STEWARD FUNDS
A LEADER IN VALUES-BASED INVESTING

 

Steward Large Cap Enhanced Index Fund
Class A SEEKX
Class C SEEBX
Class R6 SEEHX
Institutional Class SEECX
   
Steward Small-Mid Cap Enhanced Index Fund
Class A TRDFX
Class C SSMEX
Class R6 SSMOX
Institutional Class SCECX
   
Steward International Enhanced Index Fund
Class A SNTKX
Class C SNTDX
Class R6 SNTFX
Institutional Class SNTCX
   
Steward Select Bond Fund
Class A SEAKX
Class C SEAAX
Class R6 SEABX
Institutional Class SEACX
   
Steward Global Equity Income Fund
Class A SGIDX
Class C SGIFX
Class R6 SGIGX
Institutional Class SGISX
   
Steward Covered Call Income Fund
Class A SCJAX
Class C SCJCX
Class R6 SCJKX
Institutional Class SCJIX

 

(The foregoing are all series and classes of Steward Funds, Inc.)

 

STATEMENT OF ADDITIONAL INFORMATION

 

August 1, 2019

 

This Statement of Additional Information is not a Prospectus but it contains information in addition to and more detailed than that set forth in the Prospectus and should be read in conjunction with the Prospectus dated August 1, 2019. The information in this Statement of Additional Information expands on the information contained in the Prospectus and any supplements thereto. A copy of the Prospectus may be obtained without charge by contacting Crossmark Distributors, Inc. by phone at (800) 262-6631 or by writing to it at 15375 Memorial Dr., Suite 200, Houston, TX 77079.

 

The report of Independent Registered Public Accounting Firm and financial statements of the Funds included in the Annual Report for the period ended April 30, 2019 (“Annual Report”) are incorporated herein by reference to the Annual Report. Copies of such Annual Report are available without charge upon request by writing to the Funds at 15375 Memorial Dr., Suite 200, Houston, TX 77079 or by calling toll free (800) 262-6631.

 

    Page 1 of 52

 

 

The financial statements contained in the Funds’ Annual Report for the year ended April 30, 2019 are incorporated by reference into this Statement of Additional Information. The financial statements and financial highlights for fiscal periods ended April 30, 2015, April 30, 2016, April 30, 2017, April 30, 2018 and April 30, 2019 were audited by Cohen & Company, Ltd., an independent registered public accounting firm, and have been so included and incorporated by reference in reliance upon the report of said firm, which report is given upon its authority as an expert in auditing and accounting.

 

    Page 2 of 52

 

 

TABLE OF CONTENTS

 

  Page
   
GENERAL INFORMATION 4
   
INVESTMENT STRATEGIES 5
   
PORTFOLIO HOLDINGS DISCLOSURE POLICIES 13
   
INVESTMENT RESTRICTIONS 14
   
DIRECTORS AND EXECUTIVE OFFICERS 16
   
PORTFOLIO TRANSACTIONS AND BROKERAGE 42
   
DETERMINATION OF NET ASSET VALUE 46
   
HOW TO BUY AND REDEEM SHARES 47
   
DIVIDENDS AND DISTRIBUTIONS 47
   
FEDERAL INCOME TAXES 48
   
OTHER INFORMATION 52

 

    Page 3 of 52

 

 

GENERAL INFORMATION

 

Steward Small-Mid Cap Enhanced Index Fund began as a series of Capstone Series Fund, Inc. (“CSFI”), an open-end diversified management company registered under the Investment Company Act of 1940, as amended (“1940 Act”). CSFI was incorporated in New Jersey in 1952 and commenced business shortly thereafter. On February 28, 1967, it was merged into a Pennsylvania corporation and operated under the laws of that state until May 11, 1992 when it was reorganized as a Maryland corporation and its name changed from U.S. Trend Fund, Inc. to Capstone U.S. Trend Fund, Inc. Effective September 6, 1994, the name of CSFI was changed to Capstone Growth Fund, Inc. This change was approved by stockholders at a meeting held August 25, 1994. On January 22, 2002, the name of the corporate entity was changed to Capstone Series Fund, Inc., and the Fund was redesignated Capstone Growth Fund. On December 20, 2005, the name of the Fund was changed to Steward Small-Cap Equity Fund and it classified its shares into two classes. The original class was designated “Individual Class,” and the new class was designated “Institutional Class.” Effective March 31, 2008, the name of the Fund was changed to Steward Small-Mid Cap Enhanced Index Fund. Effective February 14, 2017, Steward Small-Mid Cap Enhanced Index Fund was reorganized and merged into a series of Steward Funds, Inc. (“SFI”) by action of the Board of Directors (the “Board”).

 

Steward Large Cap Enhanced Index Fund, Steward Select Bond Fund, Steward International Enhanced Index Fund and Steward Global Equity Income Fund are series of SFI, an open-end diversified management company registered under the 1940 Act. SFI was originally incorporated in Delaware in 1968 and commenced business shortly thereafter as an open-end diversified management company under the 1940 Act. On February 18, 1992, shareholders approved a plan of reorganization pursuant to which the corporate entity became, on May 11, 1992, a Maryland series company, Capstone Fixed Income Series, Inc. The name of the corporate entity was changed to Capstone Christian Values Fund, Inc. on March 13, 2000. On June 3, 2004, the name was changed to Steward Funds, Inc., and names of each of the corporation’s series were also changed. Prior to August 28, 2004, Steward Select Bond Fund was known as Steward Select Fixed Income Fund. And prior to April 1, 2008, Steward Global Equity Income Fund, Steward Large Cap Enhanced Index Fund and Steward International Enhanced Index Fund were known as Capstone Government Income Fund, Steward Domestic All-Cap Equity Fund and Steward International Equity Fund, respectively. Steward Covered Call Income Fund was added as an additional series of SFI by action of the Board effective September 15, 2017.

 

Steward Large Cap Enahnced Index Fund, Steward Small-Mid Cap Enhanced Index Fund, Steward International Enhanced Index Fund, Steward Select Bond Fund, Steward Global Equity Income Fund and Steward Covered Call Income Fund (each a “Fund” and collectively, the “Funds”) each offer Class A, Class C, Class R6 and Institutional Class shares. The Individual Class shares of Steward Small-Mid Cap Enhanced Index Fund, Steward Large Cap Enhanced Index Fund, Steward Select Bond Fund, Steward International Enhanced Index Fund, and Steward Global Equity Income Fund were redesignated as Class A shares effective September 15, 2017. Class C and Class K shares of each Fund were authorized by action of the Board effective September 15, 2017. Class K shares of each Fund were redesignated as Class R6 shares effective August 28, 2018. All shares issued and outstanding are fully paid and non-assessable, transferable, have no pre-emptive rights (except as may be determined by the Board) or conversion rights (except that Class C shares convert to Class A shares after eight years) and are redeemable as described in the Prospectus and this Statement of Additional Information (“SAI”). Each share has equal rights with each other share of the same class of a Fund as to voting, dividends, exchanges and liquidation. Shareholders are entitled to one vote for each share held and fractional votes for fractional shares held. Each class of shares may be subject to such sales loads or charges, expenses and fees, and account size requirements as the Board may establish or change from time to time and to the extent permitted under the 1940 Act.

 

Crossmark Global Investments, Inc. (“Crossmark”) serves as investment adviser to the Funds. Crossmark Consulting, LLC (“Crossmark Consulting”), an affiliate of Crossmark, previously provided portfolio screening services to the Funds for use in the management of the Funds’ investment portfolios, as well as administration and compliance services, and currently provides claims preparation services to the Funds. Effective August 1, 2019, the administration, compliance and portfolio screening services are provided by Crossmark. Effective May 1, 2019, The Northern Trust Company (“Northern Trust”) acts as fund accounting and sub-administration services provider for the Funds. In addition, effective April 29, 2019, Northern Trust acts as custodian and transfer agent for the Funds. Crossmark Distributors, Inc. (“Crossmark Distributors”), an affiliate of Crossmark, is the Funds’ distributor. (See “Adviser,” “Administration, Fund Accounting and Sub-Administration Services, Compliance Services, Class Action

 

    Page 4 of 52

 

 

and Fair Fund Services, Transfer Agency and Service, and Master Services Agreements,” “Values-Based Investing Consultant” and “Distributor”).

 

INVESTMENT STRATEGIES

 

Following is a discussion of the various types of securities and strategies that may be used by a Fund, to the extent not inconsistent with its investment objective and policies.

 

Temporary Defensive and Other Short-Term Positions

 

Although it is expected that each of the Funds will normally be invested consistent with its investment objective and policies, each of the Funds may invest in certain short-term, high-quality debt instruments for the following purposes: (a) to meet anticipated day-to-day operating expenses; (b) pending Crossmark’s ability to invest cash inflows; (c) to permit the relevant Fund to meet redemption requests; and (d) for temporary defensive purposes. The short-term instruments in which the Funds may invest include: (i) short-term obligations of the U.S. Government or its agencies, instrumentalities, authorities, or political subdivisions; (ii) other short-term debt securities; (iii) commercial paper, including master notes; (iv) bank obligations, including certificates of deposit, time deposits and bankers’ acceptances; (v) repurchase agreements; (vi) money market funds; and (vii) zero coupon bonds.

 

The Funds’ short-term investments will generally not have maturities of greater than one year.

 

Common Stock, Convertible Securities, and Other Equity Securities

 

Steward Small-Mid Cap Enhanced Index Fund, Steward Large Cap Enhanced Index Fund, Steward International Enhanced Index Fund, Steward Global Equity Income Fund, and Steward Covered Call Income Fund may invest in common stocks, which represent an equity (ownership) interest in a company. This ownership interest generally gives a Fund the right to vote on issues affecting the company’s organization and operations. Common stocks do not contain a guarantee of value — their prices can fluctuate up or down, and may be reduced to zero under certain circumstances.

 

These Funds may also buy other types of equity securities such as convertible securities (including “synthetic convertible securities”), preferred stock, and warrants or other securities that are exchangeable for shares of common stock. A convertible security is a security that may be converted at either a stated price or rate within a specified period of time into a specified number of shares of common stock. By investing in convertible securities, a Fund seeks the opportunity, through the conversion feature, to participate in the capital appreciation of the common stock into which the securities are convertible, while investing at a better price than may be available on the common stock or obtaining a higher fixed rate of return than is available on common stocks. The value of a convertible security is a function of its “investment value” (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its “conversion value” (the security’s worth, at market value, if converted into the underlying common stock). The credit standing of the issuer and other factors may also affect the investment value of a convertible security. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value.

 

The market value of convertible debt securities tends to vary inversely with the level of interest rates. The value of the security declines as interest rates increase and increases as interest rates decline. Although under normal market conditions longer-term debt securities have greater yields than do shorter-term debt securities of similar quality, they are subject to greater price fluctuations. A convertible security may be subject to redemption at the option of the issuer at a price established in the instrument governing the convertible security. If a convertible security held by a Fund is called for redemption, the Fund must permit the issuer to redeem the security, convert it into the underlying common stock or sell it to a third party. Rating requirements do not apply to convertible debt securities purchased by the Funds because the Funds purchase such securities for their equity characteristics.

 

These Funds, as well as Steward Select Bond Fund, may invest in preferred stock. Unlike common stock, preferred stock offers a stated dividend rate payable from a corporation’s earnings. Such preferred stock dividends may be

 

    Page 5 of 52

 

  

cumulative or non-cumulative, participating, or auction rate. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of preferred stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as call/redemption provisions prior to maturity, a negative feature when interest rates decline. Dividends on some preferred stock may be “cumulative,” requiring all or a portion of prior unpaid dividends to be paid before dividends are paid on the issuer’s common stock. Preferred stock also generally has a preference over common stock on the distribution of a corporation’s assets in the event of liquidation of the corporation, and it may be “participating,” which means that it may be entitled to a dividend exceeding the stated dividend in certain cases. The rights of preferred stocks on the distribution of a corporation’s assets in the event of liquidation are generally subordinate to the rights associated with a corporation’s debt securities.

 

A warrant gives the holder a right to purchase at any time during a specified period a predetermined number of shares of common stock at a fixed price. Unlike convertible debt securities or preferred stock, warrants do not pay a fixed dividend. Investments in warrants involve certain risks, including the possible lack of a liquid market for resale of the warrants, potential price fluctuations as a result of speculation or other factors, and failure of the price of the underlying security to reach or have reasonable prospects of reaching a level at which the warrant can be prudently exercised (in which event the warrant may expire without being exercised, resulting in a loss of a Fund’s entire investment therein).

 

“Synthetic” convertible securities are derivative positions composed of two or more different securities whose investment characteristics, taken together, resemble those of convertible securities. For example, a Fund may purchase a non-convertible debt security and a warrant or option, which enables the Fund to have a convertible-like position with respect to a company, group of companies or stock index. Synthetic convertible securities are typically offered by financial institutions and investment banks in private placement transactions. Upon conversion, the Fund generally receives an amount in cash equal to the difference between the conversion price and the then-current value of the underlying security. Unlike a true convertible security, a synthetic convertible comprises two or more separate securities, each with its own market value. Therefore, the market value of a synthetic convertible is the sum of the values of its fixed-income component and its convertible component. For this reason, the values of a synthetic convertible and a true convertible security may respond differently to market fluctuations. A Fund will invest in synthetic convertibles only with respect to companies whose corporate debt securities are rated “A” or higher by Moody’s or “A” or higher by S&P and will not invest more than 15% of its net assets in such synthetic securities and other illiquid securities.

 

Small- and mid-cap companies tend to be smaller, less established companies, and investment in equity securities of these companies may involve greater risk than is customarily associated with securities of larger, more established companies. Small- and mid-cap companies may experience relatively higher growth rates and higher failure rates than do larger companies. The trading volume of securities of small- and mid-cap companies is normally less than that of larger companies and, therefore, such volume may disproportionately affect the market price of such securities, tending to make them rise more in response to buying demand and fall more in response to selling pressure than is the case with larger companies.

 

While all investments involve risk, microcap stocks are among the most risky. Many microcap companies are new and have no proven track record. Some of these companies have no assets, operations, or revenues. Others have products and services that are still in development or have yet to be tested in the market. Another risk that pertains to microcap stocks involves the low volumes of trades. Because many microcap stocks trade in low volumes, any size of trade can have a large percentage impact on the price of the stock.

 

Covered Call Options

 

Covered call options may be written on Steward Covered Call Income Fund’s equity securities. A call option gives the purchaser of the option the right to buy, and the writer, in this case, the Fund, the obligation to sell, the underlying security at a specified exercise price at any time prior and up to the expiration of the contract. When call options are written, the Fund will typically write options with exercise prices that are above the current market price of the security, thus providing room for growth. The purchaser pays a premium to the Fund for the option, so the premium is an extra source of income to the Fund. If the price of the underlying security rises, but does not rise to the level of the exercise price, the option would not typically be exercised and the Fund would keep both the security at its appreciated value and the option premium. However, if the price of the underlying security rises above the exercise price of the option prior to expiration of the option and the option is exercised, the Fund will lose the value of that extra

 

    Page 6 of 52

 

 

appreciation, although the loss in appreciation will be moderated by the amount of the option premium received by the Fund. If the price of the security drops below the price at the time the option was written, such loss in value will be diminished by the value of the premium.

 

The covered call strategy used by the Fund is designed to earn extra income for the Fund from premiums to moderate the impact of market declines and to reduce the volatility of the Fund’s portfolio. This strategy means that the Fund may be expected to underperform equity markets during periods of sharply rising equity prices; conversely, by using this strategy, the Fund would tend to outperform equity markets during periods of flat or declining equity prices due to the Fund’s receipt of premiums from selling the call options. Covered call options on a particular equity security may be sold on up to the full number of shares of that equity security held by the Fund. For securities on which options expire unexercised, the Fund can write more options, thus earning more premium income, until an option on the security is exercised. The Fund’s portfolio managers consider several factors when writing (selling) options, including the overall equity market outlook, factors affecting the particular industry sector, individual security considerations, the timing of corporate events, and the levels of option premiums.

 

The Fund may terminate an option that it has written prior to the option’s expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. The Fund will realize a profit or loss from such transaction if the cost of such transaction is less or more, respectively, than the premium received from the writing of the option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by unrealized appreciation of the underlying security owned by the Fund.

 

Options written by the Fund will normally have expiration dates not more than one year from the date written. The exercise price of the options may be below (“in-the-money”), equal to (“at-the-money”) or above (“out-of-the-money”) the current market price of the underlying securities at the times the options are written. The Fund may engage in buy-and-write transactions in which the Fund simultaneously purchases a security and writes a call option thereon. Where a call option is written against a security subsequent to the purchase of that security, the resulting combined position is also referred to as buy-and-write. Buy-and-write transactions using in-the-money call options may be utilized when it is expected that the price of the underlying security will remain flat or decline moderately during the option period. In such a transaction, the Fund’s maximum gain will be the premium received from writing the option reduced by any excess of the price paid by the Fund for the underlying security over the exercise price. Buy-and-write transactions using at-the-money call options may be utilized when it is expected that the price of the underlying security will remain flat or advance moderately during the option period. In such a transaction, the Fund’s gain will be limited to the premiums received from writing the option. Buy-and-write transactions using out-of-the-money call options may be utilized when it is expected that the premiums received from writing the call option plus the appreciation in market price of the underlying security up to the exercise price will be greater than the appreciation in the price of the underlying security alone. In any of the foregoing situations, if the market price of the underlying security declines, the amount of such decline will be offset wholly or in part by the premium received, and the Fund may or may not realize a loss.

 

To the extent that a secondary market is available on the exchanges, the covered call option writer may liquidate the position prior to the assignment of an exercise notice by entering a closing purchase transaction for an option of the same series as the option previously written. The cost of such a closing purchase, plus transaction costs, may be greater than the premium received upon writing the original option, in which event the writer will have incurred a loss on the transaction.

 

Foreign Securities

 

Steward International Enhanced Index Fund and Steward Global Equity Income Fund will invest substantial amounts in securities of non-U.S. issuers. Although Steward Small-Mid Cap Enhanced Index Fund, Steward Large Cap Enhanced Index Fund, and Steward Covered Call Income Fund expect to invest principally in securities of U.S. issuers, these Funds may also invest in some foreign securities. The Funds may invest in U.S. dollar-denominated securities that may be issued or guaranteed by non-U.S. entities. Certain of these investments may be made directly by the Funds; others may be indirect, through another investment company in which the Funds may invest. Investing in securities issued by foreign corporations involves considerations and possible risks not typically associated with investing in obligations issued by domestic corporations. Less information may be available about foreign companies than about domestic companies, and foreign companies generally are not subject to the same uniform accounting,

 

    Page 7 of 52

 

 

auditing, and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic companies. The values of U.S. dollar-denominated foreign investments are affected by changes in application of foreign tax laws, including withholding taxes, changes in governmental administration or economic or monetary policy (in the United States or abroad) or changed circumstances in dealings between nations. These securities may involve higher brokerage commissions than securities of U.S. issuers, and they may be less liquid, more volatile and less subject to governmental supervision than in the United States. Investments in issuers in foreign countries could be affected by other factors not present in the United States, including nationalization, expropriation, confiscatory taxation, lack of uniform accounting and auditing standards and potential difficulties in enforcing contractual obligations and could be subject to extended settlement periods or restrictions affecting the prompt return of capital to the United States.

 

A Fund’s foreign investments may include emerging-market stock. The considerations outlined above when making investments in foreign securities also apply to investments in emerging markets. The risks associated with investing in foreign securities are often heightened for investments in developing or emerging markets. Investments in emerging or developing markets involve exposure to economic structures that are generally less diverse and mature, and to political systems that can be expected to have less stability, than those of more developed countries. Moreover, the economies of individual emerging-market countries may differ favorably or unfavorably from the U.S. economy in such respects as the rate of growth in gross domestic product, the rate of inflation, capital reinvestments, resource self-sufficiency and balance of payments position. Many emerging-market countries have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain emerging-market countries.

 

Foreign government securities in which a Fund may invest may include obligations issued or backed by the national, state or provincial government or similar political subdivisions or central banks in foreign countries. Foreign government securities also include debt obligations of supranational entities, which include international organizations designated or backed by governmental entities to promote economic reconstruction or development, international banking institutions and related government agencies. These securities also include debt securities of “quasi-government agencies.”

 

A Fund may invest in equity securities of non-U.S. issuers, in the form of American Depositary Receipts (“ADRs”), American Depositary Shares (“ADSs”), European Depositary Receipts (“EDRs”), Global Depositary Receipts (“GDRs”) (together, “Depositary Receipts”), or other securities convertible into securities of eligible European or Far Eastern issuers. The securities for which these securities may be exchanged may not necessarily be U.S. dollar denominated. An ADR or ADS is typically issued by an American bank or trust company and evidences ownership of underlying securities issued by a foreign corporation. An EDR, which is sometimes referred to as a Continental Depositary Receipt (“CDR”), is issued in Europe, typically by a foreign bank or trust company and evidences ownership of either foreign or domestic securities. Generally, ADRs and ADSs in registered form are designed for use in U.S. securities markets and EDRs in bearer form are designed for use in European securities markets. GDRs allow companies in Europe, Asia, the United States and Latin America to offer shares in many markets around the world. GDRs are traded on major stock exchanges, particularly the London SEAQ International trading system. For purposes of the Funds’ investment policies, the Funds’ investments in ADRs, ADSs, EDRs and GDRs will be deemed to be investments in the equity securities of the foreign issuers into which they may be converted.

 

Depositary Receipt facilities may be established as either “sponsored” or “unsponsored.” While Depositary Receipts issued through these two types of facilities are in some respects similar, there are distinctions between them relating to the rights and obligations of Depositary Receipt holders and the practices of market participants. A depositary may establish an unsponsored facility without participation by (or even necessarily the acquiescence of) the issuer of the deposited securities, although typically the depositary requests a letter of non-objection from the issuer prior to establishing the facility. Holders of unsponsored Depositary Receipts generally bear all the costs of such facilities. The depositary usually charges fees upon the deposit and withdrawal of the deposited securities, the conversion of dividends into U.S. dollars, the disposition of noncash distributions, and the performance of other services. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited securities or to pass through voting rights to Depositary Receipt holders with respect to the deposited securities. Sponsored Depositary Receipt facilities are created in generally the same manner as unsponsored facilities, except that the issuer of the deposited securities enters into a deposit agreement with the

 

    Page 8 of 52

 

 

depositary. The deposit agreement sets out the rights and responsibilities of the issuer, the depositary and the Depositary Receipt holders. With sponsored facilities, the issuer of the deposited securities generally will bear some of the costs relating to the facility (such as dividend payment fees of the depositary), although Depositary Receipt holders continue to bear certain other costs (such as deposit and withdrawal fees). Under the terms of most sponsored arrangements, depositaries agree to distribute notices of shareholder meetings and voting instructions, and to provide shareholder communications and other information to the Depositary Receipt holders at the request of the issuer of the deposited securities. The Funds may invest in sponsored and unsponsored Depositary Receipts. Although Depositary Receipts are denominated in U.S. dollars, the value of securities underlying a Depositary Receipt, and thus of the Depositary Receipt, may be affected by changes in the relative values of the currencies of the U.S. and the country of the issuer.

 

Geopolitical Events

The Funds are subject to the risk that geopolitical events (e.g., war, terrorism, trade disputes, and governmental changes), including the anticipated withdrawal of the United Kingdom from the European Union (Brexit) and the ongoing trade disputes between the United States and China, will disrupt securities markets and adversely affect global economies and markets. War, terrorism and other geopolitical events have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on U.S. and world economies and markets generally. Likewise, natural and environmental disasters and systemic market dislocations may be highly disruptive to economies and markets. Those events as well as other changes in non-U.S. and domestic economic and political conditions also could adversely affect individual issuers or related groups of issuers, securities markets, interest rates, credit ratings, inflation, investor sentiment and other factors affecting the value of the Funds’ investments. Given the increasing interdependence between global economies and markets, conditions in one country, market or region might adversely impact markets, issuers and/or foreign exchange rates in other countries, including the U.S. Continuing uncertainty as to the status of the Euro and the European Monetary Union (the “EMU”) has created significant volatility in currency and financial markets generally. Any partial or complete dissolution of the EMU, or any continued uncertainty as to its status, could have significant adverse effects on currency and financial markets, and on the values of the Funds’ investments.

Securities markets may be susceptible to market manipulation (e.g., the potential manipulation of the London Interbank Offered Rate (LIBOR)) or other fraudulent trade practices, which could disrupt the orderly functioning of these markets or adversely affect the value of investments traded in these markets, including investments of the Funds.

Recent political activity in the U.S. has increased the risk that the U.S. could default on some or any of its obligations. While it is impossible to predict the consequences of such an unprecedented event, it is likely that a default by the U.S. would be highly disruptive to the U.S. and global securities markets and could significantly impair the value of the Funds’ investments. Similarly, political events within the U.S. at times have resulted, and may in the future result, in a shutdown of government services, which could negatively affect the U.S. economy, decrease the value of many Fund investments, and increase uncertainty in or impair the operation of the U.S. or other securities markets.

 

Government Obligations

 

Government obligations in which a Fund may invest include U.S. Treasury obligations and obligations of U.S. Government agencies and instrumentalities. Direct obligations of the U.S. Treasury in which a Fund may invest include U.S. Treasury bills, notes, and bonds. U.S. Treasury bills have, at the time of issuance, maturities of one year or less. U.S. Treasury notes have, at the time of issuance, maturities of one to ten years. U.S. Treasury bonds generally have, at the time of issuance, maturities of greater than ten years. Obligations of U.S. Government agencies and instrumentalities have various degrees of backing. Some obligations issued or guaranteed by agencies or instrumentalities of the U.S. Government, such as Government National Mortgage Association (“GNMA”) participation certificates, are, like U.S. Treasury obligations, backed by the full faith and credit of the U.S. Treasury. Other obligations, such as those of the Federal Home Loan Banks, are backed by the right of the issuer to borrow from the U.S. Treasury, subject to certain limits. Still other government obligations, such as obligations of the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the Tennessee Valley Authority, are backed only by the credit of the agency or instrumentality issuing the obligations, and, in certain instances, by the discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality. Some government obligations, such as obligations of the Federal Farm Credit Banks, are backed only by the credit of the agency or instrumentality issuing the obligation. No assurances can be given that the U.S. Government will provide financial support to agencies or instrumentalities whose securities are not backed by the full faith and credit of the U.S. Treasury, since it is not obligated to do so. Accordingly, such U.S. Government obligations may involve risk of loss of

 

    Page 9 of 52

 

  

principal and interest. The Funds may invest in fixed-rate and floating- or variable-rate U.S. Government obligations. The Funds may purchase U.S. Government obligations on a forward commitment basis.

 

Forward Commitments, When-Issued Transactions, and Free Trade Transactions

 

A Fund may contract to purchase securities for a fixed price at a future date beyond customary settlement time (a “forward commitment” or “when-issued” transaction) so long as such transactions are consistent with the Fund’s ability to manage its investment portfolio and meet redemption requests. A Fund may dispose of a security purchased on a forward commitment or when-issued basis prior to settlement if it is appropriate to do so and if the Fund would realize short-term profits or losses, if any, upon such sale. When effecting such transactions, liquid assets of the Fund in a dollar amount sufficient to make payment for the portfolio securities to be purchased will be segregated on the Fund’s records at the trade date and maintained until the transaction is settled, which may be a month or more. Forward commitments and when-issued transactions involve a risk of loss if the value of the security to be purchased declines prior to the settlement date or the other party to the transaction fails to complete the transaction. A Fund may dispose of a commitment prior to settlement if Crossmark deems it appropriate to do so. In addition, a Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. A Fund may realize short-term profits or losses upon the sale of such commitments.

 

Eurodollar and Yankee Dollar Investments

 

When appropriate to its investment objective and policies, a Fund may invest in Eurodollar and Yankee Dollar instruments. Eurodollar instruments are bonds of foreign corporate and government issuers that pay interest and principal in U.S. dollars generally held in banks outside the United States, primarily in Europe. Yankee Dollar instruments are U.S. dollar-denominated bonds typically issued in the United States by foreign governments and their agencies and foreign banks and corporations.(See also “Bank Obligations,” below.)

 

Bank Obligations

 

These obligations include negotiable certificates of deposit and bankers’ acceptances. A certificate of deposit is a short-term, interest-bearing negotiable certificate issued by a commercial bank against funds deposited in the bank. A bankers’ acceptance is a short-term draft drawn on a commercial bank by a borrower, usually in connection with an international commercial transaction. The borrower is liable for payment as is the bank, which unconditionally guarantees to pay the draft at its face amount on the maturity date. The Funds will limit their bank investments to dollar-denominated obligations rated A or better by Moody’s or S&P issued by U.S. or foreign banks that have more than $1 billion in total assets at the time of investment and, in the case of U.S. banks, (i) are members of the Federal Reserve System or are examined by the Comptroller of the Currency, or (ii) whose deposits are insured by the Federal Deposit Insurance Corporation. A Fund’s bank investments (either direct, or through another investment company in which it may invest) may include Eurodollar Certificates of Deposit (“ECDs”), Eurodollar Time Deposits (“ETDs”) and Yankee Certificates of Deposit (“Yankee CDs”). ECDs, ETDs, and Yankee CDs are subject to somewhat different risks from the obligations of domestic banks. ECDs are U.S. dollar-denominated certificates of deposit issued by foreign branches of U.S. and foreign banks; ETDs are U.S. dollar-denominated time deposits in a foreign branch of a U.S. bank or a foreign bank; and Yankee CDs are certificates of deposit issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the United States. Different risks may also exist for ECDs, ETDs, and Yankee CDs because the banks issuing these instruments, or their domestic or foreign branches, are not necessarily subject to the same regulatory requirements that apply to domestic banks, such as reserve requirements, loan limitations, examinations, accounting, auditing and recordkeeping, and the public availability of information.

 

Commercial Paper

 

Commercial paper includes short-term unsecured promissory notes issued by U.S. and foreign bank holding companies, corporations and financial institutions and similar taxable instruments issued by government agencies and instrumentalities. Asset-backed commercial paper is commercial paper issued by a bankruptcy remote special-purpose entity to fund the acquisition of financial assets (such as trade receivables, commercial loans, auto and equipment loans, leases or collateral debt obligations) that is repaid from the cash flows of those receivables on a specific date. All commercial paper purchased by the Funds must have a remaining maturity of no more than 270 days from the date of purchase by the Funds, and commercial paper purchased by a Fund must be rated at least A-1 or P-1

 

    Page 10 of 52

 

 

by a nationally recognized statistical rating organization (“NRSRO”), or deemed of comparable quality by Crossmark. A Fund may not invest more than 5% of its total assets in commercial paper of a single issuer.

 

Repurchase Agreements

 

The Funds may invest in securities subject to repurchase agreements with U.S. banks or broker-dealers. A repurchase agreement is a transaction in which the seller of a security commits itself at the time of the sale to repurchase that same security from the buyer at a mutually agreed-upon time and price. The repurchase price exceeds the sale price, reflecting an agreed-upon interest rate effective for the period the buyer owns the security subject to repurchase. The agreed-upon rate is unrelated to the interest rate on that security. The agreement will be fully collateralized by the underlying securities and will be marked-to-market on a daily basis during the term of the repurchase agreement to insure that the value of the collateral always equals or exceeds the repurchase price. A Fund will enter into repurchase agreements only with firms that present minimal credit risks as determined in accordance with guidelines adopted by the Funds’ Board. In the event of default by the seller under the repurchase agreement, a Fund that is a purchaser under such an agreement may have problems in exercising its rights to the underlying securities and may incur costs and experience time delays in connection with the disposition of such securities. A repurchase agreement is equivalent to a loan by a Fund.

 

Reverse Repurchase Agreements

 

A Fund may enter into reverse repurchase agreements to meet redemption requests where the liquidation of portfolio securities is deemed by the Fund’s investment adviser or money manager to be inconvenient or disadvantageous. A reverse repurchase agreement is a transaction in which a Fund transfers possession of a portfolio security to a bank or broker-dealer in return for a percentage of the portfolio security’s market value. The Fund retains record ownership of the security involved, including the right to receive interest and principal payments. At an agreed future date, the Fund repurchases the security by paying an agreed purchase price plus interest. Liquid assets of the Fund equal in value to the repurchase price, including any accrued interest, will be segregated on the Fund’s records while a reverse repurchase agreement is in effect. A reverse repurchase agreement is equivalent to a borrowing by a Fund.

 

Corporate Debt Securities

 

Corporate debt securities include bonds, debentures, notes and similar instruments issued by corporations and similar entities. A Fund’s investment in these instruments must comply with the Fund’s rating criteria.

 

Loans of Portfolio Securities

 

A Fund may lend its portfolio securities to brokers, dealers and financial institutions, provided: (1) the loan is secured continuously by collateral consisting of U.S. Government securities or cash or letters of credit maintained on a daily mark-to-market basis in an amount no less than the current market value of the securities loaned; (2) the Fund may at any time call the loan and obtain the return of the securities loaned within three business days; and (3) the Fund will receive any interest or dividends paid on the loaned securities. In connection with lending securities, a Fund may pay reasonable finders, administrative and custodial fees.

 

Cash collateral received by a Fund when it lends its portfolio securities is invested in high-quality, short-term debt instruments, short-term bank collective investment and money market mutual funds, and other investments meeting quality and maturity criteria established by the Funds. Income generated from the investment of the cash collateral is first used to pay the rebate interest cost to the borrower of the securities and then to pay for lending transaction costs. The remaining amount is divided between the Fund and the lending agent.

 

A Fund will retain most rights of beneficial ownership of the loaned securities, including the right to receive dividends, interest or other distributions on the loaned securities. Voting rights may pass with the loan, but a Fund will call a loan in order to vote proxies if a material issue affecting the investment is subject to a vote.

 

Loans of portfolio securities entail certain risks. A Fund may incur costs or possible losses in excess of the interest and fees received in connection with securities lending transactions. Some securities purchased with cash collateral are subject to market fluctuations while a loan is outstanding. To the extent that the value of the cash collateral as invested is insufficient to return the full amount of the collateral plus rebate interest to the borrower upon termination of the

 

    Page 11 of 52

 

  

loan, a Fund must immediately pay the amount of the shortfall to the borrower. Loans of securities also involve a risk that the borrower may fail to return the securities or may fail to provide additional collateral. If the borrower fails financially, a Fund may also lose its rights to the collateral.

 

The Funds did not engage in any securities lending activities during the most recent fiscal year.

 

Investment Companies

 

Each Fund is permitted to invest in shares of other open-end or closed-end investment companies, including exchange-traded funds (“ETFs”), to the extent consistent with its investment objective and policies and with limits imposed under applicable law and regulations. To the extent a Fund invests a portion of its assets in other investment companies; those assets will be subject to the expenses of any such investment company as well as to the expenses of the Fund itself. A Fund’s investments in a closed-end investment company, together with investments in such closed-end company by other funds having the same investment adviser as the Fund, would be limited to 10% of the outstanding voting shares of such closed-end company. The Funds may not purchase shares of any affiliated investment company except as permitted by a Securities and Exchange Commission (“SEC”) rule or order.

 

ETFs in which a Fund may invest may be organized as open-end mutual funds or unit investment trusts. Typically, an ETF seeks to track the performance of an index, such as the S&P 500 or the NASDAQ 100, by holding in its portfolio either the same securities that comprise the index, or a representative sample of the index. Investing in an ETF will give a Fund exposure to the securities comprising the index on which the ETF is based, and the ETF investment will gain or lose value depending on the performance of the index. ETFs have expenses, including advisory and administrative fees, which are borne by ETF shareholders. As a result, an investor in a Fund is subject to a duplicate level of fees to the extent that such Fund invests in ETFs.

 

Unlike shares of typical mutual funds or unit investment trusts, shares of ETFs are bought and sold based on market values throughout each trading day, rather than at the closing net asset value price. Thus, ETF shares could trade at either a premium or a discount to net asset value. Trading prices of ETFs that track equity market indices tend to closely track the actual net asset value of the underlying portfolios because these portfolios are publicly disclosed on each trading day. Also, an approximation of actual net asset value is disseminated throughout the trading day. If available, the Funds may also invest in ETFs that are based on fixed -income indices or are actively managed. Because it is unlikely that actively managed ETFs would have the transparency of index-tracking ETFs, they would be more likely to trade at a discount or premium to their net asset values. If an ETF held by a Fund trades at a discount to net asset value, the Fund could lose money even if the securities in which the ETF invests increase in value.

 

Real Estate Investment Trusts

 

A Fund may invest in debt or equity securities issued by real estate investment trusts (“REITs”), including REITs invested principally in mortgages of churches, colleges, schools and other nonprofit organizations. A REIT is a corporation or a business trust that would otherwise be taxed as a corporation, which meets the definitional requirements of the Internal Revenue Code of 1986, as amended (the “Code”). The Code permits a qualifying REIT to deduct dividends paid, thereby effectively eliminating corporate-level federal income tax and making the REIT a pass-through vehicle for federal income tax purposes. To meet the definitional requirements of the Code, a REIT must, among other things, invest substantially all of its assets in interests in real estate (including mortgages and other REITs) or cash and government securities, derive most of its income from rents from real property or interest on loans secured by mortgages on real property, and distribute to shareholders annually 90% or more of its otherwise taxable income. REITs are sometimes informally characterized as equity REITs, mortgage REITs and hybrid REITs. An equity REIT invests primarily in the fee simple ownership of land and buildings and derives its income primarily from rental income. An equity REIT may also realize capital gains (or losses) by selling real estate properties in its portfolio that have appreciated (or depreciated) in value. A mortgage REIT invests primarily in mortgages on real estate, which may secure construction, development or long-term loans. A mortgage REIT generally derives its income primarily from interest payments on the credit it has extended. A hybrid REIT combines the characteristics of equity REITs and mortgage REITs, generally by holding both ownership interests and mortgage interests in real estate.

 

Investments in REITs and real estate securities may be subject to certain of the same risks associated with the direct ownership of real estate. These risks include: declines in the value of real estate generally; changes in neighborhood or property appeal; environmental cleanup costs; condemnation or casualty losses; risks related to general and local

 

    Page 12 of 52

 

 

economic conditions, over-building and competition; increases in property taxes and operating expenses; lack of availability of mortgage funds; high or extended vacancy rates; and rent controls or variations in rental income. The values of securities issued by REITs are affected by tax and regulatory requirements and by perceptions of management skill. A Fund’s investment in REITs is also subject to heavy cash flow dependency, defaults of tenants, self-liquidation, the possibility of failing to qualify as a REIT under the Code, and failing to maintain exemption from the requirement to register under the 1940 Act. Rising interest rates may cause REIT investors to demand a higher annual return, which may cause a decline in the prices of REIT securities. Rising interest rates also generally increase the costs of obtaining financing, which could make it more difficult for a REIT to meet its obligations. During periods of declining interest rates, certain mortgage REITs may hold mortgages that the mortgagors may elect to prepay, and such prepayment may diminish the yield on securities issued by those REITs. In addition, mortgage REITs may be affected by the borrowers’ ability to repay its debt to the REIT when due. Equity REIT securities may be affected by the ability of tenants to pay rent. In addition, REITs may not be diversified. Also, by investing in REITs indirectly through the Fund, a shareholder will bear expenses of the REITs in addition to expenses of the Fund.

 

Illiquid Securities

 

A Fund may invest up to 15% of its net assets in illiquid securities. If a Fund’s holdings of illiquid securities exceed 15% of its net assets, it will take appropriate action to bring holdings down to 15% or less of its net assets in accordance with the Fund’s liquidity risk management program adopted pursuant to Rule 22e-4 under the 1940 Act (the “LRM Program”). The LRM Program administrator is responsible for determining the liquidity classification of Fund investments and monitoring compliance with the 15% limit on illiquid securities. Illiquid securities are investments 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, as determined pursuant to the provisions of the LRM Program, and may include investments that are not readily marketable, repurchase agreements maturing in more than seven days, time deposits with a notice or demand period of more than seven days, certain OTC Options (as defined below), certain investment company securities, and certain restricted securities. There may be undesirable delays in selling illiquid securities at a price representing their fair value.

 

Investments by the Funds in securities of other investment companies may be subject to restrictions regarding redemption. In certain circumstances, to the extent a Fund owns securities of such a company in excess of 1% of that company’s total outstanding securities, such holdings by the Fund could be deemed to be illiquid and would be subject to the Fund’s 15% limit on illiquid investments.

 

The expenses of registering restricted securities that are illiquid may be negotiated at the time such securities are purchased by a Fund. When registration is required, a considerable period may elapse between a decision to sell the securities and the time the sale would be permitted. Thus, a Fund may not be able to obtain as favorable a price as that prevailing at the time of the decision to sell. A Fund also may acquire, through private placements, securities having contractual resale restrictions, which might lower the amount realizable upon the sale of such securities.

 

The purchase price and subsequent valuation of illiquid securities normally reflect a discount, which may be significant, from the market price of comparable securities for which a liquid market exists. There can be no assurance that a Fund will be able to sell such a security at the price at which it is valued for purposes of determining the Fund’s net asset value.

 

PORTFOLIO HOLDINGS DISCLOSURE POLICIES

 

The policy of the Funds and their service providers is to protect the confidentiality of the Funds’ portfolio holdings and to prevent the selective disclosure of nonpublic information about those holdings. The Funds’ Board has adopted policies and procedures to implement this policy. These policies and procedures are designed to assure that any disclosure of nonpublic information about Fund portfolio holdings is in the best interests of Fund shareholders and to address any conflicts that may exist between the interests of Fund shareholders and those of Fund service providers and their affiliates. Portfolio holding information may be disclosed only in accordance with these policies and procedures, with such exceptions as may be approved by the Funds’ Chief Compliance Officer.

 

    Page 13 of 52

 

 

The Funds may publicly disclose monthly their month-end portfolio holdings on their website, www.crossmarkglobal.com. The information for each month-end would generally be posted around the end of the following month. A Fund may provide portfolio holdings information to organizations such as Standard & Poor’s Corporation no earlier than it is made publicly available as provided above. Each Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. Portfolio holdings information included with Form N-PORT for the third month of each relevant fiscal quarter will be publicly available on the SEC’s website at www.sec.gov. Each Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for each Fund is available to investors within 60 days after the period to which it relates. Each Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above. Following or simultaneously with any such filing or other public disclosure, the Funds may make public a summary or list of completed purchases and sales, as of the date of the information contained in the relevant filing or public disclosure (“trade commentary”).

 

For legitimate business purposes — for example, in the event of a merger or retention of a new adviser or sub-adviser — disclosure of information about Fund portfolio holdings may occasionally be determined by a Fund’s Chief Compliance Officer, in consultation with the Fund’s legal counsel, to be appropriate, provided any such disclosure is subject to a confidentiality agreement that includes provisions to prevent trading on nonpublic information. Nothing in the Funds’ policies prevents disclosure of portfolio holdings information that may be required by applicable law or regulation.

 

A Fund or its authorized service provider may at any time distribute analytical data that does not identify any specific portfolio holding.

 

Crossmark’s trading desk may periodically distribute lists of investments held by its clients (including a Fund) to facilitate efficient trading of those investments and receipt of relevant research. Crossmark may also periodically distribute a list of issuers and securities that are covered by its research department as of a particular date, which may include securities held by a Fund or that are under consideration for a Fund. The list will not, however, indicate that a Fund owns or may own any security and will not identify Fund position sizes.

 

Whenever disclosure of portfolio holdings pursuant to a Funds’ policies and procedures would involve a conflict of interest between a Fund’s shareholders and Crossmark, the Funds’ distributor or any affiliated person of the Fund, Crossmark, or the distributor, such disclosure may not be made without the approval of a majority of the Fund’s independent directors upon a determination that the arrangement is in the best interest of the Fund’s shareholders. Neither a Fund nor Crossmark, the distributor or any affiliated person of a Fund, may enter into any arrangement to receive compensation or benefit of any kind for the disclosure of Fund portfolio holdings information.

 

The Funds’ Chief Compliance Officer is responsible for monitoring compliance with the Funds’ portfolio holdings disclosure policies and procedures and may request certifications from persons who have access to this information that their use of the information complies with the policies and with the terms of any applicable Confidentiality Agreement. The Chief Compliance Officer will report material violations to the Board, which will determine appropriate corrective action.

 

The Board may impose additional restrictions on dissemination of information about a Fund’s portfolio holdings. A Fund’s policies and procedures regarding disclosure of Fund portfolio holdings may be waived, or exceptions permitted, only with consent of the Fund’s Chief Compliance Officer upon a determination that such waiver is consistent with best interests of the Fund and its shareholders.

 

INVESTMENT RESTRICTIONS

 

The Funds are subject to investment restrictions designed to reflect their values-based screening policies. In addition, each Fund has adopted the following investment restrictions, which are fundamental policies of the Fund (except as otherwise noted) and may not be changed without approval by vote of a majority of the outstanding shares of that Fund. For this purpose, such a majority vote means the lesser of (1) 67% or more of the voting securities present at an annual or special meeting of shareholders, if holders of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy; or (2) more than 50% of the outstanding voting securities of the Fund.

 

    Page 14 of 52

 

 

Fundamental Investment Restrictions of Steward Large Cap Enhanced Index Fund, Steward International Enhanced Index Fund, Steward Select Bond Fund, Steward Global Equity Income Fund, Steward Small-Mid Cap Enhanced Index Fund, and Steward Covered Call Income Fund.

 

As a fundamental policy, each Fund has elected to be qualified as a diversified open-end series of SFI.

 

Additionally, the Funds may not:

 

1. borrow money, except as permitted under or to the extent not prohibited by the 1940 Act, and as interpreted or modified by regulatory authority having jurisdiction, from time to time;

 

2. issue senior securities, except as permitted under the 1940 Act, and as interpreted or modified by regulatory authority having jurisdiction, from time to time;

 

3. concentrate its investments in a particular industry, as that term is used in the 1940 Act, and as interpreted or modified by regulatory authority having jurisdiction, from time to time;

 

4. engage in the business of underwriting securities issued by others, except to the extent that a Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities;

 

5. purchase or sell real estate, which does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein, except that each Fund reserves freedom of action to hold and to sell real estate acquired as a result of the Fund’s ownership of securities;

 

6. purchase physical commodities or contracts relating to physical commodities; or

 

7. make loans to other persons, except (i) loans of portfolio securities, and (ii) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with a Fund’s investment objective and policies may be deemed to be loans.

 

A Fund’s classification as a diversified series means, under currently applicable law, that at least 75% of the value of the Fund’s assets will be represented by cash and cash items (including receivables), U.S. Government securities, securities of other investment companies, and other securities with respect to which the Fund will make no investment that would (a) cause more than 5% of its assets to be invested in the securities of a single issuer or (b) cause it to own more than 10% of the voting securities of a single issuer.

 

With respect to the foregoing restrictions regarding senior securities, borrowing and concentrating investments, the 1940 Act and regulatory interpretations of relevant provisions of that Act establish the following general limits. Open-end registered investment companies are not permitted to issue any class of senior security or to sell any senior security of which they are the issuers. For this purpose, the Funds’ issuance of separate series of shares (each Fund is a series of SFI) and the division of those series into separate classes (each of Class A, Class C, Class R6, and Institutional Class is such a separate class) are not considered to create senior securities. Although borrowings could be deemed to be senior securities, the 1940 Act permits a Fund to borrow for temporary purposes only in an amount not exceeding 5% of the value of its total assets at the time when the loan is made. (A borrowing shall be presumed to be for temporary purposes if it is repaid within 60 days and is not extended or renewed.) The 1940 Act also permits each Fund to borrow from a bank, provided that immediately after any such borrowing there is an asset coverage (including the proceeds of borrowings) of at least 300% for all borrowings by the Fund, and in the event such asset coverage falls below 300%, the Fund shall, within three days thereafter (not including Sundays and holidays) or such longer time as the SEC may prescribe, reduce the amount of its borrowings so that asset coverage for such borrowings shall be at least 300%. Thus, a Fund may pledge, mortgage, or hypothecate no more than one-third of its total assets to secure borrowings. The SEC has indicated, however, that certain types of transactions, which could be deemed “borrowings” (such as firm commitment agreements and reverse repurchase agreements), are permissible if a Fund “covers” the agreements by establishing and maintaining segregated accounts. A Fund will not purchase additional securities while outstanding borrowings exceed 5% of its total net assets.

 

With respect to concentration, the SEC staff takes the position that investment of 25% or more of a Fund’s assets in any one industry or group of industries represents concentration.

 

    Page 15 of 52

 

 

With respect to the foregoing restrictions on making loans, a Fund may lend its portfolio securities in an amount not to exceed 33 1/3% of its total assets. A Fund may invest without limit in repurchase agreements to the extent consistent with its investment objective, investment restrictions, and all 1940 Act requirements, including diversification requirements. Loans to affiliated investment companies are not presently permitted by the 1940 Act in the absence of an exemptive order from the SEC.

 

An investment restriction that involves a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the percentage occurs as a result of an acquisition of securities, except that if asset coverage for borrowings falls below the required 300%, noted above, a Fund shall, within the time period noted above, reduce its borrowings so that such asset coverage will be at least 300%.

 

A Fund may, from time to time, take temporary defensive positions that are inconsistent with the Fund’s investment objective and principal investment strategies in attempting to respond to adverse market, economic, political, or other conditions. During these times, a Fund may invest up to 100% of its assets in cash or cash equivalents, shares of money market mutual funds, commercial paper, zero coupon bonds, repurchase agreements, and other securities Crossmark believes to be consistent with the Fund’s best interests. During a period in which a Fund takes a temporary defensive position, the Fund may not achieve its investment objective.

 

DIRECTORS AND EXECUTIVE OFFICERS

 

Leadership structure. The Funds’ Board of Directors (“Board”) provides overall supervision of the affairs of the Funds. Richard J. Rossi was appointed by the Board as an independent director at a meeting held on May 16, 2019 and assumed his responsibilities at the conclusion of that meeting. The directors other than Mr. Rossi were elected by shareholders at a meeting held on August 7, 2017 and assumed their responsibilities on August 31, 2017. Effective September 8, 2017, Michael L. Kern, III, CFA, became the Chairman of the Board. Mr. Kern is an “interested person” of the Funds, as defined in the 1940 Act, currently serving as the President, CEO and Treasurer of Crossmark and its affiliates. As Chairman of the Board, Mr. Kern has responsibility for coordinating the work and leading meetings of the Board, for coordinating with the independent directors and for assuring that the concerns of the independent directors are considered by the full Board and brought to the attention of Fund management. The Board has not designated a “lead independent director.” Mr. Kyle Dana is also an “interested person,” currently employed by AG Financial Solutions, the parent company of Crossmark Global Holdings, Inc., which through its subsidiary, Steward Financial Holdings, Inc., has effective voting control over each of the Funds and SFI. The other four directors are independent directors. During the Funds’ fiscal year ended April 30, 2019, the Board met four (4) times.

Risk oversight. The Funds’ service providers, including their investment adviser, principal underwriter, administrator, fund accounting and sub-administration services provider, and transfer agent, provide day-to-day risk management of the Funds in their areas of responsibility. The Board oversees the performance of these service providers, including their management of risks. The Board meets quarterly and its Committees meet periodically (see “Board Committees,” below) to review information concerning the Funds’ operations and performance, the broader securities markets, and other information relevant to their oversight responsibilities that, among other things, helps them to identify and monitor general and particular risks to the Funds. The Board’s Committees focus on particular types of risks in their areas of responsibility. It should be noted that not all risks to the Funds can be identified or controlled. Moreover, certain risks are inherent in the Funds’ operations. See, for example, investment risks described in the Funds’ Prospectus.

 

Qualifications of directors. The Funds’ directors, in addition to meeting high standards of integrity and commitment, offer to the Funds a variety of experience relevant to oversight of the Funds, including, in the aggregate, responsible leadership experience in sales and marketing, accounting, business operations, strategic planning, investment, and service on boards of other entities. In selecting candidates for directors, the Nominating and Corporate Governance Committee has considered whether candidates meet high standards of personal and relevant professional experience and can bring diverse points of view to the Board. Independent directors must satisfy regulatory requirements and guidelines adopted by the Board relevant to their independence. Beyond these considerations, the Nominating and Corporate Governance Committee has not set specific minimum qualifications. The Board believes that each independent director’s background brings to the Board a combination of skills that permits him or her to objectively review, question and evaluate information provided to him or her by Fund

 

    Page 16 of 52

 

 

management and to exercise effective business judgment in overseeing the Funds.   The particular types of experience for the directors are described below.

 

Interested Directors

Michael L. Kern, III, CFA: Mr. Kern has been President, Chief Executive Officer and Treasurer of Crossmark Global Holdings, Inc. since May 2015 and has served as President, Chief Executive Officer and Treasurer of Crossmark Global Investments, Inc., Crossmark Distributors, Inc. and Crossmark Consulting, LLC since 2016. Previously, Mr. Kern spent 19 years with Stout Risius Ross, Inc., a financial advisory firm, where he, over the years, served as Managing Director in the Valuation & Financial Opinions Group, Head of the Investment Banking Group, Chief Financial Officer, Chief Operating Officer and, finally, President for his last six years at the firm. Mr. Kern holds a B.S. Degree in Finance and Business Economics from Wayne State University and is a Chartered Financial Analyst (CFA) with Series 7, 63 and 24 securities licenses. In 2006, he received Crain’s Detroit Business 40 Under 40 Award and is a member of the CFA Institute and Young Presidents’ Organization.

Kyle A. Dana, CRPC: Since 2000, Mr. Dana has worked with AG Financial Solutions, and currently serves as Senior Vice President of Retirement Planning and Investment Solutions. Mr. Dana has dual degrees in Management and Marketing from Evangel University and professional licenses and designations, including Chartered Retirement Planning Counselor (CRPC®) and Series 63 license.

Independent Directors

Mark H. Barineau: Mr. Barineau currently serves as President and owner of Lionsmark Investment Group, a private real estate investment and management company he formed in 2016. Its primary business is the acquisition, development and management of multifamily assets and other active and passive real estate investments. Mr. Barineau’s professional career began in 1992 as a Project Controls Engineer with a subsidiary of Waste Management where he performed value engineering and cost controls related to environmental remediation and landfill construction. In 1996, his entrepreneurial spirit led him to the real estate industry, where he served various roles including President and an owner of Radney Management & Investments which specialized in the acquisition, development and management of government subsidized low-income and conventional workforce multifamily housing across the United States.  He sold his interests in this company in 2016. Raised in Houston, he is a graduate of The University of the South (Sewanee, TN) and Columbia University (New York, NY) and holds B.S. degrees in both Physics and Mechanical Engineering. He is a Certified Property Manager by the Institute of Real Estate Management, a member of Young Presidents’ Organization (former executive board member) and a member of several Houston area social clubs. Mr. Barineau strives to put his faith in practice with his time, talent and treasure.  He has served as an Executive Vestry Member of St. Martin’s Episcopal Church (largest Episcopal church in the USA) and as a Trustee of Episcopal High School.

Adriana R. Posada: Ms. Posada retired from American Beacon Advisors, Inc. in 2016, where she had served since 1998 as Senior Portfolio Manager for several registered investment companies (“funds”) and had responsibility for managing a substantial portion of a large corporate pension plan’s assets. Her experience included equity, fixed income, alternative and derivative investments. She also identified, selected and oversaw sub-advisers for the funds and the pension plan. She reported regularly to the funds’ board of directors and to the pension plan’s representative regarding the performance of the sub-advisers. From 1993 to 1998, also at American Beacon Advisors, Inc., her responsibilities involved regulatory compliance and preparation and dissemination of certain numerical information regarding the funds and separate accounts. She also served as a Trustee of Irving Firemen’s Relief and Retirement Plan from 2009 to 2015. Ms. Posada holds a B.S. in mathematics from Universidad de Los Andes, Bogota, Colombia; an M.S. in mathematics from the University of Houston, Houston, Texas; and an M.A. in Actuarial Science from the University of Michigan, Ann Arbor, Michigan. She has passed exam parts 1, 2 and 3 of the Society of Actuaries.

Richard L. Peteka: Mr. Peteka has been the Chief Financial Officer and Secretary of SCP Private Credit Income BDC LLC since 2018 and Solar Capital, Ltd. and Solar Senior Capital, Ltd. since May 2012, each of which is a publicly traded business development company managed by Solar Capital Partners LLC. Prior to joining Solar Capital, he served from 2004 to 2012 as the Chief Financial Officer and Treasurer of Apollo Investment Corporation. Prior to 2004, Mr. Peteka was at Citigroup Asset Management, which he joined as a Director in 1999 and where he served as Chief Financial Officer and Treasurer of various open-end and closed-end investment companies. Mr. Peteka holds a B.S. degree in Finance from The College at Old Westbury and an MBA in International Finance from

 

    Page 17 of 52

 

 

St. John’s University.

Richard J. Rossi: Mr. Rossi retired in 2017 from Eagle Asset Management, an investment advisory firm in St. Petersburg, Florida and a subsidiary of Raymond James, where he served as an officer for seventeen years. At the time of his retirement, he was President and Co-Chief Operating Officer of the firm as well as President of Eagle Mutual Funds and Eagle Fund Distributors. Mr. Rossi was instrumental in developing the firm’s overall strategic decisions and business plans, including developing its asset management acquisition strategy. He was responsible for all retail and institutional mutual fund and private account sales, client services, and administrative functions and oversaw a substantial increase in assets during his tenure as a result of the acquisition strategy. In addition to his roles at Eagle Asset Management, Mr. Rossi previously served as Vice President, Institutional Equity Sales, of First Union Capital Markets as well as Managing Director and Chief Operating Officer of Mentor Investment Group. Mr. Rossi began his career in 1984 with Raymond James and has over 30 years of executive management and senior sales experience in the asset management and financial services industries. Mr. Rossi holds a B.A. from the University of Florida and an M.P.A. from the University of North Florida.

 

Directors and Executive Officers

 

The directors provide overall supervision of the affairs of the Funds. The Funds’ directors, the Funds’ executive officers, and their principal occupations for the past five years are listed below.

 

Name,
Address, Age

Position(s)
Held with
the Funds

Term of
Office1
and
Length of
Time
Served

Principal Occupation(s)
During the Past 5 Years

Number of
Funds in
Fund
Complex
Overseen by
Director or
Nominee

Other
Directorships Held
by Director or
Nominee During
the Past 5 Years

                     

Interested Directors

Michael L. Kern, III, CFA2
c/o 15375 Memorial Dr, Suite 200

Houston, TX 77079
Birth Year: 1973

 

Chairman of the Board; Director

 

Indefinite Term

Since 2017

 

President, CEO & Treasurer of Crossmark Global Holdings, Inc. (May 2015 - Present); President, CEO & Treasurer of Crossmark Global Investments, Inc., Crossmark Distributors, Inc. and Crossmark Consulting, LLC (2016 - Present); CCO of Crossmark Distributors, Inc. (August 1, 2017 - December 11, 2017); Secretary of Crossmark Global Investments, Inc., Crossmark Distributors, Inc. and Crossmark Consulting, LLC (2016 - 2018); President of Stout Risius Ross, Inc. (2008 - 2015)

 

6

 

Stratford Cambridge Group Investments – Advisory Board (2011 - 2017); Foundation Capital Resources (2015 - Present); Stout Risius Ross, Inc. (2008 - 2015)

                     

Kyle A. Dana CRPC 3
c/o 15375 Memorial Dr, Suite 200

Houston, TX 77079
Birth Year: 1978

  Director  

Indefinite Term

Since 2017

  Senior Vice President, Retirement & Investment Solutions of AG Financial Solutions4 (2000 - Present)   6   N/A
                     

Independent Directors
Mark H. Barineau

c/o 15375 Memorial Dr, Suite 200

Houston, TX 77079
Birth Year: 1968

  Director  

Indefinite Term

Since 2017

  President of Lionsmark Investment Group5 (since April 2016); President & Owner of Radney Management & Investments, Inc.6 (1996 - 2016)   6   N/A
                     
Richard L. Peteka
c/o 15375 Memorial Dr, Suite 200
  Director  

Indefinite Term

  Chief Financial Officer and Secretary of Solar Capital Ltd. and Solar Senior Capital   6   N/A

 

    Page 18 of 52

 

 

Name,
Address, Age

Position(s)
Held with
the Funds

Term of
Office1
and
Length of
Time
Served

Principal Occupation(s)
During the Past 5 Years

Number of
Funds in
Fund
Complex
Overseen by
Director or
Nominee

Other
Directorships Held
by Director or
Nominee During
the Past 5 Years

                     
Houston, TX 77079
Birth Year: 1961
      Since 2017   Ltd. (May 2012 - Present) and SCP Private Credit Income BDC LLC7 (2018 - Present)        
                     

Adriana R. Posada
c/o 15375 Memorial Dr, Suite 200

Houston, TX 77079
Birth Year: 1954

  Director  

Indefinite Term

Since 2017

  Retired; Sr. Portfolio Manager of American Beacon Advisors, Inc. (September 1998 - March 2016)   6   Trustee of Irving Firemen’s Relief and Retirement Plan (April 2009 - October 2015)
                     

Richard J. Rossi

c/o 15375 Memorial Drive, Suite 200

Houston, TX 77079

Birth Year: 1956 

  Director  

Indefinite Term

Since 2019

  Retired; President and Co-Chief Operating Officer, Eagle Asset Management, President, Eagle Mutual Funds and Eagle Fund Distributors (2000 - 2017)   6   N/A

 

1 Each Director serves on the Board from the time of his or her election or appointment until the election of Directors next succeeding his or her election or appointment and until his or her successor is elected and qualified. Because the Funds do not hold regular annual meetings of shareholders to elect Directors, each Director serves for an indefinite period.
2 Mr. Kern is an “interested person” of SFI, as defined in the 1940 Act, because of his position with the Funds’ investment adviser, administrator and distributor.
3 Mr. Dana is an “interested person” of SFI, as defined in the 1940 Act, because of his position with AG Financial Solutions, which is an affiliate of the Funds’ investment adviser, administrator and distributor.
4 AG Financial Solutions is an affiliate of the SFI’s investment adviser, administrator and distributor specializing in delivering financial products and services that align with faith and values.
5 Lionsmark Investment Group is a private real estate investment and management company that Mr. Barineau formed in 2016. Its primary business is the acquisition, development and management of multifamily assets and other active and passive real estate investments.
6 Radney Management & Investments, Inc. was established in 1982 and is an ACCREDITED MANAGEMENT ORGANIZATION® specializing in multifamily property management.
7 Solar Capital Ltd., Solar Senior Capital Ltd. and SCP Private Credit Income BDC LLC are business development companies that invest primarily in senior secured loans of private middle-market companies to generate current income that is distributed to shareholders across economic cycles.

 

The Funds’ Officers are as follows:

 

Name,
Address,
Age

Position(s)
Held with the
Funds

 

Term of Office1
and
Length of Time
Served

Principal Occupation(s)
During the Past 5 Years

Other
Directorships/
Trusteeships 
Held
by Officer
During the Past 5
Years

Executive Officers                

Michael L. Kern, III, CFA
c/o 15375 Memorial Dr, Suite 200

Houston, TX 77079
Birth Year: 1973

  President &
Treasurer
 

Since 2016

  President, CEO & Treasurer of Crossmark Global Holdings, Inc. (May 2015 - Present); President, CEO & Treasurer of Crossmark Global Investments, Inc., Crossmark Distributors, Inc. and Crossmark Consulting, LLC (2016 - Present); CCO of Crossmark Distributors, Inc. (August 1, 2017 - December 11, 2017); Secretary of Crossmark Global Investments, Inc., Crossmark Distributors, Inc. and Crossmark Consulting, LLC (2016 -   Stratford Cambridge Group Investments – Advisory Board (2011 - 2017); Foundation Capital Resources (2015 - Present); Stout Risius Ross, Inc. (2008 - 2015)

 

    Page 19 of 52

 

 

Name,
Address,
Age

Position(s)
Held with the
Funds

Term of Office1
and
Length of Time
Served

Principal Occupation(s)
During the Past 5 Years

Other
Directorships/
Trusteeships 
Held
by Officer
During the Past 5
Years

Executive Officers           2018); President of Stout Risius Ross, Inc. (2008 - 2015)    
                 

Arthur G. Smith

15375 Memorial Dr,

Suite 200

Houston, TX 77079
Birth Year: 1962 

  Executive Vice President   Since 2018   Managing Director of Distribution and Marketing of Crossmark Global Investments, Inc. (2018 - Present); Managing Director of Bank of Tokyo Mitsubishi UFJ (2010 - 2017)   N/A
                 

John R. Wolf

15375 Memorial Dr,

Suite 200

Houston, TX 77079
Birth Year: 1961

  Executive Vice President  

SLCEIF since 2004

SSMCEIF since 1998

SIEIF since 2006

SSBF since 2004

SGEIF since 2008

SCCIF since 2017 

  Managing Director – Equity Investments of Crossmark Global Investments, Inc. (1996 - Present) and Sr. Vice President of Crossmark Consulting, LLC (1996 - 2016)   N/A
                 

Melville Cody

15375 Memorial Dr,

Suite 200

Houston, TX 77079
Birth Year: 1954

  Executive Vice President  

Since 2012

  Senior Portfolio Manager of Crossmark Global Investments, Inc. (2009 - Present); Co-Chairman, CFO & Portfolio Manager/Analyst of Roger H. Jenswold & Company, Inc. (2005 - 2012)   N/A
                 

Victoria Fernandez
15375 Memorial Dr,

Suite 200

Houston, TX 77079
Birth Year: 1973

  Executive Vice President  

Since 2014

  Chief Market Strategist of Crossmark Global Investments, Inc. (2018 - Present);  Managing Director – Fixed Income Investments of Crossmark Global Investments, Inc. (2012 - 2018); Associate, Fayez Sarofim & Co. (1994 - 2012)   N/A
                 

Paul Townsen

15375 Memorial Dr,

Suite 200

Houston, TX 77079
Birth Year: 1971

  Executive Vice President   Since 2017   Managing Director – Crossmark Global Investments, Inc, (2017 - Present); Senior Vice President - Crossmark Global Investments, Inc. (2015 - 2017); Vice President – Crossmark Global Investments, Inc. (1994 - 2015)   N/A
                 

Zachary Wehner, JD

15375 Memorial Dr,

Suite 200

Houston, TX 77079
Birth Year: 1988

  Vice President  

SLCEIF since 2016

SSMCEIF since 2016

SIEIF since 2016

SGEIF since 2018

SCCIF since 2017 

  Portfolio Manager of Crossmark Global Investments, Inc. (2015 - Present); Investment Analyst & Equity & Derivatives Trader of Crossmark Global Investments, Inc. (2014)   N/A

 

    Page 20 of 52

 

  

Name,
Address,
Age

Position(s)
Held with the
Funds

Term of Office1
and
Length of Time
Served

Principal Occupation(s)
During the Past 5 Years

Other
Directorships/
Trusteeships 
Held
by Officer
During the Past 5
Years

Executive Officers                
                 

James A. Coppedge

15375 Memorial Dr,

Suite 200

Houston, TX 77079
Birth Year: 1968

 

Executive Vice President, Chief

Compliance

Officer, Assistant Secretary

 

Since 2017

  General Counsel & Chief Compliance Officer of Crossmark Global Investments, Inc.  (2017 - Present); Chief Compliance Officer of Crossmark Distributors, Inc. (December 11, 2017 - Present); Secretary, Crossmark Global Investments, Inc, Crossmark Distributors, Inc. and Crossmark Consulting, LLC (2018 - Present); Deputy General Counsel of American International Group (2007 - 2015)   N/A
                 

Patricia Mims

15375 Memorial Dr,

Suite 200

Houston, TX 77079
Birth Year: 1960

  Secretary  

Since 2016

 

Sr. Compliance Officer, Crossmark Global Investments, Inc. (October 2018 - Present); Sr. Compliance Associate,

Crossmark Global Investments, Inc. (April 2013 - October 2018); Assistant Secretrary, Crossmark Global Investments, Inc., Crossmark Distributors, Inc. and Crossmark Consulting, LLC (2018 - Present); Office Manager, Mims Insurance (April 1999 - May 2010)

  N/A

 

1 SFI officers are elected by the Board annually and hold office until the next annual Board meeting at which officers are elected and until his or her successor is elected and qualified.

 

Fund Name Abbreviations  
Steward Large Cap Enhanced Index Fund (SLCEIF)
Steward Small-Mid Cap Enhanced Index Fund (SSMCEIF)
Steward International Enhanced Index Fund (SIEIF)
Steward Select Bond Fund (SSBF)
Steward Global Equity Income Fund (SGEIF)
Steward Covered Call Income Fund (SCCIF)

 

Board Committees

 

The Board has two committees, the Audit Committee and the Nominating and Corporate Governance Committee, which are comprised exclusively of independent directors and report to the Board. Following is a description of each of the committees:

 

Audit Committee – The Committee’s primary functions include serving as an independent and objective party to monitor SFI’s accounting policies and financial reporting, as well as the work of SFI’s independent registered public accounting firm (the “independent auditors”). The Committee assists the Board in its oversight of (1) the integrity of each Fund’s financial statements; (2) each Fund’s compliance with legal and regulatory requirements as related to accounting and financial reporting; (3) the independent auditors’ qualifications and independence; and (4) the performance of SFI’s independent auditors. The Committee also serves to provide an open avenue of communication among the independent auditors, SFI management and the Board. The Committee is composed entirely of independent directors. Current Committee members are: Richard L. Peteka, Chair; Adriana R. Posada; Mark H. Barineau; and Richard J. Rossi. The Committee met five (5) times during the fiscal year ended April 30, 2019.

 

    Page 21 of 52

 

 

Nominating and Corporate Governance Committee – The Committee’s primary functions are to select individuals who would qualify to serve as independent directors, nominate directors for membership on committees, recommend committee chairs, review committee membership and oversee the administration of the SFI Board of Directors Governance Guidelines and Procedures. Shareholders may submit suggestions for independent director candidates by sending a resume of the candidate to the Secretary of SFI for the attention of the Chair of the Nominating and Corporate Governance Committee. SFI’s address is 15375 Memorial Dr., Suite 200, Houston, TX 77079. The Committee is composed entirely of independent directors. Current Committee members are: Adriana R. Posada, Chair; Richard L. Peteka; Mark H. Barineau; and Richard J. Rossi. The Committee met two (2) times during the fiscal year ended April 30, 2019.

 

The following table provides information about the ownership of securities in the Funds and in the total Fund Complex for the directors.

 

Directors

Fund

Dollar Range of
Equity Securities
in each Fund1

Aggregate Dollar Range
of Equity Securities in all
Funds Overseen by the
Director1

             
Interested Directors            
Michael L. Kern, III, CFA  

Steward Large Cap Enhanced Index Fund

Steward Small-Mid Cap Enhanced Index Fund

Steward International Enhanced Index Fund

Steward Select Bond Fund

Steward Global Equity Income Fund

Steward Covered Call Income Fund

 

$50,001-$100,000

$50,001-$100,000

$10,001-$50,000

$10,001-$50,000

$50,001-$100,000

$10,001-$50,000

 

Over $100,000

Kyle A. Dana, CRPC  

Steward Large Cap Enhanced Index Fund

Steward Small-Mid Cap Enhanced Index Fund

Steward International Enhanced Index Fund

Steward Global Equity Income Fund

Steward Covered Call Income Fund

 

Over $100,000

$50,001-$100,000

$50,001-$100,000

Over $100,000

$10,001-$50,000

 

Over $100,000

Independent Directors            
Mark H. Barineau  

Steward Large Cap Enhanced Index Fund

Steward Small-Mid Cap Enhanced Index Fund

Steward International Enhanced Index Fund

Steward Select Bond Fund

Steward Global Equity Income Fund

Steward Covered Call Income Fund

 

$10,001-$50,000

$10,001-$50,000

$10,001-$50,000

$10,001-$50,000

$10,001-$50,000

$10,001-$50,000

 

Over $100,000

Richard L. Peteka  

Steward Large Cap Enhanced Index Fund

Steward Global Equity Income Fund

 

Over $100,000

Over $100,000

 

Over $100,000

Adriana R. Posada

 

Steward Small-Mid Cap Enhanced Index Fund

Steward Global Equity Income Fund

 

$10,001-$50,000

$10,001-$50,000

  $10,001-$50,000
Richard J. Rossi  

 

$0

 

$0

 

1 Valuation as of May 31, 2019.

 

As of May 31, 2019, neither the independent directors, nor any of their immediate family members, owned any securities issued by Crossmark or the Funds’ principal underwriter or any company controlling, controlled by or under common control with those entities.

 

Director and Officer Compensation

 

Each independent director is paid an annual retainer of $12,000. Additionally, each independent director is paid $7,500 per Board meeting attended in person and $2,000 per Board meeting attended telephonically. The Chair of the Audit Committee is paid $6,000 annually for his service. All compensation received by the independent directors is allocated among the Funds based on average net assets. The officers, other than the Funds’ Chief Compliance Officer, and interested directors do not currently receive compensation from the Funds for serving in such capacities. Effective August 1, 2019, the Funds will reimburse Crossmark for a portion of the compensation paid to the Funds’ Chief Compliance Officer. The portion of the Chief Compliance Officer’s compensation to be reimbursed by each Fund is

 

    Page 22 of 52

 

 

not expected to be material to the expenses of the Fund. The directors and officers are reimbursed for expenses incurred in attending meetings of the Board.

 

The following table represents the compensation received by the independent directors from the Funds during the fiscal year ended April 30, 2019.

 

Name of Person, Position

Aggregate
Compensation
from Funds

Pension or
Retirement
Benefits
Accrued as
Part of Fund
Expenses

Estimated
Annual
Benefits
upon
Retirement

Total
Compensation
from Fund
Complex Paid
to Directors

                 

Mark H. Barineau

Director

  $44,000   $0   $0   $44,000
                 

Richard L. Peteka

Director

  $50,000   $0   $0   $50,000
                 

Adriana R. Posada

Director

  $44,000   $0   $0   $44,000
                 

Richard J. Rossi1

Director

  $0   $0   $0   $0

 

1 Mr. Rossi was appointed by the Board as an independent director on May 16, 2019.

 

Control Persons and Principal Holders of Securities

 

AG Financial Solutions, a Missouri nonprofit corporation, 3900 S. Overland Ave., Springfield, MO 65807, and the parent company of Crossmark Global Holdings, Inc., through its subsidiary, Steward Financial Holdings, Inc., has effective voting control over each of the Funds and SFI. AG Financial Solutions serves as the sponsor of the Ministers Benefit Plan (the “Plan”), a 403(b) retirement plan, which owns more than 25% of the voting securities of each Fund. As sponsor of the Plan, AG Financial Solutions has voting control over the Plan’s shares. Therefore, AG Financial Solutions has effective voting control over sufficient shares of each Fund and SFI to determine the outcome of votes presented to shareholders.

 

The following table sets forth information concerning each person who, to the knowledge of the Funds, owned beneficially or of record more than five percent or more of the indicated class of each Fund’s shares as of July 15, 2019.

 

As of July 15, 2019, the directors and officers of the Funds, in the aggregate, owned less than one percent of any class of a Fund’s shares.

 

    Page 23 of 52

 

  

Fund/Class and Shareholder Name and
Address

Amount and Nature of
Ownership
Percent of the Class
Steward Large Cap Enhanced Index Fund – Class A  

National Financial Services LLC

Newport Office Center III 5th Floor

499 Washington Blvd.

Jersey City, NJ 07310

$28,015,853.30

For the benefit of

its customers

60.29%
     

Charles Schwab & Co., Inc.

211 Main Street

San Francisco, CA 94105

$7,443,346.11

For the benefit of

its customers

16.02%
     

TD Ameritrade Clearing, Inc.

1005 North Ameritrade Place

Bellevue, NE 68005

$2,861,991.48

For the benefit of

its customers

6.16%
     

DCGT as Trustee and/or Custodian FBO PLIC Retirement Plans

711 High St

Des Moines, IA 50392-0001

$2,330,828.86

For the benefit of

its customers

5.02%
     
Steward Large Cap Enhanced Index Fund – Institutional Class  

TD Ameritrade Clearing, Inc.

PO Box 17748

Denver, CO 80217-0748

$166,535,361.00

For the benefit of

its customers

49.74%
     

National Financial Services LLC

Newport Office Center III 5th Floor

499 Washington Blvd.

Jersey City, NJ 07310

$107,045,190.94

For the benefit of

its customers

37.97%
     
Steward Large Cap Enhanced Index Fund – Class C  

Crossmark Global Investments, Inc.

15375 Memorial Dr., Suite 200

Houston, TX 77079

$10.97

Initial Shareholder

100.00%
     
Steward Large Cap Enhanced Index Fund – Class R6  

National Financial Services LLC

Newport Office Center III 5th Floor

499 Washington Blvd.

Jersey City, NJ 07310

$55,884,352.39

For the benefit of

its customers

99.86%
     
Steward Small-Mid Cap Enhanced Index Fund – Class A  

National Financial Services LLC

Newport Office Center III 5th Floor

499 Washington Blvd.

Jersey City, NJ 07310

$17,584,461.91

For the benefit of

its customers

25.02%

 

    Page 24 of 52

 

 

Charles Schwab & Co. Inc.

211 Main St

San Francisco, CA 94105

$12,141,815.49

For the benefit of

its customers

17.00%
     

TD Ameritrade Clearing, Inc.

1005 North Ameritrade Place

Bellevue, NE 68005

$5,280,259.02

For the benefit of

its customers

7.51%
     
Steward Small-Mid Cap Enhanced Index Fund – Institutional Class  

TD Ameritrade Clearing, Inc.

PO Box 17748

Denver, CO 80217-0748

$65,549,252.00

For the benefit of

its customers

43.00%
     

National Financial Services LLC

Newport Office Center III 5th Floor

499 Washington Blvd.

Jersey City, NJ 07310

$40,372,342.32

For the benefit of

its customers

27.15%
     

NABANK

PO Box 2180

Tulsa, OK 74101

$13,959,997.70

For the benefit of

its customers

9.81%
     

Charles Schwab & Co. Inc.

211 Main St

San Francisco, CA 94105

$12,714,598.85

For the benefit of

its customers

8.42%
     
Steward Small-Mid Cap Enhanced Index Fund – Class C  

Crossmark Global Investments, Inc.

15375 Memorial Dr., Suite 200

Houston, TX 77079

$9.88

Initial Shareholder

100.00%
     
Steward Small-Mid Cap Enhanced Index Fund – Class R6  

Voya Retirement Insurance & Annuity Comp

One Orange Way

Windsor, CT 06095-4774

$24,332.74

For the benefit of

its customers

99.96%
     
Steward International Enhanced Index Fund – Class A  

National Financial Services LLC

Newport Office Center III 5th Floor

499 Washington Blvd.

Jersey City, NJ 07310

$31,497,197.95

For the benefit of

its customers

21.87%
     
Steward International Enhanced Index Fund – Institutional Class  

TD Ameritrade Clearing, Inc.

PO Box 17748

Denver, CO 80217-0748

$61,132,920.28

For the benefit of

its customers

52.01%
     

National Financial Services LLC

Newport Office Center III 5th Floor

499 Washington Blvd.

Jersey City, NJ 07310

$44,515,016.75

For the benefit of

its customers

37.87%

 

 

    Page 25 of 52

 

 

Steward International Enhanced Index Fund – Class C  

Crossmark Global Investments, Inc.

15375 Memorial Dr., Suite 200

Houston, TX 77079

$9.84

Initial Shareholder

100.00%
     
Steward International Enhanced Index Fund – Class R6  

Crossmark Global Investments, Inc.

15375 Memorial Dr., Suite 200

Houston, TX 77079

$9.86

Initial Shareholder

100.00%
     
Steward Select Bond Fund – Class A    

National Financial Services LLC

Newport Office Center III 5th Floor

499 Washington Blvd.

Jersey City, NJ 07310

$8,772,745.20

For the benefit of

its customers

87.84%
     
Steward Select Bond Fund – Institutional Class  

TD Ameritrade Clearing, Inc.

PO Box 17748

Denver, CO 80217-0748

$80,071,322.41

For the benefit of

its customers

52.25%
     

National Financial Services LLC

Newport Office Center III 5th Floor

499 Washington Blvd.

Jersey City, NJ 07310

$67,836,459.98

For the benefit of

its customers

44.26%
     
Steward Select Bond Fund – Class C    

Crossmark Global Investments, Inc.

15375 Memorial Dr., Suite 200

Houston, TX 77079

$10.05

Initial Shareholder

100.00%
     
Steward Select Bond Fund – Class R6    

Crossmark Global Investments, Inc.

15375 Memorial Dr., Suite 200

Houston, TX 77079

$10.07

Initial Shareholder

100.00%
     
Steward Global Equity Income Fund – Class A    

Charles Schwab & Co. Inc.

211 Main St

San Francisco, CA 94105

$33,293,996.50

For the benefit of

its customers

49.03%
     

National Financial Services LLC

Newport Office Center III 5th Floor

499 Washington Blvd.

Jersey City, NJ 07310

$28,199,704.81

For the benefit of

its customers

41.53%

 

    Page 26 of 52

 

 

Steward Global Equity Income Fund – Institutional Class  

TD Ameritrade Clearing, Inc.

PO Box 17748

Denver, CO 80217-0748

$105,278,391.86

For the benefit of

its customers

42.44%
     

National Financial Services LLC

Newport Office Center III 5th Floor

499 Washington Blvd.

Jersey City, NJ 07310

$75,375,381.37

For the benefit of

its customers

30.39%
     
Steward Global Equity Income Fund –Class C  

Raymond James Accoc, Inc.

880 Carillon Parkway

St. Petersburg, FL 33716

$308,351.01

For the benefit of

its customers

81.72%
     

Pershing, LLC

One Pershing Plaza

Product Support, 14th Floor

Jersey City, NJ 07399

$21,465.81

For the benefit of

its customers

5.69%
     
Steward Global Equity Income Fund –Class R6  

Voya Retirement Insurance & Annuity Comp

One Orange Way

Windsor, CT 06095-4774

$31,498.02

For the benefit of

its customers

91.42%
     

Pershing, LLC

One Pershing Plaza

Product Support, 14th Floor

Jersey City, NJ 07399

$2,945.64

For the benefit of

its customers

8.55%
     
Steward Covered Call Income Fund – Class A  

Charles Schwab & Co. Inc.

211 Main St

San Francisco, CA 94105

$6,980.56

For the benefit of

its customers

73.96%
     

Danielle L. Frazier

Pete Jason Stacy JTWROS

5327 Foresthaven Dr

Houston, TX 77066-2509

$2,174.96 23.04%
     
Steward Covered Call Income Fund – Institutional Class  

TD Ameritrade Clearing, Inc.

PO Box 17748

Denver, CO 80217-0748

$26,783,445.46

For the benefit of

its customers

90.51%
     

National Financial Services LLC

Newport Office Center III 5th Floor

499 Washington Blvd.

Jersey City, NJ 07310

$1,756,967.94

For the benefit of

its customers

5.94%

  

    Page 27 of 52

 

 

Steward Covered Call Income Fund – Class C  

Charles Schwab & Co. Inc.

211 Main St

San Francisco, CA 94105

$173,432.59 68.62%
     

National Financial Services LLC

Newport Office Center III 5th Floor

499 Washington Blvd.

Jersey City, NJ 07310

$79,284.83 31.37%
     
Steward Covered Call Income Fund –Class R6  

Crossmark Global Investments, Inc.

15375 Memorial Dr., Suite 200

Houston, TX 77079

$10.86

Initial Shareholder

100.00%
     

 

Adviser

 

Crossmark Global Investments, Inc. (“Crossmark”), located at 15375 Memorial Dr., Suite 200, Houston, TX 77079, was formed in 1982 as a wholly-owned subsidiary of Crossmark Global Holdings, Inc. The controlling shareholder of Crossmark is Steward Financial Holdings, Inc., a holding company that is a wholly-owned, for-profit, subsidiary of AG Financial Solutions. AG Financial Solutions was organized by the Assemblies of God Church in 1998. Crossmark provides investment management services to pension and profit sharing accounts, corporations, and individuals, and serves as investment adviser to the Funds. Crossmark manages $4.83 billion in assets as of June 30, 2019.

Prior to August 1, 2019, Crossmark acted as investment adviser to each of the Funds pursuant to an investment advisory agreement (the “Prior Advisory Agreement”) dated January 12, 2012. The Prior Advisory Agreement was approved by shareholders of each Fund at meetings held in late 2011 and took effect upon a change in control of Crossmark. The Prior Advisory Agreement was further amended effective February 14, 2017 to indicate that Steward Small-Mid Cap Enhanced Index Fund, which was already covered by the Prior Advisory Agreement, was now a series of SFI. The Prior Advisory Agreement was further modified effective December 13, 2017 to add Steward Covered Call Income Fund.

On May 16, 2019, the Board approved a new investment advisory agreement (the “New Advisory Agreement”), subject to shareholder approval, which was approved by shareholders of each Fund on July 29, 2019. The New Advisory Agreement took effect on August 1, 2019 and the Prior Advisory Agreement was terminated. Crossmark provides the same advisory services under the New Advisory Agreement that it provided under the Prior Advisory Agreement, but also provides the values-based screening services that were provided by Crossmark Consulting prior to August 1, 2019. The changes to the fees each Fund pays to Crossmark for advisory services, and the values-based screening services described under “Values-Based Investing Consultant” below, under the New Advisory Agreement are set forth in the table below. Crossmark receives such fees monthly, in arrears, from the Funds at the following annual fee rates, which are applied to the average daily net assets of the applicable Fund.

 

Crossmark has full discretion to manage the assets of each Fund in accordance with its investment objective and policies and the terms of SFI’s Articles of Incorporation. Crossmark is authorized, with the consent of the directors, to engage sub-advisers for certain of the Funds, although it does not currently do so. Crossmark has sole authority to select broker-dealers to execute transactions for the Funds, subject to the reserved authority of the directors to designate particular broker-dealers for this purpose. Crossmark will vote proxies on portfolio securities on behalf of the Funds, subject to any guidelines that may be established by the directors from time to time. (See Appendix A for current guidelines.)

 

    Page 28 of 52

 

  

Advisory Agreement Fee Schedule (prior to August 1, 2019)   New Advisory Agreement Fee Schedule (effective August 1, 2019)
     
Steward Large Cap Enhanced Index Fund   Steward Large Cap Enhanced Index Fund
0.15% of the first $500 million   0.215% of the first $1 billion
0.125% of the next $500 million   0.1935% of assets over $1 billion
0.10% of assets over $1 billion    
     
Steward Small-Mid Cap Enhanced Index Fund   Steward Small-Mid Cap Enhanced Index Fund
0.15% of the first $500 million   0.215% of the first $1 billion
0.125% of the next $500 million   0.1935% of assets over $1 billion
0.10% of assets over $1 billion    
     
Steward International Enhanced Index Fund   Steward International Enhanced Index Fund
0.30% of the first $500 million   0.365% of the first $1 billion
0.25% of the next $500 million   0.3285% of assets over $1 billion
0.20% of assets over $1 billion    
     
Steward Select Bond Fund   Steward Select Bond Fund
0.25% of the first $500 million   0.315% of the first $1 billion
0.20% of the next $500 million   0.2835% of assets over $1 billion
0.175% of assets over $1 billion    
     
Steward Global Equity Income Fund   Steward Global Equity Income Fund
0.30% of the first $500 million   0.625% of the first $1 billion
0.25% of the next $500 million   0.5625% of assets over $1 billion
0.20% of assets over $1 billion    
     
Steward Covered Call Income Fund   Steward Covered Call Income Fund
0.45% for all assets   0.625% of the first $1 billion
    0.5625% of assets over $1 billion

 

The New Advisory Agreement, after an initial term of up to two years, remains in effect thereafter from year to year as to each Fund, provided the renewal of the agreement as to that Fund is specifically approved (a) by the Fund’s Board or by vote of a majority of the Fund’s outstanding voting securities, and (b) by the affirmative vote of a majority of the directors who are not parties to the agreement or “interested persons,” as defined in the 1940 Act, of any such party, by votes cast in person at a meeting called for such purpose. The New Advisory Agreement may be terminated as to a Fund (a) at any time without penalty by the Fund upon the vote of a majority of the directors or, by vote of the majority of that Fund’s outstanding voting securities, upon 60 days’ written notice to Crossmark or (b) by Crossmark at any time without penalty, upon 90 days’ written notice to the Fund. The New Advisory Agreement will also terminate automatically with respect to a Fund in the event of its assignment with respect to that Fund (as defined in the 1940 Act). As noted above, the New Advisory Agreement took effect on August 1, 2019 and the Prior Advisory Agreement was terminated.

 

Total dollar amounts paid by each Fund to Crossmark for investment advisory services under the Prior Advisory Agreement for the last three fiscal years are as follows:

 

Fund   Advisory Fee
     
Steward Large Cap Enhanced Index Fund    
Year Ended April 30, 2019   $615,138
Year Ended April 30, 2018   $578,000
Year Ended April 30, 2017   $499,185

 

    Page 29 of 52

 

 

Fund   Advisory Fee
     
Steward Small-Mid Cap Enhanced Index Fund    
Year Ended April 30, 2019   $360,092
Year Ended April 30, 2018   $329,397
Year Ended April 30, 2017   $265,261
     
Steward International Enhanced Index Fund    
Year Ended April 30, 2019   $418,205
Year Ended April 30, 2018   $418,110
Year Ended April 30, 2017   $365,272
     
Steward Select Bond Fund    
Year Ended April 30, 2019   $405,097
Year Ended April 30, 2018   $406,527
Year Ended April 30, 2017   $382,328
     
Steward Global Equity Income Fund    
Year Ended April 30, 2019   $921,310
Year Ended April 30, 2018   $809,586
Year Ended April 30, 2017   $620,654
     
Steward Covered Call Income Fund    
Year Ended April 30, 2019   $118,647
Period Ended April 30, 2018*   $42,924

 

* Steward Covered Call Income Fund commenced operations effective December 14, 2017.

 

For Steward Covered Call Income Fund, Crossmark has contractually agreed through August 30, 2020 to waive fees and reimburse expenses to the extent that Total Annual Operating Expenses (excluding brokerage costs, interest, taxes, dividend expense on short positions, litigation and indemnification expenses, acquired fund fees and expenses and extraordinary expenses (as determined under generally accepted accounting principles)) exceed 1.25%, 2.00%, 0.90% and 1.00% for Class A, Class C, Class R6 and Institutional Class, respectively. If it becomes unnecessary for Crossmark to waive fees or make reimbursements, Crossmark may recapture any of its prior waivers or reimbursements for a period not to exceed three years from the fiscal year in which the waiver or reimbursement was made to the extent that such a recapture does not cause the Total Annual Fund Operating Expenses (excluding brokerage costs, interest, taxes, dividend expense on short positions, litigation and indemnification expenses, acquired fund fees and expenses and extraordinary expenses (as determined under generally accepted accounting principles)) to exceed the applicable expense limitation in effect at time of recoupment or that was in effect at the time of the waiver or reimbursement, whichever is lower. The agreement to waive fees and reimburse expenses may be terminated by the Board at any time and will terminate automatically upon termination of the New Advisory Agreement.

 

Pursuant to the New Advisory Agreement, Crossmark pays the compensation and expenses of all of its directors, officers and employees who serve as officers and executive employees of the Funds (including the Funds’ share of payroll taxes), except expenses of travel to attend meetings of the Funds’ Board or committees or advisers to the Board. Crossmark also agrees to make available, without expense to the Funds, the services of its directors, officers and employees who serve as officers of the Funds. However, the Funds will reimburse Crossmark for a portion of the compensation paid to the Funds’ Chief Compliance Officer. The portion of the Chief Compliance Officer’s compensation to be reimbursed by each Fund is not expected to be material to the expenses of the Fund.

 

The New Agreement provides that Crossmark shall not be liable for any error of judgment or of law, or for any loss suffered by a Fund in connection with the matters to which the agreement relates except a loss resulting from willful 

 

    Page 30 of 52

 

  

misfeasance, bad faith or gross negligence on the part of Crossmark in the performance of its obligations and duties, or by reason of its reckless disregard of its obligations and duties under the New Advisory Agreement.

 

Portfolio Managers

 

The principal portfolio managers for the Funds and the dollar range of their ownership of shares in each Fund as of April 30, 2019 are indicated in the following table:

 

Fund   Portfolio Managers   Dollar Range of Equity Securities
in
Fund Beneficially Owned
         
Steward Large Cap Enhanced Index Fund   John Wolf   $0
    Mel Cody   $0
    Zachary Wehner   $10,001-$50,000
         
Steward Small-Mid Cap Enhanced Index Fund   John Wolf   $0
    Mel Cody   $0
    Zachary Wehner   $10,001-$50,000
         
         
Steward International Enhanced Index Fund   John Wolf   $0
    Mel Cody   $0
    Zachary Wehner   $10,001-$50,000
         
         
Steward Select Bond Fund   Victoria Fernandez   $50,001-$100,000
         
         
Steward Global Equity Income Fund   John Wolf   Over $100,000
    Zachary Wehner   $10,001-$50,000
         
         
Steward Covered Call Income Fund   Paul Townsen   $50,001-$100,000
    Zachary Wehner   $1-$10,000

 

The numbers of registered investment company accounts and private accounts, and assets in each category, managed by each portfolio manager named in the foregoing table as of April 30, 2019 is indicated in the following table. None of these portfolio managers manages any pooled investment vehicles other than registered investment companies.

 

Portfolio Manager

Number
of

Registered

Investment

Companies

Assets under

Management

Number
of

Private

Accounts

Assets under

Management

Total Assets
John Wolf 4 $1,113,264,287 282 $1,212,757,738 $2,326,022,025
Victoria Fernandez 1 $   162,535,744 878 $   580,201,933 $   742,737,677
Mel Cody 3 $   797,571,936 52 $     59,222,151 $   856,794,087
Zachary Wehner 5 $1,142,218,206 76 $   748,399,894 $1,890,618,100
Paul Townsen 1 $     28,953,919 840 $   333,465,283 $   375,713,854

 

None of the accounts managed by these portfolio managers has a performance-based investment advisory fee. Due to the nature of these Funds’ investments, no material conflicts of interest arise by virtue of the fact that these portfolio managers manage other accounts and more than one Fund, as listed above. The compensation of each of these portfolio managers is derived approximately 75% from base salary and 25% from incentive compensation. The portfolio managers participate in normal corporate benefits, including group life and health insurance, 401(k) plan with a corporate matching contribution calculated in the same manner as for all other participating employees, and vacation. 

 

    Page 31 of 52

 

  

Administration, Fund Accounting and Sub-Administration Services, Compliance Services, Class Action and Fair Fund Services, Transfer Agency and Service, and Master Services Agreements

 

Prior to August 1, 2019, pursuant to an Administration Agreement effective January 12, 2012, as amended effective February 14, 2017 to include Steward Small-Mid Cap Enhanced Index Fund, with no change in the terms applicable to that Fund, and as further amended effective September 15, 2017 to include Steward Covered Call Income Fund, Crossmark Consulting, LLC (“Crossmark Consulting”) supervised all aspects of the Funds’ day-to-day operations. Crossmark Consulting oversaw the performance of administrative and professional services to the Funds by others; provided office facilities; prepared reports to shareholders and the SEC; and provided personnel for supervisory, administrative and clerical functions. Prior to August 1, 2019, Crossmark Consulting also provided regulatory compliance services for the Funds pursuant to a Compliance Services Agreement dated August 17, 2011, as amended effective February 14, 2017 and September 15, 2017. This agreement also provided for reimbursement to Crossmark Consulting of reasonable expenses related to travel outside the Houston, Texas area in connection with providing services under the agreement.

On May 16, 2019, the Board approved a new administration agreement (the “New Administration Agreement”) between the Funds and Crossmark. The New Administration Agreement took effect on August 1, 2019 and the prior Administration Agreement and Compliance Services Agreement, each with Crossmark Consulting, were terminated. Crossmark provides the same administration services and compliance services under the New Administration Agreement that Crossmark Consulting provided under the prior Administration Agreement and Compliance Services Agreement prior to August 1, 2019. The fees each Fund pays to Crossmark under the New Administration Agreement for aggregate administration and compliance services as compared to the fees paid to Crossmark Consulting under the prior Administration Agremeent and Compliance Services Agreement for the same services are set forth in the table below. For the New Administration Agreement and prior Compliance Services Agreement, the annual fee rates set forth in the table below are or were applied to the average daily net assets of the applicable Fund. For the prior Administration Agreement, the annual fee rates were applied to the average daily net assets of all Funds in the aggregate.

 

Prior Administration Agreement Prior Compliance Services Agreement New Administration Agreement
     
All Funds All Funds All Funds
0.075% of the first $500 million 0.025% of the first $500 million 0.0750% of the first $1 billion
0.030% of assets over $500 million 0.020% of the next $500 million 0.0675% of assets over $1 billion
  0.015% of assets over $1 billion  

 

Pursuant to a Fund Administration and Accounting Agreement effective May 1, 2019, Northern Trust provides fund accounting and sub-administration services to each Fund.

 

Cipperman Compliance Services, LLC (“Cipperman”), during the period from May 1, 2017 to March 31, 2018 and the year ended April 30, 2017, and a predecessor service provider during earlier periods, provided regulatory compliance services for the Funds pursuant to a Compliance Services Agreement effective April 1, 2016, as amended effective February 14, 2017, and September 15, 2017. In accordance with this agreement, Cipperman designated a member of its staff, who had been approved by the Funds’ Board, to serve as the Chief Compliance Officer (“CCO”) for the Funds in accordance with applicable law. Cipperman’s fee for “Base Services” described in the agreement was $5,000 per month. Through September 30, 2016, this agreement covered the five then-existing series of SFI plus one additional investment company. Effective October 1, 2016, the additional investment company was no longer covered by this agreement. Thus from October 1, 2016 forward, the full expense of this agreement was borne by the Funds, including, effective September 15, 2017, Steward Covered Call Income Fund, and was allocated among the Funds based on their relative net asset values at the end of each calendar month, as determined and computed in accordance with the description of the method of determination of net asset value contained in the current prospectus and statement of additional information for each Fund as in effect from time to time under the Securities Act of 1933, as amended. This agreement was terminated effective March 31, 2018. Mr. James A. Coppedge, General Counsel and CCO for Crossmark, was appointed CCO for the Funds effective March 31, 2018.

 

Pursuant to a Class Action and Fair Fund Services Agreement, as amended effective February 14, 2017, September 15, 2017 and February 28, 2018, Crossmark Consulting assists in preparing claims on behalf of the Funds in class action 

 

    Page 32 of 52

 

  

lawsuits and prepares claims by the Funds for Securities and Exchange Commission Fair Funds. Crossmark Consulting receives fees for these services totaling 6% of amounts received by the Funds from Fair Funds.

 

Total dollar amounts paid by each Fund to Cipperman and previous Chief Compliance Officers for the noted fiscal periods are detailed in the CCO Services Fee column. Effective March 31, 2018, the Funds no longer pay a CCO services fee. However, effective August 1, 2019, the Funds will reimburse Crossmark for a portion of the compensation paid to the Funds’ Chief Compliance Officer. The portion of the Chief Compliance Officer’s compensation to be reimbursed by each Fund is not expected to be material to the expenses of the Fund. Total dollar amounts paid by each Fund to Crossmark Consulting for administration, compliance, and class action and Fair Fund services for the noted fiscal periods are detailed in the Administration Services Fee, Compliance Services Fee and Class Action/Fair Fund Services Fee columns, respectively.

 

Fund CCO
Services
Fee
Administration
Services
Fee
Compliance
Services
Fee
Class
Action/Fair
Fund Services Fee
         
Steward Large Cap Enhanced Index Fund        
Year Ended April 30, 2019 N/A $ 194,992 $ 85,556 $         0
Year Ended April 30, 2018 $ 20,336 $ 188,687 $ 82,212 $25,927
Year Ended April 30, 2017 $ 21,464 $ 175,039 $ 74,459 $     265
         
         
Steward Small-Mid Cap Enhanced Index Fund        
Year Ended April 30, 2019 N/A $ 114,555 $ 50,107 $         0
Year Ended April 30, 2018 $ 11,629 $ 107,485 $ 46,857 $  6,475
Year Ended April 30, 2017 $ 11,944 $   92,973 $ 39,567 $     151
         
Steward International Enhanced Index Fund        
  N/A $   65,683 $  29,009 $         0
Year Ended April 30, 2018 $   7,410 $   68,278 $  29,705 $     409
Year Ended April 30, 2017 $   7,913 $   64,050 $  27,234 $         8
         
Steward Select Bond Fund        
Year Ended April 30, 2019 N/A $   77,508 $  33,852 $         0
Year Ended April 30, 2018 $   8,590 $   79,656 $  34,727 $         0
Year Ended April 30, 2017 $   7,913 $   80,502 $  34,230 $         0
         
Steward Global Equity Income Fund        
Year Ended April 30, 2019 N/A $ 146,541 $  64,109 $         0
Year Ended April 30, 2018 $ 13,966 $ 132,101 $  57,583 $         0
Year Ended April 30, 2017 $ 14,039 $ 108,695 $  46,255 $         0
         
Steward Steward Covered Call Income Fund        
Year Ended April 30, 2019 N/A $   12,574 $    5,511 $         0
Period Ended April 30, 2018* $     412 $     4,583 $    2,003 $         0

 

* Steward Covered Call Income Fund commenced operations effective December 14, 2017.

 

Effective April 29, 2019, pursuant to a transfer agency and service agreement with SFI, Northern Trust, 50 South LaSalle Street, Chicago, IL 60603, provides transfer agency services to each Fund. Prior to April 29, 2019, pursuant 

 

    Page 33 of 52

 

 

to a master services agreement with SFI, FIS Investor Services, LLC (“FIS”) 4249 Easton Way, Suite 400, Columbus, OH 43219, provided transfer agency services to each Fund. The Funds paid the following fees to FIS for transfer agency services, and to Citi Fund Services Ohio, Inc. for accounting services for the periods indicated.

 

Fund

Transfer Agent Fees

Accounting
Fees

     
Steward Large Cap Enhanced Index Fund    
Year Ended April 30, 2019 $    87,368 $  257,780
Year Ended April 30, 2018 $    89,673 $  232,924
Year Ended April 30, 2017 $    73,976 $  212,092
     
Steward Small-Mid Cap Enhanced Index Fund    
Year Ended April 30, 2019 $    87,174 $  178,629
Year Ended April 30, 2018 $    88,669 $  153,409
Year Ended April 30, 2017 $  116,000 $  133,404
     
Steward International Enhanced Index Fund    
Year Ended April 30, 2019 $    45,438 $  100,016
Year Ended April 30, 2018 $    32,676 $    86,824
Year Ended April 30, 2017 $    27,624 $    79,101
     
Steward Select Bond Fund    
Year Ended April 30, 2019 $    47,900 $  129,282
Year Ended April 30, 2018 $    38,181 $  114,938
Year Ended April 30, 2017 $    32,215 $  110,664
     
Steward Global Equity Income Fund    
Year Ended April 30, 2019 $  102,152 $  191,585
Year Ended April 30, 2018 $    69,180 $  157,070
Year Ended April 30, 2017 $    49,599 $  126,343
     
Steward Covered Call Income Fund    
Year Ended April 30, 2019 $    32,353 $    35,586
Period Ended April 30, 2018* $    12,876 $      8,770

 

* Steward Covered Call Income Fund commenced operations effective December 14, 2017.

 

Values-Based Investing Consultant

 

Prior to August 1, 2019, Crossmark Consulting served as a consultant for the Funds regarding values-based investing. Pursuant to the consulting agreement, as amended effective September 15, 2017, Crossmark Consulting developed and maintained a list of companies whose securities are prohibited investments for the Funds based on investment screening guidelines established and approved by the Board. For these services, Crossmark Consulting received monthly fees from the Funds, based on their aggregate average daily net assets, at the maximum annual rate of 0.08% of the first $500 million of such assets, 0.05% of the next $500 million, and 0.02% of aggregate assets over $1 billion.

Effective August 1, 2019, these services are provided by Crossmark pursuant to the New Advisory Agreement described above under “Adviser” and the consulting agreement with Crossmark Consulting was terminated.

 

Fees paid to Crossmark Consulting during each of the noted fiscal periods were as follows:

 

    Page 34 of 52

 

 

Fund

Consulting Fees

   
Steward Large Cap Enhanced Index Fund  
Year Ended April 30, 2019 $226,393
Year Ended April 30, 2018 $223,202
Year Ended April 30, 2017 $289,109
   
Steward Small-Mid Cap Enhanced Index Fund  
Year Ended April 30, 2019 $132,851
Year Ended April 30, 2018 $127,088
Year Ended April 30, 2017 $153,575
   
Steward International Enhanced Index Fund  
Year Ended April 30, 2019 $76,175
Year Ended April 30, 2018 $80,836
Year Ended April 30, 2017 $105,783
   
Steward Select Bond Fund  
Year Ended April 30, 2019 $89,858
Year Ended April 30, 2018 $94,226
Year Ended April 30, 2017 $132,955
   
Steward Global Equity Income Fund  
Year Ended April 30, 2019 $169,920
Year Ended April 30, 2018 $156,207
Year Ended April 30, 2017 $179,539
   
Steward Covered Call Income Fund  
Year Ended April 30, 2019 $14,577
Period Ended April 30, 2018* $5,532

 

* Steward Covered Call Income Fund commenced operations effective December 14, 2017.

 

Expenses

 

Each Fund and class pays all of its expenses and its allocated share of the expenses of SFI that are not borne by Crossmark or other service providers, including, but not limited to, expenses such as (i) advisory, administration, and class action/Fair Fund fees, (ii) fees under the Funds’ Service and Distribution Plan and Sub-Accounting Services Plan (see “Distributor,” below), (iii) fees for state filings and for legal, auditing, fund accounting and sub-administration, transfer agent, dividend disbursing, and custodian services, (iv) the expenses of registration, issue, repurchase, or redemption of shares, (v) interest, taxes, and brokerage commissions, (vi) membership dues in the Investment Company Institute, (vii) the cost of reports and notices to shareholders, (viii) fees to Fund directors and salaries of officers or employees who are not affiliated with Crossmark if any, and (ix) travel expenses (or an appropriate portion thereof) of Fund directors and officers who are directors, officers, or employees of Crossmark to the extent that such expenses relate to attendance at meetings of the Funds’ Board or any committees thereof or advisers thereto.

 

The expenses allocable to each Fund and each class of shares are accrued daily and are deducted from total income before dividends are paid. Fund expenses, including a Fund’s share of expenses of SFI, are generally allocated between Funds and classes based on their respective net asset values. Class A and Class C expenses incurred pursuant to the Service and Distribution Plan (see “Distributor,” below) are borne by Class A and Class C directly, in accordance with the terms of that Plan. Expenses of Class A, Class C, and Institutional Class incurred pursuant to the Sub-Accounting Services Plan are borne by each class in accordance with the terms of that Plan, and the directors may determine that other expenses are specific to a particular class and should be allocated to that class.

  

    Page 35 of 52

 

 

Distributor

 

Crossmark Distributors, Inc. (“Crossmark Distributors”), located at 15375 Memorial Dr., Suite 200, Houston, Texas 77079, acts as the principal underwriter of the Funds’ shares pursuant to a written agreement. Crossmark Distributors has the exclusive right (except for distributions of shares directly by the Funds) to distribute shares of the Funds in a continuous offering through affiliated and unaffiliated dealers. Crossmark Distributors’ obligation is an agency or “best efforts” arrangement under which Crossmark Distributors is required to take and pay for only such Fund shares as may be sold to the public. Crossmark Distributors is not obligated to sell any stated number of shares. Except to the extent otherwise provided by the applicable Service and Distribution Plan (see below), Crossmark Distributors bears the cost of printing (but not typesetting) prospectuses used in connection with this offering and the cost and expense of supplemental sales literature, promotion, and advertising.

 

Michael L. Kern, III, CFA is President, Treasurer and a director of the Funds (commencing service as director on August 31, 2017) and is President, CEO and Treasurer and a director of Crossmark, Crossmark Distributors and Crossmark Consulting, and their parent company, Crossmark Global Holdings, Inc. Certain other officers of the Funds, James A. Coppedge and Patricia Mims, are also officers of Crossmark, Crossmark Distributors and Crossmark Consulting,. See the tables under “Directors and Executive Officers” above.

 

The Distribution Agreement, after an initial two-year term, is renewable from year to year if approved in each case (a) by the Board of SFI, or by a vote of a majority of the Fund’s outstanding voting securities and (b) by the affirmative vote of a majority of directors who are not parties to the Distribution Agreement or “interested persons,” as defined in the 1940 Act, of any party, by vote cast in person at a meeting called for such purpose. The Distribution Agreement provides that it will terminate if assigned, and that it may be terminated without penalty by either party on 60 days’ written notice.

 

SFI has adopted a Service and Distribution Plan (the “Plan”) pursuant to Rule 12b-1 of the 1940 Act for each Fund’s Class A and Class C shares, which permits each Fund, out of assets attributable to its Class A and Class C shares, to compensate Crossmark Distributors for its services in connection with the distribution of the Class A and Class C shares and for the provision of certain services to Class A and Class C shareholders. These services include, but are not limited to, the payment of compensation to securities dealers (which may include Crossmark Distributors itself) and other financial institutions and organizations (collectively, “Service Organizations”) to obtain various distribution-related and/or administrative services for the Funds. These services also include, among other things, processing new shareholder account applications, preparing and electronically transmitting to the Funds’ Transfer Agent information regarding all transactions by customers and serving as the primary source of information to customers in answering questions concerning the Funds and their transactions with the Funds. Crossmark Distributors is also authorized to engage in advertising, the preparation and distribution of sales literature, and other promotional activities on behalf of the Funds. In addition, the Plan authorizes Class A and Class C shares of each Fund to bear the cost of preparing, printing and distributing Fund prospectuses and Statements of Additional Information to prospective Class A and Class C investors and of implementing and operating the Plan. Institutional Class and Class R6 shares are not subject to the Plan.

 

Under the Plan, payments are made to Crossmark Distributors at an annual rate of 0.25% of the average net assets of Class A shares of each Fund and 1.00% of the average net assets of Class C shares of each Fund. Subject to these limits, Crossmark Distributors may reallow amounts up to 0.25% of Class A net assets and up to 1.00% of Class C net assets to Service Organizations (which may include the Distributor itself), such reallowances to be at an annual rate of 0.25% based on the average net asset value of Class A shares and 1.00% based on the average net asset value of Class C shares of that Fund held by shareholders for whom the Service Organization provides services. Any remaining amounts not so allocated will be retained by Crossmark Distributors. In the first year of a selling agreement with a Service Organization with respect to a Fund’s Class A or Class C shares, Crossmark Distributors compensates the Service Organization for the entire year in advance and collects the fees under the Plan from the applicable class of the Fund on a monthly basis. Thereafter, Crossmark Distributors pays such Service Organizations on a monthly basis.

 

Rule 12b-1 requires that the Plan and related agreements have been approved by a vote of the Board of SFI and by a vote of the directors who are not “interested persons” of SFI, as defined under the 1940 Act, and have no direct or indirect interest in the operation of the Plan or any agreements related to the Plan (the “Plan Directors”). The Plan will continue in effect for successive one-year periods provided that such continuance is specifically approved at least annually by a majority of the directors, including a majority of the Plan Directors. In determining whether to adopt or

 

    Page 36 of 52

 

 

continue the Plan, the directors must request and evaluate information they believe is reasonably necessary to make an informed determination of whether the Plan and related agreements should be implemented, and must conclude, in the exercise of reasonable business judgment and in light of their fiduciary duties, that there is a reasonable likelihood that the Plan and related agreements will benefit each applicable Fund, each class and their shareholders. Any change in the Plan that would materially increase the distribution expenses to be paid by a class requires approval by shareholders of the affected class, but otherwise, the Plan may be amended by the directors, including a majority of the Plan Directors.

 

As required by Rule 12b-1, the directors will review quarterly reports prepared by Crossmark Distributors on the amounts expended and the purposes for the expenditures. The Plan and related agreements may be terminated with respect to one or more Funds or classes at any time by a vote of the Plan Directors or by vote of a majority of the outstanding voting securities of each such Fund or class. As required by Rule 12b-1, selection and nomination of disinterested directors for SFI is committed to the discretion of the directors who are not “interested persons” of SFI, as defined under the 1940 Act.

 

The amounts paid to Crossmark Distributors and reallowed by Crossmark Distributors to other Service Organizations by the Class A shares and Class C shares of each Fund during its past fiscal year ended April 30, 2019 were as follows:

 

Fund

 

Total

12b-1

Fees Paid

   

Amount

Retained

by

Crossmark

Distributors

   

Amount Paid

to Other

Service

Organizations

                 
Class A                
Steward Large Cap Enhanced Index Fund $ 113,160   $ 4,957   $ 108,203
Steward Small-Mid Cap Enhanced Index Fund $ 194,611   $ 84,557   $ 110,054
Steward International Enhanced Index Fund $ 69,338   $ 2,143   $ 67,195
Steward Select Bond Fund $ 26,833   $ 2,715   $ 24,118
Steward Global Equity Income Fund $ 72,400   $ 4,814   $ 67,586
Steward Covered Call Income Fund $ 23   $ 0   $ 23
                 
Class C                
Steward Large Cap Enhanced Index Fund $ 0   $ 0   $ 0
Steward Small-Mid Cap Enhanced Index Fund $ 0   $ 0   $ 0
Steward International Enhanced Index Fund $ 0   $ 0   $ 0
Steward Select Bond Fund $ 0   $ 0   $ 0
Steward Global Equity Income Fund $ 1,938   $ 20   $ 1,918
Steward Covered Call Income Fund $ 0   $ 0   $ 0

 

Since the 12b-1 fees are not directly linked to expenses, the amount of 12b-1 fees paid by the Class A and Class C shares of a Fund during any year may be more or less than actual expenses incurred pursuant to the Plan. For this reason, this type of fee arrangement is characterized by the staff of the SEC as being of the “compensation” variety (in contrast to “reimbursement” arrangements by which a distributor’s payments are directly linked to its expenses).

 

The allocation of the total 12b-1 fees paid to Crossmark Distributors by the Class A shares and Class C shares of each Fund during its past fiscal year ended April 30, 2019 were as follows:

 

Fund

Advertising Printing
and
Mailing
Compensation
to Crossmark
Distributors
Compensation
to Other
Service
Organizations
Compensation
to Sales
Personnel
Interest,
Carrying,
or Other
Financing
Charges
             
Class A            
Steward Large Cap Enhanced Index Fund $0 $0 $4,957 $108,203 $0 $0
Steward Small-Mid Cap Enhanced Index Fund $0 $0 $84,557 $110,054 $0 $0

 

    Page 37 of 52

 

 

Fund Advertising Printing
and
Mailing
Compensation
to Crossmark
Distributors
Compensation
to Other
Service
Organizations
Compensation
to Sales
Personnel
Interest,
Carrying,
or Other
Financing
Charges
Steward International Enhanced Index Fund $0 $0 $2,143 $67,195 $0 $0
Steward Select Bond Fund $0 $0 $2,715 $24,118 $0 $0
Steward Global Equity Income Fund $0 $0 $4,814 $67,586 $0 $0
Steward Covered Call Income Fund $0 $0 $0 $23 $0 $0
             
Class C            
Steward Large Cap Enhanced Index Fund $0 $0 $0 $0 $0 $0
Steward Small-Mid Cap Enhanced Index Fund $0 $0 $0 $0 $0 $0
Steward International Enhanced Index Fund $0 $0 $0 $0 $0 $0
Steward Select Bond Fund $0 $0 $0 $0 $0 $0
Steward Global Equity Income Fund $0 $0 $20 $1,918 $0 $0
Steward Covered Call Income Fund $0 $0 $0 $0 $0 $0

 

Each Fund has also adopted a Sub-Accounting Services Plan with respect to its Class A, Class C and Institutional Class shares. The Institutional Class shares were added to the Plan by amendment effective April 1, 2016. The Sub-Accounting Services Plan, as amended effective April 1, 2019, provides that each Fund, out of the assets attributable to the applicable share class, shall reimburse Crossmark Distributors for payments by Crossmark Distributors to certain third-party providers that assist in the servicing of certain group accounts in which Fund shareholders of the applicable share class participate. For asset-based fee arrangements between Crossmark Distributors and third-party providers, the amounts payable to Crossmark Distributors may not exceed, on an annual basis, 0.20% of the average daily net assets of the applicable share class. For per-account arrangements between Crossmark Distributors and third-party providers, the amounts payable to Crossmark Distributors may not exceed, on an annual basis, $20 per account. These fees are in addition to any fees payable under the Service and Distribution Plan. Prior to April 1, 2019, the amounts payable to Crossmark Distributors could not exceed, on an annual basis, 0.10% of the average daily net assets of the applicable share class. Class R6 shares are not subject to the Sub-Accounting Services Plan.

 

The amounts paid to Crossmark Distributors and paid by Crossmark Distributors to third party providers pursuant to the Sub-Accounting Services Plan for the periods indicated are: 

 

    Page 38 of 52

 

  

Fund – Class A

Total
Sub-Accounting
Services
Fees Paid

Amount
Retained
by
Crossmark
Distributors

Amount Paid
to Third-Party
Providers

       
Steward Large Cap Enhanced Index Fund      
Year Ended April 30, 2019 $  44,857 $        0 $  44,857
Year Ended April 30, 2018 $  46,913 $        0 $  46,913
Year Ended April 30, 2017 $  51,350 $        0 $  51,350
       
Steward Small-Mid Cap Enhanced Index Fund      
Year Ended April 30, 2019 $  49,765 $        0 $  49,765
Year Ended April 30, 2018 $  34,116 $        0 $  34,116
Year Ended April 30, 2017 $  36,662 $        0 $  36,662
       
Steward International Enhanced Index Fund      
Year Ended April 30, 2019 $  26,861 $        0 $  26,861
Year Ended April 30, 2018 $  21,786 $        0 $  21,786
Year Ended April 30, 2017 $  16,952 $        0 $  16,952
       
Steward Select Bond Fund      
Year Ended April 30, 2019 $  10,699 $        0 $  10,699
Year Ended April 30, 2018 $  11,159 $        0 $  11,159
Year Ended April 30, 2017 $  11,228 $        0 $  11,228
       
Steward Global Equity Income Fund      
Year Ended April 30, 2019 $  72,400 $        0 $  72,400
Year Ended April 30, 2018 $  62,964 $        0 $  62,964
Year Ended April 30, 2017 $  52,857 $        0 $  52,857
       
Steward Steward Covered Call Income Fund      
Year Ended April 30, 2019 $         23 $        0 $         23
Period Ended April 30, 2018* $           0 $        0 $           0

 

Fund – Class C

Total
Sub-Accounting
Services
Fees Paid

Amount
Retained
by
Crossmark
Distributors

Amount Paid
to Third-Party
Providers

       
Steward Large Cap Enhanced Index Fund      
Year Ended April 30, 2019 $           0 $        0 $           0
Period Ended April 30, 2018* $           0 $        0 $           0
       
Steward Small-Mid Cap Enhanced Index Fund      
Year Ended April 30, 2019 $           0 $        0 $           0
Period Ended April 30, 2018* $           0 $        0 $           0

 

    Page 39 of 52

 

  

Fund – Class C

Total
Sub-Accounting
Services
Fees Paid

Amount
Retained
by
Crossmark
Distributors

Amount Paid
to Third-Party
Providers

       
Steward International Enhanced Index Fund      
Year Ended April 30, 2019 $           0 $        0 $           0
Period Ended April 30, 2018* $           0 $        0 $           0
       
Steward Select Bond Fund      
Year Ended April 30, 2019 $           0 $        0 $           0
Period Ended April 30, 2018* $           0 $        0 $           0
       
Steward Global Equity Income Fund      
Year Ended April 30, 2019 $         32 $        0 $         32
Period Ended April 30, 2018* $           0 $        0 $           0
       
Steward Steward Covered Call Income Fund      
Year Ended April 30, 2019 $           0 $        0 $           0
Period Ended April 30, 2018* $           0 $        0 $           0

 

Fund – Institutional Class

Total
Sub-Accounting
Services
Fees Paid

Amount
Retained
by Crossmark Distributors

Amount Paid
to Third-Party
Providers

       
Steward Large Cap Enhanced Index Fund      
Year Ended April 30, 2019 $ 177,620 $        0 $ 177,620
Year Ended April 30, 2018 $ 153,872 $        0 $ 153,872
Year Ended April 30, 2017 $   55,808 $        0 $   55,808
       
Steward Small-Mid Cap Enhanced Index Fund      
Year Ended April 30, 2019 $  65,456 $        0 $  65,456
Year Ended April 30, 2018 $  50,261 $        0 $  50,261
Year Ended April 30, 2017 $  14,864 $        0 $  14,864
       
Steward International Enhanced Index Fund      
Year Ended April 30, 2019 $  51,479 $        0 $  51,479
Year Ended April 30, 2018 $  52,725 $        0 $  52,725
Year Ended April 30, 2017 $  13,643 $        0 $  13,643
       
Steward Select Bond Fund      
Year Ended April 30, 2019 $  82,107 $        0 $  82,107
Year Ended April 30, 2018 $  70,367 $        0 $  70,367
Year Ended April 30, 2017 $  24,743 $        0 $  24,743

 

    Page 40 of 52

 

 

Fund – Institutional Class

Total
Sub-Accounting
Services
Fees Paid

Amount
Retained
by Crossmark Distributors

Amount Paid
to Third-Party
Providers

       
Steward Global Equity Income Fund      
Year Ended April 30, 2019 $ 112,963 $        0 $ 112,963
Year Ended April 30, 2018 $   92,805 $        0 $   92,805
Year Ended April 30, 2017 $   38,857 $        0 $   38,857
       
Steward Covered Call Income Fund      
Year Ended April 30, 2019 $        797 $        0 $        797
Period Ended April 30, 2018* $            0 $        0 $            0

 

* Steward Covered Call Income Fund and Class C shares of each Fund commenced operations effective December 14, 2017.

 

Class C shares are subject to a CDSC of 1.00% if you redeem your shares within twelve months of purchase. When you redeem Class C shares that are subject to the CDSC, the CDSC is based on the original purchase cost or current market value of the shares sold, whichever is less. In processing orders to redeem shares, shares not subject to the CDSC are redeemed first. The CDSC is not imposed when you exchange from one fund into another, but you may be subject to the CDSC if you redeem your exchanged shares prior to twelve months from the date you originally purchased shares. The CDSC is paid to the Funds’ distributor, Crossmark Distributors.

The following table shows any CDSCs paid to Crossmark Distributors on Class C shares for the noted fiscal periods:

 

Fund

Class C Shares

   
Steward Large Cap Enhanced Index Fund  
Year Ended April 30, 2019 $  0
Period Ended April 30, 2018* $  0
   
Steward Small-Mid Cap Enhanced Index Fund  
Year Ended April 30, 2019 $  0
Period Ended April 30, 2018* $  0
   
Steward International Enhanced Index Fund  
Year Ended April 30, 2019 $  0
Period Ended April 30, 2018* $  0
   
Steward Select Bond Fund  
Year Ended April 30, 2019 $  0
Period Ended April 30, 2018* $  0
   
Steward Global Equity Income Fund  
Year Ended April 30, 2019 $  0
Period Ended April 30, 2018* $  0
   
Steward Covered Call Income Fund  
Year Ended April 30, 2019 $  0
Period Ended April 30, 2018* $  0

 

* Steward Covered Call Income Fund and Class C shares of each Fund commenced operations effective December 14, 2017.

 

    Page 41 of 52

 

 

PORTFOLIO TRANSACTIONS AND BROKERAGE

 

Crossmark is responsible for the placement of portfolio business and the negotiation of the commissions paid on the Funds’ securities transactions. It is the policy of Crossmark to seek the best security price or “best execution” available with respect to each transaction. In over-the-counter transactions, orders are placed directly with a principal market maker unless it is believed that a better price and execution can be obtained by using a broker. Crossmark seeks the best security price at the most favorable commission rate. In selecting dealers and in negotiating commissions, Crossmark considers the firm’s reliability, the quality of its execution services on a continuing basis and its financial condition. When more than one firm is believed to meet these criteria, preference may be given to firms that also provide research services to the Funds or Crossmark. In addition, Crossmark may cause a Fund to pay a broker that provides brokerage and research services a commission in excess of the amount another broker might have charged for effecting a securities transaction, subject to certain guidelines promulgated by the Securities and Exchange Commission (the “SEC”) from time to time. Such higher commission may be paid if Crossmark determines in good faith that the amount paid is reasonable in relation to the services received in terms of the particular transaction or Crossmark’s overall responsibilities to the particular Fund and to Crossmark’s other clients. Such research services must provide lawful and appropriate assistance to Crossmark in the performance of its investment decision-making responsibilities and may include advice, both directly and in writing, as to the value of the securities, the advisability of investing in, purchasing or selling securities, and the availability of securities, or purchasers or sellers of securities, as well as furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts.

 

Crossmark makes investment decisions and places portfolio transactions for other advisory accounts including other investment companies. Research services furnished by firms through which a Fund effects securities transactions may be used by Crossmark in servicing all of its accounts. Therefore, not all of such services may be used by Crossmark in connection with that Fund. Crossmark has arrangements to receive research only with respect to accounts for which it exercises brokerage discretion. Many of Crossmark’s clients have not granted Crossmark brokerage discretion and, therefore, any research services received as a result of paying commissions in excess of the amount another broker might have charged are subsidized by accounts that have granted Crossmark such discretion. Other research received, although not by a specific arrangement, may also be used by Crossmark in providing service to other accounts, including one or more Funds. In the opinion of Crossmark, the benefits from research services to each of the accounts (including the Funds) managed by Crossmark cannot be measured separately. Crossmark seeks to allocate portfolio transactions equitably whenever concurrent decisions are made to purchase or sell securities by a Fund and another advisory account. In some cases, this procedure could have an adverse effect on the price or the amount of securities available to a Fund. In making such allocations among a Fund and other advisory accounts, the main factors considered by Crossmark are the respective investment objectives, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held, and opinions of the persons responsible for recommending the investment.

 

The Funds paid the following commissions during their three most recent fiscal years:

 

    Page 42 of 52

 

 

Fund

Commissions
Paid (a)

Approximate
Percent Paid
to Brokers
Who
Furnished
Research
Services

     
Steward Large Cap Enhanced Index Fund    
Year Ended April 30, 2019 $  135,972 100%
Year Ended April 30, 2018 $  102,918 100%
Year Ended April 30, 2017 $  114,876 100%
     
Steward Small-Mid Cap Enhanced Index Fund    
Year Ended April 30, 2019 $  232,579 100%
Year Ended April 30, 2018 $  156,569 100%
Year Ended April 30, 2017 $  161,915 100%
     
Steward International Enhanced Index Fund    
Year Ended April 30, 2019 $  37,898 100%
Year Ended April 30, 2018 $  42,384 100%
Year Ended April 30, 2017 $  44,151 100%
     
Steward Select Bond Fund    
Year Ended April 30, 2019 $  78,750 100%
Year Ended April 30, 2018 $  12,925 100%
Year Ended April 30, 2017 $  50,604 100%
     
Steward Global Equity Income Fund    
Year Ended April 30, 2019 $ 280,682 100%
Year Ended April 30, 2018 $ 345,503 100%
Year Ended April 30, 2017 $ 305,428 100%
     
Steward Covered Call Income Fund    
Year Ended April 30, 2019 $  74,328 100%
Period Ended April 30, 2018(b) $  31,488 100%

 

(a) No commissions were paid to affiliated brokers.
(b) Steward Covered Call Income Fund commenced operations effective December 14, 2017.

 

For the most recent fiscal year, each Fund allocated the following amount of transactions, and related commissions, to broker-dealer firms that have been deemed by Crossmark to provide research services. The provision of research services was not necessarily a factor in the placement of business with such firms.

 

    Page 43 of 52

 

 

Fund Capital Institutional Services Cowen & Company Investment Technology Group Kinder Morgan Merrill Lynch

Raymond

James

Virtu Financial BD
Steward Small-Mid Cap Enhanced Index Fund      
Commissions $0 $0 $229,091 $0 $0 $0 $3,488
Transactions $0 $0 $153,986,208 $0 $0 $0 $6,909,314
Steward Large Cap Enhanced Index Fund      
Commissions $0 $0 $134,308 $0 $0 $0 $1,664
Transactions $0 $0 $212,735,318 $0 $0 $0 $3,976,567
Steward Select Bond Fund      
Commissions $52,500 $0 $0 $0 $15,000 $11,250 $0
Transactions $24,819,342 $0 $0 $0 $6,040,890 $4,509,490 $0
Steward International Enhanced Index Fund      
Commissions $0 $0 $37,898 $0 $0 $0 $0
Transactions $0 $0 $37,520,711 $0 $0 $0 $0
Steward Global Equity Income Fund      
Commissions $0 $0 $277,348 $0 $0 $0 $3,334
Transactions $0 $0 $189,183,622 $0 $0 $0 $3,190,991
Steward Covered Call Income Fund      
Commissions $0 $68,462 $4,358 $210 $0 $0 $1,299
Transactions $0 $23,214,064 $12,367,885 $106,710 $0 $0 $4,899,647

  

 

Listed below are the regular brokers or dealers (as such term is defined in the 1940 Act) of each Fund whose securities each Fund held as of the end of its most recent fiscal year and the dollar value of such securities.

 

Fund

Security Issuer

Value of Holdings

Steward Large Cap Enhanced Index Fund
  Ameriprise Financial, Inc. $304,695
  Bank of New York Mellon Corp. $965,937
  Charles Schwab Corp. $727,902
  E*Trade Financial Corp. $227,869
  Goldman Sachs Group, Inc. $1,809,213
  Invesco Ltd. $1,310,511
  Morgan Stanley $1,794,900
  Northern Trust Corp. $295,650
  Raymond James Financial, Inc. $586,964
  State Street Corp $858,402
  T. Rowe Price Group, Inc. $141,988
Steward Small-Mid Cap Enhanced Index Fund
  Eaton Vance Corp. $106,726
  Evercore Partners, Inc. $310,528
  Greenhill & Company, Inc. $27,958
  INTL FCStone, Inc. $290,004
  Janus Henderson Group $424,184

 

    Page 44 of 52

 

 

  Legg Mason, Inc. $473,987
  MarketAxess Holdings, Inc. $555,547
  Piper Jaffray Companies, Inc. $49,972
  SEI Investments Co. $410,553
  Stifel Financial Corp. $398,297
Steward International Enhanced index Fund
  Credit Suisse Group $698,902
  Deutsche Bank AG $327,309
  UBS Group AG $1,174,118
Steward Select Bond Fund
  Charles Schwab Corp. $1,278,273
  Goldman Sachs Group, Inc. $1,704,607
  Morgan Stanley $1,571,895
Steward Global Equity Income Fund
  N/A  
Steward Covered Call Income Fund
  Bank of New York Mellon Corp. $173,810
  Goldman Sachs Group, Inc. $205,920
  Morgan Stanley $270,200

 

Portfolio Turnover

 

A Fund’s portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the particular year by the monthly average value of the portfolio securities owned by the Fund during the past fiscal year. For purposes of determining the rate, all short-term securities, including options, futures, forward contracts, and repurchase agreements, are excluded. Significant variations in the portfolio turnover rate for a Fund are generally primarily attributable to market volatility and duration of portfolio investments.

 

A high portfolio turnover rate generally will result in higher brokerage transaction costs and may result in higher levels of realized capital gains or losses with respect to a Fund’s portfolio securities. (See “Federal Income Taxes,” below.)

 

A Fund’s portfolio securities may be turned over whenever necessary or appropriate in the opinion of the Fund’s management to seek the achievement of the basic objective of the Fund. The Funds do not intend to invest to obtain control of portfolio companies.

 

The turnover rate of Steward Large Cap Enhanced Index Fund’s portfolio was 27% for the fiscal year ended April 30, 2019, and 23% for the fiscal year ended April 30, 2018.

The turnover rate of Steward Small-Mid Cap Enhanced Index Fund’s portfolio was 33% for the fiscal year ended April 30, 2019, and 29% for the fiscal year ended April 30, 2018.

 

The turnover rate of Steward International Enhanced Index Fund’s portfolio was 10% for the fiscal year ended April 30, 2019, and 10% for the fiscal year ended April 30, 2018.

The turnover rate of Steward Select Bond Fund’s portfolio was 25% for the fiscal year ended April 30, 2019, and 5% for the fiscal year ended April 30, 2018.

The turnover rate of Steward Global Equity Income Fund’s portfolio was 28% for the fiscal year ended April 30, 2019, and 59% for the fiscal year ended April 30, 2018.

Steward Covered Call Income Fund commenced operations effective December 14, 2017. The turnover rate of the Fund’s portfolio was 117% for the fiscal year ended April 30, 2019, and 29% for the period from December 14, 2017 to April 30, 2018. 

 

    Page 45 of 52

 

 

Personal Trading Policies

 

The Funds, Crossmark, Crossmark Distributors and Crossmark Wealth Management, LLC have adopted a combined written Code of Ethics under Rule 17j-1 under the 1940 Act. Consistent with requirements of that Rule, the Code permits persons subject to the Code to invest in securities, including securities that may be purchased by the Funds, provided that such persons obtain prior clearance before engaging in such transactions, subject to certain exceptions.

 

Proxy Voting Policies and Procedures

 

The Board of SFI has approved the proxy voting policies and procedures of Crossmark as the policies and procedures to be used in voting proxies on securities held by the Funds. Copies of the Crossmark proxy voting policies and procedures are attached as Exhibit A to this SAI.

 

The guidelines address matters that are commonly submitted to shareholders of a company for voting, such as issues relating to corporate governance, auditors, the board of directors, capital structure, executive and director compensation, and mergers and corporate restructurings. Subject to the supervision and oversight of the Proxy Officer, and the authority of the Proxy Officer to intervene with respect to a particular proxy matter, the Proxy Assistant is obligated to vote all proxies as set forth in the guidelines. Where a voting matter is not specifically addressed in the guidelines or there is a question as to the outcome, the Proxy Assistant is obligated to request additional direction from the Proxy Officer. The Proxy Assistant is obligated to maintain records of all votes received, all votes cast, and other relevant information.

 

Shareholders may obtain information on how proxies were voted during the most recent 12-month period ended June 30 for Funds in which they hold shares without charge, by calling (toll-free) 1-800-262-6631, and on the SEC’s website at http://www.sec.gov.

 

DETERMINATION OF NET ASSET VALUE

 

The purchase and redemption price for shares of each class of a Fund is the per-share net asset value (“NAV”) for that class that is next determined after an investor’s purchase or sale order is received by the Fund, Transfer Agent or authorized dealer. NAV is generally calculated as of the close of regular trading on the New York Stock Exchange (the “Exchange”), normally 4:00 p.m. Eastern Time, on each day the Exchange is open for trading, provided that certain derivatives are priced as of 4:15 p.m. Eastern Time. The Funds do not price their shares on days the Exchange is closed for trading — normally, weekends, national holidays and Good Friday. In addition to days the Exchange is closed for trading, Steward Select Bond Fund does not price its shares on days the bond markets are closed for trading. Such additional days are normally Columbus Day and Veterans Day. NAV of a class reflects the aggregate assets less the liabilities attributable to that class. Equity securities listed on a domestic or foreign exchange are valued at the last sale price on the day of valuation or, if there was no sale that day, at the mean between the last reported bid and asked prices as of the close of trading. Equity securities traded on The NASDAQ Stock Market LLC (“Nasdaq”) use the official closing price, if available, and otherwise, use the last reported sale price, or the mean between the last reported bid and asked prices if there was no sale on that day. Equity securities that are traded in the over-the-counter market only, but that are not included on Nasdaq, are valued at the last sale price on the day of valuation. These prices will be obtained by the Funds’ accounting agent from an approved pricing source.

 

Exchange-traded options are valued (i) at the last reported sale price, or, (ii) if there is no last sale price, at the most recent bid for long options and the most recent ask for short options.Debt securities (other than short-term obligations), including listed issues, are valued at the bid price as obtained from an approved pricing source. Short-term debt obligations (those with remaining maturities of 60 days or less) are valued at amortized cost. Each of these methods has been determined in good faith by the Board to represent fair value for the affected securities.

 

If securities or other assets held by the Funds cannot be valued as set forth above or if a market price or quotation for a security or other asset is not readily available, or cannot be determined, or if any market price or quotation is deemed to be unreliable or inaccurate by Crossmark, the security will be priced at its fair value in accordance with procedures approved by the Board. It cannot be assured that any such fair value determination represents the price at which the particular securities could be sold during the period in which such fair value prices are used to determine the value of the Fund’s assets. Thus, during periods when one or more of a Fund’s securities are valued at fair value, there is the

 

    Page 46 of 52

 

 

risk that sales and redemptions of Fund shares at prices based on these values may dilute or increase the economic interests of remaining shareholders.

 

A Fund may invest in non-U.S. securities that trade in a foreign market where closing prices are established prior to the time closing prices are established for U.S.-traded securities. If an event were to occur after the value of a Fund’s portfolio security was so established but before the Fund’s NAV per share is determined that is likely to change materially the value of said portfolio security and therefore change the Fund’s NAV, the Fund’s investment would be valued at its fair value in accordance with procedures established by the Board. Additionally, because non-U.S. markets may be open on days and at times when U.S. markets are closed, the value of shares of a Fund that invests in such securities can change on days when shareholders are not able to buy or sell Fund shares.

 

HOW TO BUY AND REDEEM SHARES

 

Shares of the Funds are sold in a continuous offering without a sales charge and may be purchased on any business day through authorized dealers, including Crossmark Distributors. Certain broker-dealers assist their clients in the purchase of shares from Crossmark Distributors and may charge a fee for this service in addition to the applicable NAV price for the shares. After each investment, the shareholder and the authorized investment dealer receive confirmation statements of the number of shares purchased and owned.

 

Minimum Investment

 

Class A and Class C shares - The minimum initial investment is $1,000 per Fund for regular accounts and for individual retirement accounts. The minimum initial investment is waived for continuous investment plans through which at least $50 is invested per transaction. There is no minimum for subsequent purchases.

 

Class R6 shares – There is no minimum investment. Class R6 shares are sold only through authorized dealers; they are not available for purchase directly through the Funds’ distributor.

 

Institutional Class shares - The minimum initial investment is $100,000 per Fund, except that for Charitable Trusts or Grantor Trusts for which a charitable organization serves as trustee, the minimum initial investment is $25,000 per Fund. The minimum subsequent per Fund investment is $1,000.

 

No stock certificates representing shares purchased will be issued. The Funds’ management reserves the right to reject any purchase order if, in its opinion, it is in a Fund’s best interest to do so. The minimum investment requirements may be waived in the case of certain third-party subaccounting arrangements and for investments through fee-based advisory programs and defined contribution retirement plan platforms where all trades are made through the National Securities Clearing Corporation.

 

The Independent Directors of SFI may invest in Institutional Class shares without regard to the stated minimum investment requirements. Generally, shareholders may require the Funds to redeem their shares by sending a written request, signed by the record owner(s), to Steward Funds, Inc. c/o The Northern Trust Company, P.O. Box 4766, Chicago, IL 60680-4766. In addition, certain expedited redemption methods are available.

 

DIVIDENDS AND DISTRIBUTIONS

 

Each Fund’s policy is to distribute each year to shareholders substantially all of its investment company taxable income determined without regard to the deduction for dividends paid (which includes, among other items, dividends, interest and the excess of net short-term capital gains over net long-term capital losses). Each Fund intends to declare and pay income dividends quarterly. Each Fund intends to distribute to shareholders at least annually any net realized capital gains (the excess of net long-term capital gains over net short-term capital losses). All dividends and capital gains distributions are reinvested in shares of the applicable Fund at net asset value without sales commission, except that any shareholder may otherwise instruct the Transfer Agent in writing and receive either type, or both types, of distributions in cash. Any dividend or distribution paid shortly after a purchase of shares by an investor will have the effect of reducing the per-share net asset value of his or her shares by the amount of the dividend or distribution. All or a portion of any such dividend or distribution, although in effect a return of capital, may be taxable, as set forth below. 

 

    Page 47 of 52

 

 

FEDERAL INCOME TAXES

 

Set forth below is a discussion of certain U.S. federal income tax issues concerning the Funds and the purchase, ownership, and disposition of Fund shares. This discussion does not purport to be complete or to deal with all aspects of federal income taxation that may be relevant to shareholders in light of their particular circumstances. This discussion is based upon present provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the regulations promulgated thereunder, and judicial and administrative ruling authorities, all of which are subject to change, which change may be retroactive. Prospective investors should consult their own tax advisers with regard to the federal tax consequences of the purchase, ownership, or disposition of Fund shares, as well as the tax consequences arising under the laws of any state, foreign country, or other taxing jurisdiction.

 

Each Fund intends to be taxed as a regulated investment company under Subchapter M of the Code. Accordingly, each Fund generally must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities, or foreign currencies, other income derived with respect to its business of investing in such stock, securities, or currencies, and net income derived from interests in qualified publically traded partnerships; and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the value of the Fund’s total assets is represented by cash and cash items, U.S. Government securities, the securities of other regulated investment companies, and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund’s total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities (other than U.S. Government securities and the securities of other regulated investment companies) of any one issuer; or any two issuers which the Fund controls that are engaged in similar trades or businesses or; in the securities of one or more qualified publicity traded partnerships.

 

As a regulated investment company, a Fund generally is not subject to U.S. federal income tax on income and gains that it distributes to shareholders, if at least 90% of the Fund’s investment company taxable income determined without regard to the deduction for dividends paid (which includes, among other items, dividends, interest and the excess of any net short-term capital gains over net long-term capital losses) and net tax-exempt income for the taxable year is distributed. Each Fund intends to distribute substantially all of such income. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, a Fund must distribute during each calendar year an amount equal to the sum of (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (2) at least 98.2% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year, and (3) all ordinary income and capital gains for previous years that were not distributed during such years. To avoid application of the excise tax, each Fund intends to make distributions in accordance with the calendar year distribution requirement. A distribution will be treated as paid on December 31 of a calendar year if it is declared by a Fund in October, November or December of that year with a record date in such a month and paid by the Fund during January of the following year. Such distributions will be taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received.

 

SFI is organized as a Maryland corporation and, under current law, the Funds are not liable for any income or franchise tax in the State of Maryland, provided that the Funds qualify as regulated investment companies for purposes of Maryland law and do not have any income subject to federal income tax.

 

Taxation of Certain Fund Investments

 

Some of the Funds’ investment practices are subject to special and complex federal income tax provisions that may, among other things, (i) convert distributions that would otherwise constitute qualified dividend income into ordinary income taxed at the higher rates applicable to ordinary income, (ii) treat distributions that would otherwise be eligible for the corporate dividends-received deduction as ineligible for such treatment, (iii) disallow, suspend, or otherwise limit the allowance of certain losses or deductions, (iv) convert long-term capital gains into short-term capital gains or ordinary income, (v) convert an ordinary loss or deduction into a capital loss (the deductibility of which is more limited), (vi) cause the Fund to recognize income or gain without a corresponding receipt of cash, (vii) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (viii) adversely alter the 

 

    Page 48 of 52

 

 

characterization of certain complex financial transactions, and (ix) produce income that will not be included in the sources of income from which a regulated investment company must derive 90% of its gross income each year.

 

The Code also contains a so-called “wash sale” rule pursuant to which losses incurred by a Fund from the sale or other disposition of securities, or contracts or options to sell or acquire securities, will not be deductible (but instead, must be added to the Fund’s basis in the newly acquired securities) if, within 30 days either before or after the date of such sale or exchange, the Fund acquires or enters into a contract or option to acquire substantially identical securities, or substantially identical contracts or options, respectively. The application of the wash sale rules to a Fund could cause deferral of losses on sales that could increase the Fund’s taxable distributions.

 

If a Fund invests in certain pay-in-kind securities, zero coupon securities, deferred interest securities or, in general, any other securities with original issue discount (or with market discount if the Fund elects to include market discount in income currently), the Fund must accrue income on such investments for each taxable year, which generally will be prior to the receipt of the corresponding cash payments. However, a Fund must distribute to shareholders, at least annually, all or substantially all of its investment company taxable income (determined without regard to the deduction for dividends paid), including such accrued income, to avoid federal income and excise taxes. Therefore, a Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or may have to leverage itself by borrowing the cash, to satisfy these distribution requirements.

 

A Fund may also acquire market discount bonds. A market discount bond is a security acquired in the secondary market at a price below its redemption value (or its adjusted issue price if it is also an original issue discount bond). If a Fund invests in a market discount bond, it will be required to treat any gain recognized on the disposition of such market discount bond as ordinary income (instead of capital gain) to the extent of the accrued market discount unless the Fund elects to include the market discount in income as it accrues.

 

A Fund’s investment in lower-rated or unrated debt securities may present issues for the Fund if the issuers of these securities default on their obligations because the federal income tax consequences to a holder of such securities are not certain.

 

Generally, the character of the income or capital gains that a Fund receives from another investment company will pass through to the Fund’s shareholders as long as the Fund and the other investment company each qualify as regulated investment companies. However, to the extent that another investment company that qualifies as a regulated investment company realizes net losses on its investments for a given taxable year, a Fund will not be able to recognize its share of those losses until it disposes of shares of such investment company. Moreover, even when a Fund does make such a disposition, a portion of its loss may be recognized as a long-term capital loss. As a result of the foregoing rules, and certain other special rules, it is possible that the amounts of net investment income and net capital gains that a Fund will be required to distribute to shareholders will be greater than such amounts would have been had the Fund invested directly in the securities held by the investment companies in which it invests, rather than investing in shares of the investment companies. For similar reasons, the character of distributions from a Fund (e.g., long-term capital gain, qualified dividend income, etc.) will not necessarily be the same as it would have been had the Fund invested directly in the securities held by the investment companies in which it invests.

 

A Fund’s investments in REIT equity securities, if any, may result in the receipt of cash in excess of the REIT’s earnings. If a Fund distributes such amounts, such distributions could constitute a return of capital to shareholders for federal income tax purposes. In addition, such investments in REIT equity securities may require the Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, a Fund may be required to sell securities in its portfolio that it otherwise would have continued to hold.

 

For taxable years beginning after December 31, 2017 and before January 1, 2026, qualified REIT dividends (i.e., REIT dividends other than capital gain dividends and portions of REIT dividends designated as qualified dividend income) are eligible for a 20% federal income tax deduction in the case of individuals, trusts and estates. A Fund that receives qualified REIT dividends may elect to pass the special character of this income through to its shareholders. To be eligible to treat distributions from a Fund as qualified REIT dividends, a shareholder must hold shares of the Fund for more than 45 days during the 91-day period beginning on the date that is 45 days before the date on which the shares become ex-dividend with respect to such dividend and the shareholder must not be under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or 

 

    Page 49 of 52

 

 

related property. If a Fund does not elect to pass the special character of this income through to shareholders or if a shareholder does not satisfy the above holding period requirements, the shareholder will not be entitled to the 20% deduction for the shareholder’s share of the Fund’s qualified REIT dividend income while direct investors in REITs may be entitled to the deduction.

 

Foreign exchange gains and losses realized by a Fund in connection with certain transactions involving foreign currency-denominated debt securities, certain options and futures contracts relating to foreign currency, foreign currency forward contracts, foreign currencies, or payables or receivables denominated in a foreign currency are subject to section 988 of the Code, which generally causes such gain and loss to be treated as ordinary income or loss and may affect the amount, timing and character of distributions to shareholders.

 

A Fund may be subject to withholding and other taxes imposed by foreign countries, including taxes on interest, dividends, and capital gains with respect to its investments in those countries, which would, if imposed, reduce the yield on or return from those investments. Tax treaties between certain countries and the United States may reduce or eliminate such taxes in some cases. If more than 50% of the value of a Fund’s total assets at the close of its taxable year consists of stock or securities of foreign corporations, or if the Fund is a qualified fund of funds, such Fund will be eligible to elect to pass through to the Fund’s shareholders the amount of eligible foreign income and similar taxes paid by the Fund, or in the case of a qualified fund of funds, such taxes paid by an underlying fund that has made the election. If this election is made, a shareholder generally subject to federal income tax will be required to include in gross income (in addition to taxable dividends actually received) his, her or its pro rata share of foreign taxes in computing his, her or its taxable income and to use such amount as a credit against his, her or its federal income tax liability or deduct such amount in lieu of claiming a credit, in each case subject to certain limitations. If a Fund does not satisfy the requirements for passing through to its shareholders their proportionate share of any foreign taxes paid by the Fund, shareholders will not be required to include such taxes in their gross incomes and will not be entitled to claim a tax deduction or credit for such taxes on their own federal income tax returns.

 

Distributions

 

Distributions of investment company taxable income are generally taxable to a U.S. shareholder as ordinary income, whether paid in cash or in shares. Dividends paid by a Fund to a corporate shareholder, to the extent such dividends are attributable to dividends received by the Fund from U.S. corporations, may, subject to limitation, be eligible for the dividends-received deduction. Dividends that constitute “qualified dividend income” may be taxable to individual and other noncorporate investors at the same rates applicable to long-term capital gains, provided certain holding period and other requirements are satisfied. (See “Divdends, Distributions, and Tax Matters – Federal Income Tax Treatment of Dividends, Distributions, and Redemptions,” in the Prospectus.)

 

Properly designated distributions of net capital gains, if any, will generally be taxable to shareholders as long-term capital gains, regardless of how long the shareholder has held a Fund’s shares, and are not eligible for the dividends-received deduction or qualified dividend income treatment.

 

Shareholders will be notified annually as to the U.S. federal income tax status of distributions, and shareholders receiving distributions in the form of newly issued shares will receive a report as to the NAV of the shares received.

 

If the NAV of a Fund’s shares is reduced below a shareholder’s cost as a result of a distribution by the Fund, such distribution generally will be taxable even though it represents a return of invested capital. Investors should be careful to consider the tax implications of buying shares of a Fund just prior to a distribution. The price of shares purchased at this time will include the amount of the forthcoming distribution, but the distribution will generally be taxable to the shareholder.

 

If a Fund retains its net capital gains, although there are no plans to do so, the Fund may elect to treat such amounts as having been distributed to shareholders. As a result, the shareholders would be subject to tax on their proportionate share of the undistributed capital gains, would be able to claim their proportionate share of the federal income taxes paid by the Fund on such gain as a credit against their own federal income tax liabilities, and would be entitled to increase the basis of their Fund shares by the difference between the amount of undistributed net capital gains included in their gross income and the tax deemed paid by the shareholder. 

 

    Page 50 of 52

 

 

In order for some portion of the dividends received by a shareholder to be qualified dividend income, the Fund must meet certain holding period and other requirements with respect to some portion of the dividend-paying stocks in its portfolio, and the shareholder must meet the same holding period and other requirements with respect to the shareholder’s Fund shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (i) if the dividend is received with respect to any share of stock held (or treated as held) for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (ii) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (iii) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (iv) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation that is readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company or surrogate foreign corporation that is not treated as a domestic corporation.

 

In general, dividends of net investment income received by corporate shareholders of a Fund will qualify for the dividends-received deduction generally available to corporations to the extent of the amount of eligible dividends received by the Fund from domestic corporations for the taxable year. A dividend received by the Fund will not be treated as a qualifying dividend (i) if it has been received with respect to any share of stock that the Fund has held (or is treated as holding) for less than 46 days (91 days in the case of certain preferred stock) during the 91-day period beginning on the date which is 45 days before the date on which such share becomes ex-dividend with respect to such dividend (during the 181-day period beginning 90 days before such date in the case of certain preferred stock) or (ii) to the extent that the Fund is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Moreover, the dividends-received deduction may be disallowed or reduced (i) if a corporate shareholder fails to satisfy the foregoing requirements with respect to its shares of the Fund or (ii) by application of various provisions of the Code (for instance, the dividends-received deduction is reduced in the case of a dividend received on debt-financed portfolio stock (generally, stock acquired with borrowed funds)). For purposes of determining the holding period for stock on which a dividend is received, such holding period is reduced for any period the recipient has an option to sell, is under a contractual obligation to sell, or has made (and not closed) a short sale of substantially identical stock or securities, and in certain other circumstances.

 

Steward Covered Call Income Fund’s use of a covered call strategy could cause distributions that would otherwise qualify for the dividends-received deduction or constitute qualified dividend income to fail to satisfy the applicable holding period requirements.

 

Disposition of Shares

 

Upon a redemption, sale or exchange of shares of a Fund, a shareholder will realize a taxable gain or loss depending upon his, her or its basis in the shares. A gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder’s hands, and the rate of tax will depend upon the shareholder’s holding period for the shares. Gain or loss realized on shares held more than one year is generally long-term. Any loss realized on a redemption, sale or exchange will be disallowed to the extent the shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days, beginning 30 days before and ending 30 days after the shares are disposed of. In such a case the basis of the shares acquired will be adjusted to reflect the disallowed loss. If a shareholder holds Fund shares for six months or less and during that period receives a distribution taxable to the shareholder as long-term capital gain, any loss realized on the sale of such shares during such six-month period would be a long-term loss to the extent of such distribution. Shareholders may be limited in their ability to utilize capital losses.

 

Backup Withholding

 

Each Fund generally will be required to withhold federal income tax at a rate of 24% under current law (“backup withholding”) from dividends, capital gains distributions, and redemption proceeds paid to shareholders if (1) the shareholder fails to furnish the Fund with the shareholder’s correct taxpayer identification number or social security number, (2) the Internal Revenue Service (the “IRS”) notifies the shareholder that he or she has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect, or (3) when required to 

 

    Page 51 of 52

 

 

do so, the shareholder fails to certify that he or she is not subject to backup withholding. Any amounts withheld may be credited against the shareholder’s federal income tax liability.

 

Affordable Care Act

 

An additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gains distributions received from the Funds and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in the case of an estate or trust) exceeds specified threshold amounts.

 

Other Taxation

 

Distributions may be subject to additional state, local and foreign taxes, depending on each shareholder’s particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly from those summarized above, including the likelihood that distributions to them may be subject to withholding of U.S. tax at a rate of 30% (or a lower treaty rate, if applicable). Sections 1471-1474 of the Code and the U.S. Treasury and IRS guidance issued thereunder (collectively, “FATCA”) generally require a Fund to obtain information sufficient to identify the status of each of its shareholders. If a shareholder fails to provide this information or otherwise fails to comply with FATCA, a Fund may be required to withhold under FATCA at a rate of 30% with respect to that shareholder on Fund dividends and distributions and on the proceeds of the sale, redemption, or exchange of Fund shares. A Fund may disclose the information that it receives from (or concerning) its shareholders to the IRS, non-U.S. taxing authorities, or other parties as necessary to comply with FATCA, related intergovernmental agreements, or other applicable law or regulation. Each investor is urged to consult its tax advisor regarding the applicability of FATCA and any other reporting requirements with respect to the investor’s own situation, including investments through an intermediary.

 

Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund.

 

OTHER INFORMATION

 

Custody of Assets. Effective April 29, 2019, all securities owned by the Funds and all cash, including proceeds from the sale of shares of the Funds and of securities in the Funds’ investment portfolios, are held by The Northern Trust Company, 50 South LaSalle Street, Chicago, IL 60603.

 

Shareholder Reports. Semi-annual statements are furnished to shareholders, and annually such statements are audited by the independent accountants.

 

Independent Registered Public Accounting Firm. Cohen & Company, Ltd., the independent registered public accounting firm for the Funds, performs annual audits of the Funds’ financial statements.

 

Legal Counsel. Vedder Price P.C., 222 N. LaSalle St., Chicago, IL 60601.

 

    Page 52 of 52

 

 

APPENDIX A

 

Crossmark Global Investments, Inc.

 

Proxy Voting Policy

 

Statement of Policy

 

It is the policy of Crossmark Global Investments, Inc. (“Crossmark”) to vote proxies on securities held by its clients (“Clients”) for which Crossmark exercises voting authority, including Crossmark’s registered investment company clients, in the best interests of those Clients and without regard to the interests of the Adviser or any other client of the Adviser, and of Fund shareholders, in accordance with Crossmark’s fiduciary duties under applicable law and in compliance with Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended (“Advisers Act”). Crossmark has adopted these proxy voting policies and procedures (“Procedures”) for the voting of proxies relating to securities held in client accounts as to which Crossmark has voting authority, directly or indirectly. Indirect voting authority exists where Crossmark’s voting authority is implied by a general obligation of investment authority without reservation of proxy voting authority. The Boards of Directors/Trustees of the investment companies (“Funds”) for which Crossmark acts as investment adviser, and for which Crossmark has discretionary authority to vote proxies, have directed Crossmark to follow these Procedures in voting proxies for the Funds.

 

Limitations on Policy

 

a. Client Instructions or Restrictions - Crossmark’s exercise of voting rights for Client securities is subject to any applicable implementable instructions or restrictions that may be imposed by a particular Client, at any particular time. In such a case, Crossmark may vote proxies for a particular Client differently from those voted for a Client that does not provide instructions or restrictions.

 

b. Securities on Loan - Crossmark may determine not to vote proxies in respect of securities of any issuer if it determines it would be in its client’s overall best interests not to vote. Such determination may apply in respect of all client holdings of the securities or only certain specified clients, as the Adviser deems appropriate under the circumstances. As examples, Crossmark may determine: (a) not to recall securities on loan if, in its judgment, the negative consequences to clients of disrupting the securities lending program would outweigh the benefits of voting in the particular instance or (b) not to vote certain foreign securities positions if, in its judgment, the expense and administrative inconvenience outweighs the benefits to clients of voting the securities.

 

Conflicts of Interest

 

If Crossmark determines that voting proxies with respect to a particular security would involve a material conflict between the interests of Crossmark and its affiliates, on the one hand, and those of one or more Clients, on the other, Crossmark will choose one of the following options:

 

o Cause the proxies to be “echo voted” - i.e., in the same proportion as the votes of non-Client holders of the particular security;

 

o Refer the voting decision to the Client;

 

o Obtain from the Client an acknowledgement and waiver of the conflict to permit Crossmark to vote the proxies in accordance with the policies described in Appendix A.

 

Administration

 

a) Obtaining Proxy Statements. Crossmark will take reasonable steps to assure that proxy statements are received from Clients’ custodian(s), or any other appropriate person, in a timely

  

   

 

 

manner. The accounts for which Crossmark is required to vote proxies are coded into the Fiserv APL System.

 

b) On at least a quarterly basis, Compliance will run an “un-voted proxies” report from the Proxy Disclosure system for Mutual Funds and the Proxy Edge system for SMA accounts to monitor for un-voted proxies. The Proxy Administrator will provide to Compliance a certification of voted proxies quarterly. See Appendix C. If any unvoted proxies appear, the Proxy Officer or Administrator will be charged with providing supporting documentation explaining why these ballots were not voted.

 

b. Disclosure. Crossmark will comply with applicable requirements of the Securities and Exchange Commission regarding disclosures to Clients about these Procedures and about particular proxy votes. In particular, Crossmark will: provide Clients with a description of these Procedures; provide a copy of these Procedures to any Client upon request; and disclose to Clients how they may obtain information from Crossmark about particular proxy votes.

 

c. Records. Crossmark will maintain and preserve records related to these Procedures in accordance with applicable regulatory requirements and the Firms Records Retention Policy.

 

d. Proxy Voting Responsibility.

 

Crossmark has appointed Mel Cody, or his designee, to be the Chief Proxy Officer responsible for proxy voting (see Appendix B). A proxy assistant(s) will be appointed by Crossmark to assist the Chief Proxy Officer with his responsibilities. The proxy assistant may vote on his behalf the routine items as set forth in this document. The Proxy Officer’s responsibility is to do the following:

 

o Supervise the proxy voting process, including the identification of material conflicts of interest involving the Adviser and the proxy voting process in respect to securities owned by or on behalf of such clients;

 

o Vote all proxies ballots available on the Proxy Edge system. Stifel uses Mediant for its clients. The Proxy Administrator will vote proxies on the Mediant system under the direction of the Chief Proxy Officer.

 

o Determine how to vote proxies relating to non-routine issues not covered by these guidelines; and

 

o Determine when the Adviser may deviate from these guidelines and document deviations.

 

e. Compliance Responsibility.

 

o Crossmark has designated the Chief Compliance Officer, or his designee, to monitor compliance with these Procedures and with applicable regulatory requirements.

 

f. Review of Procedures. Crossmark will review the policy periodically to assure their continuing appropriateness.