ck0001511699-20221031
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Symbols |
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Class |
Institutional
Class |
IS
Class |
Jackson
Square Large-Cap Growth Fund |
JSPJX |
JSPIX |
DPLGX |
Jackson
Square SMID-Cap Growth Fund |
JSMVX |
JSMTX |
DCGTX |
Statement
of Additional Information
February
28, 2023
This
Statement of Additional Information (“SAI”) provides general information about
the Jackson Square Large-Cap Growth Fund and Jackson Square SMID-Cap Growth
Fund, (each a “Fund” and collectively the “Funds”), each a series of Managed
Portfolio Series (the “Trust”). This SAI is not a prospectus and should be read
in conjunction with the Funds’ current prospectus dated February 28, 2023 (the
“Prospectus”), as supplemented and amended from time to time. In addition, the
Funds’ financial statements for the fiscal year ended October 31, 2022 are
incorporated herein by reference to the Funds’ annual
report
dated October 31, 2022.
To obtain a copy of the Prospectus and/or annual report, free of charge, please
write or call the Funds at the address or toll-free telephone number below, or
visit the Jackson Square Partners Funds’ website at
https://jspartners.com/funds/.
Jackson
Square Partners Funds
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
Wisconsin 53201-0701
844-577-3863
The
Trust is a Delaware statutory trust organized on January 27, 2011, and is
registered with the U.S. Securities and Exchange Commission (“SEC”) as an
open-end management investment company. The Funds are series, or mutual funds,
of the Trust. The Funds have three classes of shares: Investor Class shares,
Institutional Class shares and IS Class shares. Each Fund is a non-diversified
series and may invest its assets in a more limited number of issuers than other
investment companies, and has its own investment objective and
policies.
Effective
at the close of business on April 16, 2021, the Fund acquired the assets and
assumed the liabilities of the Delaware U.S. Growth Fund (the “Predecessor
Fund”) The Class A, Class C and Class R shares of the Predecessor Fund were
reorganized into the Investor Class shares of the Fund, Institutional Class
shares of the Predecessor Fund were reorganized into the Institutional Class
shares of the Fund, and the Class R6 shares of the Predecessor Fund were
reorganized into the IS Class shares of the Fund. The Predecessor Fund, for
purposes of the reorganization, is considered the accounting survivor and
accordingly, certain financial history of the Predecessor Fund is included in
this statement of additional information.
Shares
of other series of the Trust are offered in separate prospectuses and SAIs. The
Funds do not hold themselves out as related to any other series within the Trust
for purposes of investment and investor services, nor do they share the same
investment adviser with any other series of the Trust. The Funds’ Prospectus and
this SAI are a part of the Trust’s Registration Statement filed with the SEC.
Copies of the Trust’s complete Registration Statement 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. As permitted by Delaware law, the Trust’s Board of
Trustees (the “Board”) may create additional classes of the Funds and may create
additional series (and classes thereof) of the Trust and offer shares of these
series and classes under the Trust at any time without the vote of
shareholders.
All
shares of a series shall represent an equal proportionate interest in the assets
held with respect to that series (subject to the liabilities held with respect
to that series and such rights and preferences as may have been established and
designated with respect to classes of shares of such series), and each share of
a series shall be equal to each other share of that series.
Shares
are voted in the aggregate and not by series or class, except in matters where a
separate vote is required by the Investment Company Act of 1940, as amended (the
“1940 Act”), or when the matters affect only the interest of a particular series
or class. When matters are submitted to shareholders for a vote, each
shareholder is entitled to one vote for each full share owned and fractional
votes for fractional shares owned.
The
Trust is not required to hold annual meetings of shareholders, and does not
normally do so. Meetings of the shareholders shall be called by any member of
the Board upon written request of shareholders holding, in the aggregate, not
less than 10% of the shares, with such request specifying the purpose or
purposes for which such meeting is to be called.
Interests
in each Fund are represented by shares of beneficial interest, each with no par
value per share. Each share of a Fund represents an equal proportionate interest
in the assets and liabilities belonging to the Fund and is entitled to such
distributions out of the income belonging to the Fund as may be declared by the
Board.
The
Board has the authority from time to time to divide or combine the shares of any
series into a greater or lesser number of shares of that series without
materially changing the proportionate beneficial interest of the shares of that
series in the assets belonging to that series or materially affecting the rights
of shares of any other series. In case of the liquidation of a series, the
holders of shares of the series being liquidated are entitled to receive a
distribution out of the assets, net of the liabilities, belonging to that
series. Expenses attributable to any series (or class thereof) are borne by that
series (or class). Any general expenses of the Trust not readily identifiable as
belonging to a particular series are allocated by, or under the direction of,
the Board to all applicable series (and classes thereof) in such manner and on
such basis as deemed fair and equitable. No shareholder is liable to further
calls for the payment of any sum of money or assessment whatsoever with respect
to the Trust or any series of the Trust without his or her express
consent.
All
consideration received by the Trust for the issue or sale of a Fund’s shares,
together with all assets in which such consideration is invested or reinvested,
and all income, earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds, subject only to the
rights of creditors, shall constitute the underlying assets of the
Fund.
Jackson
Square Partners, LLC (the “Adviser”) serves as the investment adviser for the
Funds.
The
following discussion supplements the description of each Fund’s principal
investment strategies and principal risks set forth in the Prospectus. Unless an
investment strategy or policy described below is specifically prohibited by the
investment restrictions listed in the Prospectus, under the “Fundamental and
Non-Fundamental Investment Limitations” in this SAI, or by applicable law, the
Funds may hold securities and engage in various strategies as described
hereafter, but are not obligated to do so. The Funds might not invest in all of
these types of securities or use all of these techniques at any one time. The
Funds’ transactions in a particular type of security or use of a particular
technique is subject to limitations imposed by each Fund's investment objective,
policies and restrictions described in the Funds’ Prospectus and/or this SAI, as
well as the federal securities laws.
Diversification
Each
of the Funds is non-diversified. A non-diversified fund is a fund that does not
satisfy the definition of a “diversified company” set forth in the 1940 Act. A
“diversified company” means that as to 75% of a Fund’s total assets, excluding
cash, government securities and securities of other investment companies, (1) no
more than 5% may be invested in the securities of a single issuer, and (2) a
Fund may not hold more than 10% of the outstanding voting securities of a single
issuer.
Because
each Fund intends to qualify as a “regulated investment company” (“RIC”) under
Subchapter M of the Internal Revenue Code of 1986, as amended, (the “Code”),
each Fund will limit its investment, excluding cash, cash items (including
receivables), U.S. government securities, and securities of other RICs, so that
at the close of each quarter of the taxable year, (1) not more than 25% of the
Fund’s total assets will be invested in the securities of a single issuer, and
(2) with respect to 50% of its total assets, not more than 5% of the Fund’s
total assets will be invested in the securities of a single issuer and the Fund
will not hold more than 10% of the issuer’s outstanding voting
securities.
Because
the Funds may invest a greater percentage of their assets in the securities of
fewer issuers, each Fund is subject to the risk that its performance may be hurt
disproportionately by the poor performance of relatively few
securities.
Percentage
Limitations
Each
Fund’s compliance with its investment policy and limitations will be determined
immediately after and as a result of the Fund’s acquisition of such security or
other asset. Accordingly, except with respect to borrowing or illiquid
investments, any subsequent change in values, net assets, or other circumstances
will not be considered when 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 will sell such
investments as soon as practicable while trying to maximize the return to its
shareholders.
Market
Volatility
U.S.
and international markets have from time to time experienced significant
volatility. During certain volatile periods, the fixed income markets have
experienced substantially lower valuations, reduced liquidity, price volatility,
credit downgrades, increased likelihood of default, and valuation difficulties.
At times, concerns have spread to domestic and international equity markets. In
some cases, the stock prices of individual companies have been negatively
impacted even though there may be little or no apparent degradation in the
financial conditions or prospects of that company. Continued volatility may have
adverse effects on the Funds and the risks discussed below and in the Prospectus
may increase.
The
outbreak of the coronavirus COVID-19 significantly disrupted the global economy
and negatively impacted economic growth prospects. It is not possible to
estimate the impact that COVID-19 outbreak will continue to have on the
companies in the Fund’s portfolio, but the prolonged effect on the global
economy will largely depend upon the duration of the pandemic. Such events may
adversely affect the Fund’s performance. The Adviser continues to monitor this
situation closely.
Environmental,
Social, and Governance (“ESG”)
Although
the Funds do not seek to implement a specific ESG, impact or sustainability
strategy, the Adviser will consider ESG characteristics as part of the
investment process for the Funds. These considerations will vary depending on
each of the Fund’s particular investment strategies and may include
consideration of third-party research as well as consideration of proprietary
research of the Adviser across the ESG risks and opportunities regarding an
issuer. The Adviser will consider those ESG characteristics it deems relevant or
additive when making investment decisions for the Funds. The ESG characteristics
utilized in each of the Fund’s investment process are anticipated to evolve over
time and one or more characteristics may not be relevant with respect to all
issuers that are eligible for investment. ESG characteristics are not the sole
considerations when making investment decisions for the Funds. Further,
investors can differ in their views of what constitutes positive or negative ESG
characteristics. As a result, the Funds may invest in issuers that do not
reflect the beliefs and values with respect to ESG of any particular investor.
ESG considerations may affect each of the Fund’s exposure to certain companies
or industries and the Funds may forego certain investment opportunities. While
the Adviser views ESG considerations as having the potential to contribute to
each of the Fund’s long-term performance, there is no guarantee that such
results will be achieved.
Equity
Securities
An
equity security represents a proportionate share of the ownership of a
company. 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. Common stocks, preferred stocks and partnership interests are
examples of equity securities. The fundamental risk of investing in equity
securities is the risk that the value of the stock might decrease.
Common
Stock. Common
stock represents an ownership interest in a company. In addition to the general
risks set forth above, investments in common stocks are subject to the risk that
in the event a company in which a Fund invests is liquidated, the holders of
preferred stock and creditors of that company will be paid in full before any
payments are made to a Fund as holders of common stock. It is possible
that all assets of that company will be exhausted before any payments are made
to a Fund.
Preferred
Stock. Preferred
stock represents an ownership interest in a company, often pays dividends at a
specific rate and has a preference over common stocks in dividend payments and
liquidation of assets. A preferred stock is a blend of the characteristics of a
bond and common stock. It can offer the higher yield of a bond and has
priority over common stock in equity ownership, but does not have the seniority
of a bond and, unlike common stock its participation in the issuer’s growth may
be limited. Although the dividend is set at a fixed annual rate, in some
circumstances it can be changed or omitted by the issuer. In addition, preferred
stock usually does not have voting rights.
Limited
Partnership Interests.
A limited partnership interest entitles a Fund to participate in the investment
return of the partnership’s assets as defined by the agreement among the
partners. As a limited partner, a Fund generally is not permitted to participate
in the management of the partnership. However, unlike a general partner whose
liability is not limited, a limited partner’s liability generally is limited to
the amount of its commitment to the partnership.
Foreign
Investments and Currencies
A
Fund may invest in securities of foreign issuers that are not traded in the
United States and/or are not U.S. dollar denominated and purchase and sell
foreign currency on a spot basis. A Fund may also invest in American Depositary
Receipts (“ADRs”), Global Depositary Receipts (“GDRs”) and foreign securities
that are traded on a U.S. exchange. Investments in ADRs, GDRs and foreign
securities involve certain inherent risks, including the following:
Depositary
Receipts.
Generally, depositary receipts are denominated in the currency of the country of
the bank or trust company that issues them and evidence ownership of the
underlying securities. Depositary receipts may be purchased through “sponsored”
or “unsponsored” facilities. A sponsored facility is established jointly by the
issuer of the underlying security and a depositary, whereas a depositary may
establish an unsponsored facility without participation by the issuer of the
depositary security. Holders of unsponsored depositary receipts generally bear
all the costs of such facilities, and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts of the deposited securities. Accordingly,
available information concerning the issuer may not be current and the prices of
unsponsored depositary receipts may be more volatile than the prices of
sponsored depositary receipts. For purposes of the Fund’s investment policies,
depositary receipts are deemed to have the same classification as the underlying
securities they represent. Thus, a depositary receipt representing ownership of
common stock will be treated as common stock.
Political
and Economic Factors.
Individual foreign economies of certain countries may differ favorably or
unfavorably from the U.S. 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 those countries. In 2020, the
United Kingdom (“UK”) withdrew from the European Union (an event known as
“Brexit”). As a result of Brexit, the financial markets experienced high levels
of volatility and there is considerable uncertainty as to the arrangements that
will apply to the UK’s relationship with the EU and other countries going
forward. This prolonged uncertainty may affect other countries in the EU and
elsewhere. The exit by the UK or other member states will likely result in
increased uncertainty, volatility, illiquidity, and potentially lower economic
growth in the affected markets.
Currency
Fluctuations.
A Fund may invest in securities denominated in foreign currencies. Accordingly,
a change in the value of any such currency against the U.S. dollar will result
in a corresponding change in the U.S. dollar value of a Fund’s assets
denominated in that currency. Such changes will also affect the Fund’s income.
The value of the Fund’s assets may also be affected significantly by currency
restrictions and exchange control regulations enacted from time to
time.
Market
Characteristics.
The Adviser expects that many foreign securities in which a Fund may invest
could be purchased in over-the-counter (“OTC”) markets or on exchanges located
in the countries in which the principal offices of the issuers of the various
securities are located, if that is the best available market. Foreign exchanges
and markets may be more volatile than those in the United States. While growing
in volume, they usually have substantially less volume than U.S. markets, and a
Fund’s investments in foreign securities may be less liquid and more volatile
than investments in U.S. securities. Moreover, settlement practices for
transactions in foreign markets may differ from those in U.S. markets, and may
include delays beyond periods customary in the United States. Foreign security
trading practices, including those involving securities settlement where Fund
assets may be released prior to receipt of payment or securities, may expose the
Funds to increased risk in the event of a failed trade or the insolvency of a
foreign broker-dealer.
Legal
and Regulatory Matters.
Certain foreign countries may have less supervision of securities markets,
brokers and issuers of securities, non-uniform accounting standards and less
financial information available from issuers, than is available in the United
States. It may be more difficult to obtain and enforce a judgment against a
foreign issuer. Legal remedies available to investors in certain foreign
countries may be more limited than those available with respect to investments
in the United States or in other foreign countries. The laws of some foreign
countries may limit a Fund’s ability to invest in securities of certain issuers
located in those foreign countries. Foreign companies may not be subject to
auditing and financial reporting standards and requirements comparable to those
which apply to U.S. companies.
Taxes.
The interest and dividends payable on certain of a Fund’s foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to Fund shareholders. Foreign
issuers may not be subject to auditing and financial reporting standards and
requirements comparable to those which apply to U.S. companies.
Costs.
To the extent that a Fund invests in foreign securities, its expense ratio is
likely to be higher than those of investment companies investing only in
domestic securities, because related brokerage costs and the cost of maintaining
the custody of foreign securities may be higher.
Additional
Risks of Emerging and Frontier Markets.
In addition, a Fund may invest in foreign securities of companies that are
located in developing, emerging or frontier markets. Investing in securities of
issuers located in these markets may pose greater risks not typically associated
with investing in more established markets, such as increased risk of social,
political and economic instability. Emerging and frontier market countries
typically have smaller securities markets than developed countries and therefore
less liquidity and greater price volatility than more developed markets.
Securities traded in emerging markets may also be subject to risks associated
with the lack of modern technology, poor
governmental
and/or judicial infrastructures relating to private or foreign investment or to
judicial redress for injury to private property, the lack of capital base to
expand business operations, foreign taxation and the inexperience of financial
intermediaries, custodians and transfer agents. Emerging and frontier market
countries are also more likely to impose restrictions on the repatriation of an
investor’s assets and even where there is no outright restriction on
repatriation, the mechanics of repatriations may delay or impede a Fund’s
ability to obtain possession of its assets. As a result, there may be an
increased risk or price volatility associated with a Fund’s investments in
emerging and frontier market countries, which may be magnified by currency
fluctuations.
Real
Estate Investment Trusts (“REITs”)
REITs
are pooled investment vehicles which invest primarily in income producing real
estate or real estate related loans or interest. REITs are generally classified
as equity REITs, mortgage REITs, or a combination of equity and mortgage REITs.
Equity REITs invest the majority of their assets directly in real property and
derive income primarily from the collection of rents. Equity REITs can also
realize capital gains by selling property that has appreciated in value.
Mortgage REITs invest the majority of their assets in real estate mortgages and
derive income from the collection of interest payments. Equity REITs may be
affected by changes in the value of the underlying property owned by the REIT
and both mortgage REITs and equity REITs may be affected by the quality of any
credit extended. The real property and mortgages serving as investment vehicles
for REITs may be either residential or commercial in nature and may include
healthcare facilities. Like investment companies, REITs are not taxed on income
distributed to shareholders provided they comply with several requirements of
the Code. Such tax requirements may limit a REIT’s ability to respond to changes
in the commercial real estate market.
The
affairs of REITs are managed by the REIT’s sponsor and, as such, the performance
of the REIT is dependent on the management skills of the REIT’s sponsor. REITs
are also subject to interest rate risks. If a Fund makes an equity investment in
a REIT, the Fund will indirectly bear its proportionate share of any expenses
paid by the REIT in addition to the expenses of the Fund. REITs are subject to
the risk of default by borrowers, self-liquidation, and the possibility that the
REIT may fail to qualify for the exemption from tax for distributed income under
the Code.
Fixed-Income
Securities
The
Funds may invest in a wide range of fixed-income securities, which may include
obligations of any rating or maturity. The Funds may invest in investment grade
debt securities and below investment grade debt securities (commonly known as
“junk bonds” or “high yield bonds”). Investment grade debt securities are those
rated BBB- or better by Standard & Poor’s Rating Service, Inc. (“S&P”)
or Baa3 or better by Moody’s Investors Service, Inc. (“Moody’s”), each of which
are considered a nationally recognized statistical rating organization (“NRSRO”)
or an equivalent rating by another NRSRO. Securities rated BBB- by S&P are
considered investment grade, but Moody’s considers securities rated Baa3 to have
speculative characteristics. The Funds will not invest in securities that are
rated below D by S&P or Moody’s. The Funds may hold a debt security rated
below D if a downgrade occurs after the security has been purchased. The Funds
may also invest in unrated debt securities that the Adviser believes are of
comparable quality to the rated securities which the Funds may
purchase.
Debt
securities carry credit risk, interest rate risk and prepayment risk. Credit
risk is the risk that a Fund could lose money if the issuer of a debt security
defaults or fails to pay interest or principal when it is due. Some debt
securities that are rated below investment grade are generally considered
speculative because they present a greater risk of loss, including default, than
higher quality debt securities. The credit risk of a particular issuer’s debt
security may vary based on its priority for repayment. For example, higher
ranking (senior) debt securities have a higher priority than lower ranking
(subordinated) securities. This means that the issuer might not make payments on
subordinated securities while continuing to make payments on senior securities.
In addition, in the event of bankruptcy, holders of higher-ranking senior
securities may receive amounts otherwise payable to the holders of more junior
securities.
Interest
rate risk is the risk that the value of certain debt securities will tend to
fall when interest rates rise. In general, debt securities with longer terms
tend to fall more in value when interest rates rise than debt securities with
shorter terms.
Prepayment
risk occurs when issuers prepay fixed rate debt securities when interest rates
fall, forcing a Fund to invest in securities with lower interest rates. Issuers
of debt securities are also subject to the provisions of bankruptcy, insolvency
and other laws affecting the rights and remedies of creditors that may restrict
the ability of the issuer to pay, when due, the principal of and interest on its
debt securities. The possibility exists therefore, that, as a result of
bankruptcy, litigation or other conditions, the ability of an issuer to pay,
when due, the principal of and interest on its debt securities may become
impaired.
Junk
Bonds.
Junk bonds generally offer a higher current yield than that available for
investment grade issues. However, below investment grade debt securities involve
higher risks, in that they are especially subject to adverse changes in general
economic conditions and in the industries in which the issuers are engaged, to
changes in the financial condition of the issuers, and to price fluctuations in
response to changes in interest rates. During periods of economic downturn or
rising interest rates, highly leveraged issuers may experience financial stress
that could adversely affect their ability to make payments of interest and
principal and increase the possibility of default. At times in recent years, the
prices of many below investment grade debt securities declined substantially,
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on below investment grade debt
securities rose dramatically, reflecting the risk that holders of such
securities could lose a substantial portion of their value as a result of the
issuers’ financial restructuring or default. There can be no assurance that such
price declines will not recur. The market for below investment grade debt issues
generally is thinner and less active than that for higher quality securities,
which may limit a Fund’s ability to sell such securities at fair value in
response to changes in the economy or financial markets. Adverse publicity and
investor perceptions, whether based on fundamental analysis, may also decrease
the values and liquidity of below investment grade debt securities, especially
in a thinly traded market. Changes in the rating of a debt security by
recognized rating services may affect the value of these investments. A Fund
will not necessarily dispose of a security when its rating is reduced below its
rating at the time of purchase. However, the Adviser will monitor the investment
to determine whether continued investment in the security will assist in meeting
the Fund’s investment objective.
Variable
and Floating Rate Securities.
Variable and floating rate securities provide for a periodic adjustment in the
interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be
event-based, such as a change in the prime rate.
Corporate
Debt Securities.
Corporate debt securities are fixed-income securities issued by businesses to
finance their operations, although corporate debt instruments may also include
bank loans to companies. Notes, bonds, debentures and commercial paper are the
most common types of corporate debt securities, with the primary difference
being their maturities and secured or unsecured status. Commercial paper has the
shortest term and is usually unsecured.
The
broad category of corporate debt securities includes debt issued by domestic or
foreign companies of all kinds, including those with small, mid and large
capitalizations. Corporate debt may be rated investment grade or below
investment grade and may carry fixed, variable, or floating rates of
interest.
Because
of the wide range of types and maturities of corporate debt securities, as well
as the range of creditworthiness of its issuers, corporate debt securities have
widely varying potentials for return and risk profiles. For example, commercial
paper issued by a large established domestic corporation that is rated
investment grade may have a modest return on principal, but carries relatively
limited risk. On the other hand, a long-term corporate note issued by a small
foreign corporation from an emerging market country that has not been rated may
have the potential for relatively large returns on principal, but carries a
relatively high degree of risk.
Exchange-Traded
Notes.
A
Fund may invest in Exchange-Traded Notes (“ETNs”). An ETN is a type of
unsecured, unsubordinated debt security issued by a sponsor, such as an
investment bank, that differs from other types of bonds and notes because ETN
returns are typically based upon the performance of a market index. ETNs are
publicly traded on a U.S. securities exchange. An ETN incurs certain expenses
not incurred by its applicable index, and an investment in an ETN will bear its
proportionate share of any fees and expenses borne by the ETN. The market value
of an ETN share may differ from its NAV; the share may trade at a premium or
discount to its NAV, which may be due to, among other things, differences in the
supply and demand in the market for the share. Although an ETN is a debt
security, it is unlike a typical bond, in that there are no periodic interest
payments and principal is not protected. ETNs are subject to credit risk and the
value of the ETN may drop due to a downgrade in the issuer’s credit rating,
despite the underlying market benchmark or strategy remaining
unchanged.
Convertible
Securities.
Convertible securities include fixed income securities that may be exchanged or
converted into a predetermined number of shares of the issuer’s underlying
common stock or other equity security at the option of the holder during a
specified period. Convertible securities entitle the holder to receive interest
paid or accrued on debt or dividends paid or accrued on preferred stock until
the security matures or is redeemed, converted or exchanged. Convertible
securities may take the form of convertible preferred stock, convertible bonds
or debentures, units consisting of “usable” bonds and warrants or a combination
of the features of several of these securities. The investment characteristics
of convertible securities vary widely, which allows them to be employed for a
variety of investment strategies. A Fund will exchange or convert convertible
securities into shares of underlying common stock when, in the opinion of the
Adviser, the investment characteristics of the underlying common stock or other
equity security will assist the Fund in achieving its investment objectives. A
Fund may also elect to hold or trade convertible securities. In selecting
convertible securities, the Adviser evaluates the investment characteristics of
the convertible security as a fixed income instrument, and the investment
potential of the underlying equity security for capital
appreciation.
Contingent
Convertible Securities.
Contingent convertible securities (“CoCos”) are a form of hybrid debt security
that are intended to either convert into equity or have their principal written
down upon the occurrence of certain “triggers.” The triggers are generally
linked to regulatory capital thresholds or regulatory actions calling into
question the issuing banking institution’s continued viability as a going
concern. CoCos’ unique equity conversion or principal write-down features are
tailored to the issuing banking institution and its regulatory requirements.
Some additional risks associated with CoCos include, but are not limited
to:
•Loss
absorption risk. CoCos have fully discretionary coupons. This means coupons can
potentially be cancelled at the banking institution’s discretion or at the
request of the relevant regulatory authority in order to help the bank absorb
losses.
•Subordinated
instruments. CoCos will, in the majority of circumstances, be issued in the form
of subordinated debt instruments in order to provide the appropriate regulatory
capital treatment prior to a conversion. Accordingly, in the event of
liquidation, dissolution or winding-up of an issuer prior to a conversion having
occurred, the rights and claims of the holders of the CoCos, such as the Funds,
against the issuer in respect of or arising under the terms of the CoCos shall
generally rank junior to the claims of all holders of unsubordinated obligations
of the issuer. In addition, if the CoCos are converted into the issuer’s
underlying equity securities following a conversion event (i.e., a “trigger”),
each holder will be subordinated due to their conversion from being the holder
of a debt instrument to being the holder of an equity instrument.
•Market
value will fluctuate based on unpredictable factors. The value of CoCos is
unpredictable and will be influenced by many factors including, without
limitation: (i) the creditworthiness of the issuer and/or fluctuations in such
issuer’s applicable capital ratios; (ii) supply and demand for the CoCos; (iii)
general market conditions and available liquidity; and (iv) economic, financial
and political events that affect the issuer, its particular market or the
financial markets in general.
Asset-Backed
Securities.
Asset-backed securities represent an interest in a pool of assets such as car
loans and credit card receivables. Almost any type of fixed income assets
(including other fixed income securities) may be used to create an asset-backed
security. However, most asset-backed securities involve consumer or commercial
debts with maturities of less than ten years. Asset-backed securities may have a
higher level of default and lower recoveries than mortgage-backed securities.
Asset-backed securities may take the form of commercial paper or notes, in
addition to pass-through certificates or asset-backed bonds.
Mortgage-Backed
Securities.
Mortgage-backed securities generally represent interests in pools of mortgages
on residential or commercial property. Mortgages may have fixed or adjustable
interest rates. Interests in pools of adjustable rate mortgages are known as
ARMs. Mortgage-backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage-backed securities is a
“pass-through certificate.” Holders of pass-through certificates receive a pro
rata share of the payments from the underlying mortgages. Holders also receive a
pro rata share of any prepayments, so they assume all the prepayment risk of the
underlying mortgages. Mortgage-backed securities tend to pay higher yields to
compensate for prepayment risk.
Collateralized
mortgage obligations (“CMOs”) are complicated instruments that allocate payments
and prepayments from an underlying pass-through certificate among holders of
different classes of mortgage-backed securities. This creates different
prepayment and market risks for each CMO class. In addition, CMOs may allocate
interest payments to one class (Interest Only or IOs) and principal payments to
another class (Principal Only or POs). POs increase in value when prepayment
rates increase. In contrast, IOs decrease in value when prepayments increase,
because the underlying mortgages generate less interest payments. However, IOs’
prices tend to increase when interest rates rise (and prepayments fall), making
IOs a useful hedge against market risk.
Residential
mortgage-backed securities include securities that reflect an interest in, and
are secured by, mortgage loans on residential real property. Generally,
homeowners have the option to prepay their mortgages at any time without
penalty. Homeowners frequently refinance high rate mortgages when mortgage rates
fall. This results in the prepayment of the mortgages underlying residential
mortgage-backed securities, which deprives holders of the securities of the
higher yields. Conversely, when mortgage rates increase, prepayments due to
refinancings decline. This extends the life of residential mortgage-backed
securities with lower yields. As a result, increases in prepayments of
residential mortgage-backed securities purchased at a premium, or decreases in
prepayments of residential mortgage-backed securities purchased at a discount,
may reduce their yield and price. This relationship between interest rates and
mortgage prepayments makes the price of residential mortgage-backed securities
more volatile than most other types of fixed income securities with comparable
credit risks.
Commercial
mortgage-backed securities include securities that reflect an interest in, and
are secured by, mortgage loans on commercial real property. In addition to
prepayment and extension risk, commercial mortgage-backed securities also
reflect the risks of investing in the real estate securing the underlying
mortgage loans including, the effects of local and other economic conditions on
real estate markets, the ability of the property owner to make loan payments,
the ability of tenants to make lease payments, and the ability of a property to
attract and retain tenants. Commercial mortgage-backed securities may be less
liquid and exhibit greater price volatility than other types of mortgage- or
asset-backed securities.
Municipal
Securities.
Municipal securities are fixed income securities issued by states, counties,
cities and other political subdivisions and authorities. Although most municipal
securities are exempt from federal income tax, municipalities also may issue
taxable securities. Tax-exempt securities are generally classified by their
source of payment.
Zero-Coupon
Securities.
Zero-coupon securities make no periodic interest payments, but are sold at a
deep discount from their face value. The buyer recognizes a rate of return
determined by the gradual appreciation of the security, which is redeemed at
face value on a specified maturity date. The discount varies depending on the
time remaining until maturity, as well as market interest rates, liquidity of
the security, and the issuer’s perceived credit quality. If the issuer defaults,
the holder may not receive any return on its investment. Because zero-coupon
securities bear no interest, their price fluctuates more than other types of
bonds. Since zero-coupon bondholders do not receive interest payments, when
interest rates rise, zero-coupon securities fall more dramatically in value than
bonds paying interest on a current basis. When interest rates fall, zero-coupon
securities rise more rapidly in value because the bonds reflect a fixed rate of
return. An investment in zero-coupon may cause a Fund to recognize income and
make distributions to shareholders before it receives any cash payments on its
investment.
Unrated
Debt Securities.
A Fund may also invest in unrated debt securities. Unrated debt, while not
necessarily lower in quality than rated securities, may not have as broad a
market. Because of the size and perceived demand for the issue, among other
factors, certain issuers may decide not to pay the cost of getting a rating for
their bonds. The creditworthiness of the issuer, as well as any financial
institution or other party responsible for payments on the security, will be
analyzed to determine whether to purchase unrated bonds.
Inflation-Indexed
Securities.
Inflation-indexed securities are debt securities, the principal value of which
is periodically adjusted to reflect the rate of inflation as indicated by the
Consumer Price Index for all Urban Consumers before seasonal adjustment (“CPI”).
Inflation-indexed securities may be issued by the U.S. government, by agencies
and instrumentalities of the U.S. government, and by corporations. The U.S.
Treasury issues Treasury inflation-protected securities (“TIPS”) and some other
issuers use a structure that accrues inflation into the principal value of the
bond. Most other issuers pay out the CPI accruals as part of a semiannual
coupon.
The
periodic adjustment of U.S. inflation-indexed securities is tied to the CPI,
which is calculated monthly by the U.S. Bureau of Labor Statistics. The CPI is a
measurement of changes in the cost of living, made up of components such as
housing, food, transportation, and energy. There can be no assurance that the
CPI will accurately measure the real rate of inflation in the prices of goods
and services.
Inflation,
which is a general rise in prices of goods and services, erodes the purchasing
power of an investor’s portfolio. For example, if an investment provides a
“nominal” total return of 5% in a given year and inflation is 2% during that
period, the inflation-adjusted, or real, return is 3%. Inflation, as measured by
the CPI, has occurred in almost each of the past 50 years, so investors should
be conscious of both the nominal and real returns of their investments. Although
inflation-indexed securities are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline in
value. If interest rates rise because of reasons other than inflation (for
example, because of changes in currency exchange rates), investors in these
securities may not be protected to the extent that the increase is not reflected
in the bond’s inflation measure.
If
the periodic adjustment rate measuring inflation (i.e., the CPI) falls, the
principal value of inflation-indexed securities will be adjusted downward, and
consequently the interest payable on these securities (calculated with respect
to a smaller principal amount) will be reduced. Repayment of the original bond
principal upon maturity (as adjusted for inflation) is guaranteed in the case of
TIPS, even during a period of deflation. However, the current market value of
the inflation-indexed securities is not guaranteed, and will fluctuate. Other
inflation-indexed securities include inflation-related bonds, which may or may
not provide a similar guarantee. If a guarantee of principal is not provided,
the adjusted principal value of the bond repaid at maturity may be less than the
original principal.
The
value of inflation-indexed securities should change in response to changes in
real interest rates. Real interest rates, in turn, are tied to the relationship
between nominal interest rates and the rate of inflation. Therefore, if
inflation were to rise at a faster rate than nominal interest rates, real
interest rates might decline, leading to an increase in value of
inflation-indexed securities. In contrast, if nominal interest rates increased
at a faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed securities.
Coupon
payments that a Fund receives from inflation-indexed securities are included in
the Fund’s gross income for the period during which they accrue. Any increase in
principal for an inflation-indexed security resulting from inflation adjustments
is considered by Internal Revenue Service (IRS) regulations to be taxable income
in the year it occurs. For direct holders of an inflation-indexed security, this
means that taxes must be paid on principal adjustments, even though these
amounts are not received until the bond matures. By contrast, a fund holding
these securities distributes both interest income and the income attributable to
principal adjustments each quarter in the form of cash or reinvested shares
(which, like principal adjustments, are taxable to shareholders). It may be
necessary for a Fund to liquidate portfolio positions, including when it is not
advantageous to do so, in order to make required distributions.
U.S.
Government Obligations.
The Funds may invest in U.S. government obligations. U.S. government obligations
include securities issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities. Treasury bills, the most
frequently issued marketable government securities, have a maturity of up to one
year and are issued on a discount basis. U.S. government obligations include
securities issued or guaranteed by government-sponsored
enterprises.
Payment
of principal and interest on U.S. government obligations may be backed by the
full faith and credit of the United States or may be backed solely by the
issuing or guaranteeing agency or instrumentality itself. In the latter case,
the investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
government would provide financial support to its agencies or instrumentalities,
including government-sponsored enterprises, where it is not obligated to do so
(see “Agency Obligations,” below). In addition, U.S. government obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
Agency
Obligations.
The
Funds may invest in agency obligations, such as the Export-Import Bank of the
United States, Tennessee Valley Authority, Resolution Funding Corporation,
Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate
Credit Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Government National Mortgage Association (“GNMA”), commonly
known as “Ginnie Mae,” Federal National Mortgage Association (“FNMA”), commonly
known as “Fannie Mae,” Federal Home Loan Mortgage Corporation (“FHLMC”),
commonly known as “Freddie Mac,” and the Student Loan Marketing Association
(“SLMA”), commonly known as “Sallie Mae.” Some, such as those of the
Export-Import Bank of United States, are supported only by the right of the
issuer to borrow from the Treasury; others, such as those of the FNMA and FHLMC,
are supported by only the discretionary authority of the U.S. government to
purchase the agency’s obligations; still others, such as those of the SLMA, are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. government would provide financial support to U.S.
government-sponsored instrumentalities
because
they are not obligated by law to do so. As a result, there is a risk that these
entities will default on a financial obligation. For instance, in September
2008, at the direction of the U.S. Treasury, FNMA and FHLMC were placed into
conservatorship under the Federal Housing Finance Agency (“FHFA”), a newly
created independent regulator.
Warrants
and Rights
The
Funds may purchase, or receive as a distribution from other investments,
warrants and rights, which are instruments that permit a Fund to acquire, by
subscription, the capital stock of a corporation at a set price, regardless of
the market price for such stock. The principal difference between warrants and
rights is their term-rights typically expire within weeks while warrants have
longer durations. Neither rights nor warrants have voting rights or pay
dividends. The market price of warrants is usually significantly less than the
current price of the underlying stock. Thus, there is a greater risk that
warrants might drop in value at a faster rate than the underlying
stock.
When-Issued
Securities
When-issued
securities transactions involve a commitment by a Fund to purchase or sell
particular securities with payment and delivery taking place at a future date,
and permit the Fund to lock in a price or yield on a security it owns or intends
to purchase, regardless of future changes in interest rates or market action.
Typically, no income accrues to the purchaser of a security on a when-issued
basis prior to delivery. Such securities are recorded as an asset and its value
may fluctuate. Purchasing a security on a when-issued basis can involve the risk
that the market price at the time of delivery may be lower than the agreed-upon
purchase price, in which case there could be an unrealized loss at the time of
delivery. A Fund will only make commitments to purchase securities on a
when-issued basis with the intention of actually acquiring the securities within
35 days of the trade date.
Initial
Public Offerings
The
Funds may invest in securities offered in initial public offerings (“IPOs”).
IPOs involve companies that have no public operating history and therefore
entail more risk than established public companies. Because IPO shares
frequently are volatile in price, a Fund may hold IPO shares for a very short
period of time. This may increase the turnover of a Fund’s portfolio and may
lead to increased expenses to the Fund, such as commissions and transaction
costs. By selling IPO shares, a Fund may realize taxable capital gains that it
will subsequently distribute to shareholders. Companies that offer securities in
IPOs tend to typically have small market capitalizations and therefore their
securities may be more volatile and less liquid than those issued by larger
companies. Certain companies offering securities in an IPO may have limited
operating experience and, as a result face a greater risk of business failure.
Master
Limited Partnerships
A
Fund may invest in publicly traded master limited partnerships (“MLPs”) that are
registered under the Securities Exchange Act of 1934, as amended (the
“Securities Exchange Act”), and listed on a major United States stock exchange,
if the issuer meets the Fund’s investment criteria. MLPs are businesses
organized as limited partnerships which trade their proportionate shares of the
partnership (units) on a public exchange. MLPs often own or own interests in
properties or businesses that are related to oil and gas industries, including
pipelines, although MLPs may invest in other types of investments, including
credit-related investments. MLPs are required to pay out most or all of their
cash flow in distributions. This pass through creates passive income or losses,
along with dividend and investment income. The MLPs a Fund may purchase are
comprised of a general partner (the “GP”) and multiple limited partners (the “LP
Holders”). The GP is responsible for the operations and the maintenance of the
partnership’s businesses, while the LP Holders assume economic risk up to their
level of investment. Typically, the GP has a 1% to 2% investment in the MLP, but
can extract a higher percentage of the partnership’s profits as the MLP’s
distributions increase. This serves as an incentive to the GP to grow the
partnership’s distributions. Conflicts of interest may exist among unit holders,
subordinated unit holders and the general partner of an MLP, including those
arising from incentive distribution payments.
Generally
speaking, MLP investment returns are enhanced during periods of declining or low
interest rates and tend to be negatively influenced when interest rates are
rising. As an income vehicle, the unit price can be influenced by general
interest rate trends independent of specific underlying fundamentals. In
addition, most MLPs are fairly leveraged and typically carry a portion of a
“floating” rate debt. As such, a significant upward swing in interest rates
would also drive interest expense higher. Furthermore, most MLPs grow by
acquisitions partly financed by debt, and higher interest rates could make it
more difficult to make acquisitions.
The
manner and extent of a Fund’s investments in MLPs may be limited by its
intention to qualify as a regulated investment company under the Code, and any
such investments by the Fund may adversely affect the ability of the Fund to so
qualify.
Private
Placements and Restricted Securities
The
Funds may invest in restricted securities (securities with limited
transferability under the securities laws) acquired from the issuer in “private
placement” transactions. Private placement securities are not registered under
the Securities Act of 1933, as amended (the “Securities Act”), and are subject
to restrictions on resale. They are eligible for sale only to certain qualified
institutional buyers, like the Funds, and are not sold on a trading market or
exchange. While private placement securities offer attractive investment
opportunities otherwise not available on an open market, because such securities
are available to few buyers, they are often both difficult to sell and to value.
Certain of a Fund’s investments may be placed in smaller, less seasoned, issuers
that present a greater
risk
due to limited product lines and/or financial resources. The issuer of privately
placed securities may not be subject to the disclosure and other investor
protection requirements of a public trade. Additionally, a Fund could obtain
material non-public information from the issuer of such securities that would
restrict the Fund’s ability to conduct transactions in underlying
securities.
Privately
placed securities can usually only be resold to other qualified institutional
buyers, or in a private transaction, or to a limited number of purchasers, or in
limited quantities after they have been held for a specified period of time and
other conditions are met pursuant to an exemption from registration. A Fund may
incur more cost in the disposition of such securities because of the time and
legal expense required to negotiate a private placement. Because of the limited
market, a Fund may find it difficult to sell the securities when it finds it
advisable to do so and, to the extent such securities are sold in private
negotiations, they may be sold for less than the price for which they were
purchased or less than their fair market value.
Privately
placed securities cannot be resold to the public unless they have been
registered under the Securities act or pursuant to an exemption, such as Rule
144A. A Fund may purchase Rule 144A securities subject to the limitation on
investments in illiquid investments, described in the "Illiquid Investments"
section below. A Fund may also purchase certain commercial paper issued in
reliance on the exemption from regulations in Section 4(2) of the Securities Act
("4(2) Paper"). The liquidity of Rule 144A securities and 4(2) Paper will be
determined in accordance with Rule 22e-4 under the 1940 Act.
Cash
Investments
Each
Fund may invest in high-quality, short-term debt securities and money market
instruments (“Cash Investments”) for (i) temporary defensive purposes in
response to adverse market, economic or political conditions and (ii) to retain
flexibility in meeting redemptions, paying expenses, and identifying and
assessing investment opportunities. Cash Investments include shares of other
mutual funds, certificates of deposit, bankers’ acceptances time deposits,
savings association obligations, commercial paper, short-term notes (including
discount notes), and other obligations.
The
Funds may hold a substantial position in Cash Investments for long periods of
time, which may result in a Fund not achieving its investment objective. If the
market advances during periods when a Fund is holding a large Cash Investment,
the Fund may not participate to the extent it would have if the Fund had been
more fully invested. To the extent that a Fund uses a money market fund for its
Cash Investment, there will be some duplication of expenses because the Fund
would bear its pro rata portion of such money market fund’s advisory fees and
operational expenses.
Cash
Investments are subject to credit risk and interest rate risk, although to a
lesser extent than longer-term debt securities due to their short-term,
significant liquidity, and the high credit quality typically associated with
such securities.
The
Funds may invest in any of the following Cash Investments:
Money
Market Mutual Funds.
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 U.S. government obligations,
bank obligations and high-grade corporate instruments. These investments
generally mature within 397 calendar days from the date of acquisition. 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.
To
the extent that a Fund invests in money market mutual funds, your cost of
investing in the Fund will generally be higher because you will indirectly bear
fees and expenses charged by the underlying money market mutual funds in
addition to the Fund’s direct fees and expenses. Furthermore, investing in money
market mutual funds 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.
A Fund may acquire 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 a Fund will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus, and undivided
profits in excess of $100 million (including assets of both domestic and
foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully
insured by the U.S. government.
In
addition to purchasing certificates of deposit and bankers’ acceptances, to the
extent permitted under the investment objective and policies stated above and in
the Prospectus, a Fund may make interest-bearing time deposits 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.
Commercial
Paper, Short-Term Notes and Other Obligations.
A Fund may invest a portion of its assets in commercial paper, short-term notes,
and other corporate obligations.
Commercial
paper consists of unsecured promissory notes issued by corporations. Issues of
commercial paper and short-term notes will normally have maturities of less
than nine months and fixed rates of return, although such instruments may have
maturities of up to one year. Commercial paper and short-term notes will consist
of issues rated at the time of purchase “A-2” or higher by S&P, “Prime-1” or
“Prime-2” by Moody’s, or similarly rated by another nationally recognized
statistical rating organization or, if unrated, determined by the Adviser to be
of comparable quality.
A
Fund may also purchase other obligations which have remaining maturities of one
year or less from the date of purchase and which are rated “A” or higher by
S&P or “A” or higher by Moody’s, or similarly rated by another nationally
recognized statistical rating organization or, if unrated, determined by the
Adviser to be of comparable quality.
Investment
Companies
Each
Fund may invest in other investment companies to the extent permitted by the
1940 Act and the rules and regulations thereunder. Each Fund generally may
purchase or redeem, without limitation, shares of any affiliated or unaffiliated
money market funds, including unregistered money market funds, so long as the
Fund does not pay a sales load or service fee in connection with the purchase,
sale or redemption or, if such fees are paid, the Fund’s investment adviser
waives its management fee in an amount necessary to offset the amounts paid.
With respect to other investments in investment companies, the 1940 Act
generally limits each Fund from acquiring (i) more than 3% of the total
outstanding shares of another investment company; (ii) shares of another
investment company having an aggregate value in excess of 5% of the value of the
total assets of the Fund; or (iii) shares of another registered investment
company and all other investment companies having an aggregate value in excess
of 10% of the value of the total assets of the Fund.
Closed-End
Funds.
Closed-end
funds are investment companies that typically issue a fixed number of shares
that trade on a securities exchange or OTC. The risks of investment in
closed-end funds typically reflect the risk of the types of securities in which
the funds invest. Investments in closed-end funds are subject to the additional
risk that shares of the fund may trade at a premium or discount to their net
asset value (“NAV”) per share. Closed-end funds come in many varieties and can
have different investment objectives, strategies and investment portfolios. They
also can be subject to different risks, volatility and fees and expenses.
Although closed-end funds are generally listed and traded on an exchange, the
degree of liquidity, or ability to be bought and sold, will vary significantly
from one closed-end fund to another based on various factors including, but not
limited to, demand in the marketplace. When a Fund invests in shares of a
closed-end fund, shareholders of the Fund bear their proportionate share of the
closed-end fund’s fees and expenses, as well as their share of the Fund’s fees
and expenses.
Open-End
Mutual Funds.
Open-end
mutual funds are investment companies that issue new shares continuously and
redeem shares daily. The risks of investment of open-end mutual funds typically
reflect securities in which the funds invest. The NAV per share of an open-end
fund will fluctuate daily depending upon the performance of the securities held
by the fund. Each open-end fund may have a different investment objective and
strategy and different investment portfolio. Different funds may also be subject
to different risks, volatility and fees and expenses. When a Fund invests in
shares of an open-end fund, shareholders of the Fund bear their proportionate
share of the open-end funds’ fees and expenses, as well as their share of the
Fund’s fees and expenses.
Exchange-Traded
Funds.
Exchange-traded
Funds (“ETFs”)
are
typically open-end investment companies that are bought and sold on a national
securities exchange. When a Fund invests in an ETF, it will bear additional
expenses based on its pro rata share of the ETF’s operating expenses, including
the potential duplication of management fees. The risk of owning an ETF
generally reflects the risks of owning the underlying securities it holds.
Certain ETFs are actively managed (i.e., they do not seek to replicate a
specific benchmark index). Other ETFs use a “passive” investment and will not
attempt to take defensive positions in volatile or declining markets. However,
an ETF may not fully replicate the performance of its benchmark index for many
reasons, including because of the temporary unavailability of certain index
securities in the secondary market or discrepancies between the ETF and the
index with respect to the weighting of securities or the number of stocks held.
Lack of liquidity in an ETF could result in an ETF being more volatile than the
underlying portfolio of securities it holds. In addition, because of ETF
expenses, compared to owning the underlying securities directly, it may be more
costly to own an ETF.
If
a Fund invests in shares of an ETF, shareholders will indirectly bear fees and
expenses charged by the underlying ETF in which the Fund invests in addition to
the Fund’s direct fees and expenses. The Fund also will incur brokerage costs
when it purchases ETFs. Furthermore, investments in other ETFs could affect the
timing, amount and character of distributions to shareholders and therefore may
increase the amount of taxes payable by investors in the Fund.
Securities
Lending
A
Fund may lend its securities in order to increase the return on its
portfolio. The SEC currently requires that the following conditions
must be met whenever a Fund’s portfolio securities are
loaned: (1) the Fund must receive liquid collateral of at least
102% for domestic securities and 105% for foreign securities from the borrower
in the form of cash or cash equivalents; (2) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (3) the Fund must be able to terminate the loan
at any time; (4) the Fund must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions on the loaned securities,
and any increase in market value; (5) the Fund may pay only reasonable
custodian fees
approved
by the Board in connection with the loan; (6) while voting rights on the
loaned securities may pass to the borrower, the Board must terminate the loan
and regain the right to vote the securities if a material event adversely
affecting the investment occurs, and (7) the Fund may not loan its
portfolio securities so that the value of the loaned securities is more than
one-third of its total asset value, including collateral received from such
loans. These conditions may be subject to future
modification. Such loans will be terminable at any time upon
specified notice.
A
Fund might experience the risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the
Fund. In addition, a Fund will not enter into any portfolio security
lending arrangement having a duration of longer than one year. The
principal risk of portfolio lending is potential default or insolvency of the
borrower. In either of these cases, a Fund could experience delays in
recovering securities or collateral or could lose all or part of the value of
the loaned securities. As part of participating in a lending program,
a Fund may be required to invest in collateralized debt or other securities that
bear the risk of loss of principal. In addition, all investments made
with the 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.
The
Board appoints agents to be responsible for monitoring the creditworthiness of
borrowers. To the extent a Fund is participating in securities lending, on a
quarterly basis, the Board reviews a report regarding the Fund’s loans. Such
report includes, among other things, the identity and value of all securities
comprising each loan, the length of time that the loan has been outstanding, the
amount earned by the Fund, the amount of fees paid in connection with the loan
and the ratio of the value of the collateral to the value of the
loan.
Any
loans of portfolio securities are fully collateralized based on values that are
marked-to-market daily. Any securities that a Fund may receive as
collateral will not become part of the Fund’s investment portfolio at the time
of the loan and, in the event of a default by the borrower, the Fund will, if
permitted by law, dispose of such collateral except for such part thereof that
is a security in which the Fund is permitted to invest. During the
time securities are on loan, the borrower will pay the Fund any accrued income
on those securities, and the Fund may invest the cash collateral and earn income
or receive an agreed-upon fee from a borrower that has delivered cash-equivalent
collateral.
Illiquid
Investments
The
Fund may purchase illiquid investments, which may include securities that are
not readily marketable and securities that are not registered under the
Securities Act. The Fund may not acquire any illiquid investments if,
immediately after the acquisition, the Fund would have invested more than 15% of
its net assets in illiquid investments that are assets. The term “illiquid
investments” for this purpose means 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, as determined pursuant to the provisions of Rule
22e-4 under the 1940 Act. The Fund may not be able to sell illiquid investments
when the Adviser considers it desirable to do so or may have to sell such
investments at a price that is lower than the price that could be obtained if
the investments were more liquid. In addition, the sale of illiquid investments
also may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of investments that are more liquid.
Illiquid investments also may be more difficult to value due to the
unavailability of reliable market quotations for such investments, and
investments in illiquid investments may have an adverse impact on
NAV.
Institutional
markets for restricted securities have developed as a result of the promulgation
of Rule 144A under the Securities Act, which provides a safe harbor from
Securities Act registration
requirements
for qualifying sales to institutional investors. When Rule 144A restricted
securities present an attractive investment opportunity and otherwise meet
selection criteria, the Fund may make such investments. Whether or not such
investments are illiquid depends on the market that exists for the particular
investment. It is not possible to predict with assurance exactly how the market
for Rule 144A restricted securities or any other security will develop. An
investment which when purchased enjoyed a fair degree of marketability may
subsequently become illiquid. In such event, appropriate remedies are considered
to minimize the effect on the Fund’s liquidity.
Repurchase
Agreements
A
Fund may enter into repurchase agreements. Under such agreements, a Fund agrees
to purchase U.S. government obligations from a counterparty and the counterparty
agrees to repurchase the securities at a mutually agreed upon time and price.
The repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase prices may be the same, with
interest at a stated rate due to the Fund together with the repurchase price on
repurchase. In either case, the income to the Fund is unrelated to the interest
rate on the security itself. Such repurchase agreements will be made only with
banks with assets of $500 million or more that are insured by the Federal
Deposit Insurance Corporation or with government securities dealers recognized
by the Federal Reserve Board and registered as broker-dealers with the SEC or
exempt from such registration. A Fund will generally enter into repurchase
agreements of short durations, from overnight to one week, although the
underlying securities generally have longer maturities. A Fund may not enter
into a repurchase agreement with more than seven days to maturity if, as a
result, more than 15% of the value of the Fund’s net assets would be invested in
illiquid investments including such repurchase agreements. To the extent
necessary to facilitate compliance with Section 12(d)(3) of the 1940 Act and
Rule 12d3-1 promulgated thereunder, each Fund will ensure that repurchase
agreements will be collateralized fully to the extent required by Rule
5b-3.
For
purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from a
Fund to the seller of the U.S. government obligations that are subject to the
repurchase agreement. It is not clear whether a court would consider the U.S.
government obligations to be acquired by the Fund subject to a repurchase
agreement as being owned by the Fund or as being collateral for a loan by the
Fund to the seller. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the U.S. government obligations before
its repurchase under a repurchase agreement, a Fund could encounter delays and
incur costs before being able to sell the underlying U.S. government
obligations. Delays may involve loss of interest or a decline in price of the
U.S. government obligations. If a court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the U.S. government
obligations, the Fund may be required to return the securities to the seller’s
estate and be treated as an unsecured creditor of the seller. As an unsecured
creditor, the Fund would be at the risk of losing some or all of the principal
and income involved in the transaction. As with any unsecured debt instrument
purchased for a Fund, the Adviser seeks to minimize the risk of loss through
repurchase agreements by analyzing the creditworthiness of the other party, in
this case the seller of the U.S. government security.
Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the U.S. government obligations. However,
each Fund will always receive as collateral for any repurchase agreement to
which it is a party securities acceptable to the Adviser, the market value of
which is equal to at least 100% of the repurchase price, and the Fund will make
payment against such securities only upon physical delivery or evidence of book
entry transfer to the account of its Custodian. If the market value of the U.S.
government obligations subject to the repurchase agreement become less than the
repurchase price (including interest), a Fund will direct the seller of the U.S.
government obligations to deliver additional securities so that the market value
of all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is
possible
that a Fund could be unsuccessful in seeking to enforce on the seller a
contractual obligation to deliver additional securities.
Borrowing
Each
Fund may borrow money in amounts of up to one-third of its total assets
(including the amount borrowed) from banks, for investment
purposes. In addition, each Fund is authorized to borrow money from
time to time for temporary, extraordinary or emergency purposes or for clearance
of transactions. The use of borrowing by a Fund 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
funds. In addition, interest costs on borrowings, which are paid by
the Funds, 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 it is unfavorable to do
so.
Cybersecurity
Risk
The
Funds, like all companies, may be susceptible to operational and information
security risks. Cybersecurity failures or breaches of the Funds or their service
providers or the issuers of securities in which the Funds invest have the
ability to cause disruptions and impact business operations, potentially
resulting in financial losses, the inability of Fund shareholders to transact
business, violations of applicable privacy and other laws, regulatory fines,
penalties, reputational damage, reimbursement or other compensation costs,
and/or additional compliance costs. The Funds and their shareholders could be
negatively impacted as a result.
The
Trust (on behalf of each Fund) has adopted the following restrictions as
fundamental policies, which may not be changed without the favorable “vote of
the holders of a majority of the outstanding voting securities” of a Fund, as
defined under 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 at
the meeting in person or by proxy; or (ii) more than 50% of the outstanding
shares of the Fund.
The
Funds may not:
1. Issue
senior securities, borrow money or pledge their assets, except that (i) a
Fund may borrow from banks in amounts not exceeding one-third of its total
assets (including the amount borrowed) less liabilities (other than borrowings);
and (ii) this restriction shall not prohibit a Fund from engaging in
options transactions, reverse repurchase agreements, purchasing securities on a
when-issued, delayed delivery, or forward delivery basis, or short sales in
accordance with its objectives and strategies;
2. Underwrite
the securities of other issuers (except that a Fund may engage in transactions
involving the acquisition, disposition or resale of its portfolio securities
under circumstances where it may be considered to be an underwriter under the
Securities Act);
3. Purchase
or sell real estate or interests in 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 that invest or deal in
real estate);
4. Purchase
or sell physical commodities or commodities contracts, 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
personal loans of money or loans of its assets to persons who control or are
under common control with a Fund (except that a Fund may lend its portfolio
securities, enter into repurchase agreements, purchase debt securities
consistent with the investment policies of the Fund, and invest in loans,
including assignments and participation interests); or
6. Invest
in the securities of any one industry or group of industries if, as a result,
25% or more of a Fund’s total assets would be invested in the securities of such
industry or group of industries; except that, the foregoing does not apply to
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
In
applying each Fund’s fundamental policy on concentration described above
(i.e.,
investing more than 25% of its net assets in the securities of issuers primarily
engaged in the same industry or group of industries), Jackson Square uses GICS
sub-industry classifications.
The
Funds intend to comply with the SEC staff position that securities issued or
guaranteed as to principal and interest by any single foreign government are
considered to be securities of issuers in the same industry.
Except
with respect to MLPs, borrowing, and investments in illiquid investments, 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 a Fund will
not be considered a violation. With respect to borrowing, if at any time a
Fund’s borrowings exceed one-third of its total assets (including the amount
borrowed) less liabilities and indebtedness (other than borrowings), such
borrowings will be reduced within three days, (not including Sundays and
holidays) or such longer period as may be permitted by the 1940 Act, to the
extent necessary to comply with the one-third limitation. If at any time a
Fund’s illiquid investments are greater than 15% of its net assets, the Fund
will determine how to remediate the excess illiquid investments in accordance
with the 1940 Act and the Fund’s policies and procedures.
The
management and affairs of the Funds are supervised by the Board. The Board
consists of four individuals. The Trustees are fiduciaries and are governed by
the laws of the State of Delaware in this regard. The Board establishes policies
for the operation of the Funds and appoints the officers who conduct the daily
business of the Funds.
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 operation of
the Trust is the responsibility of various service providers to the Trust and
its individual series, such as the Adviser; Quasar Distributors, LLC, the Funds’
principal underwriter (the “Distributor”); U.S. Bancorp Fund Services, LLC,
doing business as U.S. Bank Global Fund Services, the Funds’ administrator (the
“Administrator”) and transfer agent (the “Transfer Agent”); and U.S. Bank N.A.,
the Funds’ Custodian, 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 Adviser, Distributor,
Administrator, Custodian and Transfer Agent. The Board has appointed various
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 reports directly to
the Board and who administers the Trust’s compliance program and regularly
reports to the Board as to compliance matters, including an annual compliance
review. Some of these reports are provided as part of formal “Board Meetings,”
which are held four times per year, in person, and such other times as the Board
determines is necessary, and involve the Board’s review of recent Trust
operations. From time to time one or more members of the Board may also meet
with Trust officers in less formal settings, between formal Board Meetings, to
discuss various topics. In all cases, however, the role of the Board and of any
individual Trustee is one of oversight and not of management of the day-to-day
affairs of the Trust, and its oversight role does not make the Board a guarantor
of the Trust’s investments, operations, or activities.
The
Board has structured itself in a manner that it believes allows it to
effectively perform its oversight function.
The
Board is comprised of four Trustees that are not considered to be “interested
persons” of the Funds, as defined in the 1940 Act (“Independent Trustees”) –
Messrs. David A. Massart, Leonard M. Rush, David M. Swanson and Robert J.
Kern.
Accordingly,
100% of the members of the Board are Independent Trustees, who are Trustees that
are not affiliated with the investment adviser to the Funds or its affiliates or
other service providers to the Funds. Prior to July 6, 2020, Mr. Kern was
considered an “interested person” of the Trust as defined in the 1940 Act
(“Interested Trustee”). He was considered an Interested Trustee by virtue of the
fact that he had served as a board member of Quasar Distributors, LLC, which
acts as principal underwriter to many of the Trust’s series and had been an
Executive Vice President of the Administrator. The Board has established two
standing committees, an Audit Committee and a Nominating & Governance
Committee. The Committees are discussed in greater detail under “Board
Committees” below. Each of the Audit Committee and the Nominating &
Governance Committee are comprised entirely of Independent Trustees.
The
Independent Trustees have engaged independent counsel to advise them on matters
relating to their responsibilities in connection with the Trust, as well as the
Funds.
The
Independent Trustees have appointed Leonard M. Rush as Chairman. Prior to July
6, 2020, Mr. Kern served as Chairman of the Trust and Mr. Rush served as lead
Independent Trustee with the responsibilities to coordinate activities of the
Independent Trustees, act as a liaison with the Trust’s service providers,
officers, legal counsel, and other Trustees between meetings, help to set Board
meeting agendas, and serve as chair during executive sessions of the Independent
Trustees.
In
accordance with the fund governance standards prescribed by the SEC under the
1940 Act, the Independent Trustees on the Nominating & Governance Committee
select and nominate all candidates for Independent Trustee
positions.
Each
Trustee was appointed to serve on the Board because of his experience,
qualifications, attributes and skills as set forth in the subsection “Trustee
Qualifications” below.
The
Board reviews its structure regularly in light of the characteristics and
circumstances of the Trust, including: the affiliated or unaffiliated nature of
each investment adviser; the number of funds that comprise the Trust; the
variety of asset classes that those funds reflect; the net assets of the Trust;
the committee structure of the Trust; and the independent distribution
arrangements of each of the Trust’s series.
The
Board has determined that the inclusion of all Independent Trustees as members
of the Audit Committee and the Nominating & Governance Committee allows all
such Trustees to participate in the full range of the Board’s oversight duties,
including oversight of risk management processes discussed below.
Given
the composition of the Board and the function and composition of its various
committees as described above, the Trust has determined that the Board’s
leadership structure is appropriate.
As
part of its oversight function, the Board receives and reviews various risk
management reports and assessments and discusses these matters with appropriate
management and other personnel, including personnel of the Trust’s service
providers. Because risk management is a broad concept comprised of many elements
(such as, for example, investment risk, issuer and counter-party risk,
compliance risk, operational risk, business continuity risk, etc.) the oversight
of different types of risks is handled in different ways. For example, the CCO
regularly reports to the Board during Board Meetings and meets in executive
session with the Independent Trustees and their legal counsel to discuss
compliance and operational risks. In addition, Mr. Rush, the Independent Trustee
designated as the Audit Committee’s “audit committee financial expert,” meets
with the President, Treasurer and the Funds' independent registered public
accounting firm to discuss, among other things, the internal control structure
of the Funds' financial reporting function. The full Board receives reports from
the investment advisers to the underlying series as to investment
risks.
The
Trustees and officers of the Trust are listed below with their addresses,
present positions with the Trust and principal occupations over at least the
last five years.
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Name,
Address and Year of Birth |
Position(s) Held
with the Trust |
Term
of Office and Length of Time Served |
Number
of Portfolios in Trust Overseen by Trustee |
Principal
Occupation(s) During the Past Five Years |
Other Directorships Held
by Trustee During the Past Five Years |
Independent
Trustees |
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Leonard
M. Rush, CPA 615 E. Michigan St. Milwaukee, WI 53202 Year of
Birth: 1946 |
Chairman, Trustee
and Audit Committee Chairman |
Indefinite Term;
Since April 2011 |
32 |
Retired;
Chief Financial Officer, Robert W. Baird & Co. Incorporated,
(2000-2011). |
Independent Trustee,
ETF Series Solutions (56 Portfolios) (2012-Present) |
David
A. Massart 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1967 |
Trustee
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Indefinite Term;
Since April 2011 |
32 |
Partner
and Managing Director, Beacon Pointe Advisors, LLC (since 2022);
Co-Founder and Chief Investment Strategist, Next Generation Wealth
Management, Inc. (2005-2021). |
Independent Trustee,
ETF Series Solutions (56
Portfolios) (2012-Present) |
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David
M. Swanson 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1957 |
Trustee
and Nominating & Governance Committee Chairman |
Indefinite Term;
Since April 2011 |
32 |
Founder
and Managing Principal, SwanDog Strategic Marketing, LLC
(2006-present). |
Independent
Trustee, ALPS Variable Investment Trust (7 Portfolios) (2006 to Present);
Independent Trustee, RiverNorth Funds (3 Portfolios) (2018 to Present);
RiverNorth Managed Duration Municipal Income Fund, Inc. (1 Portfolio)
(2019 to Present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1
Portfolio) (2018 to Present); RiverNorth Capital and Income Fund (1
Portfolio) (2018 to Present); RiverNorth Opportunities Fund (1 Portfolio)
(2015 to Present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc.
(1 Portfolio) (2019 to Present); RiverNorth Flexible Municipal Income
Fund, Inc. (1 Portfolio) (2020 to Present); RiverNorth Flexible Municipal
Income Fund II, Inc. (1 Portfolio) (2021 to Present); RiverNorth Managed
Duration Municipal Income Fund II, Inc. (1 Portfolio) (2022 to
Present). |
Robert
J. Kern 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1958 |
Trustee |
Indefinite Term;
Since January 2011 |
32 |
Retired
(2018-present); Executive Vice President, U.S. Bancorp Fund Services, LLC
(1994-2018). |
None |
Officers |
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Brian
R. Wiedmeyer 615 E. Michigan St. Milwaukee, WI 53202 Year of
Birth: 1973 |
President
and Principal Executive Officer |
Indefinite
Term; Since November 2018 |
N/A |
Vice
President, U.S. Bancorp Fund Services, LLC (2005-present). |
N/A |
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Deborah
Ward 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1966 |
Vice
President, Chief Compliance Officer and Anti-Money Laundering
Officer |
Indefinite
Term; Since April 2013 |
N/A |
Senior
Vice President, U.S. Bancorp Fund Services, LLC (2004-present). |
N/A |
Benjamin
Eirich 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1981 |
Treasurer,
Principal Financial Officer and Vice President |
Indefinite Term;
Since August 2019 (Treasurer); Indefinite Term;
Since November 2018 (Vice President) |
N/A |
Assistant
Vice President, U.S. Bancorp Fund Services, LLC (2008-present). |
N/A |
John
Hadermayer 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1977 |
Secretary |
Indefinite
Term; Since May 2022 |
N/A |
Vice
President, U.S. Bancorp Fund Services, LLC (2022-present); Executive
Director, AQR Capital Management, LLC (2013-2022). |
N/A |
Douglas
Schafer 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1970 |
Assistant
Treasurer and Vice President |
Indefinite
Term; Since May 2016 (Assistant Treasurer); Indefinite Term; Since
November 2018 (Vice President) |
N/A |
Assistant
Vice President, U.S. Bancorp Fund Services, LLC (2002-present). |
N/A |
Sara
J. Bollech 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1977 |
Assistant
Treasurer and Vice President |
Indefinite
Term: Since November 2021 |
N/A |
Officer,
U.S. Bancorp Fund Services, LLC (2007-present). |
N/A |
Peter
A. Walker, CPA 615 E. Michigan St. Milwaukee, WI 53202 Year of
Birth: 1993 |
Assistant
Treasurer and Vice President |
Indefinite
Term: Since November 2021 |
N/A |
Officer,
U.S. Bancorp Fund Services, LLC (2016-present). |
N/A |
The
Board believes that each of the Trustees has the qualifications, experience,
attributes and skills appropriate to their continued service as Trustees of the
Trust in light of the Trust’s business and structure. The Trustees have
substantial business and professional backgrounds that indicate they have the
ability to critically review, evaluate and assess information provided to them.
Certain of these business and professional experiences are set forth in detail
in the table above. In addition, the Trustees 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 the individual Trustees is
reviewed.
In
addition to the information provided in the table above, below is certain
additional information concerning each individual Trustee. The information
provided below, and in the table above, is not all-inclusive. Many of the
Trustees’ qualifications to serve on the Board 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.
Mr.
Kern’s trustee attributes include substantial industry experience, including
over 35 years of service with U.S. Bancorp Fund Services, LLC (the fund
accountant (“Fund Accountant”), Administrator, and Transfer Agent to the Trust)
where he managed business development and the mutual fund transfer agent
operation including investor services, account services, legal compliance,
document processing and systems support. He also served as a board member of
U.S. Bancorp Fund Services, LLC and previously served as a board member of
Quasar Distributors, LLC (the principal underwriter of many of the Trust's
series). The Board believes Mr. Kern’s experience, qualifications, attributes
and skills on an individual basis and in combination with those of the other
Trustees lead to the conclusion that he possesses the requisite skills and
attributes as a Trustee to carry out oversight responsibilities with respect to
the Trust.
Mr.
Massart’s trustee attributes include substantial industry experience, including
over two decades working with high net worth individuals, families, trusts and
retirement accounts to make strategic and tactical asset allocation decisions,
evaluate and select investment managers and manage client relationships. He is
currently the Partner and Managing Director of Beacon Pointe Advisors, LLC.
Previously, he served as Chief Investment Strategist and lead member of the
investment management committee of the SEC registered investment advisory firm
he co-founded. He also previously served as Managing Director of Strong Private
Client and as a Manager of Wells Fargo Investments, LLC. The Board believes Mr.
Massart’s experience, qualifications, attributes and skills on an individual
basis and in combination with those of the other Trustees lead to the conclusion
that he possesses the requisite skills and attributes as a Trustee to carry out
oversight responsibilities with respect to the Trust.
Mr.
Rush’s trustee attributes include substantial industry experience, including
serving in several different senior executive roles at various global financial
services firms. He most recently served as Managing Director and Chief Financial
Officer of Robert W. Baird & Co. Incorporated and several other affiliated
entities and served as the Treasurer for Baird Funds. He also served as the
Chief Financial Officer for Fidelity Investments’ four broker-dealers and has
substantial experience with mutual fund and investment advisory organizations
and related businesses, including Vice President and Head of Compliance for
Fidelity Investments, a Vice President at Credit Suisse First Boston, a Manager
with Goldman Sachs, & Co. and a Senior Manager with Deloitte & Touche.
Mr. Rush has been determined to qualify as an Audit Committee Financial Expert
for the Trust. The Board believes Mr. Rush’s experience, qualifications,
attributes and skills on an individual basis and in combination with those of
the other Trustees lead to the conclusion that he possesses the requisite skills
and attributes as a Trustee and as the Chairman to carry out oversight
responsibilities with respect to the Trust.
Mr.
Swanson’s trustee attributes include substantial industry experience, including
over 35 years of senior management and marketing experience with over 30 years
dedicated to the financial services industry. He is currently the Founder and
Managing Principal of a marketing strategy boutique serving asset and wealth
management businesses. He has also served as Chief Operating Officer and Chief
Marketing Officer of Van Kampen Investments, President and Chief Executive
Officer of Scudder, Stevens & Clark, Canada, Ltd., Managing Director and
Head of Global Investment Products at Morgan Stanley, Director of Marketing for
Morgan Stanley Mutual Funds, Director of Marketing for Kemper Funds, and
Executive Vice President and Head of Distribution for Calamos Investments. The
Board believes Mr. Swanson’s experience, qualifications, attributes and skills
on an individual basis and in combination with those of the other Trustees lead
to the conclusion that he possesses the requisite skills and attributes as a
Trustee to carry out oversight responsibilities with respect to the
Trust.
This
discussion of the Trustees’ experience and qualifications is pursuant to SEC
requirements, does not constitute holding out the Board or any Trustee as having
special expertise, and shall not impose any greater responsibility or liability
on any such Trustee or the Board by reason thereof.
The
following table shows the dollar range of Fund shares and shares in all
portfolios of the Trust (including the Funds) beneficially owned by the Trustees
as of the calendar year ended December 31, 2022.
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| Dollar
Range of Shares Beneficially Owned (None; $1-$10,000; $10,001-$50,000;
$50,001-$100,000; Over $100,000) |
| David
A. Massart |
Leonard
M. Rush |
David
M. Swanson |
Robert
J. Kern |
SMID-Cap
Growth Fund |
None |
None |
$1-$10,000 |
None |
Large-Cap
Growth Fund |
None |
None |
$1-$10,000 |
None |
All
Trust Portfolios |
None |
None |
$50,001-$100,000 |
None |
As
of December 31, 2022, the Trustees and Officers of the Trust as a group owned
less than 1% of the outstanding shares of any Fund in the Trust.
As
of December 31, 2022, none of the current Independent Trustees or their
immediate family members owned beneficially any class of security of the
Adviser, the Distributor, or any entity (other than a registered investment
company) directly or indirectly controlling, controlled by, or under common
control with the Adviser or the Distributor.
Audit
Committee.
The Trust has an Audit Committee, which is comprised of all the Independent
Trustees. The Audit Committee reviews financial statements and other
audit-related matters for the Fund. The Audit Committee also holds discussions
with management and with the Fund’s independent registered public accounting
firm concerning the scope of the audit and the auditor’s independence. The Audit
Committee met twice with respect to the Funds during the fiscal year ended
October 31, 2022.
Nominating
& Governance Committee.
The Trust has a Nominating & Governance Committee, which is comprised of all
the Independent Trustees. The Nominating & Governance Committee is
responsible for seeking and reviewing candidates for consideration as nominees
for the position of trustee and meets only as necessary.
The
Nominating & Governance Committee will consider nominees recommended by
shareholders for vacancies on the Board. Recommendations for consideration by
the Nominating & Governance Committee should be sent to the President of the
Trust in writing together with the appropriate biographical information
concerning each such proposed nominee, and such recommendation must comply with
the notice provisions set forth in the Trust’s Bylaws. In general, to comply
with such procedures, such nominations, together with all required information,
must be delivered to and received by the President of the Trust at the principal
executive office of the Trust not later than 120 days, and no more than 150
days, prior to the shareholder meeting at which any such nominee would be voted
on. Shareholder recommendations for nominations to the Board will be accepted on
an ongoing basis. The Nominating & Governance Committee’s procedures with
respect to reviewing shareholder nominations will be disclosed as required by
applicable securities laws. The Nominating & Governance Committee did not
meet with respect to the Funds during the fiscal year ended October 31,
2022.
The
Trustees receive an annual retainer of $110,000. The Chairman of the Audit
Committee receives additional compensation of $14,000, the Chairman of the
Nominating & Governance Committee receives additional compensation of $8,000
and the Chairman of the Board of Trustees receives $12,500 annually. Prior to
January 1, 2023, the Trustees received $6,000 for regularly scheduled meetings
and $2,500 for additional meetings. Effective January 1, 2023, the Trustees
receive $8,000 for regularly scheduled meetings and $2,500 for additional
meetings.
The
following table sets forth the compensation received by the Trustees for the
fiscal year ended October 31, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name
of Person/Position |
| Leonard
M. Rush, Chairman, Independent Trustee & Audit Committee
Chair |
David
A. Massart, Independent Trustee |
David
M. Swanson Independent Trustee and Nominating & Governance
Committee Chairman |
Robert
J. Kern, Independent Trustee |
Aggregate
Compensation From:(1) |
|
|
| |
Large-Cap
Growth Fund |
$4,818 |
$4,042 |
$4,276 |
$4,042 |
SMID-Cap
Growth Fund |
$4,818 |
$4,042 |
$4,276 |
$4,042 |
Pension
or Retirement Benefits Accrued as Part of Fund Expenses |
None |
None |
None |
None |
Estimated
Annual Benefits Upon Retirement |
None |
None |
None |
None |
Total
Compensation from the Fund and the Trust(2)
Paid to Trustees |
$164,250 |
$137,750 |
$145,750 |
$137,750 |
(1)
Trustees
fees and expenses are allocated among each Fund and any other series comprising
the Trust.
(2)
The Trust includes other series in addition to the
Funds.
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 Fund or acknowledges the existence of control. A controlling
person possesses the ability to control the outcome of matters submitted for
shareholder vote by a Fund. The following tables list the shareholders
considered to be either a control person or a principal shareholder of each Fund
as of January 31, 2023:
|
|
|
|
|
|
|
| |
Jackson
Square Large-Cap Growth Fund – Investor Class |
Name
and Address |
%
Ownership |
Type
of Ownership (1) |
Wells
Fargo Clearing Services LLC Special Custody Account for the Exclusive
Benefit of Customer 2801 Market Street Saint Louis, Missouri
63103-2523 |
12.29% |
Record |
Morgan
Stanley Smith Barney LLC For the Exclusive Benefit of its
Customers 1 New York Plaza, Floor 12 New York, New York
10004-1965 |
11.15% |
Record |
National
Financial Services LLC For the Exclusive Benefit of Our
Customers Attn Mutual Funds Dept 4th Floor 499 Washington
Boulevard Jersey City, New Jersey 07310-1995 |
9.00% |
Record |
Pershing
LLC 1 Pershing Plaza, Floor 14 Jersey City, New Jersey
07399-0002 |
5.25% |
Record |
LPL
Financial Omnibus Customer Account Attn Lindsay O'Toole 4707
Executive Drive San Diego, California 92121-3091 |
5.17% |
Record |
|
|
|
|
|
|
|
| |
Jackson
Square Large-Cap Growth Fund – Institutional Class |
Name
and Address |
%
Ownership |
Type
of Ownership (1) |
Morgan
Stanley Smith Barney LLC For the Exclusive Benefit of its
Customers 1 New York Plaza, Floor 12 New York, New York
10004-1965 |
26.70% |
Record |
National
Financial Services LLC For the Exclusive Benefit of Our
Customers Attn Mutual Funds Dept 4th Floor 499 Washington
Boulevard Jersey City, New Jersey 07310-1995 |
11.43% |
Record |
American
Enterprise Investment SVC 707 2nd Avenue S Minneapolis, Minnesota
55402-2405 |
9.26% |
Record |
Wells
Fargo Clearing Services LLC Special Custody Account for the Exclusive
Benefit of Customer 2801 Market Street Saint Louis, Missouri
63103-2523 |
9.15% |
Record |
UBS
WM USA Special Custody Account EBOC UBSFSI 1000 Harbor
Boulevard Weehawken, New Jersey 07086-6761 |
7.77% |
Record |
Charles
Schwab & Company Inc Special Custody A/C FBO Customers Attn
Mutual Funds 211 Main Street San Francisco, California
94105-1901 |
7.76% |
Record |
Edward
D. Jones and Co. For the Benefit of Customers 12555 Manchester
Road St. Louis, Missouri 63131-3710 |
6.75% |
Record |
|
|
|
|
|
|
|
| |
Jackson
Square Large-Cap Growth Fund – IS Class |
Name
and Address |
%
Ownership |
Type
of Ownership (1) |
Reliance
Trust Co. FBO COMERICA EB R/R PO Box 78446 Atlanta, Georgia
30357 |
27.71% |
Record |
Charles
Schwab & Company Inc Special Custody A/C FBO Customers Attn
Mutual Funds 211 Main Street San Francisco, California
94105-1905 |
16.83% |
Record |
Northern
Trust Company Customer FBO Hobart and William Smith Colleges
Equity PO Box 92956 Chicago, Illinois 60675-2956 |
12.67% |
Beneficial |
St.
Elizabeth Medical Center Employee Retirement Plan Attn Denise Miles
Finance 2209 Genesee Street Utica, New York 13501-5999 |
9.20% |
Record |
Northern
Trust Company Customer FBO Hobart and William Smith Colleges
Equity PO Box 92956 Chicago, Illinois 60675-2956 |
9.03% |
Record |
Matrix
Trust Company Custody FBO Stoel Rives Retirement Plan PO Box
52129 Phoenix, Arizona 85072-2129 |
6.42% |
Record |
Dekalb
County Community Foundation 4k75 Dekalb Avenue Sycamore, Illinois
60178-1717 |
5.60% |
Beneficial |
SEI
Private Trust Company C/O Trust One Freedom Valley Drive Oaks,
Pennsylvania 19456-9989 |
5.40% |
Record |
|
|
|
|
|
|
|
| |
Jackson
Square SMID-Cap Growth Fund – Investor Class |
Name
and Address |
%
Ownership |
Type
of Ownership (1) |
National
Financial Services LLC For the Exclusive Benefit of Our
Customers Attn Mutual Funds Dept 4th Floor 499 Washington
Boulevard Jersey City, New Jersey 07310-1995 |
84.48% |
Record |
Charles
Schwab & Company Inc Special Custody A/C FBO Customers Attn
Mutual Funds 211 Main Street San Francisco, California
94105-1905 |
10.82% |
Record |
|
|
|
|
|
|
|
| |
Jackson
Square SMID-Cap Growth Fund – Institutional Class |
Name
and Address |
%
Ownership |
Type
of Ownership (1) |
National
Financial Services LLC For the Exclusive Benefit of Our
Customers Attn Mutual Funds Dept 4th Floor 499 Washington
Boulevard Jersey City, New Jersey 07310-1995 |
45.41% |
Record |
Charles
Schwab & Company Inc Special Custody A/C FBO Customers Attn
Mutual Funds 211 Main Street San Francisco, California
94105-1905 |
39.68% |
Record |
Pershing
LLC 1 Pershing Plaza, Floor 14 Jersey City, New Jersey
07399-0002 |
7.07% |
Record |
|
|
|
|
|
|
|
| |
Jackson
Square SMID-Cap Growth Fund – IS Class |
Name
and Address |
%
Ownership |
Type
of Ownership (1) |
Capinco
C/O US Bank NA PO Box 1787 Milwaukee, Wisconsin 53201-1787 |
18.70% |
Record |
National
Financial Services LLC For the Exclusive Benefit of Our
Customers Attn Mutual Funds Dept 4th Floor 499 Washington
Boulevard Jersey City, New Jersey 07310-1995 |
17.79% |
Record |
Attn
Mutual Fund Operations Mac & Company A/C 970687 500 Grant
Street, Room 151-1010 Pittsburgh, Pennsylvania 15219-2502 |
14.61% |
Record |
Attn
Mutual Funds SEI Private Trust Company One Freedom Valley Drive
Oaks, Pennsylvania 19456-9989 |
13.23% |
Record |
Charles
Schwab & Company Inc Special Custody A/C FBO Customers Attn
Mutual Funds 211 Main Street San Francisco, California
94105-1905 |
9.96% |
Record |
(1)
“Record”
ownership means the shareholder of record, or the exact name of the shareholder
on the account, e.g. “ABC Brokerage, Inc.” “Beneficial” ownership refers to the
actual pecuniary, or financial, interest in the security, e.g. “Jane Doe
Shareholder.” "Both" refers to accounts held by the company of record, for the
actual or pecuniary interest of others (e.g., "ABC Brokerage, Inc. FBO Its
Customers").
The
Adviser, Jackson Square Partners, LLC, a Delaware limited liability company,
provides investment advisory services to the Funds pursuant to an investment
advisory agreement (the “Advisory Agreement”). The Adviser is majority owned and
controlled by key employees of the Adviser through California Street Partners
LP, established in 2014. on November 19, 2020, JSP Acquisition LLC, a
wholly-owned direct subsidiary of Affiliated Managers Group, Inc. acquired
Macquarie Investment Management's (MIM) non-voting minority interest in the
Adviser.
Pursuant
to the Advisory Agreement, the Adviser provides the Funds with investment
research and advice and furnishes the Funds with an investment program
consistent with each Fund’s investment objective and policies, subject to the
supervision of the Board. The Adviser determines which portfolio securities will
be purchased or sold, arranges for the placing of orders for the purchase or
sale of portfolio securities, selects brokers or dealers to place those orders,
maintains books and records with respect to the securities transactions and
reports to the Board on the Funds’ investments and performance. The Adviser is
solely responsible for making investment decisions on behalf of the Funds.
The Board will have sole responsibility for selecting, evaluating the
performance of, and replacing as necessary any of the service providers to the
Funds, including the Adviser.
After
an initial two-year period, the Advisory Agreement will continue in effect from
year to year, only if such continuance is specifically approved at least
annually by: (i) the Board or the vote of a majority of the outstanding voting
securities of each Fund; and (ii) the vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement is terminable without penalty by the Trust, on
behalf of a Fund, upon 60 days’ written notice to the Adviser, when authorized
by either: (i) a majority vote of the Fund’s shareholders (with respect to such
Fund); or (ii) by a vote of a majority of the Board or by the Adviser upon 60
days’ written notice to the Trust. The Advisory Agreement will automatically
terminate in the event of its “assignment,” as defined under 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
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties thereunder.
In
consideration of the services provided by the Adviser pursuant to the Advisory
Agreement, the Adviser is entitled to receive from each Fund a management fee
computed daily and paid monthly, based on a percentage of the Fund’s average
annual net assets, as specified in the Prospectus. However, the Adviser may
voluntarily agree to reduce the management fees payable to it on a
month-to-month basis, including additional fees above and beyond any contractual
agreement the Adviser may have to reduce management fees and/or reimburse Fund
expenses. The total advisory fees incurred by each Fund during the fiscal
periods ended October 31 were as follows:
|
|
|
|
|
|
|
| |
Jackson
Square Large-Cap Growth Fund |
2022 |
2021(1) |
Advisory
Fee Accrued |
$4,655,084 |
$8,186,183 |
Advisory
Fees Waived |
$(208,134) |
$(72) |
Advisory
Fees Recouped |
$180,716 |
$72 |
Total
Advisory Fees Paid to Adviser |
$4,627,666 |
$8,186,183 |
(1)
For the period from April 16, 2021 to October 31, 2021
|
|
|
|
|
|
|
|
|
|
| |
Jackson
Square SMID-Cap Growth Fund |
2022 |
2021 |
2020 |
Advisory
Fee Accrued |
$9,613,941 |
$15,195,845 |
$8,866,216 |
Advisory
Fees Waived |
$(22,916) |
– |
– |
Advisory
Fees Recouped |
– |
$44,330 |
$239,141 |
Total
Advisory Fees Paid to Adviser |
$9,591,025 |
$15,240,175 |
$9,105,357 |
With
respect to the Large-Cap Growth Fund, as explained in this SAI, the Predecessor
Fund was reorganized into the Large-Cap Growth Fund. Investment advisory
services for the Predecessor Fund were provided by Delaware Management Company
(“DMC”). Pursuant to an investment management agreement, the Predecessor Fund
was obligated to pay DMC a management fee at the
annual
rate of 0.65% of the Predecessor Fund’s average net assets up to $500 million,
0.60% on next $500 million average net assets, 0.55% on the next $1.5 billion
and 0.50% on assets in excess of $2.5 billion. For the services provided by DMC
under the management agreement with respect to the Predecessor Fund, DMC was
paid management fees and waived advisory fees as follows for the fiscal periods
indicated below:
|
|
|
|
|
|
|
| |
Jackson
Square Large-Cap Growth Fund |
November
1, 2020 to April 16, 2021 |
November
1, 2019 to October 31, 2020 |
Advisory
Fee Accrued |
$7,299,264 |
$13,831,730 |
Advisory
Fees Waived |
$(481,630) |
$(1,175,667) |
Total
Advisory Fees Paid to Adviser |
$6,817,634 |
$12,656,063 |
Pursuant
to the investment management agreement with the Predecessor Fund, DMC entered
into an investment sub-advisory agreement with the Jackson Square Partners, LLC
(the “Adviser” or “Jackson Square”). As sub-adviser of the Predecessor Fund, the
Adviser had the sole responsibility for all day-to-day investment advisory
services for the Predecessor Fund and utilized the same portfolio
managers.
As
compensation for the services rendered under the Predecessor Fund’s sub-advisory
agreement, DMC paid the Adviser the following sub-advisory fees during the
Predecessor Fund’s fiscal periods indicated below:
|
|
|
|
|
|
|
| |
Jackson
Square Large-Cap Growth Fund |
November
1, 2020 to April 16, 2021 |
November
1, 2019 to October 31, 2020 |
Sub-Advisory
Fees Paid |
$4,408,902 |
$8,299,038 |
Sub-Advisory
Fee as a Percentage of the Fund’s Average Daily Net
Assets |
0.35% |
0.35% |
Fund
Expenses.
Each Fund is responsible for its own operating expenses. Pursuant to an
Operating Expenses Limitation Agreement between the Adviser and the Trust, on
behalf of the Funds, the Adviser has agreed to waive its management fees and pay
each Fund’s expenses, as specified in the Prospectus. Fees waived and expenses
paid by the Adviser may be recouped by the Adviser for a period of 36 months
following the month during which such fee waiver and expense payment occurred,
and the expense limit in effect at the time of recoupment. The Operating
Expenses Limitation Agreement is indefinite in term, but cannot be terminated
through at least February 28, 2024. Thereafter, the agreement may be terminated
at any time upon 60 days’ written notice by the Trust’s Board or the
Adviser.
|
|
|
|
| |
Fund |
Expense
Limitation |
Large-Cap
Growth Fund |
0.64% |
SMID-Cap
Growth Fund |
0.87% |
As
disclosed in the Prospectus, Jeffrey S. Van Harte, Christopher J. Bonavico,
Kenneth F. Broad, Christopher M. Ericksen, Ian D. Ferry, William Montana, and
Brian Tolles are the portfolio managers for the Funds (each a “Portfolio
Manager” and collectively, the “Portfolio Managers”).
The
following provides information regarding other accounts managed by the Portfolio
Managers, excluding the Funds, as of October 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Manager |
Category |
#
of Accounts |
Total
Assets (in millions) |
#
of Accounts Paying a Performance Fee |
Total
Assets Paying a Performance Fee (in millions) |
|
|
|
|
| |
Jeffrey
S. Van Harte, CFA* |
Registered
investment companies |
1 |
$122 |
0 |
$0 |
| Other
pooled investment vehicles |
1 |
$50 |
0 |
$0 |
| Other
accounts |
11 |
$65 |
1 |
$84 |
|
|
|
|
| |
Christopher
J. Bonavico, CFA |
Registered
investment companies |
1 |
$67 |
0 |
$0 |
| Other
pooled investment vehicles |
6 |
$946 |
0 |
$0 |
| Other
accounts |
30 |
$1,525 |
1 |
$79 |
|
|
|
|
| |
Kenneth
F. Broad, CFA |
Registered
investment companies |
1 |
$67 |
0 |
$0 |
| Other
pooled investment vehicles |
6 |
$946 |
1 |
$105 |
| Other
accounts |
25 |
$1,423 |
1 |
$79 |
|
|
|
|
| |
Christopher
M. Ericksen, CFA |
Registered
investment companies |
1 |
$122 |
0 |
$0 |
| Other
pooled investment vehicles |
1 |
$50 |
0 |
$0 |
| Other
accounts |
9 |
$5 |
1 |
$84 |
|
|
|
|
| |
Ian
D. Ferry, CFA |
Registered
investment companies |
1 |
$67 |
0 |
$0 |
| Other
pooled investment vehicles |
6 |
$946 |
1 |
$105 |
| Other
accounts |
21 |
$1,411 |
1 |
$79 |
|
|
|
|
| |
William
Montana |
Registered
investment companies |
1 |
$122 |
0 |
$0 |
| Other
pooled investment vehicles |
1 |
$50 |
0 |
$0 |
| Other
accounts |
4 |
$4 |
1 |
$84 |
|
|
|
|
| |
Brian
Tolles* |
Registered
investment companies |
0 |
$0 |
0 |
$0 |
| Other
pooled investment vehicles |
0 |
$0 |
0 |
$0 |
| Other
accounts |
11 |
$39 |
0 |
$0 |
*Effective
June 30, 2023, Mr. Van Harte and Mr. Ericksen will no longer be portfolio
managers on the Large-Cap Growth Fund. Effective July 1, 2023, Mr. Tolles will
be added as portfolio manager on the Large-Cap Growth Fund.
The
Portfolio Managers’ management of “other accounts” may give rise to conflicts of
interest in connection with the management of a Fund’s investments, on the one
hand, and the investments of the other accounts, on the other.
Individual
portfolio managers perform investment management services for other funds or
accounts similar to those provided to the Funds, and the investment action for
each other fund or account and the fund may differ. For example, one fund or
account may be selling a security, while another fund or account may be
purchasing or holding the same security. As a result, transactions executed for
one fund or account or the fund may adversely affect the value of securities
held by another fund or account or the fund. In addition, the management of
multiple other funds or accounts and the fund may give rise to potential
conflicts of interest, as a portfolio manager must allocate time and effort to
multiple funds or accounts and the fund. A portfolio manager may discover an
investment opportunity that may be suitable for more than one fund or account.
The investment opportunity may be limited, however, so that all funds or
accounts for which the investment would be suitable may not be able to
participate. The Adviser has adopted procedures designed to allocate investments
fairly across multiple funds or accounts. Certain of the accounts managed by the
portfolio managers have performance-based fees. This compensation structure
presents a potential conflict of interest. The portfolio managers have an
incentive to manage such accounts so as to enhance their performance, to the
possible detriment of other accounts for which the investment manager does not
receive a performance-based fee. A portfolio manager's management of personal
accounts also may present certain conflicts of interest. Although the Adviser's
Code of Ethics is designed to address these potential conflicts, there is no
guarantee that it will do so.
The
Adviser's investment professionals have remained together, bound by culture and
the unique nature of the team's research/portfolio manager role, for over a
decade on average. Through various market and organizational circumstances over
the years, the group has maintained a meritocracy and very strong
pay-for-performance ethos that rewards positive impact to client portfolios.
Each stock in each portfolio has two or more 'sponsors' who have mathematical
ownership of those names for performance attribution purposes (e.g., 60/40 or
50/50-type responsibility splits). This stock-by-stock attribution can then be
aggregated and the individual contributions of team members measured, down to
the basis point, for each performance period measured: 1/3/5 year and since
inception.
Aggregate
compensation is ultimately driven by revenues, which—in turn—is correlated with
assets under management, which ultimately correlates with performance over the
long term, in a self-reinforcing cycle of better performance leading to more
assets under management (both via flows and appreciation) and greater
revenues/compensation. Additionally, qualitative factors such as contribution to
debates of other team members' ideas are also considered in compensation.
Certain employees, including eight members of the investment team, also have
equity ownership as part of their compensation.
In
terms of the composition of compensation paid to the investment team, it is
expected to be a combination of base salary, discretionary annual bonuses, and
for those members with equity, partnership equity distributions. The Adviser
believes this combination will have the proper incentives to award prudent long
term focus on building a stable and sustainable business while also rewarding
professionals for superior relative interim results. The following table
indicates the dollar range of Fund shares beneficially owned by each Portfolio
Manager as of December 31, 2022:
|
|
|
|
| |
|
Dollar
Range of Shares Beneficially Owned (None,
$1-$10,000; $10,001-$50,000;
$50,001-$100,000;
$100,001 - $500,000;
$500,001-$1,000,000;
Over $1,000,000) |
Jackson
Square SMID-Cap Growth Fund |
|
Portfolio
Manager |
|
Christopher
J. Bonavico, CFA |
Over
$1,000,000 |
Kenneth
F. Broad, CFA |
Over
$1,000,000 |
Ian
Ferry |
$500,001-$1,000,000 |
Jackson
Square Large-Cap Growth Fund |
|
Portfolio
Manager |
|
Jeffrey
S. Van Harte, CFA |
$500,001-$1,000,000 |
Christopher
M. Ericksen, CFA |
Over
$1,000,000 |
William
Montana |
$500,001-$1,000,000 |
Pursuant
to an administration agreement (the “Administration Agreement”) between the
Trust and U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global
Fund Services (“Fund Services”), 615 East Michigan Street, Milwaukee, Wisconsin,
53202, acts as the Administrator to the Fund. 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; arranging for the computation of performance data, including NAV
per share and yield; responding to shareholder inquiries; 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 any matter pertaining to the distribution of Fund shares. Pursuant to
the Administration Agreement, for its services, Fund Services receives from each
Fund a fee computed daily and payable monthly based on each Fund’s average daily
net assets, subject to an annual minimum fee. Fund Services also acts as Fund
Accountant, Transfer Agent and dividend disbursing agent under separate
agreements with the Trust.
Pursuant
to a custody agreement between the Trust and the Funds, U.S. Bank N.A., an
affiliate of Fund Services, serves as the custodian of the Funds’ assets (the
“Custodian”). For its services, the Custodian receives a monthly fee based on a
percentage of each Fund’s assets, in addition to certain transaction based fees,
and is reimbursed for out-of-pocket expenses. The Custodian’s address is 1555
North Rivercenter Drive, Suite 302, Milwaukee, Wisconsin, 53212. The Custodian
holds the securities in the Funds’ portfolios and other assets for safekeeping.
The Custodian does not participate in decisions relating to the purchase and
sale of securities by the Funds. U.S. Bank and its affiliates may participate in
revenue sharing arrangements with service providers of mutual funds in which the
Funds may invest.
The
following tables show the amount each Fund incurred in administration and
accounting fees to Fund Services during their respective fiscal periods ended
October 31:
|
|
|
|
|
|
|
|
|
|
| |
| 2022 |
2021 |
2020 |
Large-Cap
Growth Fund |
$247,695 |
$670,721 |
$67,895 |
SMID-Cap
Growth Fund |
$489,367 |
$716,482 |
$684,294 |
Stradley
Ronon Stevens & Young, LLP, 2005 Market Street, Suite 2600, Philadelphia,
Pennsylvania 19103, serves as counsel to the Trust and as independent legal
counsel to the Board.
Cohen
& Company, Ltd., 342 North Water Street, Suite 830, Milwaukee, Wisconsin
53202, serves as the independent registered public accounting firm for the
Funds. Its services include auditing the Funds’ financial statements and
performing related tax services.
The
Trust has entered into a distribution agreement (the “Distribution Agreement”)
with Quasar Distributors, LLC (the “Distributor”), 111 East Kilbourn Avenue,
Suite 2200 Milwaukee, Wisconsin 53202, pursuant to which the Distributor acts as
the Funds’ principal underwriter, provides certain administrative services, and
promotes and arranges for the sale of the Funds’ shares on a best efforts basis.
The offering of the Funds’ shares is continuous. The Distributor, Administrator,
Fund Accountant and Custodian are affiliated companies. The Distributor is a
registered broker-dealer and member of the Financial Industry Regulatory
Authority, Inc. (“FINRA”).
The
Distribution Agreement has an initial term of up to two years and will continue
in effect only if such continuance is specifically approved at least annually by
the Board or by vote of a majority of each Fund’s outstanding voting securities
and, in either case, by a majority of the Independent Trustees. 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 under 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
(Rule 12b-1) Plan
The
Funds have adopted a distribution plan for Investor Class shares pursuant to
Rule 12b-1 under the 1940 Act (the “12b-1 Plan”). Under the 12b-1
Plan, each Fund pays a fee to the Distributor for distribution and/or
shareholder services (the “Distribution and Servicing Fee”) at an annual rate of
0.25% of the Fund’s average daily net assets of the Fund’s Investor
Class. The 12b-1 Plan provides that the Distributor may use all or
any portion of a Fund’s Distribution and Servicing Fee to finance any activity
that is principally intended to result in the sale of the Fund’s shares, subject
to the terms of the 12b-1 Plan, or to provide certain shareholder services. The
12b-1 Plan is intended to benefit each Fund by increasing its assets and thereby
reducing the Fund’s expense ratio.
The
Distribution and Servicing Fee is payable to the Distributor regardless of the
distribution-related expenses actually incurred. Because the
Distribution and Servicing Fee is not directly tied to expenses, the amount of
distribution fees paid by Investor Class shares during any year may be more or
less than actual expenses incurred pursuant to the 12b-1 Plan. For
this reason, this type of distribution fee arrangement is characterized by the
staff of the SEC as a “compensation” plan.
The
Distributor may use the Distribution and Servicing Fee to pay for services
covered by the 12b-1 Plan including, but not limited to, advertising;
compensating underwriters, dealers and selling personnel engaged in the
distribution of Fund shares; the printing and mailing of prospectuses,
statements of additional information, and reports; the printing and mailing of
sales literature pertaining to the Funds; and obtaining whatever information,
analyses, and reports with respect to marketing and promotional activities that
a Fund may, from time to time, deem advisable.
The
12b-1 Plan provides that it will continue from year to year upon approval by the
majority vote of the Board, including a majority of the Independent Trustees
cast in person at a meeting called for that purpose, provided that such trustees
have made a determination that there is a reasonable likelihood that the 12b-1
Plan will benefit each Fund and its shareholders. It is also required
that the Independent Trustees, select and nominate all other trustees who are
not “interested persons” of the Funds. The 12b-1 Plan and any related
agreements may not be amended to materially increase the amounts to be spent for
distribution expenses without approval of shareholders holding a majority of a
Fund’s shares outstanding. All material amendments to the 12b-1 Plan
or any related agreements must be approved by a vote of a majority of the Board
and the Independent Trustees, cast in person at a meeting called for the purpose
of voting on any such amendment.
The
12b-1 Plan requires that the Distributor provide to the Board, at least
quarterly, a written report on the amounts and purpose of any payment made under
the 12b-1 Plan. The Distributor is also required to furnish the Board
with such other information as may reasonably be requested in order to enable
the Board to make an informed determination of whether the 12b-1 Plan should be
continued.
As
noted above, the 12b-1 Plan provides for the ability to use Fund assets to pay
financial intermediaries (including those that sponsor mutual fund supermarkets
(as discussed below) and affiliates of the Adviser), plan administrators, and
other service providers to finance any activity that is principally intended to
result in the sale of Fund shares (distribution services) and for the provision
of personal services to shareholders. The payments made by a Fund to
financial intermediaries are based primarily on the dollar amount of assets
invested in the Fund through the financial intermediaries. These
financial intermediaries may pay a portion of the payments that they receive
from the Fund to their investment professionals. In addition to the
ongoing asset-based fees paid to these financial intermediaries under the 12b-1
Plan, a Fund may, from time to time, make payments under the 12b-1 Plan that
help defray the expenses incurred by these intermediaries for conducting
training and educational meetings about various aspects of the Fund for their
employees. In addition, a Fund may make payments under the 12b-1 Plan
for exhibition space and otherwise help defray the expenses these financial
intermediaries incur in hosting client seminars where the Funds are
discussed.
In
addition, a Fund may participate in various “mutual fund supermarkets” in which
a mutual fund supermarket sponsor (usually a broker-dealer) offers many mutual
funds to the sponsor’s customers without charging the customers a sales
charge. In connection with its participation in such platforms, the
Distributor may use all or a portion of the Distribution and Servicing Fee to
pay one or more supermarket sponsors a negotiated fee for distributing the
Fund’s shares. In addition, in its discretion, the Adviser may pay
additional fees to such intermediaries from its own assets.
The
following table shows the 12b-1 fees incurred by each Fund during the fiscal
year ended October 31, 2022.
|
|
|
|
| |
Large-Cap
Growth Fund |
$268,532 |
SMID-Cap
Growth Fund |
$142,521 |
The
following table shows the allocation of the 12b-1 fees paid by each Fund during
the fiscal year ended October 31, 2022.
|
|
|
|
|
|
|
| |
| Large-Cap
Growth Fund |
SMID-Cap
Growth Fund |
Advertising/Marketing |
– |
– |
Printing/Postage |
– |
– |
Payment
to distributor |
– |
– |
Payment
to dealers |
$268,532 |
$142,521 |
Compensation
to sales personnel |
– |
– |
Other |
– |
– |
Total |
$268,532 |
$142,521 |
Pursuant
to a Shareholder Service Plan (the “Plan”) adopted by the Trust on behalf of the
Funds, the Adviser is authorized to provide, or arrange for others to provide
personal shareholder services relating to the servicing and maintenance of
shareholder accounts not otherwise provided to the Funds (“Shareholder Servicing
Activities”). Under the Plan, the Adviser may enter into shareholder service
agreements with securities broker-dealers and other securities professionals
(“Service Organizations”) who provide Shareholder Servicing Activities for their
clients invested in the Funds, including affiliates of the Adviser.
Shareholder
Servicing Activities shall include one or more of the following: (1)
establishing and maintaining accounts and records relating for shareholders of
the Funds; (2) aggregating and processing orders involving the shares of the
Funds; (3) processing dividend and other distribution payments from the Funds on
behalf of shareholders; (4) providing information to shareholders as to their
ownership of Fund shares or about other aspects of the operations of the Funds;
(5) preparing tax reports or forms on behalf of shareholders; (6) forwarding
communications from the Funds to shareholders; (7) assisting shareholders in
changing the Funds’ records as to their addresses, dividend options, account
registrations or other data; (8) providing sub-accounting with respect to shares
beneficially owned by shareholders, or the information to the Fund necessary for
sub-accounting; (9) responding to shareholder inquiries relating to the services
performed; (10) providing shareholders with a service that invests the assets of
their accounts in shares pursuant to specific or pre-authorized instructions;
and (11) providing such other similar services as the Adviser may reasonably
request to the extent the Service Organization is permitted to do so under
applicable statutes, rules or regulations.
As
compensation for the Shareholder Servicing Activities, each Fund pays Service
Organizations or the Adviser an annual fee of up to 0.10% of the respective
average daily net assets of the Fund’s Investor and Institutional Class shares
owned by investors for which the Service Organization maintains a servicing
relationship.
The
following table shows the shareholder servicing fees incurred by each Fund
during the fiscal year ended October 31:
|
|
|
|
| |
| 2022 |
Large-Cap
Growth Fund |
$244,747 |
SMID-Cap
Growth Fund |
$577,924 |
Pursuant
to the Advisory Agreement, the Adviser determines which securities are to be
purchased and sold by the Funds and which broker-dealers are eligible to execute
a Fund’s portfolio transactions. Purchases and sales of securities on an
exchange are affected through brokers that charge a commission while purchases
and sales of securities in the OTC market will generally be executed directly
with the primary “market-maker” unless, in the opinion of the Adviser, a better
price and execution can otherwise be obtained by using a broker for the
transaction. Purchases and sales of portfolio securities that are fixed income
securities (for instance, money market instruments and bonds, notes and bills)
usually are principal transactions. In a principal transaction, the party from
whom a Fund purchases or to whom the Fund sells is acting on its own behalf (and
not as the agent of some other party, such as its customers). These securities
normally are purchased directly from the issuer or from an underwriter or market
maker for the securities. The price of securities purchased from underwriters
includes a disclosed fixed commission or concession paid by the issuer to the
underwriter, and prices of securities purchased from dealers serving as market
makers reflects the spread between the bid and asked price. The price of OTC
securities usually includes an undisclosed commission or markup.
Purchases
of portfolio securities for a Fund will be effected through broker-dealers
(including banks) that specialize in the types of securities that the Fund will
be holding, unless better executions are available elsewhere. Dealers usually
act as principal for their own accounts. Purchases from dealers will include a
spread between the bid and the asked price. If the execution and price offered
by more than one dealer are comparable, the order may be allocated to a dealer
that has provided research or other services as discussed below.
In
placing portfolio transactions, the Adviser will use reasonable efforts to
choose broker-dealers capable of providing the services necessary to obtain the
most favorable price and execution available. The full range and quality of
services, 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 available, will be considered in making
these determinations. In those instances where it is reasonably determined that
more than one broker-dealer can offer the services needed to obtain the most
favorable price and execution available, consideration may be given to those
broker-dealers that furnish or supply research and statistical information to
the Adviser that it may lawfully and appropriately use in its investment
advisory capacities, as well as provide other brokerage services incidental to
execution services. Research and statistical information may include reports
that are common in the industry such as industry research reports and
periodicals, quotation systems, software for portfolio management and formal
databases. Typically, the research will be used to service all of the Adviser’s
accounts, although a particular client may not benefit from all the research
received on each occasion. The Adviser considers research information, which is
in addition to and not in lieu of the services required to be performed by it
under its Advisory Agreement with the Funds, to be useful in varying degrees,
but of indeterminable value.
While
it is the Funds’ general policy to first seek to obtain the most favorable price
and execution available in selecting a broker-dealer to execute portfolio
transactions for a Fund, weight may also be given to the ability of a
broker-dealer to furnish brokerage and research services to the Fund or to the
Adviser, even if the specific services are not directly useful to the Fund 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, a
Fund 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 of the Adviser and its affiliates. Nevertheless, it is often the case
that identical securities will be acceptable for both the Fund and one or more
of such other client accounts. In such event, the position of a Fund and such
other client account(s) 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 seek to acquire the same
security as a Fund at the same time, the Fund may not be able to acquire as
large a portion of such security as it desires, or it 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 a Fund to participate in volume transactions may
produce better executions for the Fund. Notwithstanding the above, the Adviser
may execute buy and sell orders for accounts and take action in performance of
its duties with respect to any of its accounts that may differ from actions
taken with respect to another account, so long as the Adviser shall, to the
extent practical, allocate investment opportunities to accounts, including the
Funds, over a period of time on a fair and equitable basis and in accordance
with applicable law.
Portfolio
transactions may be placed with broker-dealers who sell shares of the Funds
subject to rules adopted by FINRA and the SEC. Portfolio transactions may also
be placed with broker-dealers in which the Adviser has invested on behalf of the
Funds and/or client accounts.
The
following table shows the amount of brokerage commissions paid by each Fund
during the fiscal periods ended October 31. With respect to the Large-Cap Growth
Fund, DMC, or the Adviser, as the case may have been, selected broker/dealers to
execute transactions on behalf of the Predecessor Fund for the purchase or sale
of portfolio securities on the basis of its judgment of their professional
capability to provide the service.
|
|
|
|
|
|
|
| |
Year |
Large-Cap
Growth Fund |
SMID-Cap
Growth Fund |
2022 |
$276,630 |
$1,402,444(1) |
2021 |
$490,582(2) |
$1,181,714(1) |
2020 |
$1,002,347 |
$812,287 |
(1)The
SMID-Cap Growth Fund’s brokerage commissions increased for the fiscal
years ended October 31, 2021, and 2022 due to the increase in the SMID-Cap
Growth Fund’s assets. |
(2)The
Large-Cap Growth Fund’s brokerage commissions decreased for the fiscal
year ended October 31, 2021 due to the decrease in the Fund’s portfolio
turnover. |
Delaware
Distributors, L.P. (“Delaware Distributors”) served as the national distributor
of the Predecessor Fund of the Large-Cap Growth Fund. Delaware Distributors is
an affiliate of the DMC and bore all of the costs of promotion and distribution,
except for payments by the Predecessor Fund’s retail share classes under their
respective Rule 12b-1 Plans. During the Predecessor Fund’s fiscal year ended
October 31, 2020, and for the period November 1, 2020 through April 16, 2021,
the Delaware Distributors received net commissions from the Predecessor Fund on
behalf of its respective Class A shares, after reallowances to dealers, as
follows:
|
|
|
|
|
|
|
| |
| 2021 |
2020 |
Total
Amount of Underwriting Commissions |
$50,582 |
$112,091 |
Amounts
Reallowed to Dealers |
$42,267 |
$143,509 |
Net
Commission to Distributor |
$8,315 |
$123,100 |
During
the Predecessor Fund’s fiscal year ended October 31, 2020, and for the period
November 1, 2020 through April 16, 2021, Delaware Distributors received, in the
aggregate, limited contingent deferred sales charge (“Limited CDSC”) payments
with respect to Class A shares and contingent deferred sales charge (“CDSC”)
payments with respect to Class C shares as follows:
|
|
|
|
|
|
|
| |
| 2021 |
2020 |
Class
A |
$13 |
$7 |
Class
C |
$595 |
$847 |
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 above-average transaction costs and could generate capital gains that
must be distributed to shareholders as short-term capital gains taxed at
ordinary income rates (currently as high as 37%). To the extent that a Fund
experiences an increase in brokerage commissions due to a higher portfolio
turnover rate, the performance of the Fund could be negatively impacted by the
increased expenses incurred by the Fund and may result in a greater number of
taxable transactions.
The
following table shows each Fund’s portfolio turnover rate during the fiscal
years ended October 31:
|
|
|
|
|
|
|
| |
| 2022 |
2021 |
Large-Cap
Growth Fund(1) |
35% |
28% |
SMID-Cap
Growth Fund |
78% |
56% |
(1)Reflects
the portfolio turnover of the Predecessor Fund of the Large-Cap Growth Fund for
the period from November 1, 2020 to April 16, 2021.
The
Trust, the Adviser and the Distributor have each adopted Codes of Ethics under
Rule 17j-1 of the 1940 Act. These codes permit, subject to certain conditions,
personnel of the Trust, Adviser and Distributor to invest in securities that may
be purchased or held by a Fund.
The
Board has adopted proxy voting policies and procedures (“Proxy Policies”)
wherein the Trust has delegated to the Adviser the responsibility for voting
proxies relating to portfolio securities held by the Funds as part of the
Adviser’s investment advisory services, subject to the supervision and oversight
of the Board. Notwithstanding this delegation of responsibilities, however, each
Fund retains the right to vote proxies relating to its portfolio securities. The
fundamental purpose of the Proxy Policies is to ensure that each vote will be in
a manner that reflects the best interest of a Fund and its shareholders, taking
into account the value of the Fund’s investments.
The
actual voting records relating to portfolio securities during the most recent
12-month period ended June 30 are available without charge, upon request, by
calling toll-free, 844-577-3863 or by accessing the SEC’s website at
www.sec.gov.
The
Adviser’s Proxy Voting Policies and Procedures
The
Adviser has adopted written proxy voting policies and procedures (the
“Procedures”) that govern the voting of client securities. The Procedures have
been designed to ensure that the Adviser votes proxies or gives proxy voting
advice that is in the best interests of its clients. The Adviser generally votes
proxies with the goal of promoting high levels of corporate governance and
adequate disclosure of company policies and practices.
The
Procedures include specific proxy voting guidelines that set forth the general
principles the Adviser uses to determine how to vote in client accounts for
which it has proxy voting responsibility. The Proxy Committee (the “Committee”),
which includes the Chief Compliance Officer, reviews the Procedures to help
ensure that they are designed to allow the Adviser to vote proxies in a manner
consistent with the best interests of its clients.
The
Adviser generally expects that its clients will authorize it to vote all proxies
relating to shares held in an account over which it has investment discretion.
At times, however, certain clients may direct the Adviser how to vote on a
particular proxy for a security held in the client’s account. Where a client has
reserved the right to vote proxies, the Adviser will not participate in voting
of proxies.
The
Adviser reserves the right, on occasion, to abstain from voting a proxy or a
specific proxy item when it concludes that the cost of voting outweighs the
potential benefit or when the Adviser otherwise believes that voting does not
serve its clients’ best interests. Clients should also be aware that voting
proxies of issuers in non-U.S. markets may give rise to a number of
administrative issues that may prevent the Adviser from voting proxies for
certain companies in these jurisdictions. For example, the Adviser may receive
shareholder meeting notices without enough time to fully consider the proxy or
after the cut-off date for voting. Other markets may require the Adviser to
provide local agents with power of attorney prior to implementing its voting
instructions.
In
order to facilitate the process of voting proxies, the Adviser has contracted
with Institutional Shareholder Services (“ISS”). Most proxies that the Adviser
receives on behalf of clients are voted by ISS in accordance with the proxy
voting guidelines established by ISS. In these circumstances, ISS will review
the relevant facts and circumstances and research the issue to determine how the
proxy should be voted. The Committee and portfolio managers will also review
such proxies and assess whether to override the ISS vote recommendations.
Although the Adviser generally votes proxies in accordance with the ISS vote
recommendations, the Adviser reserves the right to vote certain issues counter
the ISS guidelines if, after a review of the matter, the Adviser determines that
such a vote would better serve the client’s best interests.
Because
the majority of proxies are voted by ISS pursuant to the pre-determined
guidelines, it normally is not be necessary for the Adviser to make an actual
determination of how to vote a particular proxy, thereby reducing conflicts of
interest for the Adviser during the proxy voting process. Nevertheless, the
Procedures include a section to address the possibility of conflicts of interest
between the Adviser and its clients. In the instances where the Adviser may
consider voting a proxy contrary to the ISS recommendation, the Committee will
first take steps to identify any possible conflict of interest. If there is no
perceived conflict of interest, the Committee will vote the proxy according to
its internal procedures. If the members of the Committee have actual knowledge
of a conflict of interest, the Committee will normally use another independent
third party to do additional research on the particular proxy issue in order to
make a recommendation on how to vote the proxy in the best interest of the
client. The Committee will then review the proxy voting materials and
recommendation provided by ISS and the independent third party to determine how
to vote the issue in a manner that the Committee believes is consistent with the
Procedures and in the best interests of the client.
After
a proxy has been voted for a client, ISS will create a record of the vote. The
Committee is responsible for overseeing ISS’s proxy voting
activities.
Clients
of the Adviser will be directed to their client relationship manager to obtain
information from the Adviser on how their securities were voted.
The
Adviser generally considers that clients’ best interests are served by the
promotion of high levels of corporate governance and adequate disclosure of
company policies and practices.
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”). 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. Ms.
Deborah Ward has been designated as the Trust’s Anti-Money Laundering Compliance
Officer.
Procedures
to implement the Program include, but are not limited to: determining that the
Distributor and the 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 Funds 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.
As
a result of the Program, a Fund may be required to “freeze” the account of a
shareholder if the shareholder appears to be involved in suspicious activity or
if certain account information matches information on government lists of known
terrorists or other suspicious persons, or the Fund may be required to transfer
the account or proceeds of the account to a governmental agency.
The
Trust, on behalf of the Funds, has adopted portfolio holdings disclosure
policies (“Portfolio Holdings Policies”) that govern the timing and
circumstances of disclosure of portfolio holdings of the Funds. Information
about a Funds’ portfolio holdings will not be distributed to any third party
except in accordance with these Portfolio Holdings Policies. The Board has
considered the circumstances under which a Fund’s portfolio holdings may be
disclosed under the Portfolio Holdings Policies. The Board has also considered
actual and potential material conflicts that could arise in such circumstances
between the interests of a Fund’s shareholders and the interests of the Adviser,
Distributor or any other affiliated person of the Fund. After due consideration,
the Board has determined that the Funds have a legitimate business purpose for
disclosing portfolio holdings to persons described in the Portfolio Holdings
Policies. The Board also has authorized its CCO to consider and authorize
dissemination of portfolio holdings information to additional parties, after
considering the best interests of the Funds’ shareholders and potential
conflicts of interest in making such disclosures.
The
Board exercises continuing oversight of the disclosure of the Funds’ portfolio
holdings by (1) overseeing the implementation and enforcement of the Portfolio
Holdings Policies, codes of ethics, and other relevant policies of the Funds and
their service providers by the CCO, (2) by considering reports and
recommendations by the CCO concerning any material compliance matters (as
defined in Rule 38a-1 under the 1940 Act), and (3) by considering whether to
approve any amendment to these Portfolio Holdings Policies. The Board reserves
the right to amend the Portfolio Holdings Policies at any time without prior
notice in its sole discretion.
Disclosure
of each Fund’s complete holdings is required to be made monthly within 10 days
of the end of each month, in the annual and semi-annual reports to Fund
shareholders, and in the quarterly holdings report on Form N-PORT. These
reports will be made available, free of charge, on the EDGAR database on the
SEC’s website at www.sec.gov. In addition, each Fund’s complete holdings will be
made available on a month end basis with a 10 day lag on the Funds’ website,
www.jspfunds.com. Approximately seven business days following the end of each
calendar quarter, each Fund will post their top ten holdings to
www.jspfunds.com.
In
the event of a conflict between the interests of a Fund and its shareholders and
the interests of the Adviser or an affiliated person of the Adviser, the CCO of
the Adviser, in consultation with the Trust’s CCO, shall make a determination in
the best interests of the Fund and its shareholders, and shall report such
determination to the 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 a lag
as part of the normal investment activities of the Funds to each of the
following entities which, by explicit agreement or by virtue of their respective
duties to the Funds, are required to maintain the confidentiality of the
information disclosed: the Administrator; the Fund Accountant; the Custodian;
the Transfer Agent; the Funds’ independent registered public accounting firm;
counsel to the Funds or the Board (current parties are identified in this SAI);
broker-dealers (in connection with the purchase or sale of securities or
requests for price quotations or bids on one or more securities); mutual fund
rating and/or ranking organizations; and regulatory authorities. Portfolio
holdings information not publicly available with the SEC or on the Fund’s web
site may only be provided to additional third parties, in accordance with the
Portfolio Holdings Policies, when a Fund has a legitimate business purpose, and
the third party recipient is subject to a confidentiality agreement. Such
portfolio holdings disclosure must be approved under the Portfolio Holdings
Policies by the Trust’s CCO.
In
no event shall the Adviser, its affiliates or employees, or a Fund receive any
direct or indirect compensation or other consideration in connection with the
disclosure of information about the Fund’s portfolio holdings.
There
can be no assurance that the Portfolio Holdings Policies and these procedures
will protect a Fund from potential misuse of Fund information by individuals or
entities to which it is disclosed.
The
NAV of each class of shares will fluctuate and is determined by the Fund
Accountant as of the close of general 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 on the following
days: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday,
Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, the NYSE may close on days not
included in that announcement.
The
NAV of each class of shares is computed by determining the “Net Assets” of each
class and dividing by the total number of shares outstanding of each class at
such time. The Net Assets of each class are calculated by (1) taking the value
of all assets, less liabilities, held by each Fund and allocating such value to
each share class based on the number of shares outstanding in each share class;
(2) subtracting “Class Expenses” from each respective share class as defined and
approved by the Board and a majority of the Independent Trustees under the
Trust’s Rule 18f-3 Multiple-Class Plan; and (3) subtracting from each share
class non-class specific “Other Expenses” that are allocated to each class based
on the net asset value of each class relative to the net asset value of a Fund
or the Trust, as the case may be.
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Net
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A
Fund’s assets are valued at their market price on the valuation date and are
based on valuations provided by independent pricing services consistent with the
Trust’s valuation procedures. When market prices are not readily available, a
security or other asset is valued at its fair value as determined under fair
value pricing procedures approved by the Board. The Board reviews, no less
frequently than annually, the adequacy of the Funds' policies and procedures and
the effectiveness of their implementation. These fair value pricing procedures
will also be used to price a security when corporate events, events in the
securities market and/or world events cause the Adviser to believe that a
security’s last sale price may not reflect its actual market value. The intended
effect of using fair value pricing procedures is to ensure that each Fund is
accurately priced. The Board will regularly evaluate whether the Trust’s fair
value pricing procedures continue to be appropriate in light of the specific
circumstances of the Funds and the quality of prices obtained through the
application of such procedures.
Each
security owned by a Fund that is listed on a securities exchange is valued at
its last sale price on that exchange on the date as of which assets are valued.
Where the security is listed on more than one exchange, a Fund will use the
price of the exchange that the Fund generally considers to be the principal
exchange on which the stock is traded. If no sale is reported, the security is
valued at the mean between the last available bid and asked price.
Portfolio
securities primarily traded on the NASDAQ Stock Market (“NASDAQ”) shall be
valued using the NASDAQ Official Closing Price (“NOCP”), which may not
necessarily represent the last sale price. If the NOCP is not available, such
securities shall be valued at the last sale price on the day of valuation, or if
there has been no sale on such day, at the mean between the bid and asked
prices. OTC securities that are not traded on NASDAQ shall be valued at the most
recent trade price.
Fixed
income securities are generally valued at the mean of the bid and asked prices
as determined by an independent pricing service, taking into consideration
recent transactions, yield, liquidity, risk, credit quality, coupon, maturity,
type of issue and any other factors or market data the pricing service deems
relevant. Participation Notes are valued at the mean between bid and ask prices.
Investments in other investment companies, including money market funds, are
valued at their NAV per share. Fixed income securities with remaining maturities
of 60 days or less are valued at amortized cost, which approximates fair
value.
Foreign
securities are generally valued in the same manner as the securities described
above. Foreign securities are priced in the local currencies as of the close of
their primary exchange or market or as of the close of trading on the NYSE,
whichever is earlier. Foreign currencies are translated into U.S. dollars at the
exchange rate as provided by a pricing service as of the close of trading on the
NYSE.
Shares
of each Fund are sold in a continuous offering and shares may be purchased or
redeemed on any business day that a Fund calculates its NAV. A Fund may also
authorize one or more financial intermediaries to accept purchase and redemption
orders on its behalf (“Authorized Intermediaries”). Authorized Intermediaries
are authorized to designate other Authorized Intermediaries to accept orders on
a Fund’s behalf. An order is deemed to be received when a Fund or an Authorized
Intermediary accepts the order.
Orders
received by a Fund or an Authorized Intermediary by the close of trading on the
NYSE (generally 4:00 p.m., Eastern Time) on a business day will be effected at
the NAV per share determined as of the close of trading on the NYSE on that day.
Otherwise, the orders will be processed at the next determined NAV.
Orders
received by financial intermediaries that are not Authorized Intermediaries will
be processed at the NAV next calculated after the Transfer Agent receives the
order from the financial intermediary.
Purchase
Requests Must be Received in Good Order
“Good
order” means that your purchase request includes:
•The
name of the Fund;
•The
class of shares to be purchased;
•The
dollar amount of shares to be purchased;
•Your
account application or investment stub; and
•A
check payable to the name of the Fund.
Shares
of the Funds have not been registered for sale outside of the United States. The
Funds generally do not sell shares to investors residing outside the United
States, even if they are United States citizens or lawful permanent residents,
except to investors with United States military APO or FPO addresses or in
certain other circumstances where the Chief Compliance Officer and Anti-Money
Laundering Officer for the Trust conclude that such sale is appropriate and is
not in contravention of United States law.
Redemption
Requests Must be Received in Good Order
Your
share price will be based on the next NAV per share calculated after the
Transfer Agent or an Authorized Intermediary receives your redemption request in
good order. A redemption request will be deemed in “good order” if it
includes:
•The
shareholder’s name;
•The
name of the Fund you are redeeming;
•The
class of shares to be redeemed;
•The
account number;
•The
share or dollar amount to be redeemed; and
•Signatures
by all shareholders on the account (with signature(s) guaranteed, if
applicable).
Unless
you instruct the Transfer Agent otherwise, redemption proceeds will be sent to
the address of record. The Funds will not be responsible for interest lost on
redemption amounts due to lost or misdirected mail.
A
signature guarantee of each owner is required in the following
situations:
•If
ownership is changed on your account;
•When
redemption proceeds are payable or sent to any person, address or bank account
not on record;
•When
a redemption is received by the Transfer Agent and the account address has
changed within the last 15 calendar days; or
•For
all redemptions in excess of $100,000 from any shareholder account
where
the proceeds are requested to be sent by check.
A
signature guarantee is not required on redemptions at any amount when proceeds
are sent via Fed Wire or ACH to bank of record.
Non-financial
transactions, including establishing or modifying certain services on an
account, may require a signature guarantee, signature verification from a
Signature Validation Program member, or
other
acceptable form of authentication from a financial institution source. Signature
guarantees, from either a Medallion program member or a non Medallion program
member, can be obtained from domestic banks, brokers, dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations, as well as from participants in the New York
Stock Exchange Medallion Signature Program and the Securities Transfer Agents
Medallion Program (“STAMP”), but not from a notary public.
The
Funds may elect in the future to limit eligible signature guarantors to
institutions that are members of a signature guarantee program. The Fund and the
Transfer Agent reserve the right to amend these standards at any time without
notice.
Redemption-In-Kind
Under
normal circumstances, the Funds do not intend to redeem shares in any form
except cash. The Trust, however, has filed a notice of election under Rule 18f-1
of the 1940 Act that allows a Fund to redeem in-kind redemption requests during
any 90-day period in excess of the lesser of $250,000 or 1% of the net assets of
the Fund, valued at the beginning of such period. If a Fund pays your redemption
proceeds by a distribution of securities, you could incur brokerage or other
charges in converting the securities to cash, and will bear any market risks
associated with such securities until they are converted into cash.
Cancellations
and Modifications
The
Funds will not accept a request to cancel or modify a written transaction once
processing has begun.
The
following discussion is a summary of certain U.S. federal income tax
considerations affecting the Funds and their shareholders. The discussion
reflects applicable U.S. federal income tax laws of the U.S. as of the date of
this SAI, which tax laws may be changed or subject to new interpretations by the
courts or the Internal Revenue Service (the “IRS”), possibly with retroactive
effect. No attempt is made to present a detailed explanation of all U.S. federal
income, estate or gift, or state, local or foreign tax concerns affecting the
Funds and their shareholders (including shareholders owning large positions in
the Funds). The discussion set forth herein does not constitute tax advice.
Investors are urged to consult their own tax advisers to determine the tax
consequences to them of investing in the Funds.
Each
series of the Trust is treated as a separate entity for federal income tax
purposes. Each Fund, a series of the Trust, intends to qualify and elect to be
treated as a RIC under Subchapter M of the Code, provided it complies with
all applicable requirements regarding the source of its income, diversification
of its assets and timing of distributions, as discussed below.
If
for any taxable year a Fund fails to qualify for the special federal income tax
treatment afforded to RICs, all of its taxable income will be subject to federal
income tax at the applicable corporate income tax rate (without any deduction
for distributions to the Fund’s shareholders) and its income available for
distribution will be reduced.
As
long as the Funds meet certain requirements that govern the Funds’ source of
income, diversification of assets and distribution of earnings to their
shareholders, the Funds will not be subject to U.S. federal income tax on income
distributed (or treated as distributed, as described below) to their
shareholders. With respect to the source of income requirement, the Funds must
derive in each taxable year at least 90% of its gross income (including
tax-exempt interest) from (i) dividends, interest, payments with respect to
certain securities loans, and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income derived with respect to its
business of investing in such shares, securities or currencies and (ii) net
income derived from interests in qualified publicly traded partnerships
(“QPTP”). A QPTP is generally defined as a publicly traded partnership under
Section 7704 of the Code, but does not include a publicly traded partnership if
90% or more of its income is described in (i) above.
With
respect to the diversification of assets requirement, the Funds must diversify
their holdings so that, at the end of each quarter of each taxable year, (i) at
least 50% of the value of each Fund’s total assets is represented by cash and
cash items, U.S. government securities, the securities of other RICs and other
securities, with such other securities limited for purposes of such calculation,
in respect of any one issuer, to an amount not greater than 5% of the value of
each Fund’s total assets and not more than 10% of the outstanding voting
securities of such issuer at time of purchase and (ii) not more than 25% of the
value of each Fund’s total assets is invested in the securities of any one
issuer (other than U.S. government securities or the securities of other RICs),
the securities (other than the securities of other RICs) of any two or more
issuers that the Fund controls and that are determined to be engaged in the
same, similar or related trades or businesses, or the securities of one or more
QPTPs.
In
addition, pursuant to the Code, the Funds may invest no more than 25% of their
total assets in the securities of MLPs and other entities treated as QPTPs. The
Funds will not be required to reduce a position due solely to market value
fluctuations in order to comply with the 25% limitation in publicly traded
partnerships, inclusive of MLP investments, but will not be able to purchase
additional MLP securities unless the Funds are in compliance with the
restriction.
The
Funds’ policy is to distribute to its shareholders substantially all of its net
investment company taxable income and any net realized long-term capital gains
for each fiscal year in a manner that complies with the distribution
requirements of the Code, so that a Fund will not be subject to any federal
income or excise taxes based on net income. However, a Fund can give no
assurances that its anticipated distributions will be sufficient to eliminate
all taxes. If a Fund does not qualify as a RIC, it would be taxed as a
corporation and, in such case, it would be more beneficial for a shareholder to
directly own the Fund’s underlying investments rather than indirectly owning the
underlying investments through the Fund. If a Fund fails to 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 during such year and
(iii) any amounts from the prior calendar year that were not distributed
and on which the Fund paid no federal income tax, the Fund will be subject to a
4% excise tax.
Net
investment income consists of interest, dividends,
and
short-term capital gains, less expenses. Net realized capital gains for a fiscal
period are computed by taking into account any capital loss carryforward of a
Fund. As of October 31, 2022, the SMID-Cap Growth Fund had a non-expiring
short-term capital loss carryforward of $181,751,657.
Distributions
of net investment income are taxable to shareholders as ordinary income. For
individual shareholders, a portion of the distributions paid by a Fund may
consist of qualified dividends eligible for taxation at the rate applicable to
long-term capital gains to the extent a Fund designates the amount distributed
as a qualified dividend and the shareholder meets certain holding period
requirements with respect to his or her Fund shares. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent that the Fund designates the amount
distributed as eligible for deduction and the shareholder meets certain holding
period requirements with respect to its Fund shares. The aggregate amount so
designated to either individuals or corporate shareholders cannot, however,
exceed the aggregate amount of such dividends received by the Fund for its
taxable year. In view of each Fund’s investment policies, it is expected that
part of the distributions by a Fund may be eligible for the qualified dividend
income treatment for individual shareholders and the dividends-received
deduction for corporate shareholders. Any distributions to you in excess of the
Funds’ investment company taxable income and net capital gains will be treated
by you, first, as a tax-deferred return of capital, which is applied against and
will reduce the adjusted tax basis of your shares and, after such adjusted tax
basis is reduced to zero, will generally constitute capital gains.
Any
long-term capital gain distributions are taxable to shareholders as long-term
capital gains regardless of the length of time shares have been held. Net
capital gains distributions are not eligible for the qualified dividend income
treatment or the dividends-received deduction referred to in the previous
paragraph.
Any
distributions to you in excess of the Funds’ investment company taxable income
and net capital gains will be treated by you, first, as a tax-deferred return of
capital, which is applied against and will reduce the adjusted tax basis of your
shares and, after such adjusted tax basis is reduced to zero, will generally
constitute capital gains to you.
Under
the Tax Cuts and Jobs Act “qualified REIT dividends” (i.e., ordinary REIT
dividends other than capital gain dividends and portions of REIT dividends
designated as qualified dividend income) are treated as eligible for a 20%
deduction by noncorporate taxpayers. The TCJA does not contain a provision
permitting a RIC, such as a Fund, to pass the special character of this income
through to its shareholders. It is uncertain whether a future technical
corrections bill or regulations issued by the IRS will address this issue to
enable a Fund to pass through the special character of "qualified REIT
dividends" to its shareholders.
Distributions
of any net investment income and net realized capital gains will be taxable as
described above, whether received in shares or in cash. Shareholders who choose
to receive distributions in the form of additional shares will have a cost basis
for federal income tax purposes in each share so received equal to the NAV of a
share on the reinvestment date. Distributions are generally taxable when
received. However, distributions declared in October, November or December to
shareholders of record on a date in such a month and paid the following January
are taxable as if received on December 31. Distributions are includable in
alternative minimum taxable income in computing a shareholder’s liability for
the alternative minimum tax. (Under the TCJA corporations are no longer subject
to the alternative minimum tax for taxable years of the corporation beginning
after December 31, 2017.)
Investment
income received by the Funds from sources within foreign countries may be
subject to foreign income tax withheld at the source and the amount of tax
withheld generally will be treated as an expense of the Funds. The U.S. has
entered into tax treaties with many foreign countries that entitle the Funds to
a reduced rate of, or exemption from, tax on such income. Some countries require
the filing of a tax reclaim or other forms to receive the benefit of the reduced
tax rate; whether or when the Funds will receive the tax reclaim is within the
control of the individual country. Information required on these forms may not
be available to the Funds, such as shareholder information; therefore, the Funds
may not receive the reduced treaty rates or potential reclaims. Other countries
have conflicting and changing instructions and restrictive timing requirements
which may cause the Funds not to receive the reduced treaty rates or potential
reclaims. Other countries may subject capital gains realized by the Funds on
sale or disposition of securities of that country to taxation. It is impossible
to determine the effective rate of foreign tax in advance since the amount of
the Funds’ assets to be invested in various countries is not known.
A
redemption of Fund shares may result in recognition of a taxable gain or loss
and, if held as a capital asset, capital gain or loss. Any loss realized upon a
redemption 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 received on those shares. Any loss
realized upon a redemption may be disallowed under certain wash sale rules to
the extent Fund shares are purchased (through reinvestment of distributions or
otherwise) within 30 days before or after the redemption.
The
Funds are required to report to you and the IRS annually on Form 1099-B the cost
basis of shares purchased or acquired. However, cost basis reporting is not
required for certain shareholders, including shareholders investing in the Funds
through a tax-advantaged retirement account, such as a 401(k) plan or an
individual retirement account. Each Fund will calculate cost basis using the
Fund’s default method, unless you instruct the Fund to use a different
calculation method. For additional information regarding the Funds’ available
cost basis reporting methods, including its default method, please contact the
Funds. If you hold your Fund shares through a broker (or other nominee), please
contact that broker (nominee) with respect to reporting of cost basis and
available elections for your account.
Except
in the case of certain exempt shareholders, if a shareholder does not furnish a
Fund with its correct Taxpayer Identification Number and certain certifications
or the Fund receives notification from the Internal Revenue Service requiring
back-up withholding, the Fund is required by federal law to withhold federal
income tax from the shareholder’s distributions and redemption proceeds
currently at a rate of 24% for U.S. residents.
Gain
or loss recognized by the Funds on the sale or other disposition of portfolio
investments will be a capital gain or loss. Such capital gain and loss may be
long-term or short-term depending, in general, upon the length of time a
particular investment position is maintained and, in some cases, upon the nature
of the transaction. Property held for more than one year generally will be
eligible for long-term capital gain or loss treatment. The application of
certain rules described below may serve to alter the manner in which the holding
period for a security is determined or may otherwise affect the characterization
as long-term or short-term, and also the timing of the realization and/or
character, of certain gains or losses.
The
Funds’ transactions in foreign currencies and foreign currency-denominated debt
obligations may give rise to ordinary income or loss to the extent such income
or loss results from fluctuations in the value of the foreign currency
concerned. This treatment could increase or decrease a Fund's ordinary income
distributions to you, and may cause some or all of the Fund's previously
distributed income to be classified as a return of capital. In certain cases,
the Funds may make an election to treat such gain or loss as
capital.
While
securities are loaned out by a fund, the fund generally will receive from the
borrower amounts equal to any dividends or interest paid on the borrowed
securities. For federal income tax purposes, payments made "in lieu of"
dividends are not considered dividend income. These distributions will neither
qualify for the reduced rate of taxation for individuals on qualified dividends
nor the 50% dividends-received deduction for corporations.
The
Funds may invest in securities of foreign companies that may be classified under
the Code as a passive foreign investment company (“PFIC”). In general, a foreign
company is classified as a PFIC if at least one-half of its assets constitute
investment-type assets or 75% or more of its gross income is investment-type
income. When investing in PFIC securities, the Funds intend to mark-to-market
these securities under certain provisions of the Code and recognize any
unrealized gains as ordinary income at the end of the Funds’ fiscal and excise
tax years. Deductions for losses are allowable only to the extent of any current
or previously recognized gains. These gains (reduced by allowable losses) are
treated as ordinary income that the Funds are required to distribute, even
though it has not sold or received dividends from these securities. You should
also be aware that the designation of a foreign security as a PFIC security will
cause its income dividends to fall outside of the definition of qualified
foreign corporation dividends. These dividends generally will not qualify for
the reduced rate of taxation on qualified dividends when distributed to you by
the Funds. Foreign companies are not required to identify themselves as PFICs.
Due to various complexities in identifying PFICs, the Funds can give no
assurances that it will be able to identify portfolio securities in foreign
corporations that are PFICs in time for the Funds to make a mark-to-market
election. If the Funds are unable to identify an investment as a PFIC and thus
does not make a mark-to-market election, the Funds may be subject to U.S.
federal income tax on a portion of any “excess distribution” or gain from the
disposition of such shares even if such income is distributed as a taxable
dividend by the Funds to their shareholders. Additional charges in the nature of
interest may be imposed on the Funds in respect of deferred taxes arising from
such distributions or gains.
Foreign
taxpayers (including nonresident aliens) are generally subject to a flat
withholding rate, currently 30% on U.S. source income. This withholding rate may
be lower under the terms of a tax convention.
This
discussion and the related discussion in the Prospectus have been prepared by
Fund management, and counsel to the Funds has expressed no opinion in respect
thereof.
This
section is not intended to be a full discussion of federal tax laws and the
effect of such laws on you. There may be other federal, state, foreign or local
tax considerations to a particular investor. You are urged to consult your own
tax advisor.
Each
Fund will receive income in the form of dividends and interest earned on its
investments in securities. This income, less the expenses incurred in its
operations, is a Fund’s net investment income, substantially all of which will
be distributed to the Fund’s shareholders.
The
amount of a Fund’s distribution 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 its shares.
A
Fund may also derive capital gains or losses in connection with sales or other
dispositions of its portfolio securities. Any net gain a Fund may realize from
transactions 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 (to the extent not offset by any capital loss
carryovers), although a distribution from capital gains, will be distributed to
shareholders with and as a part of the distributions of net investment income
giving rise to ordinary income. If during any year a Fund realizes a net gain on
transactions involving investments held for the period required for long-term
capital 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 the eight previous taxable years)
will be distributed and treated as long-term capital gains in the hands of the
shareholders regardless of the length of time the Fund’s shares may have been
held by the shareholders. For more information concerning applicable capital
gains tax rates, see your tax advisor.
Any
distribution paid by a Fund reduces that Fund’s NAV per share on the date paid
by the amount of the distribution per share. Accordingly, a 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.
Distributions
will be made in the form of additional shares of the Fund unless the shareholder
has otherwise indicated. Investors have the right to change their elections with
respect to the reinvestment of distributions by notifying the Transfer Agent in
writing or by telephone. However, any such change will be effective only as to
distributions for which the record date is five or more calendar days after the
Transfer Agent has received the written request.