-term obligation rated “D” is in default or in breach of an imputed
promise. For non-hybrid capital instruments, the “D” rating category is used
when payments on an obligation are not made on the date due, unless Standard
& Poor’s believes that such payments will be made within any stated grace
period. However, any stated grace period longer than five business days will be
treated as five business days. The “D” rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action and where default on
an obligation is a virtual certainty, for example due to automatic stay
provisions. An obligation’s rating is lowered to “D” if it is subject to a
distressed exchange offer.
Local
Currency and Foreign Currency Risks – Standard & Poor’s issuer credit
ratings make a distinction between foreign currency ratings and local currency
ratings. An issuer’s foreign currency rating will differ from its local currency
rating when the obligor has a different capacity to meet its obligations
denominated in its local currency, vs. obligations denominated in a foreign
currency.
Moody’s
Short-Term Debt Ratings
Short-Term
Ratings
Moody’s
Investors Service (“Moody’s”)
short-term ratings are forward-looking opinions of the relative credit risks of
financial obligations with an original maturity of thirteen months or less and
reflect the likelihood of a default on contractually promised payments. Ratings
may be assigned to issuers, short-term programs or to individual short-term debt
instruments.
Moody’s
employs the following designations to indicate the relative repayment ability of
rated issuers:
“P-1”
– Issuers (or supporting institutions) rated Prime-1 have a superior ability to
repay short-term debt obligations.
“P-2”
– Issuers (or supporting institutions) rated Prime-2 have a strong ability to
repay short-term debt obligations.
“P-3”
– Issuers (or supporting institutions) rated Prime-3 have an acceptable ability
to repay short-term obligations.
“NP”
– Issuers (or supporting institutions) rated Not Prime do not fall within any of
the Prime rating categories.