ck0001027596-20231031
STATEMENT
OF ADDITIONAL INFORMATION
February
28, 2024
HUBER
SELECT LARGE CAP VALUE FUND
Investor
Class (HULIX)
Institutional
Class (HULEX)
HUBER
SMALL CAP VALUE FUND
Investor
Class (HUSIX)
Institutional
Class (HUSEX)
HUBER
LARGE CAP VALUE FUND
Investor
Class (HUDIX)
Institutional
Class (HUDEX)
HUBER
MID CAP VALUE FUND
Investor
Class (HUMDX)
Institutional
Class (HUMEX)
Series
of Advisors Series Trust
This
Statement of Additional Information (“SAI”) is not a prospectus, and it should
be read in conjunction with the Funds’ Prospectus dated February 28, 2024, as
may be revised (the “Prospectus”), of the Huber Select Large Cap Value Fund, the
Huber Small Cap Fund, the Huber Large Cap Value Fund, and the Huber Mid Cap
Value Fund (each, a “Fund” and together, the “Funds”), each a series of Advisors
Series Trust (the “Trust”). Huber Capital Management, LLC (the “Adviser”) is the
investment adviser to the Funds. A copy of the Prospectus may be obtained by
contacting the Funds at the address or telephone number below or by visiting the
Adviser’s website at www.hubercap.com.
Huber
Funds
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
Wisconsin 53201-0701
888-HUBERCM
(888-482-3726)
The
Funds’ audited financial statements and notes thereto for the fiscal year ended
October 31, 2023, and the unqualified reports of Tait, Weller & Baker LLP,
the Funds’ independent registered public accounting firm, on such financial
statements are included in the Funds’ annual
report to shareholders
for the fiscal year ended October 31, 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.hubercap.com.
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.
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.
The
Huber Select Large Cap Value Fund (f/k/a
Huber
Capital Equity Income Fund) (the “Select Large Cap Value Fund”) and Huber Small
Cap Value Fund (f/k/a
Huber
Capital Small Cap Value Fund) (the “Small Cap Value Fund”) each commenced
operations on June 29, 2007. Effective October 25, 2011, the former
Institutional Class shares for each Fund were re-designated as Investor Class
shares. The current Institutional Class shares commenced operations on October
25, 2011. The Huber Large Cap Value Fund (f/k/a
Huber
Capital Diversified Large Cap Value Fund) (the “Large Cap Value Fund”) commenced
operations on December 31, 2012. The Mid Cap Value Fund commenced operations on
December 31, 2015.
INVESTMENT
POLICIES AND RISKS
The
following information supplements the discussion of the Funds’ investment
objectives and policies as set forth in their Prospectus. There can be no
guarantee that the Funds’ objectives will be attained.
Diversification
Each
of the Funds is a diversified fund. This means that, with respect to 75% of each
Fund’s total assets, the Fund may not invest more than 5% of its total assets in
the securities of a single issuer or hold more than 10% of the voting securities
of such issuer. This does not apply to investment in the securities of the U.S.
Government, its agencies or instrumentalities.
Under
applicable federal securities laws, the diversification of a mutual fund’s
holdings is measured at the time the fund purchases a security. However, 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 the Funds,
the Funds may have a greater percentage of their assets invested in securities
of fewer issuers. Accordingly, the Funds are subject to the risk that their
performance may be hurt disproportionately by the poor performance of relatively
few securities despite the Funds’ qualifying as diversified mutual funds under
applicable federal securities laws.
The
following paragraphs provide more detail regarding the Funds’ investment
policies and the associated risks identified in the Funds’
Prospectus.
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 standards 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 the
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.
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 the Funds 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.
The
Funds may invest in the following types of investments, each of which is subject
to certain risks, as discussed below:
Equity
Securities
Common
stocks, preferred stocks, convertible securities, rights, warrants and American
Depositary Receipts (“ADRs”) are examples of equity securities in which the
Funds may invest.
All
investments in equity securities are subject to market risks that may cause
their prices to fluctuate over time. Historically, the equity markets have moved
in cycles and the value of the securities in a
Fund’s
portfolio may fluctuate substantially from day to day. Owning an equity security
can also subject a Fund to the risk that the issuer may discontinue paying
dividends.
Common
Stocks
A
common stock represents a proportionate share of the ownership of a company and
its value is based on the success of the company’s business, any income paid to
stockholders, the value of its assets, and general market conditions. In
addition to the general risks set forth above, investments in common stocks are
subject to the risk that in the event a company in which a Fund invests is
liquidated, the holders of preferred stock and creditors of that company will be
paid in full before any payments are made to 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
Each
Fund may invest in preferred stocks. A preferred stock blends the
characteristics of a bond and common stock. Preferred stock generally does not
carry voting rights. It can offer the fixed dividends of a bond and the equity
ownership of a common stock. Unlike common stock, its participation in the
issuer’s growth may be limited. Preferred stock prices tend to fluctuate with
changes in interest rates rather than the issuing company’s business prospects.
Preferred stock generally has priority claim over common stock: (a) in the
receipt of dividends, and (b) should the issuer be dissolved, in any residual
assets after payment to creditors. Although the dividend is set at a fixed
annual rate, in some circumstances it can be changed or omitted by the
issuer.
Convertible
Securities
Each
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.
Convertible securities are senior to common stocks in an issuer’s capital
structure, but are usually subordinated to similar non-convertible securities.
While providing a fixed income stream, a convertible security also affords the
investor an opportunity, through its conversion feature, to participate in the
capital appreciation of the common stock into which it is convertible. As the
market price of the underlying common stock declines, convertible securities
tend to trade increasingly on a yield basis and so may not experience market
value declines to the same extent as the underlying common stock. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of higher yield or capital
appreciation. In such situations, the Funds may have to pay more for a
convertible security than the value of the underlying common stock.
Rights
and Warrants
The
Funds may each 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.
Derivatives
The
Funds are prohibited from investing in derivatives, excluding certain currency
and interest rate hedging transactions. This restriction is not fundamental and
may be changed by a Fund without a shareholder vote. If a Fund determines to
invest in derivatives in the future, it will comply with Rule 18f-4 under the
1940 Act.
Equity-Linked
Derivatives.
To the extent that such security is not considered a derivative under Rule 18f-4
the Funds may each invest in equity-linked derivatives. Shares of S&P Global
Ratings (“S&P”) Depositary Receipts (“SPDRs®”)
and S&P’s MidCap 400 Depositary Receipts (“MidCap SPDRs®”)
are considered Equity-Linked Derivatives. Equity-Linked Derivatives may be
considered a type of derivative security, the performance of which is designed
to correspond generally to the performance of a specified securities index or
basket of securities, or to a single stock. SPDRs®
and MidCap SPDRs®
are designed to follow the performance of S&P 500®
Index and the S&P MidCap 400 Index, respectively. Because the prices of
SPDRs®
and MidCap SPDRs®
are correlated to diversified portfolios, they are subject to the risk that the
general level of stock prices may decline or that the underlying indices
decline. In addition, because SPDRs®
and MidCap SPDRs®
will continue to be traded even when trading is halted in component stocks of
the underlying indices, price quotations for these securities may, at times, be
based upon non-current price information with respect to some or even all of the
stocks in the underlying indices. The Fund’s ability to redeem its shares of
SPDRs®
and MidCap SPDRs®
may be limited by the Investment Company Act of 1940, as amended (the “1940
Act”), which provides that the SPDRs®
and MidCap SPDRs®
will not be obligated to redeem shares held by the Funds in an amount exceeding
one percent of their total outstanding securities during any period of less than
30 days. There is a risk that these instruments may terminate due to
extraordinary events that may cause any of its service providers, such as the
trustee or sponsor, to close or otherwise fail to perform their obligations.
Also, because these instruments are granted licenses by agreement to use the
indexes as a basis for determining their compositions and/or otherwise to use
certain trade names, they may terminate if such license agreements are
terminated.
Foreign
Investments
The
Funds may each make investments in securities of non-U.S. issuers (“foreign
securities”), including issuers in emerging markets. The Funds reserve the right
to invest up to 20% of their net assets in ADRs, dollar-denominated foreign
securities and directly in foreign securities, including those denominated in
currencies other than the U.S. dollar. The Adviser includes, as a U.S. issuer: a
company that maintains its
principal
place of business in the United States; has at least 50% of its assets, revenues
or earnings in the Unites States; or is listed on a U.S. exchange.
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 Funds’ investments. Whether or not the
Funds invest in securities of issuers located in Europe or with significant
exposure to European issuers or countries, these events could result in losses
to the Funds, as there may be negative effects on the value and liquidity of the
Funds’ investments and/or the Funds’ ability to enter into certain transactions.
American
Depositary Receipts.
The Funds may each invest up to 20% of their net assets in ADRs. ADRs evidence
ownership of, and represent the right to receive, securities of foreign issuers
deposited in a domestic bank or trust company or a foreign correspondent bank.
Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. on
exchanges or over-the-counter. While ADRs do not eliminate all the risks
associated with foreign investments, by investing in ADRs rather than directly
in the stock of foreign issuers, a Fund will avoid currency and certain foreign
market trading risks during the settlement period for either purchases or sales.
In general, there is a large, liquid market in the U.S. for ADRs quoted on a
national securities exchange. The information available for ADRs is subject to
the accounting, auditing and financial reporting standards of the U.S. market or
exchange on which they are traded, which standards are generally more uniform
and more exacting than those to which many foreign issuers may be
subject.
In
sponsored programs, an issuer has made arrangements to have its securities
traded in the form of depositary receipts. In unsponsored programs, the issuer
may not be directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information about an
issuer that has participated in the creation of a sponsored program. There may
be an increased possibility of untimely responses to certain corporate actions
of the issuer, such as stock splits and rights offerings, in an unsponsored
program. Accordingly, there may be less information available regarding issuers
of securities underlying unsponsored programs and there may not be a correlation
between this information and the market value of the depositary receipts. If a
Fund’s investment depends on obligations being met by the arranger as well as
the issuer of an unsponsored program, the Fund will be exposed to additional
credit risk.
Risks
of Investing in Foreign Securities.
Investments in foreign securities involve certain inherent risks, including the
following:
Political
and Economic Factors.
Individual foreign economies of certain countries may differ favorably or
unfavorably from the United States’ economy in such respects as growth of gross
national product, rate
of
inflation, capital reinvestment, resource self-sufficiency, diversification and
balance of payments position. The internal politics of certain foreign countries
may not be as stable as those of the United States. Governments in certain
foreign countries also continue to participate to a significant degree, through
ownership interest or regulation, in their respective economies. Action by these
governments could include restrictions on foreign investment, nationalization,
expropriation of goods or imposition of taxes, and could have a significant
effect on market prices of securities and payment of interest. The economies of
many foreign countries are heavily dependent upon international trade and are
accordingly affected by the trade policies and economic conditions of their
trading partners. Enactment by these trading partners of protectionist trade
legislation could have a significant adverse effect upon the securities markets
of such countries.
Legal
and Regulatory Matters.
Certain foreign countries may have less supervision of securities markets,
brokers and issuers of securities, and less financial information available to
issuers, than is available in the United States.
Currency
Fluctuations.
The Funds will invest in securities denominated in U.S. dollars or foreign
currencies. For this reason, the value of the Funds’ assets may be subject to
risks associated with variations in the value of foreign currencies relative to
the U.S. dollar. Changes in the value of foreign currencies against the U.S.
dollar may affect the value of the assets and/or income of foreign companies
whose U.S. dollar denominated securities are held by the Funds. Such companies
may also be affected significantly by currency restrictions and exchange control
regulations enacted from time to time.
Taxes.
The interest and dividends payable to the Funds on certain of the Funds’ foreign
portfolio securities may be subject to foreign taxes or withholding, thus
reducing the net amount of income available for distribution to the Funds’
shareholders. It is not anticipated that the Funds will be eligible to pass
through to shareholders any tax credits or deductions with respect to such
foreign taxes or withholding.
Emerging
Markets.
Each Fund may invest in foreign securities that may include securities of
companies located in developing or emerging markets, which entail additional
risks, including: less social, political and economic stability; smaller
securities markets and lower trading volume, which may result in less liquidity
and greater price volatility; national policies that may restrict an underlying
fund’s investment opportunities, including restrictions on investments in
issuers or industries, or expropriation or confiscation of assets or property;
and less developed legal structures governing private or foreign
investment.
Initial
Public Offerings (“IPOs”)
Each
Fund may invest in IPOs of common stock or other primary or secondary syndicated
offerings of equity or debt securities issued by a corporate issuer. The
purchase of IPO securities often involves higher transaction costs than those
associated with the purchase of securities already traded on exchanges or
markets. IPO securities are subject to market risk and liquidity risk. The
market value of recently issued IPO securities may fluctuate considerably due to
factors such as the absence of a prior public market, unseasoned trading and
speculation, a potentially small number of securities available for trading,
limited information about the issuer, and other factors. The Funds may hold IPO
securities for a period of time, or may sell them soon after the purchase.
Investments in IPOs could have a magnified impact – either positive or negative
– on a Fund’s performance while the Fund’s assets are relatively small. The
impact of IPOs on a Fund’s performance may tend to diminish as the Fund’s assets
grow. In
circumstances
when investments in IPOs make a significant contribution to a Fund’s
performance, there can be no assurance that similar contributions from IPOs will
continue in the future.
Investment
Company Securities
Each
Fund may invest in shares of other investment companies including
exchange-traded funds (“ETFs”), money market funds and other mutual funds, in
pursuit of its investment objective, subject to the limitations set forth in the
1940 Act. Each Fund may invest in money market mutual funds in connection with
its management of daily cash positions and for temporary defensive purposes. In
addition to the advisory and operational fees each Fund bears directly in
connection with its own operation, the Funds would also bear their pro rata
portion of each of the other investment company’s advisory and operational
expenses.
Section
12(d)(1)(A) of the 1940 Act generally prohibits a fund from purchasing (1) more
than 3% of the total outstanding voting stock of another fund; (2) securities of
another fund having an aggregate value in excess of 5% of the value of the
acquiring fund; and (3) securities of the other fund and all other funds having
an aggregate value in excess of 10% of the value of the total assets of the
acquiring fund. There are some exceptions, however, to these limitations
pursuant to various rules promulgated by the SEC.
The
Funds may rely on Section 12(d)(1)(F) and Rule 12d1-3 of the 1940 Act, which
provide an exemption from Section 12(d)(1) that allows a Fund to invest all of
its assets in other registered funds, including ETFs, if, among other
conditions: (a) a Fund, together with its affiliates, acquires no more than
three percent of the outstanding voting stock of any acquired fund, and
(b) the sales load or service fee charged on the Fund’s shares is no
greater than the limits set forth in Rule 2341 of the Conduct Rules of the
Financial Industry Regulatory Authority, Inc. (“FINRA”). In accordance with Rule
12d1-1 under the 1940 Act, the provisions of Section 12(d)(1) shall not apply to
shares of money market funds purchased by the Fund, whether or not for temporary
defensive purposes, provided that the Fund does not pay a sales charge,
distribution fee or service fee as defined in Rule 2341 of the Conduct Rules of
FINRA on acquired money market fund shares (or the Adviser must waive its
advisory fees in an amount necessary to offset any sales charge, distribution
fee or service fee).
Rule
12d1-4 permits additional types of fund of fund arrangements without an
exemptive order. The rule imposes certain conditions, including limits on
control and voting of acquired funds’ shares, evaluations and findings by
investment advisers, fund investment agreements, and limits on most three-tier
fund structures.
Exchange-Traded
Funds. ETFs
are open-end investment companies whose shares are listed on a national
securities exchange. An ETF is similar to a traditional mutual fund, but trades
at different prices during the day on a security exchange like a stock. Similar
to investments in other investment companies discussed above, the Funds’
investments in ETFs will involve duplication of advisory fees and other expenses
since the Funds will be investing in another investment company. In addition,
the Funds’ investment in ETFs is also subject to its limitations on investments
in investment companies discussed above. To the extent the Funds invest in ETFs
which focus on a particular market segment or industry, the Funds will also be
subject to the risks associated with investing in those sectors or industries.
The shares of the ETFs in which the Funds will invest will be listed on a
national securities exchange and the Funds will purchase or sell these shares on
the secondary market at its current market price, which may be more or less than
its net asset value (“NAV”) per share.
As
a purchaser of ETF shares on the secondary market, the Funds 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
per share, 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. The
Funds do not expect to enter into such agreements and therefore will not be able
to purchase and redeem its ETF shares directly from the ETF.
Closed-End
Funds. Each
Fund may invest in closed-end funds, pooled investment vehicles that are
registered under the 1940 Act and whose shares are listed and traded on U.S.
national securities exchanges. Like any stock, a closed-end fund’s share price
will fluctuate in response to market conditions and other factors. Secondary
market trading prices of closed-end funds should be expected to fluctuate and
such prices may be higher or lower than the NAV of closed-end fund’s portfolio
holdings. When such prices are higher, shares are said to be trading at a
“premium.” When they are lower, shares are said to be trading at a “discount.”
Closed-end fund shares frequently trade at persistent and ongoing discounts to
the NAV of the closed-end fund’s portfolio investments. There can be no
guarantee that shares of a closed-end fund held by a Fund will not trade at a
persistent and ongoing discount. Nor can there be any guarantee that an active
market in shares of the closed-end funds held by a Fund will exist. A Fund may
not be able to sell closed-end fund shares at a price equal to the NAV of the
closed-end fund. While the Funds seek to take advantage differences between the
NAV of closed-end fund shares and any secondary market premiums or discounts,
the Funds may not be able to do so. In addition, there can be no assurance that
any closed-end fund will achieve its stated investment objective. While the
Funds attempt to invest in a diversified basket of closed-end funds, lackluster
performance of a single closed-end fund can have a negative impact on the
performance of a Fund as a whole. A Fund may lose money on its investment in any
closed-end fund which, in turn, may cause investors to lose money on an
investment in that Fund.
Master
Limited Partnerships and Other Publicly Traded Partnerships
Each
Fund may invest in Master Limited Partnerships (“MLPs”) and other publicly
traded partnerships formed as partnerships, limited partnerships or limited
liability companies, the units of which are listed and traded on a securities
exchange. The Funds may invest in publicly traded partnerships that are expected
to be treated as “qualified publicly traded partnerships” for federal income tax
purposes. These include MLPs and other entities qualifying under limited
exceptions in the U.S. Code. Many MLPs derive income and capital gains from the
exploration, development, mining or production, processing, refining,
transportation or marketing of any mineral or natural resource, or from real
property. The value of MLP units fluctuates predominantly based on prevailing
market conditions and the success of the MLP. The Funds may purchase common
units of an MLP on an exchange as well as directly from the MLP or other parties
in private placements. Unlike owners of common stock of a corporation, owners of
common units have limited voting rights and have no ability to annually elect
directors.
MLPs
generally distribute all available cash flow (cash flow from operations less
maintenance capital expenditures) in the form of quarterly distributions, but a
Fund will be required for federal income tax purposes to include in its taxable
income its allocable share of the MLP’s income regardless of whether any
distributions are made by the MLP. Thus, if the distributions received by a Fund
from an MLP are less than that Fund’s allocable share of the MLP’s income, the
Fund may be required to sell other securities so that it may satisfy the
requirements to qualify as a regulated investment company (“RIC”) and avoid
federal income and excise taxes. Common units typically have priority as to
minimum quarterly distributions. In the event of liquidation, common units have
preference over subordinated units, but not debt or preferred units, to the
remaining assets of the MLP.
Holders
of units of a particular MLP are also exposed to a remote possibility of
liability for the obligations of that MLP under limited circumstances not
expected to be applicable to the Funds. In addition, the value of a Fund’s
investment in MLPs depends largely on the MLPs being treated as “qualified
publicly traded partnerships” for federal income tax purposes. If an MLP does
not meet current federal income tax requirements to maintain partnership status,
or if it is unable to do so because of federal income tax law changes, it could
be taxed as a corporation. In that case, the MLP would be obligated to pay
federal income tax at the entity level and distributions received by a Fund
generally would be taxed as dividend income for federal income tax purposes. As
a result, there could be a reduction in a Fund’s cash flow and there could be a
material decrease in the value of the Fund’s shares. In addition, if an MLP in
which a Fund invests does not qualify as a “qualified publicly traded
partnership” (and is otherwise not taxed as a corporation), the Fund must look
through to the character of the income generated by the MLP. Such income may not
qualify as “good income,” and therefore, could adversely affect the Fund’s
status as a RIC.
To
the extent that a limited partnership’s interests are all in a particular
industry, the limited partnership will be negatively impacted by economic events
adversely impacting that industry. The risks of investing in a limited
partnership are generally those involved in investing in a partnership as
opposed to a corporation. For example, state law governing partnerships is often
less restrictive than state law governing corporations. Accordingly, there may
be fewer protections afforded to investors in a limited partnership than
investors in a corporation. For example, investors in limited partnerships may
have limited voting rights or be liable under certain circumstances for amounts
greater than the amount of their investment. In addition, limited partnerships
may be subject to state taxation in certain jurisdictions which will have the
effect of reducing the amount of income paid by the limited partnership to its
investors. In addition, investments in certain investment vehicles, such as
limited partnerships and MLPs, may be illiquid. Such partnership investments may
also not provide daily pricing information to their investors, which will
require a Fund to employ fair value procedures to value its holdings in such
investments.
Stapled
Securities
The
Funds may invest in stapled securities. A stapled security is a security that is
comprised of two parts that cannot be separated from one another, a unit of a
trust and a share of a company. The resulting security is influenced by both
parts and must be treated as one unit at all times, such as when buying or
selling a security. The characteristics and value of a stapled security are
influenced by both underlying securities. The listing of stapled securities on a
domestic or foreign exchange does not guarantee a liquid market for stapled
securities.
Short-Term,
Temporary, and Cash Investments
When
the Adviser believes market, economic, political or other conditions are
unfavorable for investors, the Adviser may invest up to 100% of the Funds’ net
assets in a temporary defensive manner or hold a substantial portion of their
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 their
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. They primarily invest 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.
Although money market mutual funds seek to preserve the value of a Fund’s
investment at $1.00 per share, it is possible to lose money by investing in such
funds.
Your
cost of investing in the Funds 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 the Funds’ 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.
The Funds 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 Funds will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and
foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully
insured by the U.S. Government. If the Funds hold instruments of foreign banks
or financial institutions, they may be subject to additional investment risks
that are different in some respects from those incurred by a fund that invests
only in debt obligations of U.S. domestic issuers. 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 their Prospectus, the Funds may make interest-bearing time or other
interest-bearing deposits in commercial or savings banks. Time deposits are
non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
Savings
Association Obligations.
The Funds may invest in certificates of deposit (interest-bearing time deposits)
issued by savings banks or savings and loan associations that have capital,
surplus and undivided profits in excess of $100 million, based on latest
published reports, or less than $100 million if the principal amount of
such obligations is fully insured by the U.S. Government.
Commercial
Paper, Short-Term Notes and Other Corporate Obligations.
The Funds may invest a portion of their assets in commercial paper and
short-term notes. Commercial paper consists of unsecured promissory notes issued
by corporations. Issues of commercial paper and short-term notes 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 Investors Service,
Inc. (“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 the
Appendix.
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.
Borrowing
Currently,
the 1940 Act permits each Fund to borrow money in amounts of up to
one-third of the Fund’s total assets from banks for any purpose, and to borrow
up to 5% of the Fund’s total assets from banks or other lenders for temporary
purposes. To limit the risks attendant to borrowing, the 1940 Act
requires a Fund to maintain at all times an “asset coverage” of at least 300% of
the amount of its borrowings. Asset coverage means the ratio that the
value of a Fund’s total assets, minus liabilities other than borrowings, bears
to the aggregate amount of all borrowings. Borrowing money to increase a
Fund’s investment portfolio is known as “leveraging.” Borrowing, especially when
used for leverage, may cause the value of a Fund’s shares to be more volatile
than if the Fund did not borrow. This is because borrowing tends to
magnify the effect of any increase or decrease in the value of a Fund’s
portfolio holdings. Borrowed money thus creates an opportunity for greater
gains, but also greater losses. To repay borrowings, a Fund may have to
sell securities at a time and at a price that is unfavorable to the Fund.
There also are costs associated with borrowing money, and these costs would
offset and could eliminate a Fund’s net investment income in any given
period.
The
use of borrowing by the Funds involves special risk considerations that may not
be associated with other funds having similar objectives and policies.
Since
substantially all of a Fund’s assets fluctuate in value, while the interest
obligation resulting from a borrowing will be fixed by the terms of the Fund’s
agreement with its lender, the 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, a Fund might have to sell
portfolio securities to meet interest or principal payments at a time when
fundamental investment considerations would not favor such sales. A Fund will
reduce its borrowing amount within three days, if its asset coverage falls below
the amount required by the 1940 Act.
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.
Real
Estate Investment Trusts (“REITs”)
The
Funds may invest in REITs. The real estate industry has been subject to
substantial fluctuations and declines on a local, regional and national basis in
the past and may continue to be in the future. Real property values and income
from real property may decline due to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
regulatory limitations on rents, changes in neighborhoods and in demographics,
increases in market interest rates, or other factors. Factors such as these may
adversely affect companies which own and operate real estate directly, companies
which lend to such companies, and companies which service the real estate
industry.
A
REIT is a corporation or a business trust that would otherwise be taxed as a
corporation. REITs are often divided into three categories: equity REITs,
mortgage REITs and hybrid REITs. An equity REIT invests primarily in the fee
ownership or leasehold ownership of land and buildings. Rental income is the
main source of income for equity REITs. An equity REIT may also realize capital
gains or losses by selling real estate properties in its portfolio that have
appreciated or depreciated in value. A mortgage REIT invests primarily in
mortgages on real estate and other loans secured by interests in real estate,
including construction, development or long-term loans. A hybrid REIT combines
the characteristics of equity REITs and mortgage REITs, generally by holding
both ownership interests and mortgage interests in real estate.
To
the extent that the Funds have the ability to invest in REITs, a Fund could
conceivably own real estate directly as a result of a default on the securities
it owns. The Funds, therefore, may be subject to certain risks associated with
the direct ownership of real estate including difficulties in valuing and
trading real estate, declines in the value of real estate, risks related to
general and local economic conditions, adverse changes in the climate for real
estate, environmental liability risks, increases in property taxes and operating
expenses, changes in zoning laws, casualty or condemnation losses, limitations
on rents, changes in neighborhood values, the appeal of properties to tenants,
and increases in interest rates.
In
addition to the risks described above, equity REITs may be affected by any
changes in the value of the underlying property owned by the trusts, while
mortgage REITs may be affected by the quality of any credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified, and are
therefore subject to the risk of financing single or a limited number of
projects. Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self-liquidation, and the possibility of failing to maintain an
exemption from the 1940 Act. Changes in interest rates may also affect the value
of debt securities held by the Funds. By investing in REITs indirectly through
the Funds, a shareholder will bear not only his/her proportionate share of the
expenses of the Funds, but also, indirectly, similar expenses of the
REITs.
Mortgage-Backed
Securities
Each
Fund may invest in mortgage-backed securities. Investing in
mortgage-backed securities involves certain unique risks in addition to those
generally associated with investing in fixed-income securities and in the real
estate industry in general. These unique risks include the failure of a party to
meet its commitments under the related operative documents, adverse interest
rate changes and the effects of prepayments on mortgage cash flows.
Mortgage-backed securities are “pass-through” securities, meaning that principal
and interest payments made by the borrower on the underlying mortgages are
passed through to the Funds. The value of mortgage-backed securities, like that
of traditional fixed-income
securities,
typically increases when interest rates fall and decreases when interest rates
rise. However, mortgage-backed securities differ from traditional fixed-income
securities because of their potential for prepayment without penalty. The price
paid by a Fund for its mortgage-backed securities, the yield a Fund expects to
receive from such securities and the average life of the securities are based on
a number of factors, including the anticipated rate of prepayment of the
underlying mortgages. In a period of declining interest rates, borrowers may
prepay the underlying mortgages more quickly than anticipated, thereby reducing
the yield to maturity and the average life of the mortgage-backed securities.
Moreover, when a Fund reinvests the proceeds of a prepayment in these
circumstances, it will likely receive a rate of interest that is lower than the
rate on the security that was prepaid.
Securities
Lending
Each
Fund may lend its portfolio securities in order to generate additional
income. Securities may be loaned to broker-dealers, major banks or
other recognized domestic institutional borrowers of
securities. Generally, a Fund may lend portfolio securities to
securities broker-dealers or financial institutions if: (1) the loan
is collateralized in accordance with applicable regulatory requirements
including collateralization continuously at no less than 100% by marking to
market daily; (2) the loan is subject to termination by the Fund at any time;
(3) the Fund receives reasonable interest or fee payments on the loan, as well
as any dividends, interest, or other distributions on the loaned securities; (4)
the Adviser is able to call loaned securities in order to exercise all voting
rights with respect to the securities; and (5) the loan will not cause the value
of all loaned securities to exceed one-third of the value of the Fund’s
assets. As part of participating in a lending program, 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, a Fund 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 a Fund’s
risk.
When-Issued
Securities
Each
Fund may purchase securities on a when-issued basis, for payment and delivery at
a later date, generally within one month. The price and yield are
generally fixed on the date of commitment to purchase, and the value of the
security is thereafter reflected in a Fund’s NAV. During the period
between purchase and settlement, no payment is made by the Funds and no interest
accrues to the Funds. At the time of settlement, the market value of
the security may be more or less than the purchase
price.
Rule
18f-4 under the 1940 Act permits the Funds to invest in securities on a
when-issued or forward-settling basis, or with a non-standard settlement cycle,
notwithstanding the limitation on the issuance of senior securities in Section
18 of the 1940 Act, provided that a Fund intends to physically settle the
transaction and the transaction will settle within 35 days of its trade date
(the “Delayed-Settlement Securities Provision”). A when-issued,
forward-settling, or non-standard settlement cycle security that does not
satisfy the Delayed-Settlement Securities Provision is treated as a derivatives
transaction under Rule 18f-4. See “Derivatives” above.
Special
Risks Related to Cyber Security
The
Funds and their service providers are susceptible to cyber security risks that
include, among other things, theft, unauthorized monitoring, release, misuse,
loss, destruction or corruption of confidential and
highly
restricted data; denial of service attacks; unauthorized access to relevant
systems, compromises to networks or devices that the Funds and their service
providers use to service the Funds’ operations; or operational disruption or
failures in the physical infrastructure or operating systems that support the
Funds and their service providers. Cyber attacks against or security breakdowns
of 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 the Funds’ NAVs; 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 the Funds’ investment
in such issuers to lose value. There can be no assurance that the Funds or their
service providers will not suffer losses relating to cyber attacks or other
information security breaches in the future.
INVESTMENT
RESTRICTIONS
The
Trust (on behalf of the Funds) has adopted the following restrictions as
fundamental policies, which may not be changed without the favorable vote of the
holders of a “majority of a 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.
As
a matter of fundamental policy, each Fund is diversified as described on page
B-3. The Funds’ investment objectives are also fundamental.
In
addition, the Funds may not:
1.Issue
senior securities, borrow money or pledge its assets, except that (i) a
Fund may borrow from banks in amounts not exceeding 33-1/3 percent of their
total assets (including the amount borrowed); and (ii) this restriction
shall not prohibit a Fund from engaging in options transactions, short sales or
securities lending, provided that asset coverage requirements are met;
2.Act
as underwriter (except to the extent a Fund may be deemed to be an underwriter
in connection with the sale of securities in its investment
portfolio);
3.Purchase
or sell commercial real estate unless acquired as a result of ownership of
securities (although a Fund may purchase and sell securities which are secured
by real estate and securities of companies which invest or deal in real
estate);
4.Purchase
or sell physical commodities, unless acquired as a result of ownership of
securities or other instruments and provided that this restriction does not
prevent a Fund from engaging in transactions involving currencies and futures
contracts and options thereon or investing in securities or other instruments
that are secured by physical commodities;
5.Make
loans of money (except for purchases of debt securities consistent with the
investment policies of a Fund and except for repurchase agreements);
or
6.Purchase
the securities of issuers conducting their principal business activity in the
same industry if, immediately after the purchase and as a result thereof, the
value of a Fund’s investments in that industry would equal or exceed 25% of the
current value of the Fund’s total assets, provided that this restriction does
not limit a Fund’s investments in (i) securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, (ii) securities of other
investment companies, or (iii) repurchase agreements.
With
respect to fundamental policy #3 above, the Funds do not intend to invest
directly in real estate.
Each
Fund observes the following restrictions as a matter of operating but not
fundamental policy. Except as noted below, the Funds may:
1.Not
make investments for the purpose of exercising control or management;
2.Adopt
the following policy if the Fund is subject to Rule 35d-1 (the “Names Rule”)
under the 1940 Act:
Shareholders
will receive at least 60 days’ notice of any changes to a Fund’s non-fundamental
policy complying with the Names Rule. The notice will be provided in Plain
English in a
separate
written document, and will contain the following prominent statement or similar
statement in bold-face type:
“Important
Notice Regarding Change in Investment Policy.” This statement will appear in
both the notice and, if applicable, the envelope in which it is delivered,
unless it is delivered separately from other communications to investors, in
which case the statement will appear either on the notice or, if applicable, the
envelope in which the notice is delivered;
3.Not
hold in aggregate more than 15% of a Fund’s net assets in illiquid investments
that are assets pursuant to Rule 22e-4 under the 1940 Act; or
4.Lend
securities from its portfolio to approved brokers, dealers and financial
institutions, to the extent permitted under the 1940 Act, including the rules,
regulations and exemptions thereunder, which currently limit such activities to
one-third of the value of a Fund’s total assets (including the value of the
collateral received). Any such loans of portfolio securities will be fully
collateralized based on values that are marked-to-market daily.
If
a percentage or rating restriction on investment or use of assets set forth
herein or in the Prospectus is adhered to at the time a transaction is effected,
later changes in percentage resulting from any cause other than actions by the
Funds will not be considered a violation, except that there is an ongoing asset
coverage requirement in the case of borrowings. If the value of each
Fund’s holdings of illiquid securities at any time exceeds the percentage
limitation applicable at the time of acquisition due to subsequent fluctuations
in value or other reasons, the Trust’s Board of Trustees (the “Board” or the
“Trustees”) will consider what actions, if any, are appropriate to maintain
adequate liquidity.
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 transaction costs and may result in a greater number of taxable
transactions.
Following
are the portfolio turnover rates for each Fund’s two most recent fiscal years
ended October 31:
|
|
|
|
|
|
|
|
|
| |
|
| 2023 |
2022 |
|
| Select
Large Cap Value Fund |
30.78% |
35.89% |
|
| Small
Cap Value Fund |
43.63% |
41.12% |
|
| Large
Cap Value Fund |
33.77% |
44.34% |
|
| Mid
Cap Value Fund |
66.66% |
73.00% |
|
PORTFOLIO
HOLDINGS INFORMATION
The
Adviser and the Funds maintain portfolio holdings disclosure policies (the
“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 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 Fund shareholders and in the quarterly holdings report
on Part F of Form N-PORT. These reports are available, free of charge, on the
EDGAR database on the SEC’s website at www.sec.gov.
In
addition, the Funds disclose complete portfolio holdings on the Funds’ website
on at least a calendar quarterly basis at www.hubercap.com
with at least a 15-calendar day lag. A Fund may experience up to a 45-calendar
day lag in the website disclosure of its complete portfolio holdings if it is
determined that early disclosure could be harmful to the Fund. The portfolio
holdings for a Fund will remain posted on the website until updated with
required regulatory filings with the SEC. From time to time, the Adviser may
select additional portfolio characteristics for distribution to the public with
such frequencies and lag times as the Adviser determines to be in the best
interests of shareholders.
Pursuant
to the Disclosure Policies, information about the Funds’ portfolio holdings is
not distributed to any person unless:
•The
disclosure is required pursuant to a regulatory request, court order or is
legally required in the context of other legal proceedings;
•The
disclosure is made to a mutual fund rating and/or ranking organization, or
person performing similar functions, who is subject to a duty of
confidentiality, including a duty not to trade on any non-public
information;
•The
disclosure is made to internal parties involved in the investment process,
administration, operation or custody of the Funds, including, but not limited to
U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund
Services (“Fund Services”) and the Board, 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;
•The
disclosure is made with the approval of either the Trust’s Chief Compliance
Officer (“CCO”) or his or her designee; or
•The
disclosure is made pursuant to a confidentiality agreement.
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
are:
•A
mutual fund rating and/or ranking organization, or person performing similar
functions, who is subject to a duty of confidentiality, including a duty not to
trade on any non-public information;
•Rating
and/or ranking organizations, specifically: Lipper; Morningstar; S&P;
Bloomberg; Vickers-Stock Research Corporation; Thomson Financial; and
Capital-Bridge, all of which may receive such information between the fifth and
tenth business day of the month following the end of a calendar quarter;
and
•Internal
parties involved in the investment process, administration, operation or custody
of the Fund, specifically: Fund Services; the Board; SS&C Eze (trade order
management system); Ultimus Fund Solutions, LLC (middle/back office service
provider) 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 are made with the prior
written approval of either the Trust’s CCO or his or her designee, pursuant to
the Disclosure Policies.
The
Board exercises continuing oversight of the disclosure of a Fund’s portfolio
holdings by (1) overseeing the implementation and enforcement of the
Disclosure Policies, Codes of Ethics and other relevant policies of the Funds
and their service providers by the Trust’s CCO, (2) by considering reports
and recommendations by the Trust’s CCO concerning any material compliance
matters (as defined in Rule 38a-1 under the 1940 Act), and (3) by
considering to approve any amendment to these Disclosure Policies. The Board
reserves the right to amend the Disclosure Policies at any time without prior
notice in their sole discretion.
Neither
the Adviser nor the Funds may receive compensation in connection with the
disclosure of information about a Fund’s portfolio securities. In the event of a
conflict between the interests of a Fund and the interests of the Adviser or an
affiliated person of the Adviser, the Adviser’s CCO, in consultation with the
Trust’s CCO, shall make a determination in the best interest of the Fund, and
shall report such determination to the Adviser’s Board of Directors and to the
Fund’s Board at the end of the quarter in which such determination was made. Any
employee of the Adviser who suspects a breach of this obligation must report the
matter immediately to the Adviser’s CCO or to his or her
supervisor.
In
addition, material non-public holdings information may be provided without lag
as part of the normal investment activities of a Fund to each of the following
entities which, by explicit agreement by virtue of their respective duties to a
Fund, are required to maintain the confidentiality of the information disclosed:
Fund Administrator, Fund Accountant, Custodian, Transfer Agent, auditors,
counsel to the Funds or the trustees, broker-dealers (in connection with the
purchase or sale of securities or requests for price quotations or bids on one
or more securities), and regulatory authorities. Portfolio holdings information
not publicly available with the SEC or through the Funds’ website may only be
provided to additional third parties, in accordance with the Disclosure
Policies, when a Fund has a legitimate business purpose and the third-party
recipient is subject to a confidentiality agreement.
In
no event shall the Adviser, its affiliates or employees, or the Funds receive
any direct or indirect compensation in connection with the disclosure of
information about the Funds’ portfolio holdings.
There
can be no assurance that the Disclosure Policies and these procedures will
protect the Funds from potential misuse of that information by individuals or
entities to which it is disclosed.
MANAGEMENT
The
overall management of the business and affairs of the Trust is vested with its
Board, all of whom are independent of the Adviser. The Board approves all
significant agreements between the Trust and persons or companies furnishing
services to it, including the agreements with the Adviser, Administrator, Fund
Accountant, 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 general
supervision by the Board. The current Trustees and officers of the Trust, their
ages and positions with the Trust, term of office with the Trust and length of
time served, their business addresses, principal occupations during the past
five years and other directorships held during the past five years are listed in
the table below.
Independent
Trustees(1)
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Name,
Address
and Age |
Position
Held with the Trust |
Term
of Office and Length of Time Served* |
Principal
Occupation
During Past Five Years |
Number
of Portfolios
in
Fund Complex
Overseen
by Trustee(2) |
Other
Directorships Held During Past Five Years(3) |
David
G. Mertens
(age 63)
615 E. Michigan Street
Milwaukee, WI
53202 |
Chair
of the Board
Trustee |
Indefinite
term; since October 2023.
Indefinite
term; since March 2017. |
Partner
and Head of Business Development, QSV Equity Investors, LLC, (formerly
known as Ballast Equity Management, LLC) (a privately-held investment
advisory firm) (February 2019 to present); Managing Director and Vice
President, Jensen Investment Management, Inc. (a privately-held investment
advisory firm) (2002 to 2017). |
4 |
Trustee,
Advisors Series Trust (for series not affiliated with the
Funds). |
Joe
D. Redwine
(age 76)
615 E. Michigan Street
Milwaukee, WI
53202 |
Trustee |
Indefinite
term; since September 2008. |
Retired;
formerly Manager, President, CEO, U.S. Bancorp Fund Services, LLC, and its
predecessors, (May 1991 to July 2017). |
4 |
Trustee,
Advisors Series Trust (for series not affiliated with the
Funds). |
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Name,
Address
and Age |
Position
Held with the Trust |
Term
of Office and Length of Time Served* |
Principal
Occupation
During Past Five Years |
Number
of Portfolios
in
Fund Complex
Overseen
by Trustee(2) |
Other
Directorships Held During Past Five Years(3) |
Michele
Rackey
(age 65)
615 E. Michigan Street
Milwaukee, WI
53202
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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). |
4 |
Trustee,
Advisors Series Trust (for series not affiliated with the
Funds). |
Officers
of the Trust
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Name,
Address
and Age |
Position
Held
with the Trust |
Term
of Office and Length of Time Served |
Principal
Occupation
During Past Five Years |
Jeffrey
T. Rauman
(age 55)
615 E. Michigan Street
Milwaukee, WI
53202
|
President,
Chief Executive Officer and Principal Executive Officer |
Indefinite
term; since December 2018. |
Senior
Vice President, Compliance and Administration, U.S. Bank Global Fund
Services (February 1996 to present). |
Kevin
J. Hayden
(age 52)
615 E. Michigan Street
Milwaukee, WI
53202
|
Vice
President, Treasurer and Principal Financial Officer |
Indefinite
term; since January 2023. |
Vice
President, Compliance and Administration, U.S. Bank Global Fund Services
(June 2005 to present). |
Cheryl
L. King
(age 62)
615 E. Michigan Street
Milwaukee, WI
53202
|
Assistant
Treasurer |
Indefinite
term; since January 2023. |
Vice
President, Compliance and Administration, U.S. Bank Global Fund Services
(October 1998 to present). |
Richard
R. Conner
(age 41)
615 E. Michigan Street
Milwaukee, WI
53202
|
Assistant
Treasurer |
Indefinite
term; since December 2018. |
Assistant
Vice President, Compliance and Administration, U.S. Bank Global Fund
Services (July 2010 to present). |
Joseph
R. Kolinsky
(age 53)
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). |
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Name,
Address
and Age |
Position
Held
with the Trust |
Term
of Office and Length of Time Served |
Principal
Occupation
During Past Five Years |
Elaine
E. Richards
(age 55)
2020 E. Financial Way, Suite 100
Glendora,
CA 91741
|
Vice
President and Secretary |
Indefinite
term; since September 2019. |
Senior
Vice President, U.S. Bank Global Fund Services (July 2007 to
present). |
Lillian
A. Kabakali
(age 43)
2020 E. Financial Way, Suite 100
Glendora,
CA 91741 |
Assistant
Secretary |
Indefinite
term; since July 2023. |
Vice
President, U.S. Bank Global Fund Services (April 2023 to present); Vice
President, Compliance, Guggenheim Partners Investment Management Holdings,
LLC (April 2019 to April 2023); Senior Associate, Compliance, Guggenheim
Partners Investment Management Holdings, LLC (January 2018 to April
2019). |
*
The
Trustees have designated a mandatory retirement age of 75, such that each
Trustee, serving as such on the date he or she reaches the age of 75, shall
submit his or her resignation not later than the last day of the calendar year
in which his or her 75th birthday occurs (“Retiring Trustee”). Upon request, the
Board may, by vote of a majority of the Trustees eligible to vote on such
matter, determine whether or not to extend such Retiring Trustee’s term and on
the length of a one-time extension of up to three additional years. At a meeting
held December 7-8, 2022, by vote of the majority of the Trustees (not
including Mr. Redwine), Mr. Redwine’s term as Trustee was extended for
three additional years 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 October 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,
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 Chair of the
Board, and he acts as a liaison with the Trust’s service providers, officers,
legal counsel, and other Trustees between meetings, helps to set Board meeting
agendas, and serves as 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 9
years. Ms. Rackey
has
a BS in Business Administration from the University of Illinois at Chicago and
has an MBA from Keller Graduate School of Management in Chicago. Ms. Rackey
previously
held FINRA series 6, 7 and 63 licenses as well as a Maryland Life and Health
License.
Board
Committees
The
Trust has established the following three standing committees and the membership
of each committee to assist in its oversight functions, including its oversight
of the risks the Trust faces: the Audit Committee, the QLCC, and the Governance
and Nominating Committee. There is no assurance, however, that the Board’s
committee structure will prevent or mitigate risks in actual practice. The
Trust’s committee structure is specifically not intended or designed to prevent
or mitigate the Funds’ investment
risks.
The Funds are designed for investors that are prepared to accept investment
risk, including the possibility that as yet unforeseen risks may emerge in the
future.
The
Audit Committee is comprised of all of the Independent Trustees.
Mr. Redwine is the Chair of the Audit Committee. The Audit Committee
typically meets once per year with respect to the various series of the Trust.
The function of the Audit Committee, with respect to each series of the Trust,
is to review the scope and results of the audit and any matters bearing on the
audit or the Fund’s financial statements and to ensure the integrity of the
Fund’s pricing and financial reporting. For the fiscal year ended October 31,
2023, the Audit Committee met three times with respect to the
Funds.
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 meets as necessary.
During the Funds’ fiscal year ended October 31, 2023, the QLCC did not meet with
respect to the Funds.
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. During the Funds’ fiscal year ended October
31, 2023, the Governance and Nominating Committee met twice with respect to the
Trust.
Board
Interest in the Funds
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 herein, or an affiliate of the Adviser or
Distributor. Accordingly, neither the Independent Trustees nor members of their
immediate family, have direct or indirect interest, the value of which exceeds
$120,000, in the Adviser, the Distributor or any of their affiliates. In
addition, during the two most recently completed calendar years, neither the
Independent Trustees nor members of their immediate families have conducted any
transactions
(or series of transactions) in which the amount involved exceeds $120,000 and to
which the Adviser, the Distributor or any affiliate thereof was a
party.
The
following table states the dollar range of equity securities of the Funds
beneficially owned by the Trustees as of December 31, 2023:
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| Dollar
Range of Equity Securities in the Select Large Cap Value Fund |
Dollar
Range
of Equity Securities in the Small Cap Value Fund |
Dollar
Range of Equity Securities in the Large Cap Value Fund |
Dollar
Range of Equity Securities in the Mid Cap Value Fund |
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies
Overseen by Trustee in Family of Investment Companies |
| (None,
$1-$10,000, $10,001-$50,000, $50,001-$100,000, Over $100,000) |
| Independent
Trustees |
| David
Mertens |
None |
None |
None |
None |
Over
$100,000 |
| Joe
D. Redwine |
None |
None |
None |
None |
$50,001
- $100,000 |
| Michele
Rackey |
None |
None |
None |
None |
$10,001
- $50,000 |
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
October 31, 2023.
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Compensation from the |
Pension
or Retirement Benefits Accrued as Part of Funds’ Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Compensation from Funds and Fund Complex Paid to Trustees(1) |
| Select
Large Cap Value Fund |
Small
Cap
Value Fund |
Large
Cap Value Fund |
Mid
Cap Value Fund |
| Independent
Trustee |
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| David
G. Mertens |
$3,916 |
$3,916 |
$3,916 |
$3,916 |
None |
None |
$15,664 |
|
Raymond
B. Woolson(2) |
$3,765 |
$3,765 |
$3,765 |
$3,765 |
None |
None |
$15,060 |
| Joe
D. Redwine |
$3,974 |
$3,974 |
$3,974 |
$3,974 |
None |
None |
$15,896 |
| Michele
Rackey |
$3,653 |
$3,653 |
$3,653 |
$3,653 |
None |
None |
$14,612 |
(1)There
are currently numerous unaffiliated portfolios comprising the Trust. The term
“Fund Complex” applies only to the Funds. For the Funds’ fiscal year ended
October 31, 2023, aggregate Independent Trustees’ fees for the Trust were
$546,000.
(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.
CODES
OF ETHICS
The
Trust and the Adviser have each adopted separate Codes of Ethics under Rule
17j-1 of the 1940 Act. These Codes permit, subject to certain conditions, access
persons of the Adviser to invest in securities that may be purchased or held by
the Funds. The Distributor, 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 POLICY
The
Board has adopted Proxy Voting Policies and Procedures (the “Proxy Policies”) on
behalf of the Trust which delegate the responsibility for voting proxies to the
Adviser, subject to the Board’s continuing oversight. The Proxy Policies require
that the Adviser vote proxies received in a manner consistent with the best
interests of the Funds and their shareholders. The Proxy Policies also require
the Adviser to present to the Board, at least annually, the Adviser’s Proxy
Voting Policies and Procedures and a record of each proxy voted by the Adviser
on behalf of a Fund, including a report on the resolution of all proxies
identified by the Adviser as involving a conflict of interest.
The
Adviser has adopted its own proxy voting policies and procedures, generally
consistent with those of its proxy voting vendor, Institutional Shareholder
Services (“ISS”). Accordingly, all proxies shall be submitted to ISS directly
from the custodian and available for review and vote by the Adviser’s personnel.
The Adviser will generally vote in line with ISS recommendations, but reserves
the right to go against the recommendation if management deems it is in the best
interest of the shareholders.
Responsibility.
The responsibility for administering and overseeing the proxy voting process
lies with the COO and Chief Compliance Officer (“CCO”) of the
Adviser.
Conflict
of Interest. The
Adviser’s proxy voting policies and procedures are designed to ensure that
proxies are properly voted and any material conflicts are resolved in the best
interest of a Fund. If the Adviser detects a conflict of interest, it will, at
its expense, engage the services of an outside proxy voting service or
consultant who will provide an independent recommendation on the direction in
which the Adviser should vote on the proposal. The proxy voting service’s or
consultant’s determination will be binding on the Adviser.
Review.
The Adviser’s CCO or designee will review the Adviser’s Proxy Policies and
update them as necessary.
Proxy
Voting Guidelines on Specific Issues.
Each vote is ultimately cast on a case-by-case basis, taking into consideration
the contractual obligations under the Advisory Agreement or comparable document,
and other relevant facts and circumstances at the time of the vote.
The
Trust is required to annually file Form N-PX, which lists the Funds’ complete
proxy voting records for the 12-month period ending June 30. The Funds’ proxy
voting records are available without charge, upon request, by calling toll-free
888-HUBERCM (888-482-3726) 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 the Fund. As of January 31, 2024, the following
shareholders were considered to be principal shareholders and/or control persons
of the specified class of the relevant Fund.
Select
Large Cap Value Fund, Investor Class
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Pershing
LLC
1 Pershing Plaza, 14th Floor
Jersey City, NJ
07399-0002
|
40.96% |
Record |
Charles
Schwab & Co., Inc.
Special Custody Account
FBO
Customers
Attn: Mutual Funds
211 Main Street
San Francisco, CA
94105-1901
|
23.08% |
Record |
National
Financial Services, LLC
499 Washington Blvd., 4th Floor
Jersey City,
NJ 07310-2010
|
17.73% |
Record |
Angelo
R. Mozilo
c/o Huber Capital Management, LLC
1700 East Walnut
Avenue, Suite 460
El Segundo, California 90245 |
10.31% |
Beneficial |
Select
Large Cap Value Fund, Institutional Class
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
RBC
Capital Markets LLC
Mutual Fund Omnibus Processing
Attn: Mutual Fund
Ops Manager
250 Nicollet Mall, Suite 1800
Minneapolis, MN
55401-7554
|
23.30% |
Record |
National
Financial Services, LLC
499 Washington Blvd., 4th Floor
Jersey City,
NJ 07310-2010
|
18.50% |
Record |
LPL
Financial
FBO Customer Accounts
Attn: Mutual Fund Operations
4707
Executive Drive
San Diego, CA 92121-3091
|
15.08% |
Record |
UBS
WM USA
Omnibus Account
Attn: Department Manager
1000 Harbor
Blvd., 5th Floor
Weehawken, NJ 07086-6761
|
9.44% |
Record |
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc.
Special Custody Account
FBO
Customers
Attn: Mutual Funds
211 Main Street
San Francisco, CA
94105-1901
|
8.61% |
Record |
Wells
Fargo Clearing Services LLC
1 N. Jefferson Ave.
Saint Louis, MO
63103-2254
|
8.51% |
Record |
Kerr
2012 Gift Trust
Margaret L. Kerr Trustee
U/A 12/31/2012
c/o Huber
Capital Management, LLC
1700 East Walnut Avenue, Suite 460
El
Segundo, California 90245
|
5.26% |
Beneficial |
Lizanne
Falsetto Living Trust
Lizanne Falsetto Trustee
U/A
05/29/2007
c/o Huber Capital Management, LLC
1700 East Walnut
Avenue, Suite 460
El Segundo, California 90245
|
5.02% |
Beneficial |
Small
Cap Value Fund, Investor Class
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Shadowlawn
Investments LP - Jay
530 Belle Meade Boulevard
Nashville, Tennessee
37205-3424
|
50.14% |
Record |
|
Charles
Schwab & Co., Inc.
Special
Custody Account
FBO
Customers
Attn:
Mutual Funds
211
Main Street
San
Francisco, CA 94105-1901
|
24.19% |
Record |
National
Financial Services, LLC
499 Washington Blvd., 4th Floor
Jersey City,
NJ 07310-2010 |
14.71% |
Record |
Small
Cap Value Fund, Institutional Class
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
National
Financial Services, LLC
499 Washington Blvd., 4th Floor
Jersey City,
NJ 07310-2010
|
42.69% |
Record |
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Kerr
2012 Gift Trust
Margaret L. Kerr Trustee
U/A 12/31/2012
c/o Huber
Capital Management, LLC
1700 East Walnut Avenue, Suite 460
El
Segundo, California 90245
|
22.59% |
Beneficial |
Lizanne
Falsetto Living Trust
Lizanne Falsetto Trustee
U/A
05/29/2007
c/o Huber Capital Management, LLC
1700 East Walnut
Avenue, Suite 460
El Segundo, California 90245
|
10.15% |
Beneficial |
RBC
Capital Markets LLC
Mutual Fund Omnibus Processing
Attn: Mutual Fund
Ops Manager
250 Nicollet Mall, Suite 1800
Minneapolis, MN
55401-7554 |
7.24% |
Record |
Large
Cap Value Fund, Investor Class
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Morgan
Stanley Smith Barney LLC
2000 Westchester Avenue
Purchase, NY
10577-2539
|
71.06% |
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 |
28.72% |
Record |
Large
Cap Value Fund, Institutional Class
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Lizanne
Falsetto Living Trust
Lizanne Falsetto Trustee
U/A
05/29/2007
c/o Huber Capital Management, LLC
1700 East Walnut
Avenue, Suite 460
El Segundo, California 90245
|
57.00% |
Beneficial |
Morgan
Stanley Smith Barney LLC
FBO a Customer of MSSB
1 New York
Plaza
New York, NY 10004-1932
|
27.87% |
Record |
Joe
Huber
c/o Huber Capital Management, LLC
1700 East Walnut Avenue,
Suite 460
El Segundo, California 90245 |
15.08% |
Beneficial |
Mid
Cap Value Fund, Investor Class
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Hilton
Family Trust
Hugh Hilton & Janet Hilton Trustees
U/A
06/26/1995
c/o Huber Capital Management, LLC
1700 East Walnut
Avenue, Suite 460
El Segundo, California 90245
|
87.42% |
Beneficial |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901 |
11.37% |
Record |
Mid
Cap Value Fund, Institutional Class
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Lizanne
Falsetto Living Trust
Lizanne Falsetto Trustee
U/A
05/29/2007
c/o Huber Capital Management, LLC
1700 East Walnut
Avenue, Suite 460
El Segundo, California 90245
|
53.72% |
Beneficial |
Huber
Capital Investments, LLC
1700 East Walnut Avenue, Suite 460
El
Segundo, California 90245-2609
|
21.33% |
Record |
Wells
Fargo Clearing Services LLC
1 N. Jefferson Avenue
Saint Louis, MO
63103-2254
|
11.08% |
Record |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901 |
9.68% |
Record |
Control
Persons of the Large Cap Value Fund
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Lizanne
Falsetto Living Trust
Lizanne Falsetto Trustee
U/A
05/29/2007
c/o Huber Capital Management, LLC
1700 East Walnut
Avenue, Suite 460
El Segundo, California 90245
|
47.87% |
Beneficial |
Control
Persons of the Mid Cap Value Fund
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Lizanne
Falsetto Living Trust
Lizanne Falsetto Trustee
U/A
05/29/2007
c/o Huber Capital Management, LLC
1700 East Walnut
Avenue, Suite 460
El Segundo, California 90245
|
51.56% |
Beneficial |
The
Small Cap Value Fund and Select Large Cap Value Fund do not have any control
persons as of January 31, 2024.
Management
Ownership Information.
As of January 31, 2024, the Trustees and officers of the Trust, as a group,
beneficially owned less than 1% of the outstanding shares of the Investor Class
or the Institutional Class of each Fund.
THE
ADVISER
Huber
Capital Management, LLC, 1700 East Walnut Avenue, Suite 460, El Segundo, CA
90245, acts as investment adviser to the Funds pursuant to an investment
advisory agreement (the “Advisory Agreement”) between the Trust and the Adviser.
Subject to such policies as the Board may determine, the Adviser is ultimately
responsible for investment decisions for the Funds. Pursuant to the terms of the
Advisory Agreement, the Adviser provides the Funds with such investment advice
and supervision as it deems necessary for the proper supervision of the Funds’
investments. The Adviser also continuously monitors and maintains each Fund’s
investment criteria and determines from time to time what securities may be
purchased by each Fund. Huber Capital Holdings, LLC holds the majority ownership
share of the Adviser and Joseph Huber is the majority owner of Huber Capital
Holdings, LLC. Huber Capital Holdings, LLC is a direct control person of the
Adviser and Joseph Huber is an indirect control person of the Adviser and is the
portfolio manager of the Funds.
The
Advisory Agreement continues in effect from year to year only if such
continuance is specifically approved at least annually by the Board or by vote
of a majority of a Fund’s outstanding voting securities and by a majority of the
Trustees who are not parties to the Advisory Agreement or interested persons of
any such party,
at
a meeting called for the purpose of voting on such Advisory Agreement. The
Advisory Agreement is terminable without penalty by the Trust on behalf of the
Funds upon 60 days’ written notice when authorized either by a majority vote of
a Fund’s shareholders or by a vote of a majority of the Board, or by the Adviser
upon 60 days’ written notice, and will automatically terminate in the event of
its “assignment” (as defined in the 1940 Act). The Advisory Agreement
provides that the Adviser under such agreement shall not be liable for any error
of judgment or mistake of law or for any loss arising out of any investment or
for any act or omission in the execution of portfolio transactions for the
Funds, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of reckless disregard of its obligations
and duties thereunder.
In
consideration of the services to be provided by the Adviser pursuant to the
Advisory Agreement, the Adviser is entitled to receive from each Fund an
investment advisory fee computed daily and paid monthly based on a rate equal to
a percentage of a Fund’s average daily net assets specified in the Prospectus.
However, the Adviser may voluntarily agree to waive a portion of the fees
payable to it on a month‑to‑month basis. Please note, the Adviser is voluntarily
reducing the Select Large Cap Value Fund’s management fee from 0.99% to 0.75%,
the Small Cap Value Fund’s management fee from 1.35%
to
0.99%, the Large Cap Value Fund’s management fee from 0.75% to 0.00% and the Mid
Cap Value Fund’s management fee from 1.00% to 0.00%, through at least February
28, 2025. The Adviser cannot recoup these amounts.
Each
Fund is responsible for its own operating expenses. The Adviser has
contractually agreed to reduce management fees and/or pay Fund operating
expenses (excluding acquired fund fees and expenses, interest, taxes,
extraordinary expenses, Rule 12b-1 fees, shareholder servicing fees and any
other class-specific expenses) payable to it by each Fund to the extent
necessary to limit the Funds’ Total Annual Operating Expenses as follows through
at least February 28, 2025.
|
|
|
|
|
| |
| Fund |
Expense
Cap |
| Select
Large Cap Value Fund |
0.99% |
| Small
Cap Value Fund |
1.28% |
| Large
Cap Value Fund |
0.75% |
| Mid
Cap Value Fund |
1.00% |
The
Adviser may request recoupment of previously waived fees and paid expenses in
any subsequent month in the 36-month period from the date of the management fee
reduction and expense payment if the aggregate amount actually paid by the Fund
toward the operating expenses for such fiscal year (taking into account the
reimbursement) will not cause the Fund to exceed the lesser of: (1) the expense
limitation in place at the time of the management fee reduction and expense
payment; or (2) the expense limitation in place at the time of the
reimbursement.
For
the fiscal years ended October 31 indicated below, the Funds paid the following
fees to the Adviser:
Select
Large Cap Value Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Management
Fees
Accrued |
Management
Fees
Waived |
Management
Fees Recouped |
Net
Management Fees Paid to Adviser |
| 2023 |
$605,539 |
$109,964 |
$0 |
$495,575 |
| 2022 |
$383,214 |
$132,170 |
$0 |
$251,044 |
| 2021 |
$298,850 |
$163,721 |
$0 |
$135,129 |
|
|
|
|
| |
Small
Cap Value Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Management
Fees
Accrued |
Management
Fees
Waived |
Management
Fees Recouped |
Net
Management Fees Paid to Adviser |
| 2023 |
$570,856 |
$77,007 |
$0 |
$493,849 |
| 2022 |
$512,697 |
$91,741 |
$0 |
$420,956 |
| 2021 |
$394,729 |
$120,526 |
$0 |
$274,203 |
|
|
|
|
| |
Large
Cap Value Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Management
Fees
Accrued |
Management
Fees
Waived |
Management
Fees Recouped |
Net
Management Fees Paid to Adviser |
| 2023 |
$0 |
$0 |
$0 |
$0 |
| 2022 |
$0 |
$0 |
$0 |
$0 |
| 2021 |
$0 |
$0 |
$0 |
$0 |
|
|
|
|
| |
Mid
Cap Value Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Management
Fees
Accrued |
Management
Fees
Waived |
Management
Fees Recouped |
Net
Management Fees Paid to Adviser |
| 2023 |
$0 |
$0 |
$0 |
$0 |
| 2022 |
$0 |
$0 |
$0 |
$0 |
| 2021 |
$0 |
$0 |
$0 |
$0 |
|
|
|
|
| |
In
addition to the management fees payable to the Adviser, each Fund is responsible
for its operating expenses, including: fees and expenses incurred in connection
with the issuance, registration and transfer of its shares; brokerage and
commission expenses; all expenses of transfer, receipt, safekeeping, servicing
and accounting for the cash, securities and other property of the Trust for the
benefit of the Fund including all fees and expenses of its custodian and
accounting services agent; fund administration fees and related expenses; chief
compliance officer fees; 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, including pricing services; taxes, if
any; a pro rata portion of expenditures in connection with meetings of the
Fund’s shareholders and the Trust’s Board that are properly payable by the Fund;
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 Fund 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 Fund); fees and expenses (including legal fees) of registering
and maintaining registration of its shares for sale under federal and applicable
state and foreign securities laws; all expenses of maintaining shareholder
accounts, including all charges for transfer, shareholder recordkeeping,
dividend disbursing, redemption, and other agents for the benefit of the 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. General expenses of the Trust are allocated among all of the series
of the Trust, including the Funds, in a manner proportionate to the net assets
of each Fund, on a transactional basis, or on such other basis as the Board
deems equitable.
DISTRIBUTION
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 each Fund’s
distributor, provides certain administration services and promotes and arranges
for the sale of Fund shares. The offering of each Fund’s shares is continuous.
The Distributor is a registered broker-dealer and member of FINRA.
The
Distribution Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by vote of a majority of
the Funds’ 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 each Fund on
60 days’ written notice when authorized either by a majority vote of a
Fund’s shareholders or by vote of a majority of the Board, including a majority
of the Trustees who are not “interested persons” (as defined in the
1940 Act) of the Trust, or by the Distributor on 60 days’ written
notice, and will automatically terminate in the event of its “assignment” (as
defined in the 1940 Act).
Distribution
Plan
The
Funds have adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under
the 1940 Act under which the Funds reimburse the Distributor for eligible
expenses incurred under the Plan, at an annual rate of up to 0.25% of the
average daily net assets of each share class of each Fund. Amounts paid under
this reimbursement plan, by the Funds, are paid to the Distributor to reimburse
it for costs of the services it provides and the expenses it bears in the
distribution of the Funds’ shares, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Funds’ shares to prospective investors; and preparation,
printing and distribution of sales literature and advertising materials. Such
fee is paid to the Distributor each year only to the extent of such costs and
expenses of the Distributor under the Plan actually incurred in that year. 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 the Funds. The services provided by selected dealers
pursuant to the Plan are primarily designed to promote the sale of shares of the
Funds and include the furnishing of office space and equipment, telephone
facilities, personnel and assistance to the Funds in servicing such
shareholders. The services provided by the administrators pursuant to the Plan
are designed to provide support services to the Funds and include establishing
and maintaining shareholders’ accounts and records, processing purchase and
redemption transactions, answering routine client inquiries regarding the Funds
and providing other services to the Funds as may be required. The Rule 12b-1 fee
accrual payable for Institutional Class shares for each Fund is currently set at
0.00% through at least February 28, 2025, and any increase to the accrual rate
must first be approved by the Board.
Under
the Plan, the Trustees will be furnished quarterly with information detailing
the amount of expenses paid under the Plan and the purposes for which payments
were made. The Plan may be terminated at any time by vote of a majority of the
Trustees of the Trust who are not interested persons. Continuation of the Plan
is considered by such Trustees no less frequently than annually. With the
exception of the Distributor in its capacity as the Funds’ principal underwriter
and distribution coordinator, 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.
The
tables below show the amount of Rule 12b‑1 fees accrued and the allocation
of Rule 12b-1 fees paid by Investor Class shares of the Funds for the fiscal
year ended October 31, 2023.
|
|
|
|
|
| |
|
| Rule
12b-1 fees accrued for 2023 |
| Select
Large Cap Value Fund |
$43,827 |
| Small
Cap Value Fund |
$27,367 |
|
Large
Cap Value Fund
|
$3,913 |
| Mid
Cap Value Fund |
$232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Rule
12b-1 Fees Paid for 2023 |
Advertising
/Marketing |
Printing
/Postage |
Payment
to Distributor |
Payment
to Dealers |
Compensation
to Sales Personnel |
Other |
Total |
|
Select
Large Cap Value Fund |
$0 |
$0 |
$2,576 |
$36,135 |
$0 |
$0 |
$38,711 |
|
Small
Cap Value Fund |
$0 |
$0 |
$3,659 |
$13,448 |
$0 |
$0 |
$17,107 |
| Large
Cap Value Fund |
$0 |
$0 |
$229 |
$475 |
$0 |
$0 |
$704 |
| Mid
Cap Value Fund |
$0 |
$0 |
$44 |
$188 |
$0 |
$0 |
$232 |
Shareholder
Servicing Plan
The
Funds have adopted a Shareholder Servicing Plan (the “Servicing Plan”) with
respect to each class of the Fund under which the Adviser will provide, or
arrange for others to provide, certain specified shareholder services. Such
services include: (1) aggregating and processing purchase and redemption
requests and transmitting such orders to the transfer agent; (2) providing
shareholders with a service that invests the assets of their accounts in shares
of the Funds pursuant to specific or pre-authorized instructions;
(3) processing dividend and distribution payments from the Funds on behalf
of shareholders; (4) providing information periodically to shareholders
showing their positions; (5) arranging for bank wires; (6) responding
to shareholder inquiries concerning their investment; (7) providing
sub-accounting with respect to shares of the Funds beneficially owned by
shareholders or the information necessary for sub-accounting; (8) if
required by law, forwarding shareholder communications (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices); and (9) providing similar services as may
reasonably be requested.
As
compensation for the provision of shareholder services, the Funds will pay the
Adviser a monthly fee at an annual rate of up to 0.15% of each Fund’s average
daily net assets except for the Institutional Class shares of the Mid Cap Value
Fund which has a shareholder servicing plan fee of up to 0.10%. The Adviser will
pay certain banks, trust companies, broker-dealers and other financial
intermediaries (each, a “Participating Organization”) out of the fees the
Adviser receives from the Funds under the Servicing Plan to the extent that the
Participating Organization performs shareholder servicing functions for the
Funds’ shares owned by its customers. The Servicing Plan fee accrual payable for
Institutional Class shares for each Fund is currently set at 0.00% through at
least February 28, 2025. Each Fund’s Investor Class and the Mid Cap Value
Fund’s Institutional Class shares incurred shareholder servicing fees in the
following amounts for the periods indicated below.
|
|
|
|
|
|
|
|
|
|
|
| |
| Fund |
Shareholder
Servicing Plan Fees Incurred During Fiscal Years Ended October
31, |
|
| 2023 |
2022 |
2021 |
| Select
Large Cap Value Fund |
$17,531 |
$8,071 |
$1,166 |
| Small
Cap Value Fund |
$17,415 |
$11,805 |
$9,121 |
| Large
Cap Value Fund |
$0 |
$0 |
$0 |
|
Mid
Cap Value Fund
-
Investor Class |
$0 |
$1 |
$185 |
|
Mid
Cap Value Fund
-
Institutional Class |
$0 |
$0 |
$0 |
MARKETING
AND SUPPORT PAYMENTS
The
Adviser, out of its own resources and without additional cost to the Funds or
their shareholders, may provide additional cash payments or other compensation
to certain financial intermediaries who sell shares of the Funds. Such payments
may be divided into categories as follows:
Support
Payments.
Payments may be made by the Adviser to certain financial intermediaries in
connection with the eligibility of the Funds to be offered in certain programs
and/or in connection with meetings between the Funds’ representatives and
financial intermediaries and their sales representatives. Such meetings may be
held for various purposes, including providing education and training about the
Funds and other general financial topics to assist financial intermediaries’
sales representatives in making informed recommendations to, and decisions on
behalf of, their clients.
Entertainment,
Conferences and Events.
The Adviser also may pay cash or non-cash compensation to sales representatives
of financial intermediaries in the form of (i) occasional gifts;
(ii) occasional meals, tickets or other entertainments; and/or
(iii) sponsorship support for the Financial Intermediary’s client seminars
and cooperative advertising. In addition, the Adviser pays for exhibit space or
sponsorships at regional or national events of financial
intermediaries.
The
prospect of receiving, or the receipt of additional payments or other
compensation as described above by financial intermediaries may provide such
intermediaries and/or their salespersons with an incentive to favor sales of
shares of the Funds, and other mutual funds whose affiliates make similar
compensation available, over sale of shares of mutual funds (or non-mutual fund
investments) not making such payments. You may wish to take such payment
arrangements into account when considering and evaluating any recommendations
relating to the Fund shares.
SERVICE
PROVIDERS
Pursuant
to a Fund Administration Servicing Agreement (the “Administration Agreement”)
between the Trust and U.S. Bancorp Fund Services, LLC (“USBFS” or the
“Administrator”), doing business as U.S. Bank Global Fund Services (“Fund
Services”), 615 East Michigan Street, Milwaukee, Wisconsin 53202, Fund Services
acts as the Funds’ administrator. Fund Services provides certain administrative
services to the Funds, including, among other responsibilities, coordinating the
negotiation of contracts and fees with, and the monitoring of performance and
billing of, the Funds’ independent contractors and agents; preparation for
signature by an officer of the Trust of all documents required to be filed for
compliance by the Trust and the Funds with applicable laws and regulations
excluding those of the securities laws of various states; arranging for the
computation of performance data, including NAV and yield; responding
to
shareholder inquiries; and arranging for the maintenance of books and records of
the Funds, and providing, at its own expense, office facilities, equipment and
personnel necessary to carry out its duties. In this capacity, 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. Additionally, Fund Services provides Chief
Compliance Officer (“CCO”) services to the Trust under a separate agreement. The
cost for the CCO services is charged to the Funds and allocated by the Board
annually.
For
the fiscal years indicated below, the Funds paid the following fees to Fund
Services for fund administration services.
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| Administration
Fees Paid During Fiscal Years Ended
October 31, |
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| 2023 |
2022 |
2021 |
| Select
Large Cap Value Fund |
$98,991 |
$72,890 |
$67,008 |
| Small
Cap Value Fund |
$81,654 |
$77,180 |
$66,969 |
| Large
Cap Value Fund |
$54,424 |
$53,501 |
$57,127 |
| Mid
Cap Value Fund |
$54,381 |
$53,422 |
$57,816 |
Fund
Services also acts as fund accountant (“Fund Accountant”), transfer agent
(“Transfer Agent”) and dividend disbursing agent under separate agreements with
the Trust.
Pursuant
to a custodian agreement between the Trust and the Funds, U.S. Bank National
Association, an affiliate of Fund Services, serves as the custodian of the
Funds’ assets (the “Custodian”), whereby the Custodian 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’s address is 1555 North RiverCenter Drive, Milwaukee,
Wisconsin 53212. The Custodian does not participate in decisions relating to the
purchase and sale of securities by the Funds. The Custodian and its affiliates
may participate in revenue sharing arrangements with service providers of mutual
funds in which the Funds may invest.
Tait,
Weller & Baker LLP, Two Liberty Place, 50 South 16th
Street, Suite 2900, Suite 2900, Philadelphia, Pennsylvania 19102, is the
independent registered public accounting firm for the Funds whose services
include auditing the Funds’ financial statements and the performance of related
tax services.
Sullivan
& Worcester LLP (“Sullivan & Worcester”), 1633 Broadway, 32nd Floor, New
York, New York 10019, is counsel to the Funds and provides counsel on legal
matters relating to the Funds. Sullivan & Worcester also serves as
independent legal counsel to the Board.
PORTFOLIO
MANAGER
Joseph
Huber is the portfolio manager responsible for the day-to-day management of the
Funds. The following table shows the number of other accounts managed (not
including the Funds) by the portfolio manager and the total assets in the
accounts managed within various categories as of October 31, 2023.
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| Type
of Accounts |
Number
of
Accounts (excluding the Funds) |
Total
Assets
in the Accounts
($ Million) |
Number
of
Accounts for Which Advisory Fee is Based on Performance |
Total
Assets
in the Accounts
($ Million) |
| Registered
Investment Companies |
1 |
$40.8
million |
0 |
$0 |
| Other
Pooled Investments |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
9 |
$225.8
million |
0 |
$0 |
Material
Conflicts of Interest.
The portfolio manager who has day-to-day management responsibilities with
respect to other accounts may be presented with potential or actual conflicts of
interest.
The
management of other accounts may result in the portfolio manager devoting
unequal time and attention to the management of the Funds and/or other accounts.
In approving the Advisory Agreement, the Board was satisfied that the portfolio
manager would be able to devote sufficient attention to the management of the
Funds, and that the Adviser seeks to manage such competing interests for the
time and attention of the portfolio manager.
With
respect to securities transactions for the Funds, the Adviser determines which
broker to use to execute each transaction consistent with its duty to seek best
execution of the transaction. If the Adviser believes that the purchase or sale
of a security is in the best interest of more than one of its clients, it may
aggregate the securities to be purchased or sold to obtain favorable execution
and/or lower brokerage commissions. The Adviser will allocate securities so
purchased or sold in the manner that it considers being equitable and consistent
with its fiduciary obligations to its clients.
The
Adviser does not anticipate any conflicts of interest between management of the
Funds and other funds and accounts managed by the firm. The Adviser’s brokerage
and trading policies ensure that no conflicts arise between transactions
involving the Funds and those involving separately managed
accounts.
Compensation.
The portfolio manager is compensated with a salary and bonus package. The
portfolio manager of the Funds is supported by the full research team of the
Adviser. Compensation is used to reward, attract and retain high quality
investment professionals. An investment professional such as the portfolio
manager has a base salary and is eligible for an annual bonus, which may be paid
in the form of either cash or stock.
The
Adviser believes consistent execution of the proprietary research process
results in superior, risk-adjusted portfolio returns. It is the quality of the
investment professional’s execution of this process rather than the performance
of particular securities that is evaluated in determining compensation.
Compensation likewise is not tied to performance of the Funds or separate
accounts, specific industries within the funds or separate accounts or to any
type of asset or revenue-related objective, other than to the extent that the
overall revenues of the Adviser attributable to such factors may affect the size
of the Adviser’s overall bonus pool.
Bonuses
and salaries for investment professionals are determined by the Chief Executive
Officer (the managing member) of the Adviser using tools which may include, but
are not limited to, annual evaluations, compensation surveys, feedback from
other employees and advice from outside counsel. The amount of the bonus usually
is shaped by the total amount of the Adviser’s bonus pool available for the
year,
which is generally a function of net income, but no investment professional
receives a bonus that is a pre-determined percentage of net income.
The
portfolio manager does not participate in a company-sponsored retirement plan
and receives standard benefits commensurate with the other employees of the
Adviser. The portfolio manager does not receive deferred
compensation.
Securities
Owned in the Funds by Portfolio Manager.
As of October 31, 2023, the portfolio manager owned the following securities in
the Funds.
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Dollar
Range of Equity Securities owned in the Funds
(None,
$1-$10,000, $10,001-$50,000, $50,001-$100,000, $100,001 - $500,000,
$500,001
- $1,000,000, Over $1,000,000) |
| Portfolio
Manager |
Select
Large Cap Value Fund |
Small
Cap Value Fund |
Large
Cap Value Fund |
Mid
Cap Value Fund |
|
Joseph
Huber |
$100,001-$500,000 |
$100,001-$500,000 |
Over
$1,000,000 |
$100,001-$500,000 |
PORTFOLIO
TRANSACTIONS AND BROKERAGE
Pursuant
to the Advisory Agreement, the Adviser determines which securities are to be
purchased and sold by each Fund and which broker-dealers are eligible to execute
each Fund’s portfolio transactions. The purchases and sales of securities in the
over-the-counter market will generally be executed by using a broker for the
transaction.
Purchases
of portfolio securities for each Fund also may be made directly from issuers or
from underwriters. Where possible, purchase and sale transactions will be
effected through dealers (including banks) that specialize in the types of
securities which the Funds 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. The Adviser considers such information,
which is in addition to and not in lieu of the services required to be performed
by them under their Agreement with the Funds, to be useful in varying degrees,
but of indeterminable value. Portfolio transactions may be placed with
broker-dealers who sell shares of the Funds subject to rules adopted by
FINRA.
While
it is the Adviser’s general policy to seek best execution first to obtain the
most favorable price and execution available, in selecting a broker-dealer to
execute portfolio transactions for the Funds when it is determined that more
than one broker-dealer can deliver best execution, weight is also given to the
ability of a broker-dealer to furnish brokerage and research services as it is
defined in Section 28(e) of the Securities Exchange Act of 1934, as amended, to
the Funds or to the Adviser, even if the specific services are not directly
useful to the Funds and may be useful to the Adviser in advising other clients.
In negotiating commissions with a broker or evaluating the spread to be paid to
a dealer, the Funds may therefore pay a higher commission or spread than would
be the case if no weight were given to the
furnishing
of these supplemental services, provided that the amount of such commission or
spread has been determined in good faith by the Adviser to be reasonable in
relation to the value of the brokerage and/or research services provided by such
broker-dealer. The standard of reasonableness is to be measured in light of the
Adviser’s overall responsibilities to the Funds.
Investment
decisions for each Fund are made independently from those of other client
accounts that may be managed or advised by the Adviser. Nevertheless, it is
possible that at times identical securities will be acceptable for both a Fund
and one or more of such client accounts. In such event, the position of each
Fund and such client accounts in the same issuer may vary and the length of time
that each may choose to hold its investment in the same issuer may likewise
vary. However, to the extent any of these client accounts seeks to acquire the
same security as the Funds at the same time, the Funds may not be able to
acquire as large a portion of such security as they desire, or they may have to
pay a higher price or obtain a lower yield for such security. Similarly, a Fund
may not be able to obtain as high a price for, or as large an execution of, an
order to sell any particular security at the same time. If one or more of such
client accounts simultaneously purchases or sells the same security that a Fund
is purchasing or selling, each day’s transactions in such security will be
allocated between the Fund and all such client accounts in a manner deemed
equitable by the Adviser, taking into account the respective sizes of the
accounts and the amount being purchased or sold. It is recognized that in some
cases this system could have a detrimental effect on the price or value of the
security insofar as the Funds are concerned. In other cases, however, it is
believed that the ability of the Funds to participate in volume transactions may
produce better executions for the Funds.
The
Funds do not effect securities transactions through brokers in accordance with
any formula, nor do they effect securities transactions through brokers for
selling shares of the Funds. However, as stated above, broker-dealers who
execute brokerage transactions may effect purchase of shares of the Funds for
their customers.
For
the fiscal years indicated below, the Funds paid the following in brokerage
commissions:
Select
Large Cap Value Fund
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| Aggregate
Brokerage Commissions Paid During Fiscal Years Ended October
31, |
| 2023 |
2022 |
2021 |
| $25,134 |
$17,744 |
$10,103 |
Small
Cap Value Fund
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| Aggregate
Brokerage Commissions Paid During Fiscal Years Ended October
31, |
| 2023 |
2022 |
2021 |
| $22,283 |
$22,318 |
$25,185 |
Large
Cap Value Fund
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| Aggregate
Brokerage Commissions Paid During Fiscal Years Ended October
31, |
| 2023 |
2022 |
2021 |
| $3,306 |
$4,113 |
$2,946 |
Mid
Cap Value Fund
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| Aggregate
Brokerage Commissions Paid During Fiscal Period Ended October
31, |
| 2023 |
2022 |
2021 |
| $4,979 |
$5,550 |
$4,570 |
The
tables below indicate the portion of each Fund’s aggregate brokerage for the
fiscal year ended October 31, 2023 (from the tables above) that was
directed to brokers who, in addition to providing trade execution, also supplied
the Funds with research services.
Select
Large Cap Value Fund
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| Fiscal
Year Ended October 31, 2023 |
| Dollar
Value of Securities Traded |
Related
Soft Dollar Brokerage Commissions |
| $69,261,604.19 |
$13,610.48 |
Small
Cap Value Fund
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| Fiscal
Year Ended October 31, 2023 |
| Dollar
Value of Securities Traded |
Related
Soft Dollar Brokerage Commissions |
| $53,484,893.38 |
$8,851.91 |
Large
Cap Value Fund
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| Fiscal
Year Ended October 31, 2023 |
| Dollar
Value of Securities Traded |
Related
Soft Dollar Brokerage Commissions |
| $7,158,879.19 |
$1,707.56 |
Mid
Cap Value Fund
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| Fiscal
Period Ended October 31, 2023 |
| Dollar
Value of Securities Traded |
Related
Soft Dollar Brokerage Commissions |
| $13,072,070.71 |
$2,633.58 |
During
the fiscal year ended October 31, 2023, the Select Large Cap Value Fund owned
securities of its regular broker dealers as follows:
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| Broker/Dealer |
Amount |
| JPMorgan
Chase & Co. |
$ |
2,535,481 |
|
During
the fiscal year ended October 31, 2023, the Large Cap Value Fund owned
securities of its regular broker dealers as follows:
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| Broker/Dealer |
Amount |
| JPMorgan
Chase & Co. |
$ |
152,966 |
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During
the fiscal year ended October 31, 2023, the Small Cap Value Fund and Mid Cap
Value Fund did not acquire securities of their regular brokers or
dealers.
PURCHASE
AND REDEMPTION OF FUND SHARES
Detailed
information on the purchase and redemption of shares is included in the
Prospectus. Shares of the Funds are sold without a sales charge at the next
price calculated after receipt of an order for purchase. In order to purchase
shares of the Funds, you must invest the initial minimum investment for the
relevant class of shares. However, the Funds reserve the right, in their sole
discretion, to waive the minimum initial investment amount for certain
investors, or to waive or reduce the minimum initial investment for 401(k)s or
other tax-deferred retirement plans. You may purchase shares on any day that the
NYSE is open for business by placing orders with the Funds.
The
Funds reserve the right to refuse any purchase requests, particularly those that
would not be in the best interests of the Funds or their shareholders and could
adversely affect the Funds or their operations. This includes those from any
individual or group who, in the Funds’ view, is likely to engage in or has a
history of excessive trading (usually defined as more than four transactions out
of the Funds within a calendar year). Furthermore, the Funds may suspend the
right to redeem their shares or postpone the date of payment upon redemption for
more than three business days (i) for any period during which the NYSE is
closed (other than customary weekend or holiday closings) or trading on the NYSE
is restricted; (ii) for any period during which an emergency exists as a
result of which disposal by the Funds of securities owned by them is not
reasonably practicable or it is not reasonably practicable for the Funds fairly
to determine the value of their net assets; or (iii) for such other periods
as the SEC may permit for the protection of the Funds’
shareholders.
In-Kind
Purchases and Redemptions
Payment
for shares of the Funds may, in the discretion of the Trust, be made in the form
of securities that are permissible investments for the Funds as described in the
Prospectus. For further information about this form of payment, contact the
Transfer Agent. In connection with an in-kind securities payment, the Funds will
require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Funds and that the
Funds receive satisfactory assurances that they will have good and marketable
title to the securities received by them; that the securities be in proper form
for transfer to the Funds; and that adequate information be provided concerning
the basis and other tax matters relating to the securities.
The
Trust has elected to be governed by Rule 18f-1 under the 1940 Act so that the
Funds are obligated to redeem their shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any
shareholder of the Funds. Each Fund has reserved the right to pay the redemption
price of its shares in excess of $250,000 or l% of its net asset value either
totally or partially, by a distribution in-kind of portfolio securities (instead
of cash). The securities distributed in-kind would be readily marketable and
would be valued for this purpose using the same method employed in calculating
each Fund’s NAV. If a shareholder receives redemption proceeds in-kind, the
redemption would be a taxable event and the shareholder should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
Each
Fund does not intend to hold any significant percentage of its portfolio in
illiquid securities, although a Fund, like virtually all mutual funds, may from
time to time hold a small percentage of securities that are illiquid. In the
unlikely event a Fund were to elect to make an in-kind redemption, the Fund
expects that it would follow the Trust protocol of making such distribution by
way of a pro rata distribution of securities that are traded on a public
securities market or are otherwise considered liquid pursuant to the Fund’s
liquidity policies and procedures. Except as otherwise may be approved by the
Trustees,
the securities that would not be included in an in-kind distribution include (1)
unregistered securities which, if distributed, would be required to be
registered under the Securities Act of 1933 (the “1933 Act”), as amended; (2)
securities issued by entities in countries which (a) restrict or prohibit the
holding of securities by non-nationals other than through qualified investment
vehicles, such as a fund, or (b) permit transfers of ownership of securities to
be effected only by transactions conducted on a local stock exchange; and (3)
certain Fund assets that, although they may be liquid and marketable, must be
traded through the marketplace or with the counterparty to the transaction in
order to effect a change in beneficial ownership.
DETERMINATION
OF NET ASSET VALUE
The
NAV of the Funds’ shares will fluctuate and is determined as of the close of
trading on the New York Stock Exchange (the “NYSE”) (generally, 4:00 p.m.,
Eastern Time) each business day. The NYSE annually announces the days on which
it will not be open for trading. The most recent announcement indicates that it
will not be open for the following holidays: New Year’s Day, Martin Luther King,
Jr. Day, Washington’s Birthday/Presidents’ Day, Good Friday, Memorial Day,
Juneteenth Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, the NYSE may close on days not included in that
announcement.
The
NAV per share is computed by dividing the value of the securities held by a Fund
plus any cash or other assets (including interest and dividends accrued but not
yet received) minus all liabilities (including accrued expenses) by the total
number of shares in a Fund outstanding at such time.
Generally,
the Funds’ investments are valued at market value or, in the absence of a market
value, at fair value as determined in good faith by the Funds’ valuation
designee pursuant to procedures adopted by the Adviser. The Board has
designated the Adviser as its “valuation designee” under Rule 2a-5 of the
1940 Act, subject to its oversight.
The
Funds’ securities which are traded on securities exchanges are valued at the
last sale price on the exchange on which such securities are traded, as of the
close of business on the day the securities are being valued or, lacking any
reported sales, at the mean between the last available bid and asked
price.
Securities
that are traded on more than one exchange are valued on the exchange determined
by the Adviser to be the primary market. Securities primarily traded in the
National Association of Securities Dealers Automated Quotation (“Nasdaq”) Global
Market System 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. Over-the-counter (“OTC”) securities which are not traded in the Nasdaq
Global Market System shall be valued at the most recent sales
price.
Debt
securities are similarly valued under the valuation designee’s procedures, which
may include independent third-party pricing services. Any such pricing service,
in determining value, will use information with respect to transactions in the
securities being valued, quotations from dealers, market transactions in
comparable securities, analyses and evaluations of various relationships between
securities and yield to maturity information.
In
the case of foreign securities, the occurrence of certain events after the close
of foreign markets, but prior to the time the Funds’ NAVs are calculated (such
as a significant surge or decline in the U.S. or other markets) often will
result in an adjustment to the trading prices of foreign securities when foreign
markets open on the following business day. If such events occur, the Funds will
value foreign securities
at
fair value, taking into account such events, in calculating the NAVs. In such
cases, use of fair valuation can reduce an investor’s ability to seek to profit
by estimating the Funds’ NAVs in advance of the time the NAVs are calculated.
The Adviser anticipates that the Funds’ portfolio holdings will be fair valued
only if market quotations for those holdings are considered unreliable or are
unavailable.
All
other assets of the Funds are valued in such manner as the valuation designee in
good faith deems appropriate to reflect their fair value.
TAX
MATTERS
Each
series of the Trust is treated as a separate entity for federal income tax
purposes. Each Fund, as a series of the Trust, has elected and intends to
continue to qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended (the “Code”), and to comply with
all applicable requirements regarding the source of its income, diversification
of its assets and the timing and amount of its distributions. The Funds’ policy
is to distribute to their shareholders all of the Funds’ net taxable income and
any net realized long‑term capital gains for each fiscal year in a manner that
complies with the distribution requirements of the Code, so that the Funds will
not be subject to 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 all periods. 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 the Funds paid no federal income tax.
In
order to qualify as a regulated investment company, a Fund must, among other
things, derive at least 90% of its gross income each year from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock or securities or foreign currency gains
related to investments in stock or securities, or other income (generally
including gains from options, futures or forward contracts) derived with respect
to the business of investing in stock, securities or currency, and net income
derived from an interest in a qualified publicly traded
partnership. A 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. A 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
investment company taxable income before the dividends paid deduction (which
generally includes dividends, interest, and the excess of net short-term capital
gain over net long-term capital loss) and 90% of the Fund’s net tax-exempt
interest, if any.
Net
investment income generally consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carryforward of a Fund. Capital losses sustained
and not used in a taxable year may be carried forward indefinitely to offset
capital gain of the Fund in future years.
At
October 31, 2023, the Select Large Cap Value Fund had short-term and long-term
capital loss carryforwards of $5,918,033 and $459,637, respectively. The Small
Cap Value Fund had short-term and long-term capital loss carryforwards of
$10,304,963 and $3,203,175, respectively. The Large Cap Value Fund had
short-term and long-term capital loss carryforwards of $1,120,076 and $503,544,
respectively. The Mid Cap Value Fund had short-term and long-term capital loss
carryforwards of $821,060 and $332,256, respectively. The capital loss
carryforwards in each Fund can be carried over indefinitely to offset future
gains.
Distributions
of net investment income and net short‑term capital gains are taxable to
shareholders as ordinary income. For individual shareholders, a portion of the
distributions paid by a Fund may be qualified dividend income eligible under
current law for taxation at long-term capital gain rates to the extent a Fund
reports the amount distributed as a qualifying dividend and provided that
certain holding period requirements are met. In addition, a 3.8% Medicare surtax
generally applies to net investment income, which includes dividend income and
net capital gains from an investment in a Fund for taxpayers whose adjusted
gross income exceeds $200,000 for single filers or $250,000 for married joint
filers. In the case of corporate shareholders, a portion of the distributions
may qualify for the intercorporate dividends‑received deduction to the extent a
Fund reports the amount distributed as a qualifying dividend and provided that
certain holding period requirements are met. The aggregate amount so
reported to either individual or corporate shareholders cannot, however, exceed
the aggregate amount of qualifying dividends received by a Fund for its taxable
year. In view of each Fund’s investment policies, it is expected that dividends
from domestic corporations will be part of each 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. A Fund may have little or no
qualified dividend income in some years. Further, the dividends-received
deduction may be reduced or eliminated if Fund shares held by a corporate
investor are treated as debt‑financed or are held for less than
46 days.
Long‑term
capital gain distributions are taxable to shareholders as long‑term capital
gains regardless of the length of time a shareholder held his or her Fund
shares. Capital gain distributions are not eligible for qualified dividend
income treatment or the dividends‑received deduction referred to in the previous
paragraph. Distributions of any net investment income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders who choose to receive distributions in the form of additional
shares will have a cost basis for federal income tax purposes in each share so
received equal to the NAV of a share on the reinvestment date. Distributions
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 of the prior
year. Distributions are includable in alternative minimum taxable income in
computing liability for the alternative minimum tax of a shareholder who is an
individual. There is no requirement that the Funds take into consideration any
tax implications when implementing their investment strategies. 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 ordinary real estate investment trust (“REIT”)
dividends and income derived from master limited partnership (“MLP”)
investments. Non-corporate shareholders can claim the qualified business income
deduction with respect to REIT dividends received by the Fund if the Fund meets
certain holding period and reporting requirements. There is currently no
mechanism for a Fund, to the extent that a Fund invests in MLPs, to pass through
to non-corporate shareholders the character of income derived from MLP
investments so as to allow such shareholders to claim this deduction. It is
uncertain whether future legislation or other guidance will enable a Fund to
pass through to non-corporate shareholders the ability to claim this
deduction.
The
Funds may be subject to foreign taxes on income earned with respect to
securities of foreign corporations. Based on the principal investment strategies
of the fund, it is not expected that the Fund will be eligible to pass through
to shareholders any credits or deductions with respect to such foreign
taxes.
Redemption
of Fund shares may result in recognition of a taxable gain or loss. Any loss
realized upon redemption or sale of shares within six months from the date of
their purchase will be treated as a long‑term capital loss to the extent of any
amounts treated as distributions of long‑term capital gains during such
six‑month period. Any loss realized upon a redemption may be disallowed under
certain wash sale rules to the extent shares of the same Fund are purchased
(through reinvestment of distributions or otherwise) within 30 days before
or after the redemption.
Under
the Code, the Funds will be required to report to the Internal Revenue Service
all distributions of taxable income and capital gains as well as gross proceeds
from the redemption of Fund shares, except in the case of exempt shareholders,
which includes most corporations. Pursuant to the backup withholding provisions
of the Code, distributions of any taxable income and capital gains and proceeds
from the redemption of Fund shares may be subject to withholding of federal
income tax at a rate under section 3406 of the Code, in the case of non‑exempt
shareholders who fail to furnish the Funds with their Social Security or
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld. Corporate and other exempt shareholders should provide the Funds with
their taxpayer identification numbers or certify their exempt status in order to
avoid possible erroneous application of backup withholding. Backup withholding
is not an additional tax and any amounts withheld may be credited against a
shareholder’s ultimate federal income tax liability if proper documentation is
provided. The Funds reserve the right to refuse to open an account for any
person failing to provide a certified taxpayer identification
number.
The
Foreign Account Tax Compliance Act (“FATCA”)
A
30% withholding tax on a Fund’s ordinary income distributions generally applies
if paid to a foreign entity unless: (i) if the foreign entity is a “foreign
financial institution,” it undertakes certain due diligence, reporting,
withholding and certification obligations, (ii) if the foreign entity is not a
“foreign financial institution,” it identifies certain of its U.S. investors or
(iii) the foreign entity is otherwise excepted under FATCA. If applicable,
withholding under FATCA is required generally with respect to ordinary income
distributions from a Fund. If withholding is required under FATCA on a payment
related to your shares, investors that otherwise would not be subject to
withholding (or that otherwise would be entitled to a reduced rate of
withholding) on such payment generally will be required to seek a refund or
credit from the IRS to obtain the benefits of such exemption or reduction. The
Funds will not pay any
additional
amounts in respect to 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 the Funds and their shareholders. No attempt
has been made to discuss individual tax consequences and this discussion should
not be construed as applicable to all shareholders’ tax situations. Investors
should consult their own tax advisers to determine the suitability of the Funds
and the applicability of any state, local or foreign taxation. Sullivan &
Worcester LLP has expressed no opinion in respect thereof.
DIVIDENDS
AND DISTRIBUTIONS
The
Funds will generally receive income in the form of dividends and interest earned
on their investments in securities. This income, less the expenses incurred in
operations, is a Fund’s net investment income, substantially all of which will
be declared as dividends to the Fund’s shareholders.
The
amount of income dividend payments by a Fund is dependent upon the amount of net
investment income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board. The Funds do not pay
“interest” or guarantee any fixed rate of return on an investment in their
shares.
The
Funds also may derive capital gains or losses in connection with sales or other
dispositions of their portfolio securities. Any net gain the Funds may realize
from dispositions involving investments held less than the period required for
long‑term capital gain or loss recognition or otherwise producing short‑term
capital gains and losses (taking into account any carryover of capital losses
from previous taxable years), although a distribution from capital gains, will
be distributed to shareholders with and as a part of dividends giving rise to
ordinary income. If during any year a Fund realizes a net gain on transactions
involving investments held more than the period required for long‑term gain or
loss recognition or otherwise producing long‑term capital gains and losses, the
Fund will have a net long‑term capital gain. After deduction of the amount of
any net short‑term capital loss, the balance (to the extent not offset by any
capital losses carried over from previous taxable years) will be distributed and
treated as long‑term capital gains in the hands of the shareholders regardless
of the length of time a Fund’s shares may have been held by the shareholders.
For more information concerning applicable capital gains tax rates, see your tax
adviser.
Any
dividend or distribution paid by a Fund reduces the Fund’s NAV per share on the
date paid by the amount of the dividend or distribution per share. Accordingly,
a dividend or distribution paid shortly after a purchase of shares by a
shareholder would represent, in substance, a partial return of capital (to the
extent it is paid on the shares so purchased), even though it would be subject
to income taxes.
Dividends
and other distributions will be made in the form of additional shares of a Fund
unless the shareholder has otherwise indicated. Dividends will be taxable
whether received in cash or in additional shares. Investors have the right to
change their elections with respect to the reinvestment of dividends and
distributions by notifying the Transfer Agent by telephone or in writing, but
any such change will be effective only as to dividends and other distributions
for which the record date is seven or more business days after the Transfer
Agent has received the written request.
ANTI-MONEY
LAUNDERING PROGRAM
The
Trust has established an Anti-Money Laundering Compliance Program (the
“Program”) as required by the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA
PATRIOT Act”). In order to ensure compliance with this law, the Trust’s Program
provides for the development of internal practices, procedures and controls,
designation of anti-money laundering compliance officers, an ongoing training
program and an independent audit function to determine the effectiveness of the
Program.
Procedures
to implement the Program include, but are not limited to, determining that the
Funds’ Distributor and Transfer Agent have established proper anti-money
laundering procedures, reporting suspicious and/or fraudulent activity, checking
shareholder names against designated government lists, including Office of
Foreign Asset Control (“OFAC”), and a complete and thorough review of all new
opening account applications. The Trust will not transact business with any
person or legal entity whose identity and beneficial owners, if applicable,
cannot be adequately verified under the provisions of the USA PATRIOT
Act.
GENERAL
INFORMATION
The
Declaration of Trust permits the Trustees to issue an unlimited number of full
and fractional shares of beneficial interest and to divide or combine the shares
into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in the Funds. Each share represents an
interest in a Fund proportionately equal to the interest of each other share.
Upon a Fund’s liquidation, all shareholders would share pro rata in the net
assets of the Fund available for distribution to shareholders.
With
respect to the Funds, the Trust may offer more than one class of shares. The
Trust has adopted a Multiple Class Plan pursuant to Rule 18f-3 under the 1940
Act, detailing the attributes of each class of a Fund and reserved the right to
create and issue additional series or classes. Each share of a series or class
represents an equal proportionate interest in that series or class with each
other share of that series or class. Currently, each Fund offers two classes of
shares: Investor Class and Institutional Class.
The
shares of each series or class participate equally in the earnings, dividends
and assets of the particular series or class. Expenses of the Trust which are
not attributable to a specific series or class are allocated among all the
series in a manner believed by management of the Trust to be fair and equitable.
Shares have no pre‑emptive or conversion rights. Shares, when issued, are fully
paid and non‑assessable, except as set forth below. Shareholders are entitled to
one vote for each share held. Shares of each series or class generally vote
together, except when required under federal securities laws to vote separately
on matters that only affect a particular class, such as the approval of
distribution plans for a particular class.
The
Trust is not required to hold annual meetings of shareholders but will hold
special meetings of shareholders of a series or class when, in the judgment of
the Trustees, it is necessary or desirable to submit matters for a shareholder
vote. Shareholders have, under certain circumstances, the right to communicate
with other shareholders in connection with requesting a meeting of shareholders
for the purpose of removing one or more Trustees. Shareholders also have, in
certain circumstances, the right to remove one or more Trustees without a
meeting. No material amendment may be made to the Declaration of Trust without
the affirmative vote of the holders of a majority of the outstanding shares of
each portfolio affected by the amendment. The Declaration of Trust provides
that, at any meeting of shareholders of the Trust or of any series or class, a
Shareholder Servicing Agent may vote any shares as to which such Shareholder
Servicing Agent is the agent of record and which are not represented in person
or
by proxy at the meeting, proportionately in accordance with the votes cast by
holders of all shares of that portfolio otherwise represented at the meeting in
person or by proxy as to which such Shareholder Servicing Agent is the agent of
record. Any shares so voted by a Shareholder Servicing Agent will be deemed
represented at the meeting for purposes of quorum requirements. Any series or
class may be terminated (i) upon the merger or consolidation with, or the
sale or disposition of all or substantially all of its assets to, another
entity, if approved by the vote of the holders of two‑thirds of its outstanding
shares, except that if the Board recommends such merger, consolidation or sale
or disposition of assets, the approval by vote of the holders of a majority of
the series’ or class’ outstanding shares will be sufficient, or (ii) by the
vote of the holders of a majority of its outstanding shares, or (iii) by
the Board by written notice to the series’ or class’ shareholders. Unless each
series and class is so terminated, the Trust will continue
indefinitely.
The
Declaration of Trust also provides that the Trust shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its shareholders, Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
The
Declaration of Trust does not require the issuance of stock certificates. If
stock certificates are issued, they must be returned by the registered owners
prior to the transfer or redemption of shares represented by such
certificates.
Rule 18f‑2
under the 1940 Act provides that as to any investment company which has two or
more series outstanding and as to any matter required to be submitted to
shareholder vote, such matter is not deemed to have been effectively acted upon
unless approved by the holders of a “majority” (as defined in the Rule) of the
voting securities of each series affected by the matter. Such separate voting
requirements do not apply to the election of Trustees or the ratification of the
selection of accountants. The Rule contains special provisions for cases in
which an advisory contract is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not obtained as
to the holders of other affected series.
FINANCIAL
STATEMENTS
The
annual
report
for the Funds for the fiscal year ended October 31, 2023, is a separate document
supplied upon request and the financial statements, accompanying notes and
reports of the independent registered public accounting firm appearing therein
are incorporated by reference into this SAI.
APPENDIX
Description
of Ratings
SHORT-TERM
RATINGS
S&P
Global Ratings Short-Term Issue Credit Ratings
An
S&P issue credit rating is a current opinion of the creditworthiness of an
obligor with respect to a specific financial obligation, a specific class of
financial obligations, or a specific financial program (including ratings on
medium-term note programs and commercial paper programs). It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation and takes into account the currency in
which the obligation is denominated. The opinion evaluates the obligor’s
capacity and willingness to meet its financial commitments as they come due, and
may assess terms, such as collateral security and subordination, which could
affect ultimate payment in the event of default. The issue credit rating is not
a recommendation to purchase, sell, or hold a financial obligation, inasmuch as
it does not comment as to market price or suitability for a particular investor.
Issue
credit ratings are based on current information furnished by the obligors or
obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any credit rating and may, on occasion, rely
on unaudited financial information. Credit ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
Issue
credit ratings can be either long term or short term. Short-term ratings are
generally assigned to those obligations considered short-term in the relevant
market. In the U.S., for example, that means obligations with an original
maturity of no more than 365 days including commercial paper. Short-term ratings
are also used to indicate the creditworthiness of an obligor with respect to put
features on long-term obligations. The result is a dual rating, in which the
short-term rating addresses the put feature, in addition to the usual long-term
rating. Medium-term notes are assigned long-term ratings.
Short-Term
Issue Credit Ratings
A-1
A
short-term obligation rated ‘A-1’ is rated in the highest category by S&P.
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 having significant speculative
characteristics. Ratings of ‘B-1’, ‘B-2’, and ‘B-3’ may be assigned to indicate
finer distinctions within the ‘B’ category. The obligor currently has the
capacity to meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties which could lead to the obligor’s inadequate
capacity to meet its financial commitment on the obligation.
B-1
A
short-term obligation rated ‘B-1’ is regarded as having significant speculative
characteristics, but the obligor has a relatively stronger capacity to meet its
financial commitments over the short-term compared to other speculative-grade
obligors.
B-2
A
short-term obligation rated ‘B-2’ is regarded as having significant speculative
characteristics, and the obligor has an average speculative-grade capacity to
meet its financial commitments over the short-term compared to other
speculative-grade obligors.
B-3
A
short-term obligation rated ‘B-3’ is regarded as having significant speculative
characteristics, and the obligor has a relatively weaker capacity to meet its
financial commitments over the short-term compared to other speculative-grade
obligors.
C
A
short-term obligation rated ‘C’ is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D
A
short-term obligation rated ‘D’ is in payment default. The ‘D’ rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The ‘D’ rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
Dual
Ratings
S&P
assigns “dual” ratings to all debt issues that have a put option or demand
feature as part of their structure. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term rating symbols are used for bonds to denote
the long-term maturity and the short-term rating symbols for the put option (for
example, ‘AAA/A-1+’). With U.S. municipal short-term demand debt, note rating
symbols are used with the short-term issue credit rating symbols (for example,
‘SP-1+/A-1+’).
Local
Currency and Foreign Currency Risks
Country
risk considerations are a standard part of S&P’s analysis for credit ratings
on any issuer or issue. Currency of repayment is a key factor in this analysis.
An obligor’s capacity to repay foreign currency obligations may be lower than
its capacity to repay obligations in its local currency due to the sovereign
government’s own relatively lower capacity to repay external versus domestic
debt. These sovereign risk considerations are incorporated in the debt ratings
assigned to specific issues. Foreign currency issuer
ratings
are also distinguished from local currency issuer ratings to identify those
instances where sovereign risks make them different for the same
issuer.
Moody’s
Investors Service, Inc. Short-Term Debt Ratings
Short-Term
Ratings
Moody’s
short-term ratings are opinions of the ability of issuers to honor short-term
financial obligations. Ratings may be assigned to issuers, short-term programs
or to individual short-term debt instruments. Such obligations generally have an
original maturity not exceeding thirteen months, unless explicitly
noted.
Moody’s
employs the following designations to indicate the relative repayment ability of
rated issuers:
Prime-1
Issuers
(or supporting institutions) rated Prime-1 have a superior ability to repay
short-term debt obligations.
Prime-2
Issuers
(or supporting institutions) rated Prime-2 have a strong ability to repay
short-term debt obligations.
Prime-3
Issuers
(or supporting institutions) rated Prime-3 have an acceptable ability to repay
short-term obligations.
NP
Issuers
(or supporting institutions) rated Not Prime do not fall within any of the Prime
rating categories.
Note:
Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced by the
senior-most long-term rating of the issuer, its guarantor or
support-provider.
Moody’s
Investors Service, Inc.: Corporate Bond Ratings
Aaa--Bonds
which are rated Aaa are judged to be of the best quality and carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds
which are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
Moody’s
applies numerical modifiers “1,” “2” and “3” to both the Aaa and Aa rating
classifications. The modifier “1” indicates that the security ranks in the
higher end of its generic rating category; the modifier “2” indicates a
mid-range ranking; and the modifier “3” indicates that the issue ranks in the
lower end of its generic rating category.
A--Bonds
which are rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds
which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
S&P
Global Ratings Corporate Bond Ratings
AAA--This
is the highest rating assigned by S&P to a debt obligation and indicates an
extremely strong capacity to pay principal and interest.
AA--Bonds
rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A--Bonds
rated A have a strong capacity to pay principal and interest, although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions.
BBB--Bonds
rated BBB are regarded as having an adequate capacity to pay principal and
interest. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this category than
for bonds in the A category.
Commercial
Paper Ratings
Moody’s
commercial paper ratings are assessments of the issuer’s ability to repay
punctually promissory obligations. Moody’s employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1--highest quality; Prime 2--higher
quality; Prime 3--high quality.
An
S&P commercial paper rating is a current assessment of the likelihood of
timely payment. Ratings are graded into four categories, ranging from “A” for
the highest quality obligations to “D” for the lowest.
Issues
assigned the highest rating, A, are regarded as having the greatest capacity for
timely payment. Issues in this category are delineated with the numbers “1”, “2”
and “3” to indicate the relative degree of safety. The designation A-1 indicates
that the degree of safety regarding timely payment is either overwhelming or
very strong. A “+” designation is applied to those issues rated “A-1” which
possess extremely strong safety characteristics. Capacity for timely payment on
issues with the designation “A-2” is strong. However, the relative degree of
safety is not as high as for issues designated A-1. Issues carrying the
designation “A-3” have a satisfactory capacity for timely payment. They are,
however, somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.