ck0001027596-20230930
STATEMENT
OF ADDITIONAL INFORMATION
January
28, 2024
Poplar
Forest Partners Fund
|
|
|
|
|
| |
| Class
A |
PFPFX |
| Institutional
Class |
IPFPX |
Poplar
Forest Cornerstone Fund
Each
a series of Advisors Series Trust
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
Wisconsin 53201-0701
1-877-522-8860
This
Statement of Additional Information (“SAI”) is not a prospectus and it should be
read in conjunction with the Prospectus dated January 28, 2024, as may be
revised, of the Poplar Forest Partners Fund (the “Partners Fund”), and the
Poplar Forest Cornerstone Fund (the “Cornerstone Fund”) (each, a “Fund” and
together, the “Funds”), each a series of Advisors Series Trust (the “Trust”).
Poplar Forest Capital LLC (the “Adviser”) is the Funds’ investment adviser. A
copy of the Prospectus may be obtained by contacting the Funds at the address or
telephone number above or by visiting the Funds’ website at www.poplarforestfunds.com/resources.
The
Funds’ audited financial statements and notes thereto for the fiscal year ended
September 30, 2023, are contained in the Funds’ annual
report
and are incorporated by reference into this SAI. A copy of the annual report may
be obtained without charge by calling or writing the Funds as shown above or by
visiting the Funds’ website at www.poplarforestfunds.com/resources.
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
Partners Fund commenced operations on December 31, 2009. The Cornerstone Fund
commenced operations on December 31, 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, the Fund may have a greater percentage of its assets invested in
securities of fewer issuers. Accordingly, each 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 each 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 a Fund’s acquisition or sale
of such security or other asset. Accordingly, except with respect to borrowing,
any subsequent change in values, net assets or other circumstances will not be
considered in determining whether an investment complies with each Fund’s
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, a Fund would sell such investments as
soon as practicable while trying to maximize the return to its
shareholders.
Market
and Regulatory Risk
Events
in the financial markets and economy may cause volatility and uncertainty and
affect performance. Such adverse effect on performance could include a decline
in the value and liquidity of securities held by the Fund, unusually high and
unanticipated levels of redemptions, an increase in portfolio turnover, a
decrease
in net asset value (“NAV”), and an increase in Fund expenses. It may also be
unusually difficult to identify both investment risks and opportunities, in
which case investment objectives may not be met. Market events may affect a
single issuer, industry, sector, or the market as a whole. Traditionally liquid
investments may experience periods of diminished liquidity. During a general
downturn in the financial markets, multiple asset classes may decline in value
and the Fund may lose value, regardless of the individual results of the
securities and other instruments in which the Fund invests. It is impossible to
predict whether or for how long such market events will continue, particularly
if they are unprecedented, unforeseen or widespread events or conditions,
pandemics, epidemics and other similar circumstances in one or more countries or
regions. Therefore, it is important to understand that the value of your
investment may fall, sometimes sharply and for extended periods, and you could
lose money.
Governmental
and regulatory actions, including tax law changes, may also impair portfolio
management and have unexpected or adverse consequences on particular markets,
strategies, or investments. Policy and legislative changes in the United States
and in other countries are affecting many aspects of financial regulation, and
may in some instances contribute to decreased liquidity and increased volatility
in the financial markets. The impact of these changes on the markets, and the
practical implications for market participants, may not be fully known for some
time. In addition, economies and financial markets throughout the world are
becoming increasingly interconnected. As a result, whether or not the Fund
invests in securities of issuers located in or with significant exposure to
countries experiencing economic and financial difficulties, the value and
liquidity of the Fund’s investments may be negatively affected.
The
Funds may invest in the following types of investments, each of which is subject
to certain risks, as discussed below:
Equity
Securities
Common
stocks, preferred stocks, convertible securities, rights, warrants and American
Depositary Receipts (“ADRs”) are examples of equity securities in which the
Funds may invest.
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 a Fund’s portfolio may fluctuate
substantially from day to day. Owning an equity security can also subject a Fund
to the risk that the issuer may discontinue paying dividends.
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 a Fund as a holder of common stock.
It is possible that all assets of that company will be exhausted before any
payments are made to a Fund.
Preferred
Stocks.
Preferred stocks are equity securities that often pay dividends at a specific
rate and have a preference over common stocks in dividend payments and
liquidation of assets. A preferred stock has a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has priority
over common stock in equity ownership, but does not have the seniority of a bond
and, unlike common stock, its participation in the issuer’s growth may be
limited. Although the dividend is set at a fixed annual rate, in some
circumstances it can be changed or omitted by the issuer.
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.
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.
Master
Limited Partnerships and Other Publicly Traded Partnerships
Each
Fund may invest in master limited partnerships (“MLPs”) and other publicly
traded partnerships formed as partnerships, limited partnerships or limited
liability companies, the units of which are listed and traded on a securities
exchange. The Funds currently may only invest in publicly traded partnerships
that are expected to be treated as corporations for federal income tax purposes.
Many MLPs derive income and capital gains from the exploration, development,
mining or production, processing, refining, transportation or marketing of any
mineral or natural resource, or from real property. The value of MLP units
fluctuates predominantly based on prevailing market conditions and the success
of the MLP. The Funds may purchase common units of an MLP on an exchange as well
as directly from the MLP or other parties in private placements. Unlike owners
of common stock of a corporation, owners of common units have limited voting
rights.
To
the extent that a limited partnership’s interests are all in a particular
industry, the limited partnership will be negatively impacted by economic events
adversely impacting that industry. The risks of investing in a limited
partnership are generally those involved in investing in a partnership as
opposed to a corporation. For example, state law governing partnerships is often
less restrictive than state law governing corporations. Accordingly, there may
be fewer protections afforded to investors in a limited partnership than
investors in a corporation. For example, investors in limited partnerships may
have limited voting rights or be liable under certain circumstances for amounts
greater than the amount of their investment. In addition, investments in certain
investment vehicles, such as limited partnerships and
MLPs,
may be illiquid. Such partnership investments may also not provide daily pricing
information to their investors, which will require a Fund to employ fair value
procedures to value its holdings in such investments.
Small-
and Medium-Sized Companies
To
the extent the Funds invest in the equity securities of small- and medium-sized
companies, it will be exposed to the risks of smaller sized companies. Small-
and medium-sized companies may have narrower markets for their goods and/or
services and may have more limited managerial and financial resources than
larger, more established companies. Furthermore, such companies may have limited
product lines, services, markets, or financial resources or may be dependent on
a small management group. In addition, because these stocks may not be
well-known to the investing public, do not have significant institutional
ownership or are typically followed by fewer security analysts, there will
normally be less publicly available information concerning these securities
compared to what is available for the securities of larger companies. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, can decrease the value and liquidity of securities held by the Funds.
As a result, their performance can be more volatile and they face greater risk
of business failure, which could increase the volatility of a Fund’s
portfolio.
Investment
Companies
Each
Fund may invest in shares of other investment companies including
exchange-traded funds (“ETFs”), money market funds and other mutual funds, in
pursuit of its investment objective, subject to the limitations set forth in the
1940 Act. Each Fund may invest in money market mutual funds in connection with
its management of daily cash positions and for temporary defensive purposes. In
addition to the advisory and operational fees each Fund bears directly in
connection with its own operation, the Funds would also bear their pro rata
portion of each of the other investment company’s advisory and operational
expenses.
Section
12(d)(1)(A) of the 1940 Act generally prohibits a fund from purchasing (1) more
than 3% of the total outstanding voting stock of another fund; (2) securities of
another fund having an aggregate value in excess of 5% of the value of the
acquiring fund; and (3) securities of the other fund and all other funds having
an aggregate value in excess of 10% of the value of the total assets of the
acquiring fund. There are some exceptions, however, to these limitations
pursuant to various rules promulgated by the SEC.
The
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) a 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 or service fee 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 the Fund, whether or not for temporary
defensive purposes, provided that the Fund does not pay a sales charge,
distribution fee or service fee as defined in Rule 2341 of the Conduct Rules of
FINRA on acquired money market fund shares (or the Adviser must waive its
advisory fees in an amount necessary to offset any sales charge, distribution
fee or service fee).
Rule
12d1-4 permits additional types of fund of fund arrangements without an
exemptive order. The rule imposes certain conditions, including limits on
control and voting of acquired funds’ shares, evaluations and findings by
investment advisers, fund investment agreements, and limits on most three-tier
fund structures.
Exchange-Traded
Funds.
ETFs are open-end investment companies whose shares are listed on a national
securities exchange. An ETF is similar to a traditional 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 a Fund will be investing in another investment company. In addition, a
Fund’s investment in ETFs is also subject to its limitations on investments in
investment companies discussed above. To the extent a Fund invests in ETFs which
focus on a particular market segment or industry, the Fund will also be subject
to the risks associated with investing in those sectors or industries. The
shares of the ETFs in which a Fund will invest will be listed on a national
securities exchange and a 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 only in large blocks and only through participating organizations that have
entered into contractual agreements with the ETF. A Fund does not expect to
enter into such agreements and therefore will not be able to purchase and redeem
their ETF shares directly from the ETF.
Foreign
Investments
The
Funds may make investments in securities of non-U.S. issuers (“foreign
securities”). Each Fund reserves the right to invest up to 20% of each Fund’s
net assets in Depositary Receipts (“DRs”), U.S. dollar-denominated securities,
foreign securities and securities of companies incorporated outside the United
States.
Depositary
Receipts.
Depositary Receipts include ADRs, European Depositary Receipts (“EDRs”), Global
Depositary Receipts (“GDRs”) or other forms of DRs. DRs are receipts typically
issued in connection with a U.S. or foreign bank or trust company which evidence
ownership of underlying securities issued by a non-U.S. company.
ADRs
are depositary receipts for foreign securities denominated in U.S. dollars and
traded on United States securities markets. These securities may not necessarily
be denominated in the same currency as the securities for which they may be
exchanged. These are certificates evidencing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial institutions.
Designed for use in United States securities markets, ADRs are alternatives to
the purchase of the underlying securities in their national market and
currencies. ADRs may be purchased through “sponsored” or “unsponsored”
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the depositary
security. Holders of unsponsored depositary receipts generally bear all the
costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts of the deposited securities.
Risks
of Investing in Foreign Securities.
Investments in foreign securities involve certain inherent risks, including the
following:
Political
and Economic Factors.
Individual economies of certain countries may differ favorably or unfavorably
from the United States’ economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency,
diversification and balance of payments position.
The
internal politics of certain foreign countries may not be as stable as those of
the United States. Governments in certain foreign countries also continue to
participate to a significant degree, through ownership interest or regulation,
in their respective economies. Action by these governments could include
restrictions on foreign investment, nationalization, expropriation of goods or
imposition of taxes, and could have a significant effect on market prices of
securities and payment of interest. The economies of many foreign countries are
heavily dependent upon international trade and are accordingly affected by the
trade policies and economic conditions of their trading partners. Enactment by
these trading partners of protectionist trade legislation could have a
significant adverse effect upon the securities markets of such
countries.
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 a DR’s underlying
portfolio securities denominated in that currency. Such changes will affect the
Funds to the extent that the Funds are invested in DRs comprised of foreign
securities.
Taxes.
The interest and dividends payable to the Funds on certain of a Fund’s foreign
securities may be subject to foreign taxes or withholding, thus reducing the net
amount of income available for distribution to Fund shareholders. The Funds may
not be eligible to pass through to its shareholders any tax credits or
deductions with respect to such foreign taxes or withholding.
In
considering whether to invest in the securities of a non-U.S. company, the
Adviser considers such factors as the characteristics of the particular company,
differences between economic trends and the performance of securities markets
within the U.S. and those within other countries, and also factors relating to
the general economic, governmental and social conditions of the country or
countries where the company is located. 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 Adviser’s assessment of prevailing market, economic and other
conditions.
Emerging
Markets.
The Partners Fund and Cornerstone Fund may invest up to 5% of its net assets, in
foreign securities that may include securities of companies located in
developing or emerging markets, which entail additional risks, including: less
social, political and economic stability; smaller securities markets and lower
trading volume, which may result in less liquidity and greater price volatility;
national policies that may restrict an underlying fund’s investment
opportunities, including restrictions on investments in issuers or industries,
or expropriation or confiscation of assets or property; and less developed legal
structures governing private or foreign investment.
Brexit.
On January 31, 2020, the United Kingdom (the “UK”) left the European Union (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 government of the
UK 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
regarding the economic relationship between the UK and the EU. While the full
impact of Brexit is unknown, Brexit has already resulted in volatility in
European and global markets. There remains 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 uncertainty may affect other countries in the EU and elsewhere,
and may cause volatility within the EU, triggering prolonged economic downturns
in certain countries within the EU. Despite the influence of the lockdowns, and
the economic bounce back, Brexit has had a material impact on the UK’s economy.
Additionally, trade between the UK and the EU did not benefit from the global
rebound in trade in 2021,
and
remained at the very low levels experienced at the start of the coronavirus
(COVID-19) pandemic in 2020, highlighting Brexit’s potential long-term effects
on the UK economy.
Options
The
Funds may write call options on stocks if the calls are “covered” throughout the
life of the option.
A
call is “covered” if a Fund owns the optioned securities. When a Fund writes a
call, it receives a premium and gives the purchaser the right to buy the
underlying security at any time during the call period at a fixed exercise price
regardless of market price changes during the call period. If the call is
exercised, a Fund will forgo any gain from an increase in the market price of
the underlying security over the exercise price.
The
Funds may purchase a call on securities to effect a “closing purchase
transaction,” which is the purchase of a call covering the same underlying
security and having the same exercise price and expiration date as a call
previously written by a Fund on which it wishes to terminate its obligation. If
a Fund is unable to effect a closing purchase transaction, it will not be able
to sell the underlying security until the call previously written by a Fund
expires (or until the call is exercised and a Fund delivers the underlying
security).
Writing
Call Options
– When a Fund writes a call option it assumes an obligation to sell specified
securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date.
Call
writers expect to profit if prices remain the same or fall. The Funds could try
to hedge against a decline in the value of securities it already owns by writing
a call option. If the price of that security falls as expected, a Fund would
expect the option to expire and the premium it received to offset the decline of
the security’s value. However, a Fund must be prepared to deliver the underlying
instrument in return for the strike price, which may deprive it of the
opportunity to profit from an increase in the market price of the securities it
holds.
The
Funds are permitted only to write covered options. The Funds can cover a call
option by owning:
•The
underlying security (or securities convertible into the underlying security
without additional consideration);
•A
call option on the same security with the same or lesser exercise
price;
•A
call option on the same security with a greater exercise price and segregating
cash or liquid securities in an amount equal to the difference between the
exercise prices; or
•Cash
or liquid securities equal to at least the market value of the optioned
securities.
Regulation
of Derivatives and Certain Other Transactions
The
SEC adopted a final rule related to the use of derivatives, short sales, reverse
repurchase agreements and certain other transactions by registered investment
companies that rescinds and withdraws the guidance of the SEC and its staff
regarding asset segregation and cover transactions. The final rule requires a
Fund that trades derivatives and other transactions which create future payment
or delivery obligations (except reverse repurchase agreements and similar
financing transactions) be subject to a value-at-risk (“VaR”) leverage limit and
certain derivatives risk management program and reporting requirements.
Generally, these requirements apply unless a Fund qualifies as a “limited
derivatives user,” as defined in the final rule. Under the final rule, when a
Fund trades reverse repurchase agreements or similar financing transactions,
including certain tender option bonds, it needs to aggregate the amount of
indebtedness associated with the reverse repurchase agreements or similar
financing transactions with the
aggregate
amount of any other senior securities representing indebtedness when calculating
the Fund’s asset coverage ratio or treat all such transactions as derivatives
transactions. Reverse repurchase agreements or similar financing transactions
aggregated with other indebtedness do not need to be included in the calculation
of whether a Fund is a limited derivatives user, but for Funds subject to the
VaR testing, reverse repurchase agreements and similar financing transactions
must be included for purposes of such testing whether treated as derivatives
transactions or not. These requirements may limit the ability of a Fund to use
derivatives and reverse repurchase agreements and similar financing transactions
as part of its investment strategies. These requirements may increase the cost
of a Fund’s investments and cost of doing business, which could adversely affect
investors.
Each
of the Funds is classified as a limited derivatives user under Rule 18f-4 of the
1940 Act. As a limited derivatives user each 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.
Government
Obligations
The
Funds may make short-term investments in U.S. government obligations. Such
obligations include Treasury bills, certificates of indebtedness, notes and
bonds, and issues of such entities as the Government National Mortgage
Association (“GNMA”), Export Import Bank of the United States, Tennessee Valley
Authority, Resolution Funding Corporation, Farmers Home Administration, Federal
Home Loan Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks,
Federal Land Banks, Federal Housing Administration, Federal National Mortgage
Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and the
Student Loan Marketing Association.
Some
of these obligations, such as those of the GNMA, are supported by the full faith
and credit of the U.S. Treasury Department; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the U.S. Treasury; others, such as those of the FNMA, are
supported by the discretionary authority of the U.S. government to purchase the
agency’s obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. government would provide financial support
to U.S. government-sponsored instrumentalities if it is not obligated to do so
by law.
The
Funds may invest in sovereign debt obligations of foreign countries. A sovereign
debtor’s willingness or ability to repay principal and interest in a timely
manner may be affected by a number of factors, including its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor’s policy toward
principal international lenders and the political constraints to which it may be
subject. Emerging market governments could default on their sovereign debt. Such
sovereign debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The commitments on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor’s implementation of economic reforms and/or economic
performance and the timely service of such debtor’s obligations. Failure to meet
such conditions could result in the cancellation of such third parties’
commitments to lend funds to the sovereign debtor, which may further impair such
debtor’s ability or willingness to service its debt in a timely
manner.
When-Issued
Securities
The
Funds may purchase securities on a when-issued basis, for payment and delivery
at a later date, generally within one month. The price and yield are generally
fixed on the date of commitment to purchase, and the value of the security is
thereafter reflected in a Fund’s 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 security 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.
Corporate
Debt Securities
The
Cornerstone Fund may invest up to 50% of its net assets in fixed-income
securities of any maturity while the Partners Fund may invest up to 25% of its
net assets in fixed-income securities of any maturity. Up to 50% of the
Cornerstone Fund’s net assets and up to 10% of the Partners Fund’s net assets,
may be invested in corporate debt securities rated at least “investment grade”
by one or more recognized statistical ratings organizations, such as S&P
Global Ratings (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”). Up to
5% of a Fund’s net assets may be invested in debt securities rated below
investment grade. Bonds rated below BBB by S&P or Baa by Moody’s, commonly
referred to as “junk bonds,” 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 securities than more highly rated bonds.
Lower-rated bonds 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 securities, which may limit
a Fund’s ability to sell such securities 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.
Ratings
of debt securities represent the rating agencies’ opinions regarding their
quality, are not a guarantee of quality and may be reduced after a Fund has
acquired the security. If a security’s rating is reduced while it is held by a
Fund, the Adviser will consider whether a Fund should continue to hold the
security but is not required to dispose of it. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer’s current financial conditions may be better or worse than the rating
indicates. The ratings for corporate debt securities are described in Appendix
A.
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% limit is applied as of the date a Fund purchases an illiquid investment. It
is possible that a Fund’s holding of illiquid investments could exceed the 15%
limit, for example as a result of market developments or
redemptions.
Each
Fund may purchase certain restricted securities that can be resold to
institutional investors and which may be determined not to be illiquid
investments pursuant to the Fund’s liquidity risk management program. In many
cases, those securities are traded in the institutional market pursuant to Rule
144A under the Securities act of 1933, as amended (the “1933 Act”) and are
called Rule 144A securities.
Investments
in illiquid investments involve more risks than investments in similar
securities that are readily marketable. Illiquid investments may trade at a
discount from comparable, more liquid investments. Investment of 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 a Fund's liquidity risk management program established pursuant to Rule
22e-4 depending on market, trading, or investment-specific considerations
related to the restricted security. In addition, issuers whose securities are
not publicly traded may not be subject to the disclosure and other investor
protection requirements that may be applicable if their securities were publicly
traded. If any privately placed securities held by 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 non-public
information about an issuer of private placement securities, which may restrict
the Fund’s ability to conduct transactions in those securities.
Borrowing
Although
the Funds do not currently intend to borrow money, the 1940 Act permits each
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.
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
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers’ acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are “accepted” by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers’ acceptances acquired by the 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 Investments” above. Such
risks include future political and economic developments, the possible
imposition of withholding taxes by the particular country in which the issuer is
located on interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these
securities.
Domestic
banks and foreign banks are subject to different governmental regulations with
respect to the amount and types of loans 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 its assets in commercial paper and
short-term
notes. Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper and short-term
notes will normally have maturities of less than nine months and fixed rates of
return, although such instruments may have maturities of up to one
year.
Commercial
paper and short-term
notes will consist of issues rated at the time of purchase “A-2” or higher by
S&P, “Prime-1” by Moody’s, or similarly rated by another nationally
recognized statistical rating organization or, if unrated, will be determined by
the Adviser to be of comparable quality. These rating symbols are described in
Appendix B.
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 the Funds or their
service providers may adversely impact the Funds and their shareholders,
potentially resulting in, among other things, financial losses; the inability of
Fund shareholders to transact business and the Funds 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
the Funds invest, which may cause a 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 the Funds) 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 the Funds.
The
Funds 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. (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 as permitted under the 1940 Act.
3.Issue
senior securities, except as permitted under the 1940 Act.
4.Engage
in the business of underwriting securities, except to the extent that the Funds
may be considered an underwriter within the meaning of the Securities Act 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. (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 the Funds reserve freedom of action to hold and
to sell real estate acquired as a result of a Fund’s ownership of
securities.
7.Purchase
or sell physical commodities or contracts relating to physical
commodities.
8.Make
loans to others, except as permitted under the 1940 Act.
The
Funds observe the following policies, which are not deemed fundamental and which
may be changed without shareholder vote. The Funds may not:
1.Invest
in any issuer for purposes of exercising control or management.
2.Purchase
securities on margin or make short sales.
3.Invest
in securities of other investment companies, except as permitted under the
1940 Act.
4.Hold,
in the aggregate, more than 15% of its net assets in illiquid investments that
are assets pursuant to Rule 22e-4 under the 1940 Act.
5.Lend
portfolio securities.
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 Adviser, 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 Fund’s
portfolio, with the exception of securities whose maturities at the time of
acquisition were one year or less, were sold and either repurchased or replaced
within one year. A high rate of portfolio turnover (100% or more) generally
leads to higher transaction costs and may result in a greater number of taxable
transactions.
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 shows the Funds’ portfolio turnover rate for the fiscal years
shown:
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| |
|
| Portfolio
Turnover Rate Fiscal Year Ended September 30, |
|
| 2023 |
2022 |
| Partners
Fund |
35.12% |
30.29% |
| Cornerstone
Fund |
36.43% |
29.73% |
PORTFOLIO
HOLDINGS POLICY
The
Adviser 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 each Fund’s complete holdings is required to be made quarterly
within 60 days of the end of each fiscal quarter in the annual report and
semi-annual report to Fund shareholders and in the quarterly holdings report on
Part F of Form N-PORT. These reports are available, free of charge, on the EDGAR
database on the SEC’s website at www.sec.gov.
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
U.S. Bank Global Fund Services (“Fund Services”) and the Trust’s Board of
Trustees, 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 each Fund’s 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;
•Rating
and/or ranking organizations, specifically: Lipper; Morningstar; Standard &
Poor’s; Bloomberg; Vickers-Stock Research Corporation; Thomson Financial; and
Capital-Bridge, all of which currently receive such information on the
30th
day following the end of a calendar quarter; or
•Internal
parties involved in the investment process, administration, operation or custody
of the Funds, specifically: Fund Services; the Trust’s Board of Trustees; the
Trust’s attorneys and accountants (currently, Sullivan & Worcester LLP
(“Sullivan & Worcester”) and Tait, Weller & Baker LLP, respectively);
and providers of trade order and portfolio management tools as well as providers
of middle and back office services, all of which typically receive such
information after it is generated.
Any
disclosures to additional parties not described above is 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 interest and those of the Adviser, Distributor or any affiliated
person of the Funds. No consideration may be received by the Funds, the Adviser,
any affiliate of the Adviser 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 invested 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 Adviser, Administrator, Custodian and Transfer Agent, each as defined
herein. The day-to-day operations of the Trust are delegated to its officers,
subject to the Funds’ investment objectives, 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 63)
615 E. Michigan Street
Milwaukee, WI
53202 |
Chairman
of the Board
Trustee |
Indefinite
term; since October 2023.
Indefinite
term; since March 2017. |
Partner
and Head of Business Development, QSV Equity Investors, LLC, (formerly
known as 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 76)
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) |
Michele
Rackey
(age 64)
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). |
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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 55)
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 52)
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 62)
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 41)
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). |
Joseph
R. Kolinsky
(age 52)
2020 E. Financial Way, Suite 100
Glendora,
CA 91741
|
Vice
President, Chief Compliance Officer and AML Officer |
Indefinite
term; since July 2023. |
Vice
President, U.S. Bank Global Fund Services (May 2023 to present); Chief
Compliance Officer, Chandler Asset Management, Inc. (2020 to 2022);
Director, Corporate Compliance, Pacific Life Insurance Company (2018 to
2019).
|
Elaine
E. Richards
(age 55)
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). |
Lillian
A. Kabakali
(age 43)
2020 E. Financial Way, Suite 100
Glendora,
CA 91741 |
Assistant
Secretary |
Indefinite
term; since July 2023. |
Vice
President, U.S. Bank Global Fund Services (April 2023 to present); Vice
President, Compliance, Guggenheim Partners Investment Management Holdings,
LLC (April 2019 to April 2023); Senior Associate, Compliance, Guggenheim
Partners Investment Management Holdings, LLC (January 2018 to April
2019). |
* 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 the 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 the 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, 2023, the Trust was comprised of 34 active portfolios managed by
unaffiliated investment advisers. The term “Fund Complex” applies only to the
Funds (collectively, the “Poplar Forest Funds”). The Poplar Forest 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 adviser with any
other series.
(3)“Other
Directorships Held” includes only directorships of companies required to
register or file reports with the SEC under the Securities Exchange Act of 1934,
as amended, (that is, “public companies”) or other investment companies
registered under the 1940 Act.
Additional
Information Concerning Our Board of Trustees
The
Role of the Board
The
Board provides oversight of the management and operations of the Trust. Like all
mutual funds, the day-to-day responsibility for the management and operations of
the Trust is the responsibility of various service providers to the Trust, such
as the Trust’s investment advisers, distributor, administrator, custodian, and
transfer agent, each of whom are discussed in greater detail in this SAI. The
Board approves all significant agreements between the Trust and its service
providers, including the agreements with the investment advisers, distributor,
administrator, custodian and transfer agent. The Board has appointed various
senior individuals of certain of these service providers as officers of the
Trust, with responsibility to monitor and report to the Board on the Trust’s
day-to-day operations. In conducting this oversight, the Board receives regular
reports from these officers and service providers regarding the Trust’s
operations. The Board has appointed a Chief Compliance Officer (“CCO”) who
administers the Trust’s compliance program and regularly reports to the Board as
to compliance matters. Some of these reports are provided as part of formal
“Board Meetings” which are typically held quarterly, in person, and involve the
Board’s review of recent Trust operations. From time to time one or more members
of the Board may also meet with Trust officers in less formal settings, between
formal “Board Meetings,” to discuss various topics. In all cases, however, the
role of the Board and of any individual Trustee is one of oversight and not of
management of the day-to-day affairs of the Trust and its oversight role does
not make the Board a guarantor of the Trust’s investments, operations or
activities.
Board
Leadership Structure
The
Board has structured itself in a manner that it believes allows it to
effectively perform its oversight function. It has established three standing
committees, an Audit Committee, a Governance and Nominating 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 David Mertens, 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 Governance and Nominating 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 QSV Equity Investors, LLC, (formerly
known as 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.
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 Governance
and Nominating 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 Funds’ investment risks. The Funds are 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 twice with
respect to the Funds during the Funds’ fiscal year ended September
30,
2023.
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 Trust during the fiscal year ended September 30, 2023.
The
Governance and Nominating Committee is comprised of all, and only of, the
Independent Trustees. The Governance and Nominating 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
Governance and Nominating Committee will consider nominees recommended by
shareholders for vacancies on the Board. Recommendations for consideration by
the Governance and Nominating Committee should be sent to the President of the
Trust in writing together with the appropriate biographical information
concerning each such proposed Nominee, and such recommendation must comply with
the notice provisions set forth in the Trust’s 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
Governance and Nominating Committee meets regularly with respect to the various
series of the Trust. The Governance and Nominating 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.” Ms. Rackey is the Chairman of the
Governance and Nominating Committee. The Nominating and Governance Committee met
once with respect to the Trust during the fiscal year ended September 30,
2023.
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, 2023.
|
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|
|
|
| |
|
| Dollar
Range of Equity
Securities in the
Partners Fund |
Dollar
Range of Equity
Securities in the
Cornerstone 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 |
Over
$100,000 |
None |
Over
$100,000 |
| Joe
D. Redwine |
None |
None |
Over
$100,000 |
| Michele
Rackey |
None |
None |
$10,001-$50,000 |
As
of December 31, 2023,
neither the Independent Trustees nor members of their immediate family, own
securities beneficially or of record in the Advisor, the distributor, as defined
below, or an affiliate of the Advisor or distributor. Accordingly, neither the
Independent Trustees nor members of their immediate family, have direct or
indirect interest, the value of which exceeds $120,000, in the Advisor, the
distributor or any of their affiliates. In addition, during the two most
recently completed calendar years, neither the Independent Trustees nor members
of their immediate families have conducted any transactions (or series of
transactions) in which the amount involved exceeds $120,000 and to which the
Advisor, the distributor or any affiliate thereof was a party.
Compensation
Effective
January 1, 2024, the Independent Trustees each receive an annual retainer of
$108,500 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, 2024, the
annual retainer was $102,500. The Trust Chairman, Chairman of the Audit
Committee, and Chairman of the Governance and Nominating 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, 2023.
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|
|
|
|
|
|
|
|
|
|
|
| |
|
| Aggregate
Compensation from the |
Pension
or Retirement Benefits Accrued as Part of Funds’ Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Compensation from Funds and Fund Complex Paid to Trustees(2) |
|
Partners
Fund(1) |
Cornerstone
Fund(1) |
| Independent
Trustee |
|
| |
| David
G. Mertens |
$3,898 |
$3,898 |
None |
None |
$7,796 |
|
Raymond
B. Woolson(3) |
$3,923 |
$3,923 |
None |
None |
$7,846 |
| Joe
D. Redwine |
$3,955 |
$3,955 |
None |
None |
$7,910 |
| Michele
Rackey |
$2,723 |
$2,723 |
None |
None |
$5,446 |
(1)For
the fiscal year ended September 30, 2023.
(2)There
are currently numerous series comprising the Trust. The term “Fund Complex”
refers only to the Funds and not to any other series of the Trust. For the
Funds’ fiscal year ended September 30, 2023, aggregate Independent
Trustees’ fees for the Trust were $512,500.
(3)Effective
October 18, 2023, Mr. Ray Woolson retired from his service as Trustee and
Chairman of the Board to attend to health-related matters.
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
Adviser, subject to the Board’s continuing oversight. The Policies require that
the Adviser vote proxies received in a manner consistent with the best interests
of the Funds and their shareholders. The Policies also require the Adviser to
present to the Board, at least annually, the Adviser’s Policies and a record of
each proxy voted by the Adviser on behalf of the Funds, including a report on
the resolution of all proxies identified by the Adviser as involving a conflict
of interest.
The
Adviser will vote proxies based on its view of what is best for the long-term
investors in the companies in question. The Adviser maintains written policies
and procedures regarding proxy voting and makes appropriate disclosures about
its proxy policy and practice. The policy and practice include the
responsibility to monitor corporate actions, receive and vote client proxies,
and disclose any potential conflicts of interest as well as information
available to clients about the voting of proxies for their portfolio securities
and maintaining relevant and required records.
Voting
Guidelines
The
Adviser will vote proxies in accordance with its view of the long term best
interests of the company’s shareholders, which, in the Adviser’s view, is in the
best interests of its clients. In the absence of specific voting guidelines from
a client, the Adviser’s policy is to vote all proxies from a specific issuer the
same way for all clients. Please see Appendix C.
The
Trust is required to file a Form N-PX, with each Fund’s complete proxy voting
record for the 12 months ended June 30, no later than August 31 of each
year. Each Fund’s proxy voting record is available without charge, upon request,
by calling toll-free 1‑877‑522‑8860 and on the SEC’s website at www.sec.gov.
CONTROL
PERSONS, PRINCIPAL SHAREHOLDERS,
AND
MANAGEMENT OWNERSHIP
A
principal shareholder is any person who owns of record or beneficially 5% or
more of the outstanding shares of the 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.
As
of December 29, 2023, the following shareholders were considered to be
either a control person or principal shareholder of the Funds:
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| |
| Partners
Fund – Class A |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of
Ownership |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main Street
San Francisco, CA
94105-1901
|
The
Charles Schwab Corporation |
DE |
33.77% |
Record |
National
Financial Services LLC
499 Washington Boulevard, Floor 4
Jersey
City, NJ 07310-2010
|
N/A |
N/A |
11.36% |
Record |
Oppenheimer
& Co., Inc.
85 Broad Street, Floor 22
New York, NY
10004-2783
|
N/A |
N/A |
8.06% |
Record |
Merrill
Lynch Pierce Fenner & Smith
FBO its Customers
4800 Deer Lake
Drive East
Jacksonville, FL 32246-6484
|
N/A |
N/A |
8.62% |
Record |
Pershing
LLC
1 Pershing Plaza, Floor 14
Jersey City, NJ
07399-0002
|
N/A |
N/A |
7.09% |
Record |
Wells
Fargo Clearing Services LLC
1 N Jefferson Avenue MSC MO3970
Saint
Louis, MO 63103-2254
|
N/A |
N/A |
6.08% |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Partners
Fund – Institutional Class |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of
Ownership |
Oppenheimer
& Co., Inc.
85 Broad Street, Floor 22
New York, NY
10004-2783
|
N/A |
N/A |
20.32% |
Record |
Merrill
Lynch Pierce Fenner & Smith, Inc.
For Sole Benefit of Its Customers
4800 Deer Lake Drive East
Jacksonville, FL
32246-6484
|
N/A |
N/A |
20.86% |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main Street
San Francisco, CA
94105-1901
|
N/A |
N/A |
11.99% |
Record |
National
Financial Services LLC
499 Washington Boulevard, Floor 4
Jersey
City, NJ 07310-2010 |
N/A |
N/A |
7.61% |
Record |
Pershing
LLC
1 Pershing Plaza, Floor 14
Jersey City, NJ 07399-0002 |
N/A |
N/A |
5.52% |
Record |
|
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| |
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|
|
|
| |
| Cornerstone
Fund – Investor Class |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of
Ownership |
|
Charles
Schwab & Co., Inc.
Special
Custody A/C FBO Customers
Attn:
Mutual Funds
211
Main Street
San Francisco, CA 94105-1901
|
The
Charles Schwab Corporation |
DE |
47.39% |
Record |
The
Kirby Jones Foundation Delaware
c/o Packy Jones
Jones Trading
555
Saint Charles Dr., Ste 200 Thousand Oaks, CA 91360-3985 |
N/A |
N/A |
25.91% |
Beneficial |
Pershing
LLC
1 Pershing Plaza, Floor 14
Jersey City, NJ
07399-0002
|
Pershing
Group LLC |
DE |
19.47% |
Record |
Management
Ownership Information.
As of December 31, 2023, 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.
CODES
OF ETHICS
The
Trust and Adviser 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 Adviser to invest in securities that may be
purchased or held by the Funds. The Distributor, 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
Adviser, and no officer, director or general partner of the Distributor serves
as an officer, director or general partner of the Trust or the
Adviser.
THE
FUNDS’ INVESTMENT ADVISER
Poplar
Forest Capital LLC, 225 South Lake Avenue, Suite 950, Pasadena, California
91101, acts as investment adviser to the Funds pursuant to an investment
advisory agreement (the “Advisory Agreement”) with the Trust. Mr. J. Dale
Harvey, CEO and Chief Investment Officer, owns approximately 81% of the Adviser
and is therefore, a control person of the Adviser.
In
consideration of the services to be provided by the Adviser pursuant to the
Advisory Agreement, the Adviser is entitled to receive from the Funds an
investment management fee computed daily and payable monthly. For the Partners
Fund, the fees are calculated at the annual rate of 0.85% of average daily net
assets for the first $250 million of assets, 0.775% of the Fund’s average daily
net assets for the next $750 million of assets, and 0.70% of the Fund’s average
daily net assets for assets in excess of $1 billion. For the Cornerstone Fund,
the fees are calculated at an annual rate of 0.80% of average daily net assets
for the first $250 million of assets, 0.70% of the Fund’s average daily net
assets for the next $750 million of assets, and 0.60% of the Fund’s average
daily net assets for assets in excess of $1 billion.
For
the fiscal years shown below, the Partners Fund paid the following fees to the
Adviser:
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|
|
|
|
|
| |
|
| Fiscal
Year Ended September 30, |
|
| 2023 |
2022 |
2021 |
| Management
Fees Accrued |
$2,744,179 |
$2,800,746 |
$2,494,116 |
| Management
Fees Waived |
$322,385 |
$295,589 |
$364,246 |
| Management
Fees Recouped |
$0 |
$0 |
$0 |
| Management
Fees Paid |
$2,421,794 |
$2,505,157 |
$2,129,870 |
For
the fiscal years shown below, the Cornerstone Fund paid the following fees to
the Adviser:
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Fiscal
Year Ended September 30, |
|
| 2023 |
2022 |
2021 |
| Management
Fees Accrued |
$250,300 |
$249,837 |
$217,832 |
| Management
Fees Waived |
$172,569 |
$168,783 |
$172,025 |
| Management
Fees Recouped |
$0 |
$0 |
$0 |
| Management
Fees Paid |
$77,731 |
$81,054 |
$45,807 |
The
Advisory Agreement will continue 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 Adviser, the Funds are
responsible for their own operating expenses, including: fees and expenses
incurred in connection with the issuance, registration and transfer of its
shares; brokerage and commission expenses; all expenses of transfer, receipt,
safekeeping, servicing and accounting for the cash, securities and other
property of the Trust for the benefit of the Funds 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
a Fund’s 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 Adviser 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 statement of additional
information 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 the Funds,
if any; and all other charges and costs of its operation plus any extraordinary
and non-recurring expenses, except as otherwise prescribed in the Advisory
Agreement.
Though
the Funds are responsible for their own operating expenses, the Adviser has
contractually agreed to waive a portion or all of the management fees payable to
it by the Funds and/or to pay a Funds operating expenses to the extent necessary
to limit a Fund’s aggregate annual operating expenses (excluding acquired fund
fees and expenses, interest, taxes, extraordinary expenses, Rule 12b-1 fees,
shareholder servicing fees or any other class-specific expenses) to the limits
set forth in the Fees and Expenses of the Fund table of the Prospectus. The
Adviser 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 a 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 a 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 (the “Administrator”), doing business as U.S. Bank Global
Fund Services (“Fund Services”), located at 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as the Administrator to the Funds. 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.
For
the fiscal periods indicated below, the Funds paid the following fees to the
Administrator:
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|
|
|
|
|
|
|
|
|
|
| |
|
|
| Fiscal
Year Ended September 30, |
|
|
| 2023 |
2022 |
2021 |
| Partners
Fund |
$292,115 |
$297,977 |
$255,722 |
| Cornerstone
Fund |
$97,719 |
$97,742 |
$92,201 |
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. Additionally, the Administrator
provides CCO services to the Trust under a separate agreement. The cost of the
CCO services is allocated to the Funds and approved by the Board
annually.
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 Administrator, Transfer Agent,
and Custodian (as defined below) are affiliated entities under the common
control of U.S. Bancorp. The Custodian and its affiliates may participate in
revenue sharing arrangements with the service providers of mutual funds in which
the Funds 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 (“Sullivan & Worcester”), 1633 Broadway, 32nd Floor, New
York, New York 10019 serves as legal counsel to the Trust and provides counsel
on legal matters relating to the Funds. Sullivan & Worcester also serves as
independent legal counsel to the Board of Trustees.
PORTFOLIO
MANAGERS
Portfolio
Managers of the Funds
Mr.
J. Dale Harvey and Mr. Derek Derman are the individuals principally responsible
for the day-to-day management of the Partners Fund and the Cornerstone Fund. Mr.
Harvey serves as Portfolio Manager and Mr. Derman serves as Co-Portfolio
Manager.
Other
Accounts Managed
The
following tables show the number of other accounts (not including the Funds)
managed by the portfolio managers and the total assets in the accounts managed
within various categories as of September 30, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Mr.
J. Dale Harvey |
|
|
| |
| Type
of Accounts |
Number
of
Accounts
(Excluding the
Funds) |
Total
Assets
(in millions) |
Number
of
Accounts with
Advisory Fee
based on
Performance |
Total
Assets |
| Registered
Investment Companies |
1(a) |
$47.9 |
0 |
$0 |
| Other
Pooled Investments |
2 |
$419.6 |
0 |
$0 |
| Other
Accounts |
22 |
$308.7 |
0 |
$0 |
(a)
subadvised 1940 Act Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Mr.
Derek Derman |
| Type
of Accounts |
Number
of
Accounts
(Excluding the
Funds) |
Total
Assets
(in millions) |
Number
of
Accounts with
Advisory Fee
based on
Performance |
Total
Assets |
| Registered
Investment Companies |
1(a) |
$47.9 |
0 |
$0 |
| Other
Pooled Investments |
2 |
$419.6 |
0 |
$0 |
| Other
Accounts |
9 |
$295.5 |
0 |
$0 |
(a)
subadvised 1940
Act
Fund
Material
Conflicts of Interest. Mr.
Harvey and Mr. Derman also manage other accounts for the Adviser, including
other limited partnerships and other separate accounts. There is a potential
conflict should one of these funds/accounts be favored over another, but the
intention of the Adviser is to treat all funds and accounts fairly with respect
to buy/sell orders and new investment opportunities. The various funds and/or
accounts within a strategy are expected to hold generally the same securities.
Buy and/or sell orders will normally be placed concurrently for each
Fund/account managed by a particular portfolio manager.
Compensation.
Mr. Harvey and Mr. Derman both receive a fixed base salary, a discretionary
bonus, and a share of the profits of the Adviser equal in proportion to each
portfolio manager’s ownership of the firm. Profitability of the Adviser is the
main driver of each portfolio manager’s bonus. The bonus is primarily
qualitatively based. Payments are a function of firm profitability and each
individual’s contribution to the Adviser’s success.
Fund
Securities Owned by the Portfolio Managers.
As of September 30, 2023, the portfolio managers beneficially owned shares of
the Funds as follows:
|
|
|
|
|
|
|
|
| |
|
|
Dollar
Range of Equity Securities owned 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) |
| Name
of Portfolio Manager |
Partners
Fund |
Cornerstone
Fund |
| Mr.
J. Dale Harvey |
Over
$1,000,000 |
Over
$1,000,000 |
| Mr.
Derek Derman |
$50,001-$1,000,000 |
$50,001-$100,000 |
EXECUTION
OF PORTFOLIO TRANSACTIONS
Pursuant
to the Advisory Agreement, the Adviser 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 Adviser, 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 Adviser will seek best execution. The full
range and quality of services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm’s risk in positioning a
block of securities and other factors. In those instances where it is reasonably
determined that more than one broker-dealer can offer the services needed to
obtain the most favorable price and execution available, consideration may be
given to those broker-dealers which furnish or supply research and statistical
information to the Adviser that it may lawfully and appropriately use in its
investment advisory capacities, as well as provide other services in addition to
execution services. The Adviser 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 Funds subject to rules adopted by FINRA and the SEC.
While
it is the Funds’ general policy to first seek to obtain the most favorable price
and execution available in selecting a broker-dealer to execute portfolio
transactions for the Funds, when it is determined that more than one broker can
deliver best execution, weight is also given to the ability of a broker-dealer
to furnish brokerage and research services to the Funds or to the Adviser. The
Adviser no longer uses “soft dollar” credits to pay for allowable expenses under
Section 28(e) of the Securities and Exchange Act of 1934, as
amended.
Investment
decisions for each of the Funds are made independently from those of other
client accounts or mutual funds managed or advised by the Adviser. Nevertheless,
it is possible that at times identical securities will be acceptable for both
the Funds and one or more of such client accounts or mutual funds. In such
event, the position of the Funds and such client account(s) or mutual funds 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
mutual funds 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 they
desire, or they 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 mutual funds simultaneously
purchases or sells the same security that the Funds are purchasing or selling,
each day’s transactions in such security will be allocated between the Funds and
all such client accounts or mutual funds in a manner deemed equitable by the
Adviser, 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
system could have a detrimental effect on the price or value of the security
insofar as the Funds are 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.
For
the fiscal years indicated below, the Funds paid brokerage commissions as
follows:
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Fiscal
Year Ended September 30, |
|
| 2023 |
2022 |
2021 |
| Partners
Fund |
$177,307 |
$154,357 |
$134,113 |
| Cornerstone
Fund |
$10,633 |
$10,047 |
$10,820 |
The
Adviser does not enter into soft dollar or commission sharing arrangements with
brokers. The Adviser uses both execution-only brokers as well as full service
brokers to execute the Funds’ trades as well as to execute trades for its other
advisory accounts. Full service brokerage firms may, as part of their services,
provide research to the Adviser which it may use in connection with its
management of the Funds or in connection with its management of other client
accounts. The Adviser generally directs trades to full-service brokers and
execution only brokers, keeping trading costs in mind. The investment team
periodically evaluates the quality of the brokerage and research received from
all of the brokers used by the Adviser. Lowest commission rate is one
consideration, but not the only consideration, in evaluating brokers, as the
Adviser also seeks best execution for client transactions. The Adviser then
establishes target allocations to brokers based on its evaluation of the quality
of brokerage and other services provided by the broker. Actual allocations may
vary significantly from target allocations as each trade is considered
independently when determining which broker is best able to provide best
execution for that trade.
During
the fiscal year ended September 30, 2023, the Partners Fund owned the following
securities of its regular broker dealer. The Cornerstone Fund did not own any
securities of its regular broker dealer.
|
|
|
|
|
| |
|
| Stifel
Financial Corp. |
| Partners
Fund |
$2,764,800 |
MARKETING
AND SUPPORT PAYMENTS
The
Adviser, out of its own resources and without additional cost to the Funds or
their 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 Adviser to certain financial intermediaries in
connection with the eligibility of the Funds 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
Funds 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 Adviser 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 Adviser pays 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 a Fund’s shares.
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”), for the Partners Fund and
Cornerstone Fund, 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 Appendix A carefully. For the variations
applicable to shares offered through Merrill Lynch-sponsored platforms and
Raymond James-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 Partners Fund, Cornerstone Fund 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 from securities brokers, dealers or financial
intermediaries (collectively, “Brokers”). 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. The Funds may enter into arrangements with certain Brokers whereby
such Brokers are authorized to accept your order on behalf of the Funds.
Financial Intermediaries may be authorized by the Funds’ principal underwriter
to designate other brokers and financial intermediaries to accept orders on the
Funds’ behalf. If you transmit your order to these Brokers before the close of
regular trading (generally 4:00 p.m., Eastern Time) on a day that the NYSE is
open for business, shares will be purchased at the appropriate per share price
(plus any applicable sales charge) 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. Each Fund will be deemed
to have received a purchase order when a
Financial
Intermediary or, if applicable, a Financial Intermediary’s authorized designee,
receives the order.
The
public offering price of Fund shares is the NAV per share plus any applicable
sales charge (load). Shares are purchased at the public offering price next
determined after the Transfer Agent receives your order in good order. In most
cases, in order to receive that day’s public offering price, the Transfer Agent
must receive your order 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 Funds’ shares and (ii) to reject purchase orders
in whole or in part when in the judgment of the Adviser or the Distributor such
rejection is in the best interest of the Funds.
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 Funds’ objectives and otherwise acceptable to the Adviser
and the Board.
Sales
Charges and Dealer Reallowance
Class
A shares of the Partners Fund 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 Rule 12b-1 fees (or
distribution and service fees) of up to 0.25% of average daily net assets that
are assessed against the shares of the Funds.
If
you purchase Class A shares of the Partners 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 portion of the initial sales charge the
Distributor re-allows to dealers 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 $50,000 |
5.00% |
5.26% |
4.50% |
| $50,000
but less than $100,000 |
4.50% |
4.71% |
4.00% |
| $100,000
but less than $250,000 |
3.50% |
3.63% |
3.00% |
| $250,000
but less than $500,000 |
2.50% |
2.56% |
2.00% |
| $500,000
but less than $750,000 |
2.00% |
2.04% |
1.50% |
| $750,000
but less than $1 million |
1.50% |
1.52% |
1.00% |
|
$1
million or more(2) |
0.00% |
0.00% |
0.75% |
(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)Class
A shares that are purchased at NAV in amounts of $1 million or more may be
assessed a 0.75% CDSC if they are redeemed within twelve months from the date of
purchase. See “More about Class A Shares” in the statutory Prospectus for
further information.
The
difference between the total amount invested and the sum of (a) the net proceeds
to the Funds and (b) the dealer reallowance, is the amount of the initial
sales charge retained by the Distributor (also known as the “underwriter
concession”). At the discretion of the Distributor, up to 80% of the underwriter
concessions retained by the Distributor may be (1) used to offset the
compensation owed to the Distributor for its services, and/or (2) made available
by the Distributor to the Funds for pre-approved
marketing
expenses. In addition to the underwriter concession retained by the Distributor,
the Distributor retains the entire initial sales charge on accounts with no
authorized dealer of record.
Breakpoints/Volume
Discounts and Sales Charge Waivers (Partners Fund)
Reducing
Your Sales Charge.
You may be able to reduce the sales charge on Class A shares of the Partners
Fund 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 120 days of the date of the
redemption.
•By
signing a Letter of Intent (LOI), you pay a lower sales charge now in exchange
for promising to invest an amount over a specified breakpoint within the next
13 months. Any shares purchased within 90 days of the date you sign the LOI
may be used as credit towards completion, but the reduced sales charge will only
apply to new purchases made on or after that date. 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 5% 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
$25,000 to invest in a Fund, but intends to invest an additional $2,000 per
month for the next 13 months for a total of $51,000. Based on the above
breakpoint schedule, by signing the LOI, the investor pays a front-end load of
4.50% rather than 5.00%. 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 shares you already own in
order to reach breakpoint levels and to qualify for sales load discounts on
subsequent purchases of Class A 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 of the Partners Fund
already owned and adding the dollar amount of your current purchase. For
example, an individual has a $55,000 investment in the Fund, which was sold with
a 4.50% front-end load. The investor intends to open a second account and
purchase $50,000 of the Partners 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 3.50% (rather than the 4.50% for a
single transaction amount).
Eligible
Accounts.
Certain accounts may be aggregated for ROA eligibility, including your current
investment in the Partners Fund, and previous investments you and members of
your primary household group have made in the Fund, provided your investment was
subject to a sales charge. (Your primary household group consists of you, your
spouse, 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.
Waiving
Your Sales Charge.
The Partners Fund’s Adviser 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:
i.The
Trust; and
ii.The
Adviser and its affiliates;
iii.Family
members (spouse, domestic partner, parents, grandparents, children,
grandchildren and siblings (including step and in-law)) of (i)-(ii);
and
•Any
trust, pension, profit sharing or other benefit plan for current employees,
directors/trustees and officers of the Adviser and its affiliates;
•Current
employees of:
i.The
Transfer Agent;
ii.broker-dealers
who act as selling agents for the Funds/Trust;
iii.family
members (spouse, domestic partner, parents, grandparents, children,
grandchildren and siblings (including step and in-law)) of (i)-(ii);
•Qualified
registered investment advisers who buy through a broker-dealer or service agent
who has entered into an agreement with the Distributor that allows for
load-waived Class A shares purchases; and
•Certain
qualified employee benefit plans or savings plans, including, but not limited
to, those plans qualified under Sections 401(k), 403(b) or 457 of the Internal
Revenue Code, profit-sharing plans and money purchase pension
plans.
The
Trust also reserves the right to enter into agreements that reduce or eliminate
sales charges for other groups or classes of shareholders, including 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 Broker for further information.
Each
financial intermediary may impose different sales loads and waivers. Certain
sales load waiver variations are described in Appendix
A
to the Prospectus.
Investors
who are converted from Institutional Class shares of the Partners Fund by their
financial intermediary will not be subject to a sales load at the time of
conversion.
Conversions
- Partners Fund
Subject
to the Adviser’s approval, if investors currently holding Class A shares of the
Partners Fund meet the criteria for eligible investors and would like to convert
to Institutional Class shares, there are no tax
consequences
and investors are not subject to the redemption/exchange fees. To inquire about
converting your Class A shares to Institutional Class shares, please call
1-877-522-8860.
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.
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 Funds or through your Financial Intermediary. The Funds will be
deemed to have received a redemption order when a Financial Intermediary or, if
applicable, a Financial Intermediary’s authorized designee, receives the order.
Payments
to shareholders for shares of the Funds redeemed directly from the Funds 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 the Funds 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 Funds not reasonably practicable; or (c) for such other
period as the SEC may permit for the protection of the Funds’ 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 Funds’ portfolio
securities at the time of redemption or repurchase.
Telephone
Redemptions
Shareholders
with telephone transaction privileges established on their account may redeem
Fund shares up to $100,000 by telephone. Upon receipt of any instructions or
inquiries by telephone from the shareholder, the Funds or their 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 Funds and their 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 their 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.
DETERMINATION
OF SHARE PRICE
The
NAV of the Funds is determined as of the close of regular trading on the New
York Stock Exchange (the “NYSE”) (generally 4:00 p.m., Eastern Time), each day
the NYSE is open for 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.
NAV
is calculated by adding the value of all securities and other assets
attributable to the Funds (including interest and dividends accrued, but not yet
received), then subtracting liabilities attributable to the Funds (including
accrued expenses). The net asset amount attributable to the Class A shares and
Institutional Class shares is divided by the number of shares held by investors
of the applicable class.
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 Adviser’s valuation
designee pursuant to procedures approved by or under the direction of the Board.
Pursuant to those procedures, the Adviser’s valuation designee considers, among
other things: (1) the last sales price on the securities exchange, if any, on
which a security is primarily traded; (2) the mean between the bid and asked
prices; (3) price quotations from an approved pricing service; and (4) other
factors as necessary to determine a fair value under certain
circumstances.
Securities
primarily traded in the NASDAQ Global Market®
for which market quotations are readily available shall be valued using the
NASDAQ®
Official Closing Price (“NOCP”). If the NOCP is not available, such securities
shall be valued at the last sale price on the day of valuation, or if there has
been no sale on such day, at the mean between the bid and asked prices. OTC
securities which are not traded in the NASDAQ Global Market®
shall be valued at the most recent sales price. Securities and assets for which
market quotations are not readily available (including restricted securities
which are subject to limitations as to their sale) are valued at fair value as
determined in good faith under procedures approved by or under the direction of
the Adviser’s valuation designee.
Debt
securities are valued on the basis of valuations provided by independent
third-party pricing services, approved by the Adviser, or at fair value as
determined in good faith by procedures approved by the Adviser. 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 Adviser 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, a Fund will value
foreign securities at fair value, taking into account such events, in
calculating the NAV. In such cases, use of fair valuation can reduce an
investor’s ability to seek to profit by estimating a Fund’s NAV in advance of
the time the NAV is calculated. The Adviser anticipates that a Fund’s 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, a 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 Adviser’s valuation
designee.
All
other assets of the Funds are valued in such manner as the Adviser’s valuation
designee in good faith deems appropriate to reflect their fair
value.
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 (instead
of cash). The securities so distributed would be valued at the same amount as
that assigned to them in calculating the NAV per share for the shares being
sold. If a shareholder receives a distribution in-kind, the shareholder could
incur brokerage or other charges in converting the securities to cash. A
redemption, whether in cash or in-kind, is a taxable event for you.
The
Funds do not intend to hold any significant percentage of its portfolio in
illiquid securities, although the Funds, like virtually all mutual funds, may
from time to time hold a small percentage of securities that are illiquid. In
the unlikely event the Funds were to elect to make an in-kind redemption, the
Funds expect that they 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.
DISTRIBUTIONS
AND TAX INFORMATION
Distributions
Distributions
from net investment income and distributions from net profits from the sale of
securities are generally made annually. Also, the Funds typically distribute 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 the Funds 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 timing and amount of distributions. The Funds’ policy is to
distribute to its shareholders all of its investment company taxable income 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 Funds will
not be subject to any federal income or excise taxes in any year. If a Fund does
not qualify as a regulated investment company, it will be taxed as a
corporation. However, the Funds can give no assurances that distributions will
be sufficient to eliminate all taxes in every year. To avoid the 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 Funds. The Funds intend to declare and pay dividends and
other distributions, as stated in the Prospectus.
In
order to qualify as a regulated investment company, a Fund must, among other
things, derive at least 90% of its gross income each year from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock or securities or foreign currency gains
related to investments in stock or securities, or other income (generally
including gains from options, futures or forward contracts) derived with respect
to the business of investing in stock, securities or currency, and net income
derived from an interest in a qualified publicly traded partnership. The Funds
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 a
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 Funds control (by owning 20% or more of
their outstanding voting stock) and that are determined to be engaged in the
same or similar trades or businesses or related trades or businesses, or the
securities of one or more qualified publicly traded partnerships. The Funds also
must distribute each taxable year sufficient dividends to their shareholders to
claim a dividends paid deduction equal to at least the sum of 90% of the Funds’
investment company taxable income before the dividends paid deduction (which
generally includes dividends, interest, and the excess of net short-term capital
gain over net long-term capital loss) and 90% of the Funds’ net tax-exempt
interest, if any.
Net
investment income generally consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carryforwards of the Funds. Capital losses
sustained and not used in a taxable year may be carried forward indefinitely to
offset capital gains of the Funds in future years.
Distributions
of net investment income and net short-term capital gains are taxable to
shareholders as ordinary income. For individual shareholders, a portion of the
distributions paid by the Funds may be qualified dividend income currently
eligible for taxation at long-term capital gain rates to the extent the Funds
report the amount distributed as a qualifying dividend and certain holding
period requirements are met. In the case of corporate shareholders, a portion of
the distributions may qualify for the intercorporate dividends-received
deduction to the extent the Funds report the amount distributed as a qualifying
dividend. The aggregate amount so reported to either individual or corporate
shareholders cannot, however, exceed the aggregate amount of qualifying
dividends received by the Funds for their taxable year. In view of the Funds’
investment policies, it is expected that dividends from domestic corporations
will
be part of the Funds’ gross income and that, accordingly, part of the
distributions by the Funds may be eligible for qualified dividend income
treatment for individual shareholders, or for the dividends-received deduction
for corporate shareholders. However, the portion of the Funds’ gross income
attributable to qualifying dividends is largely dependent on the Funds’
investment activities for a particular year and therefore cannot be predicted
with any certainty. Further, the dividends-received deduction may be reduced or
eliminated if Fund shares held by a corporate investor are treated as debt
financed or are held for fewer than 46 days. Dividends from a Fund and gains
from the sale of Fund shares are subject to the federal 3.8% Medicare tax
applicable to taxpayers in the higher income brackets.
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. There is no requirement that a Fund take into consideration any tax
implications when implementing its investment strategy. Capital gain
distributions are not eligible for qualified dividend income treatment or the
dividends received deduction referred to in the previous paragraph.
Distributions of any net investment income and net realized capital gains will
be taxable as described above, whether received in shares or in cash.
Shareholders who choose to receive distributions in the form of additional
shares will have a cost basis for federal income tax purposes in each share so
received equal to the NAV of a share on the reinvestment date. Distributions are
generally taxable when received or deemed to be received. However, distributions
declared in October, November or December to shareholders of record on a date in
such a month and paid the following January are taxable as if received on
December 31. Distributions are includable in alternative minimum taxable income
in computing liability for the alternative minimum tax of a shareholder who is
an individual. Shareholders should note that the Funds may make taxable
distributions of income and capital gains even when share values have
declined.
For
taxable years beginning after 2017 and before 2025, non-corporate taxpayers
generally may deduct 20% of “qualified business income” derived either directly
or through partnerships or S corporations. For this purpose, “qualified business
income” generally includes dividends paid by a real estate investment trust
(“REIT”) and certain income from publicly traded partnerships. Regulations
recently adopted by the United States Treasury allow non-corporate shareholders
of a Fund to benefit from the 20% deduction with respect to net REIT dividends
received by the Fund if the Fund meets certain reporting requirements. There is
currently no mechanism for a Fund, to the extent that a Fund invests in MLPs, to
pass through to non-corporate shareholders the character of income derived from
MLP investments so as to allow such shareholders to claim this deduction. It is
uncertain whether future legislation or other guidance will enable a Fund to
pass through to non-corporate shareholders the ability to claim this deduction.
The
Funds 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 sales of shares within six months from the date of
their purchase will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gains during such
six-month period. Any loss realized upon a redemption or sale may be disallowed
under certain wash sale rules to the extent shares of the Funds are purchased
(through reinvestment of distributions or otherwise) within 30 days before or
after the redemption.
Under
the Code, the Funds will be required to report to the Internal Revenue Service
all distributions of taxable income and capital gains as well as gross proceeds
from the redemption of Fund shares, except in the case of exempt shareholders,
which includes most corporations. Pursuant to the backup withholding provisions
of the Code, distributions of any taxable income and capital gains and proceeds
from the redemption of Fund shares may be subject to withholding of federal
income tax at a 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. 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 additional amounts may be
credited against a shareholder’s ultimate federal tax liability if proper
documentation is timely provided. The Funds reserve the right to refuse to open
an account for any person failing to provide a certified taxpayer identification
number.
The
Foreign Account Tax Compliance Act (“FATCA”) imposes a 30% withholding tax on
the Funds’ distributions, if paid to a foreign entity unless: (i) if the foreign
entity is a “foreign financial institution,” it undertakes certain due
diligence, reporting, withholding and certification obligations, (ii) if the
foreign entity is not a “foreign financial institution,” it identifies certain
of its U.S. investors or (iii) the foreign entity is otherwise excepted under
FATCA. If applicable, and subject to any intergovernmental treaty, withholding
under FATCA is required with respect to certain distributions from the Funds.
Recently issued proposed Treasury Regulations generally eliminate withholding
under FATCA on gross proceeds from a sale or exchange, which would include
certain capital gains distributions and gross proceeds from a sale or
disposition of Fund shares. 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.
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 a United States person. Each shareholder
who is not a U.S. person should consider the U.S. and foreign tax consequences
of ownership of shares of the Funds, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on amounts constituting
ordinary income.
This
discussion and the related discussion in the Prospectus have been prepared by
Fund management. The information above is only a summary of some of the tax
considerations generally affecting the Funds and their 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. Tax
consequences are not the primary consideration in implementing a Fund’s
investment objectives. Investors should consult their own tax advisors to
determine the suitability of the Funds 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 tax information in the Prospectus or
SAI.
DISTRIBUTION
AGREEMENT
The
Trust has entered into a Distribution Agreement (the “Distribution Agreement”)
with Quasar Distributors, LLC, Three Canal Plaza, Suite 100, Portland, Maine
04101 (the “Distributor”), pursuant to which the Distributor acts as the Funds’
distributor, provides certain administration services and promotes
and
arranges for the sale of Fund shares. The offering of each Fund’s shares is
continuous. The Distributor is a registered broker-dealer and member of
FINRA.
The
Distribution Agreement continues in effect only if such continuance is
specifically approved at least annually by the Board or by vote of a majority of
the Fund’s outstanding voting securities and, in either case, by a majority of
the Trustees who are not parties to the Distribution Agreement or “interested
persons” (as defined in the 1940 Act) of any such party. The Distribution
Agreement is terminable without penalty by the Trust on behalf of the Funds on
60 days’ written notice when authorized either by a majority vote of each Fund’s
shareholders or by vote of a majority of the Board, including a majority of the
Trustees who are not “interested persons” (as defined in the 1940 Act) of the
Trust, or by the Distributor on 60 days’ written notice, and will automatically
terminate in the event of its “assignment” (as defined in the 1940
Act).
For
the last three fiscal periods ended September 30, 2021, 2022, and 2023, the
aggregate amounts of underwriting commissions paid to and retained by the
Distributor was $0 for 2021, $1,808 for 2022, and $968 for 2023.
RULE
12b-1 DISTRIBUTION AND SERVICE PLAN
The
Partners Fund and Cornerstone Fund have adopted a Distribution and Service Plan
(the “Plan”) pursuant to Rule 12b-1 under the 1940 Act under which the Class A
shares of the Funds pay the Distributor an amount which is accrued daily and
paid quarterly, at an annual rate of 0.25% of the average daily net assets of
the Funds’ Class A shares. 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 under the Plan, by the
Partners Fund and Cornerstone Fund, 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 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 the Partners Fund and Cornerstone Fund. The services provided
by selected dealers pursuant to the Plan are primarily designed to promote the
sale of shares of the Funds and include the furnishing of office space and
equipment, telephone facilities, personnel and assistance to the Funds in
servicing such shareholders. The services provided by the administrators
pursuant to the Plan are designed to provide support services to the Funds and
include establishing and maintaining shareholders’ accounts and records,
processing purchase and redemption transactions, answering routine client
inquiries regarding the Funds and providing other services to the Funds 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.
For
the fiscal period ended September 30, 2023, distribution-related expenditures
primarily intended to result in the sale of the Partners Fund’s Class A shares
that were made by the Fund totaled $62,391. The following tables show the dollar
amounts by category allocated to the Fund’s Class A shares for
distribution-related expenses:
|
|
|
|
|
|
|
|
| |
Actual
Rule 12b-1 Expenditures Paid by the Partners Fund
During the Fiscal
Year Ended September 30, 2023 |
|
| Total
Dollars Allocated |
| Advertising/Marketing |
$0 |
| |
| Printing/Postage |
$0 |
| |
| Payment
to distributor |
$1,959 |
| |
| Payment
to dealers |
$60,432 |
| |
| Compensation
to sales personnel |
$0 |
| |
| Interest,
carrying, or other financing charges |
$0 |
| |
| Other |
$0 |
| |
| Total |
$62,391 |
| |
Sub-Accounting
Service Fees
In
addition to the fees that the Funds may pay to the Transfer Agent, the Board has
authorized the Funds to pay service fees, at the annual rate of up to 0.15% of
applicable average net assets or $20 per account, to intermediaries such as
banks, broker-dealers, financial advisers or other financial institutions, for
sub-administration, sub-transfer agency, recordkeeping (collectively,
“sub-accounting services”) and other shareholder services associated with
shareholders whose shares are held of record in omnibus, networked, or other
group accounts or accounts traded through registered securities clearing agents.
Any sub-accounting fees paid by the Fund are included in the total amount of
“Other Expenses” listed in the Fund’s Fees and Expenses table in the
Prospectus.
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.
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 share pro rata in the net
assets of a 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, the Partners Fund offers
two share classes – Class A and Institutional Class and the Cornerstone Fund
offers one share class - Investor Class.
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.
FINANCIAL
STATEMENTS
Investors
in the Funds will be informed of the Funds’ progress through periodic
reports. Financial statements certified by an independent registered public
accounting firm will be submitted to shareholders at least annually. The
annual
report
for the Funds for the fiscal year ended September 30, 2023, 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.
APPENDIX
A
Corporate
Bond Ratings
Moody’s
Investors Service, Inc.
Aaa:
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as “gilt edge.”
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa:
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations or protective elements
may be of greater amplitude or there may be other elements present which make
long-term risks appear somewhat larger than in Aaa securities.
A:
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa:
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba:
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B:
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be
small.
Caa:
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or
interest.
Ca:
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked
shortcomings.
C:
Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospectus of ever attaining any real
investment standing. Moody’s applies numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa through B in its corporate bond rating
system. The modified 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
S&P
Global Ratings (“S&P”)
AAA:
Bonds rated AAA are highest grade debt obligations. This rating indicates an
extremely strong capacity to pay principal and interest.
AA:
Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A:
Bonds rated A have a strong capacity to pay principal and interest, although
they are more susceptible to the adverse effects of changes in circumstances and
economic conditions.
BBB:
Bonds rated BBB are regarded as having an adequate capacity to pay principal and
interest. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this category than
for bonds in the A category.
BB,
B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded on balance as
predominantly speculative with respect to capacity to pay interest and repay
principal BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions.
BB:
Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B:
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or
BB-rating.
CCC:
Bonds rated CCC have a currently identifiable vulnerability to default and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC:
The rating CC typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI:
The rating CI is reserved for income bonds on which no interest is being
paid.
D:
Bonds rated D are in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such
payments are jeopardized.
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 with the major
categories.
APPENDIX
B
Commercial
Paper Ratings
Moody’s
Investors Service, Inc.
Prime-1--Issuers
(or related supporting institutions) rated “Prime-1” have a superior ability for
repayment of senior short-term debt obligations. “Prime-1” repayment ability
will often be evidenced by many of the following characteristics: leading market
positions in well-established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well-established access
to a range of financial markets and assured sources of alternate
liquidity.
Prime-2--Issuers
(or related supporting institutions) rated “Prime-2” have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained.
S&P
Global Ratings
A-1--This
highest category indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity
for timely payment on issues with this designation is satisfactory. However, the
relative degree of safety is not as high as for issues designated
“A-1”.
APPENDIX
C
Proxy
Voting
Policy
As
a registered investment adviser that exercises proxy voting authority for
certain clients, Poplar Forest
currently
employs the following practices in order to vote proxies in the best interests
of clients. The
firm
maintains written policies and procedures regarding proxy voting and makes
appropriate
disclosures
about the firm’s proxy policy and practice. The policy and practice includes the
responsibility
to
monitor corporate actions, to receive and vote client proxies, to disclose how
Poplar Forest addresses
material
conflicts of interest, to make information available to clients about proxy
votes, and to
maintain
relevant and required records.
Responsibility
The
CCO and other designated officers are responsible for the implementation and
monitoring of the
firm’s
proxy voting policy, practices, disclosures, and record keeping, including the
firm’s voting
guidelines
Procedure
Poplar
Forest has adopted the following procedures:
Voting
Procedures
•Poplar
Forest receives all proxy materials except in instances where the client directs
otherwise.
•The
proxy coordinator and analyst review proxies and make voting decisions.
•In
the event of a conflict between the proxy coordinator and analyst, the Portfolio
Manager is responsible for making a voting decision after considering input from
the analyst and proxy coordinator.
•The
proxy administrator or designee will monitor incoming proxies against portfolio
holdings to mitigate the risk that a proxy is incorrect or not received and to
ensure timely submission of the clients’ proxies
Voting
Guidelines
•In
the absence of specific voting guidelines from the client, Poplar Forest will
generally vote for or against proposals as indicated below; however, Poplar
Forest will exercise discretion at any time when regular voting practice is
inconsistent with clients’ interests.
•Poplar
Forest will generally support measures which provide for stronger corporate
governance including but not limited to: reverse anti-takeover amendments;
auditors; directors; and indemnification of directors.
•Conversely,
Poplar Forest will generally oppose measures which weaken corporate governance
including but not limited to: reincorporation to facilitate takeover defense or
other anti-takeover amendments; issuance of new class of common stock with
unequal voting rights; adoption of fair price amendments; establishment of a
classified Board of Directors; elimination of cumulative voting; and
establishing or increasing blank check preferred stock.
•Poplar
Forest will individually consider other items based on each company’s specific
situation including but not limited to: increase in authorized common stock;
written consent; separation of CEO and Chairman roles; establish or increase
stock option plan above a certain threshold; reorganization and merger
agreements; dissident proxy battle; other employee compensation plans;
elimination or limitation of Director’s liability; Social and Environmental
issues; as well as proposals not specified above.
Conflicts
of Interest
•The
CCO will review Poplar Forest’s portfolio holdings in relationship to its
clients as well as its employees’ financial, business, or personal interests no
less frequently than annually in order to try to identify material conflicts of
interest.
•In
the event that the CCO determines there is a material conflict of interest, the
CCO will first ascertain whether the voting guidelines above specify a “vote
for” or “vote against” and, if so, the CCO will resolve the conflict by
confirming that the vote is cast in accordance with the voting guidelines. If
the voting guidelines are not so determinative, the CCO will assess whether
having another Portfolio Manager vote the client’s proxy will address the
conflict. In the event the CCO determines that having another Portfolio Manager
vote the proxy cannot adequately address the conflict, Poplar Forest may engage
a third party to vote the proxy.
Disclosure
•Poplar
Forest provides conspicuously displayed information in its Form ADV 2A Brochure
summarizing this proxy voting policy and procedures, including a statement that
clients may request information regarding how Poplar Forest voted a client’s
proxies, and that clients may request a copy of these policies and procedures.
In addition, for the Mutual Fund and (beginning in 2025) all say-on-pay votes,
proxy voting information can be found on Form N-PX, which Poplar Forest files
annually with the SEC.
Client
Requests for Information
•All
client requests for information regarding proxy votes, or proxy policies and
procedures, received by any employee should be forwarded to the CCO or
designated compliance professional.
•In
response to any request on proxy voting or procedures, the firm will prepare a
written response to the client with the information requested and, as
applicable, will include the name of the issuer, the proposal voted upon, and
how Poplar Forest voted the client’s proxy with respect to each proposal about
which the client inquired.
Recordkeeping
Poplar
Forest will maintain the following proxy records in accordance with the SEC’s
retention
requirement:
•These
policies and procedures and any amendments.
•A
list of all accounts for which Poplar Forest votes proxies.
•Any
document Poplar Forest created that was material to making a decision regarding
how to vote proxies, or that memorializes that decision, including periodic
reports that may be requested by the CCO.
•A
copy of each written request from a client for information on how Poplar Forest
voted such client’s proxies, and a copy of any written response.
•A
copy of each proxy statement that Poplar Forest receives and a record of each
vote that Poplar Forest casts shall be maintained by the CCO or a designated
third party.
•A
record of each decision by a Portfolio Manager to override any of the above
voting guidelines
