ck0001027596-20230228
Statement
of Additional Information
June 28,
2023
PZENA
MID CAP VALUE FUND
Investor
Class PZVMX
Institutional
Class PZIMX
PZENA
SMALL CAP VALUE FUND
Investor
Class PZVSX
Institutional
Class PZISX
PZENA
EMERGING MARKETS VALUE FUND
Investor
Class PZVEX
Institutional
Class PZIEX
PZENA
INTERNATIONAL SMALL CAP VALUE FUND
Investor
Class PZVIX
Institutional
Class PZIIX
PZENA
INTERNATIONAL VALUE FUND
Investor
Class PZVNX
Institutional
Class PZINX
This
Statement of Additional Information (“SAI”) is not a prospectus, and it should
be read in conjunction with the Funds’ Prospectus dated June 28, 2023, as may be
revised (the “Prospectus”), of the Pzena Mid Cap Value Fund (the “Mid Cap
Fund”), the Pzena Small Cap Value Fund (the “Small Cap Fund”), the Pzena
Emerging Markets Value Fund (the “Emerging Markets Fund”), the Pzena
International Small Cap Value Fund (the “International Small Cap Fund”) and the
Pzena International Value Fund (“International Value Fund”), (each, a “Fund” and
collectively, the “Funds”), each a series of Advisors Series Trust (the
“Trust”). Pzena Investment Management, LLC (the “Adviser”) is the investment
adviser to the Funds. A copy of the Prospectus may be obtained by contacting the
Funds at the address or telephone number below or by visiting the Adviser’s
website at www.pzenafunds.com.
Pzena
Funds
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
Wisconsin 53201-0701
1-844-796-1996
(844-PZN-1996)
The
Funds’ audited financial statements and notes thereto for the fiscal year ended
February 28, 2023, and the unqualified reports of Tait, Weller & Baker
LLP, the Funds’ independent registered public accounting firm, on such financial
statements are included in the Funds’ annual
report
to shareholders
for the fiscal year ended February 28, 2023, 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.pzenafunds.com.
TABLE
OF CONTENTS
THE
TRUST
The
Trust is an open-end management investment company organized as a Delaware
statutory trust under the laws of the State of Delaware on
October 3, 1996. The Trust’s Agreement and Declaration of Trust (the
“Declaration of Trust”) permits the Trust’s Board of Trustees (the “Board” or
the “Trustees”) to issue an unlimited number of full and fractional shares of
beneficial interest, par value $0.01 per share, which may be issued in any
number of series. The Trust consists of various series that represent separate
investment portfolios. The Board may from time to time issue other series, the
assets and liabilities of which will be separate and distinct from any other
series. This SAI relates only to the Funds.
The
Mid Cap Fund and Emerging Markets Fund commenced operations on March 31, 2014.
The Small Cap Fund commenced operations on April 27, 2016. The International
Small Cap Fund commenced operations on July 2, 2018. The International Value
Fund commenced operations on June 28, 2021.
Registration
with the United States Securities and Exchange Commission (“SEC”) does not
involve supervision of the management or policies of the Fund. The Prospectus of
the Fund and this SAI omit certain of the information contained in the
Registration Statement filed with the SEC. Copies of such information may be
obtained from the SEC upon payment of the prescribed fee or may be accessed free
of charge at the SEC’s website at www.sec.gov.
INVESTMENT
POLICIES AND RISKS
The
following information supplements the discussion of the Funds’ investment
objectives and policies as set forth in their Prospectus.
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, even if the individual results of the securities
and other instruments in which the Fund invests outperform the broader financial
markets. 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, rights, warrants, convertible securities 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 the Funds as holders of common
stock. It is possible that all assets of that company will be exhausted before
any payments are made to the Funds.
Preferred
Stocks
A
preferred stock blends the characteristics of a bond and common stock. Preferred
stock generally does not carry voting rights. It can offer the fixed dividends
of a bond and the equity ownership of a common
stock.
Unlike common stock, its participation in the issuer’s growth may be limited.
Preferred stock prices tend to fluctuate with changes in interest rates rather
than the issuing company’s business prospects. Preferred stock generally has
priority claim over common stock: (a) in the receipt of dividends, and (b)
should the issuer be dissolved, in any residual assets after payment to
creditors. Although the dividend is set at a fixed annual rate, in some
circumstances it can be changed or omitted by the issuer.
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.
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.
Foreign
Investments
Each
Fund may make investments in securities of non-U.S. issuers (“foreign
securities”), including issuers in emerging markets. Each Fund reserves the
right to invest in Depositary Receipts (“DRs”), U.S. dollar-denominated
securities, foreign securities and securities of companies incorporated outside
the U.S., including those denominated in currencies other than the U.S.
dollar.
Depositary
Receipts.
Depositary
Receipts include ADRs, European Depositary Receipts, Global Depositary Receipts
or other forms of DRs. ADRs evidence ownership of, and represent the right to
receive, securities of foreign issuers deposited in a domestic bank or trust
company or a foreign correspondent bank. Prices of ADRs are quoted in U.S.
dollars, and ADRs are traded in the U.S. on exchanges or over-the-counter. While
ADRs do not eliminate all the risks associated with foreign investments, by
investing in ADRs rather than directly in the stock of foreign issuers, the
Funds will avoid currency and certain foreign market trading risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the U.S. for ADRs quoted on a national securities exchange. The
information available for ADRs is subject to the accounting, auditing and
financial reporting standards of the U.S. market or exchange on which they are
traded, which standards are generally more uniform and more exacting than those
to which many foreign issuers may be subject.
In
sponsored programs, an issuer has made arrangements to have its securities
traded in the form of depositary receipts. In unsponsored programs, the issuer
may not be directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information about an
issuer that has participated in the creation of a sponsored program. There may
be an increased possibility of untimely responses to certain corporate actions
of the issuer, such as stock splits and rights offerings, in an unsponsored
program. Accordingly, there may be less information available regarding issuers
of securities underlying unsponsored programs and there may not be a correlation
between this information and the market value of the depositary receipts. If a
Fund’s investment depends on obligations being met by the arranger as well as
the issuer of an unsponsored program, the Funds will be exposed to additional
credit risk.
Brexit.
On January 31, 2020, the UK left the EU, commonly referred to as “Brexit,” and
the UK ceased to be a member of the EU. Following a transition period during
which the EU and the UK Government engaged in a series of negotiations regarding
the terms of the UK’s future relationship with the EU, the EU and the UK
Government signed an agreement 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.
Foreign
Currency Transactions
The
Emerging Markets Fund, International Small Cap Fund and International Value Fund
may invest in foreign currency exchange transactions. Exchange rates between the
U.S. dollar and foreign currencies are a function of such factors as supply and
demand in the currency exchange markets, international balances of payments,
governmental intervention, speculation and other economic and political
conditions. Foreign exchange dealers may realize a profit on the difference
between the price at which the Fund buys and sells currencies.
Risks
of Investing in Foreign Securities.
Investments in foreign securities involve certain inherent risks, including the
following:
Political
and Economic Factors.
Individual foreign economies of certain countries may differ favorably or
unfavorably from the United States’ economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency, diversification and balance of payments position. The internal
politics of certain foreign countries may not be as stable as those of the
United States. Governments in certain foreign countries also continue to
participate to a significant degree, through ownership interest or regulation,
in their respective economies. Action by these governments could include
restrictions on foreign investment, nationalization, expropriation of goods or
imposition of taxes, and could have a significant effect on market prices of
securities and payment of interest. The economies of many foreign countries are
heavily dependent upon international trade and are accordingly affected by the
trade policies and economic conditions of their trading partners. Enactment by
these trading partners of protectionist trade legislation could have a
significant adverse effect upon the securities markets of such
countries.
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.
The Funds invest in securities denominated in U.S. dollars and the Emerging
Markets Fund, International Small Cap Fund and the International Value Fund also
invest in securities denominated in foreign currencies. For this reason, the
value of the Funds’ assets may be subject to risks associated with variations in
the value of foreign currencies relative to the U.S. dollar. Changes in the
value of foreign currencies against the U.S. dollar may affect the value of the
assets and/or income of foreign companies whose U.S. dollar denominated
securities are held by the Funds. Such companies may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.
Taxes.
The interest and dividends payable to a Fund on certain of the Fund’s foreign
portfolio 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 shareholders any
tax credits or deductions with respect to such foreign taxes or
withholding.
Emerging
Markets.
The Funds may invest 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.
Real
Estate Investment Trusts (“REITs”) and Foreign Real Estate
Companies
The
Funds may invest in shares of REITs. REITs are pooled investment vehicles that
invest primarily in real estate or real estate related loans. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have appreciated
in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. Like
regulated
investment companies such as the Funds, REITs are not taxed on income
distributed to shareholders provided they comply with certain requirements under
the Internal Revenue Code of 1986, as amended (the “Code”). Each Fund indirectly
bears its proportionate share of any expenses paid by REITs in which they invest
in addition to the expenses paid by the Fund. Investing in REITs involves
certain unique risks. Equity REITs may be affected by changes in the value of
the underlying property owned by such REITs, while mortgage REITs may be
affected by the quality of any credit extended. REITs are dependent upon
management skills, are not diversified (except to the extent the Code requires),
and are subject to the risks of financing projects. REITs are subject to heavy
cash flow dependency, default by borrowers, self-liquidation, and the
possibilities of failing to qualify for the exemption from tax for distributed
income under the Code and failing to maintain their exemptions from the
Investment Company Act of 1940, as amended (the “1940 Act”). REITs (especially
mortgage REITs) are also subject to interest rate risks.
Each
Fund may also invest in foreign real estate companies. Investing in foreign real
estate companies makes the Funds more susceptible to risks associated with the
ownership of real estate and with the real estate industry in general. In
addition, foreign real estate companies depend upon specialized management
skills, may not be diversified, may have less trading volume, and may be subject
to more abrupt or erratic price movements than the overall securities markets.
Foreign real estate companies have their own expenses, and the Funds bear a
proportionate share of those expenses.
Initial
Public Offerings (“IPOs”)
Each
Fund may invest in IPOs of common stock or other primary or secondary syndicated
offerings of equity or debt securities issued by a corporate issuer. The
purchase of IPO securities often involves higher transaction costs than those
associated with the purchase of securities already traded on exchanges or
markets. IPO securities are subject to market risk and liquidity risk. The
market value of recently issued IPO securities may fluctuate considerably due to
factors such as the absence of a prior public market, unseasoned trading and
speculation, a potentially small number of securities available for trading,
limited information about the issuer, and other factors. The Funds may hold IPO
securities for a period of time, or may sell them soon after the purchase.
Investments in IPOs could have a magnified impact – either positive or negative
– on a Fund’s performance while the Fund’s assets are relatively small. The
impact of IPOs on a Fund’s performance may tend to diminish as the Fund’s assets
grow. In circumstances when investments in IPOs make a significant contribution
to a Fund’s performance, there can be no assurance that similar contributions
from IPOs will continue in the future.
Investment
Company Securities
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.
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.
Master
Limited Partnerships and Other Publicly Traded Partnerships
Each
Fund may invest in master limited partnerships (“MLPs”) and other publicly
traded partnerships (“PTPs”) formed as partnerships, limited partnerships or
limited liability companies, the interests of which (known as “units”) are
listed and traded on a securities exchange. Some PTPs, such as MLPs, provide an
investor with a direct interest in a group of assets (generally, oil and gas
properties). Publicly traded partnership units typically trade publicly, like
stock, and thus may provide the investor more liquidity than ordinary limited
partnerships. A limited partnership has one or more general partners (they may
be individuals, corporations, partnerships or another entity) which manage the
partnership, and limited partners, which provide capital to the partnership but
have no role in its management. When an investor buys units in a PTP, he or she
becomes a limited partner. Certain of the PTPs in which the Funds may invest are
expected to be treated as “qualified publicly traded partnerships” for federal
income tax purposes. These include MLPs and other entities qualifying under
limited exceptions in the Code.
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 and have no
ability to annually elect directors.
MLPs
generally distribute all available cash flow (cash flow from operations less
maintenance capital expenditures) in the form of quarterly distributions, but a
Fund will be required for federal income tax purposes to include in its taxable
income its allocable share of the MLP’s income regardless of whether any
distributions are made by the MLP. Thus, if the distributions received by a Fund
from an MLP are less than that Fund’s allocable share of the MLP’s income, the
Fund may be required to sell other securities so that it may satisfy the
requirements to qualify as a regulated investment company (“RIC”) and avoid
federal income and excise taxes. Common units typically have priority as to
minimum quarterly distributions. In the event of liquidation, common units have
preference over subordinated units, but not debt or preferred units, to the
remaining assets of the MLP.
Holders
of PTP units of a particular PTP also are exposed to a remote possibility of
liability for the obligations of that PTP under limited circumstances not
expected to be applicable to the Funds. In addition, the value of a Fund’s
investment in PTPs depends largely on the PTPs being treated as “qualified
publicly traded partnerships” for federal income tax purposes. If a PTP does not
meet current federal income tax requirements to maintain partnership status, or
if it is unable to do so because of federal income tax law changes, it could be
taxed as a corporation. In that case, the PTP would be obligated to pay federal
income tax at the entity level and distributions received by a Fund generally
would be taxed as dividend income for federal income tax purposes. As a result,
there could be a reduction in a Fund’s cash flow and there could be a material
decrease in the value of the Fund’s shares. In addition, if a PTP in which a
Fund invests does not qualify as a “qualified publicly traded partnership” (and
is otherwise not taxed as a corporation), the Fund must look through to the
character of the income generated by the PTP. Such income may not qualify as
“good income,” and therefore, could adversely affect the Fund’s status as a
RIC.
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, limited partnerships
may be subject to state taxation in certain jurisdictions which will have the
effect of reducing the amount of income paid by the limited partnership to its
investors. In addition, investments in certain investment vehicles, such as PTPs
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.
Options
Each
Fund may write call options on stocks and stock indices 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.
A
Fund 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 the Fund delivers the underlying
security).
A
Fund also may write and purchase put options (“puts”). When a Fund writes a put,
it receives a premium and gives the purchaser of the put the right to sell the
underlying security to the Fund at the exercise price at any time during the
option period. When a Fund purchases a put, it pays a premium in return for the
right to sell the underlying security at the exercise price at any time during
the option period. If any put is not exercised or sold, it will become worthless
on its expiration date.
A
Fund’s option positions may be closed out only on an exchange which provides a
secondary market for options of the same series, but there can be no assurance
that a liquid secondary market will exist at a given time for any particular
option.
In
the event of a shortage of the underlying securities deliverable on exercise of
an option, the Options Clearing Corporation (“OCC”) has the authority to permit
other, generally comparable securities to be delivered in fulfillment of option
exercise obligations. If the OCC exercises its discretionary authority to allow
such other securities to be delivered, it may also adjust the exercise prices of
the affected options by setting different prices at which otherwise ineligible
securities may be delivered. As an alternative to permitting such substitute
deliveries, the OCC may impose special exercise settlement
procedures.
Purchasing
Put and Call Options
– When a Fund purchases a put option, it buys the right to sell the instrument
underlying the option at a fixed strike price. In return for this right, a Fund
pays the current market price for the option (known as the “option premium”). A
Fund may purchase put options to offset or hedge against a decline in the market
value of its securities (“protective puts”) or to benefit from a decline in the
price of securities that it does not own. A Fund would ordinarily realize a gain
if, during the option period, the value of the underlying securities decreased
below the exercise price sufficiently to cover the premium and transaction
costs. However, if the price of the underlying instrument does not fall enough
to offset the cost of purchasing the option, a put buyer would lose the premium
and related transaction costs.
Call
options are similar to put options, except that a Fund obtains the right to
purchase, rather than sell, the underlying instrument at the option’s strike
price. A Fund would normally purchase call options in anticipation of an
increase in the market value of securities it owns or wants to buy. A Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying instrument exceeded the exercise price plus the premium paid and
related transaction costs. Otherwise, a Fund would realize either no gain or a
loss on the purchase of the call option.
The
purchaser of an option may terminate its position by:
•Allowing
it to expire and losing its entire premium;
•Exercising
the option and either selling (in the case of a put option) or buying (in the
case of a call option) the underlying instrument at the strike price;
or
•Closing
it out in the secondary market at its current price.
Selling
(Writing) Put and 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. Similarly, when a Fund writes
a put option it assumes an obligation to purchase specified securities from the
option holder at a specified price if the option is exercised at any time before
the expiration date. A Fund may terminate its position in an exchange-traded put
option before exercise by buying an option identical to the one it has written.
Similarly, it may cancel an over-the-counter option by entering into an
offsetting transaction with the counter-party to the option.
A
Fund may try to hedge against an increase in the value of securities it would
like to acquire by writing a put option on those securities. If security prices
rise, a Fund would expect the put option to expire and the premium it received
to offset the increase in the security’s value. If security prices remain the
same over time, a Fund would hope to profit by closing out the put option at a
lower price. If security prices fall, a Fund may lose an amount of money equal
to the difference between the value of the security and the premium it received.
Writing covered put options may deprive a Fund of the opportunity to profit from
a decrease in the market price of the securities it would like to
acquire.
The
characteristics of writing call options are similar to those of writing put
options, except that call writers expect to profit if prices remain the same or
fall. A Fund 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.
Each
Fund is permitted only to write covered options. A Fund can cover a call option
by owning:
•The
underlying security (or securities convertible into the underlying security
without additional consideration), index, interest rate, foreign currency or
futures contract;
•A
call option on the same security or index with the same or lesser exercise
price;
•A
call option on the same security or index with a greater exercise price and
segregating cash or liquid securities in an amount equal to the difference
between the exercise prices;
•Cash
or liquid securities equal to at least the market value of the optioned
securities, interest rate, foreign currency or futures contract; or
•In
the case of an index, the fund of securities that corresponds to the
index.
A
Fund can cover a put option by:
•Entering
into a short position in the underlying security;
•Purchasing
a put option on the same security, index, interest rate, foreign currency or
futures contract with the same or greater exercise price;
•Purchasing
a put option on the same security, index, interest rate, foreign currency or
futures contract with a lesser exercise price and segregating cash or liquid
securities in an amount equal to the difference between the exercise prices;
or
•Maintaining
the entire exercise price in liquid securities.
Options
on Securities Indices
– Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement payments
and does not involve the
actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market, rather than price fluctuations in a single
security.
Options
on Futures
– An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the option
by the holder, the contract market clearing house establishes a corresponding
short position for the writer of the option (in the case of a call option) or a
corresponding long position (in the case of a put option). If the option is
exercised, the parties will be subject to the futures contracts. In addition,
the writer of an option on a futures contract is subject to initial and
variation margin requirements on the option position. Options on futures
contracts are traded on the same contract market as the underlying futures
contract.
The
buyer or seller of an option on a futures contract may terminate the option
early by purchasing or selling an option of the same series (i.e.,
the same exercise price and expiration date) as the option previously purchased
or sold. The difference between the premiums paid and received represents the
trader’s profit or loss on the transaction.
A
Fund may purchase put and call options on futures contracts instead of selling
or buying futures contracts. A Fund may buy a put option on a futures contract
for the same reason it would sell a futures contract. It also may purchase such
put options in order to hedge a long position in the underlying futures
contract. Each Fund may buy call options on futures contracts for the same
purpose as the actual purchase of the futures contracts, such as in anticipation
of favorable market conditions.
A
Fund may write a call option on a futures contract to hedge against a decline in
the prices of the instrument underlying the futures contracts. If the price of
the futures contract at expiration were below the exercise price, a Fund would
retain the option premium, which would offset, in part, any decline in the value
of its assets.
The
writing of a put option on a futures contract is similar to the purchase of the
futures contracts, except that, if the market price declines, a Fund would pay
more than the market price for the underlying instrument. The premium received
on the sale of the put option, less any transaction costs, would reduce the net
cost to a Fund.
Combined
Positions
– A Fund may purchase and write options in combination with each other, or in
combination with futures or forward contracts, to adjust the risk and return
characteristics of the overall position. For example, a Fund could construct a
combined position whose risk and return characteristics are similar to selling a
futures contract by purchasing a put option and writing a call option on the
same underlying instrument. Alternatively, a Fund could write a call option at
one strike price and buy a call option at a lower price to reduce the risk of
the written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
Caps
and Floors
– Each Fund may enter cap and floor agreements. Caps and floors have an effect
similar to buying or writing options. In a typical cap or floor agreement, one
party agrees to make payments only under specified circumstances, usually in
return for payment of a fee by the other party. For example, the buyer of an
interest rate cap obtains the right to receive payments to the extent that a
specified interest rate exceeds an agreed-upon level. The seller of an interest
rate floor is obligated to make payments to the
extent
that a specified interest rate falls below an agreed-upon level. An interest
rate collar combines elements of buying a cap and selling a floor.
Risks
of Derivatives
– The Mid Cap Value Fund and Small Cap Value Fund are prohibited from investing
in derivatives, excluding certain currency and interest rate hedging
transactions. The Emerging Markets Value Fund, International Value Fund, and the
International Small Cap Value Fund are each 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. These restrictions are not
fundamental and may be changed by a Fund without a shareholder
vote.
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.
While
transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of a Fund than if it had not entered into any
derivatives transactions. Derivatives may magnify a Fund’s gains or losses,
causing it to make or lose substantially more than it invested.
When
used for hedging purposes, increases in the value of the securities a Fund holds
or intends to acquire should offset any losses incurred with a derivative.
Purchasing derivatives for purposes other than hedging could expose a Fund to
greater risks.
Derivative
Management Risk
– If the Adviser incorrectly predicts stock market and interest rate trends, the
Funds may lose money by investing in derivatives. For example, if a Fund were to
write a call option based on its Adviser’s expectation that the price of the
underlying security would fall, but the price were to rise instead, a Fund could
be required to sell the security upon exercise at a price below the current
market price. Similarly, if a Fund were to write a put option based on the
Adviser’s expectation that the price of the underlying security would rise, but
the price were to fall instead, a Fund could be required to purchase the
security upon exercise at a price higher than the current market
price.
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. The Funds have implemented a liquidity risk management program and
related procedures to identify illiquid investments pursuant to Rule 22e-4. The
15% limits are applied as of the date a Fund purchases an illiquid investment.
It is possible that a Fund’s holding of illiquid investment could exceed the 15%
limit, for example as a result of market developments or
redemptions.
There
are generally no restrictions on a Fund’s ability to invest in restricted
securities (that is, securities that are not registered pursuant to the
Securities Act of 1933, as amended (the “Securities Act”)), except to the extent
such securities may be considered illiquid. These securities are sometimes
referred to as private placements. The Funds may also purchase certain
commercial paper issued in reliance on the exemption from regulations in Section
4(2) of the Securities Act (“4(2) Paper”).
Limitations
on the resale of restricted securities may have an adverse effect on the
marketability of portfolio securities and a Fund might be unable to dispose of
restricted securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemption requirements. A Fund
might also have to register such restricted securities in order to dispose of
them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
When-Issued
Securities
Each
Fund may purchase securities on a when-issued basis, for payment and delivery at
a later date, generally within one month. The price and yield are
generally fixed on the date of commitment to purchase, and the value of the
security is thereafter reflected in the Fund’s NAV. During the period
between purchase and settlement, no payment is made by the 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 “Risks of Derivatives” above.
Repurchase
Agreements
Each
Fund may invest in repurchase agreements. Pursuant to such agreements, the each
Fund may acquire securities from financial institutions such as banks and
broker-dealers as are deemed to be creditworthy by the Adviser, subject to the
seller’s agreement to repurchase and each Fund’s agreement to resell such
securities at a mutually agreed upon date and price. The repurchase price
generally equals the price paid by the Fund plus interest negotiated on the
basis of current short-term rates (which may be more or less than the rate on
the underlying portfolio security). Securities subject to repurchase agreements
will be held by the Custodian or in the Federal Reserve/Treasury Book-Entry
System or an equivalent foreign system. The seller under a repurchase agreement
will be required to maintain the value of the underlying securities at not less
than 102% of the repurchase price under the agreement. If the
seller
defaults on its repurchase obligation, the Fund will suffer a loss to the extent
that the proceeds from a sale of the underlying securities are less than the
repurchase price under the agreement. Bankruptcy or insolvency of such a
defaulting seller may cause the Fund’s rights with respect to such securities to
be delayed or limited. Repurchase agreements are considered to be loans under
the 1940 Act.
Participation
Interests
The
Funds may invest in participation interests. Purchasers of participation
interests do not have any direct contractual relationship with the borrower.
Purchasers rely on the lender who sold the participation interest not only for
the enforcement of the purchaser’s rights against the borrower but also for the
receipt and processing of payments due under the floating rate loan.
Purchasers
of participation interests may be subject to delays, expenses, and risks that
are greater than those that would be involved if the purchaser could enforce its
rights directly against the borrower. In addition, under the terms of a
participation interest, the purchaser may be regarded as a creditor of the
intermediate participant (rather than of the borrower), so that the purchaser
also may be subject to the risk that the intermediate participant could become
insolvent. The agreement between the purchaser and lender who sold the
participation interest may also limit the rights of the purchaser to vote on
changes that may be made to the loan agreement, such as waiving a breach of a
covenant.
Participation
Notes
The
Emerging Markets Fund, International Small Cap Fund and the International Value
Fund may invest up to 10% of each Fund’s assets in participation notes
(“P-Notes”), which are instruments that are issued by banks, broker-dealers or
their affiliates and are designed to offer a return linked to a particular
underlying equity, debt, currency or market. If a P-Note were held to maturity,
the issuer would pay to the purchaser the underlying instrument’s value at
maturity with any necessary adjustments. The holder of a P-Note that is linked
to a particular underlying security or instrument may be entitled to receive
dividends paid in connection with that underlying security or instrument, but
typically does not receive voting rights as it would if it directly owned the
underlying security or instrument. In addition, there can be no assurance that
there will be a trading market for a P-Note or that the trading price of a
P-Note will equal the underlying value of the security, instrument or market
that it seeks to replicate. Due to transfer restrictions, the secondary markets
on which a P-Note is traded may be less liquid than the market for other
securities, or may be completely illiquid, which may expose the Fund to risks of
mispricing or improper valuation. P-Notes typically constitute general unsecured
contractual obligations of the banks, broker-dealers or their relevant
affiliates that issue them, which subjects the Fund to counterparty risk.
P-Notes also have the same risks associated with a direct investment in the
underlying securities, instruments or markets that they seek to
replicate.
Time
Deposits
To
the extent permitted under their investment objectives and policies, 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.
U.S.
Government Obligations
The
Funds may make investments in U.S. government obligations. U.S. government
obligations include securities issued or guaranteed as to principal and interest
by the U.S. government, its agencies or instrumentalities. U.S. Treasury
obligations differ mainly in the length of their maturity. Treasury bills, the
most frequently issued marketable government securities, have a maturity of up
to one year and are
issued
on a discount basis. U.S. government obligations also include securities issued
or guaranteed by federal agencies or instrumentalities, including
government-sponsored enterprises.
Payment
of principal and interest on U.S. government obligations may be backed by the
full faith and credit of the United States or may be backed solely by the
issuing or guaranteeing agency or instrumentality itself. In the latter case,
the investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
government would provide financial support to its agencies or instrumentalities
(including government-sponsored enterprises) where it is not obligated to do so.
In addition, U.S. government obligations are subject to fluctuations in market
value due to fluctuations in market interest rates. As a general matter, the
value of debt instruments, including U.S. government obligations, declines when
market interest rates increase and rises when market interest rates decrease.
Certain types of U.S. government obligations are subject to fluctuations in
yield or value due to their structure or contract terms. The Funds will not be
eligible to distribute exempt-interest dividends to their shareholders, even if
their investments include mutual funds that hold U.S. government or municipal
obligations that generate tax-exempt interest.
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.
Each Fund may acquire certificates of deposit, bankers’ acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers’ acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are “accepted” by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers’ acceptances acquired by the 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 the Funds hold instruments of foreign banks or financial
institutions, they may be subject to additional investment risks that are
different in some respects from those incurred by a fund that invests only in
debt obligations of U.S. domestic issuers. See “Foreign Securities” above. Such
risks include future political and economic developments, the possible
imposition of withholding taxes 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 their investment objectives and policies stated above and
in a Fund’s 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. Each
Fund may invest in certificates of deposit (interest bearing time deposits)
issued by savings banks or savings and loan associations that have capital,
surplus and undivided profits in excess of $100 million, based on latest
published reports, or less than $100 million if the principal amount of such
obligations is fully insured by the U.S. government.
Commercial
Paper, Short-Term Notes and Other Corporate Obligations. Each
Fund may invest a portion of its assets in commercial paper and short-term
notes. Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper and short-term notes will normally have
maturities of less than nine months and fixed rates of return, although such
instruments may have maturities of up to one year.
Commercial
paper and short-term notes will consist of issues rated at the time of purchase
“A-2” or higher by S&P Global Ratings (“S&P”), “Prime-1” by Moody’s
Investors Service, Inc., or similarly rated by another nationally recognized
statistical rating organization or, if unrated, will be determined by the
Adviser to be of comparable quality. These rating symbols are described in
Appendix B.
Securities
Lending
Each
Fund may lend its portfolio securities in order to generate additional
income. Securities may be loaned to broker-dealers, major banks or
other recognized domestic institutional borrowers of
securities. Generally, a Fund may lend portfolio securities to
securities broker-dealers or financial institutions if: (1) the loan
is collateralized in accordance with applicable regulatory requirements
including collateralization continuously at no less than 100% by marking to
market daily; (2) the loan is subject to termination by the Fund at any time;
(3) the Fund receives reasonable interest or fee payments on the loan, as well
as any dividends, interest, or other distributions on the loaned securities; (4)
the Adviser is able to call loaned securities in order to exercise all voting
rights with respect to the securities; and (5) the loan will not cause the value
of all loaned securities to exceed one-third of the value of the Fund’s
assets. As part of participating in a lending program, the Fund
invests its cash collateral only in investments that are consistent with the
investment objectives, principal investment strategies and investment policies
of the Fund. All investments made with the cash collateral received
are subject to the risks associated with such investments. If such
investments lose value, the Fund has to cover the loss when repaying the
collateral. Any income or gains and losses from investing and
reinvesting any cash collateral delivered by a borrower shall be at the Fund’s
risk.
Temporary
Defensive Position
For
temporary defensive purposes when the Adviser believes market, economic,
political or other conditions are unfavorable for investors, the Adviser may
invest up to 100% of the Funds’ total assets in high-quality, short-term debt
securities and money market instruments. These short-term debt securities and
money market instruments include shares of other mutual funds, commercial paper,
certificates of deposit, bankers’ acceptances, U.S. government securities and
repurchase agreements. Taking a temporary defensive position may result in the
Funds not achieving their investment objectives.
Furthermore,
to the extent that the Funds invest in money market mutual funds for their cash
position, there will be some duplication of expenses because each Fund would
bear its pro rata portion of such money market funds’ management fees and
operational expenses.
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 favorable vote of the
holders of a “majority of the Fund’s outstanding voting securities” as defined
in the 1940 Act. Under the 1940 Act, the “vote of the holders of a majority of
the outstanding voting securities” means the vote of the holders of the lesser
of (i) 67% of the shares of the Funds represented at a meeting at which the
holders of more than 50% of its outstanding shares are represented or
(ii) more than 50% of the outstanding shares of the Fund.
Each
Fund may not:
1.With
respect to 75% of its total assets, invest more than 5% of its total assets in
securities of a single issuer at the time of purchase or hold more than 10% of
the voting securities of such issuer. (Does not apply to investment 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 Fund
may be considered an underwriter within the meaning of the Securities Act of
1933 in the disposition of restricted securities.
5.Invest
25% or more of its net assets in the securities of companies engaged in any one
industry. (Does not apply to investment 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
Fund reserves freedom of action to hold and to sell real estate acquired as a
result of the Fund’s ownership of securities.
7.Purchase
or sell physical commodities, unless acquired as a result of ownership of
securities or other instruments. This limitation shall not prevent the Fund from
purchasing, selling, or entering into futures contracts, or acquiring securities
or other instruments and options thereon backed by, or related to, physical
commodities.
8.Make
loans to others, except as permitted under the 1940 Act.
The
Funds observe the following policies, which are not deemed fundamental and which
may be changed without shareholder vote. Each Fund may not:
1.Invest
in any issuer for purposes of exercising control or management.
2.Invest
in securities of other investment companies, except as permitted under the 1940
Act.
3.Hold
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.
4.With
respect to the Mid Cap Fund, Small Cap Fund, Emerging Markets Fund,
International Small Cap Fund and the International Value Fund, make any change
in its investment policy of investing at least 80% of net assets in investments
suggested by the Fund’s name without first changing the Fund’s name and
providing shareholders with at least 60-days prior written notice.
If
a percentage or rating restriction on investment or use of assets set forth
herein or in the Prospectus is adhered to at the time a transaction is effected,
later changes in percentage resulting from any cause other than actions by the
Funds will not be considered a violation, except that there is an ongoing asset
coverage requirement in the case of borrowings.
PORTFOLIO
TURNOVER
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 transaction costs and may result in a greater number of taxable
transactions.
For
the fiscal periods indicated below, each Fund’s portfolio turnover rate was as
follows:
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
February 28, 2023 |
Year
Ended
February 28, 2022 |
|
| Mid
Cap Fund |
35% |
22% |
|
| Small
Cap Fund |
28% |
10% |
|
| Emerging
Markets Fund |
15% |
10% |
|
| International
Small Cap Fund |
26% |
22% |
|
| International
Value Fund* |
19% |
4% |
|
*The
International Value Fund commenced operations on June 28, 2021.
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 a Fund. These
portfolio holdings disclosure policies have been approved by the Board.
Disclosure of a 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.
Additionally, the Fund’s calendar quarter-end portfolio holdings are available
on the Fund’s website approximately 20 business days after the end of each
calendar quarter.
Pursuant
to the Trust’s portfolio holdings disclosure policies, information about a
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. Bancorp Fund Services, LLC, doing business as 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 the Funds’ portfolio
holdings on an ongoing basis. The Funds believe that these third parties have
legitimate objectives in requesting such portfolio holdings information and
operate in the best interest of a Fund’s 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; S&P;
Bloomberg; Vickers-Stock Research Corporation; Thomson Financial; and
Capital-Bridge, all of which currently receive such information no later than 15
calendar days 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; and
the Trust’s attorneys and accountants (currently, Sullivan & Worcester LLP
(“Sullivan & Worcester”) and Tait, Weller & Baker LLP, respectively),
all of which typically receive such information after it is
generated.
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
Trustee |
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). |
5 |
Trustee,
Advisors Series Trust (for series not affiliated with the
Funds). |
Joe
D. Redwine
(age 75)
615 E. Michigan Street
Milwaukee, WI
53202 |
Trustee |
Indefinite
term; since September 2008. |
Retired;
formerly Manager, President, CEO, U.S. Bancorp Fund Services, LLC, and its
predecessors, (May 1991 to July 2017). |
5 |
Trustee,
Advisors Series Trust (for series not affiliated with the
Funds). |
Raymond
B. Woolson
(age 64)
615 E. Michigan Street
Milwaukee, WI
53202 |
Chairman
of the Board
Trustee |
Indefinite
term; since January 2020.
Indefinite
term; since January 2016. |
President,
Apogee Group, Inc. (financial consulting firm) (1998 to
present). |
5 |
Trustee,
Advisors Series Trust (for series not affiliated with the Funds);
Independent Trustee, DoubleLine Funds Trust (an open-end investment
company with 19 portfolios), DoubleLine Opportunistic Credit Fund,
DoubleLine Income Solutions Fund, and DoubleLine Yield Opportunities Fund
from 2010 to present; Independent Trustee, DoubleLine ETF Trust (an
open-end investment company with 2 portfolios) from March 2022 to
present. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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). |
5 |
Trustee,
Advisors Series Trust (for series not affiliated with the
Funds). |
Officers
|
|
|
|
|
|
|
|
|
|
|
|
Name,
Address
and Age |
Position
Held
with the Trust |
Term
of Office and Length of Time Served |
Principal
Occupation
During Past Five Years |
Jeffrey
T. Rauman
(age 54)
615 E. Michigan Street
Milwaukee, WI
53202
|
President,
Chief Executive Officer and Principal Executive Officer |
Indefinite
term; since December 2018. |
Senior
Vice President, Compliance and Administration, U.S. Bank Global Fund
Services (February 1996 to present). |
Kevin
J. Hayden
(age 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 61)
615 E. Michigan Street
Milwaukee, WI
53202
|
Assistant
Treasurer |
Indefinite
term; since January 2023. |
Vice
President, Compliance and Administration, U.S. Bank Global Fund Services
(October 1998 to present). |
Richard
R. Conner
(age 40)
615 E. Michigan Street
Milwaukee, WI
53202
|
Assistant
Treasurer |
Indefinite
term; since December 2018. |
Assistant
Vice President, Compliance and Administration, U.S. Bank Global Fund
Services (July 2010 to present). |
Michael
L. Ceccato
(age 65)
615 E. Michigan Street
Milwaukee, WI
53202
|
Vice
President, Chief Compliance Officer and AML Officer |
Indefinite
term; since September 2009. |
Senior
Vice President, U.S. Bank Global Fund Services and Senior Vice President,
U.S. Bank N.A. (February 2008 to
present). |
|
|
|
|
|
|
|
|
|
|
|
|
Name,
Address
and Age |
Position
Held
with the Trust |
Term
of Office and Length of Time Served |
Principal
Occupation
During Past Five Years |
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). |
* The
Trustees have designated a mandatory retirement age of 75, such that each
Trustee, serving as such on the date he or she reaches the age of 75, shall
submit his or her resignation not later than the last day of the calendar year
in which his or her 75th birthday occurs (“Retiring Trustee”). Upon request, the
Board may, by vote of a majority of Trustees eligible to vote on such matter,
determine whether or not to extend such Retiring Trustee’s term and on the
length of a one-time extension of up to three additional years. At a meeting
held December 7-8, 2022, by vote of the majority of Trustees (not including
Mr. Redwine), Mr. Redwine’s term as Trustee was extended for three additional
years.
(1)The
Trustees of the Trust who are not “interested persons” of the Trust as defined
under the 1940 Act (“Independent Trustees”).
(2)As
of February 28, 2023, the Trust was comprised of 35 active portfolios managed by
unaffiliated investment advisers. The term “Fund Complex” applies only to the
Funds. The Funds do not hold themselves out as related to any other series
within the Trust for investment purposes, nor do they share the same investment
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.
Compensation
Effective
January 1, 2023, the Independent Trustees each receive an annual retainer of
$102,500 per year allocated among each of the various portfolios comprising the
Trust, an additional $6,000 per regularly scheduled Board meeting, and an
additional $500 per special meeting, paid by the Trust or applicable
advisors/portfolios, as well as reimbursement for expenses incurred in
connection with attendance at Board meetings. Prior to January 1, 2023, the
annual retainer was $100,000. The Trust Chairman, Chairman of the Audit
Committee, and Chairman of the Nominating and Governance Committee each receive
a separate annual fee of $10,000, $5,000, and $3,000, respectively, provided
that the separate fee for the Chairman of the Audit Committee will be waived if
the same individual serves as both Trust Chairman and Audit Committee Chairman.
The Trust has no pension or retirement plan. No other entity affiliated with the
Trust pays any compensation to the Trustees. Set forth below is the compensation
received by the Independent Trustees from the Funds for the fiscal year ended
February 28, 2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Compensation |
Pension
or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Compensation
from Fund Complex Paid to Trustees(1) |
Mid
Cap
Fund |
Small
Cap
Fund |
Emerging
Markets Fund |
|
International
Small
Cap
Fund |
International
Value Fund |
| Independent
Trustee |
| David
G. Mertens |
$ |
3,917 |
|
$ |
3,918 |
|
$ |
3,917 |
|
|
$ |
3,918 |
|
$ |
3,918 |
|
None |
None |
$ |
19,588 |
|
| Raymond
B. Woolson |
$ |
4,122 |
|
$ |
4,122 |
|
$ |
4,122 |
|
|
$ |
4,122 |
|
$ |
4,122 |
|
None |
None |
$ |
20,610 |
|
| Joe
D. Redwine |
$ |
3,976 |
|
$ |
3,976 |
|
$ |
3,976 |
|
|
$ |
3,976 |
|
$ |
3,976 |
|
None |
None |
$ |
19,880 |
|
|
Michele
Rackey(2) |
$ |
732 |
|
$ |
732 |
|
$ |
733 |
|
|
$ |
732 |
|
$ |
732 |
|
None |
None |
$ |
3,661 |
|
(1)
There are currently numerous portfolios comprising the Trust. The term “Fund
Complex” applies only to the Funds. For the fiscal year ended February 28, 2023,
aggregate Independent Trustees’ fees for the Trust were $437,000.
(2)
Ms. Rackey joined the Board as a Trustee effective as of January 1,
2023.
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.
The
Board has structured itself in a manner that it believes allows it to
effectively perform its oversight function. It has established three standing
committees, an Audit Committee, a Nominating and Governance Committee and a
Qualified Legal Compliance Committee (the “QLCC”), which are discussed in
greater detail under “Board Committees,” below. Currently, all of the members of
the Board are Independent Trustees, which are Trustees that are not affiliated
with the Adviser or its affiliates or any other investment adviser in the Trust
or with its principal underwriter. The Independent Trustees have engaged their
own independent counsel to advise them on matters relating to their
responsibilities in connection with the Trust.
The
President, Chief Executive Officer and Principal Executive Officer of the Trust
is not a Trustee, but rather is a senior employee of the Administrator who
routinely interacts with the unaffiliated investment advisers of the Trust and
comprehensively manages the operational aspects of the Funds in the Trust. The
Trust has appointed Raymond Woolson, an Independent Trustee, as Chairman of the
Board, and he acts as a liaison with the Trust’s service providers, officers,
legal counsel, and other Trustees between meetings, helps to set Board meeting
agendas, and serves as Chairman during executive sessions of the Independent
Trustees.
The
Board reviews its structure annually. The Trust has determined that it is
appropriate to separate the Principal Executive Officer and Board Chairman
positions because the day-to day responsibilities of the Principal Executive
Officer are not consistent with the oversight role of the Trustees and because
of the potential conflict of interest that may arise from the Administrator’s
duties with the Trust. Given the specific characteristics and circumstances of
the Trust as described above, the Trust has determined that the Board’s
leadership structure is appropriate.
As
part of its oversight function, the Board receives and reviews various risk
management reports and assessments and discusses these matters with appropriate
management and other personnel. Because risk management is a broad concept
comprised of many elements (such as, for example, investment risk, issuer and
counterparty risk, compliance risk, operational risks, business continuity
risks, etc.) the
oversight
of different types of risks is handled in different ways. For example, the
Nominating and Governance Committee meets regularly with the CCO to discuss
compliance and operational risks and the Audit Committee meets with the
Treasurer and the Trust’s independent public accounting firm to discuss, among
other things, the internal control structure of the Trust’s financial reporting
function. The full Board receives reports from the Adviser and portfolio
managers as to investment risks as well as other risks that may be also
discussed in Audit Committee.
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.
Raymond
B. Woolson.
Mr. Woolson has served on a number of mutual fund boards and is experienced with
financial, accounting, investment and regulatory matters through his experience
as Lead Independent Trustee and Audit Committee Chairman for the DoubleLine
Funds as well as through his service as President of Apogee Group, Inc., a
company providing financial consulting services. Mr. Woolson also
has
substantial mutual fund operations, financial and investment experience through
his prior service in senior and management positions in the mutual fund
industry, including service as Senior Managing Director in Investment Management
for Mass Mutual Life Insurance Company, where he oversaw fund accounting, fund
administration and client services and also served as Chief Financial Officer
and Treasurer for various funds and other investment products. Mr. Woolson has
also served as a consultant for Coopers & Lybrand (now known as,
“PricewaterhouseCoopers” or “PWC”) where he provided management consulting
services to the mutual fund industry and the investment management areas of the
banking and insurance industries.
Michele
Rackey.
Ms. Rackey has
substantial experience in mutual funds and investment management through her
experience as CEO of Government Employees Benefits Association (GEBA) and also
with The ARK Funds. Ms. Rackey
is
experienced with financial, accounting, investment and regulatory matters and
serves as an Audit Committee Financial Expert for the Trust. Ms. Rackey
was
CEO of GEBA for 17 years and Chief Operating Officer of the ARK Funds for 9
years. Ms. Rackey
has
a BS in Business Administration from the University of Illinois at Chicago and
has an MBA from Keller Graduate School of Management in Chicago. Ms. Rackey
previously
held FINRA series 6, 7 and 63 licenses as well as a Maryland Life and Health
License.
Board
Committees
The
Trust has established the following three standing committees and the membership
of each committee to assist in its oversight functions, including its oversight
of the risks the Trust faces: the Audit Committee, the QLCC, and the Nominating
and Governance Committee. There is no assurance, however, that the Board’s
committee structure will prevent or mitigate risks in actual practice. The
Trust’s committee structure is specifically not intended or designed to prevent
or mitigate the Fund’s investment risks. The Fund is designed for investors that
are prepared to accept investment risk, including the possibility that as yet
unforeseen risks may emerge in the future.
The
Audit Committee is comprised of all of the Independent Trustees.
Mr. Redwine is the Chairman of the Audit Committee. The Audit Committee
typically meets once per year with respect to the various series of the Trust.
The function of the Audit Committee, with respect to each series of the Trust,
is to review the scope and results of the audit and any matters bearing on the
audit or the Fund’s financial statements and to ensure the integrity of the
Fund’s pricing and financial reporting. The Audit Committee met once with
respect to the Funds during the Funds’ fiscal year ended February 28,
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 February 28,
2023.
The
Nominating and Governance Committee is comprised of all, and only of, the
Independent Trustees. The Nominating and Governance Committee is responsible for
seeking and reviewing candidates for consideration as nominees for Trustees as
is considered necessary from time to time and meets only as
necessary.
The Nominating and Governance Committee will consider nominees recommended by
shareholders for vacancies on the Board. Recommendations for consideration by
the Nominating and Governance Committee should be sent to the President of the
Trust in writing together with the appropriate biographical information
concerning each such proposed Nominee, and such recommendation must comply with
the notice provisions set forth in the Trust’s By-Laws. In general, to comply
with such procedures, such nominations, together with all required biographical
information, must be delivered to and received by the President of the Trust at
the principal executive office of the Trust between 120 and 150 days prior to
the shareholder meeting at which any such nominee would be voted
on.
The
Nominating and Governance Committee meets regularly with respect to the various
series of the Trust. The Nominating and Governance Committee is also responsible
for, among other things, assisting the Board in its oversight of the Trust’s
compliance program under Rule 38a-1 under the 1940 Act, reviewing and
making recommendations regarding Independent Trustee compensation and the
Trustees’ annual “self-assessment.” Mr. Mertens is the Chairman of the
Nominating and Governance Committee.
The
Nominating and Governance Committee did not meet with respect to the Trust
during the fiscal year ended February 28, 2023.
Trustee
Ownership of Fund Shares and Other Interests
As
of December 31, 2022, neither the Independent Trustees nor members of their
immediate family, own securities beneficially or of record in the Adviser, the
Distributor, as defined below, or an affiliate of the Adviser 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 Adviser, the Distributor or any of their affiliates. In addition, during
the two most recently completed calendar years, neither the Independent Trustees
nor members of their immediate families have conducted any transactions (or
series of transactions) in which the amount involved exceeds $120,000 and to
which the Adviser, the Distributor or any affiliate thereof was a
party.
The
following table shows the amount of shares in the Funds and the amount of shares
in other portfolios of the Trust owned by the Trustees as of the calendar year
ended December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range of Equity Securities in the |
|
|
Mid
Cap Fund |
Small
Cap Fund |
Emerging
Markets Fund |
International
Small Cap Fund |
International
Value Fund |
Aggregate
Dollar Range
of Fund Shares in the Trust |
| Independent
Trustee |
(None,
$1-$10,000, $10,001-$50,000, $50,001-$100,000, Over $100,000) |
|
| David
G. Mertens |
Over
$100,000 |
None |
None |
None |
None |
Over
$100,000 |
| Raymond
B. Woolson |
None |
None |
$10,001-
$50,000 |
None |
None |
$50,001-
$100,000 |
| Joe
D. Redwine |
None |
None |
None |
None |
None |
$50,001-
$100,000 |
|
Michele
Rackey(1) |
None |
None |
None |
None |
None |
None |
(1)
Ms. Rackey joined the Board as a Trustee effective as of January 1, 2023.
As
of December 31, 2022, neither the Independent Trustees nor members of their
immediate family, own securities beneficially or of record in the Advisor, the
distributor, as defined below, or an affiliate of the
Advisor
or distributor. Accordingly, neither the Independent Trustees nor members of
their immediate family, have direct or indirect interest, the value of which
exceeds $120,000, in the Advisor, the distributor or any of their affiliates. In
addition, during the two most recently completed calendar years, neither the
Independent Trustees nor members of their immediate families have conducted any
transactions (or series of transactions) in which the amount involved exceeds
$120,000 and to which the Advisor, the distributor or any affiliate thereof was
a party.
CODES
OF ETHICS
The
Trust and the 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.
PROXY
VOTING POLICY
The
Board has adopted Proxy Voting Policies and Procedures (the “Proxy Policies”) on
behalf of the Trust which delegate the responsibility for voting proxies to the
Adviser, subject to the Board’s continuing oversight. The Proxy Policies require
that the Adviser vote proxies received in a manner consistent with the best
interests of the Funds and their shareholders. The Proxy Policies also require
the Adviser to present to the Board, at least annually, the Adviser’s Proxy
Voting Policies and Procedures and a record of each proxy voted by the Adviser
on behalf of a Fund, including a report on the resolution of all proxies
identified by the Adviser as involving a conflict of interest.
The
Adviser subscribes to Institutional Shareholder Services’ (“ISS”) proxy
monitoring and voting agent service. However, the Adviser retains ultimate
responsibility for instructing ISS how to vote proxies on behalf of a portfolio,
and applies its own proxy voting guidelines, which are summarized below. If the
Adviser does not issue instructions for a particular vote, ISS will vote in
accordance with the Adviser’s guidelines or, if the Adviser’s guidelines do not
address the proxy item, will refer the item back to the Adviser for instruction.
If it appears that a material conflict of interest has arisen, the Adviser’s
guidelines include procedures for addressing such conflicts, including deferral
to the recommendation of ISS where appropriate. The Adviser’s Chief Compliance
Officer may also convene a meeting of the Adviser’s proxy voting committee to
determine whether a conflict of interest exists and how that conflict should be
resolved.
The
Adviser’s general positions on various proposals are as follows:
Director
Matters – The Adviser evaluates director nominees individually and as a group
based on its own assessments and ISS recommendations. The Adviser generally
withholds votes from any insiders flagged by ISS on audit, compensation or
nominating committees, and from any insiders and affiliated outsiders flagged by
ISS on boards that are not at least majority independent. The Adviser generally
does not support shareholder proposals to vote against directors unless it
determines that clear shareholder value destruction has occurred as a
consequence of the directors’ actions.
Shareholder
Rights – The Adviser generally opposes classified boards and any other proposals
designed to eliminate or restrict shareholders’ rights. The Adviser supports
anti-takeover measures that are in the best interests of shareholders, but
opposes poison pills and other anti-takeover measures that entrench
management
or thwart the maximization of investment returns. The Adviser generally supports
proposals enabling shareholders to call a special meeting of a company so long
as a 15% threshold is necessary in order for shareholders to do so.
Compensation
and Benefit Plans – The Adviser generally supports incentive plans under which
50% or more of the shares awarded to top executives are tied to performance
goals. The Adviser votes against golden parachute or other incentive
compensation arrangements which it deems excessive or unreasonable, which it
considers to be significantly more economically attractive than continued
employment, or which are triggered solely by the recipient (e.g.,
resignation). In general, the Adviser will support proposals to have nonbinding
shareholder votes on compensation plans so long as these proposals are worded in
a generic manner that is unrestrictive to actual company plans.
Auditors
– The Adviser generally votes with management with respect to the appointment of
auditors, so long as management is in compliance with current regulatory
requirements focused on auditor independence and improved board and committee
representation.
The
Trust is required to annually file Form N-PX, which lists the Funds’ complete
proxy voting records for the 12-month period ending June 30. The Funds’ proxy
voting records are available without charge, upon request, by calling toll-free
1-844-796-1996 (844-PZN-1996) and on the SEC’s website at
www.sec.gov.
CONTROL
PERSONS, PRINCIPAL SHAREHOLDERS, AND MANAGEMENT OWNERSHIP
A
principal shareholder is any person who owns of record or beneficially 5% or
more of any class of the outstanding shares of a Fund. A control person is one
who owns beneficially or through controlled companies more than 25% of the
voting securities of a company or acknowledges the existence of control.
Shareholders with a controlling interest could affect the outcome of voting or
the direction of management of a Fund. As of May 31, 2023, the following
Institutional and Investor Class shareholders were considered to be either a
control person or principal shareholder of the Funds.
Mid
Cap Fund – Institutional Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
MAC
& CO
Attn: Mutual Fund Operations
500 Grant Street, Room
151-1010
Pittsburgh, PA 15219-2502
|
N/A |
N/A |
48.70% |
Record |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
The
Charles Schwab Corporation |
DE |
20.07% |
Record |
Empower
Trust
FBO Empower Benefit Plans
8515 E. Orchard Rd. 2T2
Greenwood
Village, CO 80111-5002
|
N/A |
N/A |
19.21% |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
SEI
Private Trust Company
c/o Mellon Bank
Attn: Mutual Fund
Administrator
One Freedom Valley Drive
Oaks, PA
19456-9989
|
N/A |
N/A |
6.86% |
Record |
Mid
Cap Fund – Investor Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
The
Charles Schwab Corporation |
DE |
78.75% |
Record |
Pershing
LLC
1 Pershing Plaza, Floor 14
Jersey City, NJ
07399-0002
|
Pershing
Group LLC |
DE |
9.04% |
Record |
National
Financial Services LLC
For the Exclusive Benefit
of Our
Customers
Attn: Mutual Funds Dept., 4th Floor
499 Washington
Boulevard
Jersey City, NJ 07310-1995
|
Fidelity
Global Brokerage Group, Inc. |
DE |
7.57% |
Record |
Small
Cap Fund – Institutional Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
National
Financial Services LLC
For the Exclusive Benefit
of Our
Customers
Attn: Mutual Funds Dept., 4th Floor
499 Washington
Boulevard
Jersey City, NJ 07310-1995
|
Fidelity
Global Brokerage Group, Inc. |
DE |
48.24% |
Record |
Pershing
LLC
1 Pershing Plaza, Floor 14
Jersey City, NJ
07399-0002
|
Pershing
Group LLC |
DE |
23.33% |
Record |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
The
Charles Schwab Corporation |
DE |
15.30% |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Matrix
Trust Company Trustee
FBO Pzena Investment Management, LLC 401(k)
Plan
P.O. Box 52129
Phoenix, AZ 85072-2129
|
N/A |
N/A |
5.27% |
Record |
Small
Cap Fund – Investor Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
The
Charles Schwab Corporation |
DE |
46.87% |
Record |
JP
Morgan Securities LLC
1 Metrotech Center N., Floor 3
Brooklyn, NY
11201-3873
|
JPMorgan
Chase & Co. |
DE |
41.83% |
Record |
TD
Ameritrade Inc.
For the Exclusive Benefit of our Clients
P.O. Box
2226
Omaha, NE 68103-2226
|
N/A |
N/A |
5.54% |
Record |
Emerging
Markets Fund – Institutional Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
National
Financial Services LLC
For the Exclusive Benefit
of Our
Customers
Attn: Mutual Funds Dept., 4th Floor
499 Washington
Boulevard
Jersey City, NJ 07310-1995
|
Fidelity
Global Brokerage Group, Inc. |
DE |
38.89% |
Record |
Saxon
& Co.
P.O. Box 94597
Cleveland, OH 44101-4597
|
N/A |
N/A |
25.78% |
Record |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
The
Charles Schwab Corporation |
DE |
8.44% |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Morgan
Stanley Smith Barney LLC
For the Exclusive Benefit of Customers of
MSSB
1 New York Plaza, Floor 12
New York, NY
10004-1965
|
N/A |
N/A |
7.17% |
Record |
Emerging
Markets Fund – Investor Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
National
Financial Services LLC
For the Exclusive Benefit
of Our
Customers
Attn: Mutual Funds Dept., 4th Floor
499 Washington
Boulevard
Jersey City, NJ 07310-1995
|
Fidelity
Global Brokerage Group, Inc. |
DE |
63.66% |
Record |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
The
Charles Schwab Corporation |
DE |
17.92% |
Record |
TD
Ameritrade Inc.
For the Exclusive Benefit of
Our Clients
P.O. Box
2226
Omaha, NE 68103-2226
|
N/A |
N/A |
10.98% |
Record |
International
Small Cap Fund - Institutional Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
JP
Morgan Securities LLC
4 Chase Metrotech Center
Brooklyn, NY
11245-0001
|
JPMorgan
Chase & Co. |
DE |
42.42% |
Record |
ValueQuest
Partners LLC
320 Park Avenue, FL 8
New York, NY
10022-6815
|
N/A |
N/A |
35.68% |
Beneficial |
Matrix
Trust Company Trustee
FBO Pzena Investment Management LLC 401K
Plan
P.O. Box 52129
Phoenix, AZ 85072-2129
|
N/A |
N/A |
8.18% |
Record |
National
Financial Services LLC
For the Exclusive Benefit
of Our
Customers
Attn: Mutual Funds Dept., 4th Floor
499 Washington
Boulevard
Jersey City, NJ 07310-1995 |
Fidelity
Global Brokerage Group, Inc. |
DE |
6.48% |
Record |
International
Small Cap Fund - Investor Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
JP
Morgan Securities LLC
4 Chase Metrotech Center
Brooklyn, NY
11245-0001
|
JPMorgan
Chase & Co. |
DE |
53.48% |
Record |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
The
Charles Schwab Corporation |
DE |
28.99% |
Record |
Vanguard
Brokerage Services
100 Vanguard Blvd.
Malvern, PA
19355-2331 |
N/A |
N/A |
15.87% |
Record |
International
Value Fund - Institutional Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
SEI
Private Trust Company
c/o Legacy Trust Company (Texas)
1 Freedom
Valley Drive
Oaks, PA 19456-9989
|
N/A |
N/A |
44.89% |
Record |
JP
Morgan Securities LLC
4 Chase Metrotech Center
Brooklyn, NY
11245-0001
|
JPMorgan
Chase & Co. |
DE |
33.11% |
Record |
National
Financial Services LLC
For the Exclusive Benefit
of Our
Customers
Attn: Mutual Funds Dept., 4th Floor
499 Washington
Boulevard
Jersey City, NJ 07310-1995
|
Fidelity
Global Brokerage Group, Inc. |
DE |
20.30% |
Record |
International
Value Fund - Investor Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
JP
Morgan Securities LLC
4 Chase Metrotech Center
Brooklyn, NY
11245-0001
|
JPMorgan
Chase & Co. |
DE |
100.00% |
Record |
Management
Ownership Information.
As of May 31, 2023, the Trustees and officers of the Trust, as a group, did not
beneficially own more than 1% of any class of the Funds’ outstanding
shares.
THE
ADVISER
Pzena
Investment Management, LLC, 320 Park Avenue, 8th
Floor, New York, New York 10022, acts as investment adviser to the Funds
pursuant to an investment advisory agreement (the “Advisory Agreement”) with the
Trust. Richard S. Pzena, Chairman, is a control person due to his greater than
25% ownership 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 advisory fee computed daily and payable monthly, based on an annual
rate equal to the following amounts of each Fund’s average daily net
assets:
|
|
|
|
|
|
| Fund |
Advisory
Fee Rate |
| Mid
Cap Fund |
0.80% |
| Small
Cap Fund |
0.95% |
| Emerging
Markets Fund |
1.00% |
| International
Small Cap Fund |
1.00% |
| International
Value Fund |
0.65% |
For
the fiscal year ended February 28, 2023, indicated below, the Funds paid
the following management fees to the Adviser:
Mid
Cap Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Fees
Accrued |
Management
Fees
Waived |
Management
Fees Recouped |
Net
Management Fees Paid to Adviser |
| 2023 |
$1,010,329 |
$98,328 |
$0 |
$912,001 |
| 2022 |
$1,058,922 |
$86,609 |
$0 |
$972,313 |
| 2021 |
$647,862 |
$131,027 |
$0 |
$516,835 |
|
|
|
|
|
Small
Cap Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Fees
Accrued |
Management
Fees
Waived |
Management
Fees Recouped |
Net
Management Fees Paid to Adviser |
| 2023 |
$980,352 |
$159,587 |
$0 |
$820,765 |
| 2022 |
$973,280 |
$68,655 |
$0 |
$904,625 |
| 2021 |
$367,935 |
$121,914 |
$0 |
$246,021 |
|
|
|
|
|
Emerging
Markets Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Fees
Accrued |
Management
Fees
Waived |
Management
Fees Recouped |
Net
Management Fees Paid to Adviser |
| 2023 |
$7,071,092 |
$485,364 |
$0 |
$6,585,728 |
| 2022 |
$4,983,463 |
$351,524 |
$0 |
$4,631,939 |
| 2021 |
$3,013,067 |
$401,667 |
$0 |
$2,611,400 |
|
|
|
|
|
International
Small Cap Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Fees
Accrued |
Management
Fees
Waived |
Management
Fees Recouped |
Net
Management Fees Paid to Adviser |
| 2023 |
$146,412 |
$146,412 |
$0 |
$0 |
| 2022 |
$122,345 |
$122,345 |
$0 |
$0 |
| 2021 |
$23,454 |
$23,454 |
$0 |
$0 |
International
Value Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Fees
Accrued |
Management
Fees
Waived |
Management
Fees Recouped |
Net
Management Fees Paid to Adviser |
| 2023 |
$206,488 |
$206,488 |
$0 |
$0 |
| 2022 |
$53,443 |
$53,443 |
$0 |
$0 |
|
2021* |
N/A |
N/A |
N/A |
N/A |
*The
International Value Fund commenced operations on June 28, 2021.
The
Advisory Agreement continues in effect for successive annual periods so long as
such continuation is specifically approved at least annually by the vote of
(1) the Board (or a majority of the outstanding shares of the Funds), 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
the Funds’ shareholders and the Trust’s Board that are properly payable by the
Funds; salaries and expenses of officers and fees and expenses of members of the
Board or members of any advisory board or committee who are not members of,
affiliated with or interested persons of the Adviser or Administrator; insurance
premiums on property or personnel of the Funds which inure to its benefit,
including liability and fidelity bond insurance; the cost of preparing and
printing reports, proxy statements, prospectuses and the statement of additional
information of the 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 their 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 to pay Fund operating expenses to the extent necessary to
limit a Fund’s aggregate annual operating expenses (excluding acquired fund fees
and expenses, interest expense, taxes, dividends on securities sold short,
extraordinary expenses, Rule 12b-1 fees, shareholder servicing fees and any
other class-specific expenses) to the limits set forth in the Annual Fund
Operating Expenses 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 the Funds toward the operating
expenses for such fiscal year (taking into account the reimbursement) will not
cause the Funds 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, Fund Accountant and Chief Compliance
Officer
Pursuant
to a Fund Administration Servicing Agreement (the “Administration Agreement”)
between the Trust and U.S. Bancorp Fund Services, LLC, doing business as U.S.
Bank Global Fund Services (“Fund Services” or the “Administrator”), 615 East
Michigan Street, Milwaukee, Wisconsin 53202, Fund Services acts as the Funds’
administrator. The Administrator provides certain administrative 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 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, the Administrator 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.
Pursuant
to the Administration Agreement, as compensation for its services, Fund Services
receives from the Funds a combined fee for fund administration and fund
accounting services based on the Fund’s current average daily net assets. Fund
Services is also entitled to certain out-of-pocket expenses. In addition to its
role as Administrator, Fund Services 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 for the Chief Compliance Officer’s services is
charged to the Funds and approved by the Board annually.
For
the fiscal years indicated below, the Funds paid the following fees to Fund
Services for fund administration and fund accounting services:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Administration
and Fund Accounting Fees Paid |
|
|
For
the Fiscal Year Ended February 28, 2023 |
For
the Fiscal Year Ended February 28, 2022 |
For
the Fiscal Year Ended February 28, 2021 |
|
| Mid
Cap Fund |
$72,606 |
$80,061 |
$64,988 |
|
| Small
Cap Fund |
$74,812 |
$80,244 |
$37,660 |
|
| Emerging
Markets Fund |
$288,707 |
$198,160 |
$194,546 |
|
| International
Small Cap Fund |
$81,152 |
$70,946 |
$24,155 |
|
|
International
Value Fund(1) |
$81,511 |
$58,740 |
N/A |
|
(1) The
International Value Fund commenced operations on June 28, 2021.
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 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.
DISTRIBUTION
The
Funds’ Distributor
The
Trust has entered into a Distribution Agreement (the “Distribution Agreement”)
with Quasar Distributors, LLC, 111 East Kilbourn Avenue, Suite 2200, Milwaukee,
Wisconsin 53202 (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 will continue in effect only if such continuance is
specifically approved at least annually by the Board or by vote of a majority of
each 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).
Distribution
Plan
The
Funds have adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under
the 1940 Act under which 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 Investor Class of each Fund. 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 this plan, by the Funds, are paid to the Distributor to compensate
broker-dealers and service providers that provide distribution -related services
to the Funds for the costs of the services provided and the expenses borne in
the distribution of a Fund’s shares, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Funds’ shares to prospective investors; and preparation,
printing and distribution of sales literature and advertising materials. 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 will be 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
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 February 28, 2023, the Funds paid the following
Plan fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Rule
12b-1 Expenditures Incurred* |
Mid
Cap Fund |
Small
Cap Fund |
Emerging
Markets Fund |
International
Small Cap Fund |
International
Value Fund |
| Advertising/Marketing |
$792 |
$883 |
$816 |
$475 |
$324 |
| Printing/Postage |
$0 |
$0 |
$0 |
$0 |
$0 |
| Payment
to distributor |
$5,924 |
$4,767 |
$15,341 |
$2,557 |
$1,853 |
| Payment
to dealers |
$16,582 |
$3,403 |
$56,700 |
$416 |
$0 |
| Compensation
to sales personnel |
$0 |
$0 |
$0 |
$0 |
$0 |
| Interest,
carrying, or other financing charges |
$0 |
$0 |
$0 |
$0 |
$0 |
| Other |
$0 |
$0 |
$0 |
$0 |
$0 |
| Total |
$23,298 |
$9,053 |
$72,857 |
$3,448 |
$2,177 |
Shareholder
Servicing Plan
The
Funds have adopted a Shareholder Servicing Plan (the “Servicing Plan”) with
respect to the Investor Class of each Fund under which the Adviser will provide,
or arrange for others to provide, certain specified shareholder services. Such
services include: (1) aggregating and processing purchase and redemption
requests and transmitting such orders to the transfer agent; (2) providing
shareholders with a service that invests the assets of their accounts in shares
of the Funds pursuant to specific or pre-authorized instructions;
(3) processing dividend and distribution payments from the Funds on behalf
of shareholders; (4) providing information periodically to shareholders
showing their positions; (5) arranging for bank wires; (6) responding
to shareholder inquiries concerning their investment; (7) providing
sub-accounting with respect to shares of the Funds beneficially owned by
shareholders or the information necessary for sub-accounting; (8) if
required by law, forwarding shareholder
communications
(such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices); and (9) providing
similar services as may reasonably be requested.
As
compensation for the provision of shareholder services, the Funds pay the
Adviser a monthly fee at an annual rate of 0.10% of the average daily net assets
of the Investor Class of each Fund. The Adviser will pay certain banks, trust
companies, broker-dealers and other financial intermediaries (each, a
“Participating Organization”) out of the fees the Adviser receives from the
Funds under the Servicing Plan to the extent that the Participating Organization
performs shareholder servicing functions for the Funds’ shares owned by its
customers.
For
the fiscal periods indicated below, the Funds paid the following Servicing Plan
fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Fiscal Year Ended February 28, 2023 |
For
the Fiscal Year Ended February 28, 2022 |
For
the Fiscal Year Ended February 28, 2021 |
|
| Mid
Cap Fund |
$8,757 |
$12,367 |
$5,046 |
|
| Small
Cap Fund |
$1,998 |
$1,750 |
$417 |
|
| Emerging
Markets Fund |
$28,594 |
$20,331 |
$13,736 |
|
| International
Small Cap Fund |
$417 |
$449 |
$24 |
|
| International
Value Fund* |
$40 |
$33 |
$0 |
|
*
The International Value Fund commenced operations on June 28, 2021.
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 their 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 the Fund shares.
PORTFOLIO
MANAGERS
The
portfolio managers primarily responsible for the day-to-day management of the
Mid Cap Fund are Messrs. Richard Pzena, John Flynn, and Benjamin Silver. The
portfolio managers primarily responsible for the day-to-day management of the
Emerging Markets Fund are Mmes. Allison Fisch, Caroline Cai, Mr. Rakesh Bordia
and Mr. Akhil Subramanian. The portfolio managers primarily responsible for the
day-to-day management of the Small Cap Fund are Messrs. Evan Fox, John Flynn,
and Benjamin Silver. The portfolio managers primarily responsible for the
day-to-day management of the International Small Cap Fund are
Messrs. Matthew J. Ring and Jason Doctor. The portfolio managers primarily
responsible for the day-to-day management of the International Value Fund are
Messrs. John Goetz and Rakesh Bordia and Mmes. Allison Fisch and Caroline Cai.
Each has managed their respective Fund(s) since the Fund’s inception, except Mr.
Bordia has managed the Emerging Markets Fund since April 2015 and the
International Value Fund since January 2023, Mr. Flynn has managed the Mid Cap
Fund since August 2015, Mr. Silver has managed the Mid Cap Fund since July 2017,
Mr. Subramanian has managed the Emerging Markets Fund since January 2023 and Mr.
Doctor has managed the International Small Cap Fund since January 2023. The
following tables show the number of other accounts (not including the Funds)
managed by each portfolio manager and the total assets in the accounts managed
within various categories as of February 28, 2023.
Richard
Pzena
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Type
of Accounts |
Number
of Accounts
(excluding the Funds) |
Total
Assets |
Number
of Accounts with Advisory Fee based on Performance |
Assets
in Accounts for Which Advisory Fee is Based on Performance |
| Registered
Investment Companies |
5 |
$11,293
million |
2 |
$9,266
million |
| Other
Pooled Investments |
8 |
$224
million |
2 |
$123
million |
| Other
Accounts |
25 |
$1,073
million |
0 |
$0 |
John
Goetz
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Type
of Accounts |
Number
of Accounts
(excluding the Funds) |
Total
Assets |
Number
of Accounts with Advisory Fee based on Performance |
Assets
in Accounts for Which Advisory Fee is Based on Performance |
| Registered
Investment Companies |
10 |
$8,270
million |
1 |
$1,797
million |
| Other
Pooled Investments |
46 |
$16,741
million |
3 |
$246
million |
| Other
Accounts |
42 |
$7,891
million |
2 |
$313
million |
Allison
Fisch
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Type
of Accounts |
Number
of Accounts
(excluding the Funds) |
Total
Assets |
Number
of Accounts with Advisory Fee based on Performance |
Assets
in Accounts for Which Advisory Fee is Based on Performance |
| Registered
Investment Companies |
11 |
$6,860
million |
1 |
$181
million |
| Other
Pooled Investments |
20 |
$1,849
million |
0 |
$0 |
| Other
Accounts |
38 |
$7,045
million |
0 |
$0 |
Caroline
Cai
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Type
of Accounts |
Number
of Accounts
(excluding the Funds) |
Total
Assets |
Number
of Accounts with Advisory Fee based on Performance |
Assets
in Accounts for Which Advisory Fee is Based on Performance |
| Registered
Investment Companies |
12 |
$8,657
million |
2 |
$1,978
million |
| Other
Pooled Investments |
42 |
$15,939
million |
3 |
$246
million |
| Other
Accounts |
56 |
$10,229
million |
0 |
$0 |
Rakesh
Bordia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Type
of Accounts |
Number
of Accounts
(excluding the Funds) |
Total
Assets |
Number
of Accounts with Advisory Fee based on Performance |
Assets
in Accounts for Which Advisory Fee is Based on Performance |
| Registered
Investment Companies |
11 |
$6,860
million |
1 |
$181
million |
| Other
Pooled Investments |
20 |
$1,849
million |
0 |
$0 |
| Other
Accounts |
36 |
$6,553
million |
0 |
$0 |
Evan
Fox
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Type
of Accounts |
Number
of Accounts
(excluding the Funds) |
Total
Assets |
Number
of Accounts with Advisory Fee based on Performance |
Assets
in Accounts for Which Advisory Fee is Based on Performance |
| Registered
Investment Companies |
1 |
$89
million |
0 |
$0 |
| Other
Pooled Investments |
2 |
$68
million |
0 |
$0 |
| Other
Accounts |
47 |
$2,385
million |
0 |
$0 |
John
Flynn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Type
of Accounts |
Number
of Accounts
(excluding the Funds) |
Total
Assets |
Number
of Accounts with Advisory Fee based on Performance |
Assets
in Accounts for Which Advisory Fee is Based on Performance |
| Registered
Investment Companies |
6 |
$11,382
million |
2 |
$9,266
million |
| Other
Pooled Investments |
10 |
$295
million |
1 |
$22
million |
| Other
Accounts |
83 |
$3,315
million |
0 |
$0 |
Benjamin
Silver
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Type
of Accounts |
Number
of Accounts
(excluding the Funds) |
Total
Assets |
Number
of Accounts with Advisory Fee based on Performance |
Assets
in Accounts for Which Advisory Fee is Based on Performance |
| Registered
Investment Companies |
7 |
$13,179
million |
3 |
$11,063
million |
| Other
Pooled Investments |
33 |
$14,411
million |
4 |
$268
million |
| Other
Accounts |
98 |
$6,341
million |
0 |
$0 |
Matthew
J. Ring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Type
of Accounts |
Number
of Accounts
(excluding the Fund) |
Total
Assets |
Number
of Accounts with Advisory Fee based on Performance |
Assets
in Accounts for Which Advisory Fee is Based on Performance |
| Registered
Investment Companies |
0 |
$0 |
0 |
$0 |
| Other
Pooled Investments |
8 |
$1,362
million |
0 |
$0 |
| Other
Accounts |
9 |
$1,607
million |
2 |
$313
million |
Akhil
Subramanian
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Type
of Accounts |
Number
of Accounts
(excluding the Fund) |
Total
Assets |
Number
of Accounts with Advisory Fee based on Performance |
Assets
in Accounts for Which Advisory Fee is Based on Performance |
| Registered
Investment Companies |
2 |
$387
million |
1 |
$181
million |
| Other
Pooled Investments |
7 |
$1,006
million |
0 |
$0 |
| Other
Accounts |
15 |
$3,799
million |
0 |
$0 |
Jason
Doctor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Type
of Accounts |
Number
of Accounts
(excluding the Fund) |
Total
Assets |
Number
of Accounts with Advisory Fee based on Performance |
Assets
in Accounts for Which Advisory Fee is Based on Performance |
| Registered
Investment Companies |
0 |
$0 |
0 |
$0 |
| Other
Pooled Investments |
1 |
$3
million |
0 |
$0 |
| Other
Accounts |
1 |
$11
million |
0 |
$0 |
Material
Conflicts of Interest.
The Adviser does not foresee any conflicts of interest in the management of the
Funds and its other accounts. The Adviser applies the same value minded
philosophy across all of its strategies that it has employed since inception.
The Adviser, as a matter of policy and practice, acts as a fiduciary in all
client matters, seeks to avoid or resolve conflicts of interest, and meets all
regulatory requirements. Standards of business conduct are detailed in the
Adviser’s Code of Ethics. Each employee is responsible to have read, be familiar
with, and annually certify compliance with the Adviser’s Code of Ethics. There
is no conflict of the duties necessary for the Funds and other products. In all
cases, the Adviser acts as a fiduciary of client assets and accounts and follows
its trading policies and procedures.
Compensation.
The portfolio managers of the Adviser are compensated through a combination of a
fixed base salary, performance bonus, and equity ownership, if appropriate, due
to superior personal performance. Eligibility for bonus compensation is examined
annually by the Adviser. The Adviser considers both quantitative and qualitative
factors when determining performance bonuses; however, performance bonuses are
not based on Fund performance or assets of the Funds. For investment
professionals, the Adviser examines such things as effort, efficiency, ability
to focus on the correct issues, stock modeling ability, and ability to
successfully interact with company management. However, the Adviser always looks
at the person as a whole and the contributions that they have made and are
likely to make in the future. The Adviser avoids a compensation model that is
driven by individual security performance, as this can lead to short-term
thinking, which is contrary to the firm’s value investment philosophy.
Ultimately, the equity ownership is the primary tool used by the Adviser for
attracting and retaining the best people. This ties personnel to long-term
performance as the value of their ownership stake depends on Pzena delivering
superior long-term results to investors. All portfolio managers listed are
equity owners of the Adviser.
Securities
Owned in the Funds by Portfolio Managers.
As of February 28, 2023, the portfolio managers owned the following
securities in the Funds which they manage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Portfolio
Managers |
Dollar
Range of Equity Securities in the Funds Beneficially Owned
(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) |
Mid
Cap
Fund |
Small
Cap Fund |
Emerging
Markets Fund |
International
Small Cap Fund |
International
Value Fund |
| Richard
Pzena |
$100,001-$500,000 |
N/A |
N/A |
N/A |
N/A |
| John
Goetz |
N/A |
N/A |
N/A |
N/A |
Over
$1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Portfolio
Managers |
Dollar
Range of Equity Securities in the Funds Beneficially Owned
(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) |
Mid
Cap
Fund |
Small
Cap Fund |
Emerging
Markets Fund |
International
Small Cap Fund |
International
Value Fund |
| Allison
Fisch |
N/A |
N/A |
$100,001-$500,000 |
N/A |
$100,001-$500,000 |
| Caroline
Cai |
N/A |
N/A |
Over
$1,000,000 |
N/A |
$100,001-$500,000 |
| Rakesh
Bordia |
N/A |
N/A |
$100,001-$500,000 |
N/A |
$100,001-$500,000 |
| John
Flynn |
$100,001-$500,000 |
$100,001-$500,000 |
N/A |
N/A |
N/A |
| Evan
Fox |
N/A |
$500,001
- $1,000,000 |
N/A |
N/A |
N/A |
| Benjamin
Silver |
$100,001-$500,000 |
$100,001-$500,000 |
N/A |
N/A |
N/A |
| Matthew
Ring |
N/A |
N/A |
N/A |
$100,001
- $500,000 |
N/A |
| Akhil
Subramanian |
N/A |
N/A |
$50,001-$100,000 |
N/A |
N/A |
| Jason
Doctor |
N/A |
N/A |
N/A |
$100,001-$500,000 |
N/A |
PORTFOLIO
TRANSACTIONS AND BROKERAGE
Pursuant
to the Advisory Agreement, the Adviser determines which securities are to be
purchased and sold by each Fund and which broker-dealers are eligible to execute
each Fund’s portfolio transactions. The purchases and sales of securities in the
over-the-counter market will generally be executed by using a broker for the
transaction.
Purchases
of portfolio securities for each Fund also may be made directly from issuers or
from underwriters. Where possible, purchase and sale transactions will be
effected through dealers (including banks) that specialize in the types of
securities which the Funds hold, 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. The Adviser considers such information,
which is in addition to and not in lieu of the services required to be performed
by them under their 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.
While
it is the Adviser’s general policy to seek best execution first 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-dealer can deliver best execution, weight is also given to the
ability of a broker-dealer to furnish brokerage and research services as it is
defined in Section 28(e) of the Securities Exchange Act of 1934, as amended, to
the Funds or to the Adviser, even if the specific services are not directly
useful to the Funds and may be useful to the Adviser in advising other clients.
In negotiating commissions with a broker or evaluating the spread to be paid to
a dealer, the Funds may therefore pay a higher commission or spread than would
be the case if no weight were given to the furnishing of these supplemental
services, provided that the amount of such commission or spread has been
determined in good faith by the Adviser to be reasonable in relation to the
value of the brokerage and/or research services provided by such broker-dealer.
The standard of reasonableness is to be measured in light of the Adviser’s
overall responsibilities to the Funds.
Investment
decisions for each Fund are made independently from those of other client
accounts that may be managed or advised by the Adviser. Nevertheless, it is
possible that at times identical securities will be acceptable for both a Fund
and one or more of such client accounts. In such event, the position of each
Fund and such client accounts in the same issuer may vary and the length of time
that each may choose to hold its investment in the same issuer may likewise
vary. However, to the extent any of these client accounts seeks to acquire the
same security as the 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, a Fund
may not be able to obtain as high a price for, or as large an execution of, an
order to sell any particular security at the same time. If one or more of such
client accounts simultaneously purchases or sells the same security that a Fund
is purchasing or selling, each day’s transactions in such security will be
allocated between the Funds and all such client accounts in a manner deemed
equitable by the Adviser, taking into account the respective sizes of the
accounts and the amount being purchased or sold. It is recognized that in some
cases this system could have a detrimental effect on the price or value of the
security insofar as the 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.
During
the fiscal periods indicated below, the Funds paid the following amounts in
brokerage commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Brokerage Commissions Paid During |
|
|
Fiscal
Period Ended February 28, 2023 |
Fiscal
Period Ended February 28, 2022 |
Fiscal
Period Ended February 28, 2021 |
|
| Mid
Cap Fund |
$58,846 |
$33,715 |
$51,401 |
|
| Small
Cap Fund |
$67,387 |
$51,948 |
$33,438 |
|
| Emerging
Markets Fund |
$552,423(1) |
$206,972 |
$236,291 |
|
| International
Small Cap Fund |
$4,282 |
$10,325 |
$1,044 |
|
| International
Value Fund* |
$18,476 |
$11,360 |
N/A |
|
*
The International Value Fund commenced operations on June 28, 2021.
(1)
The increase in brokerage commissions for the Emerging Markets Fund for the
fiscal period ended February 28, 2023, was due to an overall increase in trading
volume, due to the year over year growth of fund AUM.
The
following amounts were paid to brokerage firms for research services provided to
the Funds and the Adviser from the aggregate brokerage commission amounts
above:
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended February 28, 2023 |
|
Dollar
Value of
Securities Traded |
Related
Soft Dollar
Brokerage Commissions* |
| Mid
Cap Fund |
$44,005,647.13 |
$44,010.59 |
| Small
Cap Fund |
$28,649,456.79 |
$48,477.67 |
| Emerging
Markets Fund |
$161,072,951.63 |
$252,896.14 |
| International
Small Cap Fund |
$1,619,055.37 |
$2,309.70 |
| International
Value Fund |
$12,036,264.81 |
$14,374.56 |
|
|
|
*
Pzena Investment Management, LLC (“PIM”) maintains a soft dollar program to
obtain broker research and vendor services that enhance PIM’s research
process. All research and services obtained that are paid with client
commissions are in accordance with Section 28(e) of the Exchange Act. The
program encompasses paying for external proprietary research through trading
directly with the broker that provided the research or through commission
sharing arrangement (CSA) payments, obtaining third party research through use
of CSA payments, and paying for vendor services through both CSAs and direct
trading relationships. Although the research and services obtained through
soft dollars may not specifically benefit each client at any one time; PIM
believes that over time all clients benefit from the soft dollar program.
We maintain a soft dollar program to obtain broker research and vendor services
that enhance our research-intensive process.
The
Funds did not own securities of their regular broker dealers during the fiscal
year ended February 28, 2023.
PURCHASE
AND REDEMPTION OF FUND SHARES
Detailed
information on the purchase and redemption of shares is included in the
Prospectus. Shares of the Funds are sold without a sales charge at the next
price calculated after receipt of an order for purchase. In order to purchase
shares of the Funds, you must invest the initial minimum investment for the
relevant class of shares. However, the Funds reserve the right, in their sole
discretion, to waive the minimum initial investment amount for certain
investors, or to waive or reduce the minimum initial investment for 401(k)s or
other tax-deferred retirement plans. You may purchase shares on any day that the
NYSE is open for business by placing orders with the Funds.
The
Funds reserve the right to refuse any purchase requests, particularly those that
would not be in the best interests of the Funds or their shareholders and could
adversely affect the Funds or their operations. This includes those from any
individual or group who, in the Funds’ view, is likely to engage in or has a
history of excessive trading (usually defined as more than four transactions out
of the Funds within a calendar year). Furthermore, the Funds may suspend the
right to redeem their shares or postpone the date of payment upon redemption for
more than three business days (i) for any period during which the NYSE is
closed (other than customary weekend or holiday closings) or trading on the NYSE
is restricted; (ii) for any period during which an emergency exists as a
result of which disposal by the Funds of securities owned by them is not
reasonably practicable or it is not reasonably practicable for the Funds fairly
to determine the value of their net assets; or (iii) for such other periods
as the SEC may permit for the protection of the Funds’
shareholders.
The
Funds may also authorize one or more broker-dealers or other financial
intermediaries to accept purchase and redemption orders on their behalf
(“Authorized Intermediaries”). Authorized Intermediaries are authorized to
designate other Authorized Intermediaries to accept orders on the Funds’ behalf.
An order is deemed to be received when a Fund or an Authorized Intermediary
accepts the order.
In-Kind
Purchases and Redemptions
Payment
for shares of the Funds may, in the discretion of the Trust, be made in the form
of securities that are permissible investments for the Funds as described in the
Prospectus. For further information about this form of payment, contact the
Transfer Agent. In connection with an in-kind securities payment, the Funds
require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Funds and that the
Funds receive satisfactory assurances that they will have good and marketable
title to the securities received by them; that the securities be in proper form
for transfer to the Funds; and that adequate information be provided concerning
the basis and other tax matters relating to the securities.
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 distributed in-kind would be readily marketable and would be valued
for this purpose using the same method employed in calculating each Fund’s NAV.
If a shareholder receives redemption proceeds in-kind, the redemption would be a
taxable event and the shareholder should expect to incur transaction costs upon
the disposition of the securities received in the redemption.
Each
Fund does not intend to hold any significant percentage of its portfolio in
illiquid securities, although a Fund, like virtually all mutual funds, may from
time to time hold a small percentage of securities that are illiquid. In the
unlikely event a Fund were to elect to make an in-kind redemption, the Fund
expects that it would follow the Trust protocol of making such distribution by
way of a pro rata distribution of securities that are traded on a public
securities market or are otherwise considered liquid pursuant to the Fund’s
liquidity policies and procedures. Except as otherwise may be approved by the
Trustees, the securities that would not be included in an in-kind distribution
include (1) unregistered securities which, if distributed, would be required to
be registered under the Securities Act of 1933 (the “1933 Act”), as amended; (2)
securities issued by entities in countries which (a) restrict or prohibit the
holding of securities by non-nationals other than through qualified investment
vehicles, such as a fund, or (b) permit transfers of ownership of securities to
be effected only by transactions conducted on a local stock exchange; and (3)
certain Fund assets that, although they may be liquid and marketable, must be
traded through the marketplace or with the counterparty to the transaction in
order to effect a change in beneficial ownership.
DETERMINATION
OF NET ASSET VALUE
The
NAV of the Funds’ shares will fluctuate and is determined as of the close of
trading on the New York Stock Exchange (the “NYSE”) (generally, 4:00 p.m.,
Eastern Time) each day that the NYSE is open for business. The NYSE annually
announces the days on which it will not be open for trading. The most recent
announcement indicates that it will not be open for 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. However, the NYSE may close
on days not included in that announcement.
The
NAV per share is computed by dividing the value of the securities held by a Fund
plus any cash or other assets (including interest and dividends accrued but not
yet received) minus all liabilities (including accrued expenses) by the total
number of shares in a Fund outstanding at such time.
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 Funds’ valuation
designee pursuant to procedures adopted by the Adviser. The Board has designated
the Adviser as its “valuation designee” under Rule 2a-5 of the 1940 Act, subject
to its oversight.
The
Funds’ securities 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
primarily traded in the NASDAQ Global Market®
for which market quotations are readily available shall be valued using the
NASDAQ®
Official Closing Price (“NOCP”). If the NOCP is not available, such securities
shall be valued at the last sale price on the day of valuation, or if there has
been no sale on such day, at the mean between the bid and asked prices. OTC
securities which are not traded in the NASDAQ Global Market®
shall be valued at the most recent sales price. Securities and assets for which
market quotations are not readily available (including restricted securities
which are subject to limitations as to their sale) are valued at fair value as
determined in good faith under the Adviser’s procedures.
Debt
securities are similarly valued under the valuation designee’s procedures, which
may include independent third-party pricing services. Any such pricing service,
in determining value, will use information with respect to transactions in the
securities being valued, quotations from dealers, market transactions in
comparable securities, analyses and evaluations of various relationships between
securities and yield to maturity information.
In
the case of foreign securities, the occurrence of certain events after the close
of foreign markets, but prior to the time the Funds’ NAVs are calculated (such
as a significant surge or decline in the U.S. or other markets) often will
result in an adjustment to the trading prices of foreign securities when foreign
markets open on the following business day. If such events occur, the Funds
value foreign securities at fair value, taking into account such events, in
calculating the NAVs. In such cases, use of fair valuation can reduce an
investor’s ability to seek to profit by estimating the Funds’ NAVs in advance of
the time the NAVs are calculated. The Adviser anticipates that the Funds’
portfolio holdings will be fair valued only if market quotations for those
holdings are considered unreliable or are unavailable.
All
other assets of the Funds are valued in such manner as the valuation designee in
good faith deems appropriate to reflect their fair value.
TAX
MATTERS
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 qualify to be treated as a regulated investment company under
Subchapter M of the Code, and to comply with all applicable requirements
regarding the source of its income, diversification of its assets and timing and
amount of distributions. The Funds’ policy is to distribute to their
shareholders all of their net 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 are not subject to any federal income
or excise taxes in any year. However, the Funds can give no assurances that
distributions will be sufficient to eliminate all taxes in every year. To avoid
the nondeductible 4% Federal excise tax, the Funds must distribute (or be deemed
to have distributed) by December 31 of each calendar year (i) at least
98% of their ordinary income for such year, (ii) at least 98.2% of the
excess of their realized capital gains over their realized capital losses for
the 12‑month period ending on October 31 of such year and (iii) any
amounts from the prior calendar year that were not distributed and on which the
Funds paid no federal income tax.
Net
investment income generally consists of interest and dividend income, less
expenses. Net taxable income attributable to realized capital gains for a fiscal
period are computed by taking into account available capital loss carryforward
of a Fund. Capital losses sustained and not used in a taxable year may be
carried forward indefinitely to offset capital gain of the Funds in future
years. As of February 28, 2023, the Emerging Markets Fund had long-term capital
loss carryovers of $17,474,043 and short-term capital loss carryovers of
$1,444,351 with no expiration date. The International Value Fund had long-term
capital loss carryovers of $226,759 and short-term capital loss carryovers of
$476,158 with no expiration date. The Mid Cap Fund, Small Cap Fund and
International Small Cap Fund did not have any capital loss
carryovers.
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 a Fund may be qualified dividend income eligible under
current law for taxation at long-term capital gain rates to the extent a Fund
reports the amount distributed as a qualifying dividend and provided that
certain holding period requirements are met. In addition, a 3.8% Medicare surtax
generally applies to net investment income, which includes dividend income and
net capital gains from an investment in the Funds, for taxpayers whose adjusted
gross income exceeds $200,000 for single filers or $250,000 for married joint
filers. In the case of corporate shareholders, a portion of the distributions
may qualify for the intercorporate dividends‑received deduction to the extent a
Fund reports the amount distributed as a qualifying dividend and provided that
certain holding period requirements are met. The aggregate amount so reported to
either individual or corporate shareholders cannot, however, exceed the
aggregate amount of qualifying dividends received by a Fund for its taxable
year. In view of each Fund’s investment policies, it is expected that dividends
from domestic corporations may be part of each Fund’s gross income and that,
accordingly, part of the distributions of each Fund may be eligible for
qualified dividend income treatment for individual shareholders or for the
dividends‑received deduction for corporate shareholders. However, the portion of
each Fund’s gross income attributable to qualifying dividends is largely
dependent on the Fund’s investment activities for a particular year and
therefore cannot be predicted with any certainty. The Emerging Markets Fund may
have little or no qualified dividend income in some years. Further, the
dividends-received deduction may be reduced or eliminated if Fund shares held by
a corporate investor are treated as debt‑financed or are held for less than
46 days.
Long‑term
capital gain distributions are taxable to shareholders as long‑term capital
gains regardless of the length of time a shareholder held his or her Fund
shares. Capital gains distributions are not eligible
for
qualified dividend income treatment or the dividends‑received deduction referred
to in the previous paragraph. Distributions of any net investment income and net
realized capital gains will be taxable as described above, whether received in
shares or in cash. Shareholders who choose to receive distributions in the form
of additional shares will have a cost basis for federal income tax purposes in
each share so received equal to the NAV of a share on the reinvestment date.
Distributions generally are taxable when received or deemed to be
received. However, distributions declared in October, November or December
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are
includable in alternative minimum taxable income in computing liability for the
alternative minimum tax of a shareholder who is an individual. There is no
requirement that the Funds take into consideration any tax implications when
implementing their investment strategy. Shareholders should note that the Funds
may make taxable distributions of income and capital gains even when share
values have declined.
The
Funds may be subject to foreign taxes on income earned with respect to
securities of foreign corporations.
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.
Redemption
of Fund shares may result in recognition of a taxable gain or loss. Any loss
realized upon redemption or sale of shares within six months from the date of
their purchase will be treated as a long‑term capital loss to the extent of any
amounts treated as distributions of long‑term capital gains during such
six‑month period. Any loss realized upon a redemption may be disallowed under
certain wash sale rules to the extent shares of the same Fund are purchased
(through reinvestment of distributions or otherwise) within 30 days before
or after the redemption.
Under
the Code, the Funds are 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 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 taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld. Corporate and other exempt shareholders should provide the Funds with
their taxpayer identification numbers or certify their exempt status in order to
avoid possible erroneous application of backup withholding. Backup withholding
is not an additional tax and any amounts withheld may be credited against a
shareholder’s ultimate federal income tax liability if proper documentation is
provided. The Funds reserve the right to refuse to open an account for any
person failing to provide a certified taxpayer identification
number.
The
foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. citizens or residents and U.S. domestic
corporations, estates the income of which is subject to United States federal
income taxation regardless of its source and trusts that (1) are subject to the
primary supervision of a court within the United States and one or more United
States persons have the authority to control all substantial decisions of the
trust or (2) have a valid election in effect under applicable United States
Treasury regulations to be treated as a United States person.
The
Foreign Account Tax Compliance Act (“FATCA”)
A
30% withholding tax on a Fund’s distributions, including capital gains
distributions, and on gross proceeds from the sale or other disposition of
shares of the Funds, generally applies if paid to a foreign entity unless: (i)
if the foreign entity is a “foreign financial institution,” it undertakes
certain due diligence, reporting, withholding and certification obligations,
(ii) if the foreign entity is not a “foreign financial institution,” it
identifies certain of its U.S. investors or (iii) the foreign entity is
otherwise excepted under FATCA. If applicable, and subject to any
intergovernmental agreement, withholding under FATCA is required with respect to
certain distributions from a Fund. Recently issued proposed Treasury Regulations
generally eliminated withholding under FATCA on gross proceeds, which would
include 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 do not pay any additional amounts in respect to amounts withheld under
FATCA. You should consult your tax adviser regarding the effect of FATCA based
on your individual circumstances.
This
discussion and the related discussion in the Prospectus have been prepared by
Fund management. The information above is only a summary of some of the tax
considerations generally affecting the 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. Investors
should consult their own tax advisers to determine the suitability of the Funds
and the applicability of any state, local or foreign taxation. Sullivan &
Worcester LLP has expressed no opinion in respect thereof.
DIVIDENDS
AND DISTRIBUTIONS
The
Funds generally receive income in the form of dividends and interest earned on
their investments in securities. This income, less the expenses incurred in its
operations, is a Fund’s net investment income, substantially all of which will
be declared as dividends to the Fund’s shareholders.
The
amount of income dividend payments by a Fund is dependent upon the amount of net
investment income received by the Funds from their portfolio holdings, is not
guaranteed and is subject to the discretion of the Board. The Funds do not pay
“interest” or guarantee any fixed rate of return on an investment in their
shares.
The
Funds also may derive capital gains or losses in connection with sales or other
dispositions of their portfolio securities. Any net gain the Funds may realize
from dispositions involving investments held less than the period required for
long‑term capital gain or loss recognition or otherwise producing short‑term
capital gains and losses (taking into account any carryover of capital losses
from the eight previous taxable years), although a distribution from capital
gains, will be distributed to shareholders with and as a part of dividends
giving rise to ordinary income. If during any year a Fund realizes a net gain on
transactions
involving investments held more than the period required for long‑term gain or
loss recognition or otherwise producing long‑term capital gains and losses, the
Funds will have a net long‑term capital gain. After deduction of the amount of
any net short‑term capital loss, the balance (to the extent not offset by any
capital losses carried over from the eight previous taxable years) will be
distributed and treated as long‑term capital gains in the hands of the
shareholders regardless of the length of time a Fund’s shares may have been held
by the shareholders. For more information concerning applicable capital gains
tax rates, see your tax adviser.
Any
dividend or distribution paid by a Fund reduces the Fund’s NAV per share on the
date paid by the amount of the dividend or distribution per share. Accordingly,
a dividend or distribution paid shortly after a purchase of shares by a
shareholder would represent, in substance, a partial return of capital (to the
extent it is paid on the shares so purchased), even though it would be subject
to income taxes.
Dividends
and other distributions will be made in the form of additional shares of a Fund
unless the shareholder has otherwise indicated. Dividends will be taxable
whether received in cash or in additional shares. Investors have the right to
change their elections with respect to the reinvestment of dividends and
distributions by notifying the Transfer Agent in writing or calling the Transfer
Agent at 1-844-796-1996 (844-PZN-1996), but any such change will be effective
only as to dividends and other distributions for which the record date is five
or more calendars days after the Transfer Agent has received the
request.
ANTI-MONEY
LAUNDERING PROGRAM
The
Trust has established an Anti-Money Laundering Compliance Program (the
“Program”) as required by the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“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 owner, 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 the Fund available for distribution to shareholders.
With
respect to the Funds, the Trust may offer more than one class of shares. The
Trust has adopted a Multiple Class Plan pursuant to Rule 18f-3 under the 1940
Act, detailing the attributes of each class of a Fund and reserved the right to
create and issue additional series or classes. Each share of a series or class
represents
an equal proportionate interest in that series or class with each other share of
that series or class. Currently, each Fund offers two classes of shares:
Investor Class and Institutional 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.
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. The shares have
no preemptive or conversion rights. Shares, when issued, are fully paid and
non‑assessable, except as set forth below. 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
The
annual
report
for the Funds for the fiscal year ended February 28, 2023, is available
without charge, upon request by calling 1-844-796-1996 (844-PZN-1996) 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
Description
of Ratings
SHORT-TERM
RATINGS
S&P
Global Ratings (“S&P) Short-Term Issue Credit Ratings
A
S&P issue credit rating is a current opinion of the creditworthiness of an
obligor with respect to a specific financial obligation, a specific class of
financial obligations, or a specific financial program (including ratings on
medium-term note programs and commercial paper programs). It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation and takes into account the currency in
which the obligation is denominated. The opinion evaluates the obligor’s
capacity and willingness to meet its financial commitments as they come due, and
may assess terms, such as collateral security and subordination, which could
affect ultimate payment in the event of default. The issue credit rating is not
a recommendation to purchase, sell, or hold a financial obligation, inasmuch as
it does not comment as to market price or suitability for a particular investor.
Issue
credit ratings are based on current information furnished by the obligors or
obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any credit rating and may, on occasion, rely
on unaudited financial information. Credit ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
Issue
credit ratings can be either long term or short term. Short-term ratings are
generally assigned to those obligations considered short-term in the relevant
market. In the U.S., for example, that means obligations with an original
maturity of no more than 365 days including commercial paper. Short-term ratings
are also used to indicate the creditworthiness of an obligor with respect to put
features on long-term obligations. The result is a dual rating, in which the
short-term rating addresses the put feature, in addition to the usual long-term
rating. Medium-term notes are assigned long-term ratings.
Short-Term
Issue Credit Ratings
A-1
A
short-term obligation rated “A-1” is rated in the highest category and indicates
that the obligor’s capacity to meet its financial commitment on the obligation
is strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor’s capacity to meet its financial
commitment on these obligations is extremely strong.
A-2
A
short-term obligation rated “A-2” is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor’s capacity to meet its financial
commitment on the obligation is satisfactory.
A-3
A
short-term obligation rated “A-3” exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B
A
short-term obligation rated “B” is regarded as vulnerable and has significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitments; however, it faces major ongoing uncertainties which could
lead to the obligor’s inadequate capacity to meet its financial
commitments.
B-1
A
short-term obligation rated ‘B-1’ is regarded as having significant speculative
characteristics, but the obligor has a relatively stronger capacity to meet its
financial commitments over the short-term compared to other speculative-grade
obligors.
B-2
A
short-term obligation rated ‘B-2’ is regarded as having significant speculative
characteristics, and the obligor has an average speculative-grade capacity to
meet its financial commitments over the short-term compared to other
speculative-grade obligors.
B-3
A
short-term obligation rated ‘B-3’ is regarded as having significant speculative
characteristics, and the obligor has a relatively weaker capacity to meet its
financial commitments over the short-term compared to other speculative-grade
obligors.
C
A
short-term obligation rated “C” is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D
A
short-term obligation rated “D” is in default or in breach of an imputed
promise. For non-hybrid capital instruments, the “D” rating category is used
when payments on an obligation are not made on the date due, unless S&P
believes that such payments will be made within any stated grace period.
However, any stated grace period longer than five business days will be treated
as five business days. The “D” rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action and where default on an
obligation is a virtual certainty, for example due to automatic stay provisions.
An obligation’s rating is lowered to “D” if it is subject to a distressed
exchange offer.
Local
Currency and Foreign Currency Risks – S&P issuer credit ratings make a
distinction between foreign currency ratings and local currency ratings. An
issuer’s foreign currency rating will differ from its local currency rating when
the obligor has a different capacity to meet its obligations denominated in its
local currency, vs. obligations denominated in a foreign currency.
Dual
Ratings – S&P assigns “dual” ratings to all debt issues that have a put
option or demand feature as part of their structure. The first rating addresses
the likelihood of repayment of principal and interest as due, and the second
rating addresses only the demand feature. The long-term rating symbols are used
for bonds to denote the long-term maturity and the short-term rating symbols for
the put option (for example, ‘AAA/A-1+’). With U.S. municipal short-term demand
debt, note rating symbols are used with the short-term issue credit rating
symbols (for example, ‘SP-1+/A-1+’).
Moody’s
Investors Service, Inc. Short-Term Debt Ratings
Short-Term
Ratings
Short-term
ratings are forward-looking opinions of the relative credit risks of financial
obligations with an original maturity of thirteen months or less and reflect the
likelihood of a default on contractually promised payments. Ratings may be
assigned to issuers, short-term programs or to individual short-term debt
instruments.
Moody’s
employs the following designations to indicate the relative repayment ability of
rated issuers:
“P-1”
– Issuers (or supporting institutions) rated Prime-1 have a superior ability to
repay short-term debt obligations.
“P-2”
– Issuers (or supporting institutions) rated Prime-2 have a strong ability to
repay short-term debt obligations.
“P-3”
– Issuers (or supporting institutions) rated Prime-3 have an acceptable ability
to repay short-term obligations.
“NP”
– Issuers (or supporting institutions) rated Not Prime do not fall within any of
the Prime rating categories.
Note:
Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced by the
senior-most long-term rating of the issuer, its guarantor or
support-provider.
Moody’s
Investors Service, Inc.: Corporate Bond Ratings
Long-term
ratings are forward-looking opinions of the relative credit risks of financial
obligations with an original maturity of one year or more. Such ratings reflect
both the likelihood of default on contractually promised payments and the
expected financial loss suffered in the event of default. The following
summarizes the ratings used by Moody’s for long-term debt:
“Aaa”
– Obligations rated “Aaa” are judged to be of the highest quality, subject to
the lowest level of credit risk.
“Aa”
– Obligations rated “Aa” are judged to be of high quality and are subject to
very low credit risk.
“A”
– Obligations rated “A” are judged to be upper-medium grade and are subject to
low credit risk.
“Baa”
– Obligations rated “Baa” are judged to be medium-grade and subject to moderate
credit risk and as such may possess certain speculative
characteristics.
S&P:
Corporate Bond Ratings
The
following summarizes the ratings used by S&P for long-term
issues:
“AAA”
– An obligation rated “AAA” has the highest rating assigned by S&P. The
obligor’s capacity to meet its financial commitment on the obligation is
extremely strong.
“AA”
– An obligation rated “AA” differs from the highest-rated obligations only to a
small degree. The obligor’s capacity to meet its financial commitment on the
obligation is very strong.
“A”
– An obligation rated “A” is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its financial
commitment on the obligation is still strong.
“BBB”
– An obligation rated “BBB” exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
Commercial
Paper Ratings
Moody’s
commercial paper ratings are assessments of the issuer’s ability to repay
punctually promissory obligations. Moody’s employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1--highest quality; Prime 2--higher
quality; Prime 3--high quality.
An
S&P commercial paper rating is a current assessment of the likelihood of
timely payment. Ratings are graded into four categories, ranging from “A” for
the highest quality obligations to “D” for the lowest.
Issues
assigned the highest rating, A, are regarded as having the greatest capacity for
timely payment. Issues in this category are delineated with the numbers “1”, “2”
and “3” to indicate the relative degree of safety. The designation A-1 indicates
that the degree of safety regarding timely payment is either overwhelming or
very strong. A “+” designation is applied to those issues rated “A-1” which
possess extremely strong safety characteristics. Capacity for timely payment on
issues with the designation “A-2” is strong. However, the relative degree of
safety is not as high as for issues designated A-1. Issues carrying the
designation “A-3” have a satisfactory capacity for timely payment. They are,
however, somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.
