STATEMENT
OF ADDITIONAL INFORMATION
January
28, 2024, as supplemented September 11, 2024
Scharf
Fund
Retail
Class – LOGRX
Institutional
Class – LOGIX
Scharf
Multi-Asset Opportunity Fund
Retail
Class – LOGBX
Institutional
Class – LOGOX
Scharf
Global Opportunity Fund
Institutional
Class (formerly, Retail Class) – WRLDX
Series
of Advisors Series Trust (the “Trust”)
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
Wisconsin 53201-0701
866-5SCHARF
This
Statement of Additional Information (“SAI”) is not a prospectus and it should be
read in conjunction with the Prospectus dated January 28, 2024, as may be
revised, of the Scharf Fund, the Scharf Multi-Asset Opportunity Fund (the
“Multi-Asset Fund”) and the Scharf Global Opportunity Fund (the “Global
Opportunity Fund”) (each a “Fund” and collectively, the “Funds”) each a series
of the Trust. Scharf Investments, LLC (the “Adviser”) is the Funds’ investment
adviser. A copy of the Prospectus may be obtained by contacting the Funds at the
address or telephone number above or by visiting the Funds’ website at
www.scharffunds.com.
The
Funds’ audited financial statements and notes thereto for the Scharf Fund, the
Multi-Asset Fund, and Global Opportunity Fund for the fiscal year ended
September 30, 2023, are included in the Funds’ annual
report to shareholders
for the fiscal year ended September 30, 2023, and are incorporated by reference
into this SAI. A copy of the annual report may be obtained without charge by
calling or writing the Funds as shown above or by visiting the Funds’ website at
www.scharffunds.com.
TABLE
OF CONTENTS
THE
TRUST
The
Trust is a Delaware statutory trust organized under the laws of the State of
Delaware on October 3, 1996, and is registered with the U.S. Securities and
Exchange Commission (the “SEC”) as an open-end management investment company.
The Trust’s Agreement and Declaration of Trust (the “Declaration of Trust”)
permits the Trust’s Board of Trustees (the “Board” or the “Trustees”) to issue
an unlimited number of full and fractional shares of beneficial interest, par
value $0.01 per share, which may be issued in any number of series. The Trust
consists of various series that represent separate investment portfolios. The
Board may from time to time issue other series, the assets and liabilities of
which will be separate and distinct from any other series. This SAI relates only
to the Funds.
The
Scharf Fund commenced operations on December 30, 2011, the Multi-Asset Fund
commenced operations on December 31, 2012, the Global Opportunity Fund commenced
operations on October 14, 2014. On January 28, 2015, the former Investor Class
shares of the Scharf Fund were re-designated as Institutional Class shares. The
Retail Class of the Scharf Fund commenced operations on January 28, 2015. On
January 21, 2016 the former Investor Class shares of Multi-Asset Fund were
re-designated as Institutional Class shares. The Retail Class of the Multi-Asset
Fund commenced operations on January 21, 2016. The Scharf Balanced
Opportunity Fund changed its name to the Scharf Multi-Asset Opportunity Fund on
November 1, 2018. On December 30, 2022, the former Retail Class shares of
the Scharf Global Opportunity Fund were re-designated as Institutional Class
shares.
Registration
with the SEC does not involve supervision of the management or policies of the
Funds. The Prospectus of the Funds and this SAI omit certain of the information
contained in the Registration Statement filed with the SEC. Copies of such
information may be obtained from the SEC upon payment of the prescribed fee or
may be accessed free of charge at the SEC’s website at www.sec.gov.
INVESTMENT
POLICIES AND RISKS
The
discussion below supplements information contained in the Funds’ Prospectus as
to the investment policies and risks of the Funds. Unless otherwise indicated,
references to “the Fund” refer to each of the Funds.
Diversification
of Investments
Each
Fund is diversified under applicable federal securities laws. This means that as
to 75% of its total assets (1) no more than 5% may be invested in the securities
of a single issuer, and (2) it may not hold more than 10% of the outstanding
voting securities of a single issuer. However, the diversification of a mutual
fund’s holdings is measured at the time a Fund purchases a security and if a
Fund purchases a security and holds it for a period of time, the security may
become a larger percentage of the Fund’s total assets due to movements in the
financial markets. If the market affects several securities held by a Fund, the
Fund may have a greater percentage of its assets invested in securities of fewer
issuers. Accordingly, a Fund is subject to the risk that its performance may be
hurt disproportionately by the poor performance of relatively few securities
despite qualifying as a diversified fund.
Market
and Regulatory Risk
Events
in the financial markets and economy may cause volatility and uncertainty and
affect performance. Such adverse effect on performance could include a decline
in the value and liquidity of securities held by the Funds, unusually high and
unanticipated levels of redemptions, an increase in portfolio turnover, a
decrease in net asset value (“NAV”), and an increase in Fund expenses. It may
also be unusually difficult to identify both investment risks and opportunities,
in which case investment objectives may not be met. Market events may affect a
single issuer, industry, sector, or the market as a whole. Traditionally liquid
investments may experience periods of diminished liquidity. During a general
downturn in the financial
markets,
multiple asset classes may decline in value and a Fund may lose value,
regardless of the individual results of the securities and other instruments in
which the Funds invest. It is impossible to predict whether or for how long such
market events will continue, particularly if they are unprecedented, unforeseen
or widespread events or conditions, pandemics, epidemics and other similar
circumstances in one or more countries or regions. Therefore, it is important to
understand that the value of your investment may fall, sometimes sharply and for
extended periods, and you could lose money.
Governmental
and regulatory actions, including tax law changes, may also impair portfolio
management and have unexpected or adverse consequences on particular markets,
strategies, or investments. Policy and legislative changes in the United States
and in other countries are affecting many aspects of financial regulation, and
may in some instances contribute to decreased liquidity and increased volatility
in the financial markets. The impact of these changes on the markets, and the
practical implications for market participants, may not be fully known for some
time. In addition, economies and financial markets throughout the world are
becoming increasingly interconnected. As a result, whether or not the Funds
invest in securities of issuers located in or with significant exposure to
countries experiencing economic and financial difficulties, the value and
liquidity of the Funds’ investments may be negatively affected.
Exclusion
from Definition of Commodity Pool Operator
Pursuant
to amendments by the Commodity Futures Trading Commission (the “CFTC”) to Rule
4.5 under the Commodity Exchange Act (“CEA”), the Adviser has filed a notice of
exemption from registration as a “commodity pool operator” with respect to each
Fund. Neither the Funds nor the Adviser are therefore subject to registration or
regulation as a pool operator under the CEA. In order to claim the Rule 4.5
exemption, each Fund is significantly limited in its ability to invest in
commodity futures, options and swaps (including securities futures, broad-based
stock index futures and financial futures contracts). As a result, each Fund is
limited in its ability to use these instruments and these limitations may have a
negative impact on the ability of the Adviser to manage the Funds, and on each
Fund’s performance.
Percentage
Limitations
Whenever
an investment policy or limitation states a maximum percentage of a Fund’s
assets that may be invested in any security or other asset, or sets forth a
policy regarding quality standards, such standard or percentage limitation will
be determined immediately after and as a result of the Fund’s acquisition or
sale of such security or other asset. Accordingly, except with respect to
borrowing any subsequent change in values, net assets or other circumstances
will not be considered in determining whether an investment complies with a
Fund’s investment policies and limitations. In addition, if a bankruptcy or
other extraordinary event occurs concerning a particular investment by a Fund,
the Fund may receive stock, real estate or other investments that the Fund would
not, or could not buy. If this happens, the Fund would sell such investments as
soon as practicable while trying to maximize the return to its
shareholders.
The
Funds may invest in the following types of investments, each of which is subject
to certain risks, as discussed below.
For
the remainder of this section, unless otherwise stated, references to “the Fund”
are applicable to each of the Funds.
Equity
Securities
Common
stocks, convertible securities, rights, warrants and American Depositary
Receipts (“ADRs”) are examples of equity securities in which the Fund may
invest.
All
investments in equity securities are subject to market risks that may cause
their prices to fluctuate over time. Historically, the equity markets have moved
in cycles and the value of the securities in the
Fund’s
portfolio may fluctuate substantially from day to day. Owning an equity security
can also subject the Fund to the risk that the issuer may discontinue paying
dividends.
Common
Stocks. A
common stock represents a proportionate share of the ownership of a company and
its value is based on the success of the company’s business, any income paid to
stockholders, the value of its assets, and general market conditions. In
addition to the general risks set forth above, investments in common stocks are
subject to the risk that in the event a company in which the Fund invests is
liquidated, the holders of preferred stock and creditors of that company will be
paid in full before any payments are made to the Fund as a holder of common
stock. It is possible that all assets of that company will be exhausted before
any payments are made to the Fund.
Preferred
Stocks.
Preferred stocks are equity securities that often pay dividends at a specific
rate and have a preference over common stocks in dividend payments and
liquidation of assets. A preferred stock has a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has priority
over common stock in equity ownership, but does not have the seniority of a bond
and, unlike common stock, its participation in the issuer’s growth may be
limited. Although the dividend is set at a fixed annual rate, in some
circumstances it can be changed or omitted by the issuer.
Convertible
Securities. The
Fund may invest in convertible securities. Traditional convertible securities
include corporate bonds, notes and preferred stocks that may be converted into
or exchanged for common stock, and other securities that also provide an
opportunity for equity participation. These securities are convertible either at
a stated price or a stated rate (that is, for a specific number of shares of
common stock or other security). As with other fixed-income securities, the
price of a convertible security generally varies inversely with interest rates.
While providing a fixed-income stream, a convertible security also affords the
investor an opportunity, through its conversion feature, to participate in the
capital appreciation of the common stock into which it is convertible. As the
market price of the underlying common stock declines, convertible securities
tend to trade increasingly on a yield basis and so may not experience market
value declines to the same extent as the underlying common stock. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of higher yield or capital
appreciation. In such situations, the Fund may have to pay more for a
convertible security than the value of the underlying common stock.
Rights
and Warrants. The
Fund may invest in rights and warrants. A right is a privilege granted to
existing shareholders of a corporation to subscribe to shares of a new issue of
common stock and it is issued at a predetermined price in proportion to the
number of shares already owned. Rights normally have a short life, usually two
to four weeks, are freely transferable and entitle the holder to buy the new
common stock at a lower price than the current market. Warrants are options to
purchase equity securities at a specific price for a specific period of time.
They do not represent ownership of the securities, but only the right to buy
them. Hence, warrants have no voting rights, pay no dividends and have no rights
with respect to the assets of the corporation issuing them. The value of
warrants is derived solely from capital appreciation of the underlying equity
securities. Warrants differ from call options in that the underlying corporation
issues warrants, whereas call options may be written by anyone.
An
investment in rights and warrants may entail greater risks than certain other
types of investments. Generally, rights and warrants do not carry the right to
receive dividends or exercise voting rights with respect to the underlying
securities, and they do not represent any rights in the assets of the issuer. In
addition, although their value is influenced by the value of the underlying
security, their value does not necessarily change with the value of the
underlying securities, and they cease to have value if they are not exercised on
or before their expiration date. Investing in rights and warrants increases the
potential profit or loss to be realized from the investment as compared with
investing the same amount in the underlying securities.
Small-
and Medium-Sized Companies
To
the extent the Fund invests in the equity securities of small- and medium-sized
companies, it will be exposed to the risks of smaller sized companies. Small-
and medium-sized companies may have narrower markets for their goods and/or
services and may have more limited managerial and financial resources than
larger, more established companies. Furthermore, such companies may have limited
product lines, services, markets, or financial resources or may be dependent on
a small management group. In addition, because these stocks may not be
well-known to the investing public, do not have significant institutional
ownership or are typically followed by fewer security analysts, there will
normally be less publicly available information concerning these securities
compared to what is available for the securities of larger companies. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, can decrease the value and liquidity of securities held by the Fund.
As a result, their performance can be more volatile and they face greater risk
of business failure, which could increase the volatility of the Fund’s
portfolio.
Investment
Companies
Each
Fund may invest in shares of other investment companies including
exchange-traded funds (“ETFs”), money market funds and other mutual funds, in
pursuit of its investment objective, subject to the limitations set forth in the
1940 Act. Each Fund may invest in money market mutual funds in connection with
its management of daily cash positions and for temporary defensive purposes. In
addition to the advisory and operational fees each Fund bears directly in
connection with its own operation, the Funds would also bear their pro rata
portion of each of the other investment company’s advisory and operational
expenses.
The
Funds may rely on Section 12(d)(1)(F) and Rule 12d1-3 of the 1940 Act, which
provide an exemption from Section 12(d)(1) that allows a Fund to invest all of
its assets in other registered funds, including ETFs, if, among other
conditions: (a) a Fund, together with its affiliates, acquires no more than
three percent of the outstanding voting stock of any acquired fund, and
(b) the sales load or service fee charged on the Fund’s shares is no
greater than the limits set forth in Rule 2341 of the Conduct Rules of the
Financial Industry Regulatory Authority, Inc. (“FINRA”). In accordance with Rule
12d1-1 under the 1940 Act, the provisions of Section 12(d)(1) shall not apply to
shares of money market funds purchased by the Fund, whether or not for temporary
defensive purposes, provided that the Fund does not pay a sales charge,
distribution fee or service fee as defined in Rule 2341 of the Conduct Rules of
FINRA on acquired money market fund shares (or the Adviser must waive its
advisory fees in an amount necessary to offset any sales charge, distribution
fee or service fee).
Section
12(d)(1)(A) of the 1940 Act generally prohibits a fund from purchasing (1) more
than 3% of the total outstanding voting stock of another fund; (2) securities of
another fund having an aggregate value in excess of 5% of the value of the
acquiring fund; and (3) securities of the other fund and all other funds having
an aggregate value in excess of 10% of the value of the total assets of the
acquiring fund. There are some exceptions, however, to these limitations
pursuant to various rules promulgated by the SEC.
Rule
12d1-4 permits additional types of fund of fund arrangements without an
exemptive order. The rule imposes certain conditions, including limits on
control and voting of acquired funds’ shares, evaluations and findings by
investment advisers, fund investment agreements, and limits on most three-tier
fund structures.
Exchange-Traded
Funds.
ETFs are open-end investment companies whose shares are listed on a national
securities exchange. An ETF is similar to a traditional mutual fund, but trades
at different prices during the day on a security exchange like a stock. Similar
to investments in other investment companies discussed above, a Fund’s
investments in ETFs will involve duplication of advisory fees and other
expenses
since a Fund will be investing in another investment company. In addition, a
Fund’s investment in ETFs is also subject to its limitations on investments in
investment companies discussed above. To the extent a Fund invests in ETFs which
focus on a particular market segment or industry, the Fund will also be subject
to the risks associated with investing in those sectors or industries. The
shares of the ETFs in which a Fund will invest will be listed on a national
securities exchange and a Fund will purchase or sell these shares on the
secondary market at its current market price, which may be more or less than its
NAV per share.
As
a purchaser of ETF shares on the secondary market, a Fund will be subject to the
market risk associated with owning any security whose value is based on market
price. ETF shares historically have tended to trade at or near their NAV, but
there is no guarantee that they will continue to do so. Unlike traditional
mutual funds, shares of an ETF may be purchased and redeemed directly from the
ETFs only in large blocks and only through participating organizations that have
entered into contractual agreements with the ETF. A Fund does not expect to
enter into such agreements and therefore will not be able to purchase and redeem
their ETF shares directly from the ETF.
Foreign
Investments
Each
Fund may make investments in securities of non-U.S. issuers (“foreign
securities”). The Scharf Fund and the Multi-Asset Fund reserve the right to
invest up to 50% of each Fund’s total assets in securities of foreign issuers.
The Scharf Fund and the Multi-Asset Fund reserve the right to invest an
unlimited amount of each Fund’s total assets in DRs. The Global Opportunity Fund
reserves the right to invest an unlimited amount of its total assets, in DRs,
U.S. dollar-denominated securities, foreign securities and securities of
companies incorporated outside the United States, including securities listed on
foreign exchanges.
Depositary
Receipts.
Depositary Receipts include ADRs, European Depositary Receipts (“EDRs”), Global
Depositary Receipts (“GDRs”) or other forms of DRs. DRs are receipts typically
issued in connection with a United States or foreign bank or trust company which
evidence ownership of underlying securities issued by a non-U.S.
company.
ADRs
are depositary receipts for foreign securities denominated in U.S. dollars and
traded on United States securities markets. These securities may not necessarily
be denominated in the same currency as the securities for which they may be
exchanged. These are certificates evidencing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial institutions.
Designed for use in United States securities markets, ADRs are alternatives to
the purchase of the underlying securities in their national market and
currencies. ADRs may be purchased through “sponsored” or “unsponsored”
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the depositary
security. Holders of unsponsored depositary receipts generally bear all the
costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts of the deposited securities.
Foreign
Currency Transactions
The
Global Opportunity Fund may invest in foreign currency exchange transactions.
Exchange rates between the U.S. dollar and foreign currencies are a function of
such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Foreign exchange dealers may realize a
profit on the difference between the price at which the Global Opportunity Fund
buys and sells currencies.
Risks
of Investing in Foreign Securities.
Investments in foreign securities involve certain inherent risks, including the
following:
Political
and Economic Factors.
Individual economies of certain countries may differ favorably or unfavorably
from the United States’ economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency,
diversification and balance of payments position. The internal politics of
certain foreign countries may not be as stable as those of the United States.
Governments in certain foreign countries also continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could include restrictions on
foreign investment, nationalization, expropriation of goods or imposition of
taxes, and could have a significant effect on market prices of securities and
payment of interest. The economies of many foreign countries are heavily
dependent upon international trade and are accordingly affected by the trade
policies and economic conditions of their trading partners. Enactment by these
trading partners of protectionist trade legislation could have a significant
adverse effect upon the securities markets of such countries.
Legal
and Regulatory Matters.
Certain foreign countries may have less supervision of securities markets,
brokers and issuers of securities, and less financial information available to
issuers, than is available in the United States. Additionally, the rights of
investors in certain foreign countries may be more limited than those of
shareholders of U.S. issuers and the Fund may have greater difficulty taking
appropriate legal action to enforce its rights in a foreign court than in a U.S.
court.
Market
Characteristics.
The Adviser expects that some foreign securities in which the Fund invests will
be purchased in over-the-counter markets or on exchanges located in the
countries in which the principal offices of the issuers of the various
securities are located, if that is the best available market. Foreign exchanges
and markets may be more volatile than those in the United States. Though
growing, they usually have substantially less volume than U.S. markets, and the
Fund’s foreign securities may be less liquid and more volatile than U.S.
securities. Also, settlement practices for transactions in foreign markets may
differ from those in United States markets, and may include delays beyond
periods customary in the United States. Foreign security trading practices,
including those involving securities settlement where Fund assets may be
released prior to receipt of payment or securities, may expose the Fund to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer.
Currency
Fluctuations.
A change in the value of any foreign currency against the U.S. dollar will
result in a corresponding change in the U.S. dollar value of an ADR’s underlying
portfolio securities denominated in that currency. Such changes will affect the
Fund to the extent that the Fund is invested in ADRs comprised of foreign
securities.
To
the extent the Fund invests in securities denominated or quoted in currencies
other than the U.S. dollar, the Fund will be affected by changes in foreign
currency exchange rates (and exchange control regulations) which affect the
value of investments in the Fund and the income and appreciation or depreciation
of the investments. Changes in foreign currency exchange ratios relative to the
U.S. dollar will affect the U.S. dollar value of the Fund’s assets
denominated in that currency and the Fund’s yield on such assets. In addition,
the Fund will incur costs in connection with conversions between various
currencies.
The
Fund’s foreign currency exchange transactions may be conducted on a spot basis
(that is, cash basis) at the spot rate for purchasing or selling currency
prevailing in the foreign currency exchange market. The Fund also may enter into
contracts with banks, brokers or dealers to purchase or sell securities or
foreign currencies at a future date (“forward contracts”). A foreign currency
forward contract is a negotiated agreement between the contracting parties to
exchange a specified amount of currency at a
specified
future time at a specified rate. The rate can be higher or lower than the spot
rate between the currencies that are the subject of the contract.
Taxes.
The interest and dividends payable to the Fund on certain of the Fund’s foreign
securities may be subject to foreign taxes or withholding, thus reducing the net
amount of income available for distribution to Fund shareholders. The Fund may
not be eligible to pass through to its shareholders any tax credits or
deductions with respect to such foreign taxes or withholding.
In
considering whether to invest in the securities of a non-U.S. company, the
Adviser considers such factors as the characteristics of the particular company,
differences between economic trends and the performance of securities markets
within the U.S. and those within other countries, and also factors relating to
the general economic, governmental and social conditions of the country or
countries where the company is located. The extent to which the Fund will be
invested in non-U.S. companies, foreign countries and depositary receipts will
fluctuate from time to time within any limitations described in the Prospectus,
depending on the Adviser’s assessment of prevailing market, economic and other
conditions.
Brexit.
The United Kingdom formally left the European Union (“EU”) on January 31, 2020
(a measure commonly referred to as “Brexit”). Following the withdrawal, in
December 2020, the United Kingdom and the EU entered into a new trading
relationship. The agreement allows for continued trading free of tariffs, but
institutes other new requirements for trading between the United Kingdom and the
EU. Even with a new trading relationship having been established, Brexit could
continue to affect European or world wide political, regulatory, economic, or
market conditions. There is the possibility that there will continue to be
considerable uncertainty about the potential impact of these developments on
United Kingdom, European and global economies and markets. There is also the
possibility of withdrawal movements within other EU countries and the
possibility of additional political, economic and market uncertainty and
instability. Brexit and any similar developments may have negative effects on
economies and markets, such as increased volatility and illiquidity and
potentially lower economic growth in the United Kingdom, EU and globally, which
may adversely affect the value of the Fund’s investments. Whether or not the
Fund invests in securities of issuers located in Europe or with significant
exposure to European issuers or countries, these events could result in losses
to the Fund, as there may be negative effects on the value and liquidity of the
Fund’s investments and/or the Fund’s ability to enter into certain transactions.
Derivative
Securities
The
Funds are prohibited from investing in derivatives, excluding certain currency
and interest rate hedging transactions. These restrictions are not fundamental
and may be changed by a Fund without a shareholder vote.
Emerging
Markets.
The Scharf Fund and the Multi-Asset Fund may invest up to 25% of each Fund’s
total assets, and the Global Opportunity Fund may invest an unlimited amount of
the Fund’s total assets, in foreign securities that may include securities of
companies located in developing or emerging markets, which entail additional
risks, including: less social, political and economic stability; smaller
securities markets and lower trading volume, which may result in less liquidity
and greater price volatility; national policies that may restrict an underlying
fund’s investment opportunities, including restrictions on investments in
issuers or industries, or expropriation or confiscation of assets or property;
and less developed legal structures governing private or foreign
investment.
Government
Obligations
The
Funds may make short term investments in U.S. government obligations. Such
obligations include Treasury bills, certificates of indebtedness, notes and
bonds, and issues of such entities as the Government National Mortgage
Association (“GNMA”), Export Import Bank of the United States, Tennessee Valley
Authority,
Resolution Funding Corporation, Farmers Home Administration, Federal Home Loan
Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks, Federal
Land Banks, Federal Housing Administration, Federal National Mortgage
Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and the
Student Loan Marketing Association.
Some
of these obligations, such as those of the GNMA, are supported by the full faith
and credit of the U.S. Treasury Department; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the U.S. Treasury; others, such as those of the FNMA, are
supported by the discretionary authority of the U.S. government to purchase the
agency’s obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. government would provide financial support
to U.S. government-sponsored instrumentalities if it is not obligated to do so
by law.
The
Funds may invest in sovereign debt obligations of foreign countries. A sovereign
debtor’s willingness or ability to repay principal and interest in a timely
manner may be affected by a number of factors, including its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor’s policy toward
principal international lenders and the political constraints to which it may be
subject. Emerging market governments could default on their sovereign debt. Such
sovereign debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The commitments on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor’s implementation of economic reforms and/or economic
performance and the timely service of such debtor’s obligations. Failure to meet
such conditions could result in the cancellation of such third parties’
commitments to lend funds to the sovereign debtor, which may further impair such
debtor’s ability or willingness to service its debt in a timely
manner.
When-Issued
Securities
The
Funds may purchase securities on a when-issued basis, for payment and delivery
at a later date, generally within one month. The price and yield are generally
fixed on the date of commitment to purchase, and the value of the security is
thereafter reflected in the Fund’s NAV. During the period between purchase and
settlement, no payment is made by the Fund and no interest accrues to the Fund.
At the time of settlement, the market value of the security may be more or less
than the purchase price. Rule 18f-4 under the 1940 Act permits a Fund to invest
in securities on a when-issued basis, notwithstanding the limitation on the
issuance of senior securities in Section 18 of the 1940 Act, provided that the
Fund intends to physically settle the transaction and the transaction will
settle within 35 days of its trade date (the “Delayed-Settlement Securities
Provision”).
Corporate
Debt Securities
The
Funds may invest in fixed-income securities of any maturity including fixed
income securities rated below “investment grade” by one or more recognized
statistical ratings organizations, such as S&P or Moody’s Investors Service,
Inc. (“Moody’s”). Bonds rated below BBB by S&P or Baa by Moody’s, commonly
referred to as “junk bonds,” typically carry higher coupon rates than investment
grade bonds, but also are described as speculative by both S&P and Moody’s
and may be subject to greater market price fluctuations, less liquidity and
greater risk of income or principal including greater possibility of default and
bankruptcy of the issuer of such securities than more highly rated bonds.
Lower-rated bonds also are more likely to be sensitive to adverse economic or
company developments and more subject to price fluctuations in response to
changes in interest rates. The market for lower-rated debt issues generally is
thinner and less active than that for higher quality securities, which may limit
the Fund’s ability to sell such securities at fair value in response to changes
in the economy or financial markets.
During
periods of economic downturn or rising interest rates, highly leveraged issuers
of lower-rated securities may experience financial stress which could adversely
affect their ability to make payments of interest and principal and increase the
possibility of default.
Ratings
of debt securities represent the rating agencies’ opinions regarding their
quality, are not a guarantee of quality and may be reduced after a Fund has
acquired the security. If a security’s rating is reduced while it is held by a
Fund, the Adviser will consider whether the Fund should continue to hold the
security but is not required to dispose of it. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer’s current financial conditions may be better or worse than the rating
indicates. The ratings for corporate debt securities are described in Appendix
A.
Short-Term,
Temporary, and Cash Investments
When
the Adviser believes market, economic or political conditions are unfavorable
for investors, the Adviser may invest up to 100% of a Fund’s net assets in a
temporary defensive manner or hold a substantial portion of its net assets in
cash, cash equivalents or other short-term investments. Unfavorable market or
economic conditions may include excessive volatility or a prolonged general
decline in the securities markets, or the U.S. economy. Temporary defensive
investments generally may include U.S. government securities, certificates of
deposit, high-grade commercial paper, repurchase agreements, money market mutual
funds shares and other money market equivalents. The Adviser also may invest in
these types of securities or hold cash while looking for suitable investment
opportunities or to maintain liquidity. The Funds may invest in any of the
following securities and instruments:
Money
Market Mutual Funds.
The Funds may invest in money market mutual funds in connection with its
management of daily cash positions or as a temporary defensive measure.
Generally, money market mutual funds seek to earn income consistent with the
preservation of capital and maintenance of liquidity. It primarily invests in
high quality money market obligations, including securities issued or guaranteed
by the U.S. government or its agencies and instrumentalities, bank obligations
and high-grade corporate instruments. These investments generally mature within
397 days from the date of purchase. An investment in a money market mutual fund
is not a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any government agency. The Funds’ investments in money
market mutual funds may be used for cash management purposes and to maintain
liquidity in order to satisfy redemption requests or pay unanticipated
expenses.
Your
cost of investing in a Fund will generally be higher than the cost of investing
directly in the underlying money market mutual fund shares. You will indirectly
bear fees and expenses charged by the underlying money market mutual funds in
addition to a Fund’s direct fees and expenses. Furthermore, the use of this
strategy could affect the timing, amount and character of distributions to you
and therefore may increase the amount of taxes payable by you.
Bank
Certificates of Deposit, Bankers’ Acceptances and Time Deposits.
Each Fund may acquire bank certificates of deposit, bankers’ acceptances and
time deposits. Certificates of deposit are negotiable certificates issued
against monies deposited in a commercial bank for a definite period of time and
earning a specified return. Bankers’ acceptances are negotiable drafts or bills
of exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are “accepted” by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers’ acceptances acquired by the Fund will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and foreign
branches), based on latest published reports, or less than $100 million if the
principal amount of
such
bank obligations are fully insured by the U.S. government. If a Fund holds
instruments of foreign banks or financial institutions, it may be subject to
additional investment risks that are different in some respects from those
incurred by a fund that invests only in debt obligations of U.S. domestic
issuers. Such risks include future political and economic developments, the
possible imposition of withholding taxes by the particular country in which the
issuer is located on interest income payable on the securities, the possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on these
securities.
Domestic
banks and foreign banks are subject to different governmental regulations with
respect to the amount and types of loans that may be made and interest rates
that may be charged. In addition, the profitability of the banking industry
depends largely upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operations of
the banking industry.
As
a result of federal and state laws and regulations, domestic banks are, among
other things, required to maintain specified levels of reserves, limited in the
amount which they can loan to a single borrower, and subject to other
regulations designed to promote financial soundness. However, such laws and
regulations do not necessarily apply to foreign bank obligations that the Funds
may acquire.
In
addition to purchasing certificates of deposit and bankers’ acceptances, to the
extent permitted under its investment objectives and policies stated above and
in the Prospectuses, the Funds may make interest-bearing time or other
interest-bearing deposits in commercial or savings banks. Time deposits are
non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
Savings
Association Obligations.
The Funds may invest in certificates of deposit (interest-bearing time deposits)
issued by savings banks or savings and loan associations that have capital,
surplus and undivided profits in excess of $100 million, based on latest
published reports, or less than $100 million if the principal amount of
such obligations is fully insured by the U.S. government.
Commercial
Paper, Short-Term Notes and Other Corporate Obligations.
The Funds may invest a portion of its assets in commercial paper and short-term
notes. Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper and short-term notes will normally have
maturities of less than nine months and fixed rates of return, although such
instruments may have maturities of up to one year.
Commercial
paper and short-term notes will consist of issues rated at the time of purchase
“A-2” or higher by S&P, “Prime-1” or “Prime-2” by Moody’s, or similarly
rated by another nationally recognized statistical rating organization or, if
unrated, will be determined by the Adviser to be of comparable quality. These
rating symbols are described in Appendix B.
Corporate
obligations include bonds and notes issued by corporations to finance
longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, the Funds may
purchase corporate obligations which have remaining maturities of one year or
less from the date of purchase and which are rated “AA” or higher by S&P or
“Aa” or higher by Moody’s.
Illiquid
and Restricted Securities
Pursuant
to Rule 22e-4 under the 1940 Act, a Fund may not acquire any “illiquid
investment” if, immediately after the acquisition, the Fund would have invested
more than 15% of its net assets in illiquid
investments
that are assets. An “illiquid investment” is any investment that a Fund
reasonably expects cannot be sold or disposed of in current market conditions in
seven calendar days or less without the sale or disposition significantly
changing the market value of the investment. Each Fund has implemented a
liquidity risk management program and related procedures to identify illiquid
investments pursuant to Rule 22e-4. The 15% limits are applied as of the date a
Fund purchases an illiquid investment. It is possible that a Fund’s holding of
illiquid investment could exceed the 15% limit, for example as a result of
market developments or redemptions.
Each
Fund may purchase certain restricted securities that can be resold to
institutional investors and which may be determined not to be illiquid
investments pursuant to the Fund’s liquidity risk management program. In many
cases, those securities are traded in the institutional market pursuant to Rule
144A under the Securities act of 1933, as amended (the "1933 Act") and are
called Rule 144A securities.
Investments
in illiquid investments involve more risks than investments in similar
securities that are readily marketable. Illiquid investments may trade at a
discount from comparable, more liquid investments. Investment of a Fund’s assets
in illiquid investments may restrict the ability of the Fund to dispose of its
investments in a timely fashion and for a fair price as well as its ability to
take advantage of market opportunities. The risks associated with illiquidity
will be particularly acute where a Fund’s operations require cash, such as when
the Fund has net redemptions, and could result in the Fund borrowing to meet
short-term cash requirements or incurring losses on the sale of illiquid
investments.
Restricted
securities sold in private placement transactions between issuers and their
purchasers are neither listed on an exchange nor traded in other established
markets and may be illiquid. In many cases, the privately placed securities may
not be freely transferable under the laws of the applicable jurisdiction or due
to contractual restrictions on resale. To the extent privately placed securities
may be resold in privately negotiated transactions, the prices realized from the
sales could be less than those originally paid by a Fund or less than the fair
value of the securities. A restricted security may be determined to be liquid
under a Fund's liquidity risk management program established pursuant to Rule
22e-4 depending on market, trading, or investment-specific considerations
related to the restricted security. In addition, issuers whose securities are
not publicly traded may not be subject to the disclosure and other investor
protection requirements that may be applicable if their securities were publicly
traded. If any privately placed securities held by a Fund are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expenses of registration. Private
placement investments may involve investments in smaller, less seasoned issuers,
which may involve greater risks than investments in more established companies.
These issuers may have limited product lines, markets or financial resources, or
they may be dependent on a limited management group. In making investments in
private placement securities, a Fund may obtain access to material non-public
information about an issuer of private placement securities, which may restrict
the Fund’s ability to conduct transactions in those securities.
Initial
Public Offerings
The
Funds may purchase shares in initial public offerings (“IPOs”). Because IPO
shares frequently are volatile in price, a Fund may hold IPO shares for a very
short period of time. This may increase the turnover of a Fund’s portfolio and
may lead to increased expenses to the Fund, such as brokerage commissions and
transaction costs. By selling shares, the Fund may realize taxable capital gains
that it will subsequently distribute to shareholders. Investing in IPOs
increases risk because IPO shares are frequently volatile in price. As a result,
their performance can be more volatile and they face greater risk of business
failure, which could increase the volatility of the Fund’s
portfolio.
Securities
Lending
Each
Fund may lend its portfolio securities in order to generate additional income.
Securities may be loaned to broker-dealers, major banks or other recognized
domestic institutional borrowers of securities. Generally, a Fund may lend
portfolio securities to securities broker-dealers or financial institutions if:
(1) the loan is collateralized in accordance with applicable regulatory
requirements including collateralization continuously at no less than 100% by
marking to market daily; (2) the loan is subject to termination by the Fund
at any time; (3) the Fund receives reasonable interest or fee payments on
the loan, as well as any dividends, interest, or other distributions on the
loaned securities; (4) the Adviser is able to call loaned securities in
order to exercise all voting rights with respect to the loaned securities; and
(5) the loan will not cause the value of all loaned securities to exceed
one-third of the value of the Fund’s assets. As part of participating in a
lending program, a Fund will invest its cash collateral only in investments that
are consistent with the investment objectives, principal investment strategies
and investment policies of the Fund. All investments made with the cash
collateral received are subject to the risks associated with such investments.
If such investments lose value, the Funds will have to cover the loss when
repaying the collateral. Any income or gains and losses from investing and
reinvesting any cash collateral delivered by a borrower shall be at the Fund’s
risk.
Royalty
Trusts
The
Funds may invest up to 5% of their total assets in royalty trusts. Royalty
trusts are established to receive the royalties or net profit interests in a
specific group of assets and to pay out those royalties to their unit holders.
To do this, royalty trusts buy the right to royalties (income) on the production
and sales of a natural resource company. The yield generated by a royalty trust
is not guaranteed and because developments in the oil, gas and natural resources
markets will affect payouts, can be volatile. For example, the yield on an
oil royalty trust can be affected by changes in production levels, natural
resources, political and military developments, regulatory changes and
conservation efforts. In addition, natural resources are depleting assets.
Eventually, the income-producing ability of the royalty trust will be
exhausted. Generally, higher yielding trusts have less time until
depletion of proven reserves. Depending on the U.S. federal income tax
classification of the royalty trusts in which a Fund invests, securities issued
by certain royalty trusts (such as royalty trusts which are grantor trusts for
U.S. federal income tax purposes) may not produce qualifying income for purposes
of the income requirements of the Code. Additionally, a Fund may be
deemed to directly own the assets of each royalty trust, and would need to look
to such assets when determining its compliance with the diversification
requirements under the Code. The Funds will monitor its investments
in royalty trusts with the objective of maintaining its continued qualification
as a regulated investment company under the Code.
Master
Limited Partnerships (“MLPs”)
The
Funds may invest in publicly traded Master Limited Partnerships (“MLPs”). MLPs
are businesses organized as limited partnerships that trade their proportionate
shares of the partnership (units) on a public exchange. MLPs are required to pay
out most or all of their earnings in distributions. Generally speaking, MLP
investment returns are enhanced during periods of declining or low interest
rates and tend to be negatively influenced when interest rates are rising. As an
income vehicle, the unit price may be influenced by general interest rate trends
independent of specific underlying fundamentals. In addition, most MLPs are
fairly leveraged and typically carry a portion of “floating” rate debt. As such,
a significant upward swing in interest rates would drive interest expense
higher. Furthermore, most MLPs grow by acquisitions partly financed by debt, and
higher interest rates could make it more difficult to make
acquisitions.
Real
Estate Investment Trusts (“REITs”)
The
Funds may invest in shares of REITs. REITs are pooled investment
vehicles which invest primarily in real estate or real estate related
loans. REITs are generally classified as equity REITs, mortgage REITs
or a combination of equity and mortgage REITs. Equity REITs invest
the majority of their assets directly
in
real property and derive income primarily from the collection of
rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive income from the
collection of interest payments. Like regulated investment companies
such as the Funds, REITs are not taxed on income distributed to shareholders
provided they comply with certain requirements under the Internal Revenue Code
of 1986, as amended (the “Code”). The Funds will indirectly bear
their proportionate share of any expenses paid by REITs in which they invest in
addition to the expenses paid by the Funds. Investing in REITs
involves certain unique risks. Equity REITs may be affected by
changes in the value of the underlying property owned by such REITs, while
mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not
diversified (except to the extent the Code requires), and are subject to the
risks of financing projects. REITs are subject to heavy cash flow
dependency, default by borrowers, self-liquidation, and the possibilities of
failing to qualify for the exemption from tax for distributed income under the
Code and failing to maintain their exemptions from the 1940
Act. REITs (especially mortgage REITs) are also subject to interest
rate risks.
Borrowing
Although
the Funds do not currently intend to borrow money, the 1940 Act permits
each Fund to borrow money in amounts of up to one-third of the Fund’s total
assets from banks for any purpose, and to borrow up to 5% of the Fund’s total
assets from banks or other lenders for temporary purposes. To limit the
risks attendant to borrowing, the 1940 Act requires a Fund to maintain at
all times an “asset coverage” of at least 300% of the amount of its
borrowings. Asset coverage means the ratio that the value of a Fund’s
total assets, minus liabilities other than borrowings, bears to the aggregate
amount of all borrowings. The use of borrowing by the Fund involves
special risk considerations that may not be associated with other funds having
similar objectives and policies. Since substantially all of the Fund’s
assets fluctuate in value, while the interest obligation resulting from a
borrowing will be fixed by the terms of the Fund’s agreement with its lender,
the NAV per share of the Fund will tend to increase more when its portfolio
securities increase in value and to decrease more when its portfolio assets
decrease in value than would otherwise be the case if the Fund did not
borrow. In addition, interest costs on borrowings may fluctuate with
changing market rates of interest and may partially offset or exceed the return
earned on borrowed funds. Under adverse market conditions, the Fund might
have to sell portfolio securities to meet interest or principal payments at a
time when fundamental investment considerations would not favor such
sales.
Loan
Assignments and Participations
The
Funds may purchase corporate loans through assignment or participation. Such
indebtedness may be secured or unsecured. Loan participations typically
represent only a right to participate in the repayment of the loan by the
corporate borrower, and generally are offered by banks or other financial
institutions or lending syndicates. In purchasing participations, the Funds will
usually have a contractual relationship only with the selling institution, and
not the corporate borrower. Consequently, the Funds generally will
have no right directly to enforce compliance by the borrower with the terms of
the commercial loan, nor any rights of set-off against the borrower, nor will it
have the right to object to certain changes to the loan agreement agreed to by
the selling institution. The Funds may also buy part of a loan
through an assignment, thereby becoming a direct lender to the corporate
borrower. When purchasing loan participations or assignments, a Fund assumes the
credit risk associated with the corporate borrower. When purchasing
loan participations, the Fund assumes both the credit risk of the borrower and
the credit risk associated with an interposed bank or other financial
intermediary. The participation interests and bank loans in which the Funds
intend to invest may not be rated by any nationally recognized rating
service.
Asset-Backed
Securities
The
Funds may invest in asset-backed securities. Asset-backed securities represent
interests in “pools” of assets, including consumer loans or receivables held in
trust. Rising interest rates tend to extend the
duration
of these securities, making them more sensitive to changes in interest
rates. As a result, in a period of rising interest rates, these
securities may exhibit additional volatility. This is known as
extension risk. In addition, these securities are subject to
prepayment risk, which is the risk that when interest rates decline or are low
but are expected to rise, borrowers may pay off their debts sooner than
expected. This can reduce the returns of the Fund because the Fund
will have to reinvest that money at the lower prevailing interest
rates. This is also known as contraction risk. These
securities also are subject to risk of default on the underlying assets,
particularly during period of economic downturn.
Municipal
Securities
The
Funds may invest in municipal securities. Municipal securities are debt
obligations issued by or on behalf of states, territories, and possessions of
the United States, including the District of Columbia, and any political
subdivisions or financing authority of any of these, the income from which is,
the opinion of qualified legal counsel, exempt from federal regular income tax
(“Municipal Securities”).
Municipal
Securities are generally issued to finance public works such as airports,
bridges, highways, housing, hospitals, mass transportation projects, schools,
and water and sewer works. They are also issued to repay outstanding
obligations, to include industrial development bonds issued by or on behalf of
public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
Municipal
Securities Risks.
Municipal Securities prices are interest rate sensitive, which means that their
value varies inversely with market interest rates. Thus, if market
interest rates have increased from the time a security was purchased, the
security, if sold, might be sold at a price less than its
cost. Similarly, if market interest rates have declined from the time
a security was purchased, the security, if sold, might be sold at a price
greater than its cost. (In either instance, if the security was held
to maturity, no loss or gain normally would be realized as a result of interim
market fluctuations.) Yields on Municipal Securities depend on a variety of
factors, including: the general conditions of the money market and the taxable
and Municipal Securities market; the size of the particular offering; the
maturity of the obligations; and the credit quality of the
issue. Further, any adverse economic conditions or developments
affecting the states or municipalities could impact municipal
securities.
Special
Risks Related to Cyber Security
The
Funds and their service providers are susceptible to cyber security risks that
include, among other things, theft, unauthorized monitoring, release, misuse,
loss, destruction or corruption of confidential and highly restricted data;
denial of service attacks; unauthorized access to relevant systems, compromises
to networks or devices that the Funds and their service providers use to service
the Funds’ operations; or operational disruption or failures in the physical
infrastructure or operating systems that support the Funds and their service
providers. Cyber attacks against or security breakdowns of the Funds or their
service providers may adversely impact the Funds and their shareholders,
potentially resulting in, among other things, financial losses; the inability of
Fund shareholders to transact business and the Funds to process transactions;
inability to calculate a Fund’s NAV; violations of applicable privacy and other
laws; regulatory fines, penalties, reputational damage, reimbursement or other
compensation costs; and/or additional compliance costs. The Funds may incur
additional costs for cyber security risk management and remediation purposes. In
addition, cyber security risks may also impact issuers of securities in which
the Funds invest, which may cause a Fund’s investment in such issuers to lose
value. There can be no assurance that the Funds or their service providers will
not suffer losses relating to cyber attacks or other information security
breaches in the future.
INVESTMENT
RESTRICTIONS
The
Trust (on behalf of each Fund) has adopted the following restrictions as
fundamental policies, which may not be changed without the affirmative vote of
the holders of a “majority of the Fund’s outstanding voting securities” as
defined in the 1940 Act. Under the 1940 Act, the “vote of the holders of a
majority of the outstanding voting securities” means the vote of the holders of
the lesser of (i) 67% of the shares of a Fund represented at a meeting at
which the holders of more than 50% of its outstanding shares are represented or
(ii) more than 50% of the outstanding shares of a Fund.
Each
Fund may not:
1.With
respect to 50% of its total assets, invest more than 5% of its total assets in
securities of a single issuer or hold more than 10% of the voting securities of
such issuer. (Does not apply to investments in the securities of other
investment companies or securities of the U.S. government, its agencies or
instrumentalities.)
2.Borrow
money, except as permitted under the 1940 Act.
3.Issue
senior securities, except as permitted under the 1940 Act.
4.Engage
in the business of underwriting securities, except to the extent that the Fund
may be considered an underwriter within the meaning of the Securities Act of
1933 in the disposition of restricted securities.
5.Invest
25% or more of the market value of its total assets in the securities of
companies engaged in any one industry. (Does not apply to investments in the
securities of other investment companies or securities of the U.S. government,
its agencies or instrumentalities.)
6.Purchase
or sell real estate, which term does not include securities of companies which
deal in real estate and/or mortgages or investments secured by real estate, or
interests therein, except that the Fund reserves freedom of action to hold and
to sell real estate acquired as a result of the Fund’s ownership of
securities.
7.Purchase
or sell physical commodities, unless acquired as a result of ownership of
securities or other instruments. This limitation shall not prevent the Fund from
purchasing, selling, or entering into futures contracts, or acquiring securities
or other instruments and options thereon backed by, or related to, physical
commodities.
8.Make
loans to others, except as permitted under the 1940 Act.
Each
Fund observes the following policies, which are not deemed fundamental and which
may be changed without shareholder vote. Each Fund may not:
1.Invest
in any issuer for purposes of exercising control or management.
2.Invest
in securities of other investment companies, except as permitted under the 1940
Act.
3.Hold,
in the aggregate, more than 15% of its net assets in illiquid investments that
are assets pursuant to Rule 22e-4 under the 1940 Act.
PORTFOLIO
TURNOVER
Although
the Funds generally will not invest for short-term trading purposes, portfolio
securities may be sold without regard to the length of time they have been held
when, in the opinion of the Adviser, investment considerations warrant such
action. Portfolio turnover rate is calculated by dividing (1) the
lesser
of purchases or sales of portfolio securities for the fiscal year by
(2) the monthly average of the value of portfolio securities owned during
the fiscal year. A 100% turnover rate would occur if all the securities in a
Fund’s portfolio, with the exception of securities whose maturities at the time
of acquisition were one year or less, were sold and either repurchased or
replaced within one year. A high rate of portfolio turnover (100% or more)
generally leads to higher transaction costs and may result in a greater number
of taxable transactions.
High
portfolio turnover generally results in the distribution of short-term capital
gains which are taxed at the higher ordinary income tax rates. For the fiscal
years indicated below, each Fund’s portfolio turnover rate was as
follows:
|
|
|
|
|
|
|
|
|
|
Portfolio
Turnover Rate For Fiscal Year Ended September 30, |
|
2023 |
2022 |
Scharf
Fund |
35.49% |
22.66% |
Multi-Asset
Fund |
28.37% |
20.53% |
Global
Opportunity Fund |
34.13% |
29.86% |
PORTFOLIO
HOLDINGS POLICY
The
Adviser and the Funds maintain portfolio holdings disclosure policies that
govern the timing and circumstances of disclosure to shareholders and third
parties of information regarding the portfolio investments held by the Funds.
These portfolio holdings disclosure policies have been approved by the Board.
Disclosure of the Funds’ complete holdings is required to be made quarterly
within 60 days of the end of each fiscal quarter in the annual report and
semi-annual report to the Funds’ shareholders and in the quarterly holdings
report on Part F of Form N-PORT. The Fund’s top ten holdings as of each calendar
quarter-end may be made available on the Funds’ website at www.scharffunds.com
within five to ten business days after the calendar quarter-end. If posted, the
top ten holdings for each Fund will remain posted on the website until updated
with the next required regulatory filings with the SEC. These reports are
available, free of charge, on the EDGAR database on the SEC’s website at
www.sec.gov.
Pursuant
to the Trust’s portfolio holdings disclosure policies, information about the
Funds’ portfolio holdings are not distributed to any person unless:
•The
disclosure is required pursuant to a regulatory request, court order or is
legally required in the context of other legal proceedings;
•The
disclosure is made to a mutual fund rating and/or ranking organization, or
person performing similar functions, who is subject to a duty of
confidentiality, including a duty not to trade on any non-public
information;
•The
disclosure is made to internal parties involved in the investment process,
administration, operation or custody of the Funds, including, but not limited to
U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund
Services (“Fund Services”) and the Trust’s Board of Trustees, attorneys,
auditors or accountants;
•The
disclosure is made: (a) in connection with a quarterly, semi-annual or annual
report that is available to the public; or (b) relates to information that is
otherwise available to the public; or
•The
disclosure is made with the prior written approval of either the Trust’s CCO or
his or her designee.
Certain
of the persons listed above receive information about the Funds’ portfolio
holdings on an ongoing basis. The Funds believe that these third parties have
legitimate objectives in requesting such portfolio holdings information and
operate in the best interest of the Funds’ shareholders. These persons
include:
•A
mutual fund rating and/or ranking organization, or person performing similar
functions, who is subject to a duty of confidentiality, including a duty not to
trade on any non-public information;
•Rating
and/or ranking organizations, specifically: Lipper; Morningstar; S&P Global
Ratings; Bloomberg; Vickers-Stock Research Corporation; Thomson Financial; and
Capital-Bridge, all of which currently receive such information 60 days
following the end of a calendar quarter; or
•Internal
parties involved in the investment process, administration, operation or custody
of the Funds, specifically: Fund Services; the Trust’s Board of Trustees; and
the Trust’s attorneys and independent registered public accounting firm
(currently, Sullivan & Worcester LLP and Tait, Weller & Baker LLP,
respectively), all of which typically receive such information after it is
generated.
Any
disclosures to additional parties not described above is made with the prior
written approval of either the Trust’s CCO or his or her designee, pursuant to
the Trust’s Policy and Procedures Regarding Disclosure of Portfolio
Holdings.
The
CCO or designated officer of the Trust will approve the furnishing of non-public
portfolio holdings to a third party only if they consider the furnishing of such
information to be in the best interest of the Funds and their shareholders and
if no material conflict of interest exists regarding such disclosure between
shareholders interest and those of the Adviser, Distributor or any affiliated
person of the Funds. No consideration may be received by the Funds, the Adviser,
any affiliate of the Adviser or their employees in connection with the
disclosure of portfolio holdings information. The Board receives and reviews
annually a list of the persons who receive non-public portfolio holdings
information and the purpose for which it is furnished.
MANAGEMENT
The
overall management of the Trust’s business and affairs is invested with its
Board. The Board approves all significant agreements between the Trust and
persons or companies furnishing services to it, including the agreements with
the Adviser, Administrator, Custodian and Transfer Agent, each as defined
herein. The day-to-day operations of the Trust are delegated to its officers,
subject to the Funds’ investment objectives, strategies and policies and to the
general supervision of the Board. The Trustees and officers of the Trust, their
ages and positions with the Trust, terms of office with the Trust and length of
time served, their business addresses and principal occupations during the past
five years and other directorships held are set forth in the table below.
Independent
Trustees(1)
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Name,
Year of Birth and Address |
Position
Held with the Trust |
Term
of Office and Length of Time Served* |
Principal
Occupation
During
Past Five Years |
Number
of Portfolios
in
Fund Complex
Overseen
by Trustee(2) |
Other
Directorships Held During Past Five Years(3) |
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David
G. Mertens (1960) 615 E. Michigan Street Milwaukee, WI
53202 |
Board
Chair
Trustee |
Indefinite
term; since October 2023.
Indefinite
term; since March 2017. |
Partner
and Head of Business Development, QSV Equity Investors, LLC, (formerly
known as Ballast Equity Management, LLC) (a privately-held investment
advisory firm) (February 2019 to present); Managing Director and Vice
President, Jensen Investment Management, Inc. (a privately-held investment
advisory firm) (2002 to 2017). |
|
Trustee,
Advisors Series Trust (for series not affiliated with the
Funds). |
Joe
D. Redwine (1947) 615 E. Michigan Street Milwaukee, WI
53202 |
Trustee |
Indefinite
term; since September 2008. |
Retired;
formerly Manager, President, CEO, U.S. Bancorp Fund Services, LLC, and its
predecessors, (May 1991 to July 2017). |
|
Trustee,
Advisors Series Trust (for series not affiliated with the
Funds). |
Michele
Rackey (1959) 615 E. Michigan Street Milwaukee, WI
53202 |
Trustee |
Indefinite
term; since January 2023. |
Chief
Executive Officer, Government Employees Benefit Association (GEBA)
(benefits and wealth management organization) (2004 to 2020); Board
Member, Association Business Services Inc. (ABSI) (for-profit subsidiary
of the American Society of Association Executives) (2019 to
2020). |
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Trustee,
Advisors Series Trust (for series not affiliated with the
Funds). |
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Anne
W. Kritzmire
(1962)
615
E. Michigan Street
Milwaukee,
WI 53202 |
Trustee |
Indefinite
term; since August 2024. |
Principal
Owner of AW Kritzmire Consulting (2021-Present); Business Faculty Lead of
Lake Forest Graduate School of Management (2021-Present); Head of
Multi-Asset and various other positions of Nuveen Investments
(1999-2020) |
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Lead
Independent Director of Thornburg Income Builder Opportunities Trust (a
closed end fund) (2020-Present); Trustee, Finance Commissioner, and Acting
Treasurer of Village of Long Grove (municipal government)
(2017-Present). |
Craig
B. Wainscott
(1961)
615
E. Michigan Street
Milwaukee,
WI 53202 |
Trustee |
Indefinite
term; since August 2024. |
CEO
instaCOVER LLC (Specialized insurance/technology company) 2014-2021, and
CFO 2021-2023. |
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Independent
Trustee of iMGP Funds (14 Funds) (2024-Present); Independent Trustee and
Board Chair of Brandes Investment Trust (6 Funds) (2011-2024); Board
Member of Paradigm Project (social venture company)
(2010-2020). |
Officers
of the Trust
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Name,
Year of Birth and Address |
Position
Held with the Trust |
Term
of Office and Length of Time Served |
Principal
Occupation
During
Past Five Years |
Jeffrey
T. Rauman (1969) 615 E. Michigan Street Milwaukee, WI
53202
|
President,
Chief Executive Officer and Principal Executive Officer |
Indefinite
term; since December 2018. |
Senior
Vice President, Compliance and Administration, U.S. Bank Global Fund
Services (February 1996 to present). |
Kevin
J. Hayden (1971) 615 E. Michigan Street Milwaukee, WI
53202
|
Vice
President, Treasurer and Principal Financial Officer |
Indefinite
term; since January 2023. |
Vice
President, Compliance and Administration, U.S. Bank Global Fund Services
(June 2005 to present). |
Richard
R. Conner (1982) 615 E. Michigan Street Milwaukee, WI
53202
|
Assistant
Treasurer |
Indefinite
term; since December 2018. |
Assistant
Vice President, Compliance and Administration, U.S. Bank Global Fund
Services (July 2010 to present). |
Joseph
R. Kolinsky (1970) 2020 E. Financial Way, Suite 100 Glendora, CA
91741
|
Vice
President, Chief Compliance Officer and AML Officer |
Indefinite
term; since July 2023. |
Vice
President, U.S. Bank Global Fund Services (May 2023 to present); Chief
Compliance Officer, Chandler Asset Management, Inc. (2020 to 2022);
Director, Corporate Compliance, Pacific Life Insurance Company (2018 to
2019). |
Lillian
A. Kabakali (1980) 2020 E. Financial Way, Suite 100 Glendora, CA
91741 |
Vice
President and Secretary |
Indefinite
term; since March 2024. |
Vice
President, U.S. Bank Global Fund Services (April 2023 to present); Vice
President, Compliance, Guggenheim Partners Investment Management Holdings,
LLC (April 2019 to April 2023); Senior Associate, Compliance, Guggenheim
Partners Investment Management Holdings, LLC (January 2018 to April
2019). |
Elaine
E. Richards (1968) 2020 E. Financial Way, Suite 100 Glendora, CA
91741
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Assistant
Secretary |
Indefinite
term; since March 2024. |
Senior
Vice President, U.S. Bank Global Fund Services (July 2007 to
present). |
* The
Trustees have designated a mandatory retirement age of 75, such that each
Trustee, serving as such on the date he or she reaches the age of 75, shall
submit his or her resignation not later than the last day of the calendar year
in which his or her 75th birthday occurs (“Retiring Trustee”). Upon request, the
Board may, by vote of a majority of the Trustees eligible to vote on such
matter, determine whether or not to extend such Retiring Trustee’s term and on
the length of a one-time extension of up to three additional years. At a meeting
held December 7-8, 2022, by vote of the majority of the Trustees (not
including Mr. Redwine), Mr. Redwine’s term as Trustee was extended for
three additional years to expire on December 31, 2025.
(1)The
Trustees of the Trust who are not “interested persons” of the Trust as defined
under the 1940 Act (“Independent Trustees”).
(2)As
of December 31, 2023, the Trust was comprised of 34 active portfolios managed by
unaffiliated investment advisers. The term “Fund Complex” applies only to the
Funds. The Funds do not hold themselves out as related to any other series
within the Trust for investment purposes, nor do they share the same investment
adviser with any other series.
(3)“Other
Directorships Held” includes only directorships of companies required to
register or file reports with the SEC under the Securities Exchange Act of 1934
Act, as amended, (that is, “public companies”) or other investment companies
registered under the 1940 Act.
Additional
Information Concerning Our Board of Trustees
The
Role of the Board
The
Board provides oversight of the management and operations of the Trust. Like all
mutual funds, the day-to-day responsibility for the management and operations of
the Trust is the responsibility of various service providers to the Trust, such
as the Trust’s investment advisers, distributor, administrator, custodian, and
transfer agent, each of whom are discussed in greater detail in this SAI. The
Board approves all significant agreements between the Trust and its service
providers, including the agreements with the investment advisers, distributor,
administrator, custodian and transfer agent. The Board has appointed various
senior individuals of certain of these service providers as officers of the
Trust, with responsibility to monitor and report to the Board on the Trust’s
day-to-day operations. In conducting this oversight, the Board receives regular
reports from these officers and service providers regarding the Trust’s
operations. The Board has appointed a Chief Compliance Officer (“CCO”) who
administers the Trust’s compliance program and regularly reports to the Board as
to compliance matters. Some of these reports are provided as part of formal
“Board Meetings” which are typically held quarterly, in person, and involve the
Board’s review of recent Trust operations. From time to time one or more members
of the Board may also meet with Trust officers in less formal settings, between
formal “Board Meetings,” to discuss various topics. In all cases, however, the
role of the Board and of any individual Trustee is one of oversight and not of
management of the day-to-day affairs of the Trust and its oversight role does
not make the Board a guarantor of the Trust’s investments, operations or
activities.
Board
Leadership Structure
The
Board has structured itself in a manner that it believes allows it to
effectively perform its oversight function. It has established three standing
committees, an Audit Committee, a Governance and Nominating Committee and a
Qualified Legal Compliance Committee (the “QLCC”), which are discussed in
greater detail under “Board Committees,” below. Currently, all of the members of
the Board are Independent Trustees, which are Trustees that are not affiliated
with the Adviser or its affiliates or any other investment adviser in the Trust
or with its principal underwriter. The Independent Trustees have engaged their
own independent counsel to advise them on matters relating to their
responsibilities in connection with the Trust.
The
President, Chief Executive Officer and Principal Executive Officer of the Trust
is not a Trustee, but rather is a senior employee of the Administrator who
routinely interacts with the unaffiliated investment advisers of the Trust and
comprehensively manages the operational aspects of the Funds in the Trust. The
Trust has appointed David Mertens, an Independent Trustee, as Board Chair, and
he acts as a liaison with the Trust’s service providers, officers, legal
counsel, and other Trustees between meetings, helps to set Board meeting
agendas, and serves as Chair during executive sessions of the Independent
Trustees.
The
Board reviews its structure annually. The Trust has determined that it is
appropriate to separate the Principal Executive Officer and Board Chair
positions because the day-to day responsibilities of the Principal Executive
Officer are not consistent with the oversight role of the Trustees and because
of the
potential
conflict of interest that may arise from the Administrator’s duties with the
Trust. Given the specific characteristics and circumstances of the Trust as
described above, the Trust has determined that the Board’s leadership structure
is appropriate.
Board
Oversight of Risk Management
As
part of its oversight function, the Board receives and reviews various risk
management reports and assessments and discusses these matters with appropriate
management and other personnel. Because risk management is a broad concept
comprised of many elements (such as, for example, investment risk, issuer and
counterparty risk, compliance risk, operational risks, business continuity
risks, etc.) the oversight of different types of risks is handled in different
ways. For example, the Governance and Nominating Committee meets regularly with
the CCO to discuss compliance and operational risks and the Audit Committee
meets with the Treasurer and the Trust’s independent public accounting firm to
discuss, among other things, the internal control structure of the Trust’s
financial reporting function. The full Board receives reports from the Adviser
and portfolio managers as to investment risks as well as other risks that may be
also discussed in Audit Committee.
Information
about Each Trustee’s Qualification, Experience, Attributes or
Skills
The
Board believes that each of the Trustees has the qualifications, experience,
attributes and skills (“Trustee Attributes”) appropriate to their continued
service as Trustees of the Trust in light of the Trust’s business and structure.
Each of the Trustees has substantial business and professional backgrounds that
indicate they have the ability to critically review, evaluate and access
information provided to them. Certain of these business and professional
experiences are set forth in detail in the table above. In addition, the
majority of the Trustees have served on boards for organizations other than the
Trust, as well as having served on the Board of the Trust for a number of years.
They therefore have substantial board experience and, in their service to the
Trust, have gained substantial insight as to the operation of the Trust. The
Board annually conducts a ‘self-assessment’ wherein the effectiveness of the
Board and individual Trustees is reviewed.
In
addition to the information provided in the table above, below is certain
additional information concerning each particular Trustee and certain of their
Trustee Attributes. The information provided below, and in the table above, is
not all-inclusive. Many Trustee Attributes involve intangible elements, such as
intelligence, integrity, work ethic, the ability to work together, the ability
to communicate effectively, the ability to exercise judgment, the ability to ask
incisive questions, and commitment to shareholder interests. In conducting its
annual self-assessment, the Board has determined that the Trustees have the
appropriate attributes and experience to continue to serve effectively as
Trustees of the Trust.
David
G. Mertens.
Mr. Mertens has substantial mutual fund experience and is experienced with
financial, accounting, investment and regulatory matters. He currently serves as
Partner and Head of Business Development of QSV Equity Investors, LLC, (formerly
known as Ballast Equity Management, LLC), a privately-held investment advisory
firm. Mr. Mertens also gained substantial mutual fund experience through
his tenure as Managing Director and Vice President of Jensen Investment
Management, Inc. (“Jensen”) from 2002 to 2017. Prior to Jensen, Mr. Mertens
held various roles in sales and marketing management with Berger Financial
Group, LLC from 1995 to 2002, ending as Senior Vice President of Institutional
Marketing for Berger Financial Group and President of its limited purpose
broker-dealer, Berger Distributors.
Joe
D. Redwine.
Mr. Redwine has substantial mutual fund experience and is experienced with
financial, accounting, investment and regulatory matters through his experience
as President and CEO of U.S.
Bancorp
Fund Services, LLC, (now known as U.S. Bank Global Fund Services), a
full-service provider to mutual funds and alternative investment products. In
addition, he has extensive experience consulting with investment advisers
regarding the legal structure of mutual funds, distribution channel analysis and
actual distribution of those funds. Mr. Redwine serves as an Audit
Committee Financial Expert for the Trust.
Michele
Rackey.
Ms. Rackey has
substantial experience in mutual funds and investment management through her
experience as CEO of Government Employees Benefits Association (GEBA) and also
with The ARK Funds. Ms. Rackey
is
experienced with financial, accounting, investment and regulatory matters and
serves as an Audit Committee Financial Expert for the Trust. Ms. Rackey
was
CEO of GEBA for 17 years and Chief Operating Officer of the ARK Funds for nine
years. Ms. Rackey
has
a BS in Business Administration from the University of Illinois at Chicago and
has an MBA from Keller Graduate School of Management in Chicago. Ms. Rackey
previously
held FINRA series 6, 7 and 63 licenses as well as a Maryland Life and Health
License.
Anne
W. Kritzmire.
Ms. Kritzmire has substantial experience in registered funds and investment
management through her experience as Head of Multi-Asset/Solutions Marketing,
Managing Director of Closed-End Funds, Managing Director of Channel Marketing,
and Director of Customer Insights at Nuveen Investments. Ms. Kritzmire
serves as Lead Independent Director on the Board of Directors and is a member of
the Audit Committee and Nominating and Governance Committee of the Thornburg
Income Builder Opportunities Trust (2020-Present). With respect to the Thornburg
Income Builder Opportunities Trust, she is considered to be a qualified
financial expert. She has also served on several other boards including as a
Trustee, Financial Commissioner, and Acting Treasurer at Village of Long Grove
(2017-Present). Ms. Kritzmire has a B.S. in Electrical Engineering from
University of Notre Dame and has an MBA in Finance and Marketing from
Northwestern University, Kellogg Graduate School of Management.
Craig
B. Wainscott.
Mr. Wainscott has substantial global executive and advisory experience,
including his current position as a mutual fund trustee at iMGP Funds and
early-stage business advisor. He formerly served as an Independent Trustee and
Board Chair of Brandes Investment Trust. He also has extensive C-Suite
Leadership, including his position as Chief Executive Officer at Russell
Investments Canada for five years, leading a diverse collection of businesses
such as mutual funds, institutional funds, consulting, and brokerage. He has
also served as CEO at instaCOVER LLC and CFO at The Paradigm Project.
Mr. Wainscott continues to serve as Board Advisor at Cadenced Biomedical
(an early-stage medical device company). He has also served as a board member
for The Paradigm Project. Mr. Wainscott is a qualified financial expert,
having served as the CFO for two organizations, audit committee member, and is a
CFA.
Trust
Committees
The
Trust has established the following three standing committees and the membership
of each committee to assist in its oversight functions, including its oversight
of the risks the Trust faces: the Audit Committee, the QLCC, and the Governance
and Nominating Committee. There is no assurance, however, that the Board’s
committee structure will prevent or mitigate risks in actual practice. The
Trust’s committee structure is specifically not intended or designed to prevent
or mitigate the Funds’ investment risks. The Funds are designed for investors
that are prepared to accept investment risk, including the possibility that as
yet unforeseen risks may emerge in the future.
The
Audit Committee is comprised of all of the Independent Trustees.
Mr. Redwine is the Chairperson of the Audit Committee. The Audit Committee
typically meets once per year with respect to the various
series
of the Trust. The function of the Audit Committee, with respect to each series
of the Trust, is to review the scope and results of the audit and any matters
bearing on the audit or a Fund’s financial statements and to ensure the
integrity of the Fund’s pricing and financial reporting. The Audit Committee met
twice with respect to the Funds during the fiscal year ended September 30,
2023.
The
Audit Committee also serves as the QLCC for the Trust for the purpose of
compliance with Rules 205.2(k) and 205.3(c) of the Code of Federal
Regulations, regarding alternative reporting procedures for attorneys retained
or employed by an issuer who appear and practice before the SEC on behalf of the
issuer (the “issuer attorneys”). An issuer attorney who becomes aware of
evidence of a material violation by the Trust, or by any officer, director,
employee, or agent of the Trust, may report evidence of such material violation
to the QLCC as an alternative to the reporting requirements of
Rule 205.3(b) (which requires reporting to the chief legal officer and
potentially “up the ladder” to other entities). The QLCC did not meet with
respect to the Trust during the fiscal year ended September 30,
2023.
The
Governance and Nominating Committee is comprised of all, and only of, the
Independent Trustees. The Governance and Nominating Committee is responsible for
seeking and reviewing candidates for consideration as nominees for Trustees as
is considered necessary from time to time and meets only as necessary. The
Governance and Nominating Committee will consider nominees recommended by
shareholders for vacancies on the Board. Recommendations for consideration by
the Governance and Nominating Committee should be sent to the President of the
Trust in writing together with the appropriate biographical information
concerning each such proposed Nominee, and such recommendation must comply with
the notice provisions set forth in the Trust’s By-Laws. In general, to comply
with such procedures, such nominations, together with all required biographical
information, must be delivered to and received by the President of the Trust at
the principal executive office of the Trust between 120 and 150 days prior to
the shareholder meeting at which any such nominee would be voted
on.
The
Governance and Nominating Committee meets regularly with respect to the various
series of the Trust. The Governance and Nominating Committee is also responsible
for, among other things, assisting the Board in its oversight of the Trust’s
compliance program under Rule 38a-1 under the 1940 Act, reviewing and
making recommendations regarding Independent Trustee compensation and the
Trustees’ annual “self-assessment.” Ms. Rackey is the Chair of the
Governance and Nominating Committee.
The
Governance and Nominating Committee met once with respect to the Trust during
the fiscal year ended September 30, 2023.
Trustee
Ownership of Fund Shares and Other Interests
The
following table shows the amount of shares in the Funds and the amount of shares
in other portfolios of the Trust owned by the Trustees as of the calendar year
ended December 31, 2023.
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Independent
Trustees |
Dollar
Range of Equity Securities in the |
Aggregate
Dollar Range of Fund Shares in the Trust |
Scharf
Fund |
Multi-Asset
Fund |
Global
Opportunity Fund |
(None,
$1-$10,000, $10,001-$50,000, $50,001-$100,000, Over $100,000) |
|
David
G. Mertens |
None |
None |
None |
Over
$100,000 |
Joe
D. Redwine |
None |
None |
None |
$50,001
- $100,000 |
Michele
Rackey |
None |
None |
None |
$10,001
- $50,000 |
Anne
W. Kritzmire(1) |
None |
None |
None |
None |
Craig
B. Wainscott(1) |
None |
None |
None |
None |
(1)Ms.
Kritzmire and Mr. Wainscott joined the Board as Trustees effective as of August
27, 2024.
As
of December 31, 2023, neither the Independent Trustees nor members of their
immediate family, own securities beneficially or of record in the Adviser, the
Distributor, as defined below, or an affiliate of the Adviser or Distributor.
Accordingly, neither the Independent Trustees nor members of their immediate
family, have direct or indirect interest, the value of which exceeds $120,000,
in the Adviser, the Distributor or any of their affiliates. In addition, during
the two most recently completed calendar years, neither the Independent Trustees
nor members of their immediate families have conducted any transactions (or
series of transactions) in which the amount involved exceeds $120,000 and to
which the Adviser, the Distributor or any affiliate thereof was a
party.
Compensation
Effective
January 1, 2024, the Independent Trustees each receive an annual retainer of
$108,500 per year allocated among each of the various portfolios comprising the
Trust, an additional $6,000 per regularly scheduled Board meeting, and an
additional $500 per special meeting, paid by the Trust or applicable
advisors/portfolios, as well as reimbursement for expenses incurred in
connection with attendance at Board meetings. Prior to January 1, 2024, the
annual retainer was $102,500. The Trust Chair, Chair of the Audit Committee, and
Chair of the Governance and Nominating Committee each receive a separate annual
fee of $10,000, $5,000, and $3,000, respectively, provided that the separate fee
for the Chair of the Audit Committee will be waived if the same individual
serves as both Trust Chair and Audit Committee Chair. The Trust has no pension
or retirement plan. No other entity affiliated with the Trust pays any
compensation to the Trustees. Set forth below is the compensation received by
the Independent Trustees from the Funds for the fiscal year ended September 30,
2023.
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Aggregate
Compensation |
Pension
or Retirement Benefits Accrued as Part
of Fund Expenses |
Estimated Annual Benefits Upon Retirement |
Total
Compensation
from
Fund
Complex
Paid
to
Trustees(1) |
Scharf
Fund |
Multi-Asset
Fund |
Global Opportunity Fund |
Independent
Trustee |
David
G. Mertens |
$3,898 |
$3,898 |
$3,898 |
None |
None |
$11,694 |
Raymond
B. Woolson(2) |
$3,923 |
$3,923 |
$3,923 |
None |
None |
$11,769 |
Joe
D. Redwine |
$3,955 |
$3,955 |
$3,955 |
None |
None |
$11,865 |
Michele
Rackey |
$2,723 |
$2,723 |
$2,723 |
None |
None |
$8,169 |
Anne
W. Kritzmire(3) |
None |
None |
None |
None |
None |
None |
Craig
B. Wainscott(3) |
None |
None |
None |
None |
None |
None |
(1)There
are currently numerous portfolios comprising the Trust. The term “Fund Complex”
applies only to the Funds. For the fiscal year ended September 30, 2023,
aggregate Independent Trustees’ fees and expenses for the Trust were
$512,500.
(2)Mr.
Woolson retired from his position with the Board as a Trustee effective as of
October 18, 2023 for personal reasons to attend to health-related
matters.
(3)Prior
to their election as Trustees on August 27, 2024, Ms. Kritzmire and Mr.
Wainscott served as paid consultants to the Trust between June 1, 2024 and
August 26, 2024.
CODES
OF ETHICS
The
Trust and the Adviser have each adopted separate Codes of Ethics under Rule
17j-1 of the 1940 Act. These Codes permit, subject to certain conditions, access
persons of the Adviser to invest in securities that may be purchased or held by
a Fund. The Distributor, as defined below, relies on the principal underwriter’s
exception under Rule 17j-1(c)(3), of the 1940 Act, specifically where the
Distributor is not affiliated with the Trust or the Adviser, and no officer,
director or general partner of the Distributor serves as an officer, director or
general partner of the Trust or the Adviser.
PROXY
VOTING POLICIES AND PROCEDURES
The
Board has adopted Proxy Voting Policies and Procedures (the “Policies”) on
behalf of the Trust which delegate the responsibility for voting proxies to the
Adviser, subject to the Board’s continuing oversight. The Policies require that
the Adviser vote proxies received in a manner consistent with the best interests
of the Funds and their shareholders. The Policies also require the Adviser to
present to the Board, at least annually, the Adviser’s Policies and a record of
each proxy voted by the Adviser on behalf of the Funds, including a report on
the resolution of all proxies identified by the Adviser as involving a conflict
of interest.
The
Adviser will vote all proxies after making the determination that the vote is in
the best interest of the Funds’ shareholders. In determining whether a proposal
serves the best interests of the Funds and their shareholders, the Adviser will
consider a number of factors, including the economic effect of the proposal on
shareholder value, the threat posed by the proposal to existing rights of
shareholders, the dilution of existing shares that would result from the
proposal, the effect of the proposal on management or director accountability to
shareholders, and, if the proposal is a shareholder initiative, whether it
wastes time and resources of the company or reflects the grievance of one
individual. The Adviser will abstain from voting proxies when it believes it is
appropriate to do so.
The
Adviser has established a Proxy Voting Committee which is comprised of employees
separate from those persons responsible for the Funds’ portfolio management. If
a material conflict of interest over proxy voting arises between the Adviser and
the Funds, such proxy votes will be referred to the Proxy Voting Committee and
the Committee will vote all such proxies in accordance with the policy described
above.
The goal of the Proxy Voting Committee is to ensure that all proxy votes serve
the best interests of the Funds and their shareholders.
The
Trust is required to file a Form N-PX, with each Fund’s complete proxy voting
record for the 12 months ended June 30, no later than August 31 of each
year. The Funds’ proxy voting records will be available without charge, upon
request, by calling toll-free 866-5SCHARF and on the SEC’s website at
www.sec.gov.
CONTROL
PERSONS, PRINCIPAL SHAREHOLDERS, AND MANAGEMENT OWNERSHIP
A
principal shareholder is any person who owns of record or beneficially 5% or
more of the outstanding shares of a Fund. A control person is one who owns
beneficially or through controlled companies more than 25% of the voting
securities of a company or acknowledges the existence of control. Shareholders
with a controlling interest could affect the outcome of voting or the direction
of management of a Fund. For control persons only, if a control person is a
company, the table also indicates the control person’s parent, if any, and the
jurisdiction under the laws of which the control person is organized. As of
December 31, 2023, the following shareholders were considered to be either a
control person or principal shareholder of each Fund:
Scharf
Fund – Institutional Class
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Name
and Address |
Parent Company |
Jurisdiction |
% Ownership |
Type
of Ownership |
Morgan
Stanley Smith Barney LLC
For
the Exclusive Benefit of its Customers
1
New York Plz. 12th
Floor
New
York, NY 10004-1965 |
Morgan
Stanley Smith Barney |
DE |
35.24% |
Record |
National
Financial Services, LLC
For
the Exclusive Benefit of our Customers
Attn:
Mutual Funds Dept. 4th
Floor
499
Washington Blvd.
Jersey
City, NJ 07310-1995 |
Fidelity
Global Brokerage Group, Inc. |
DE |
31.69% |
Record |
Charles
Schwab & Co., Inc.
Special
Custody A/C FBO Customers
Attn:
Mutual Funds
211
Main Street
San
Francisco, CA 94105-1901 |
N/A |
N/A |
23.24% |
Record |
Scharf
Fund – Retail Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
and Address |
Parent Company |
Jurisdiction |
% Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc. Special Customer A/C FBO Customers Attn:
Mutual Funds 211 Main Street San Francisco, CA 94105-1901 |
The
Charles Schwab Company |
DE |
81.07% |
Record |
National
Financial Services, LLC
For
the Exclusive Benefit of our Customers
Attn:
Mutual Funds Dept. 4th
Floor
499
Washington Blvd.
Jersey
City, NJ 07310-1995 |
N/A |
N/A |
10.15% |
Record |
|
|
|
|
|
Scharf
Multi-Asset Fund – Institutional Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
and Address |
Parent Company |
Jurisdiction |
% Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc. Special Custody A/C FBO Customers Attn:
Mutual Funds 211 Main Street San Francisco, CA 94105-1901 |
The
Charles Schwab Corporation |
DE |
85.06% |
Record |
National
Financial Services, LLC
For
the Exclusive Benefit of our Customers
Attn:
Mutual Funds Dept. 4th
Floor
499
Washington Blvd.
Jersey
City, NJ 07310-1995 |
N/A |
N/A |
5.03% |
Record |
Scharf
Multi-Asset Fund – Retail Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
and Address |
Parent Company |
Jurisdiction |
% Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc. Special Custody A/C FBO Customers Attn:
Mutual Funds 211 Main Street San Francisco, CA 94105-1901 |
The
Charles Schwab Corporation |
DE |
84.14% |
Record |
Morgan
Stanley Smith Barney LLC For the exclusive benefit of Customers of
MSSB 1 New York Plaza, Floor 12 New York, NY 10004-1932 |
N/A |
N/A |
13.91% |
Record |
Scharf
Global Opportunity Fund – Institutional Class (formerly, Retail
Class)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
and Address |
Parent Company |
Jurisdiction |
% Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc. Special Custody A/C FBO Customers Attn:
Mutual Funds 211 Main Street San Francisco, CA 94105-1901 |
The
Charles Schwab Corporation |
DE |
57.60% |
Record |
Brian
A. Krawez and Karen Krawez Revocable Living Trust, Karen Krawez and
Brian A. Krawez Trustees c/o Scharf Investments, LLC 16450 Los Gatos
Blvd, Suite 207 Los Gatos, CA 95032 |
N/A |
N/A |
21.23% |
Beneficial |
UBS
WM USA Spec Cdy A/C EBOC UBSFSI 1000 Harbor Blvd. Weehawken, NJ
07086-6761 |
N/A |
N/A |
5.75% |
Record |
Management
Ownership Information.
As of December 31, 2023, the Trustees and officers of the Trust, as a group,
beneficially owned less than 1% of the outstanding shares of any class of the
Funds.
THE
FUNDS’ INVESTMENT ADVISER
Scharf
Investments, LLC, 16450 Los Gatos Boulevard, Suite 207, Los Gatos, California
95032, acts as investment adviser to the Funds pursuant to an investment
advisory agreement with the Trust (the “Advisory Agreement”). The control person
of the Adviser is Brian A. Krawez, CFA, President of the Adviser and portfolio
manager to the Funds, who is the majority owner.
In
consideration of the services to be provided by the Adviser pursuant to the
Advisory Agreement, the Adviser is entitled to receive an annual management fee,
computed daily and payable monthly, equal to a rate of 0.65%, 0.70%, and 0.78%
from the Multi-Asset Fund, the Global Opportunity Fund, and the Scharf Fund’s
average daily net assets, respectively. For the fiscal years indicated below,
the Scharf Fund paid the following management fees to the Adviser:
|
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|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended September 30, |
Management
Fees Accrued |
Management
Fees Waived |
Management Fees
Recouped |
Net
Management Fee Paid to Adviser |
2023 |
$ |
3,116,337 |
|
$ |
345,233 |
|
$ |
0 |
|
$ |
2,771,104 |
|
2022 |
$ |
3,175,058 |
|
$ |
338,354 |
|
$ |
0 |
|
$ |
2,836,704 |
|
2021 |
$ |
3,040,492 |
|
$ |
331,385 |
|
$ |
0 |
|
$ |
2,709,107 |
|
|
|
|
|
|
The
Multi-Asset Fund had an investment advisory fee of 0.99% of its average daily
net assets prior to January 1, 2023. Effective January 1, 2023, the
Adviser is entitled to receive an annual management fee equal to a rate of 0.65%
of the Multi-Asset Fund’s average daily net assets. For the fiscal years
indicated below, the Multi-Asset Fund paid the following management fees to the
Adviser:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended September 30, |
Management
Fees Accrued |
Management
Fees Waived |
Management
Fees Recouped |
Net
Management Fee Paid to Adviser |
2023 |
$ |
357,845 |
|
$ |
134,869 |
|
$ |
0 |
|
$ |
222,976 |
|
2022 |
$ |
528,576 |
|
$ |
245,090 |
|
$ |
0 |
|
$ |
283,486 |
|
2021 |
$ |
501,698 |
|
$ |
246,375 |
|
$ |
0 |
|
$ |
255,323 |
|
|
|
|
|
|
The
Global Opportunity Fund had an investment advisory fee of 0.99% of its average
daily net assets prior to January 1, 2023. Effective January 1, 2023,
the Adviser is entitled to receive an annual management fee equal to a rate of
0.70% of the Global Opportunity Fund’s average daily net assets. For the fiscal
years ended as indicated below, the Global Opportunity Fund paid the following
management fees to the Adviser:
|
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|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended September 30, |
Management
Fees Accrued |
Management
Fees Waived |
Management Fees
Recouped |
Net
Management Fee Paid to Adviser |
2023 |
$ |
191,215 |
|
$ |
191,215 |
|
$ |
0 |
|
$ |
0 |
|
2022 |
$ |
256,752 |
|
$ |
256,752 |
|
$ |
0 |
|
$ |
0 |
|
2021 |
$ |
235,711 |
|
$ |
235,711 |
|
$ |
0 |
|
$ |
0 |
|
|
|
|
|
|
The
Advisory Agreement continues in effect for successive annual periods so long as
such continuation is specifically approved at least annually by the vote of
(1) the Board (or a majority of the outstanding shares of the Fund), and
(2) a majority of the Trustees who are not interested persons of any party
to the Advisory Agreement, in each case, cast in person at a meeting called for
the purpose of voting on such approval. The Advisory Agreement may be terminated
at any time, without penalty, by either party to the Advisory Agreement upon a
60-day written notice and is automatically terminated in the event of its
“assignment,” as defined in the 1940 Act.
In
addition to the management fees payable to the Adviser, each Fund is responsible
for its own operating expenses, including: fees and expenses incurred in
connection with the issuance, registration and transfer of its shares; brokerage
and commission expenses; all expenses of transfer, receipt, safekeeping,
servicing
and
accounting for the cash, securities and other property of the Trust for the
benefit of each Fund including all fees and expenses of its custodian and
accounting services agent; interest charges on any borrowings; costs and
expenses of pricing and calculating its daily NAV per share and of maintaining
its books of account required under the 1940 Act; taxes, if any; a pro rata
portion of expenditures in connection with meetings of the Funds’ shareholders
and the Trust’s Board that are properly payable by the Funds; salaries and
expenses of officers and fees and expenses of members of the Board or members of
any advisory board or committee who are not members of, affiliated with or
interested persons of the Adviser or Administrator; insurance premiums on
property or personnel of the Funds which inure to their benefit, including
liability and fidelity bond insurance; the cost of preparing and printing
reports, proxy statements, prospectuses and the statement of additional
information of the Funds or other communications for distribution to existing
shareholders; legal counsel, auditing and accounting fees; trade association
membership dues (including membership dues in the Investment Company Institute
allocable to the Funds); fees and expenses (including legal fees) of registering
and maintaining registration of its shares for sale under federal and applicable
state and foreign securities laws; all expenses of maintaining shareholder
accounts, including all charges for transfer, shareholder recordkeeping,
dividend disbursing, redemption, and other agents for the benefit of each Fund,
if any; and all other charges and costs of its operation plus any extraordinary
and non-recurring expenses, except as otherwise prescribed in the Advisory
Agreement.
Though
each Fund is responsible for its own operating expenses, the Adviser has
contractually agreed to waive a portion or all of the management fees payable to
it by the Funds and to pay Fund operating expenses to the extent necessary to
limit each Fund’s aggregate annual operating expenses (excluding acquired fund
fees and expenses, interest, taxes, extraordinary expenses, Rule 12-b1 fees,
shareholder servicing fees or any other class-specific expenses) to the limits
set forth in the Fees and Expenses of the Fund tables of the Prospectus. The
Adviser may request recoupment of previously waived fees and paid expenses in
any subsequent month in the 36-month period from the date of the management fee
reduction and expense payment if the aggregate amount actually paid by a Fund
toward the operating expenses for such fiscal year (taking into account the
reimbursement) will not cause a Fund to exceed the lesser of: (1) the
expense limitation in place at the time of the management fee reduction and
expense payment; or (2) the expense limitation in place at the time of the
reimbursement subject to the Expense Cap at the time such amounts were waived or
at the time of recoupment, whichever is lower. Any such recoupment is also
contingent upon the Board’s subsequent review and ratification of the recouped
amounts. Such recoupment may not be paid prior to a Fund’s payment of current
ordinary operating expenses.
SERVICE
PROVIDERS
Fund
Administrator, Transfer Agent and Fund Accountant
Pursuant
to an administration agreement (the “Administration Agreement”), U.S. Bancorp
Fund Services, LLC (the “Administrator”), doing business as U.S. Bank Global
Fund Services (“Fund Services”), 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as the Administrator to the Funds. Fund Services provides
certain services to the Funds including, among other responsibilities,
coordinating the negotiation of contracts and fees with, and the monitoring of
performance and billing of, the Funds’ independent contractors and agents;
preparation for signature by an officer of the Trust of all documents required
to be filed for compliance by the Trust and the Funds with applicable laws and
regulations, excluding those of the securities laws of various states; arranging
for the computation of performance data, including NAV per share and yield;
responding to shareholder inquiries; and arranging for the maintenance of books
and records of the Funds, and providing, at its own expense, office facilities,
equipment and personnel necessary to carry out its duties. In this capacity,
Fund Services does not have any responsibility or authority for the management
of the Funds, the determination of investment policy, or for any matter
pertaining to the distribution of Fund shares.
Fund
Services also acts as fund accountant, transfer agent (the “Transfer Agent”) and
dividend disbursing agent under separate agreements. Additionally, the
Administrator provides CCO services to the Trust under a separate agreement. The
cost of the CCO services is charged to the Funds and approved by the Board
annually.
For
the fiscal years indicated below, the Funds paid the following fees for fund
administration and fund accounting services to Fund Services as
Administrator:
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|
Administration
and Fund Accounting Fees Paid to Fund Services for the Fiscal
Years Ended September 30, |
|
2023 |
2022 |
2021 |
Scharf
Fund |
$173,751 |
$175,393 |
$169,872 |
Multi-Asset
Fund |
$63,305 |
$63,271 |
$62,712 |
Global
Opportunity Fund |
$41,123 |
$41,583 |
$41,641 |
Custodian
Pursuant
to a Custody Agreement between the Trust and U.S. Bank National Association,
located at 1555 North RiverCenter Drive, Suite 302, Milwaukee, Wisconsin
53212 (the “Custodian”), the Custodian serves as the custodian of the Funds’
assets, holds the Funds’ portfolio securities in safekeeping, and keeps all
necessary records and documents relating to its duties. The Custodian is
compensated with an asset-based fee plus transaction fees and is reimbursed for
out-of-pocket expenses.
The
Custodian and Administrator do not participate in decisions relating to the
purchase and sale of securities by the Funds. The Administrator, Transfer Agent,
and Custodian (as defined below) are affiliated entities under the common
control of U.S. Bancorp. The Custodian and its affiliates may participate in
revenue sharing arrangements with the service providers of mutual funds in which
the Funds may invest.
Independent
Registered Public Accounting Firm and Legal Counsel
Tait,
Weller & Baker LLP, Two Liberty Place, 50 South 16th
Street, Suite 2900, Philadelphia, Pennsylvania 19102, is the independent
registered public accounting firm for the Funds, whose services include auditing
the Funds’ financial statements and the performance of related tax
services.
Sullivan
& Worcester LLP (“Sullivan & Worcester”), 1251 Avenue of the Americas,
19th Floor, New York, New York 10020 serves as legal counsel to the Trust and
provides counsel on legal matters relating to the Funds. Sullivan &
Worcester also serves as independent legal counsel to the Board of
Trustees.
PORTFOLIO
MANAGERS
Brian
A. Krawez, CFA, Eric Lynch (Scharf Fund only) and Gabe Houston are the portfolio
managers responsible for the day-to-day management of the Funds’ portfolios. The
following table shows the number of other accounts (not including the Funds)
managed by the portfolio managers and the total assets in the accounts managed
within various categories as of September 30, 2023.
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|
|
|
|
Type
of Accounts |
Number
of Accounts (Excluding the Funds) |
Total
Assets |
Number
of Accounts with Advisory Fee based on Performance |
Total
Assets of Accounts with Advisory Fee based
on Performance |
Registered
Investment Companies |
3 |
$460,866,075 |
0 |
$0 |
Other
Pooled Investments |
3 |
$161,527,428 |
0 |
$0 |
Other
Accounts |
1,558 |
$2,367,139,208 |
159 |
$165,808,673 |
Material
Conflicts of Interest. The
portfolio managers have portfolio management responsibility for all the
investment accounts of the Adviser. There is a potential conflict should one of
these accounts be favored over another, but the intention of the Adviser is to
treat all accounts equally. The investment accounts are expected to hold
generally the same securities in the same proportions. Buy and/or sell orders
will normally be placed concurrently for each account. Any differences between
the investment accounts would be expected to arise from differential cash flows
and investment restrictions.
Compensation.
Each portfolio manager receives a fixed base salary and a share of the profits
of the Adviser equal in proportion to his ownership of the firm.
Securities
Owned in the Funds by the Portfolio Managers.
As of September 30, 2023, the portfolio managers owned the following securities
in the Funds:
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Portfolio
Managers |
Dollar
Range of Securities
(None,
$1-$10,000, $10,001-$50,000, $50,001-$100,000, $100,001 - $500,000,
$500,001
-
$1,000,000, Over $1,000,000) |
Scharf
Fund |
Multi-Asset Opportunity
Fund |
Global Opportunity Fund |
Brian
A. Krawez, CFA |
over
$1,000,000 |
over
$1,000,000 |
over
$1,000,000 |
Gabe
Houston |
$100,001
- $500,000 |
$10,001-$50,000 |
$100,001
- $500,000 |
Eric
K. Lynch |
$100,001
- $500,000 |
$50,001
- $100,000 |
$100,001
- $500,000 |
EXECUTION
OF PORTFOLIO TRANSACTIONS
Pursuant
to the Advisory Agreement, the Adviser determines which securities are to be
purchased and sold by the Funds and which broker-dealers are eligible to execute
the Funds’ portfolio transactions. Purchases and sales of securities in the
over-the-counter market will generally be executed directly with a
“market-maker” unless, in the opinion of the Adviser, a better price and
execution can otherwise be obtained by using a broker for the
transaction.
Purchases
of portfolio securities for the Funds also may be made directly from issuers or
from underwriters. Where possible, purchase and sale transactions will be
effected through dealers (including banks) which specialize in the types of
securities which the Funds will be holding, unless better executions are
available elsewhere. Dealers and underwriters usually act as principal for their
own accounts. Purchases from underwriters will include a concession paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the asked price. If the execution and
price
offered by more than one dealer or underwriter are comparable, the order may be
allocated to a dealer or underwriter that has provided research or other
services as discussed below.
In
placing portfolio transactions, the Adviser will seek best execution. The full
range and quality of services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm’s risk in positioning a
block of securities and other factors. In those instances where it is reasonably
determined that more than one broker-dealer can offer the services needed to
obtain the most favorable price and execution available, consideration may be
given to those broker-dealers which furnish or supply research and statistical
information to the Adviser that it may lawfully and appropriately use in its
investment advisory capacities, as well as provide other services in addition to
execution services. The Adviser considers such information, which is in addition
to and not in lieu of the services required to be performed by it under its
Agreement with the Funds, to be useful in varying degrees, but of indeterminable
value. Portfolio transactions may be placed with broker-dealers who sell shares
of the Funds subject to rules adopted by the FINRA and the SEC.
While
it is the Funds’ general policy to first seek to obtain the most favorable price
and execution available in selecting a broker-dealer to execute portfolio
transactions for the Funds, in accordance with Section 28(e) under the
Securities and Exchange Act of 1934, when it is determined that more than one
broker can deliver best execution, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Funds or to the
Adviser, even if the specific services are not directly useful to the Funds and
may be useful to the Adviser in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Funds may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Adviser to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer.
Investment
decisions for the Funds are made independently from those of other client
accounts or mutual funds managed or advised by the Adviser. Nevertheless, it is
possible that at times identical securities will be acceptable for both the
Funds and one or more of such client accounts or mutual funds. In such event,
the position of the Funds and such client account(s) or mutual funds in the same
issuer may vary and the length of time that each may choose to hold its
investment in the same issuer may likewise vary. However, to the extent any of
these client accounts or mutual funds seek to acquire the same security as the
Funds at the same time, the Fund may not be able to acquire as large a portion
of such security as one of it desires, or it may have to pay a higher price or
obtain a lower yield for such security. Similarly, the Funds may not be able to
obtain as high a price for, or as large an execution of, an order to sell any
particular security at the same time. If one or more of such client accounts or
mutual funds simultaneously purchases or sells the same security that a Fund is
purchasing or selling, each day’s transactions in such security will be
allocated between the Fund and all such client accounts or mutual funds in a
manner deemed equitable by the Adviser, taking into account the respective sizes
of the accounts and the amount of cash available for investment, the investment
objective of the account, and the ease with which a clients appropriate amount
can be bought, as well as the liquidity and volatility of the account and the
urgency involved in making an investment decision for the client. It is
recognized that in some cases this system could have a detrimental effect on the
price or value of the security insofar as the Funds are concerned. In other
cases, however, it is believed that the ability of the Funds to participate in
volume transactions may produce better executions for the Funds.
During
the fiscal periods indicated below, the Funds paid the following amounts in
brokerage commissions:
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Aggregate
Brokerage Commissions Paid During Fiscal Periods Ended September
30, |
|
|
2023 |
2022 |
2021 |
Scharf
Fund |
$94,668 |
$73,485 |
$83,668 |
Multi-Asset
Fund |
$7,702 |
$7,931 |
$8,665 |
Global
Opportunity Fund |
$10,662 |
$14,463 |
$14,214 |
The
following was paid to brokerage firms for research services provided to the
Funds and the Adviser from the aggregate brokerage commission amounts above:
|
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|
|
|
|
Fiscal
Year Ended September 30, 2023 |
|
Dollar
Value of Securities Traded |
Related
Soft Dollar Brokerage Commissions |
Scharf
Fund |
$367,196,108 |
$93,704 |
Multi-Asset
Fund |
$36,150,297 |
$7,651 |
Global
Opportunity Fund |
$19,004,503 |
$10,254 |
The
Multi-Asset Fund owned $338,022 of the securities of Charles Schwab & Co.,
Inc. one of its regular broker-dealers.
GENERAL
INFORMATION
The
Declaration of Trust permits the Trustees to issue an unlimited number of full
and fractional shares of beneficial interest and to divide or combine the shares
into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in the Funds. Each share represents an
interest in a Fund proportionately equal to the interest of each other share.
Upon a Fund’s liquidation, all shareholders would share pro rata in the net
assets of the Fund available for distribution to shareholders.
With
respect to the Funds, the Trust may offer more than one class of shares. The
Trust has adopted a Multiple Class Plan pursuant to Rule 18f-3 under the 1940
Act, detailing the attributes of each class of the Funds, and has reserved the
right to create and issue additional series or classes. Each share of a series
or class represents an equal proportionate interest in that series or class with
each other share of that series or class. Currently, the Scharf Fund offers two
share classes – Retail Class and Institutional Class. The Multi-Asset Fund
offers two share classes – Institutional Class and Retail Class. The Global
Opportunity Fund offers one share class – Institutional Class.
The
shares of each series or class participate equally in the earnings, dividends
and assets of the particular series or class. Expenses of the Trust which are
not attributable to a specific series or class are allocated among all the
series in a manner believed by management of the Trust to be fair and equitable.
Shares have no pre-emptive rights. Shares, when issued, are fully paid and
non-assessable, except as set forth below. Shareholders are entitled to one vote
for each share held. Shares of each series or class generally vote together,
except when required under federal securities laws to vote separately on matters
that only affect a particular class, such as the approval of distribution plans
for a particular class.
The
Trust is not required to hold annual meetings of shareholders but will hold
special meetings of shareholders of a series or class when, in the judgment of
the Trustees, it is necessary or desirable to submit matters for a shareholder
vote. Shareholders have, under certain circumstances, the right to
communicate
with other shareholders in connection with requesting a meeting of shareholders
for the purpose of removing one or more Trustees. Shareholders also have, in
certain circumstances, the right to remove one or more Trustees without a
meeting. No material amendment may be made to the Declaration of Trust without
the affirmative vote of the holders of a majority of the outstanding shares of
each portfolio affected by the amendment. The Declaration of Trust provides
that, at any meeting of shareholders of the Trust or of any series or class, a
Shareholder Servicing Agent may vote any shares as to which such Shareholder
Servicing Agent is the agent of record and which are not represented in person
or by proxy at the meeting, proportionately in accordance with the votes cast by
holders of all shares of that portfolio otherwise represented at the meeting in
person or by proxy as to which such Shareholder Servicing Agent is the agent of
record. Any shares so voted by a Shareholder Servicing Agent will be deemed
represented at the meeting for purposes of quorum requirements. Any series or
class may be terminated (i) upon the merger or consolidation with, or the
sale or disposition of all or substantially all of its assets to, another
entity, if approved by the vote of the holders of two thirds of its outstanding
shares, except that if the Board recommends such merger, consolidation or sale
or disposition of assets, the approval by vote of the holders of a majority of
the series’ or class’ outstanding shares will be sufficient, or (ii) by the
vote of the holders of a majority of its outstanding shares, or (iii) by
the Board by written notice to the series’ or class’ shareholders. Unless each
series and class is so terminated, the Trust will continue
indefinitely.
The
Declaration of Trust also provides that the Trust shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its shareholders, Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
The
Declaration of Trust does not require the issuance of stock certificates. If
stock certificates are issued, they must be returned by the registered owners
prior to the transfer or redemption of shares represented by such
certificates.
Rule
18f-2 under the 1940 Act provides that as to any investment company which has
two or more series outstanding and as to any matter required to be submitted to
shareholder vote, such matter is not deemed to have been effectively acted upon
unless approved by the holders of a “majority” (as defined in the Rule) of the
voting securities of each series affected by the matter. Such separate voting
requirements do not apply to the election of Trustees or the ratification of the
selection of accountants. The Rule contains special provisions for cases in
which an advisory contract is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not obtained as
to the holders of other affected series.
ADDITIONAL
PURCHASE AND REDEMPTION INFORMATION
The
information provided below supplements the information contained in the
Prospectus regarding the purchase and redemption of Fund shares.
How
to Buy Shares
You
may purchase shares of the Funds from securities brokers, dealers or financial
intermediaries (collectively, “Financial Intermediaries”). Investors should
contact their Financial Intermediary directly for appropriate instructions, as
well as information pertaining to accounts and any service or transaction fees
that may be charged. Each Fund may enter into arrangements with certain
Financial Intermediaries whereby such Financial Intermediaries are authorized to
accept your order on behalf of a Fund. Financial Intermediaries may be
authorized by the Funds’ principal underwriter to designate other brokers and
financial intermediaries to accept orders on the Funds’ behalf. If you transmit
your order to these
Financial
Intermediaries before the close of regular trading (generally 4:00 p.m.,
Eastern Time) on a day that the NYSE is open for business, shares will be
purchased at the appropriate per share price next computed after it is received
by the Financial Intermediary. Investors should check with their Financial
Intermediary to determine if it participates in these arrangements. The Funds
will be deemed to have received a purchase order when a Financial Intermediary
or, if applicable, a Financial Intermediary’s authorized designee, receive the
order.
The
public offering price of Fund shares is the NAV per share. Shares are purchased
at the public offering price next determined after the Transfer Agent receives
your order in good order. In most cases, in order to receive that day’s public
offering price, the Transfer Agent must receive your order in good order before
the close of regular trading on the New York Stock Exchange (“NYSE”), normally
4:00 p.m., Eastern Time.
The
Trust reserves the right in its sole discretion (i) to suspend the
continued offering of a Fund’s shares, and (ii) to reject purchase orders
in whole or in part when in the judgment of the Adviser or the Distributor such
rejection is in the best interest of a Fund. The Adviser reserves the right to
reduce or waive the minimum for initial and subsequent investments for certain
fiduciary accounts or under circumstances where certain economies can be
achieved in sales of a Fund’s shares.
In
addition to cash purchases, Fund shares may be purchased by tendering payment
in-kind in the form of shares of stock, bonds or other securities. Any
securities used to buy Fund shares must be readily marketable, their acquisition
consistent with the Fund’s objective and otherwise acceptable to the Adviser and
the Board.
How
to Redeem Shares and Delivery of Redemption Proceeds
You
can sell (redeem) your Fund shares any day the NYSE is open for regular trading,
either directly to the Fund or through your Financial Intermediary. The Funds
will be deemed to have received a redemption order when a Financial Intermediary
or, if applicable, a Financial Intermediary’s authorized designee, receives the
order.
Payments
to shareholders for shares of a Fund redeemed directly from the Fund will be
made as promptly as possible, but no later than seven days after receipt by the
Transfer Agent of the written request in proper form, with the appropriate
documentation as stated in the Prospectus, except that a Fund may suspend the
right of redemption or postpone the date of payment during any period when
(a) trading on the NYSE is restricted as determined by the SEC or the NYSE
is closed for other than weekends and holidays; (b) an emergency exists as
determined by the SEC making disposal of portfolio securities or valuation of
net assets of a Fund not reasonably practicable; or (c) for such other
period as the SEC may permit for the protection of the Fund’s shareholders.
Under unusual circumstances, the Funds may suspend redemptions, or postpone
payment for more than seven days, but only as authorized by SEC
rules.
The
value of shares on redemption or repurchase may be more or less than the
investor’s cost, depending upon the market value of a Fund’s portfolio
securities at the time of redemption or repurchase.
Telephone
Redemptions
Shareholders
with telephone transaction privileges established on their account may redeem
Fund shares, up to $100,000, by telephone. Upon receipt of any instructions or
inquiries by telephone from the shareholder, the Fund or its authorized agents
may carry out the instructions and/or respond to the inquiry consistent with the
shareholder’s previously established account service options. For joint
accounts, instructions or inquiries from either party will be carried out
without prior notice to the other account owners. In acting upon telephone
instructions, the Fund and its agents use procedures that are reasonably
designed
to ensure that such instructions are genuine. These include recording all
telephone calls, requiring pertinent information about the account and sending
written confirmation of each transaction to the registered owner.
The
Funds and the Transfer Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Funds and the
Transfer Agent fail to employ reasonable procedures, the Funds and the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
instructions. If these procedures are followed, however, to the extent permitted
by applicable law, neither the Funds nor their agents will be liable for any
loss, liability, cost or expense arising out of any redemption request,
including any fraudulent or unauthorized request. For additional information,
contact the Transfer Agent at 866-5SCHARF.
Redemptions
In-Kind
The
Trust has elected to be governed by Rule 18f-1 under the 1940 Act so that the
Funds are obligated to redeem their shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any
shareholder of the Funds. Each Fund has reserved the right to pay the redemption
price of its shares in excess of $250,000 or l% of its net asset value either
totally or partially, by a distribution in-kind of portfolio securities (instead
of cash). The securities so distributed would be valued at the same amount as
that assigned to them in calculating the NAV per share for the shares being
sold. If a shareholder receives a distribution in-kind, the shareholder could
incur brokerage or other charges in converting the securities to cash. A
redemption, whether in cash or in-kind, is a taxable event for you.
Each
Fund does not intend to hold any significant percentage of its portfolio in
illiquid securities, although a Fund, like virtually all mutual funds, may from
time to time hold a small percentage of securities that are illiquid. In the
unlikely event a Fund were to elect to make an in-kind redemption, the Fund
expects that it would follow the Trust protocol of making such distribution by
way of a pro rata distribution of securities that are traded on a public
securities market or are otherwise considered liquid pursuant to the Fund’s
liquidity policies and procedures. Except as otherwise may be approved by the
Trustees, the securities that would not be included in an in-kind distribution
include (1) unregistered securities which, if distributed, would be
required to be registered under the Securities Act of 1933 (the “1933 Act”), as
amended; (2) securities issued by entities in countries which (a) restrict
or prohibit the holding of securities by non-nationals other than through
qualified investment vehicles, such as a fund, or (b) permit transfers of
ownership of securities to be effected only by transactions conducted on a local
stock exchange; and (3) certain Fund assets that, although they may be
liquid and marketable, must be traded through the marketplace or with the
counterparty to the transaction in order to effect a change in beneficial
ownership.
Conversion
Feature
Subject
to meeting the minimum investment amount for Institutional Class shares,
investors currently holding Retail Class shares may convert to Institutional
Class shares. Any such conversion will be effected at net asset value without
the imposition of any fee or other charges by the Funds. A conversion from
Retail Class shares of a Fund to Institutional Class shares of the same Fund is
not expected to result in realization of a capital gain or loss for federal
income tax purposes. Call the Funds (toll-free) at 866-5SCHARF to learn more
about conversions of Fund shares. Please contact your financial intermediary
about any fees that it may charge.
DETERMINATION
OF SHARE PRICE
The
NAV of each Fund is determined as of the close of regular trading on the New
York Stock Exchange (the “NYSE”) (generally 4:00 p.m., Eastern Time), each day
the NYSE is open for business. The NYSE annually announces the days on which it
will not be open for trading. It is expected that the NYSE will
not
be open for trading on the following holidays: New Year’s Day, Martin Luther
King, Jr. Day, Washington’s Birthday/Presidents’ Day, Good Friday, Memorial Day,
Juneteenth National Independence Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
NAV
is calculated by adding the value of all securities and other assets
attributable to a Fund (including interest and dividends accrued, but not yet
received), then subtracting liabilities attributable to the Fund (including
accrued expenses).
Generally,
the Funds’ investments are valued at market value or, in the absence of a market
value, at fair value as determined in good faith by the Funds’ valuation
designee. The Board has designated the Adviser as its “valuation designee” for
the Funds under Rule 2a-5 of the 1940 Act, subject to its oversight.
Fair
value determinations are then made in good faith in accordance with procedures
adopted by the Adviser. Generally, the fair value of a portfolio security or
other asset shall be the amount that the owner of the security or asset might
reasonably expect to receive upon its current sale. The net asset value of a
Fund’s shares may change on days when shareholders will not be able to purchase
or redeem a Fund’s shares.
Securities
primarily traded in the NASDAQ Global Market®
for which market quotations are readily available shall be valued using the
NASDAQ®
Official Closing Price (“NOCP”). If the NOCP is not available, such securities
shall be valued at the last sale price on the day of valuation, or if there has
been no sale on such day, at the mean between the bid and asked prices. OTC
securities which are not traded in the NASDAQ Global Market®
shall be valued at the most recent sales price. Securities and assets for which
market quotations are not readily available (including restricted securities
which are subject to limitations as to their sale) are valued at fair value as
determined in good faith under the Adviser’s procedures.
Debt
securities are valued on the basis of valuations provided by independent
third-party pricing services, in accordance with the Adviser’s approved
procedures, or at fair value as determined in good faith by the Funds’ valuation
designee. Any such pricing service, in determining value, will use information
with respect to transactions in the securities being valued, quotations from
dealers, market transactions in comparable securities, analyses and evaluations
of various relationships between securities and yield to maturity
information.
The
Funds’ securities, including ADRs, EDRs and GDRs, which are traded on securities
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any reported sales, at the mean between the last
available bid and asked price. Securities that are traded on more than one
exchange are valued on the exchange determined by the Adviser to be the primary
market.
In
the case of foreign securities, the occurrence of certain events after the close
of foreign markets, but prior to the time a Fund’s NAV is calculated (such as a
significant surge or decline in the U.S. or other markets) often will result in
an adjustment to the trading prices of foreign securities when foreign markets
open on the following business day. If such events occur, the Funds will value
foreign securities at fair value, taking into account such events, in
calculating the NAV. In such cases, use of fair valuation can reduce an
investor’s ability to seek to profit by estimating a Fund’s NAV in advance of
the time the NAV is calculated. The Adviser anticipates that each Fund’s
portfolio holdings will be fair valued only if market quotations for those
holdings are considered unreliable or are unavailable.
An
option that is written or purchased by a Fund shall be valued using composite
pricing via the National Best Bid and Offer quotes. Composite pricing looks at
the last trade on the exchange where the option is traded. If there are no
trades for an option on a given business day, as of closing, the Fund will value
the
option
at the mean of the highest bid price and lowest ask price across the exchanges
where the option is traded. For options where market quotations are not readily
available, fair value shall be determined by the valuation
designee.
All
other assets of the Funds are valued in such manner as the valuation designee in
good faith deems appropriate to reflect their fair value.
DISTRIBUTIONS
AND TAX INFORMATION
Distributions
Distributions
from net investment income and distributions from net profits from the sale of
securities are generally made annually. Also, each Fund typically distributes
any undistributed net investment income on or about December 31 of each year.
Any net capital gains realized through the period ended October 31 of each
year will also be distributed by December 31 of each year.
Each
distribution by a Fund is accompanied by a brief explanation of the form and
character of the distribution. In January of each year, the Funds will issue to
each shareholder a statement of the federal income tax status of all
distributions.
Tax
Information
Each
series of the Trust is treated as a separate entity for federal income tax
purposes. Each Fund, as a series of the Trust, has elected and intends to
continue to qualify as a regulated investment company under Subchapter M of the
Code. In order to do so, it must comply with all applicable requirements
regarding the source of its income, diversification of its assets and timing and
amount of distributions. Each Fund’s policy is to distribute to its shareholders
all of its net investment income and any net realized long term capital gains
for each fiscal year in a manner that complies with the distribution
requirements of the Code, so that the Fund will not be subject to any federal
income or excise taxes in any year. However, the Funds can give no assurances
that distributions will be sufficient to eliminate all taxes in every year. To
avoid the nondeductible 4% Federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year (i) at least
98% of its ordinary income for such year, (ii) at least 98.2% of the excess of
its realized capital gains over its realized capital losses for the 12-month
period ending on October 31 of such year, and (iii) any amounts from the prior
calendar year that were not distributed and on which no federal excise tax was
paid by the Fund or by its shareholders.
Net
investment income generally consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carryforward of the Fund. Capital losses sustained
and not used in a taxable year may be carried forward indefinitely to offset
income of a Fund in future years. As of September 30, 2023, the Funds had no
capital loss carryforwards.
In
order to qualify as a regulated investment company, each Fund must, among other
things, derive at least 90% of its gross income each year from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock or securities or foreign currency gains
related to investments in stock or securities, or other income (generally
including gains from options, futures or forward contracts) derived with respect
to the business of investing in stock, securities or currency, and net income
derived from an interest in a qualified publicly traded partnership. Each Fund
must also satisfy the following two asset diversification tests. At the end of
each quarter of each taxable year, (i) at least 50% of the value of the Fund’s
total assets must be represented by cash and cash items (including receivables),
U.S. government securities, the securities of other regulated investment
companies, and other securities, with such other securities being limited in
respect of any one issuer to an amount not greater than 5% of the value of the
Fund’s total assets and not more than 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of the Fund’s total
assets
may be invested in the securities of any one issuer (other than U.S. government
securities or the securities of other regulated investment companies), the
securities of any two or more issuers (other than the securities of other
regulated investment companies) that the Fund controls (by owning 20% or more of
their outstanding voting stock) and that are determined to be engaged in the
same or similar trades or businesses or related trades or businesses, or the
securities of one or more qualified publicly traded partnerships. Each Fund also
must distribute each taxable year sufficient dividends to its shareholders to
claim a dividends paid deduction equal to at least the sum of 90% of the Fund’s
net investment income (which generally includes dividends, interest, and the
excess of net short-term capital gain over net long-term capital loss) and 90%
of the Fund’s net tax-exempt interest, if any.
Distributions
of net investment income and net short-term capital gains are taxable to
shareholders as ordinary income. For individual shareholders, a portion of the
distributions paid by a Fund may be qualified dividend income currently eligible
for taxation at long-term capital gain rates to the extent the Fund reports the
amount distributed as a qualifying dividend and certain holding period
requirements are met. In the case of corporate shareholders, a portion of the
distributions may qualify for the intercorporate dividends-received deduction to
the extent the Fund reports the amount distributed as a qualifying dividend. The
aggregate amount so reported to either individual or corporate shareholders
cannot, however, exceed the aggregate amount of qualifying dividends received by
a Fund for its taxable year. In view of the Funds’ investment policies, it is
expected that dividends from domestic corporations will be part of a Fund’s
gross income and that, accordingly, part of the distributions by each Fund may
be eligible for qualified dividend income treatment for individual shareholders,
or for the dividends-received deduction for corporate shareholders. However, the
portion of each Fund’s gross income attributable to qualifying dividends is
largely dependent on the Fund’s investment activities for a particular year and
therefore cannot be predicted with any certainty. Further, the
dividends-received deduction may be reduced or eliminated if Fund shares held by
a corporate investor are treated as debt financed or are held for less than 46
days. Dividend from the Funds and gains from the sale of the Funds’ shares are
subject to the federal 3.8% tax on net investment income applicable to taxpayers
in the higher income brackets.
Long-term
capital gain distributions are taxable to shareholders as long-term capital
gains regardless of the length of time a shareholder held his or her Fund
shares. Capital gains distributions are not eligible for qualified dividend
income treatment or the dividends-received deduction referred to in the previous
paragraph. There is no requirement that a Fund take into consideration any tax
implications when implementing its investment strategy. Distributions of any net
investment income and net realized capital gains will be taxable as described
above, whether received in shares or in cash. Shareholders who choose to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the NAV of a
share on the reinvestment date. Distributions generally are taxable when
received or deemed to be received. However, distributions declared in October,
November or December to shareholders of record on a date in such a month and
paid the following January are taxable as if received on December 31.
Distributions are includable in alternative minimum taxable income in computing
liability for the alternative minimum tax of a shareholder who is an individual.
Shareholders should note that the Funds may make taxable distributions of income
and capital gains even when share values have declined.
For
taxable years beginning after 2017 and before 2025, non-corporate taxpayers
generally may deduct 20% of “qualified business income” derived either directly
or through partnerships or S corporations. For this purpose, “qualified business
income” generally includes dividends paid by a real estate investment trust
(“REIT”) and certain income from publicly traded partnerships. Regulations
recently adopted by the United States Treasury allow non-corporate shareholders
of a Fund to benefit from the 20% deduction with respect to net REIT dividends
received by the Fund if the Fund meets certain reporting requirements, but do
not permit any such deduction with respect to publicly traded
partnerships.
Each
Fund may be subject to foreign withholding taxes on dividends and interest
earned with respect to securities of foreign corporations.
Redemption
of Fund shares generally will result in recognition of a taxable gain or loss.
Any loss realized upon redemption or sales of shares within six months from the
date of their purchase will be treated as a long-term capital loss to the extent
of any amounts treated as distributions of long-term capital gains during such
six-month period. Any loss realized upon a redemption or sale may be disallowed
under certain wash sale rules to the extent shares of a Fund are purchased
(through reinvestment of distributions or otherwise) within 30 days before
or after the redemption.
Under
the Code, each Fund will be required to report to the Internal Revenue Service
(“IRS”) all distributions of taxable income and capital gains as well as gross
proceeds from the redemption of Fund shares, except in the case of exempt
shareholders, which includes most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
capital gains and proceeds from the redemption of Fund shares may be subject to
withholding of federal income tax at a rate under Section 3406 of the Code in
the case of non-exempt shareholders who fail to furnish the Funds with their
Social Security or taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law or if the
IRS notifies the Funds that such backup withholding is required. If the
withholding provisions are applicable, any such distributions and proceeds,
whether received in cash or reinvested in additional shares, will be reduced by
the amounts required to be withheld. Corporate and other exempt shareholders
should provide the Funds with their taxpayer identification numbers or certify
their exempt status in order to avoid possible erroneous application of backup
withholding. Backup withholding is not an additional tax and any amounts
withheld may be credited against a shareholder’s ultimate federal income tax
liability if proper documentation is timely provided. The Funds reserve the
right to refuse to open an account for any person failing to provide a certified
taxpayer identification number.
The
foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, estates, the income of which is subject to United
States federal income taxation regardless of its source and trusts that (1) are
subject to the primary supervision of a court within the United States and one
or more United States persons have the authority to control all substantial
decisions of the trust or (2) have a valid election in effect under applicable
United States Treasury regulations to be treated as a United States
person.
The
Foreign Account Tax Compliance Act (“FATCA”).
A 30% withholding tax on the Fund’s ordinary income distributions generally
applies if paid to a foreign entity unless: (i) if the foreign entity is a
“foreign financial institution,” it undertakes certain due diligence, reporting,
withholding and certification obligations, (ii) if the foreign entity is not a
“foreign financial institution,” it identifies certain of its U.S. investors or
(iii) the foreign entity is otherwise excepted under FATCA. If applicable, and
subject to any intergovernmental agreement, withholding under FATCA is required
with respect to certain distributions from your Fund. If withholding is required
under FATCA on a payment related to your shares, investors that otherwise would
not be subject to withholding (or that otherwise would be entitled to a reduced
rate of withholding) on such payment generally will be required to seek a refund
or credit from the IRS to obtain the benefits of such exemption or reduction.
The Funds will not pay any additional amounts in respect of amounts withheld
under FATCA. You should consult your tax advisor regarding the effect of FATCA
based on your individual circumstances.
This
discussion and the related discussion in the Prospectus have been prepared by
Fund management. The information above is only a summary of some of the tax
considerations generally affecting each Fund and its shareholders. No attempt
has been made to discuss individual tax consequences and this discussion should
not be construed as applicable to all shareholders’ tax situations. Investors
should consult their
own
tax advisers to determine the suitability of the Funds and the applicability of
any state, local or foreign taxation. No rulings with respect to tax matters of
the Fund will be sought from the Internal Revenue Service. Sullivan &
Worcester has expressed no opinion in respect of the foreign or tax information
in the Prospectus and SAI.
DISTRIBUTION
AGREEMENT
The
Trust has entered into a Distribution Agreement (the “Distribution Agreement”)
with Quasar Distributors, LLC, Three Canal Plaza, Suite 100, Portland, Maine
04101 (the “Distributor”), pursuant to which the Distributor acts as the Funds’
distributor, provides certain administration services and promotes and arranges
for the sale of Fund shares. The offering of each Fund’s shares is continuous.
The Distributor is a registered broker-dealer and member of FINRA.
After
its initial two-year term with respect to a Fund, the Distribution Agreement
continues in effect only if such continuance is specifically approved at least
annually by the Board or by vote of a majority of the Fund’s outstanding voting
securities and, in either case, by a majority of the Trustees who are not
parties to the Distribution Agreement or “interested persons” (as defined in the
1940 Act) of any such party. The Distribution Agreement is terminable without
penalty by the Trust on behalf of a Fund on 60 days’ written notice when
authorized either by a majority vote of the Funds’ shareholders or by vote of a
majority of the Board, including a majority of the Trustees who are not
“interested persons” (as defined in the 1940 Act) of the Trust, or by the
Distributor on 60 days’ written notice, and will automatically terminate in the
event of its “assignment” (as defined in the 1940 Act).
RULE
12b-1 DISTRIBUTION AND SERVICE PLAN
The
Retail Classes have adopted a Distribution Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act under which a Fund pays the Distributor an amount which
is accrued daily and paid quarterly, at an annual rate of up to 0.25% of the
average daily net assets of the Retail Class shares of the Fund. The Plan
provides that the Distributor may use all or any portion of such fee to finance
any activity that is principally intended to result in the sale of Fund shares,
subject to the terms of the Plan, or to provide certain shareholder services.
Amounts paid under this plan, by a Fund, are paid to the Distributor to
reimburse it for costs of the services it provides and the expenses it bears in
the distribution of the Fund’s shares, including overhead and telephone
expenses; printing and distribution of prospectuses and reports used in
connection with the offering of the Fund’s shares to prospective investors; and
preparation, printing and distribution of sales literature and advertising
materials.
In
addition, payments to the Distributor under the Plan reimburse the Distributor
for payments it makes to selected dealers and administrators which have entered
into Service Agreements with the Distributor of periodic fees for services
provided to shareholders of a Fund. The services provided by selected dealers
pursuant to the Plan are primarily designed to promote the sale of shares of a
Fund and include the furnishing of office space and equipment, telephone
facilities, personnel and assistance to the Fund in servicing such shareholders.
The services provided by the administrators pursuant to the Plan are designed to
provide support services to a Fund and include establishing and maintaining
shareholders’ accounts and records, processing purchase and redemption
transactions, answering routine client inquiries regarding the Fund and
providing other services to the Fund as may be required.
Under
the Plan, the Trustees will be furnished quarterly with information detailing
the amount of expenses paid under the Plan and the purposes for which payments
were made. The Plan may be terminated at any time by vote of a majority of the
Trustees of the Trust who are not interested persons. Continuation of the Plan
is considered by such Trustees no less frequently than annually. With the
exception
of the Distributor in its capacity as a Fund’s principal underwriter, no
interested person has or had a direct or indirect financial interest in the Plan
or any related agreement.
While
there is no assurance that the expenditures of Fund assets to finance
distribution of shares will have the anticipated results, the Board believes
there is a reasonable likelihood that one or more of such benefits will result,
and because the Board is in a position to monitor the distribution expenses, it
is able to determine the benefit of such expenditures in deciding whether to
continue the Plan.
For
the fiscal year ended September 30, 2023, the Scharf Fund’s Retail Class paid
the following Plan fees:
|
|
|
|
|
|
Actual
Rule 12b-1 Expenditures Incurred by the Fund During the Fiscal Year
Ended September 30, 2023 |
|
Total
Dollars Allocated |
Advertising/Marketing |
$0 |
Printing/Postage |
$0 |
Payment
to distributor |
$0 |
Payment
to dealers |
$15,876 |
Compensation
to sales personnel |
$0 |
Interest,
carrying, or other financing charges |
$0 |
Other |
$0 |
Total |
$15,876 |
For
the fiscal year ended September 30, 2023, the Multi-Asset Fund’s Retail Class
paid the following Plan fees:
|
|
|
|
|
|
Actual
Rule 12b-1 Expenditures Incurred by the Fund During the Fiscal Year
Ended September 30, 2023 |
|
Total
Dollars Allocated |
Advertising/Marketing |
$0 |
Printing/Postage |
$0 |
Payment
to distributor |
$0 |
Payment
to dealers |
$26,082 |
Compensation
to sales personnel |
$0 |
Interest,
carrying, or other financing charges |
$0 |
Other |
$0 |
Total |
$26,082 |
For
the fiscal year ended September 30, 2023, the Global Opportunity Fund’s former
Retail Class paid the following Plan fees:
|
|
|
|
|
|
Actual
Rule 12b-1 Expenditures Incurred by the Fund During the Fiscal Year
Ended September 30, 2023 |
|
Total
Dollars Allocated |
Advertising/Marketing |
$0 |
Printing/Postage |
$0 |
Payment
to distributor |
$0 |
Payment
to dealers |
$2,879 |
Compensation
to sales personnel |
$0 |
Interest,
carrying, or other financing charges |
$0 |
Other |
$0 |
Total |
$2,879 |
SHAREHOLDER
SERVICING PLAN
In
addition, the Board has approved the implementation of a Shareholder Servicing
Plan (the “Servicing Plan”) separate and distinct from the Plan, under which the
Adviser will provide, or arrange for others to provide, certain specified
shareholder services. As compensation for the provision of shareholder services,
each Fund will pay the Adviser a monthly fee at an annual rate of up to 0.10% of
each respective Fund’s average daily net assets. The Adviser will pay certain
banks, trust companies, broker-dealers and other financial intermediaries (each,
a “Participating Organization”) out of the fees the Adviser receives from the
Funds under the Servicing Plan to the extent that the Participating Organization
performs shareholder servicing functions for a Fund’s shares owned by its
customers.
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder
Servicing Plan Fees Incurred During Fiscal Periods Ended September
30, |
|
2023 |
2022 |
2021 |
Scharf
Fund |
$297,334 |
$295,248 |
$290,479 |
Multi-Asset
Fund |
$45,265 |
$48,146 |
$47,378 |
Global
Opportunity Fund |
$12,758 |
$14,604 |
$19,132 |
MARKETING
AND SUPPORT PAYMENTS
The
Adviser, out of its own resources and without additional cost to the Funds or
their shareholders, may provide additional cash payments or other compensation
to certain financial intermediaries who sell shares of the Funds. Such payments
may be divided into categories as follows:
Support
Payments. Payments
may be made by the Adviser to certain financial intermediaries in connection
with the eligibility of each Fund to be offered in certain programs and/or in
connection with meetings between the Funds’ representatives and financial
intermediaries and its sales representatives. Such meetings may be held for
various purposes, including providing education and training about the Funds and
other general financial topics to assist financial intermediaries’ sales
representatives in making informed recommendations to, and decisions on behalf
of, their clients.
Entertainment,
Conferences and Events.
The Adviser also may pay cash or non-cash compensation to sales representatives
of financial intermediaries in the form of (i) occasional gifts;
(ii) occasional meals,
tickets
or other entertainments; and/or (iii) sponsorship support for the financial
intermediary’s client seminars and cooperative advertising. In addition, the
Adviser pays for exhibit space or sponsorships at regional or national events of
financial intermediaries.
The
prospect of receiving, or the receipt of additional payments or other
compensation as described above by financial intermediaries may provide such
intermediaries and/or their salespersons with an incentive to favor sales of
shares of the Funds, and other mutual funds whose affiliates make similar
compensation available, over sale of shares of mutual funds (or non-mutual fund
investments) not making such payments. You may wish to take such payment
arrangements into account when considering and evaluating any recommendations
relating to the Funds’ shares.
ANTI-MONEY
LAUNDERING PROGRAM
The
Trust has established an Anti-Money Laundering Program (the “Program”) as
required by the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”). In
order to ensure compliance with this law, the Trust’s Program provides for the
development of internal practices, procedures and controls, designation of
anti-money laundering compliance officers, an ongoing training program and an
independent audit function to determine the effectiveness of the
Program.
Procedures
to implement the Program include, but are not limited to, determining that the
Funds’ Distributor and Transfer Agent have established proper anti-money
laundering procedures, reporting suspicious and/or fraudulent activity, checking
shareholder names against designated government lists, including Office of
Foreign Asset Control, and a complete and thorough review of all new opening
account applications. The Trust will not transact business with any person legal
entity whose identity and beneficial owners, if applicable, cannot be adequately
verified under the provisions of the USA PATRIOT Act.
FINANCIAL
STATEMENTS
The
annual
report
for the Scharf Fund, the Multi-Asset Fund, and the Global Opportunity Fund for
the fiscal year ended September 30, 2023, is a separate document supplied with
this SAI and the financial statements, accompanying notes and report of
independent registered public accounting firm appearing therein are incorporated
by reference into this SAI. Financial statements certified by an independent
registered public accounting firm will be submitted to shareholders at least
annually.
APPENDIX
A
Corporate
Bond Ratings
Moody’s
Investors Service, Inc.
Moody’s
long-term ratings are forward-looking opinions of the relative credit risks of
financial obligations with an original maturity of one year or more. Such
ratings reflect both the likelihood of default on contractually promised
payments and the expected financial loss suffered in the event of default. The
following summarizes the ratings used by Moody’s for long-term
debt:
“Aaa”
– Obligations rated “Aaa” are judged to be of the highest quality, subject to
the lowest level of credit risk.
“Aa”
– Obligations rated “Aa” are judged to be of high quality and are subject to
very low credit risk.
“A”
– Obligations rated “A” are judged to be upper-medium grade and are subject to
low credit risk.
“Baa”
– Obligations rated “Baa” are judged to be medium-grade and subject to moderate
credit risk and as such may possess certain speculative characteristics.
“Ba”
– Obligations rated “Ba” are judged to be speculative and are subject to
substantial credit risk.
“B”
– Obligations rated “B” are considered speculative and are subject to high
credit risk.
“Caa”
– Obligations rated “Caa” are judged to be speculative of poor standing and are
subject to very high credit risk.
“Ca”
– Obligations rated “Ca” are highly speculative and are likely in, or very near,
default, with some prospect of recovery of principal and interest.
“C”
– Obligations rated “C” are the lowest rated and are typically in default, with
little prospect for recovery of principal or interest.
Note:
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating
classification from “Aa” through “Caa.” The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
S&P
Global Ratings (“S&P”)
“AAA”
– An obligation rated “AAA” has the highest rating assigned by S&P. The
obligor’s capacity to meet its financial commitment on the obligation is
extremely strong.
“AA”
– An obligation rated “AA” differs from the highest-rated obligations only to a
small degree. The obligor’s capacity to meet its financial commitment on the
obligation is very strong.
“A”
– An obligation rated “A” is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its financial
commitment on the obligation is still strong.
“BBB”
– An obligation rated “BBB” exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
“BB,”
“B,” “CCC,” “CC” and “C” – Obligations rated “BB,” “B,” “CCC,” “CC” and “C” are
regarded as having significant speculative characteristics. “BB” indicates the
least degree of speculation and “C” the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
“BB”
– An obligation rated “BB” is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor’s inadequate capacity to meet its financial commitment on the
obligation.
“B”
– An obligation rated “B” is more vulnerable to nonpayment than obligations
rated “BB”, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor’s capacity or willingness to meet its
financial commitment on the obligation.
“CCC”
– An obligation rated “CCC” is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the
obligation.
“CC”
– An obligation rated “CC” is currently highly vulnerable to nonpayment. The
“CC” rating is used when a default has not yet occurred, but S&P expects
default to be a virtual certainty, regardless of the anticipated time to
default.
“C”
– An obligation rated “C” is currently highly vulnerable to nonpayment, and the
obligation is expected to have lower relative seniority or lower ultimate
recovery compared to obligations that are rated higher.
“D”
– An obligation rated “D” is in default or in breach of an imputed promise. For
non-hybrid capital instruments, the “D” rating category is used when payments on
an obligation are not made on the date due, unless S&P believes that such
payments will be made within five business days in the absence of a stated grace
period or within the earlier of the stated grace period or 30 calendar days. The
“D” rating also will be used upon the filing of a bankruptcy petition or the
taking of similar action and where default on an obligation is a virtual
certainty, for example due to automatic stay provisions. An obligation’s rating
is lowered to “D” if it is subject to a distressed exchange offer.
Plus
(+) or minus (-) – The ratings from “AA” to “CCC” may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within the
major rating categories.
“NR”
– This indicates that no rating has been requested, or that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular obligation as a matter of policy.
Local
Currency and Foreign Currency Risks - S&P’s issuer credit ratings make a
distinction between foreign currency ratings and local currency ratings. An
issuer’s foreign currency rating will differ from its local currency rating when
the obligor has a different capacity to meet its obligations denominated in its
local currency, vs. obligations denominated in a foreign currency.
APPENDIX
B
Commercial
Paper Ratings
Moody’s
Investors Service, Inc.
Moody’s
Investors Service (“Moody’s”)
short-term ratings are forward-looking opinions of the relative credit risks of
financial obligations with an original maturity of thirteen months or less and
reflect the likelihood of a default on contractually promised payments. Ratings
may be assigned to issuers, short-term programs or to individual short-term debt
instruments.
Moody’s
employs the following designations to indicate the relative repayment ability of
rated issuers:
“P-1”
– Issuers (or supporting institutions) rated Prime-1 have a superior ability to
repay short-term debt obligations.
“P-2”
– Issuers (or supporting institutions) rated Prime-2 have a strong ability to
repay short-term debt obligations.
“P-3”
– Issuers (or supporting institutions) rated Prime-3 have an acceptable ability
to repay short-term obligations.
“NP”
– Issuers (or supporting institutions) rated Not Prime do not fall within any of
the Prime rating categories.
S&P
Global Ratings (“S&P”)
A
S&P
short-term issue credit rating is a forward-looking opinion about the
creditworthiness of an obligor with respect to a specific financial obligation
having an original maturity of no more than 365 days. The following summarizes
the rating categories used by S&P for short-term issues:
“A-1”
– A short-term obligation rated “A-1” is rated in the highest category and
indicates that the obligor’s capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor’s capacity to meet its
financial commitment on these obligations is extremely strong.
“A-2”
– A short-term obligation rated “A-2” is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor’s capacity to meet
its financial commitment on the obligation is satisfactory.
“A-3”
– A short-term obligation rated “A-3” exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
“B”
– A short-term obligation rated “B” is regarded as vulnerable and has
significant speculative characteristics. The obligor currently has the capacity
to meet its financial commitments; however, it faces major ongoing uncertainties
which could lead to the obligor’s inadequate capacity to meet its financial
commitments.
“C”
– A short-term obligation rated “C” is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
“D”
– A short-term obligation rated “D” is in default or in breach of an imputed
promise. For non-hybrid capital instruments, the “D” rating category is used
when payments on an obligation are not made on the date due, unless S&P
believes that such payments will be made within any stated grace period.
However, any stated grace period longer than five business days will be treated
as five business days. The “D” rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action and where default on an
obligation is a virtual certainty, for example due to automatic stay provisions.
An obligation’s rating is lowered to “D” if it is subject to a distressed
exchange offer.
Local
Currency and Foreign Currency Risks – S&P’s issuer credit ratings make a
distinction between foreign currency ratings and local currency ratings. An
issuer’s foreign currency rating will differ from its local currency rating when
the obligor has a different capacity to meet its obligations denominated in its
local currency, vs. obligations denominated in a foreign currency.