ck0001027596-20220930
TABLE
OF CONTENTS
THE
TRUST
The
Trust is a Delaware statutory trust organized under the laws of the State of
Delaware on October 3, 1996, and is registered with the U.S. Securities and
Exchange Commission (the “SEC”) as an open-end management investment company.
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 Funds.
The
Short Duration Fund commenced operations on October 31, 2012. The Floating Rate
Fund commenced operations on October 15, 2014.
Registration
with the SEC does not involve supervision of the management or policies of the
Funds. The Prospectus of the Funds 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.
INVESTMENT
POLICIES
The
discussion below supplements information contained in the Funds’ Prospectus as
to the investment policies and risks of the Funds.
Diversification
Each
Fund is diversified under applicable federal securities laws. This means that as
to 75% of its total assets (1) no more than 5% may be invested in the
securities of a single issuer, and (2) it may not hold more than 10% of the
outstanding voting securities of a single issuer. However, the diversification
of a mutual fund’s holdings is measured at the time the fund purchases a
security, and if a 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 a Fund, a Fund may have a greater percentage of its assets invested in
securities of fewer issuers. Accordingly, a Fund is subject to the risk that its
performance may be hurt disproportionately by the poor performance of relatively
few securities despite qualifying as a diversified fund.
Percentage
Limitations
Whenever
an investment policy or limitation states a maximum percentage of a Fund’s
assets that may be invested in any security or other asset, or sets forth a
policy regarding quality standards, such standard or percentage limitation will
be determined immediately after and as a result of the Funds’ 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
Funds’ investment policies and limitations. In addition, if a bankruptcy or
other extraordinary event occurs concerning a particular investment by a 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, subject to then-existing market conditions and liquidity as
well as the Advisor’s compliance policies and procedures, 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
Funds, 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 a 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 Funds
invest in securities of issuers located in or with significant exposure to
countries experiencing economic and financial difficulties, the value and
liquidity of the Funds’ investments may be negatively affected.
The
Funds may invest in the following types of investments, each of which is subject
to certain risks, as discussed below:
Fixed-Income
Instruments
The
market value of the fixed-income investments in which the Funds may invest will
change in response to interest rate changes and other factors. During periods of
declining interest rates, the values of outstanding fixed-income instruments
generally rise. Conversely, during periods of rising interest rates, the values
of such instruments generally decline. Moreover, while instruments with longer
maturities tend to produce higher yields, the prices of longer maturity
instruments are also subject to greater market fluctuations as a result of
changes in interest rates. Changes by recognized agencies in the rating of any
fixed-income instrument and in the ability of an issuer to make payments of
interest and principal also affect the value of these investments. Changes in
the value of these instruments will not necessarily affect cash income derived
from these instruments but will affect the Fund’s net asset value (“NAV”).
Additional information regarding fixed-income instruments is described
below:
•Duration.
Duration is a measure of the expected change in value of a fixed-income
instrument for a given change in interest rates. For example, if interest rates
changed by one percent, the value of an instrument having an effective duration
of two years generally would vary by two percent. Duration takes the length of
the time intervals between the present time and time that the interest and
principal payments are scheduled, or in the case of a callable bond, expected to
be received, and weighs them by the present values of the cash to be received at
each future point in time.
•Variable
and Floating Rate Instruments.
Variable and floating rate instruments involve certain obligations that may
carry variable or floating rates of interest, and may involve a conditional or
unconditional demand feature. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices. The
interest rates on these instruments may be reset daily, weekly, quarterly, or
some other reset period, and may not accurately reflect existing market interest
rates. A demand instrument with a demand notice exceeding seven days may be
considered illiquid if there is no secondary market for such
instrument.
Zero
Coupon Securities
The
Floating Rate Fund may invest in zero coupon securities. Zero coupon
securities are debt obligations that are issued or sold at a significant
discount from their face value; do not pay current interest to holders prior to
maturity, or have a specified redemption date or cash payment
date. The discount approximates the total interest the securities
will accrue and compound over the period to maturity or the first interest
payment date at a rate of interest reflecting the market rate of interest at the
time of issuance. The original issue discount on the zero coupon
securities must be included ratably in the income of the Fund (and thus an
investor’s) as the income accrues, even though payment has not been
received. The Fund distributes all of its net investment income, and
may have to sell portfolio securities to distribute imputed income, which may
occur at a time when the Advisor would not have chosen to sell such securities
and which may result in a taxable gain or loss. Because interest on
zero coupon securities is not paid on a current basis but is in effect
compounded, the value of these securities is subject to greater fluctuations in
response to changing interest rates, and may involve greater credit risks, than
the value of debt obligations which distribute income regularly.
Zero
coupon securities may be securities that have been stripped of their unmatured
interest stream or custodial receipts or certificates, underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both on certain U.S. government securities. The
underwriters of these certificates or receipts generally purchase a U.S.
government security and deposit the security in an irrevocable trust or
custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the purchased unmatured coupon payments
and the final principal payment of the U.S. government
security. These certificates or receipts have the same general
attributes as zero coupon stripped U.S. Treasury securities but are not
supported by the issuer of the U.S. government security. The risks
associated with stripped securities are similar to those of other zero coupon
securities, although stripped securities may be more volatile, and the value of
certain types of stripped securities may move in the same direction as interest
rates.
Yankee
Bond Obligations
Yankee
bond obligations are U.S. dollar obligations issued inside the United States by
foreign entities. There is generally less publicly available information about
foreign issuers and there may be less governmental regulation and supervision of
foreign stock exchanges, brokers and listed companies. Foreign issuers may use
different accounting and financial standards, and the addition of foreign
governmental restrictions may affect adversely the payment of principal and
interest on foreign investments. In addition, not all foreign branches of United
States banks are supervised or examined by regulatory authorities as are United
States banks, and such branches may not be subject to reserve requirements.
Corporate
Debt Obligations
The
Funds may invest in corporate fixed-income securities and loans of any maturity
or credit quality. Bonds and loans rated below BBB by S&P Global Ratings
(“S&P”) or Baa by Moody’s Investors Service, Inc. (“Moody’s”), commonly
referred to as “junk bonds or loans,” typically carry higher coupon rates than
investment grade bonds, but also are described as speculative by both S&P
and Moody’s and may be subject to greater market price fluctuations, less
liquidity and greater risk of income or principal including greater possibility
of default and bankruptcy of the issuer of such instruments than more highly
rated bonds and loans. Lower-rated bonds and loans also are more likely to be
sensitive to adverse economic or company developments and more subject to price
fluctuations in response to changes in interest rates. The market for
lower-rated debt issues generally is thinner and less active than that for
higher quality instruments, which may limit the Funds’ ability to sell such
instruments at fair value in response to changes in the economy or financial
markets. During periods of economic downturn or rising interest rates, highly
leveraged issuers of lower-rated securities may experience financial stress
which
could
adversely affect their ability to make payments of interest and principal and
increase the possibility of default.
High
Yield and Other Securities and Loans
The
Funds will invest in fixed-income securities and loans that are rated below
investment grade or non-rated. Investments in high yield debt (i.e.,
less than investment grade), while providing greater income and opportunity for
gain than investments in higher-rated instruments, entail relatively greater
risk of loss of income or principal. Lower-grade obligations are commonly
referred to as “junk bonds or loans.” Market prices of high-yield, lower-grade
obligations may fluctuate more than market prices of higher-rated instruments.
Lower grade, fixed-income securities tend to reflect short-term corporate and
market developments to a greater extent than higher-rated obligations which,
assuming no change in their fundamental quality, react primarily to fluctuations
in the general level of interest rates.
The
Funds may purchase unrated securities and loans. Unrated debt may be less liquid
than comparable rated securities or loans and involve the risk that the
portfolio manager may not accurately evaluate the instruments’ comparative
credit ratings.
The
high yield market at times is subject to substantial volatility. An economic
downturn or increase in interest rates may have a more significant effect on
high yield securities and loans and their markets, as well as on the ability of
their respective issuers to repay principal and interest. Issuers of high yield
debt may be of low creditworthiness and the high yield securities or loans may
be subordinated to the claims of senior lenders. During periods of economic
downturn or rising interest rates the issuers of high yield securities and loans
may have greater potential for insolvency and a higher incidence of high yield
debt defaults may be experienced.
The
prices of high yield securities and loans have been found to be less sensitive
to interest rate changes than higher-rated investments but are more sensitive to
adverse economic changes or individual corporate developments. During an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would adversely affect
their ability to service their principal and interest payment obligations, to
meet projected business goals, and to obtain additional financing. If the issuer
of a high yield security or loan owned by a Fund defaults, the Fund may incur
additional expenses in seeking recovery. Periods of economic uncertainty and
changes can be expected to result in increased volatility of the market prices
of high yield instruments and the Funds’ NAV per share. Yields on high yield
securities will fluctuate over time. Furthermore, in the case of high yield debt
structured as zero coupon or pay-in-kind securities, their market prices are
affected to a greater extent by interest rate changes and therefore tend to be
more volatile than the market prices of securities which pay interest
periodically and in cash.
Certain
investments held by a Fund including high yield securities and loans, may
contain redemption or call provisions. If an issuer exercises these provisions
in a declining interest rate market, the Fund would have to replace the security
or loan with a lower yielding security, resulting in a decreased return for the
investor. Conversely, a high yield investment’s value will decrease in a rising
interest rate market, as will the Fund’s net assets.
The
secondary market for high yield securities and loans may at times become less
liquid or respond to adverse publicity or investor perceptions making it more
difficult for a Fund to accurately value, or dispose of, high yield securities
or loans. To the extent the Funds owns or may acquire illiquid or restricted
high yield securities or loans, these investments may involve special
registration responsibilities, liabilities and costs, liquidity difficulties,
and judgment will play a greater role in valuation because there is less
reliable and objective data available.
Special
tax considerations are associated with investing in high yield bonds structured
as zero coupon or pay-in-kind securities. Each Fund will report the interest on
these securities as income even though it receives no cash interest until the
security’s maturity or payment date. Further, each Fund must distribute
substantially all of its income to its shareholders to qualify for pass-through
treatment under the tax law. Accordingly, a Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash or may
have to borrow to satisfy distribution requirements.
Credit
ratings evaluate the safety of principal and interest payments, not the market
value risk of high yield securities and loans. Since credit rating agencies may
fail to timely change the credit ratings to reflect subsequent events, the
Advisor monitors the issuers of high yield securities and loans in the portfolio
to determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments, and to attempt to assure the
investments’ liquidity so the Funds can meet redemption requests. To the extent
that a Fund invests in high yield securities or loans, the achievement of its
investment objective may be more dependent on the Advisor’s credit analysis than
would be the case for higher quality bonds. The Funds may retain a portfolio
security whose rating has been changed.
In
the course of their investment activities, it may, from time to time, become
appropriate for the Funds to participate (whether directly or through the
Advisor or one of its affiliates) on a formal or informal creditor committee
and/or to participate in litigation or other proceedings in order to seek to
preserve, protect and/or enhance an investment. Participation on such committees
and/or in any such litigation or proceedings may result in the Funds incurring
fees and expenses, including legal fees.
Mortgage-Backed
and Mortgage-Related Securities
The
Floating Rate Fund may invest in mortgage-backed securities and mortgage-related
securities. Investing in mortgage-backed and mortgage-related
securities involves certain unique risks in addition to those generally
associated with investing in fixed-income securities and in the real
estate
industry
in general. These unique risks include the failure of a party to meet its
commitments under the related operative documents, adverse interest rate changes
and the effects of prepayments on mortgage cash flows. Mortgage-backed
securities are “pass-through” securities, meaning that principal and interest
payments made by the borrower on the underlying mortgages are passed through to
the Fund. The value of mortgage-backed securities, like that of traditional
fixed-income securities, typically increases when interest rates fall and
decreases when interest rates rise. However, mortgage-backed securities differ
from traditional fixed-income securities because of their potential for
prepayment without penalty. The price paid by the Fund for its mortgage-backed
securities, the yield the Fund expects to receive from such securities and the
average life of the securities are based on a number of factors, including the
anticipated rate of prepayment of the underlying mortgages. In a period of
declining interest rates, borrowers may prepay the underlying mortgages more
quickly than anticipated, thereby reducing the yield to maturity and the average
life of the mortgage-backed securities. Moreover, when the Fund reinvests the
proceeds of a prepayment in these circumstances, it will likely receive a rate
of interest that is lower than the rate on the security that was
prepaid.
Mortgage-related
securities include mortgage pass-through securities, collateralized mortgage
obligations (“CMOs”), commercial mortgage-backed securities, mortgage dollar
rolls, CMO residuals, stripped mortgage-backed securities and other securities
that directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property.
The
value of some mortgage-backed securities and other mortgage-related securities
may be particularly sensitive to changes in prevailing interest rates. Early
repayment of principal on some mortgage-related securities may expose the
Floating Rate Fund to a lower rate of return upon reinvestment of principal.
When interest rates rise, the value of a mortgage-related security generally
will decline; however, when interest rates are declining, the value of
mortgage-related securities with prepayment features may not
increase
as much as other fixed-income securities. The rate of prepayments on underlying
mortgages will affect the price and volatility of a mortgage- security, and may
shorten or extend the effective maturity of the security beyond what was
anticipated at the time of purchase. If unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mortgage-related
security, the volatility of the security can be expected to increase. The value
of these securities may fluctuate in response to the market’s perception of the
creditworthiness of the issuers. Additionally, although mortgages and
mortgage-related securities are generally supported by some form of government
or private guarantee and/or insurance, there is no assurance that private
guarantors or insurers will meet their obligations.
Collateralized
Loan Obligations
The
Floating Rate Fund may invest in collateralized loan obligations (“CLOs”) and
other similarly structured securities. CLOs are types of asset-backed
securities. A CLO is a trust typically collateralized by a pool of loans, which
may include, among others, domestic and foreign senior secured loans, senior
unsecured loans, and subordinate corporate loans, including loans that may be
rated below investment grade or equivalent unrated loans.
For
CLOs, the cash flows from the trust are split into two or more portions, called
tranches, varying in risk and yield. The riskiest portion is the “equity”
tranche which bears the bulk of defaults from the bonds or loans in the trust
and serves to protect the other, more senior tranches from default in all but
the most severe circumstances. Any CLO junior debt securities purchased by the
Floating Rate Fund will most likely be unrated or non-investment grade. Since it
is partially protected from defaults, a senior tranche from a CLO trust
typically has higher ratings and lower yields than their underlying securities,
and can be rated investment grade.
Despite
the protection from the equity tranche, CLO tranches can experience substantial
losses due to actual defaults, increased sensitivity to defaults due to
collateral default and disappearance of protecting tranches, market anticipation
of defaults, as well as aversion to CLO securities as a class. The CLO junior
debt positions would only be paid the principal and interest due to the position
based on the principal and interest waterfall structured by the trust. CLOs
often invest in concentrated portfolios of assets. The concentration of an
underlying portfolio in any one asset class would subject the related CLO
securities to a greater degree of risk with respect to defaults across such
asset class. The value of the CLO securities owned by the Floating Rate Fund
generally will fluctuate with, among other things, the financial condition of
the obligors or issuers of the underlying portfolio of assets of the related CLO
(“CLO Collateral”), general economic conditions, the condition of certain
financial markets, political events, legislation and regulations, developments
or trends in any particular industry and changes in prevailing interest rates.
Consequently, holders of CLO securities must rely solely on distributions on the
CLO Collateral or proceeds thereof for payment in respect thereof. If
distributions on the CLO Collateral are insufficient to make payments on the CLO
securities, no other assets will be available for payment of the deficiency and,
following realization of the CLO securities, the obligations of such CLO to pay
such deficiency generally will be extinguished. CLO Collateral may consist of
collateralized loan obligations, corporate loans, asset-backed securities
(including both residential and commercial mortgage-backed securities) and other
securities, which often are rated below investment-grade (or of equivalent
credit quality).
Convertible
Securities
The
Funds may invest in convertible securities. Traditional convertible
securities include corporate bonds, notes and preferred stocks that may be
converted into or exchanged for common stock, and other securities that also
provide an opportunity for equity participation. These securities are
convertible either at a stated price or a stated rate (that is, for a specific
number of shares of common stock or other security). As with other
fixed-income securities, the price of a convertible security generally varies
inversely with interest rates. While providing a fixed-income stream,
a convertible security also affords
the
investor an opportunity, through its conversion feature, to participate in the
capital appreciation of the common stock into which it is
convertible. As the market price of the underlying common stock
declines, convertible securities tend to trade increasingly on a yield basis and
so may not experience market value declines to the same extent as the underlying
common stock. When the market price of the underlying common stock
increases, the price of a convertible security tends to rise as a reflection of
higher yield or capital appreciation. In such situations, the Funds
may have to pay more for a convertible security than the value of the underlying
common stock.
A
convertible security may be subject to redemption at the option of the issuer at
a price established in the convertible security’s governing instrument. If a
convertible security held by the either Fund is called for redemption, the Fund
will be required to permit the issuer to redeem the security, convert it into
the underlying common stock or sell it to a third party. Any of these actions
could have an adverse impact on the Fund’s ability to achieve the investment
objective.
Equity
Securities
All
investments in equity securities are subject to market risks that may cause
their prices to fluctuate over time. Historically, the equity markets have moved
in cycles and the value of the securities in the Funds’ portfolio may fluctuate
substantially from day to day.
Common
Stocks. 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 a 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 Funds as a holder of common
stock. It is possible that all assets of that company will be exhausted before
any payments are made to a Fund.
Preferred
Stocks.
Preferred stock generally has a preference as to dividends and upon liquidation
over an issuer’s common stock but ranks junior to other income securities in an
issuer’s capital structure. Preferred stock generally pays dividends
in cash (or additional shares of preferred stock) at a defined rate but, unlike
interest payments on other income securities, preferred stock dividends are
payable only if declared by the issuer’s board of
directors. Dividends on preferred stock may be cumulative, meaning
that, in the event the issuer fails to make one or more dividend payments on the
preferred stock, no dividends may be paid on the issuer’s common stock until all
unpaid preferred stock dividends have been paid. Preferred stock also
may provide that, in the event the issuer fails to make a specified number of
dividend payments, the holders of the preferred stock will have the right to
elect a specified number of directors to the issuer’s
board. Preferred stock also may be subject to optional or mandatory
redemption provisions.
Rights
and Warrants. The
Funds may invest in rights and warrants. A right is a privilege granted to
existing shareholders of a corporation to subscribe to shares of a new issue of
common stock and it is issued at a predetermined price in proportion to the
number of shares already owned. Rights normally have a short life, usually two
to four weeks, are freely transferable and entitle the holder to buy the new
common stock at a lower price than the current market. Warrants are options to
purchase equity securities at a specific price for a specific period of time.
They do not represent ownership of the securities, but only the right to buy
them. Hence, warrants have no voting rights, pay no dividends and have no rights
with respect to the assets of the corporation issuing them. The value of
warrants is derived solely from capital appreciation of the underlying equity
securities. Warrants differ from call options in that the underlying corporation
issues warrants, whereas call options may be written by anyone.
An
investment in rights and warrants may entail greater risks than certain other
types of investments. Generally, rights and warrants do not carry the right to
receive dividends or exercise voting rights with respect to the underlying
securities, and they do not represent any rights in the assets of the issuer. In
addition, although their value is influenced by the value of the underlying
security, their value does not necessarily change with the value of the
underlying securities, and they cease to have value if they are not exercised on
or before their expiration date. Investing in rights and warrants increases the
potential profit or loss to be realized from the investment as compared with
investing the same amount in the underlying securities.
Exchange-Traded
Notes
The
Funds may invest in exchange-traded notes (“ETNs”). ETNs are debt obligations of
investment banks which are traded on exchanges and the returns of which are
linked to the performance of market indices. In addition to trading ETNs on
exchanges, investors may redeem ETNs directly with the issuer on a weekly basis,
typically in a minimum amount of 50,000 units, or hold the ETNs until maturity.
ETNs may be riskier than ordinary debt securities and may have no principal
protection. The Funds’ investment in an ETN may be influenced by many
unpredictable factors, including highly volatile commodities prices, changes in
supply and demand relationships, weather, agriculture, trade, changes in
interest rates, and monetary and other governmental policies, action and
inaction. Investing in ETNs is not equivalent to investing directly in index
components or the relevant index itself. Because ETNs are debt securities, they
possess credit risk; if the issuer has financial difficulties or goes bankrupt,
the investor may not receive the return it was promised.
Certain
ETNs may not produce qualifying income for the purpose of the “90% Test” (as
defined below under the heading, “Federal Income Taxes”) which must be satisfied
in order for the Fund to maintain its status as a regulated investment company
under the Code. The Funds intend to monitor such investments to ensure that any
non-qualifying income does not exceed permissible limits, however, if one or
more ETNs generate more non-qualifying income than expected it could cause the
Funds to inadvertently fail the 90% Test thereby causing the Funds to
inadvertently fail to qualify as a regulated investment company under the Code.
Please see the discussion below under the heading “Federal Income Taxes” for
more information.
Foreign
Currency Transactions
The
Funds may invest in foreign currency exchange transactions. Exchange rates
between the U.S. dollar and foreign currencies are a function of such factors as
supply and demand in the currency exchange markets, international balances of
payments, governmental intervention, speculation and other economic and
political conditions. Foreign exchange dealers may realize a profit on the
difference between the price at which a Fund buys and sells currencies. Currency
risks may be greater in emerging and frontier market countries than in developed
market countries.
Foreign
Securities
The
Funds may make investments in securities of non-U.S. issuers (“foreign
securities”). Investments in foreign securities involve certain inherent risks,
including the following:
Political
and Economic Factors.
Individual economies of certain countries may differ favorably or unfavorably
from the United States’ economy in such respects as growth of Gross Domestic
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.
Legal
and Regulatory Matters.
Certain foreign countries may have less supervision of securities markets,
brokers and issuers of securities, and less financial information available to
issuers, than is available in the United States.
Currency
Fluctuations.
A change in the value of any foreign currency against the U.S. dollar will
result in a corresponding change in the U.S. dollar value of portfolio
securities denominated in that currency. Such changes will affect a Fund to the
extent that the Fund is invested in foreign securities that are denominated in a
currency other than the U.S. dollar.
Taxes.
The interest and dividends payable to the Funds on certain of the Funds’ foreign
securities may be subject to foreign taxes or withholding, thus reducing the net
amount of income available for distribution to each Fund’s shareholders. The
Funds may not be eligible to pass through to their respective shareholders any
tax credits or deductions with respect to such foreign taxes or
withholding.
The
extent to which the Funds will be invested in non-U.S. companies, foreign
countries and depositary receipts will fluctuate from time to time within any
limitations described in the Prospectus, depending on the Advisor’s assessment
of prevailing market, economic and other conditions.
Brexit.
Uncertainties surrounding the sovereign debt of a number of European Union
(“EU”) countries and the viability of the EU have disrupted and may in the
future disrupt markets in the United States and around the world. If one or more
countries leave the EU or the EU dissolves, the world’s securities markets
likely will be significantly disrupted. In January 2020, the United Kingdom
(“UK”) left the EU, commonly referred to as “Brexit,” and the UK ceased to be a
member of the EU. Following a transition period during which the EU and the UK
Government engaged in a series of negotiations regarding the terms of the UK’s
future relationship with the EU, the EU and the UK Government signed an
agreement on December 30, 2020 regarding the economic relationship between the
UK and the EU. This agreement became effective on May 1, 2021. The UK and the EU
also negotiated a Memorandum of Understanding, which creates a framework for
voluntary regulatory cooperation in financial services between the UK and the
EU. There is significant market uncertainty regarding Brexit’s ramifications,
and the range and potential implications of possible political, regulatory,
economic, and market outcomes are difficult to predict. This long-term
uncertainty may affect other countries in the EU and elsewhere, and may cause
volatility within the EU, triggering prolonged economic downturns in certain
European countries. In addition, Brexit may create additional and substantial
economic stresses for the UK, including a contraction of the UK economy and
price volatility in UK stocks, decreased trade, capital outflows, devaluation of
the British pound, wider corporate bond spreads due to uncertainty, and declines
in business and consumer spending as well as foreign direct investment. Brexit
may also adversely affect UK-based financial firms that have counterparties in
the EU or participate in market infrastructure (trading venues, clearing houses,
settlement facilities) based in the EU. These events and the resulting market
volatility may have an adverse effect on the performance of a Fund.
LIBOR
Risk
The
Funds invest in certain debt securities or other financial instruments that
utilize the London Inter-bank Offered Rate, or “LIBOR,” as a “benchmark” or
“reference rate” for variable interest rate calculations. The United Kingdom’s
Financial Conduct Authority, which regulates LIBOR, announced a desire to phase
out the use of LIBOR by the end of 2021. On November 30, 2020, the administrator
of LIBOR announced a delay in the phase out of a majority of the U.S. dollar
LIBOR publications until June
30,
2023, with the remainder of LIBOR publications already phased out at the end of
2021. Although financial regulators and industry working groups have suggested
alternative reference rates, global consensus is lacking and the process for
amending existing contracts or instruments to transition away from LIBOR remains
unclear. Uncertainty and risk also remain regarding the willingness and ability
of issuers and lenders to include enhanced provisions in new and existing
contracts or instruments. Consequently, the transition away from LIBOR may lead
to increased volatility and illiquidity in markets that are tied to LIBOR,
decreased values of LIBOR-related investments or investments in issuers that
utilize LIBOR, increased difficulty in borrowing or refinancing and diminished
effectiveness of hedging strategies, adversely affecting a Fund’s performance or
net asset value. Uncertainty and volatility arising from the transition may
result in a reduction in the value of certain LIBOR-based instruments held by a
Fund or reduce the effectiveness of related transactions. Any such effects of
the transition away from LIBOR, as well as other unforeseen effects, could
result in losses to a Fund and may adversely affect the Fund’s performance or
net asset value.
Illiquid
and Restricted Securities
Pursuant
to Rule 22e-4 under the 1940 Act, a 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 a Fund reasonably expects cannot be
sold or disposed of in current market conditions in seven calendar days or less
without the sale or disposition significantly changing the market value of the
investment. Each 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 a Fund purchases an illiquid investment.
It is possible that a Fund’s holding of illiquid investment could exceed the 15%
limit, for example as a result of market developments or
redemptions.
The
Funds 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 under Rule 144A
under 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 a 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 a 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 a Fund or less than the fair
value of the securities. A restricted security may be determined to be liquid
under the Funds’ liquidity risk management programs 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 a 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, a Fund may obtain access to material nonpublic information
about an issuer of private placement securities, which may restrict the Fund’s
ability to conduct transactions in those securities.
Initial
Public Offerings (“IPOs”) and Unseasoned Companies
The
Funds may invest in IPOs of common stock or other primary or secondary
syndicated offerings of equity securities issued by a corporate
issuer. The purchase of IPO securities often involves higher
transaction costs than those associated with the purchase of securities already
traded on exchanges or markets. IPO securities are subject to market
risk and liquidity risk. The market value of recently issued IPO
securities may fluctuate considerably due to factors such as the absence of a
prior public market, unseasoned trading and speculation, a potentially small
number of securities available for trading, limited information about the
issuer, and other factors. A Fund may hold IPO securities for a
period of time, or may sell them soon after the purchase. Investments
in IPOs could have a magnified impact – either positive or negative – on a
Fund’s performance while the Fund’s assets are relatively small. The
impact of IPOs on a Fund’s performance may tend to diminish as the Fund’s assets
grow. In circumstances when investments in IPOs make a significant
contribution to a Fund’s performance, there can be no assurance that similar
contributions from IPOs will continue in the future.
The
Floating Rate Fund may also invest in unseasoned companies that have been in
operation less than three years, or are in the early stages of development, or
are in new and emerging industries where the opportunity for rapid growth is
expected to be above average. The securities of such companies may have limited
liquidity, which can result in their being priced higher or lower than might
otherwise be the case. Investments in unseasoned companies are more speculative
and entail greater risk than investments in companies with an established
operating record.
Investment
Companies
The
Funds may invest in shares of other registered investment companies, including
exchange-traded funds (“ETFs”), money market mutual funds and other mutual funds
in pursuit of its investment objective, in accordance with the limitations
established under the Investment Company Act of 1940, as amended (the “1940
Act”). This may include investments in money market mutual funds in connection
with a Fund’s management of daily cash positions and for temporary defensive
purposes. Investments in the securities of other investment companies may
involve duplication of advisory fees and certain other expenses. By investing in
another investment company, a Fund becomes a shareholder of that investment
company. As a result, the Fund’s shareholders indirectly will bear such Fund’s
proportionate share of the fees and expenses paid by shareholders of the other
investment company, in addition to the fees and expenses the Fund’s shareholders
directly bear in connection with the Fund’s own operations.
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
Funds 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 a 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
three 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”). 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 a 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
fund shares (or the Advisor must waive its advisory fees in amount necessary to
offset any sales charge, distribution fee or service fee).
The
SEC has adopted revisions to the rules permitting funds to invest in other
investment companies to streamline and enhance the regulatory framework
applicable to fund of funds arrangements. While Rule 12d1-4 permits more types
of fund of fund arrangements without an exemptive order, it imposes 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 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, a Fund’s
investments in ETFs will involve duplication of advisory fees and other expenses
since the Fund will be investing in another investment company. In addition, a
Fund’s investment in ETFs is also subject to the limitations on investments in
investment companies discussed above. To the extent a Fund invests in ETFs that
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 a 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, a 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, but
there is no guarantee that they will continue to do so. Unlike traditional
mutual funds, shares of an ETF may be purchased and redeemed directly from the
ETFs’ issuers only in large blocks and only through participating organizations
that have entered into contractual agreements with the ETF. The Funds do not
expect to enter into such agreements and therefore will not be able to purchase
and redeem its ETF shares directly from the ETFs’ issuers.
Real
Estate Investment Trusts (“REITs”)
The
Funds may invest in securities of REITs. REITs are pooled investment
vehicles which invest primarily in real estate or real estate related
loans. REITs are generally classified as equity REITs, mortgage REITs
or a combination of equity and mortgage REITs. Equity REITs invest
the majority of their assets directly in real property and derive income
primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in
value. Mortgage REITs invest the majority of their assets in real
estate mortgages and derive income from the collection of interest
payments. Like regulated investment companies such as the Funds,
REITs are not taxed on income distributed to shareholders provided they comply
with certain requirements under the Internal Revenue Code of 1986, as amended
(the “Code”). The Funds will indirectly bear their proportionate
share of any expenses paid by REITs in which they invest in addition to the
expenses paid by the Funds. Investing in REITs involves certain
unique risks. Equity REITs may be affected by changes in the value of
the underlying property owned by such REITs, while mortgage REITs may be
affected by the quality of any credit extended. REITs are dependent
upon management skills, are not diversified (except to the extent the Code
requires), and are subject to the risks of financing projects. REITs
are subject to heavy cash flow dependency, default by borrowers,
self-liquidation, and the possibilities of failing to qualify for the exemption
from tax for distributed income under the Code and failing to maintain their
exemptions from the 1940 Act. REITs (especially mortgage REITs) are
also subject to interest rate risks.
Master
Limited Partnerships
The
Funds may invest in publicly traded Master Limited Partnerships (“MLPs”). MLPs
are businesses organized as limited partnerships that trade their proportionate
shares of the partnership (units) on a public exchange. MLPs are required to pay
out most or all of their earnings in distributions. Generally speaking, MLP
investment returns are enhanced during periods of declining or low interest
rates and tend to be negatively influenced when interest rates are rising. As an
income vehicle, the unit price may be influenced by general interest rate trends
independent of specific underlying fundamentals. In addition, most MLPs are
fairly leveraged and typically carry a portion of “floating” rate debt. As such,
a significant upward swing in interest rates would drive interest expense
higher. Furthermore, most MLPs grow by acquisitions partly financed by debt, and
higher interest rates could make it more difficult to make
acquisitions.
Borrowing
The
1940 Act permits a Fund to borrow money in amounts of up to one-third of the
Fund’s total assets from banks for any purpose, and to borrow up to 5% of the
Fund’s total assets from banks or other lenders for temporary purposes. To
limit the risks attendant to borrowing, the 1940 Act requires a Fund to maintain
at all times an “asset coverage” of at least 300% of the amount of its
borrowings. Asset coverage means the ratio that the value of a Fund’s
total assets, minus liabilities other than borrowings, bears to the aggregate
amount of all borrowings. Borrowing money to increase a Fund’s investment
portfolio is known as “leveraging.” Borrowing, especially when used for
leverage, may cause the value of a Fund’s shares to be more volatile than if a
Fund did not borrow. This is because borrowing tends to magnify the effect
of any increase or decrease in the value of a Fund’s portfolio holdings.
Borrowed money thus creates an opportunity for greater gains, but also greater
losses. To repay borrowings, a Fund may have to sell securities at a time
and at a price that is unfavorable to the Fund. There also are costs
associated with borrowing money, and these costs would offset and could
eliminate a Fund’s net investment income in any given period.
The
use of borrowing by the Funds involves special risk considerations that may not
be associated with other funds having similar objectives and policies.
Since
substantially all of a Fund’s assets fluctuate in value, while the interest
obligation resulting from a borrowing will be fixed by the terms of the Fund’s
agreement with its lender, the net asset value per share of a Fund will tend to
increase more when its portfolio securities increase in value and to decrease
more when its portfolio assets decrease in value than would otherwise be the
case if the Fund did not borrow funds. In addition, interest costs on borrowings
may fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions, a
Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales. Each Fund will reduce its borrowing amount within three days, if its
asset coverage falls below the amount required by the 1940 Act.
Repurchase
Agreements
Each
Fund may enter into repurchase agreements with respect to its portfolio
securities. Pursuant to such agreements, a Fund may acquire 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 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.
Reverse
Repurchase Agreements
Each
Fund may borrow funds for temporary purposes by entering into reverse repurchase
agreements in accordance with the Fund’s investment restrictions. Pursuant
to such agreements, a Fund would sell portfolio securities to financial
institutions such as banks and broker-dealers and agree to repurchase the
securities at the mutually agreed-upon date and price. A Fund would enter
into reverse repurchase agreements only to avoid otherwise selling securities
during unfavorable market conditions to meet redemptions. Rule 18f-4 under the
1940 Act permits a Fund to enter into reverse repurchase agreements, provided
that the Fund treats the reverse repurchase agreements as either (1) borrowings
subject to the asset coverage requirements under the 1940 Act (see “Borrowing”
above) or (2) derivatives transactions under Rule 18f-4 (see “Regulation of
Derivatives and Certain Other Transactions” below).
The
use of reverse repurchase agreements by a Fund creates leverage which increases
the Fund’s investment risk. If the income and gains on securities
purchased with the proceeds of reverse repurchase agreements exceed the cost of
the agreements, a Fund’s earnings or NAV will increase faster than otherwise
would be the case. Conversely, if the income and gains fail to exceed the
costs, earnings or NAV would decline faster than otherwise would be the
case. A Fund will seek to enter reverse repurchase agreements only when
the interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Fund may decline below the price at which the Fund is
obligated to repurchase the securities.
Short
Sales
The
Funds may make short sales of securities. In a short sale, a Fund sells a
security, which it does not own, in anticipation of a decline in the market
value of the security. To complete the sale, the Fund must borrow the security
(generally from the broker through which the short sale is made) in order to
make delivery to the buyer. The Fund is then obligated to replace the security
borrowed by purchasing it at the market price at the time of replacement. The
Fund is said to have a “short position” in the securities sold until it delivers
them to the broker. The period during which the Fund has a short position can
range from as little as one day to more than a year. Until the security is
replaced, the proceeds of the short sale are retained by the broker, and the
Fund is required to pay to the broker a negotiated portion of any dividends or
interest which accrue during the period of the loan. To borrow the security, a
Fund also may be required to pay a premium, which would increase the cost of the
security sold. The net proceeds of the short sale will be retained by the broker
(or by the Fund’s custodian in a special custody account), to the extent
necessary to meet margin requirements, until the short position is closed out.
The Fund also will incur transaction costs in effecting short
sales.
A
Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. A Fund will realize a gain if the security
declines in price between those dates. The amount of any gain will be decreased
and the amount of any loss increased by the amount of the premium, dividends,
interest, or expenses the Fund may be required to pay in connection with a short
sale.
Each
Fund is required to comply with Rule 18f-4 under the 1940 Act with respect to
its short sale borrowings, which are considered derivatives transactions under
Rule 18f-4. See “Regulation of Derivatives and Certain Other Transactions”
below.
Loan
Assignments and Participations
The
Funds will purchase secured and unsecured corporate loans primarily through
assignments. The Funds may also purchase such loans through participations. When
a Fund buys a loan through an assignment, it becomes a direct lender to the
issuer of such loan, is granted rights under the loan agreement, and assumes
only the credit risk associated with the issuer. Loan participations, on the
other hand, represent only a right to participate in the repayment of the loan
by the corporate borrower. In purchasing participations, the Fund will have a
contractual relationship only with the selling institution, and not the
corporate borrower. This means the Fund assumes the credit risk of both the
corporate borrower and the selling institution. Additionally, the Fund generally
will have no right to directly enforce compliance by the borrower with the terms
of the commercial loan, nor any rights of set-off against the borrower, nor will
it have the right to object to certain changes to the loan agreement agreed to
by the selling institution.
In
addition, in the event of the insolvency of the selling institution, under the
laws of the United States and the states thereof, the Funds may be treated as a
general creditor of such selling institution, and may not have any exclusive or
senior claim with respect to the selling institution’s interest in, or the
collateral with respect to, the secured loan. Consequently, the Funds may be
subject to the credit risk of the selling institution as well as of the
borrower. Moreover, the Funds may not directly benefit from the collateral, if
any, supporting the related loan and may not be subject to any rights of set-off
the borrower has against the selling institution. Certain loans (whether
acquired by an assignment or loan participation) may also be governed by the
laws of a jurisdiction other than a United States jurisdiction, which may
present additional risks as regards the characterization under such laws of such
assignment or participation in the event of the insolvency of the selling
institution or the borrower.
Interest
Rate Swaps
The
Short Duration Fund may enter into interest rate swaps for hedging purposes.
Interest rate swaps are financial instruments that involve the exchange of one
type of interest rate for another type of interest rate cash flow on specified
future dates. Some of the different types of interest rate swaps are “fixed-for
floating rate swaps,” “termed basis swaps” and “index amortizing
swaps.” Fixed-for floating rate swaps involve the exchange of fixed
interest rate cash flows for floating rate cash flows. Termed basis
swaps entail cash flows to both parties based on floating interest rates, where
the interest rate indices are different. Index amortizing swaps are
typically fixed-for floating swaps where the notional amount changes if certain
conditions are met.
Like
a traditional investment in a debt security, the Fund could lose money by
investing in an interest rate swap if interest rates change
adversely. For example, if the Fund enters into a swap where it
agrees to exchange a floating rate of interest for a fixed rate of interest, the
Fund may have to pay more money than it receives. Similarly, if the
Fund enters into a swap where it agrees to exchange a fixed rate of interest for
a floating rate of interest, the Fund may receive less money than it has agreed
to pay.
Currency
Swaps
The
Short Duration Fund may enter into currency swaps
for
hedging purposes. A currency swap is an agreement between two parties in which
one party agrees to make interest rate payments in one currency and the other
promises to make interest rate payments in another currency. The Fund
may enter into a currency swap when it has one currency and desires a different
currency. Typically, the interest rates that determine the currency swap
payments are fixed, although occasionally one or both parties may pay a floating
rate of interest. Unlike an interest rate swap, however, the
principal amounts are exchanged at the beginning of the contract and returned at
the end of the contract. Changes in foreign exchange rates and
changes in interest rates, as described above, may negatively affect the value
of currency swaps.
Regulation
of Derivatives and Certain Other Transactions
Rule
18f-4 under the 1940 Act permits the Fund to enter into “derivatives
transactions” and certain other transactions notwithstanding the restrictions on
the issuance of “senior securities” under Section 18 of the 1940 Act.
“Derivatives transactions” include: (1) any swap, security-based swap, futures
contract, forward contract, option, any combination of the foregoing, or any
similar instrument, under which the Fund is or may be required to make any
payment or delivery of cash or other assets during the life of the instrument or
at maturity or early termination, whether as margin or settlement payment or
otherwise; (2) any short sale borrowing; (3) reverse repurchase agreements and
similar financing transactions, if the Fund treats these transactions as
derivatives transactions under Rule 18f-4; and (4) when-issued or
forward-settling securities and non-standard settlement cycle investments,
unless the Fund intends to physically settle the transaction and the transaction
will settle within 35 days of its trade date.
Rule
18f-4 permits a fund to enter into derivatives transactions notwithstanding the
restrictions under Section 18, provided that the fund either: (1) adopts and
implements a derivatives risk management program (“DRMP”), adheres to a limit on
leverage risk based on value-at-risk (“VaR”) and complies with board oversight
and reporting requirements or (2) satisfies the conditions of the limited
derivatives user exception. A fund that is a limited derivatives user is not
required to adopt a DRMP, adhere to the VaR limit or comply with the board
oversight and reporting requirements. To rely on the limited derivatives user
exception, a fund must adopt and implement policies and procedures reasonably
designed to manage its derivatives risks and limit its derivatives exposure to
10% of its net assets.
Each
Fund is classified as a limited derivatives user under Rule 18f-4 of the 1940
Act. As a limited derivatives user, a Fund’s derivatives exposure, excluding
certain currency and interest rate hedging transactions, may not exceed 10% of
its net assets. This restriction is not fundamental and may be changed by a Fund
without a shareholder vote.
Short-Term,
Temporary, and Cash Investments
The
Funds may invest in any of the following securities and
instruments:
Bank
Certificates of Deposit, Bankers’ Acceptances and Time Deposits.
The Funds may acquire certificates of deposit, bankers’ acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
monies 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 Funds 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 a 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 “Foreign Securities” above. Such
risks include future political and economic developments, the possible
imposition of withholding taxes on interest income payable on the securities by
the particular country in which the issuer is located, 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 which may be made and interest rates
which 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 Funds
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 Funds 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
Funds 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
Funds may invest a portion of their 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 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 consist of issues rated at the time of purchase “A-2”
or higher by Standard & Poor’s, “Prime-1” by Moody’s Investors Service,
Inc., 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 Appendix
A.
U.S.
Government Securities
The
Funds may invest in U.S. government securities. The term “U.S. government
securities” refers to a variety of securities which are issued or guaranteed by
the United States Treasury, by various agencies of the U.S. government, and by
various instrumentalities (a government agency organized under federal charter
with government supervision) which have been established or sponsored by the
U.S. government. U.S. Treasury securities are backed by the full faith and
credit of the United States. Securities issued or guaranteed by U.S. government
agencies or U.S. government sponsored instrumentalities may or may not be backed
by the full faith and credit of the United States. If the securities are not
backed by the full faith and credit of the United States, the investor must look
principally to the government agency or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, and may not be able to assert a claim
directly against the United States in the event the government agency or
instrumentality does not meet its commitment.
When-Issued
Instruments
The
Funds may purchase instruments 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 instrument is
thereafter reflected in the Funds’ NAV. During the period between purchase and
settlement, no payment is made by the Funds and no interest accrues to the
Funds. At the time of settlement, the market value of the instrument may be more
or less than the purchase price.
Rule
18f-4 under the 1940 Act permits the Funds 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. See “Regulation of Derivatives and Certain Other
Transactions” above.
Special
Risks Related to Cyber Security
The
Funds and their 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 Funds and their service providers use to service
the Funds’ operations; or operational disruption or failures in the physical
infrastructure or operating systems that support the Funds and their service
providers. Cyber attacks against or security breakdowns of a Fund or its service
providers may adversely impact a Fund and its shareholders, potentially
resulting in, among other things, financial losses; the inability of Fund
shareholders to transact business and a Fund to process transactions; inability
to calculate a 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 Funds 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 a
Fund invests, which may cause the Fund’s investment in such issuers to lose
value. There can be no assurance that the Funds or their 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 each Fund) has adopted the following restrictions as
fundamental policies, which may not be changed without the affirmative 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 a 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 a Fund.
Each
Fund may not:
1.With
respect to 75% of its total assets, invest more than 5% of its total assets in
securities of a single issuer or hold more than 10% of the voting securities of
such issuer. (This restriction does not apply to investments in the securities
of other investment companies or securities of the U.S. government, its agencies
or instrumentalities.)
2.Borrow
money, except in an amount not to exceed 33 1/3% of the value of its total
assets, as permitted under the 1940 Act.
3.Issue
senior securities, except that this restriction shall not be deemed to prohibit
a Fund from (a) making any permitted borrowings, mortgages or pledges, or
(b) entering into options, futures, currency contracts or repurchase
transactions, or except as permitted under the 1940 Act.
4.Engage
in the business of underwriting securities, except to the extent that a Fund may
be considered an underwriter within the meaning of the Securities Act of 1933 in
the disposition of restricted securities.
5.Invest
25% or more of the market value of its total assets in the securities of
companies engaged in any one industry. (This restriction does not apply to
investments in the securities of other investment companies or securities of the
U.S. government, its agencies or instrumentalities.)
6.Purchase
or sell real estate, which term does not include securities of companies which
deal in real estate and/or mortgages or investments secured by real estate, or
interests therein, except that a Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund’s ownership of
securities.
7.Purchase
or sell physical commodities, unless acquired as a result of ownership of
securities or other instruments. This limitation shall not prevent a Fund from
purchasing, selling, or entering into futures contracts, or acquiring securities
or other instruments and options thereon backed by, or related to, physical
commodities.
8.Make
loans to others, except as permitted under the 1940 Act.
Each
Fund observes the following policies, which are not deemed fundamental and which
may be changed without shareholder vote. Each Fund may not:
1.Invest
in any issuer for purposes of exercising control or management.
2.Hold,
in the aggregate, more than 15% of its net assets in illiquid investments
pursuant to Rule 22e-4 under the 1940 Act.
3.Make
any change to its investment policy of investing at least 80% of its net assets
in investments suggested by its name without first providing its shareholders
with at least 60 days’ prior written notice.
PORTFOLIO
TURNOVER
Although
the Funds 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 a Funds’
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.
High
portfolio turnover generally results in the distribution of short-term capital
gains which are taxed at the higher ordinary income tax rates.
The
following table provides the Funds’ portfolio turnover rates for the fiscal
years shown:
|
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| |
| Fiscal
Year Ended September 30, |
|
|
| 2022 |
2021 |
|
| Floating
Rate Fund |
39% |
59% |
|
| Short
Duration Fund |
50% |
80% |
|
|
|
|
| |
PORTFOLIO
HOLDINGS POLICY
The
Advisor and the Funds maintain portfolio holdings disclosure policies that
govern the timing and circumstances of disclosure to shareholders and third
parties of information regarding the portfolio investments held by the Funds.
These portfolio holdings disclosure policies have been approved by the Board.
Disclosure of the Funds’ 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 each Fund’s 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.
Additionally, each Fund’s top-ten holdings are posted within ten business days
after each month end on the Funds’ website, www.shenkmancapital.com/mutual-funds/.
Pursuant
to the Trust’s portfolio holdings disclosure policies, information about each
Fund’s portfolio holdings is not distributed to any person unless:
•The
disclosure is required pursuant to a regulatory request, court order or is
legally required in the context of other legal proceedings;
•The
disclosure is made to a mutual fund rating and/or ranking organization, or
person performing similar functions, who is subject to a duty of
confidentiality, including a duty not to trade on any non-public
information;
•The
disclosure is made to internal parties involved in the investment process,
administration, operation or custody of the Funds, including, but not limited to
USBFS and the Trust’s Board of Trustees, the Advisor, attorneys, auditors or
accountants;
•The
disclosure is made: (a) in connection with a quarterly, semi-annual or annual
report that is available to the public; or (b) relates to information that is
otherwise available to the public; or
•The
disclosure is made with the prior written approval of either the Trust’s Chief
Compliance Officer (“CCO”) or his or her designee.
Certain
of the persons listed above receive information about the Funds’ portfolio
holdings on an ongoing basis. The Funds believe that these third parties have
legitimate objectives in requesting such portfolio holdings information and
operate in the best interest of the Funds’ shareholders. These persons
include:
•A
mutual fund rating and/or ranking organization, or person performing similar
functions, who is subject to a duty of confidentiality, including a duty not to
trade on any non-public information;
•Internal
parties involved in the investment process, administration, operation or custody
of the Fund, specifically: U.S. Bank Global Fund Services; the Trust’s Board of
Trustees; and the Trust’s attorneys and accountants (currently, Sullivan &
Worcester LLP (“Sullivan & Worcester”) and Tait, Weller & Baker LLP,
respectively), all of which typically receive such information after it is
generated.
Additionally,
non-public portfolio holdings and/or transaction information is or may be
disclosed daily or periodically, in either case with no lag, to the following
service providers for the sole purpose of assisting the Advisor in carrying out
its responsibilities for the Fund: (a) FactSet Research Systems Inc., (b)
Electra Information Systems, Inc. (c) SWIFT, (d) Kynex, Inc., (e) Omgeo LLC, (f)
DTCC ITP LLC, (g) J.P. Morgan Securities LLC, (h) Advent Software, Inc., (i) IHS
Markit Ltd., and (j) Indus Valley Partners Corp.
Any
disclosures to additional parties not described above are made with the prior
written approval of either the Trust’s CCO or his or her designee, pursuant to
the Trust’s Policy and Procedures Regarding Disclosure of Portfolio
Holdings.
The
CCO or designated officer 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 Funds and their shareholders and
if no material conflict of interest exists regarding such disclosure between
shareholders’ interests and those of the Advisor, Distributor or any affiliated
person of the Funds. No consideration may be received by the Funds, 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 Trust’s business and affairs 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
each Fund’s investment objective, strategies and policies and to the general
supervision of the Board. The Trustees and officers of the Trust, their ages,
and positions with the Trust, terms of office with the Trust and length of time
served, their business addresses and principal occupations during the past five
years and other directorships held are set forth 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). |
2 |
Trustee,
Advisors Series Trust (for series not affiliated with the
Funds). |
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). |
2 |
Trustee,
Advisors Series Trust (for series not affiliated with the
Funds). |
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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). |
2 |
Trustee,
Advisors Series Trust (for series not affiliated with the Funds);
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). |
2 |
Trustee,
Advisors Series Trust (for series not affiliated with the
Funds). |
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 December 31, 2022, the Trust was comprised of 35 active portfolios managed by
unaffiliated investment advisers. The term “Fund Complex” applies only to the
Funds. The Funds do not hold themselves out as related to any other series
within the Trust for investment purposes, nor do they share the same investment
advisor 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
Act, 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 Adviser 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 Adviser 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 one time with
respect to the Funds during the fiscal year ended September 30,
2022.
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 did not meet with
respect to the Funds during the fiscal year ended September 30,
2022.
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 during the Funds’ fiscal year ended September 30,
2022.
Trustee
Ownership of Fund Shares and Other Interests
The
following table shows the amount of shares in the Funds and the amount of shares
in other portfolios of the Trust owned by the Trustees as of the calendar year
ended December 31, 2022.
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Dollar
Range of Equity
Securities
in the
Shenkman
Capital
Floating
Rate Fund |
Dollar
Range of Equity
Securities
in the
Shenkman
Capital
Short
Duration High
Income
Fund |
Aggregate
Dollar Range
of Equity Securities in all
Registered
Investment
Companies Overseen by
Trustee in Family of
Investment
Companies |
|
| (None,
$1-$10,000, $10,001-$50,000, $50,001-$100,000,
Over
$100,000) |
| Independent
Trustees |
| David
G. Mertens |
None |
None |
Over
$100,000 |
| Raymond
B. Woolson |
None |
None |
$50,001-$100,000 |
| Joe
D. Redwine |
None |
None |
$50,001-$100,000 |
|
Michele
Rackey(1) |
None |
None |
None |
(1) Ms.
Rackey began serving as an Independent Trustee of the Trust effective 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, or an affiliate of the Advisor or Distributor. Accordingly, neither
the Independent Trustees nor members of their immediate family, have a 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 Funds for the fiscal
year ended September 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Aggregate
Compensation
from
the
Shenkman
Capital
Floating
Rate
Fund(1) |
Aggregate
Compensation
from
the
Shenkman
Capital
Short
Duration
High
Income
Fund(1) |
Pension
or
Retirement
Benefits
Accrued as
Part of
Fund
Expenses |
Estimated
Annual
Benefits
Upon
Retirement |
Total
Compensation
from
Fund
Complex
Paid
to
Trustees(2) |
|
|
|
|
|
| |
|
Gail
S. Duree(3) |
$1,024 |
$1,024 |
None |
None |
$2,048 |
| David
G. Mertens |
$3,800 |
$3,800 |
None |
None |
$7,600 |
| Raymond
B. Woolson |
$4,001 |
$4,001 |
None |
None |
$8,002 |
|
Joe
D. Redwine |
$3,823 |
$3,823 |
None |
None |
$7,646 |
|
Michele
Rackey(4) |
None |
None |
None |
None |
None |
(1)
For
the Funds’ fiscal year ended September 30, 2022.
(2)
There
are currently numerous portfolios comprising the Trust. The term “Fund Complex”
applies only to the Funds. For the fiscal year ended September 30, 2022,
aggregate Independent Trustees’ fees for the Trust were $441,000.
(3) Ms.
Duree retired as of December 31, 2021.
(4) Ms.
Rackey began serving as an Independent Trustee of the Trust effective January 1,
2023.
CODES
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 POLICIES AND PROCEDURES
The
Board has adopted Proxy Voting Policies and Procedures (the “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 each Fund and its shareholders. The Policies also require the Advisor to
present to the Board, at least annually, the Advisor’s Policies and a record of
each proxy voted by the Advisor on behalf of each Fund, including a report on
the resolution of all proxies identified by the Advisor as involving a conflict
of interest. A copy of the Advisor’s Proxy Voting Policy can be found in
Appendix B.
The
Trust is required to file a Form N-PX, with the Funds’ complete proxy voting
record for the 12 months ended June 30, no later than August 31 of each year.
The Funds’ proxy voting record is available without charge, upon request, by
calling toll-free 1-855-SHENKMAN (1-855-743-6562) 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 any class of the outstanding shares of the Funds. 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 Funds. For control persons only, if a control
person is a company, the table also indicates the control person’s parent, if
any, and jurisdiction under the laws of which the control person is organized.
As of December 31, 2022, the following Class A, Class C, Class F and
Institutional Class shareholders were considered to be either a control person
or principal shareholder of the Funds:
Floating
Rate Fund – Class F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of
Ownership |
UBS
WM USA
Special Custody Account
1000 Harbor Boulevard
Weehawken,
NJ 07086-6761 |
UBS
Americas, Inc. |
DE |
99.82% |
Record |
|
|
|
|
| |
|
|
|
|
| |
Floating
Rate Fund – Institutional Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of
Ownership |
National
Financial Services, LLC
499 Washington Blvd., Floor 4
Jersey City,
NJ 07310-1995
|
Fidelity
Global Brokerage Group, Inc. |
DE |
40.04% |
Record |
Morgan
Lewis & Bockius LLP
Cash Balance Plan
1701 Market
Street
Philadelphia, PA 19103-2903
|
N/A |
N/A |
10.96% |
Record |
|
TD
Ameritrade, Inc.
For
the Exclusive Benefit of
Our
Clients
P.O.
Box 2226
Omaha,
NE 68103-2226
|
N/A |
N/A |
10.73% |
Record |
SEI
Private Trust Company
One Freedom Valley Drive
Oaks, PA
19456-9989
|
N/A |
N/A |
8.85% |
Record |
|
BNYH
Fixed Income, LLC
1114
Avenue of the Americas
Floor
17
New
York, NY 10036-7772
|
N/A |
N/A |
6.52% |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of
Ownership |
Capinco
c/o U.S. Bank NA
1555 N. RiverCenter Dr., Suite 302
Milwaukee,
WI 53212-3958
|
N/A |
N/A |
6.24% |
Record |
Reliance
Trust Co.
FBO ABNY EB R/R
P.O. Box 78446
Atlanta, GA
30357-2446 |
N/A |
N/A |
5.91% |
Record |
Short
Duration Fund – Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of
Ownership |
Merrill
Lynch Pierce Fenner & Smith
For the Sole Benefit of its
Customers
4800 Deer Lake Drive E
Jacksonville, FL
32246-6484
|
Merrill
Lynch & Co., Inc. |
DE |
50.84% |
Record |
Morgan
Stanley Smith Barney, LLC
FEBO customers of MSSB
1 New York Plaza,
Fl 12th
New York, NY 10004-1965
|
N/A |
N/A |
14.65% |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
211 Main
Street
San Francisco, CA 94105-1901
|
N/A |
N/A |
13.14% |
Record |
|
|
|
|
| |
UBS
WM USA
Special Custody Account
1000 Harbor Boulevard
Weehawken,
NJ 07086-6761 |
N/A |
N/A |
5.01% |
Record |
Short
Duration Fund – Class C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of
Ownership |
|
Merrill
Lynch
Pierce
Fenner & Smith
For
the Sole Benefit of its Customers
4800
Deer Lake Drive E
Jacksonville,
FL 32246-6484
|
Merrill
Lynch & Co., Inc. |
DE |
54.83% |
Record |
Morgan
Stanley Smith Barney, LLC
FEBO customers of MSSB
1 New York Plaza,
Fl 12th
New York, NY 10004-1965
|
N/A |
N/A |
26.44% |
Record |
UBS
WM USA
Special Custody Account
1000 Harbor Boulevard
Weehawken,
NJ 07086-6761 |
N/A |
N/A |
13.81% |
Record |
Short
Duration Fund – Class F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of
Ownership |
|
Merrill
Lynch
Pierce
Fenner & Smith
For
Sole Benefit of its Customers
4800
Deer Lake Drive E
Jacksonville,
FL 32246-6484
|
Merrill
Lynch & Co., Inc. |
DE |
56.36% |
Record |
Morgan
Stanley Smith Barney, LLC
FEBO customers of MSSB
1 New York Plaza,
Fl 12th
New York, NY 10004-1965
|
N/A |
N/A |
20.27% |
Record |
UBS
WM USA
Special Custody Account
1000 Harbor Boulevard
Weehawken,
NJ 07086-6761 |
N/A |
N/A |
18.67% |
Record |
Short
Duration Fund – Institutional Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of
Ownership |
National
Financial Services, LLC
499 Washington Blvd., Floor 4
Jersey City,
NJ 07310-1995
|
Fidelity
Global Brokerage Group, Inc. |
DE |
33.45% |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
211 Main
Street
San Francisco, CA 94105-1901
|
The
Charles Schwab Corporation |
DE |
31.39% |
Record |
c/o
Reliance Trust Company WI
Mitra & Co FBO 98
4900 W. Brown Deer
Rd.
Milwaukee, WI 53223-2422
|
N/A |
N/A |
9.85% |
Record |
JP
Morgan Securities, LLC
1 Metrotech Center N., Fl 3
Brooklyn, NY
11201-3873
|
N/A |
N/A |
5.85% |
Record |
The
Floating Rate Fund’s Class A and Class C shares had not commenced operations as
of December 31, 2022, and therefore no control persons or principal shareholders
are shown for those classes.
Management
Ownership Information.
As of December 31, 2022, the Trustees and officers of the Trust, as a group,
beneficially owned less than 1% of the outstanding shares of any class of the
Funds.
THE
FUNDS’ INVESTMENT ADVISOR
Shenkman
Capital Management, Inc., 151 West 42nd Street, 29th Floor, New York, New York
10036, acts as investment advisor to each Fund pursuant to an investment
advisory agreement (the “Advisory Agreement”) with the Trust. Mark R. Shenkman
is a control person of the Advisor through his controlling ownership interest in
the Advisor and as a portfolio manager of the Funds.
In
consideration of the services to be provided by the Advisor pursuant to the
Advisory Agreement, the Advisor is entitled to receive from each Fund an
investment advisory fee computed daily and payable monthly, based on an annual
rate equal to 0.55% of the Short Duration Fund’s average daily net assets and
0.50% of the Floating Rate Fund’s average daily net assets. The Advisor oversees
the investment advisory services provided to the Funds. For the fiscal period
indicated below, the Funds paid the following management fees to the
Advisor:
Floating
Rate Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal
Year
Ended
September 30, |
Management
Fees
Accrued |
Management
Fees
Waived |
Management
Fees
Recouped |
Net
Management
Fee Paid to
Advisor |
| 2022 |
$1,517,103 |
$524,312 |
$0 |
$992,791 |
| 2021 |
$1,344,355 |
$595,808 |
$0 |
$748,547 |
| 2020 |
$1,136,549 |
$499,945 |
$0 |
$636,604 |
|
|
|
|
| |
|
|
|
|
| |
Short
Duration Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal
Year
Ended
September 30, |
Management
Fees
Accrued |
Management
Fees
Waived |
Management
Fees
Recouped |
Net
Management
Fee Paid to
Advisor |
| 2022 |
$7,786,592 |
$62,257 |
$0 |
$7,724,335 |
| 2021 |
$5,916,873 |
$167,019 |
$0 |
$5,749,854 |
| 2020 |
$3,444,400 |
$318,992 |
$0 |
$3,125,408 |
|
|
|
|
| |
|
|
|
|
| |
The
Advisory Agreement continues in effect for successive annual periods so long as
such continuation is specifically approved at least annually by the vote of
(1) the Board (or a majority of the outstanding shares of the Fund), and
(2) a majority of the Trustees who are not interested persons of any party
to the Advisory Agreement, in each case, cast in person at a meeting called for
the purpose of voting on such approval. The Advisory Agreement may be terminated
at any time, without penalty, by either party to the Advisory Agreement upon a
60-day written notice and is automatically terminated in the event of its
“assignment,” as defined in the 1940 Act.
In
addition to the management fees payable to the Advisor, each 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 each Fund including all fees and expenses of its
custodian 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 Funds’
shareholders and the Trust’s Board that are properly payable by the Funds;
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 Funds which inure to their benefit, including
liability and fidelity bond insurance; the cost of preparing and printing
reports, proxy statements, prospectuses and the SAI of the Funds or other
communications for distribution to existing shareholders; legal counsel,
auditing and accounting fees; trade association membership dues (including
membership dues in the Investment Company Institute allocable to the Funds);
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 shareholder accounts,
including all charges for transfer, shareholder recordkeeping, dividend
disbursing, redemption, and other agents for the benefit of each 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
each Fund is responsible for its own operating expenses, the Advisor has
contractually agreed to waive a portion or all of the management fees payable to
it by the Funds and to pay Fund operating
expenses
to the extent necessary to limit each Fund’s aggregate annual operating expenses
(excluding acquired fund fees and expenses, taxes, interest expense, dividends
on securities sold short, extraordinary expenses, Rule 12b-1 fees, shareholder
servicing fees and any other class-specific expenses) to the limits set forth in
the Fees and Expenses of the Fund table of the Prospectus. 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 a 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 also contingent upon the Board’s subsequent review and
ratification of the recouped amounts. Such recoupment may not be paid prior to
the applicable Fund’s payment of current ordinary operating
expenses.
SERVICE
PROVIDERS
Fund
Administrator, Transfer Agent and Fund Accountant
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”), 615 East Michigan Street, Milwaukee, Wisconsin 53202, acts as the
Administrator to the Fund. Fund Services provides certain services to the Funds
including, among other responsibilities, coordinating the negotiation of
contracts and fees with, and the monitoring of performance and billing of, the
Funds’ 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 Funds with applicable laws and regulations, excluding 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;
and arranging for the maintenance of books and records of the Funds, 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 Funds, the
determination of investment policy, or for any matter pertaining to the
distribution of Fund shares.
Fund
Services also is entitled to certain out-of-pocket expenses. Fund Services also
acts as fund accountant, transfer agent (the “Transfer Agent”) and dividend
disbursing agent under separate agreements with the Trust. Additionally, Fund
Services provides Chief Compliance Officer (“CCO”) services to the Trust under a
separate agreement. The cost of the CCO services is charged to the Fund and
approved by the Board annually.
Pursuant
to the Administration Agreement as compensation for its services, for the fiscal
years ended September 30 indicated below, the Funds paid the following fees to
Fund Services for fund administration and fund accounting services:
|
|
|
|
|
|
|
|
|
|
|
| |
| Fund |
2022 |
2021 |
2020 |
| Floating
Rate Fund |
$ |
394,189 |
| $ |
440,901 |
| $ |
401,576 |
|
| Short
Duration Fund |
$ |
971,291 |
| $ |
801,388 |
| $ |
553,542 |
|
Custodian
Pursuant
to a Custody Agreement between the Trust and U.S. Bank National Association,
located at 1555 North RiverCenter Drive, Suite 302, Milwaukee, Wisconsin 53212
(the “Custodian”), the Custodian serves as the custodian of the Funds’ assets,
holds the Funds’ 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.
The
Custodian and Administrator do not participate in decisions relating to the
purchase and sale of securities by the Funds. The Custodian and its affiliates
may participate in revenue sharing arrangements with service providers of mutual
funds in which the Fund may invest.
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 Funds, whose services include auditing the Funds’
financial statements and the performance of related tax services.
Sullivan
& Worcester LLP, 1633 Broadway, 32nd Floor, New York 10019, serves as legal
counsel to the Trust. Sullivan & Worcester also serves as independent legal
counsel to the Board of Trustees.
PORTFOLIO
MANAGERS
The
Floating Rate Fund is managed by Mark R. Shenkman, Justin W. Slatky, David H.
Lerner, Jeffrey Gallo, Jordan Barrow, Brian C. Goldberg and Eileen Spiro. The
Short Duration Fund is managed by Mark R. Shenkman, Justin W. Slatky, Jordan
Barrow, Jeffrey Gallo, Nicholas Sarchese and Neil Wechsler. The following tables
show the number of other accounts (not including the Funds) managed by each
portfolio manager and the total assets in the accounts managed within various
categories as of September 30, 2022.
Mark
R. Shenkman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Type
of Accounts |
Number
of
Accounts
(Excluding
the Funds) |
Total
Assets |
Number
of
Accounts
with
Advisory Fee
based
on
Performance |
Total
Assets
in Accounts
with Advisory
Fee based
on
Performance |
| Registered
Investment Companies |
3 |
$662,925,996 |
0 |
$0 |
| Other
Pooled Investments |
30 |
$8,678,937,892 |
18 |
$6,005,252,400 |
| Other
Accounts |
207 |
$16,916,171,909 |
4 |
$28,570,088 |
Justin
W. Slatky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Type
of Accounts |
Number
of
Accounts
(Excluding
the Funds) |
Total
Assets |
Number
of
Accounts
with
Advisory Fee
based
on
Performance |
Total
Assets
in Accounts
with Advisory
Fee based
on
Performance |
| Registered
Investment Companies |
3 |
$662,925,996 |
0 |
$0 |
| Other
Pooled Investments |
30 |
$8,678,937,892 |
18 |
$6,005,252,400 |
| Other
Accounts |
207 |
$16,916,171,909 |
4 |
$28,570,088 |
David
H. Lerner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Type
of Accounts |
Number
of
Accounts
(Excluding
the Funds) |
Total
Assets |
Number
of
Accounts
with Advisory
Fee based on
Performance |
Total
Assets
in Accounts
with Advisory
Fee based
on
Performance |
| Registered
Investment Companies |
0 |
$0 |
0 |
$0 |
| Other
Pooled Investments |
13 |
$3,177,237,903 |
11 |
$2,989,245,607 |
| Other
Accounts |
15 |
$2,879,322,775 |
1 |
$5,531,403 |
Jeffrey
Gallo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Type
of Accounts |
Number
of
Accounts
(Excluding
the Funds) |
Total
Assets |
Number
of
Accounts
with Advisory
Fee based on
Performance |
Total
Assets
in Accounts
with Advisory
Fee based
on
Performance |
| Registered
Investment Companies |
3 |
$662,925,996 |
0 |
$0 |
| Other
Pooled Investments |
23 |
$5,684,064,169 |
12 |
$3,563,336,817 |
| Other
Accounts |
191 |
$14,258,589,990 |
1 |
$3,766,071 |
Brian
C. Goldberg
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Type
of Accounts |
Number
of
Accounts
(Excluding
the Funds) |
Total
Assets |
Number
of
Accounts with
Advisory Fee
based on
Performance |
Total
Assets
in Accounts
with Advisory
Fee based
on
Performance |
| Registered
Investment Companies |
0 |
$0 |
0 |
$0 |
| Other
Pooled Investments |
12 |
$3,102,227,903 |
10 |
$2,914,235,607 |
| Other
Accounts |
9 |
$1,405,721,355 |
0 |
$0 |
Eileen
Spiro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Type
of Accounts |
Number
of
Accounts
(Excluding
the Funds) |
Total
Assets |
Number
of
Accounts with
Advisory Fee
based on
Performance |
Total
Assets
in Accounts
with Advisory
Fee based
on
Performance |
| Registered
Investment Companies |
0 |
$0 |
0 |
$0 |
| Other
Pooled Investments |
12 |
$3,102,227,903 |
10 |
$2,914,235,607 |
| Other
Accounts |
9 |
$1,405,721,355 |
0 |
$0 |
Nicholas
Sarchese
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Type
of Accounts |
Number
of
Accounts
(Excluding
the Funds) |
Total
Assets |
Number
of
Accounts with
Advisory Fee
based on
Performance |
Total
Assets
in Accounts
with Advisory
Fee based
on
Performance |
| Registered
Investment Companies |
0 |
$0 |
0 |
$0 |
| Other
Pooled Investments |
4 |
$683,764,426 |
0 |
$0 |
| Other
Accounts |
37 |
$5,093,593,578 |
0 |
$0 |
Neil
Wechsler
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Type
of Accounts |
Number
of
Accounts
(Excluding
the Funds) |
Total
Assets |
Number
of
Accounts with
Advisory Fee
based on
Performance |
Total
Assets
in Accounts
with Advisory
Fee based
on
Performance |
| Registered
Investment Companies |
1 |
$258,062,846 |
0 |
$0 |
| Other
Pooled Investments |
9 |
$2,481,915,480 |
2 |
$649,101,209 |
| Other
Accounts |
81 |
$12,309,475,064 |
1 |
$3,766,071 |
Jordan
Barrow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Type
of Accounts |
Number
of
Accounts
(Excluding
the Funds) |
Total
Assets |
Number
of
Accounts with
Advisory Fee
based on
Performance |
Total
Assets
in Accounts
with Advisory
Fee based
on
Performance |
| Registered
Investment Companies |
3 |
$662,925,996 |
0 |
$0 |
| Other
Pooled Investments |
23 |
$5,684,064,169 |
12 |
$3,563,336,817 |
| Other
Accounts |
191 |
$14,258,589,990 |
1 |
$3,766,071 |
Advisor
Material Conflicts of Interest.
As
a registered investment adviser, Advisor intends to act in good faith in a
manner consistent with its duties under applicable law. However, Advisor is
subject to various potential or actual conflicts of interest, including those
arising from its relationships with its affiliates, which currently and in the
future will serve as investment adviser to investment funds, separately managed
accounts or similar vehicles. Advisor actively engages, and in the future will
engage, in a broad spectrum of activities, including direct investment
activities and investment advisory activities, and has extensive investment
activities that are independent from, and may from time-to-time conflict or
compete with, the investment activities of the Funds. These circumstances could
give rise to numerous situations where interests conflict, including, as further
noted herein, the investment by different clients of Advisor in the same
investment or in different levels of the capital structure of the same issuer,
or other dealings involving different clients of the Advisor.
To
that end, Advisor has implemented Policies and Procedures Regarding the
Identification of Conflicts of Interest, a full copy of which is set forth in
the firm’s Compliance Manual. In addition to what is
already
described herein, the particular circumstances described below further
illustrate some of the conflicts of interest that may arise. However, there can
be no assurance that other conflicts of interest with the potential for adverse
effects on clients of the Advisor will not arise.
Advisor
is affiliated with Romark Credit Advisors LP (“RCA”), and Romark CLO Advisors
LLC (“RCLO”). RCA is registered as an investment adviser with the SEC and RCLO
is registered as a relying adviser of RCA. As used herein, the term “Romark”
will include RCLO and RCA, as the case may be. Romark’s primary business is to
sponsor and provide investment advisory services as a collateral manager to
collateralized loan obligations (“CLOs”, and each such CLO managed by Romark, a
“Romark CLO”) and other securitized vehicles. The Romark CLOs invest primarily
in leveraged loans. Romark will also implement and manage warehouse or similar
facilities established in anticipation of the launch of a Romark CLO. Romark in
the future may manage or sub-advise accounts or funds that are not CLOs. These
accounts or funds may invest in fixed-income securities, loans, and other
instruments, including, without limitation, instruments issued by Romark CLOs or
other securitized vehicles, and such accounts or funds may be established for
the express purpose of investing in Romark CLOs or other securitized vehicles.
Romark, on behalf of the Romark CLOs or other securitized vehicles, may seek to
invest in the same or similar types of instruments as Advisor seeks to invest in
on behalf of the Funds. Additionally, certain of the Advisor’s shareholders,
officers, and/or employees are shareholders, officers, and/or employees of RCA,
while remaining as shareholders, officers, and/or employees of Advisor and thus
will act as dual shareholders, officers, and/or employees of Advisor and RCA,
and in some instances, are shareholders, officers, and/or employees of all three
of Shenkman, RCA, and RCLO. As such, there is a potential conflict of interest
as certain of the Advisor’s shareholders, officers, and/or employees will
allocate time and resources to Romark that could instead be allocated to the
Advisor.
It
should be noted that the Advisor’s services to each client, including the Funds,
are not exclusive. The Advisor’s employees and affiliates may effect
transactions for their own accounts and for the accounts of other clients that
differ materially from the advice given, or the time or nature of action taken,
with respect to the Funds. Also, it may not always be possible for the same
investment positions to be taken or liquidated at the same time or at the same
price.
Advisor
offers many of its investment strategies through a variety of investment
products, including, without limitation, separately managed accounts, private
funds (single investor or commingled), CLOs, mutual funds, and UCITS. Given the
different structures of these products, certain clients of Advisor are subject
to terms and conditions that are materially different or more advantageous than
available under different products. For example, mutual funds offer investors
the ability to redeem from the fund daily, while private funds offer less
frequent liquidity. Similarly, a separately managed account client may have more
transparency regarding the positions held in its account than would be available
to an investor in a fund, and, further, separately managed account clients have
the ability to terminate their investment management agreement with little or no
notice (subject to the terms of the agreement), at which point the client could
take control of the assets and may themselves liquidate the
portfolio.
As
a result of these differing liquidity and other terms, Advisor may acquire
and/or dispose of investments for a client either prior to or subsequent to the
acquisition and/or disposition of the same or similar securities held by another
client. In certain circumstances, purchases or sales of instrument by one client
could adversely affect the value of the same instrument held in another client’s
portfolios. In addition, Advisor has caused, and expects to in the future to
cause, certain clients to invest in opportunities with different levels of
concentration or on different terms than that to which other clients invest in
the same instrument. These differences in terms and concentration could lead to
substantially different investment outcomes among clients investing in the same
instrument. Advisor seeks to tailor its
investment
advisory services to meet each client’s investment objective, constraints and
investment guidelines, and the Advisor’s judgments with respect to a particular
client will at times differ from its judgments for other clients, even when two
clients pursue similar investment strategies.
Advisor
also acts as investment adviser to clients that have issued debt instruments,
and Advisor may enter into similar investment advisory relationships in the
future. Such companies may be investors in investment vehicles managed or
advised by Advisor, including the Fund, and Advisor may purchase, on behalf of a
client, including the Funds, instruments issued by such companies. For the
avoidance of doubt, however, Advisor is not obligated to purchase or sell or
recommend for purchase or sale for any client any security or other asset that
it and its employees and affiliates may purchase or sell for the account of any
client or for their own accounts.
Advisor
engages in transactions and investment strategies for certain clients that
differ from the transactions and strategies executed on behalf of other clients.
Advisor invests in all segments of the capital structure of high yield issuers
on its clients, including the Funds, and is not precluded from investing in
instruments of a company held in another client, even if such positions may be
adverse. The Advisor’s clients have held, and it is expected that in the future
they will at times hold, different investments of the same issuer that have
different priorities. These investments create conflicts of interest,
particularly because Advisor can take certain actions for some clients that can
have an adverse effect on other clients (for example, in connection with
situations involving restructuring and reorganization). For example, certain
clients of Advisor may hold senior or subordinated rights relative to other
clients, or vice versa. This presents a potential conflict of interest because
any action that Advisor were to take on behalf of the issuer’s senior
instrument, for instance, could have an adverse effect on the issuer’s junior
instrument, and vice versa, particularly in distressed or default situations. To
the extent Advisor or any of its employees were to serve on a formal or informal
creditor or similar committee on behalf of a client, such conflicts of interest
may be exacerbated. Advisor has adopted procedures and controls reasonably
designed to identify and address such conflicts.
Additionally,
Advisor and its affiliates may make investments for certain clients that it
concludes are inappropriate for other clients. For instance, one client may take
short positions in the debt or equity instruments of certain issuers, while at
the same time those instruments and/or other securities and/or leveraged loans
of that issuer are acquired or held long by other clients. Conversely, Advisor
may take long positions in the securities of certain issuers for a client, while
at the same time those instruments and/or other securities and/or leveraged
loans of that issuer are held short in or have been sold out of another client’s
account.
Advisor
may share in performance-based compensation and manage both client accounts that
are charged performance-based compensation and accounts that are charged only an
asset-based fee (i.e.,
a non-performance-based fee). In addition, certain client accounts may have
higher asset-based fees or more favorable performance-based compensation
arrangements than other accounts. Advisor and/or its affiliates, employees,
officers, shareholders, and directors (including individuals involved in making
investment decisions) invests in one or more investment funds managed by
Advisor, and such investments may represent a significant portion of each
individual’s net worth. Additionally, such investments are concentrated in
investment funds from which Advisor and/or certain employees (through ownership
interests in affiliates of the Advisor) receive performance-based compensation.
Advisor has a greater incentive to favor clients that pay it (and indirectly
certain investment personnel) performance-based compensation or higher fees.
Advisor
will generally allocate investment opportunities among eligible clients pro rata
based on each client’s total net asset value, or pursuant to alternative
approved methodologies, including, without limitation, pursuant to (i) a target
weighting of an account’s concentration in an applicable issue, issuer,
industry, credit rating, duration, maturity, cash level, or similar portfolio
attribute; (ii) a rotational system; (iii) a random selection of eligible
accounts; or (iv) as otherwise approved by the Advisor’s Legal and Compliance
Department.
A
client will generally be presumed to be eligible to participate in an investment
opportunity executed on behalf of clients with similar investment objectives,
strategies and risk profiles, provided, however, that an eligible client may be
excluded from participating in an investment opportunity, or the amount of an
eligible client’s allocation may be limited based on, among other things, the
client’s investment guidelines, restrictions and specific instructions; legal,
regulatory or tax restrictions; portfolio diversification/concentration
considerations; and timing of cash flows, account liquidity and cash balances.
Allocations are generally adjusted for rounding based on lot size and minimum
increment requirements, or as otherwise approved by the Advisor’s Legal and
Compliance Department. It is the Advisor’s goal to provide individualized
treatment and customized solutions to each client. Due to the differences in
investment objectives, strategies, guidelines and restrictions, along with the
other criteria outlined above, including the availability and relative value of
investment opportunities, there will be differences among accounts in invested
positions and investments held, and such differences can be meaningful. There
are no assurances that each client, including the Funds, will participate in
each eligible investment opportunity. In all cases, Advisor seeks to identify
and mitigate all conflicts of interest and allocate investments fairly over time
and in accordance with its fiduciary duties.
Advisor
maintains a general practice of aggregating client trade orders for execution in
order to achieve more favorable execution prices by buying or selling
investments in greater quantity. Any initial allocations made prior to an order
being placed, will be subject to adjustment depending upon, among other
considerations, (i) the actual amount purchased or sold (e.g.,
partially-filled orders; (ii) lot size and minimum increment requirements; and
(iii) if the order is a sale transaction, remaining position size by account.
Aggregated orders are typically allocated among accounts based upon an average
price, with all other transaction costs, if any, shared among the accounts on a
fair and reasonable basis. Furthermore, due to the fact that market conditions
fluctuate throughout the trading day, Advisor bifurcates the trading day into
morning (typically prior to noon) and afternoon trading sessions (typically
after noon), and generally aggregates orders generated in the morning trading
session separately from orders generated during the afternoon trading
session.
As
part of its overall compliance program, Advisor has adopted a Code of Ethics
(the “Code of Ethics”) that imposes standards of business conduct, including
standards and procedures for the detection and prevention of inappropriate
personal securities transactions by our employees, and addresses other
situations involving conflicts of interest. One of the intentions of the Code of
Ethics is to ensure that the personal securities transactions of persons subject
to it are conducted in accordance with the following principles: (i) the duty at
all times to place the interests clients first; (ii) the requirement that all
personal securities transactions be conducted consistent with the Code of Ethics
and in such a manner as to identify and mitigate any conflict of interest and
avoid any abuse of an individual’s responsibility and position of trust; (iii)
the fundamental standard that our employees not take inappropriate advantage of
their positions; and (iv) the duty at all times to comply with applicable state
and federal securities laws. The Advisor’s Code of Ethics requires employees to
obtain pre-approval for personal securities transactions, except with respect to
transactions involving municipal bonds, sovereign bonds, treasury bonds, digital
coins or tokens, mutual funds for which Advisor Group does not serve as
investment adviser or sub-adviser, closed-end funds, exchange traded funds, unit
investment trusts or exchange
traded
notes. Advisor permits its employees to engage in personal securities trading,
but does not allow them to purchase high yield or “cross over” (i.e.,
rated investment grade by one rating agency and below investment grade by
another rating agency) bonds or loans or to purchase any securities of an issuer
that is on the Advisor’s list of approved issuers (the “Approved List”) or an
issuer whose securities or loans are otherwise owned by one or more clients of
the Advisor. If granted, an approval is generally valid until the close of
business on the next business day after such approval is granted. The Code of
Ethics also includes a prohibition on insider trading and requires reporting of
personal securities accounts, transactions and/or holdings to Advisor’s Legal
and Compliance Department (subject to certain limited exceptions).
Portfolio
Managers’ Compensation. Messrs.
Shenkman, Slatky, Lerner, Gallo, Barrow, Goldberg and Ms. Spiro serve as
co-portfolio managers for the Floating Rate Fund. Messrs. Shenkman, Slatky,
Barrow, Gallo, Sarchese, and Wechsler serve as co-portfolio managers for the
Short Duration Fund. Each portfolio manager receives a fixed base salary and an
annual bonus predicated on individual and firm performance. They are compensated
based on their ability to implement the firm’s investment strategy, their
ability to effectively perform their respective managerial functions, the
overall investment performance of the firm, as well as the firm’s growth and
profitability. Their compensation is not based on the performance of a Fund or
the value of assets held in its portfolio.
Securities
Owned in the Funds by the Portfolio Managers.
As of September 30, 2022, the portfolio managers owned the following securities
in the Funds:
|
|
|
|
|
| |
| Name
of Portfolio Manager |
Dollar
Range of Securities in the Funds
(None,
$1-$10,000, $10,001-$50,000, $50,001-$100,000, $100,001 -
$500,000,
$500,001 - $1,000,000, Over $1,000,000) |
|
Floating
Rate Fund |
|
|
Mark
R. Shenkman |
None |
|
Justin
W. Slatky |
None |
|
David
H. Lerner |
$10,001
‑ $50,000 |
|
Jeffrey
Gallo |
$50,001
- $100,000 |
| Jordan
Barrow |
None |
|
Brian
C. Goldberg |
$10,001
‑ $50,000
0 |
| Eileen
Spiro |
None |
|
Short
Duration Fund |
|
|
Mark
R. Shenkman |
$100,001
- $500,000 |
|
Justin
W. Slatky |
$50,001
- $100,000 |
|
Nicholas
Sarchese |
$100,001
- $500,000 |
|
Neil
Wechsler |
$10,001
‑ $50,000
0 |
|
Jordan
Barrow |
$100,001
- $500,000 |
| Jeffrey
Gallo |
None |
EXECUTION
OF PORTFOLIO TRANSACTIONS
Pursuant
to the Advisory Agreement, the Advisor determines which securities are to be
purchased and sold by the Funds and which broker-dealers are eligible to execute
the Funds’ portfolio transactions. Purchases and sales of securities in the
over-the-counter market will generally 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 Funds also may be made directly from issuers or
from underwriters. Where possible, purchase and sale transactions will be
effected through dealers (including banks) which specialize in the types of
securities which the Funds will be holding, unless better executions are
available elsewhere. Dealers and underwriters usually act as principal for their
own accounts. 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 dealer or underwriter are comparable, the order may be allocated to a
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 typically 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, including a broker-dealer’s
furnishing or supplying of research and statistical information to the Advisor
that it may lawfully and appropriately use in its investment advisory
capacities, as well as providing other services in addition to execution
services. 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 Agreement
with the Funds, 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 the FINRA and the SEC.
While
it is the Funds’ general policy to seek to obtain the most favorable price and
execution available in selecting a broker-dealer to execute portfolio
transactions for the Funds, in accordance with Section 28(e) under the
Securities and Exchange Act of 1934, as amended, weight may also be given to the
ability of a broker-dealer to furnish brokerage and research services to the
Funds or to the Advisor, even if the specific services are not directly useful
to the Funds and may be useful to the Advisor in advising other clients. In
negotiating commissions with a broker or evaluating the spread to be paid to a
dealer, the Funds 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.
It
is possible that at times identical securities will be acceptable for both the
Funds and one or more of other client accounts or pooled investment vehicles
managed by the Advisor. In such event, the position of the Funds and such client
account(s) or pooled investment vehicles 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 or pooled
investment vehicles seek to acquire the same security as the Funds at the same
time, the Funds 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 Funds 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 or pooled investment
vehicles simultaneously purchases or sells the same security that a Fund is
purchasing or selling, each day’s transactions in such security will be
allocated between the Funds and all such client accounts or pooled investment
vehicles in a manner deemed equitable by the Advisor, taking into account the
respective sizes of the accounts and the amount of cash available for
investment, the investment objective of the account, and the ease with which a
client’s appropriate amount can be bought, as well as the liquidity and
volatility of the account and the urgency involved in making an investment
decision for the client. It is recognized that in some cases this methodology
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 Funds to participate in volume transactions may
produce better executions for the Funds.
During
the fiscal years ended September 30 indicated below, the Floating Rate Fund paid
the following amount in brokerage commissions:
|
|
|
|
|
|
|
|
| |
| 2022 |
2021 |
2020 |
| $211 |
$342 |
$818 |
During
the fiscal year ended September 30, 2022, the Short Duration Fund did not pay
brokerage commissions. Additionally, the Advisor did not direct either Fund’s
brokerage transactions on the basis of any “soft dollar” arrangements
(i.e.,
using commissions or otherwise directing trade activity to compensate for
research services) during the Funds’ fiscal year ended September 30,
2022.
GENERAL
INFORMATION
The
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 Funds. Each share represents an
interest in a Fund proportionately equal to the interest of each other share.
Upon a Fund’s liquidation, all shareholders would participate pro rata in the
net assets of the Fund available for distribution to shareholders.
With
respect to the Funds, the Trust may offer more than one class of shares. The
Trust has adopted a Multiple Class Plan pursuant to Rule 18f-3 under the 1940
Act, detailing the attributes of each class of the Funds, and 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, each Fund offers Class A,
Class C, Class F and Institutional Class shares; however, the Class A and Class
C shares of the Floating Rate Fund are not currently available for
purchase.
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 among all the
series in a manner believed by management of the Trust to be fair and equitable.
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
(i) upon the merger or consolidation with, or the sale or disposition of
all or substantially all of its assets to, another entity, if approved by the
vote of the holders of two thirds of its outstanding shares, except that if the
Board recommends such merger, consolidation or sale or disposition of assets,
the approval by vote of the holders of a majority of the series’ or class’
outstanding shares will be sufficient, or (ii) by the vote of the holders
of a majority of its outstanding shares, or (iii) by the Board by written
notice to the series’ or class’ shareholders. 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. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
The
Declaration of Trust does not require the issuance of stock certificates. If
stock certificates are issued, they must be returned by the registered owners
prior to the transfer or redemption of shares represented by such
certificates.
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.
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
A
financial intermediary may offer Fund shares subject to variations in or
elimination of the Fund sales charges (“variations”), provided such variations
are described in the Funds’ Prospectus. All variations described in Appendix A
to the Funds’ Prospectus are applied by, and the responsibility of, the
identified financial intermediary. Sales charge variations may apply to
purchases, sales, exchanges and reinvestments of Fund shares and a shareholder
transacting in Fund shares through an intermediary identified on Appendix A to
the Funds’ Prospectus should read the terms and conditions of such Appendix A
carefully. For the variations applicable to shares offered through Merrill
Lynch-sponsored platforms, please see “Appendix A – Financial Intermediary Sales
Charge Variations” in the Funds’ Prospectus. A variation that is specific to a
particular financial intermediary is not applicable to shares held directly with
the Funds or through another intermediary. Please consult your financial
intermediary with respect to any variations listed on Appendix A to the Funds’
Prospectus.
You
may purchase shares of the Funds directly from the Funds or from securities
brokers, dealers or financial intermediaries (“Financial Intermediary,”
collectively, “Financial Intermediaries”). Investors should contact their
Financial Intermediary directly for appropriate instructions, as well as
information pertaining to accounts and any service or transaction fees that may
be charged. Each Fund may enter into arrangements with certain Financial
Intermediaries whereby such Financial Intermediaries are authorized to accept
your order on behalf of a Fund. Financial Intermediaries may be authorized by
the Fund’s
principal
underwriter to designate other brokers and financial intermediaries to accept
orders on the Fund’s behalf. If you transmit your order to these Financial
Intermediaries before the close of regular trading (generally 4:00 p.m., Eastern
Time) on a day that the New York Stock Exchange (“NYSE”) is open for business,
shares will be purchased at the appropriate per share price next computed after
it is received by the Financial Intermediary. Investors should check with their
Financial Intermediary to determine if it participates in these arrangements. An
order is deemed to be received when a Fund, a Financial Intermediary or, if
applicable, a Financial Intermediary’s authorized designee accepts the
order.
The
public offering price of Fund shares is the NAV per share, plus any applicable
sales charge (before imposition of a commission, if any, charged by certain
financial intermediaries on Institutional Class shares). Shares are purchased at
the public offering price next determined after the Transfer Agent receives your
purchase request in good order. In most cases, in order to receive that day’s
public offering price, the Transfer Agent must receive your purchase request in
good order before the close of regular trading on the NYSE, normally
4:00 p.m., Eastern Time.
The
Trust reserves the right in its sole discretion (i) to suspend the
continued offering of the Fund’s shares, and (ii) to 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 a Fund.
In
addition to cash purchases, Fund shares may be purchased by tendering payment
in-kind in the form of shares of stock, bonds or other securities. Any
securities used to buy Fund shares must be readily marketable, their acquisition
consistent with the Fund’s objective and otherwise acceptable to the Advisor and
the Board.
How
to Sell Shares and Delivery of Redemption Proceeds
You
can sell your Fund shares any day the NYSE is open for regular trading, either
directly to the Fund or through your Financial Intermediary. An order is deemed
to be received when a Fund, a Financial Intermediary or, if applicable, a
Financial Intermediary’s authorized designee accepts the order.
Payments
to shareholders for shares of a Fund redeemed directly from the Fund will be
made as promptly as possible, but no later than seven days after receipt by the
Transfer Agent of the written request in proper form, with the appropriate
documentation as stated in the Prospectus, except that a 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 Funds 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
Shareholders
with telephone transaction privileges established on their account may redeem
Fund shares by telephone. Upon receipt of any instructions or inquiries by
telephone from the shareholder, the Fund or its authorized agents may carry out
the instructions and/or respond to the inquiry consistent with the shareholder’s
previously established account service options. For joint accounts, instructions
or inquiries from either party will be carried out without prior notice to the
other account owners. In acting upon telephone instructions, the Fund and its
agents use procedures that are reasonably designed to ensure that
such
instructions are genuine. These include recording all telephone calls, requiring
pertinent information about the account and sending written confirmation of each
transaction to the registered owner.
Fund
Services will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If Fund Services fails to employ
reasonable procedures, the Funds and Fund Services may be liable for any losses
due to unauthorized or fraudulent instructions. If these procedures are
followed, however, to the extent permitted by applicable law, neither the Funds
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 additional information, contact Fund Services.
Redemptions
In-Kind
The
Trust has elected to be governed by Rule 18f-1 under the 1940 Act so that the
Funds are obligated to redeem their 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 Funds. Each 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 or loans
(instead of cash). The securities or loans 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 distribution in-kind, the
shareholder could incur brokerage or other charges in converting the securities
or loans to cash. A redemption, whether in cash or in-kind, is a taxable event
for you.
Each
Fund does not intend to hold any significant percentage of its portfolio in
illiquid securities, although a Fund, like virtually all mutual funds, may from
time to time hold a small percentage of securities that are illiquid. In the
unlikely event a 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.
Class
A Shares
Sales
Charges and Dealer Reallowance
Class
A shares of the Funds are retail shares that require that you pay a sales charge
when you invest unless you qualify for a reduction or waiver of the sales
charge. Class A shares are also subject to a Rule 12b-1 fee (or distribution and
service fee) at an annual rate of up to 0.25% of average daily net assets and a
shareholder servicing plan fee at an annual rate of up 0.10% of average daily
net assets, each assessed against the shares of the Funds.
If
you purchase Class A shares of a Fund you will pay the NAV next determined after
your order is received plus a sales charge (shown in percentages below)
depending on the amount of your investment. The sales charge does not apply to
shares purchased with reinvested dividends. The sales charge is calculated as
follows and the dealer reallowance is as shown in the far-right
column:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Investment
Amount |
Sales Charge
as
a
% of
Offering Price(1) |
Sales
Charge as a
% of Net Amount
Invested |
Dealer
Reallowance |
|
|
Less
than $100,000 |
3.00% |
3.09% |
3.00% |
|
|
$100,000
but less than $500,000 |
2.50% |
2.56% |
2.50% |
|
|
$500,000
but less than $1 million |
1.25% |
1.27% |
1.25% |
|
|
$1
million and more |
0.00% |
0.00% |
0.00% |
(2) |
(1)Offering
price includes the front-end sales load. The sales charge you pay may differ
slightly from the amount set forth above because of rounding that occurs in the
calculation used to determine your sales charge.
(2)If
you purchase $1 million worth of shares or more, you will pay no initial sales
load. However, in this case, if you were to sell your shares within 24 months of
purchase, you would pay a contingent deferred sales load of up to 1.00% of the
value of the Class A shares when they were purchased or the market value at the
time of redemption, whichever is less, unless the dealer of record waived its
commission. A sales charge does not apply to shares you purchase through
reinvestment of dividends or distributions. So, you never pay a CDSC on any
increase in your investment above the initial offering price.
Breakpoints/Volume
Discounts and Sales Charge Waivers
Reducing
Your Sales Charge.
You may be able to reduce the sales charge on Class A shares of the Funds based
on the combined market value of your accounts. If you believe you are eligible
for any of the following reductions or waivers, it is up to you to ask the
selling agent or shareholder servicing agent for the reduction and to provide
appropriate proof of eligibility.
•You
pay no sales charges on Fund shares you buy with reinvested
distributions.
•You
pay a lower sales charge if you are investing an amount over a specific
breakpoint level as indicated by the above table.
•You
pay no sales charges on Fund shares you purchase with the proceeds of a
redemption of Class A shares within 30 days of the date of the
redemption.
•By
signing a Letter of Intent (LOI) prior to purchase, you pay a lower sales charge
now in exchange for promising to invest an amount over a specified breakpoint
within the next 13 months. Reinvested dividends and capital gains do not
count as purchases made during this period. The Transfer Agent will hold in
escrow shares equal to approximately 3.00% of the amount you say you intend to
buy. If you do not invest the amount specified in the LOI before the expiration
date, the Transfer Agent will redeem enough escrowed shares to pay the
difference between the reduced sales load you paid and the sales load you should
have paid. Otherwise, the Transfer Agent will release the escrowed shares when
you have invested the agreed amount. For example, an investor has $75,000 to
invest in a Fund, but intends to invest an additional $2,000 per month for the
next 13 months for a total of $101,000. Based on the above breakpoint schedule,
by signing the LOI, the investor pays a front-end load of 2.50% rather than
3.00%. If the investor fails to meet the intended LOI amount in the 13‑month
period, however, the Funds will charge the higher sales load
retroactively.
•Rights
of Accumulation (“ROA”) allow you to combine Class A and Class C shares you
already own in order to reach breakpoint levels and to qualify for sales load
discounts on subsequent purchases of Class A or Class C shares. The purchase
amount used in determining the sales charge on your purchase will be calculated
by multiplying the maximum public offering price by the number of Class A shares
or Class C shares of a Fund already owned and adding the dollar amount of your
current purchase. For example, an individual has a $55,000 investment in a Fund,
which was sold with a 3.00% front-end load. The investor intends to open a
second account and purchase $50,000 of a Fund. Using ROA, the new $50,000
investment is combined with the existing $55,000 investment to reach the
$100,000 breakpoint, and the sales charge on the new investment is 2.50% (rather
than the 3.00% for a single transaction amount).
The
term “purchase” refers to: (1) a single purchase by an individual, or to
concurrent purchases that, in the aggregate, are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 purchasing Class A or Class C shares for his or their own
account; (2) a single purchase by a trustee or other fiduciary purchasing
Class A or Class C shares for a single trust, estate or single fiduciary account
although more than one beneficiary is involved; or (3) a single purchase
for the employee benefit plans of a single employer. The term “purchase” also
includes purchases by a “company,” as the term is defined in the 1940 Act, but
does not include purchases by any such company that has not been in existence
for at least six months or that has no purpose other than the purchase of mutual
fund shares at a discount. A “purchase” also may include Class A or Class C
shares purchased at the same time through a single selected dealer of any other
Shenkman Fund that distributes its shares subject to a sales
charge.
The
applicable Class A shares initial sales charge will be based on the total
of:
i.
the
investor’s current purchase;
ii.the
NAV (at the close of business on the previous day) of (a) all Class A
and Class C shares of a Fund held by the investor and (b) all
Class A and Class C shares of any other Fund held by the investor and
purchased at a time when Class A shares of such other fund were distributed
subject to a sales charge (including shares in a money market fund advised or
offered by Shenkman acquired by exchange); and
iii.the
NAV of all Class A and Class C shares described in paragraph (ii)
owned by another shareholder eligible to combine his purchase with that of the
investor into a single “purchase.”
To
qualify for a reduced sales charge on a purchase through a selected dealer, the
investor or selected dealer must provide the Funds’ transfer agent with
sufficient information to verify that each purchase qualifies for the privilege
or discount.
Eligible
Accounts.
Certain accounts may be aggregated for ROA eligibility, including your current
investment in a Fund, and previous investments you and your primary household
group have made in the Funds, provided your investment was subject to a sales
charge. (Your “primary household group” includes those family members living in
the same household as you, such as your spouse, domestic partner, child,
stepchild, parent, sibling, grandchild and grandparent, in each case including
in-law and adoptive relationships). Specifically, the following accounts are
eligible to be included in determining the sales charge on your purchase, if a
sales charge has been paid on those purchases:
•Individual
or joint accounts held in your name;
•Trust
accounts for which you or a member of your primary household group,
individually, is the beneficiary; and
•Accounts
held in the name of you or your spouse’s sole proprietorship or single owner
limited liability company or S corporation;
The
following accounts are not eligible to be included in determining ROA
eligibility;
•Investments
in Class A shares where the sales charge was waived.
A
financial intermediary may impose different sales load discounts. Sales load
discount variations specific to certain financial intermediaries are described
in Appendix A to the Funds’ Prospectus.
Waiving
Your Sales Charge.
The Funds’ Advisor reserves the right to waive the sales charges for certain
groups or classes of shareholders. If you fall into any of the following
categories, you can buy Class A shares at NAV per share without a sales
charge:
•Current
and retired employees, directors/trustees and officers of:
◦The
Trust;
◦The
Advisor and its affiliates; and
◦Immediate
family members of any of the above.
•Any
trust, pension, profit sharing or other benefit plan for current employees,
directors/trustees and officers of the Advisor and its affiliates.
•Current
employees of:
◦The
Transfer Agent;
◦Broker-dealers
who act as selling agents for the Funds/Trust; and
◦Immediate
family members of any of the above living in the same household.
•Qualified
registered investment advisers who buy through a broker-dealer or service agent
who have entered into an agreement with the Funds’ distributor that allows for
load-waived Class A shares purchases.
•Qualified
broker-dealers who have entered into an agreement with the Funds’ distributor
that allows for load-waived Class A shares purchases
and
to self-directed investment brokerage accounts that may or may not charge
transaction fees to its customers.
•The
Advisor’s clients, their employees and immediate family members of such
employees.
The
Funds also reserve the right to enter into agreements that reduce or eliminate
sales charges for groups or classes of shareholders, or for Fund shares included
in other investment plans such as “wrap accounts.” If you own Fund shares as
part of another account or package, such as an IRA or a sweep account, you
should read the terms and conditions that apply for that account. Those terms
and conditions may supersede the terms and conditions discussed here. Contact
your selling agent for further information.
Each
financial intermediary may impose different sales load waivers. Investors who
are converted from Institutional Class shares by their financial intermediary
will not be subject to a sales load. Certain sales load waiver variations are
described in Appendix
A
to the Funds’ Prospectus.
Class
C Shares.
You can buy Class C shares of the Funds at a Fund’s offering price, which is the
NAV without an up-front sales charge. If you sell (redeem) your Class C shares
within 18 months of purchase, you will have to pay a CDSC of 1.00% which is
applied to the NAV of the shares on the date of original purchase or on the date
of redemption, whichever is less. For example, if you purchased $10,000 worth of
shares, which due to market fluctuation have appreciated to $15,000, the CDSC
will be assessed on your $10,000 purchase. If that same $10,000 purchase has
depreciated to $5,000, the CDSC will be assessed on the $5,000 value. For
purposes of calculating the CDSC, the start of the 18-month holding period is
the first day of the month in which the purchase was made. The Funds will use
the first-in, first-out (“FIFO”) method when taking the CDSC.
Investments
of $1 million or more for purchase into Class C shares will be rejected. Your
financial intermediary is responsible for placing individual investments of $1
million or more into Class A shares.
Waiving
Your CDSC. The
Funds reserve the right to waive the CDSC for certain groups or classes of
shareholders. If you fall into any of the following categories, you can redeem
Class C shares without a CDSC:
•You
will not be assessed a CDSC on Fund shares you redeem that were purchased with
reinvested distributions.
•You
will not be assessed a CDSC on Fund shares redeemed for account and transaction
fees (e.g., returned investment fee) and redemptions through a systematic
withdrawal plan.
•The
Transfer Agent will waive the CDSC for all redemptions made because of scheduled
(Internal Revenue Code Section 72(t)(2) withdrawal schedule) or mandatory
(withdrawals of required minimum distribution for IRA and retirement accounts
pursuant to the Internal Revenue Code) distributions from traditional IRAs and
certain other retirement plans.
•The
Transfer Agent will waive the CDSC for redemptions made in the event of the last
surviving shareholder’s death or for a disability suffered after purchasing
shares. (“Disabled” is defined in Internal Revenue Code Section
72(m)(7)).
•The
Transfer Agent will waive the CDSC for redemptions made at the direction of the
Trust in order to, for example, complete a merger or effect a Fund
liquidation.
•The
Transfer Agent will waive the CDSC if the dealer of record waived its commission
with the Trust’s or Advisor’s approval.
The
Trust also reserves the right to enter into agreements that reduce or eliminate
the CDSC for groups or classes of shareholders, or for Fund shares included in
other investment plans such as “wrap accounts.” If you own Fund shares as part
of another account or package, such as an IRA or a sweep account, you should
read the terms and conditions that apply for that account. Those terms and
conditions may supersede the terms and conditions discussed here. Contact your
selling agent for further information. You must notify the Funds or your
financial intermediary if you are eligible for these sales charge waivers at the
time of your transaction.
A
financial intermediary may impose different CDSC waivers. CDSC waiver variations
specific to certain financial intermediaries are described in Appendix A to the
Funds’ Prospectus.
Conversions
You
may be able to convert your shares of a Fund to a different share class of the
same Fund that has a lower expense ratio provided certain conditions are met,
including that you meet the then-applicable eligibility requirements for
investment in the class into which you wish to convert your shares. This
conversion feature is intended for shares held through a financial intermediary
offering a fee-based or wrap fee program that has an agreement with the Advisor
or the Distributor specific for this purpose. Generally, Class A shares and
Class C shares are not eligible for conversion until the applicable CDSC period
has expired. Please contact your financial intermediary for additional
information. Not all share classes are available through all
intermediaries.
Investors
who hold Institutional Class shares of a Fund through a financial intermediary’s
fee-based program, but who subsequently become ineligible to participate in the
program or withdraw from the program (while continuing their relationship with
the financial intermediary as a brokerage client), may be subject to conversion
of their Institutional Class shares by their financial intermediary to another
class of shares of the Fund having expenses (including Rule 12b-1 fees) that may
be higher than the expenses of the Institutional Class shares. Investors should
contact their financial intermediary to obtain information about their
eligibility for the financial intermediary’s fee-based program and the class of
shares they would receive upon such a conversion.
If
you wish to convert your shares of a Fund to a different share class of the same
Fund, you must contact the Fund at 1-855-SHENKMAN (1-855-743-6562) or contact
your financial intermediary. The conversion will occur at respective net asset
value of each class as of the conversion date without the imposition of any fee
or other charges by a Fund. Consequently, you may receive fewer shares or more
shares than originally owned, depending on that day’s net asset values. Your
total value of the initially held shares, however, will equal the total value of
the converted shares. Please contact your financial intermediary about any fees
that it may charge. A conversion from Class A, Class C or Class F shares of a
Fund to Institutional Class shares of a Fund, and a conversion from Class A or
Class C shares of a Fund to Class F shares of a Fund, is not expected to result
in realization of a capital gain or loss for federal income tax
purposes.
DETERMINATION
OF SHARE PRICE
The
NAV of each Fund is determined as of the close of regular trading on the NYSE
(generally 4:00 p.m., Eastern Time), each day the NYSE is open for business. 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.
The
NAV is calculated by adding the value of all securities and other assets
attributable to a Fund (including interest and dividends accrued, but not yet
received), then subtracting liabilities attributable to the Fund (including
accrued expenses).
Generally,
the Funds’ 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 pursuant to procedures adopted by the Advisor. The Board has designated
the Advisor as its “valuation designee” under Rule 2a-5 of the 1940 Act, subject
to its oversight.
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 valuation designee’s approved
procedures.
Debt
securities are similarly valued under the valuation designee’s procedures, which
may include independent third-party pricing services. Any such pricing service,
in determining value, will use information with respect to transactions in the
securities being valued, quotations from dealers, market transactions in
comparable securities, analyses and evaluations of various relationships between
securities and yield to maturity information.
The
Funds’ 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.
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 Funds 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 the Fund’s NAV in advance of
the time the NAV is calculated. The Funds anticipate that their portfolio
holdings will be fair valued only if market quotations for those holdings are
considered unreliable or are unavailable.
An
option that is written or purchased by a Fund shall be valued using composite
pricing via the National Best Bid and Offer quotes. Composite pricing looks at
the last trade on the exchange where the option is traded. If there are no
trades for an option on a given business day, as of closing, the Fund will value
the option at the mean of the highest bid price and lowest ask price across the
exchanges where the option is traded. For options where market quotations are
not readily available, fair value shall be determined by the
Advisor.
DISTRIBUTIONS
AND TAX INFORMATION
Distributions
Distributions
from net investment income will generally be made monthly and distributions from
net profits from the sale of securities are generally made annually. Also, each
Fund typically distributes any undistributed net investment income on or about
December 31 of each year. Any net capital gains realized through the period
ended October 31 of each year will also be distributed by December 31 of each
year.
Each
distribution by a Fund is accompanied by a brief explanation of the form and
character of the distribution. In January of each year, the Funds will issue to
each shareholder a statement of the federal income tax status of all
distributions.
Tax
Information
Each
series of the Trust is treated as a separate entity for federal income tax
purposes. Each Fund, as a series of the Trust, has elected and intends to
continue to be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended (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. Each Fund’s policy
is to distribute to its shareholders all of its investment company taxable
income (before the deduction for dividends paid) and any net realized long-term
capital gains for each fiscal year in a manner that complies with the
distribution requirements of the Code, so that the Fund will not be subject to
any federal income or excise taxes in any year. However, the Funds can give no
assurances that distributions will be sufficient to eliminate all taxes in every
year. To avoid a nondeductible 4% Federal excise tax, each 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 no federal income
tax was paid by the Fund.
In
order to qualify as a regulated investment company, each 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. Each 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 a 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 a 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. Each 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
net investment income (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. Distributions of net investment income and net short-term capital
gains are taxable to shareholders as ordinary income. 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 income of the Fund in future
years. At September 30, 2022, the Floating Rate Fund had tax basis capital
losses to offset future gains of $14,066,349 and $1,552,015 for long-term and
short-term capital loss carryover, respectively. At September 30, 2022, the
Short Duration Fund had $5,809,854 and $14,055,335 for long-term and short-term
capital loss carryover, respectively. For individual shareholders, a portion of
the distributions paid by a 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 inter-corporate 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. The deduction may be reduced or eliminated if the Fund shares held
by an individual investor are held for less than 61 days, or 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 gains distributions are not eligible for qualified dividend
income treatment or the dividends-received deduction referred to in the previous
paragraph. There is no requirement that a Fund take into consideration any tax
implications when implementing its investment strategy. 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
a liability for the alternative minimum tax of a shareholder who is an
individual. Shareholders should note that the Funds may make taxable
distributions of income and capital gains even when share values have declined.
Investors should consider that the price of shares in a Fund may reflect the
value of an upcoming dividend, which will be taxable to all shareholders of
record even though it may represent a partial return of capital in an economic
sense.
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 ordinary 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.
Each
Fund may be subject to foreign withholding taxes on dividends and interest
earned with respect to securities of foreign corporations.
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 a Fund are purchased
(through reinvestment of distributions or otherwise) within 30 days before or
after the redemption.
Under
the Code, each Fund will be required to report to the Internal Revenue Service
(“IRS”) 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
withholding of federal income tax at the rate set under Section 3406 of the
Code, in the case of non-exempt shareholders who fail to furnish the Funds with
their Social Security or taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law or if the
IRS notifies the Funds that such backup withholding is required. If the
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 Funds 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 amounts
withheld may be credited against a shareholder’s ultimate federal income tax
liability if proper documentation is provided. The Funds reserve 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 are (1) 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 United States persons.
The
Foreign Account Tax Compliance Act (“FATCA”).
A 30% withholding tax on a Fund’s ordinary income distributions generally
applies 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 applicable intergovernmental agreement, withholding under FATCA
is required generally with respect to ordinary income distributions from a 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 Funds will not pay any additional amounts in respect of 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 each 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 a Fund and
the applicability of any state, local or foreign taxation. No rulings with
respect to tax matters of the Funds will be sought from the Internal Revenue
Service. Sullivan & Worcester has expressed no opinion in respect of the
foreign or tax information in the Prospectus.
DISTRIBUTION
AGREEMENT
The
Trust has entered into a Distribution Agreement (the “Distribution Agreement”)
with Quasar Distributors, LLC, 111 E. Kilbourn Avenue, Suite 2200, Milwaukee,
Wisconsin 53202 (the “Distributor”), pursuant to which the Distributor acts as
the Fund’s distributor in a continuous public offering of the Fund’s shares,
provides certain administration services and arranges for the sale of the Fund’s
shares through third parties.
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 a Fund on 60
days’ written notice when authorized either by a majority vote of the Funds’
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).
For
the last three fiscal years ended September 30, 2020, 2021, and 2022, the
aggregate amount of underwriting commissions paid to and retained by the
Distributor was $0.
RULE
12b-1 DISTRIBUTION AND SERVICE PLAN
The
Trust has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act under which the Class A and Class C shares of the Funds
pay the Distributor an amount which is accrued daily and paid quarterly, at an
annual rate of 0.25% and 1.00% of the average daily net assets, respectively.
The Plan provides that the Distributor may use all or any portion of such fee to
finance any activity that is principally intended to result in the sale of Fund
shares, subject to the terms of the Plan, or to provide certain shareholder
services. Amounts paid by a Fund under the Plan are paid to the Distributor to
reimburse it for costs of the services it provides and the expenses it bears in
the distribution of the Funds’ Class A and Class C shares, including
overhead and telephone expenses; printing and distribution of prospectuses and
reports used in connection with the offering of a Fund’s shares to prospective
investors; and preparation, printing and distribution of sales literature and
advertising materials. In addition, payments to the Distributor under the Plan
reimburse the Distributor for payments it makes to selected dealers and
administrators which have entered into Service Agreements with the Distributor
for services provided to shareholders of a Fund. The services provided by
selected dealers pursuant to the Plan are primarily designed to promote the sale
of shares of a Fund and include the furnishing of office space and equipment,
telephone facilities, personnel and assistance to a Fund in
servicing
such shareholders. The services provided by the administrators pursuant to the
Plan are designed to provide support services to a Fund and include establishing
and maintaining shareholders’ accounts and records, processing purchase and
redemption transactions, answering routine client inquiries regarding a Fund and
providing other services to a Fund as may be required.
Under
the Plan, the Trustees are furnished quarterly with information detailing the
amount of expenses paid under the Plan and the purposes for which payments were
made. The Plan may be terminated at any time by vote of a majority of the
Trustees of the Trust who are not interested persons. Continuation of the Plan
is considered by such Trustees no less frequently than annually. With the
exception of the Distributor in its capacity as the Funds’ principal
underwriter, no interested person has or had a direct or indirect financial
interest in the Plan or any related agreement.
While
there is no assurance that the expenditures of Fund assets to finance the
distribution of shares will have the anticipated results, the Board believes
there is a reasonable likelihood that one or more of such benefits will result,
and because the Board is in a position to monitor the distribution expenses, it
is able to determine the benefit of such expenditures in deciding whether to
continue the Plan.
The
following table shows the dollar amounts by category allocated to the Short
Duration Fund’s Class A shares and Class C shares for distribution-related
expenses:
Class
A Shares
|
|
|
|
|
| |
Actual
12b-1 Expenditures Paid by the Short Duration Fund
During the Fiscal
Year Ended September 30, 2022 |
|
| Total
Dollars Allocated |
| Advertising/Marketing |
$937 |
| Printing/Postage |
$0 |
|
| Payment
to distributor |
$14,259 |
|
| Payment
to dealers |
$39,698 |
|
| Compensation
to sales personnel |
$0 |
|
| Interest,
carrying, or other financing charges |
$0 |
|
| Other |
$0 |
|
| Total |
$54,894 |
|
Class
C Shares
|
|
|
|
|
| |
Actual
12b-1 Expenditures Paid by the Short Duration Fund
During the Fiscal
Year Ended September 30, 2022 |
|
|
Total
Dollars Allocated |
| Advertising/Marketing |
$1,446 |
| Printing/Postage |
$0 |
|
| Payment
to distributor |
$22,007 |
|
| Payment
to dealers |
$146,312 |
|
| Compensation
to sales personnel |
$0 |
|
| Interest,
carrying, or other financing charges |
$0 |
|
| Other |
$0 |
|
| Total |
$169,765 |
|
As
of the Funds’ fiscal year end, the Floating Rate Fund’s Class A shares and Class
C shares had not yet commenced operations; therefore, no distribution and
service related expenditures under the Plan were paid as of that
date.
SHAREHOLDER
SERVICING PLAN
Pursuant
to a Shareholder Servicing Plan (the “Servicing Plan”) adopted by the Trust and
established by the Funds with respect to Class A, Class C and Class F shares of
the Funds, the Advisor is authorized to provide, or arrange for others to
provide personal shareholder services relating to the servicing and maintenance
of shareholder accounts not otherwise provided to the Funds (“Shareholder
Servicing Activities”). Under the Servicing Plan, the Advisor may
enter into shareholder service agreements with securities broker-dealers and
other securities professionals (“Service Organizations”) who provide Shareholder
Servicing Activities for their clients invested in the Funds.
Shareholder
Servicing Activities shall include one or more of the
following: (1) establishing and maintaining accounts and records
relating for shareholders of the Fund; (2) aggregating and processing
orders involving the shares of the Funds; (3) processing dividend and other
distribution payments from the Funds on behalf of shareholders;
(4) providing information to shareholders as to their ownership of Fund
shares or about other aspects of the operations of the Funds; (5) preparing tax
reports or forms on behalf of shareholders; (6) forwarding communications
from the Funds to shareholders; (7) assisting shareholders in changing the
Funds’ records as to their addresses, dividend options, account registrations or
other data; (8) providing sub-accounting with respect to shares
beneficially owned by shareholders, or the information to the Funds necessary
for sub-accounting; (9) responding to shareholder inquiries relating to the
services performed; (10) providing shareholders with a service that invests
the assets of their accounts in shares pursuant to specific or pre-authorized
instructions; and (11) providing such other similar services as the Advisor
may reasonably request to the extent the Service Organization is permitted to do
so under applicable statutes, rules or regulations.
As
compensation for the Shareholder Servicing Activities, the Class A, Class C and
Class F shares each pay the Advisor a fee at an annual rate of up to 0.10% of
the class’s average daily net assets of the shares owned by investors for which
the shareholder servicing agent maintains a servicing relationship.
For
the fiscal periods indicated, the Floating Rate Fund paid the following
Servicing Plan fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Year
Ended
September 30, 2022 |
Year
Ended
September 30, 2021 |
Year
Ended
September 30, 2020 |
|
| Class
F |
$195 |
$5,081 |
$536 |
| |
For
the fiscal years indicated, the Short Duration Fund paid the following Servicing
Plan fees:
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Year
Ended
September 30, 2022 |
Year
Ended
September 30, 2021 |
Year
Ended
September 30, 2020 |
|
| Class
A |
$11,299 |
$11,404 |
$10,079 |
|
| Class
C |
$6,794 |
$8,932 |
$8,169 |
|
| Class
F |
$551,503 |
$484,357 |
$304,677 |
|
As
of the Funds’ fiscal year end, the Floating Rate Fund’s Class A and C shares had
not yet commenced operations; therefore, no servicing plan fees were paid as of
that date.
MARKETING
AND SUPPORT PAYMENTS
The
Advisor, out of its own resources and without additional cost to the Funds or
its shareholders, may provide additional cash payments or other compensation to
certain financial intermediaries who sell shares of the Funds. Such payments may
be divided into categories as follows:
Support
Payments.
Payments may be made by the Advisor to certain Financial Intermediaries in
connection with the eligibility of each Fund to be offered in certain programs
and/or in connection with meetings between the Funds’ representatives and
Financial Intermediaries and its sales representatives. Such meetings may be
held for various purposes, including providing education and training about the
Fund and other general financial topics to assist financial intermediaries’
sales representatives in making informed recommendations to, and decisions on
behalf of, their clients.
Entertainment,
Conferences and Events.
The Advisor also may pay cash or non-cash compensation to sales representatives
of financial intermediaries in the form of (i) occasional gifts;
(ii) occasional meals, tickets or other entertainments; and/or
(iii) sponsorship support for the financial intermediary’s client seminars
and cooperative advertising. In addition, the Advisor may pay for exhibit space
or sponsorships at regional or national events of financial
intermediaries.
The
prospect of receiving, or the receipt of additional payments or other
compensation as described above by financial intermediaries may provide such
intermediaries and/or their salespersons with an incentive to favor sales of
shares of the Funds, and other mutual funds whose affiliates make similar
compensation available, over sale of shares of mutual funds (or non-mutual fund
investments) not making such payments. You may wish to take such payment
arrangements into account when considering and evaluating any recommendations
relating to Funds’ shares.
ANTI-MONEY
LAUNDERING PROGRAM
The
Trust has established an Anti-Money Laundering Program (the “Program”) as
required by the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (“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
Funds’ 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.
FINANCIAL
STATEMENTS
The
annual
report
for the Funds for the fiscal period ended September 30, 2022, is a separate
document provided upon request and the financial statements, accompanying notes
and report of the independent registered public accounting firm appearing
therein are incorporated by reference into this SAI. Financial statements
certified by an independent registered public accounting firm will be submitted
to shareholders at least annually.
APPENDIX
A
Commercial
Paper Ratings
Moody’s
Investors Service, Inc.
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.
S&P
Global Ratings
Short-term
issue credit rating is a forward-looking opinion about the creditworthiness of
an obligor with respect to a specific financial obligation having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard & Poor’s for short-term issues:
“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.
Corporate
Bond Ratings
Moody’s
Investors Service, Inc.
Long-term
ratings are forward-looking opinions of the relative credit risks of financial
obligations with an original maturity of one year or more. Such ratings reflect
both the likelihood of default on contractually promised payments and the
expected financial loss suffered in the event of default. The following
summarizes the ratings used by Moody’s for long-term debt:
“Aaa”
– Obligations rated “Aaa” are judged to be of the highest quality, subject to
the lowest level of credit risk.
“Aa”
– Obligations rated “Aa” are judged to be of high quality and are subject to
very low credit risk.
“A”
– Obligations rated “A” are judged to be upper-medium grade and are subject to
low credit risk.
“Baa”
– Obligations rated “Baa” are judged to be medium-grade and subject to moderate
credit risk and as such may possess certain speculative characteristics.
“Ba”
– Obligations rated “Ba” are judged to be speculative and are subject to
substantial credit risk.
“B”
– Obligations rated “B” are considered speculative and are subject to high
credit risk.
“Caa”
– Obligations rated “Caa” are judged to be speculative of poor standing and are
subject to very high credit risk.
“Ca”
– Obligations rated “Ca” are highly speculative and are likely in, or very near,
default, with some prospect of recovery of principal and interest.
“C”
– Obligations rated “C” are the lowest rated and are typically in default, with
little prospect for recovery of principal or interest.
Note:
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating
classification from “Aa” through “Caa.” The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
S&P
Global Ratings
“AAA”
– An obligation rated “AAA” has the highest rating assigned by Standard &
Poor’s. The obligor’s capacity to meet its financial commitment on the
obligation is extremely strong.
“AA”
– An obligation rated “AA” differs from the highest-rated obligations only to a
small degree. The obligor’s capacity to meet its financial commitment on the
obligation is very strong.
“A”
– An obligation rated “A” is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its financial
commitment on the obligation is still strong.
“BBB”
– An obligation rated “BBB” 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.
“BB,”
“B,” “CCC,” “CC” and “C” – Obligations rated “BB,” “B,” “CCC,” “CC” and “C” are
regarded as having significant speculative characteristics. “BB” indicates the
least degree of speculation and “C” the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
“BB”
– An obligation rated “BB” is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor’s inadequate capacity to meet its financial commitment on the
obligation.
“B”
– An obligation rated “B” is more vulnerable to nonpayment than obligations
rated “BB”, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor’s capacity or willingness to meet its
financial commitment on the obligation.
“CCC”
– An obligation rated “CCC” 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. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the
obligation.
“CC”
– An obligation rated “CC” is currently highly vulnerable to nonpayment. The
“CC” rating is used when a default has not yet occurred, but Standard &
Poor’s expects default to be a virtual certainty, regardless of the anticipated
time to default.
“C”
– An obligation rated “C” is currently highly vulnerable to nonpayment, and the
obligation is expected to have lower relative seniority or lower ultimate
recovery compared to obligations that are rated higher.
“D”
– An 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 five business days in the
absence of a stated grace period or within the earlier of the stated grace
period or 30 calendar days. The “D” rating also will be used upon the filing of
a bankruptcy petition or the taking of 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.
Plus
(+) or minus (-) – The ratings from “AA” to “CCC” may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within the
major rating categories.
“NR”
– This indicates that no rating has been requested, or that there is
insufficient information on which to base a rating, or that Standard &
Poor’s does not rate a particular obligation as a matter of policy.
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.
APPENDIX
B
SHENKMAN
CAPITAL MANAGEMENT, INC.
PROXY
VOTING POLICY AND PROCEDURES
Set
forth below are the policies and procedures of Shenkman with respect to proxy
voting. This statement does not attempt to describe every regulatory and
compliance requirement applicable to proxy voting, but rather summarizes some of
the issues involved and establishes general rules and procedures. Although this
statement expressly addresses proxy voting, the policies and procedures set
forth herein generally apply to any solicitation of votes with respect to
holdings in a fully discretionary Client account, such as, for example, the
solicitation of the consent of the holders of fixed income securities to a
proposed restructuring or bank loan amendments.
I.Statement
of Policy
Proxy
voting is an important right of shareholders and reasonable care and diligence
must be undertaken to ensure that such rights are properly and timely exercised.
When Shenkman has discretion to vote the proxies of its Clients, it will handle
those proxies in the best interest of its Clients and in accordance with this
statement.
II. Proxy
Voting Procedures
(a) Unless
stated otherwise in a Client’s investment management agreement or offering
documents, Shenkman will instruct each custodian for a discretionary Client
account to deliver to Shenkman all proxy solicitation materials received with
respect to the account. Shenkman will carefully consider all proxy solicitation
materials and other information and facts it deems relevant in determining how
to vote a proxy. If appropriate, Shenkman will vote the relevant proxy on behalf
of its discretionary Client accounts. On the other hand, Shenkman may refrain
from voting a proxy and provide such proxy to the Client to vote. A Portfolio
Manager will make all voting decisions on behalf of a discretionary Client
account based solely on his/her determination of the best interests of that
Client. Shenkman will use reasonable efforts to respond to each proxy
solicitation by the deadline for such response.
(b) Proxies
received by Shenkman will be sent to the Portfolio Services Department for
processing as follows:
(1) maintain
a record of each proxy received;
(2) determine
which accounts managed by Shenkman hold the security to which the proxy
relates;
(3) forward
the proxy to a Portfolio Manager together with a list of accounts that hold the
security, the number of votes each account controls (reconciling any
duplications), and the date by which Shenkman must vote the proxy in order to
allow sufficient time for the completed proxy to be returned to the issuer via
the custodian prior to the vote taking place;
(4)
absent
material conflicts (see Section IV), a Portfolio Manager will determine (a)
whether it is appropriate to vote the proxy and (b) if appropriate, how Shenkman
should vote the proxy. The Portfolio Manager will send its decision to the
Portfolio Services Department, which will be responsible either (a) recording
that Shenkman will not be voting the proxy or (b) completing the proxy and
returning it to issuer and/or the custodian in a timely and appropriate
manner.
Shenkman’s
CCO shall monitor that the firm’s processing of proxy statements is handled and
processed in accordance with this statement.
III. Voting
Guidelines
Shenkman
will review all proxy solicitation materials it receives concerning instruments
held in a discretionary Client account. Shenkman will evaluate such information
and may seek additional information from the party soliciting the proxy and
independent corroboration of such information when Shenkman considers it
appropriate and when it is reasonably available.
In
the absence of specific voting guidelines from the Client, Shenkman will vote
proxies in the best interests of each particular Client, which may result in
different voting results for proxies for the same issuer. Shenkman believes that
voting proxies in accordance with the following guidelines is in the best
interests of its Clients.
Generally,
Shenkman will vote FOR
a
proposal when it believes that the proposal serves the best interests of the
discretionary client account whose proxy is solicited because, on balance, the
following factors predominate:
(a)the
proposal has a positive economic effect on shareholder value;
(b) the
proposal poses no threat to existing rights of shareholders;
(c) the
dilution, if any, of existing shares that would result from approval of the
proposal is warranted by the benefits of the proposal; and
(d) the
proposal does not limit or impair accountability to shareholders on the part of
management and the board of directors.
Generally,
Shenkman will vote AGAINST
a proposal if it believes that, on balance, the following factors
predominate:
(a) the
proposal has a material adverse economic effect on shareholder
value;
(b) the
proposal limits the rights of shareholders in a manner or to an extent that is
not warranted by the benefits of the proposal;
(c) the
proposal causes significant dilution of shares that is not warranted by the
benefits of the proposal;
(d) the
proposal limits or impairs accountability to the shareholders on the part of
management or the board of directors; or
(e) the
proposal is a shareholder initiative that Shenkman believes wastes time and
resources of the company or reflects the grievance of one individual.
Shenkman
will ABSTAIN
from voting proxies when it believes that it is appropriate. This may occur
when, without limitation, Shenkman believes that a proposal will not have a
material effect on the investment strategy it pursues for its discretionary
Client accounts, or Shenkman believes that the cost of voting exceeds the
benefit of voting (e.g., Shenkman can abstain where it believes it has a de
minimis position or that voting will not have a material impact on the
portfolio).
IV. Conflicts
of Interest
Due
to the size and nature of Shenkman’s operations and its limited affiliations in
the securities industry, Shenkman does not expect that material conflicts of
interest will arise between it and a discretionary Client account over proxy
voting. Shenkman recognizes, however, that such conflicts may arise from
time-to-time, such as, for example, when Shenkman has a business arrangement
that could be affected by the outcome of a proxy vote or has a personal or
business relationship with a person seeking appointment or re-appointment as a
director of a company. If a material conflict of interest arises, Shenkman will
determine whether voting in accordance with the voting guidelines and factors
described above is in the best interests of the Client. Under no circumstances
will Shenkman place its own interests ahead of the interests of its
discretionary Client accounts in voting proxies.
If
Shenkman determines that the proxy voting policies do not adequately address a
material conflict of interest related to a proxy, Shenkman will provide the
affected Client with copies of all proxy solicitation materials received by
Shenkman with respect to that proxy, notify that Client of the actual or
potential conflict of interest, and of Shenkman’s intended response to the proxy
request (which response will be in accordance with the policies set forth in
this statement), and request that the Client consent to Shenkman’s intended
response. If the Client consents to Shenkman’s intended response or fails to
respond to the notice within a reasonable period of time specified in the notice
(provided that Shenkman has exercised reasonable efforts to obtain the Client’s
response), Shenkman will vote the proxy as described in the notice. If the
Client objects to Shenkman’s intended response, Shenkman will vote the proxy as
directed by the Client.
V. Proxy
Advisors
Shenkman’s
CCO must approve the use of any Proxy Advisory Firm or similar proxy research
firm. The CCO will evaluate the capacity and competence of such advisory firm
prior to engagement and periodically thereafter. Specifically, the CCO will
consider whether a Proxy Advisory Firm:
•has
sufficient resources;
•has
an effective process for seeking input from issuers;
•has
adequate disclosures as to its methodologies;
•has
adequate policies and procedures to identify clients of interest;
•has
adequate processes to identify potential factual errors, incompleteness, or
methodological weakness; and
•agrees
to notify Shenkman of any organizational or policy changes.
VI. Disclosure
(a) Shenkman
will disclose in its Form ADV, Part 2A that Clients may contact Shenkman (via
e-mail or telephone) in order to obtain information on how Shenkman voted such
Client’s
proxies, and to request a copy of this statement. If a Client requests this
information, Shenkman will prepare a written response to the Client that lists,
with respect to each voted proxy that the Client has inquired about: (i) the
name of the issuer; (ii) the proposal voted upon, and (iii) how Shenkman voted
the Client’s proxy.
(b) A
concise summary of this statement will be included in Shenkman’s Form ADV, Part
2A, and will be updated whenever these policies and procedures are updated.
Shenkman will arrange for a copy of this summary to be sent to all existing
Clients as part of its annual distribution of its Form ADV, Part 2A.
