ck0000811030-20220630
STATEMENT
OF ADDITIONAL INFORMATION
October
31, 2022
Trillium
ESG Global Equity Fund
Institutional
Class Ticker: PORIX
Retail
Class Ticker: PORTX
Trillium
ESG Small/Mid Cap Fund
Institutional
Class Ticker: TSMDX
*Retail
Class Ticker: TBD
*Retail
class shares are not available at this time
Trillium
Asset Management, LLC
Two
Financial Center
60
South Street, Suite 1100
Boston,
Massachusetts 02111
1.800.548.5684
www.trilliummutualfunds.com
This
Statement of Additional Information (“SAI”) is not a prospectus and it should be
read in conjunction with the Prospectus dated October 31, 2022, as may be
revised, of Trillium ESG Small/Mid Cap Fund (the “SMID Fund”) and Trillium ESG
Global Equity Fund (the “Global Equity Fund”) (each a “Fund,” and together, the
“Funds”), each a series of Professionally Managed Portfolios (the “Trust”). This
SAI is incorporated by reference into the Funds’ Prospectus dated October 31,
2022. Trillium Asset Management, LLC (the “Adviser”) is the investment Adviser
to the Funds. Copies of the Prospectus are available at
www.trilliummutualfunds.com or by calling the number listed above.
The
Funds’ most recent Annual Report to shareholders is available, without charge,
upon request by calling the number listed above. The financial statements,
accompanying notes and report of independent registered public accounting firm
appearing in the Annual
Report
are incorporated into this SAI by reference to the Funds’ Annual Report dated
June 30, 2022 as filed with the Securities and Exchange Commission
(“SEC”).
The
Trust is a Massachusetts business trust organized on February 24, 1987 and is
registered with the SEC as an open-end management investment company. Prior to
May 1991, the Trust was known as the Avondale Investment Trust. The Trust’s
Agreement and Declaration of Trust (the “Declaration of Trust”) permits the
Trust’s Board of Trustees (the “Board”) to issue an unlimited number of full and
fractional shares of beneficial interest, without par value, which may be issued
in any number of series. The Trust consists of various series that represent
separate investment portfolios. The Board may from time to time issue other
series, the assets and liabilities of which will be separate and distinct from
any other series. This SAI relates only to the Funds.
The
shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust.
The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Funds’ assets for any shareholder held personally liable for
obligations of the Funds or the Trust. The Declaration of Trust provides that
the Trust shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Funds or the Trust and satisfy any
judgment thereon. All such rights are limited to the assets of the Funds. The
Declaration of Trust further provides that the Trust may maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its shareholders, trustees, officers, employees and
agents to cover possible tort and other liabilities. However, the activities of
the Trust as an investment company would not likely give rise to liabilities in
excess of the Trust’s total assets. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance exists and the Funds themselves are unable to
meet their obligations.
The
SMID
Fund commenced
operations on August 31, 2015.
Retail
Class shares of the Global
Equity Fund
commenced operations on September 30, 1999. Institutional Class shares of the
Global Equity Fund commenced operations on March 30, 2007.
The
Funds are managed by Trillium Asset Management, LLC (“Trillium”). Prior to
January 1, 2015, the Global Equity Fund was managed by Portfolio 21 Investments
(“Portfolio 21”). On December 31, 2014, Trillium completed a transaction
with Portfolio 21, which resulted in Trillium acquiring certain assets of
Portfolio 21.
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 http://www.sec.gov.
The
Funds are diversified. This means that for 75% of its total assets, each Fund
may not invest more than 5% of its total assets in securities of a single issuer
or hold more than 10% of the outstanding voting shares of a single issuer. Under
applicable federal securities laws, the diversification of a mutual fund’s
holdings is measured at the time a fund purchases a security. However, if a fund
purchases a security and holds it for a period of time, the security may become
a larger percentage of the fund’s total assets due to movements
in
the financial markets. If the market affects several securities held by a fund,
the fund may have a greater percentage of its assets invested in securities of
fewer issuers. Accordingly, a fund would be subject to the risk that its
performance may be hurt disproportionately by the poor performance of relatively
few securities despite the fund qualifying as a diversified fund under
applicable federal securities laws.
The
following information supplements the discussion of each Fund’s investment
objective and policies as set forth in its Prospectus. The Funds may invest in
the following types of investments, each of which is subject to certain risks,
as discussed below.
Market
and Regulatory Risk
Events
in the financial markets and economy may cause volatility and uncertainty and
affect performance. Such adverse effect on performance could include a decline
in the value and liquidity of securities held by the Funds, unusually high and
unanticipated levels of redemptions, an increase in portfolio turnover, a
decrease in net asset value (“NAV”), and an increase in Fund expenses. It may
also be unusually difficult to identify both investment risks and opportunities,
in which case investment objectives may not be met. Market events may affect a
single issuer, industry, sector, or the market as a whole. Traditionally liquid
investments may experience periods of diminished liquidity. During a general
downturn in the financial markets, multiple asset classes may decline in value
and the Funds may lose value, regardless of the individual results of the
securities and other instruments in which the Funds invest. It is impossible to
predict whether or for how long such market events will continue, particularly
if they are unprecedented, unforeseen or widespread events or conditions,
pandemics, epidemics and other similar circumstances in one or more countries or
regions. Therefore, it is important to understand that the value of your
investment may fall, sometimes sharply and for extended periods, and you could
lose money.
Governmental
and regulatory actions, including tax law changes, may also impair portfolio
management and have unexpected or adverse consequences on particular markets,
strategies, or investments. Policy and legislative changes in the United States
and in other countries are affecting many aspects of financial regulation, and
may in some instances contribute to decreased liquidity and increased volatility
in the financial markets. The impact of these changes on the markets, and the
practical implications for market participants, may not be fully known for some
time. In addition, economies and financial markets throughout the world are
becoming increasingly interconnected. As a result, whether or not the Funds
invest in securities of issuers located in or with significant exposure to
countries experiencing economic and financial difficulties, the value and
liquidity of the Funds’ investments may be negatively affected.
Equity
Securities
The
Funds may invest in equity securities consistent with each Fund’s investment
objective and strategies. Common stocks, preferred stocks and convertible
securities are examples of equity securities.
All
investments in equity securities are subject to market risks that may cause
their prices to fluctuate over time. Historically, the equity markets have moved
in cycles and the value of the securities in a Fund’s portfolio may fluctuate
substantially from day to day. Owning an equity security can also subject a Fund
to the risk that the issuer may discontinue paying dividends.
To
the extent a Fund invests in the equity securities of small or medium-size
companies, it will be exposed to the risks of small- and medium-sized companies.
Such companies have narrower markets for their goods and/or services and more
limited managerial and financial resources than larger, more established
companies. Furthermore, those companies often have limited product lines or
services. In addition, because these stocks are not well-known to the investing
public, do not have significant institutional ownership and are followed by
relatively few security analysts, there will normally be less publicly available
information
concerning
these securities compared to what is available for the securities of larger
companies. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, can decrease the value and liquidity of these securities
when held by a Fund. As a result, as compared to larger-sized companies, the
performance of smaller-sized companies can be more volatile and they face
greater risk of business failure, which could increase the volatility of a
Fund’s portfolio.
Common
Stock
A
common stock represents a proportionate share of the ownership of a company and
its value is based on the success of the company’s business, any income paid to
stockholders, the value of its assets, and general market conditions. In
addition to the general risks set forth above, investments in common stocks are
subject to the risk that in the event a company in which a Fund invests is
liquidated, the holders of preferred stock and creditors of that company will be
paid in full before any payments are made to a Fund as a holder of that
company’s 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
stocks are equity securities that often pay dividends at a specific rate and
have a preference over common stocks in dividend payments and liquidation of
assets. A preferred stock has a blend of the characteristics of a bond and
common stock. It can offer the higher yield of a bond and has priority over
common stock in equity ownership, but does not have the seniority of a bond and,
unlike common stock, its participation in the issuer’s growth may be limited.
Although the dividend is set at a fixed annual rate, in some circumstances it
can be changed or omitted by the issuer.
Convertible
Securities
The
Funds may invest in convertible securities. Convertible securities (such as debt
securities or preferred stock) may be converted into or exchanged for a
prescribed amount of common stock of the same or different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or
dividends paid on preferred stock until the convertible stock matures or is
redeemed, converted or exchanged. While no securities investment is without some
risk, investments in convertible securities generally entail less risk than the
issuer’s common stock. However, the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible security sells above
its value as a fixed income security. In addition to the general risk associated
with equity securities discussed above, the market value of convertible
securities is also affected by prevailing interest rates, the credit quality of
the issuer and any call provisions. While convertible securities generally offer
lower interest or dividend yields than nonconvertible debt securities of similar
quality, they do enable the investor to benefit from increases in the market
price of the underlying common stock.
Other
Investment Companies
The
Funds may invest in the securities of other registered investment companies,
including money market mutual funds, in accordance with the limitations set
forth in the Investment Company Act of 1940, as amended, (the “1940 Act”).
Investments in the securities of other investment companies may involve
duplication of advisory fees and certain other expenses. By investing in another
investment company, a Fund becomes a shareholder of that investment company. As
a result, Fund shareholders indirectly will bear a Fund’s proportionate share of
the fees and expenses paid by shareholders of the other investment company, in
addition to the fees and expenses Fund shareholders directly bear in connection
with the Fund’s own operations.
The
Funds each currently intend to limit their investments in securities issued by
other investment companies so that not more than 3% of the outstanding voting
stock of any one investment company (other than money market funds) will be
owned by the Fund, or its affiliated persons, as a whole. In addition to the
advisory
and operational fees the Fund bears directly in connection with its own
operation, the Fund would also bear its pro rata portions of each other
investment company’s advisory and operational expenses.
Section
12(d)(1) of the 1940 Act restricts investments by registered investment
companies in securities of other registered investment companies. The
acquisition of shares by the Fund in other registered investment companies is
therefore subject to the restrictions of Section 12(d)(1) of the 1940 Act,
except as may be permitted by Rule and/or an exemptive order obtained by the
other registered investment companies that permits the Fund to invest in the
other registered investment companies beyond the limits of Section 12(d)(1),
subject to certain terms and conditions, including that the Fund enter into an
agreement with the other registered investment companies regarding the terms of
the investment.
In
accordance with Section 12(d)(1)(F) and Rule 12d1-3 of the 1940 Act, the
provisions of Section 12(d)(1) shall not apply to securities purchased or
otherwise acquired by a Fund if (i) immediately after such purchase or
acquisition not more than 3% of the total outstanding stock of such registered
investment company is owned by the Fund and all affiliated persons of the Fund;
and (ii) a Fund is not proposing to offer or sell any security issued by it
through a principal underwriter or otherwise at a public or offering price
including a sales load or service fee that exceeds the limits set forth in Rule
2341 of the Conduct Rules of the Financial Industry Regulatory Authority
(“FINRA”) applicable to the fund of funds (e.g.,
8.5%).
The
SEC recently adopted revisions to the rules permitting funds to invest in other
investment companies to streamline and enhance the regulatory framework
applicable to fund of funds arrangements. While new Rule 12d1-4 will permit more
types of fund of fund arrangements without an exemptive order, it imposes new
conditions, including limits on control and voting of acquired funds’ shares,
evaluations and findings by investment advisers, fund investment agreements, and
limits on most three-tier fund structures.
Exchange-Traded
Funds
Each
Fund may also invest in shares of exchange-traded funds (“ETFs”). ETFs are
investment companies which seek to replicate the performance, before fees and
expenses, of an underlying index of securities. An ETF is similar to a
traditional mutual fund but trades at different prices during the day on a
securities exchange like a stock. Similar to investments in other investment
companies discussed above, the Fund’s investments in ETFs will involve
duplication of advisory fees and other expenses since the Fund will be investing
in another investment company. In addition, each Fund’s investment in ETFs is
also subject to its limitations on investments in investment companies discussed
above. To the extent a Fund invests in ETFs which focus on a particular market
segment or industry, the Fund will also be subject to the risks associated with
investing in those sectors or industries. The shares of the ETFs in which the
Fund will invest will be listed on a national securities exchange and a Fund
will purchase and sell these shares on the secondary market at their current
market price, which may be more or less than their net asset value. Investors in
the Fund should be aware that index-based ETFs are subject to “tracking risk,”
which is the risk that an ETF will not be able to replicate exactly the
performance of the index it tracks.
As
a purchaser of ETF shares on the secondary market, each Fund will be subject to
the market risk associated with owning any security whose value is based on
market price. ETF shares historically have tended to trade at or near their net
asset value, but there is no guarantee that they will continue to do so. Unlike
traditional mutual funds, shares of an ETF may be purchased and redeemed
directly from the ETF only in large blocks and only through participating
organizations that have entered into contractual agreements with the ETF. The
Funds do not expect to enter into such agreements and therefore will not be able
to purchase and redeem their ETF shares directly from the ETF, but will instead
purchase and sell shares on the secondary market.
Real
Estate Investment Trusts
The
Funds may invest in shares of real estate investment trusts (“REITs”). REITs are
companies that develop, own or finance real estate. Most REITs specialize in
commercial property like apartments, offices, malls, clinics and warehouses.
Some REITs specialize in a city or region. Some REITs finance real estate
transactions by making loans or buying mortgages.
Risks
Relating to REITs.
REITs and real estate operating companies may be affected by changes in the
value of their underlying properties or by defaults by their borrowers or
tenants. Furthermore, these entities depend upon specialized management skills,
have limited diversification and are, therefore, subject to risks inherent in
financing a limited number of projects. In certain cases, the organizational
documents of a REIT may grant the REIT’s sponsors the right to exercise control
over the operations of the REIT even though the sponsor owns only a minority
share; or a conflict of interest (for example, the desire to postpone certain
taxable events) could influence a sponsor to not act in the best interests of
the REIT’s shareholders. The organizational documents of many REITs also contain
various anti-takeover provisions that could have the effect of delaying or
preventing a transaction or change in control of the REIT that might involve a
premium price for the REIT’s shares or otherwise may not be in the best
interests of the REIT’s shareholders. REITs depend generally on their ability to
generate cash flow to make distributions to shareholders, and certain REITs have
self-liquidation provisions by which mortgages held may be paid in full and
distributions of capital returns may be made at any time. In addition, the
performance of a REIT or a real estate operating company may be affected by
changes in the tax laws or by its failure to qualify for tax-free pass-through
of income.
Illiquid
Investments and Restricted Securities
Pursuant
to Rule 22e-4 under the 1940 Act, a Fund may not acquire any “illiquid
investment” if, immediately after the acquisition, the Fund would have invested
more than 15% of its net assets in illiquid investments that are assets. An
“illiquid investment” is any investment that a Fund reasonably expects cannot be
sold or disposed of in current market conditions in seven calendar days or less
without the sale or disposition significantly changing the market value of the
investment. The Funds have implemented a liquidity risk management program and
related procedures to identify illiquid investments pursuant to Rule 22e-4. The
15% limit is applied as of the date a Fund purchases an illiquid investment. It
is possible that a Fund’s holding of illiquid investment could exceed the 15%
limit, for example as a result of market developments or
redemptions.
Each
Fund may purchase certain restricted securities that can be resold to
institutional investors and which may be determined not to be illiquid
investments pursuant to the Fund’s liquidity risk management program. In many
cases, those securities are traded in the institutional market under Rule 144A
under the Securities Act of 1933, as amended (the “1933 Act”) and are called
Rule 144A securities.
Investments
in illiquid investments involve more risks than investments in similar
securities that are readily marketable. Illiquid investments may trade at a
discount from comparable, more liquid investments. Investment of a Fund’s assets
in illiquid investments may restrict the ability of the Fund to dispose of its
investments in a timely fashion and for a fair price as well as its ability to
take advantage of market opportunities. The risks associated with illiquidity
will be particularly acute where a Fund’s operations require cash, such as when
the Fund has net redemptions, and could result in the Fund borrowing to meet
short-term cash requirements or incurring losses on the sale of illiquid
investments.
Illiquid
investments are often restricted securities sold in private placement
transactions between issuers and their purchasers and may be neither listed on
an exchange nor traded in other established markets. In many cases, the
privately placed securities may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale. To the
extent privately placed securities may be resold
in
privately negotiated transactions, the prices realized from the sales could be
less than those originally paid by a Fund or less than the fair value of the
securities. In addition, issuers whose securities are not publicly traded may
not be subject to the disclosure and other investor protection requirements that
may be applicable if their securities were publicly traded. If any privately
placed securities held by a Fund are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund may
be required to bear the expenses of registration. Private placement investments
may involve investments in smaller, less seasoned issuers, which may involve
greater risks than investments in more established companies. These issuers may
have limited product lines, markets or financial resources, or they may be
dependent on a limited management group. In making investments in private
placement securities, a Fund may obtain access to material non-public
information, which may restrict the Fund’s ability to conduct transactions in
those securities.
Foreign
Securities
Foreign
Investments and Currencies.
Among
the means through which the Funds may invest in foreign securities is the
purchase of American Depositary Receipts (“ADRs”), European Depositary Receipts
(“EDRs”), and Global Depositary Receipts (“GDRs”). The Global Equity Fund may
invest without limit in the securities of foreign issuers (“foreign
securities”), including sponsored and unsponsored American Depositary Receipts
(“ADRs”). The SMID Fund may invest up to 20% of its total assets in securities
of foreign issuers, including depositary receipts.
Investing
in foreign securities involves certain risks not ordinarily associated with
investments in securities of domestic issuers. Foreign securities markets have,
for the most part, substantially less volume than the U.S. markets and
securities of many foreign companies are generally less liquid and their prices
more volatile than securities of U.S. companies. There is generally less
government supervision and regulation of foreign exchanges, brokers and issuers
than in the U.S. The rights of investors in certain foreign countries may be
more limited than those of shareholders of U.S. issuers and the Fund may have
greater difficulty taking appropriate legal action to enforce its rights in a
foreign court than in a U.S. court. Investing in foreign securities also
involves risks associated with government, economic, monetary, and fiscal
policies (such as the adoption of protectionist trade measures), possible
foreign withholding taxes on dividends and interest payable to the Fund,
possible taxes on trading profits, inflation, and interest rates, economic
expansion or contraction, and global or regional political, economic or banking
crises. Furthermore, there is the risk of possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits and the possible
adoption of foreign government restrictions such as exchange controls. Also,
foreign issuers are not necessarily subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic issuers and as a result, there may be less publicly
available information on such foreign issuers than is available from a domestic
issuer.
Emerging
Markets
In
addition, the Global Equity Fund may invest without limit in foreign securities
of companies that are located in developing or emerging markets (including
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 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
infrastructures, the lack of capital base to expand business operations and the
inexperience of financial intermediaries, custodians and transfer agents.
Emerging 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
the Fund’s ability to obtain possession of its assets. As a result, there may be
an increased risk or price volatility
associated
with the Fund’s investments in emerging market countries, which may be magnified
by currency fluctuations.
Foreign
Country Concentration
From
time to time, a Fund may invest a significant portion of its assets in the
securities of a single country or region. Substantial investment in a single
country or region will subject the Fund, to a greater extent, to the risks
associated with investments in that region or country. The Fund will also be
subject to the risks that its return will be more dependent on the economic
performance of that country or region than a fund that is not so
concentrated.
Foreign
Taxation
Dividends
and interest payable on a Fund’s foreign securities may be subject to foreign
withholding tax. The Fund may also be subject to foreign taxes on its trading
profits. Some countries may also impose a transfer or stamp duty on certain
securities transactions. The imposition of these taxes will increase the cost to
the Fund of investing in those countries that impose these taxes. To the extent
such taxes are not offset by credits or deductions available to shareholders in
the Fund, under U.S. tax law, they will reduce the net return to the Fund’s
shareholders.
Foreign
Currency Transactions
Investments
in foreign companies will usually involve currencies of foreign countries. To
the extent that a Fund may invest in securities denominated in currencies other
than the U.S. dollar and may temporarily hold funds in bank deposits or other
money market investments denominated in foreign currencies, it may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. The rate of exchange
between the U.S. dollar and other currencies is determined by the forces of
supply and demand in the foreign exchange markets. The international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors affect these forces. To the extent the Funds
invest in securities denominated in foreign currencies, the Funds will be
subject to the risk that 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. Investing in foreign denominated
securities may also result in transaction costs incurred in connection with
conversions between various currencies. In addition, only a limited market
currently exists for hedging transactions relating to currencies in certain
emerging markets and securities transactions undertaken in foreign markets may
not be settled promptly, subjecting the Funds to the risk of fluctuating
currency exchange rates pending settlement.
Although
the Global Equity Fund has no present intent of conducting foreign currency
contracts, the Fund may, in the future, conduct foreign currency exchange
transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market or by
entering into a forward foreign currency contract.
The
Global Equity Fund may conduct foreign currency exchange transactions either on
a spot (i.e., cash)
basis at the spot rate prevailing in the foreign exchange market or by entering
into a forward foreign currency contract. A forward foreign currency contract
(“forward contract”) involves an obligation to purchase or sell a specific
amount of a specific currency at a future date, which may be any fixed number of
days (usually less than one year) from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. Forward contracts are
considered to be derivatives. The Fund enters into forward contracts in order to
“lock in” the exchange rate between the currency it will deliver and the
currency it will receive for the duration of the contract. In addition, the Fund
may enter into forward contracts to hedge against risks arising from securities
the Fund owns or anticipates purchasing, or the U.S. dollar value of interest
and dividends paid on those securities. The Fund will not enter into forward
contracts for speculative purposes. The Fund will not have more than 10% of its
total assets committed to forward contracts, or maintain a net exposure to
forward contracts that would obligate the Fund to deliver an amount of foreign
currency in excess of the value of the Fund’s investment securities or other
assets denominated in that currency.
At
or before settlement of a forward currency contract, the Global Equity Fund may
either deliver the currency or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract. If the Fund makes delivery of
the foreign currency at or before the settlement of a forward contract, it may
be required to obtain the currency through the conversion of assets of the Fund
into the currency. The Fund may close out a forward contract obligating it to
purchase a foreign currency by selling an offsetting contract, in which case it
will realize a gain or a loss.
Risks
of Foreign Currency Transactions
Foreign
currency transactions involve certain costs and risks. The Global Equity Fund
incurs foreign exchange expenses in converting assets from one currency to
another. Forward contracts involve a risk of loss if the Adviser is inaccurate
in its prediction of currency movements. The projection of short-term currency
market movements is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. The precise matching of forward
contract amounts and the value of the securities involved is generally not
possible. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency if the market value of the security is less than the amount of
the foreign currency. The Fund is obligated to deliver under the forward
contract and the decision is made to sell the security and make delivery of the
foreign currency. The use of forward contracts as a hedging technique does not
eliminate fluctuations in the prices of the underlying securities the Fund owns
or intends to acquire, but it does fix a rate of exchange in advance. Although
forward contracts can reduce the risk of loss due to a decline in the value of
the hedged currencies, they also limit any potential gain that might result from
an increase in the value of the currencies.
In
addition, there is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global around-the-clock market. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, the Fund may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots. The Fund may take positions
in options on foreign currencies in order to hedge against the risk of foreign
exchange fluctuation on foreign securities the Fund holds in its portfolio or
which it intends to purchase.
American
Depositary Receipts, European Depositary Receipts and Global Depositary
Receipts. Generally,
ADRs, in registered form, are denominated in U.S. dollars and are designed for
use in the U.S. securities markets, while EDRs and GDRs, in bearer form, may be
denominated in other currencies and are designed for use in European or other
foreign securities markets. ADRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying securities. EDRs and GDRs
are European and Global receipts evidencing a similar arrangement. ADRs, EDRs
and GDRs 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. For purposes of the Funds’ investment
policies, ADRs, EDRs and GDRs are deemed to have the same classification as the
underlying securities they represent. Thus, an ADR, EDR or GDR representing
ownership of common stock will be treated as common stock.
Brexit.
Uncertainties surrounding the sovereign debt of a number of EU countries and the
viability of the EU have disrupted and may in the future disrupt markets in the
United States and around the world. If one or more countries leave the EU or the
EU dissolves, the world’s securities markets likely will be significantly
disrupted. In January 2020, the United Kingdom (“UK”) left the EU, commonly
referred to as “Brexit,” and the UK ceased to be a member of the EU. Following a
transition period during which the EU and the UK Government engaged in a series
of negotiations regarding the terms of the UK’s future relationship with the EU,
the EU and the UK Government signed an agreement on December 30, 2020 regarding
the economic relationship between the UK and the EU. This agreement became
effective on May 1, 2021. There is significant market uncertainty regarding
Brexit’s ramifications, and the range and potential implications of possible
political, regulatory, economic, and market outcomes are difficult to predict.
This long-term uncertainty may affect other countries in the EU and elsewhere,
and may cause volatility within the EU, triggering prolonged economic downturns
in certain European countries. In addition, Brexit may create additional and
substantial economic stresses for the UK, including a contraction of the UK
economy and price volatility in UK stocks, decreased trade, capital outflows,
devaluation of the British pound, wider corporate bond spreads due to
uncertainty, and declines in business and consumer spending as well as foreign
direct investment. Brexit may also adversely affect UK-based financial firms
that have counterparties in the EU or participate in market infrastructure
(trading venues, clearing houses, settlement facilities) based in the EU. These
events and the resulting market volatility may have an adverse effect on the
performance of the Fund.
Initial
Public Offerings
The
Funds may purchase equity securities in initial public offerings (“IPOs”). These
securities, which are often issued by unseasoned companies, may be subject to
many of the same risks of investing in companies with smaller market
capitalizations. Securities issued in IPOs have no trading history, and
information about the companies may be available for very limited periods.
Securities issued in an IPO frequently are very volatile in price, and the Funds
may hold securities purchased in an IPO for a very short period of time. As a
result, a Fund’s investments in IPOs may increase portfolio turnover, which
increases brokerage and administrative costs and may result in taxable
distributions to shareholders.
At
any particular time, or from time to time, a Fund may not be able to invest in
securities issued in IPOs, or invest to the extent desired because, for example,
only a small portion (if any) of the securities being offered in an IPO may be
made available to the Fund. In addition, under certain market conditions, a
relatively small number of companies may issue securities in IPOs. Similarly, as
the number of Trillium Funds to which IPO securities are allocated increases,
the number of securities issued to any one fund may decrease. The investment
performance of a Fund during periods when it is unable to invest significantly
or at all in IPOs may be lower than during periods when the Fund is able to do
so. In addition, as a Fund increases in size, the impact of IPOs on the Fund’s
performance will generally decrease. There can be no assurance that investments
in IPOs will improve a Fund’s performance.
Borrowing
Currently,
the 1940 Act permits a Fund to borrow money from banks in amounts of up to
one-third of a Fund’s total assets (including the amount borrowed). To the
extent permitted by the 1940 Act, or the rules and regulations thereunder, a
Fund may also borrow an additional 5% of its total assets without regard to the
foregoing limitation for temporary purposes, such as the clearance of portfolio
transactions. To limit the risks attendant to borrowing, the 1940 Act requires a
Fund to maintain at all times an “asset coverage” of at least 300% of the amount
of its borrowings. Asset coverage means the ratio that the value of a Fund’s
total assets, minus liabilities other than borrowings, bears to the aggregate
amount of all borrowings. Borrowing money to increase a Fund’s investment
portfolio is known as “leveraging.” Borrowing, especially when used for
leverage, may cause the value of a Fund’s shares to be more volatile than if the
Fund did not borrow. This is because borrowing tends to magnify the effect of
any increase or decrease in the value of a Fund’s portfolio
holdings.
Borrowed money thus creates an opportunity for greater gains, but also greater
losses. To repay borrowings, a Fund may have to sell securities at a time and at
a price that is unfavorable to the Fund. There also are costs associated with
borrowing money, and these costs would offset and could eliminate the Fund's net
investment income in any given period.
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 net asset value 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
may fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions, a
Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales. Each Fund will reduce its borrowing amount within three days, if
that Fund’s asset coverage falls below the amount required by the 1940
Act.
Securities
Lending
The
Global Equity Fund has received Board approval to lend up to 33 1/3% of the
securities in its portfolio to brokers, dealers and financial institutions (but
not individuals) in order to increase the return on its portfolio. The SEC
currently requires that the following conditions must be met whenever the Fund’s
portfolio securities are loaned: (1) the Fund must receive at least 100%
cash collateral (which may include cash, U.S. government or agency securities,
or irrevocable bank letters of credit) from the borrower; (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) 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 (6) 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. The 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, the 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, the 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, the 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, the Fund will
have to cover the loss when repaying the collateral.
Any
loans of portfolio securities are fully collateralized based on values that are
marked-to-market daily. Any securities that the 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.
The
SMID Fund reserves the right, pending receipt of Board approval, to lend
securities from their portfolio to brokers, dealers and financial institutions
(but not individuals) in order to increase the return on its portfolio.
There
is a risk that a Fund will incur a loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the Fund. In
addition, neither Fund will 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 will invest its cash
collateral only in investments that are consistent with the investment
objectives, principal investment strategies and investment policies of the Fund.
All investments made with the cash collateral received are subject to the risks
associated with such investments. If such investments lose value, the Fund will
have to cover the loss when repaying the collateral. Any income or gains and
losses from investing and reinvesting any cash collateral delivered by a
borrower shall be at the Fund’s risk.
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.
Use
of Derivatives, Hedging and Income Transactions
The
Funds are prohibited from investing in derivatives, excluding certain currency
and interest rate hedging transactions. This restriction is not fundamental and
may be changed by the Funds without a shareholder vote. If the Funds do
determine to invest in derivatives in the future, they will comply with Rule
18f-4 under the 1940 Act.
Short-Term
Instruments
The
Global Equity Fund may invest in any of the following securities and
instruments:
Certificates
of Deposit, Bankers’ Acceptances and Time Deposits.
The
Fund may hold certificates of deposit, bankers’ acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers’ acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are “accepted” by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers’ acceptances acquired by the Fund will be
dollar-denominated obligations of domestic banks, savings and loan associations
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 buying certificates of deposit and bankers’ acceptances, the Fund
also may make interest-bearing time or other interest-bearing deposits in
commercial or savings banks. Time deposits are non-negotiable deposits
maintained at a banking institution for a specified period of time at a
specified interest rate.
Commercial
Paper and Short-Term Notes.
The
Fund may invest a portion of its assets in commercial paper and short-term
notes. Commercial paper consists of unsecured promissory notes issued by
corporations. 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 Standard & Poor’s®
Ratings Group, “Prime-1” or “Prime-2” by Moody’s Investors Service,
Inc.©,
or similarly rated by another nationally recognized statistical rating
organization or, if unrated, will be determined by the Adviser to be of
comparable quality. These rating symbols are described in Appendix
A.
The
SMID Fund may invest in short-term money market instruments issued in the United
States or abroad (e.g.,
Australia, Canada, etc.), denominated in U.S. dollars or any foreign currency.
Short-term money market instruments include repurchase agreements, short-term
fixed or variable rate certificates of deposit, time deposits with a maturity no
greater than 180 days, bankers’ acceptances, commercial paper rated A-1 by
S&P or Prime-1 by Moody’s or in similar other money market securities.
Certificates of deposit represent an institution’s obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers’ acceptances are negotiable obligations of a bank to pay a draft, which
has been drawn by a customer, and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
time deposits generally may be withdrawn on demand by the Fund but may be
subject to early withdrawal penalties that could reduce the Fund’s performance.
The
SMID Fund may also invest in other high quality fixed income securities
denominated in U.S. dollars, any foreign currency or in a multi-national
currency unit (e.g.,
the European Currency Unit).
Temporary
or Cash Investments
The
Funds may take temporary defensive measures that are inconsistent with a Fund’s
normal investment policies and strategies in response to adverse market,
economic, political, or other conditions as determined by the Adviser. Such
measures could include, but are not limited to, investments in (1) cash and cash
equivalents, (2) short-term debt securities and (3) money market instruments. In
the event a Fund uses a money market fund for its cash position, there will be
some duplication of expenses because a Fund would bear its pro rata portion of
such money market fund’s advisory fees and operational expenses.
Special
Risks Related to Cyber Security
Each
Fund and its service providers are susceptible to cyber security risks that
include, among other things, theft, unauthorized monitoring, release, misuse,
loss, destruction or corruption of confidential and highly restricted data;
denial of service attacks; unauthorized access to relevant systems, compromises
to networks or devices that the Fund and its service providers use to service
the Fund’s operations; or operational disruption or failures in the physical
infrastructure or operating systems that support the Fund and its service
providers. Cyber attacks against or security breakdowns of the Fund or its
service providers may adversely impact the Fund and its shareholders,
potentially resulting in, among other things, financial losses; the inability of
Fund shareholders to transact business and the Fund to process transactions;
inability to calculate the Fund’s NAV; violations of applicable privacy and
other laws; regulatory fines, penalties, reputational damage, reimbursement or
other compensation costs; and/or additional compliance costs. The Fund may incur
additional costs for cyber security risk management and remediation purposes. In
addition, cyber security risks may also impact issuers of securities in which
the Fund invests, which may cause the Fund’s investment in such issuers to lose
value. There can be no assurance that the Fund or its service providers will not
suffer losses relating to cyber attacks or other information security breaches
in the future.
The
Trust (on behalf of the SMID Fund) has adopted the following restrictions as
fundamental policies, which may not be changed without the affirmative vote of
the holders of a “majority” of the outstanding voting securities of the Fund.
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 (1) 67%
of the shares of the Fund represented at a meeting at which the holders of more
than 50% of the Fund’s outstanding shares are represented or (2) more than
50% of the outstanding shares of the Fund. The Fund may not:
1.Borrow
money or issue senior securities, except through reverse repurchase agreements
or otherwise as permitted under the 1940 Act, as interpreted, modified or
otherwise permitted by regulatory authority. Generally, issuing senior
securities is prohibited under the 1940 Act; however, certain exceptions apply
such as in the case of reverse repurchase agreements (which is a form of
borrowing), borrowing, and certain other leveraging transactions. For purposes
of this limitation, entering into repurchase agreements, lending securities and
acquiring any debt security are not deemed to be the making of
loans;
2.Act
as underwriter (except to the extent the Fund may be deemed to be an underwriter
in connection with the sale of securities in its investment
portfolio);
3.Invest
25% or more of its net assets, calculated at the time of purchase and taken at
market value, in securities of issuers in any one industry or groups of
industries (other than U.S. government securities);
4.Purchase
or sell real estate, unless acquired as a result of ownership of securities
(although the Fund may purchase and sell securities that are secured by real
estate and securities of companies that invest or deal in real
estate);
5.Purchase
or sell physical commodities, unless acquired as a result of ownership of
securities or other instruments. This limitation shall not prevent the Fund from
purchasing, selling, or entering into futures contracts, or acquiring securities
or other instruments and options thereon backed by, or related to, physical
commodities; or
6.Make
loans (except purchases of debt securities consistent with the investment
policies of the Fund). For purposes of this limitation, entering into repurchase
agreements, lending securities and acquiring any debt security are not deemed to
be the making of loans.
7.Purchase
the securities of any issuer, if as a result more than 5% of the total assets of
the Fund would be invested in the securities of that issuer, other than
obligations of the U.S. government, its agencies or instrumentalities, provided
that up to 25% of the value of its assets may be invested without regard to this
limitation.
Except
with respect to borrowing, 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 the percentage or rating resulting
from any cause other than actions by a Fund will not be considered a violation
of the Fund’s investment restrictions.
The
Trust (on behalf of the Global Equity Fund) has adopted the following
restrictions as fundamental policies (unless otherwise noted), which may not be
changed without the affirmative vote of the holders of a “majority” of the
outstanding voting securities of the Fund. Under the 1940 Act, the “vote of the
holders of a majority of the outstanding voting securities” means the vote of
the holders of the lesser of (i) 67% of the shares of the Fund represented
at a meeting at which the holders of more than 50% of the Fund’s outstanding
shares are represented or (ii) more than 50% of the outstanding shares of
the Fund.
The
Fund may not:
1.Make
loans to others, except (a) through the purchase of debt securities in
accordance with its investment objective and policies, or (b) to the extent
the entry into a repurchase agreement is deemed to be a loan.
2.Borrow
money, except for temporary or emergency purposes. Any such borrowings will be
made only if immediately thereafter there is an asset coverage of at least 300%
of all borrowings.
3.Mortgage,
pledge or hypothecate any of its assets except in connection with any borrowings
and only with respect to 33 1/3% of its assets.
4.Purchase
securities on margin, participate on a joint or joint and several basis in any
securities trading account, or underwrite securities. (This restriction does not
preclude the Fund from obtaining such short-term credit as may be necessary for
the clearance of purchases and sales of its portfolio securities.)
5.Purchase
real estate, commodities or commodity contracts. (As a matter of operating
policy, the Board may authorize the Fund in the future to engage in certain
activities regarding futures contracts for bona fide hedging purposes; any such
authorization will be accompanied by appropriate notification to
shareholders.)
6.Issue
senior securities, as defined in the 1940 Act, except that this restriction
shall not be deemed to prohibit the Fund from (a) making any permitted
borrowings, mortgages or pledges or (b) entering into options, futures or
repurchase transactions.
7.Invest
25% or more of the market value of its assets in the securities of companies
engaged in any one industry or group of industries, except that this restriction
does not apply to investment in the securities of the U.S. government, its
agencies or instrumentalities.
8.With
respect to 75% of its total assets, invest more than 5% of its total assets in
securities of a single issuer or hold more than 10% of the voting securities of
such issuer, except that this restriction does not apply to investment in the
securities of the U.S. government, its agencies or
instrumentalities.
Although
the Funds generally will not invest for short-term trading purposes, portfolio
securities may be sold without regard to the length of time they have been held
when, in the opinion of the Adviser, investment considerations warrant such
action. Portfolio turnover rate is calculated by dividing (1) the lesser of
purchases or sales of portfolio securities for the fiscal year by (2) the
monthly average of the value of portfolio securities owned during the fiscal
year. A 100% turnover rate would occur if all the securities in a Fund’s
portfolio, with the exception of securities whose maturities at the time of
acquisition were one year or less, were sold and either repurchased or replaced
within one year. A high rate of portfolio turnover (100% or more)
generally
leads to higher transaction costs and may result in a greater number of taxable
transactions. The Funds’ portfolio turnover rates for the fiscal years ended
June 30 are shown in the table below. See “Execution of Portfolio Transactions
and Brokerage.”
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| 2022 |
2021 |
Global
Equity Fund |
7% |
10% |
SMID
Fund |
21% |
20% |
The
Trust, on behalf of the Funds, has adopted portfolio holdings disclosure
policies that govern the timing and circumstances of disclosure of portfolio
holdings of the Funds. The Adviser has also adopted a policy with respect to
disclosure of portfolio holdings of the Funds (the “Adviser’s Policy”).
Information about the Funds’ portfolio holdings will not be distributed to any
third party except in accordance with the portfolio holdings policies and the
Adviser’s Policy (the “Disclosure Policies”). The Adviser and the Board
considered the circumstances under which the Funds’ portfolio holdings may be
disclosed under the Disclosure Policies and the actual and potential material
conflicts that could arise in such circumstances between the interests of the
Funds’ shareholders and the interests of the Adviser, distributor or any other
affiliated person of the Funds, their Adviser or their distributor. After due
consideration, the Adviser and the Board determined that the Funds have a
legitimate business purpose for disclosing portfolio holdings to persons
described in the Disclosure Policies, including mutual fund rating or
statistical agencies, or persons performing similar functions, and internal
parties involved in the investment process, administration or custody of the
Funds. Pursuant to the Disclosure Policies, the Trust’s Chief Compliance Officer
(“CCO”), President and Treasurer are each authorized to consider and authorize
dissemination of portfolio holdings information to additional third parties,
after considering the best interests of the 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
Disclosure Policies, Codes of Ethics and other relevant policies of the Funds’
and their service providers by the Trust’s CCO, (2) by considering reports
and recommendations by the Trust’s CCO concerning any material compliance
matters (as defined in Rule 38a-1 under the 1940 Act), and (3) by
considering to approve any amendment to these Disclosure Policies. The Board
reserves the right to amend the Disclosure Policies at any time without prior
notice in their sole discretion.
Disclosure
of the Funds’ complete holdings is required to be made quarterly within
60 days of the end of each period covered by the Annual Report and
Semi-Annual Report to Funds shareholders and in the quarterly holdings report on
Part F of Form N-PORT, with quarter-end disclosures being made public 60 days
after the end of each fiscal quarter. These reports are available, free of
charge, on the EDGAR database on the SEC’s website at http://www.sec.gov. In
addition, the Funds also discloses its complete holdings and certain other
portfolio characteristics on the Funds’ website at www.trilliummutualfunds.com
generally within 30 days after each month-end. The month-end holdings for the
Funds will remain posted on the Funds’ website until updated the following
month-end. Portfolio holdings information may be separately provided to any
person, including rating and ranking organizations such as Lipper and
Morningstar, at the same time that it is filed with the SEC or one day after it
is first published on the Funds’ website. In addition, a Fund may provide its
complete portfolio holdings at the same time that it is filed with the
SEC.
In
addition, material non-public holdings information may be provided without 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:
fund administrator, fund accountant, custodian, transfer agent, auditors,
counsel to the Adviser, Funds or the Board, broker-dealers (in connection with
the purchase or sale of securities or requests for price quotations or bids on
one or more securities) and regulatory authorities. This duty of confidentiality
also includes a prohibition on trading on non-public information. Portfolio
holdings information not publicly available with the SEC or through the Funds’
website may only be provided to additional third parties, including mutual fund
ratings or statistical agencies, in accordance with the Disclosure Policies,
when the Funds have a legitimate business purpose, and the third-party recipient
is subject to a confidentiality agreement
that
includes a duty not to trade on non-public information.
In
no event shall the Adviser, their affiliates or employees, or the Funds receive
any direct or indirect compensation in connection with the disclosure of
information about a Funds’ portfolio holdings.
There
can be no assurance that the Disclosure Policies and these procedures will
protect the Funds from potential misuse of that information by individuals or
entities to which it is disclosed.
The
Board is responsible for the overall management of the Trust, including general
supervision and review of the investment activities of the Funds. The Board, in
turn, elects the officers of the Trust, who are responsible for administering
the day-to-day operations of the Trust and its separate series. The current
trustees and officers of the Trust, their dates of birth, positions with the
Trust, terms of office with the Trust and length of time served, their principal
occupations for the past five years and other directorships are set forth in the
table below.
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Name,
Address And Age |
Position
with
the
Trust(1) |
Term
of Office(2)
and Length of Time Served |
Principal
Occupation During Past Five Years |
Number
of Portfolios
in
Fund Complex(3)
Overseen
by Trustees |
Other
Directorships Held During the Past 5 Years |
Independent
Trustees of the Trust |
Kathleen
T. Barr (born 1955) c/o U.S. Bank Global Fund Services 615 East
Michigan Street Milwaukee, WI 53202 |
Trustee |
Indefinite
Term; Since November 2018. |
Retired;
Chair of the Governing Council, Independent Directors Council (since
2020); formerly, President, owner of a registered investment adviser,
Productive Capital Management, Inc. (2010 to 2013); formerly, Chief
Administrative Officer, Senior Vice President and Senior Managing Director
of Allegiant Asset Management Company (merged with PNC Capital Advisors,
LLC in 2009); formerly, Chief Administrative Officer, Chief Compliance
Officer and Senior Vice President of PNC Funds and PNC Advantage Funds
(f/k/a Allegiant Funds) (registered investment companies). |
2 |
Independent
Director, Muzinich BDC, Inc. (2019 to present); Independent Trustee for
the William Blair Funds (2013 to present) (19
series). |
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Name,
Address And Age |
Position
with
the
Trust(1) |
Term
of Office(2)
and Length of Time Served |
Principal
Occupation During Past Five Years |
Number
of Portfolios
in
Fund Complex(3)
Overseen
by Trustees |
Other
Directorships Held During the Past 5 Years |
Eric
W. Falkeis (born 1973) c/o U.S. Bank Global Fund Services 615
East Michigan Street Milwaukee, WI 53202 |
Trustee
Chairperson |
Indefinite
Term; Since September 2011.
Indefinite
Term; Since August 2019. |
Chief
Executive Officer, Tidal ETF Services LLC (2018 to present); formerly,
Chief Operating Officer, Direxion Funds (2013 to 2018); formerly, Senior
Vice President and Chief Financial Officer (and other positions), U.S.
Bancorp Fund Services, LLC (1997 to 2013). |
2 |
Independent
Director, Muzinich BDC, Inc. (2019 to present); Interested Trustee, Tidal
ETF Trust (2018 to Present) (22 series); Former Interested Trustee,
Direxion Funds (22 series), Direxion Shares ETF Trust (112 series) and
Direxion Insurance Trust (2013 to 2018). |
Steven
J. Paggioli (born 1950) c/o U.S. Bank Global Fund Services 615
East Michigan Street Milwaukee, WI 53202 |
Trustee |
Indefinite
Term; Since May 1991. |
Consultant;
formerly, Executive Vice President, Investment Company Administration, LLC
(mutual fund administrator). |
2 |
Independent
Director, Muzinich BDC, Inc. (2019 to present); Independent Trustee, AMG
Funds (1993 to present) (42 series); Advisory Board Member, Sustainable
Growth Advisers, LP. |
Ashi
S. Parikh (born 1966) c/o U.S. Bank Global Fund Services 615 East
Michigan Street Milwaukee, WI 53202 |
Trustee |
Indefinite
Term; Since June 2020. |
Investment
professional; formerly, Chief Executive and Chief Investment Officer and
various other positions, RidgeWorth Investments, LLC(global investment
management firm) (2006 to 2017); formerly, Chief Investment Officer
Institutional Growth Equities, Eagle Asset Management (financial advisor);
formerly Sr. Managing Director, Growth Equities, Banc One Investment
Advisors (financial adviser). |
2 |
Board
of Directors Member, Investment Working Group, The Ohio State University
Endowments and Foundation (2016 to present); Board of Directors, World
Methodist Council, Investment Committee (2018 to present); Independent
Trustee, PNC Funds (2018 to 2019) (32 series); Interested Trustee,
RidgeWorth Funds (2014 to 2017) (35
series). |
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|
| |
Name,
Address And Age |
Position
with
the
Trust(1) |
Term
of Office(2)
and Length of Time Served |
Principal
Occupation During Past Five Years |
Number
of Portfolios
in
Fund Complex(3)
Overseen
by Trustees |
Other
Directorships Held During the Past 5 Years |
Cynthia
M. Fornelli (born 1960) c/o U.S. Bank Global Fund Services 615
East Michigan Street Milwaukee, WI 53202
|
Trustee |
Indefinite
Term; Since January 2022. |
Independent
Director of TriplePoint Venture Growth BDC Corp. (2019 to present);
Retired; formerly, Executive Director of the Center for Audit Quality
(2007-2019); formerly, Senior Vice President of Regulatory Conflicts
Management at Bank of America (2005-2007); formerly, Deputy Director,
Division of Investment Management with the U.S. Securities and Exchange
Commission (1998-2005). |
2 |
Independent
Director, TriplePoint Private Venture Credit, Inc. (2020 to
present). |
Officers
of the Trust |
Jason
F. Hadler (born 1975) c/o U.S. Bank Global Fund Services 615
East Michigan Street Milwaukee, WI 53202 |
President
& Principal Executive Officer |
Indefinite
Term; Since September 2021. |
Senior
Vice President and Head of Fund Services Fund Administration Department,
U.S. Bank Global Fund Services since December 2003. |
Not
Applicable. |
Not
Applicable. |
Carl
G. Gee, Esq. (born 1990) c/o U.S. Bank Global Fund Services 615
East Michigan Street Milwaukee, WI 53202 |
Secretary
& Vice President |
Indefinite
Term; Since February 2021. |
Assistant
Vice President and Counsel, U.S. Bank Global Fund Services since August
2016; Summer Associate, Husch Blackwell LLP (2015); Law Clerk, Brady
Corporation (global printing systems, labels and safety products company)
(2014-2015). |
Not
Applicable. |
Not
Applicable. |
Craig
Benton (born 1985) c/o U.S. Bank Global Fund Services 615 East
Michigan Street Milwaukee, WI 53202 |
Treasurer
& Vice President |
Indefinite
Term; Since December 2021. |
Assistant
Vice President, U.S. Bank Global Fund Services since November
2007. |
Not
Applicable. |
Not
Applicable. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name,
Address And Age |
Position
with
the
Trust(1) |
Term
of Office(2)
and Length of Time Served |
Principal
Occupation During Past Five Years |
Number
of Portfolios
in
Fund Complex(3)
Overseen
by Trustees |
Other
Directorships Held During the Past 5 Years |
Melissa
Breitzman (born 1983) c/o U.S. Bank Global Fund Services 615 East
Michigan Street Milwaukee, WI 53202 |
Assistant
Treasurer |
Indefinite
Term; Since August 2016. |
Assistant
Vice President, U.S. Bank Global Fund Services since June 2005. |
Not
Applicable. |
Not
Applicable. |
Kyle
J. Buscemi (born 1996) c/o U.S. Bank Global Fund Services 615
East Michigan Street Milwaukee, WI 53202 |
Assistant
Treasurer |
Indefinite
Term; Since June 2022. |
Mutual
Funds Administrator, U.S. Bank Global Fund Services since June 2018;
Business Administration Student, 2014-2018. |
Not
Applicable. |
Not
Applicable. |
Donna
Barrette (born 1966) c/o U.S. Bank Global Fund Services 615 East
Michigan Street Milwaukee, WI 53202 |
Vice
President
Chief
Compliance Officer
Anti-Money
Laundering Officer |
Indefinite
Term; Since July 2011. |
Senior
Vice President and Compliance Officer, U.S. Bank Global Fund Services
since August 2004. |
Not
Applicable. |
Not
Applicable. |
1.All
Trustees of the Trust who are not “interested persons” of the Trust as defined
under the 1940 Act (“Independent Trustees”).
2.Under
the terms of the Board's retirement policy, a Trustee shall retire at the end of
the calendar year in which he or she reaches the age of 78.
3.The
Trust is comprised of numerous series managed by unaffiliated investment
advisers. The term “Fund Complex” applies only to the Funds. The Funds do not
hold themselves out as related to any other series within the Trust for purposes
of investment and investor services, nor do they share the same investment
advisor with any other series.
Additional
Information Concerning the Board of Trustees
The
Role of the Board
The
Board oversees the management and operations of the Trust. Like all mutual
funds, the day-to-day management and operation of the Trust is the
responsibility of the various service providers to the Trust, such as the
Adviser, the Distributor, the Administrator, the Custodian, and the Transfer
Agent, each of whom is discussed in greater detail in this Statement of
Additional Information. The Board has appointed various senior employees of the
Administrator as officers of the Trust, with responsibility to monitor and
report to the Board on the Trust’s operations. In conducting this oversight, the
Board receives regular reports from these officers and the service providers.
For example, the Treasurer reports as to financial reporting matters and the
President reports as to matters relating to the Trust’s operations. In addition,
the Adviser provides regular reports on the investment strategy and performance
of the Funds. The Board has appointed a Chief Compliance Officer who administers
the Trust’s compliance program and regularly reports to the Board as to
compliance matters. These reports are provided as part of formal “Board
Meetings” which are typically held quarterly, in person, and
involve
the Board’s review of recent operations. In addition, various members of the
Board also meet with management in less formal settings, between formal “Board
Meetings,” to discuss various topics. In all cases, however, the role of the
Board and of any individual Trustee is one of oversight and not of management of
the day-to-day affairs of the Trust and its oversight role does not make the
Board a guarantor of the Trust’s investments, operations or
activities.
Board
Structure, Leadership
The
Board has structured itself in a manner that it believes allows it to perform
its oversight function effectively. It has established three standing
committees, a Nominating and Governance Committee, an Audit Committee, and a
Qualified Legal Compliance Committee, which are discussed in greater detail
below under “Trust Committees.” The Board is entirely comprised of Trustees who
are Independent Trustees, which are Trustees that are not affiliated with the
Adviser, the principal underwriter, or their affiliates. The Independent
Trustees have engaged their own independent counsel to advise them on matters
relating to their responsibilities in connection with the Trust. The Nominating
and Governance Committee, Audit Committee and Qualified Legal Compliance
Committee are comprised of all of the Independent Trustees. The Chairperson of
the Board is an Independent Trustee. The Board has determined not to combine the
Chairperson position and the principal executive officer position and has
appointed a Vice President of the Administrator as the President of the Trust.
The Board reviews its structure and the structure of its committees annually.
The Board has determined that the structure of the Independent Chairperson, the
composition of the Board, and the function and composition of its various
committees are appropriate means to address any potential conflicts of interest
that may arise.
Board
Oversight of Risk Management
As
part of its oversight function, the Board receives and reviews various risk
management reports and discusses these matters with appropriate management and
other personnel. Because risk management is a broad concept comprised of many
elements (e.g., investment risk, issuer and counterparty risk, compliance risk,
operational risks, business continuity risks, etc.), the oversight of different
types of risks is handled in different ways. For example, the Audit Committee
meets with the Treasurer and the Trust’s independent registered public
accounting firm to discuss, among other things, the internal control structure
of the Trust’s financial reporting function. The Board meets regularly with the
Chief Compliance Officer to discuss compliance and operational risks and how
they are managed. The Board also receives reports from the Adviser as to
investment risks of the Fund. In addition to these reports, from time to time
the Board receives reports from the Administrator and the Adviser as to
enterprise risk management.
Information
about Each Trustee’s Qualification, Experience, Attributes or Skills
The
Board believes that each of the Trustees has the qualifications, experience,
attributes and skills (“Trustee Attributes”) appropriate to their continued
service as Trustees of the Trust in light of the Trust’s business and structure.
In addition to a demonstrated record of business and/or professional
accomplishment, each of the Trustees has served on the Board for a number of
years. They have substantial board experience and, in their service to the
Trust, have gained substantial insight as to the operation of the Trust. They
have demonstrated a commitment to discharging their oversight duties as trustees
in the interests of shareholders. The Board annually conducts a
“self-assessment” wherein the effectiveness of the Board and individual Trustees
is reviewed.
In
addition to the information provided in the chart above, below is certain
additional information concerning each particular Trustee and his/her Trustee
Attributes. The information is not all-inclusive. Many Trustee Attributes
involve intangible elements, such as intelligence, integrity, work ethic, the
ability to work
together,
the ability to communicate effectively, the ability to exercise judgment, to ask
incisive questions, and commitment to shareholder interests.
Ms.
Barr’s Trustee Attributes include her substantial mutual fund experience,
including her role as Chair of the Governing Council for the Independent
Directors Council and member of the ICI Board of Governors. She has executive
experience as the former owner of a registered investment adviser (Productive
Capital Management, Inc.), as the Chief Administrative Officer, Senior Vice
President and Senior Managing Director of Allegiant Asset Management Company
(merged with PNC Capital Advisors LLC in 2009), and as the Chief Administrative
Officer, Chief Compliance Officer and Senior Vice President of PNC Funds and PNC
Advantage Funds (f/k/a Allegiant Funds). Ms. Barr also currently serves on the
board of several registered investment companies. Ms. Barr has been determined
to qualify as an Audit Committee financial expert for the Trust. The Board
believes Ms. Barr’s experience, qualifications, attributes or skills on an
individual basis and in combination with those of the other Trustees led to the
conclusion that she possesses the requisite skills and attributes as a Trustee
to carry out oversight responsibilities with respect to the Trust.
Mr.
Falkeis’ Trustee Attributes include his substantial mutual fund experience and
his experience with financial, accounting, investment and regulatory matters
through his former position as Senior Vice President and Chief Financial Officer
(and other positions) of U.S. Bancorp Fund Services, LLC, a full-service
provider to ETFs, mutual funds and alternative investment products. Mr. Falkeis
currently serves as Chief Executive Officer of Tidal ETF Services LLC (2018 to
present), and he has experience consulting with investment advisers regarding
the legal structure of investment companies, distribution channel analysis,
marketing and actual distribution of those funds. Mr. Falkeis also has
substantial managerial, operational and risk oversight experience through his
former positions as Chief Operating Officer and Trustee of the Direxion Funds
and the Direxion Exchange Traded Funds. Mr. Falkeis has been determined to
qualify as an Audit Committee financial expert for the Trust. The Board believes
Mr. Falkeis’ experience, qualifications, attributes or skills on an individual
basis and in combination with those of the other Trustees led 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.
Paggioli’s Trustee Attributes include his substantial mutual fund and investment
advisory experience. Mr. Paggioli is an independent consultant on investment
company and investment advisory matters. He has held a number of senior
positions with mutual fund and investment advisory organizations and related
businesses, including Executive Vice President, Director and Principal of the
Wadsworth Group (fund administration, distribution transfer agency and
accounting services). He serves on the boards of several investment management
companies and advisory firms. He is a member of the Board of Governors of the
Investment Company Institute and of the Governing Council of the Independent
Directors Council. He has served on various industry association and
self-regulatory committees and formerly worked on the staff of the SEC. Mr.
Paggioli has been determined to qualify as an Audit Committee financial expert
for the Trust. The Board believes Mr. Paggioli’s experience,
qualifications, attributes or skills on an individual basis and in combination
with those of the other Trustees led 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. Parikh’s
Trustee Attributes include his substantial investment and executive experience
in the asset management industry, including his position as Chief Executive
Officer and Chief Investment Officer of Ridgeworth Investments (global
investment management firm with over $41 billion in assets). He has also
served as a Trustee of several investment trusts (including private investment
trusts). Mr. Parikh has ongoing responsibility as a member of the
Investment Working Group as part of the Board of Directors for the Ohio State
University Endowments & Foundation, as well as an ongoing position as a
member of the Investment Committee for the World Methodist Council Endowment
Fund (a charitable religious foundation). Mr. Parikh has been determined to
qualify as an Audit Committee financial expert for the Trust. The Board believes
Mr. Parikh possesses the requisite skills and attributes as a Trustee to
carry out oversight responsibilities with respect to the Trust.
Ms.
Fornelli’s Trustee Attributes include her substantial governance, legal,
regulatory and business experience, including her role as an Independent
Director of TriplePoint Venture Growth BDC Corp and TriplePoint Private Venture
Credit, Inc. She has broad leadership experience in strategy formulation,
corporate governance and risk management. She has executive experience as the
Executive Director of Center for Audit Quality (2007-2019), Senior Vice
President of Regulatory and Conflicts Management at Bank of America (2005-2007)
and Deputy Director, Division of Investment Management with the US Securities
and Exchange Commission (1998-2005). Ms. Fornelli has been determined to qualify
as an Audit Committee financial expert for the Trust. The Board believes Ms.
Fornelli’s experience, qualifications, attributes or skills on an individual
basis and in combination with those of the other Trustees led to the conclusion
that she possesses the requisite skills and attributes as a Trustee to carry out
oversight responsibilities with respect to the Trust.
Trust
Committees
The
Trust has three standing committees: the Nominating and Governance Committee,
and the Audit Committee, which also serves as the Qualified Legal Compliance
Committee (“QLCC”).
The
Nominating and Governance Committee, comprised of all of the Independent
Trustees, is responsible for seeking and reviewing candidates for consideration
as nominees for Trustees and meets only as necessary. The Nominating and
Governance Committee has appointed Independent Trustee Kathleen Barr as the
Chairperson of the Committee. The Nominating and Governance Committee will
consider nominees nominated by shareholders. Recommendations for consideration
by shareholders by the Nominating Committee should be sent to the President of
the Trust in writing together with the appropriate biographical information
concerning each such proposed Nominee, and such recommendation must comply with
the notice provisions set forth in the Trust By-Laws. In general, to comply with
such procedures, such nominations, together with all required biographical
information, must be delivered to and received by the President of the Trust at
the principal executive offices 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. The Nominating and Governance Committee met once during the Funds’
last fiscal year.
The
Audit Committee is comprised of all of the Independent Trustees. The Audit
Committee generally meets on a quarterly basis with respect to the various
series of the Trust, and may meet more frequently. The function of the Audit
Committee, with respect to each series of the Trust, is to review the scope and
results of the audit of such series’ financial statements and any matters
bearing on the audit or the financial statements, and to ensure the integrity of
the series’ pricing and financial reporting. The Audit Committee met once with
respect to the Global Equity Fund and SMID Fund during the Funds’ last fiscal
year.
The
function of the QLCC is to receive reports from an attorney retained by the
Trust of evidence of a material violation by the Trust or by any officer,
director, employee or agent of the Trust. The QLCC did not meet during the
Funds’ last fiscal year.
Trustee
Ownership of Fund Shares and Other Interests
The
following table shows the amount of shares in the Funds and the amount of shares
in other portfolios of the Trust owned by the Trustees as of the calendar year
ended December 31, 2021.
|
|
|
|
|
|
|
|
|
|
| |
Name |
Dollar
Range of Global Equity Fund Shares |
Dollar
Range of SMID Fund Shares |
Aggregate
Dollar Range of Fund Shares in the Trust |
Independent
Trustees |
Kathleen
T. Barr |
$10,001
- $50,000 |
None |
Over
$100,000 |
Eric
W. Falkeis |
None |
None |
Over
$100,000 |
Steven
J. Paggioli |
None |
None |
Over
$100,000 |
Ashi
S. Parikh |
None |
None |
Over
$100,000 |
Cynthia
Fornelli(1) |
None |
None |
None |
(1)Ms.
Fornelli became a Trustee of the Trust on January 1, 2022.
Furthermore,
neither the Independent Trustees nor members of their immediate family, own
securities beneficially or of record in the Adviser, the Funds’ principal
underwriter, or any of their affiliates. Accordingly, during the two most
recently completed calendar years, neither the Independent Trustees nor members
of their immediate family have had a direct or indirect interest during the two
most recently completed calendar years, the value of which exceeds $120,000, in
the Adviser, the Funds’ principal underwriter or any of its
affiliates.
Compensation
Effective
February 16, 2022, Independent Trustees were due to receive an annual retainer
of $142,000 allocated among each of the various portfolios comprising the Trust,
an additional $8,000 per regularly scheduled Board meeting, and an additional
$3,500 per special meeting, paid by the Trust or applicable advisors/portfolios,
as well as reimbursement for expenses incurred in connection with attendance at
Board meetings. The Chairperson of the Board receives an additional annual
retainer of $21,000 also allocated among each of the various portfolios
comprising the Trust. Independent Trustees receive additional fees from the
applicable portfolios for any special meetings at rates assessed by the Trustees
depending on the length of the meeting and whether in-person attendance is
required. All Trustees will be reimbursed for expenses in connection with each
board meeting attended, which reimbursement is allocated among applicable
portfolios of the Trust. The Trust has no pension or retirement plan. No other
entity affiliated with the Trust pays any compensation to the Trustees. Set
forth below is the rate of compensation received by the following Independent
Trustees for the fiscal year ended June 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name
of Person/Position |
Aggregate
Compensation From the SMID Fund |
Aggregate
Compensation from the Global Equity Fund |
Pension
or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated
Annual Benefits Upon Retirement |
Estimated
Total Compensation from Funds and Fund Complex(1)
Paid to Trustees |
Kathleen
T. Barr, Independent Trustee |
$3,253 |
$5,946 |
None |
None |
$9,199 |
Eric
W. Falkeis, Independent Trustee |
$4,045 |
$6,738 |
None |
None |
$10,783 |
Steven
J. Paggioli, Independent Trustee |
$3,253 |
$5,946 |
None |
None |
$9,199 |
Ashi
S. Parikh, Independent Trustee |
$3,253 |
$5,946 |
None |
None |
$9,199 |
Cynthia
Fornelli,
Independent
Trustee(2) |
$3,253 |
$5,946 |
None |
None |
$9,199 |
(1)There
are currently numerous portfolios comprising the Trust. The term “Fund Complex”
applies only to the Funds. For the fiscal year ended June 30, 2022, Trustees’
fees and expenses in the amount of $839,723 were incurred by the
Trust.
(2)Prior
to her appointment as a Trustee, Ms. Fornelli was paid as a consultant to the
Trust between January 1, 2021 through January 1, 2022.
Codes
of Ethics
The
Trust and the Adviser have each adopted separate Codes of Ethics under
Rule 17j-1 of the 1940 Act. These Codes permit, subject to certain
conditions, access persons of the Adviser to invest in securities that may be
purchased or held by a Fund. The Distributor, as defined below, relies on the
principal underwriter's exception under Rule 17j-1(c)(3), of the 1940 Act,
specifically where the Distributor is not affiliated with the Trust or the
Adviser, and no officer, director or general partner of the Distributor serves
as an officer, director or general partner of the Trust or the Adviser.
The
Board has adopted Proxy Voting Policies and Procedures (the “Policies”) on
behalf of the Trust which delegate the responsibility for voting proxies to the
Adviser, subject to the Board’s continuing oversight. The Policies require that
the Adviser vote proxies received in a manner consistent with the best interests
of the Funds and their shareholders. The Policies also require the Adviser to
present to the Board, at least annually, the Adviser’s Proxy Policies (as
defined below) and a record of each proxy voted by the Adviser on behalf of a
Fund, including a report on the resolution of all proxies identified by the
Adviser as involving a conflict of interest. The Adviser has also adopted the
following Proxy Voting Policies and Procedures (“Adviser’s Proxy
Policies”).
The
Adviser recognizes that socially responsible investors have dual objectives:
financial and social. Socially responsible investors invest for economic gain,
as do all investors, but they also expect that companies in which they invest
conduct their business in a socially and environmentally responsible manner.
Trillium’s proxy voting guidelines are designed to promote best financially and
socially responsible practices wherever possible.
The
Adviser has adopted proxy voting guidelines that are consistent with the dual
objectives of socially responsible shareholders. On matters of social and
environmental import, the guidelines seek to reflect a broad consensus of the
socially responsible investing community. On matters relating to corporate
governance, executive compensation, and corporate structure, voting guidelines
are based on a commitment to
create
and preserve economic value and to advance principles of good corporate
governance consistent with responsibilities to society as a whole.
The
Adviser’s policy is to resolve any conflicts of interest to the clients’
benefit. The Adviser’s Investment Committee is consulted if a question or
potential conflict arises between the Adviser and its client. The Adviser also
uses its proxy administrator, Institutional Shareholder Services (ISS), to vote
proxies according to specific, pre-determined guidelines. The retention of ISS
is one way in which the Adviser resolves potential conflicts between its
interests and those of its clients.
The
Trust is required to file a Form N-PX, with each Fund’s complete proxy voting
record for the 12 months ended June 30, no later than August 31st of each
year. Form N-PX for each Fund will be available without charge, upon request, by
calling toll-free 866.209.1962 and on the SEC’s website at
http://www.sec.gov.
A
principal shareholder is any person who owns of record or beneficially owns 5%
or more of the outstanding shares of the Fund. A control person is any person
who owns beneficially or through controlled companies more than 25% of the
voting securities of the Fund or acknowledges the existence of
control.
As
of September 30, 2022, the Trustees as a group did not own more than 1% of the
outstanding shares of the SMID Fund and Global Equity Fund. As of September 30,
2022, the following shareholders were considered to be either a control person
or principal shareholder of the Global Equity Fund and SMID Fund:
Control
Persons of the Global Equity Fund
|
|
|
|
|
|
|
| |
Name
and Address |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc. Special Custody Account FBO Customers Attn:
Mutual Funds Department 211 Main Street San Francisco, CA
94105-1905 |
27.79% |
Record |
National
Financial Services, LLC 499 Washington Boulevard Jersey City, NJ
07310-1995 |
25.15% |
Record |
Principal
Holders of the Global Equity Fund – Institutional Class Shares
|
|
|
|
|
|
|
| |
Name
and Address |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc. Special Custody Account FBO Customers Attn:
Mutual Funds Department 211 Main Street San Francisco, CA
94105-1905 |
27.43% |
Record |
National
Financial Services, LLC 499 Washington Boulevard Jersey City, NJ
07310-1995 |
27.12% |
Record |
|
|
|
|
|
|
|
| |
Name
and Address |
%
Ownership |
Type
of Ownership |
Pershing
LLC 1 Pershing Plaza Jersey City, NJ 07399-0002 |
12.35% |
Record |
LPL
Financial FBO Customer Accounts Attn: Mutual Fund Operations 4707
Executive Drive San Diego, CA 92121-3091 |
6.65% |
Record |
Wells
Fargo Clearing Services, LLC Special Custody Account For
The Exclusive Benefit Of Customers 2801 Market Street Saint
Louis, MO 63103-2523 |
5.33% |
Record |
Principal
Holders of the Global Equity Fund – Retail Class Shares
|
|
|
|
|
|
|
| |
Name
and Address |
%
Ownership |
Type
of Ownership |
Charles
Schwab Co., Inc. Special Custody Account FBO Customers Attn: Mutual
Funds Department 211 Main Street San Francisco, CA
94105-1905 |
28.70% |
Record |
National
Financial Services, LLC
For
The Exclusive Benefit Of Our Customers
Attn:
Mutual Funds Department, 4th
Floor
499
Washington Boulevard
Jersey
City, NJ 07310-1995 |
20.13% |
Record |
TD
Ameritrade Inc. For The Exclusive Benefit Of Our Clients P.O. Box
2226 Omaha, NE 68103-2226 |
5.83% |
Record |
Control
Persons of the SMID Fund
|
|
|
|
|
|
|
| |
Name
and Address |
%
Ownership |
Type
of Ownership |
Charles
Schwab Co., Inc. Special Custody Account FBO Customers Attn: Mutual
Funds Department 211 Main Street San Francisco, CA
94105-1905 |
72.94% |
Record |
Principal
Holders of the SMID Fund – Institutional Class Shares
|
|
|
|
|
|
|
| |
Name
and Address |
%
Ownership |
Type
of Ownership |
Charles
Schwab Co., Inc. Special Custody Account FBO Customers Attn: Mutual
Funds Department 211 Main Street San Francisco, CA
94105-1905 |
72.94% |
Record |
National
Financial Services, LLC 499 Washington Boulevard, 4th Floor Jersey
City, NJ 07310-1995 |
11.10% |
Record |
E*Trade
Savings Bank P.O. Box 6503 Englewood, CO 80155-6503 |
8.58% |
Record |
As
stated in the Prospectus, investment advisory services are provided to the Funds
by Trillium Asset Management, LLC, the Adviser, pursuant to the investment
advisory agreement (the “Advisory Agreement”) with the Trust. The Adviser’s
address is Two Financial Center, 60 South Street, Suite 1100, Boston,
Massachusetts 02111. Trillium is a wholly-owned subsidiary of Perpetual US
Holding Company, Inc., a subsidiary of Perpetual Limited. Perpetual Limited is a
diversified financial services company that has been serving Australians since
1886.
After
the initial two year term, the Advisory Agreement will continue in effect from
year to year only if such continuance is specifically approved at least annually
by the Board or by vote of a majority of the Funds’ outstanding voting
securities and by a majority of the Independent Trustees, who are not parties to
the Advisory Agreement or interested persons of any such party, in each case
cast in person at a meeting called for the purpose of voting on the Advisory
Agreement. The Advisory Agreement is terminable without penalty by the Trust on
behalf of each Fund on not more than 60 days’, or less than 30 days’,
written notice to the Adviser when authorized either by a majority vote of a
Fund’s shareholders or by a vote of a majority of the Trustees, or by the
Adviser on not more than 60 days’, or less than 30 days’, written notice to
the Trust, and will automatically terminate in the event of its “assignment” (as
defined in the 1940 Act). The Advisory Agreement provides that the Adviser shall
not be liable under such agreements for any error of judgment or mistake of law
or for any loss arising out of any investment or for any act or omission in the
execution of portfolio transactions for the Funds, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations and duties
thereunder.
In
consideration of the services provided by the Adviser pursuant to the Advisory
Agreement, the Adviser is entitled to receive an investment advisory fee from
each Fund computed daily and paid monthly, at an annual rate of 0.75% of the
SMID Fund’s average daily net assets, and 0.85% on assets up to $1 billion and
0.72% on assets over $1 billion of the Global Equity Fund’s average daily net
assets, as specified in the Funds’ Prospectus. However, the Adviser may
voluntarily agree to reduce a portion of the fees payable to it on a
month-to-month basis.
The
Global Equity Fund’s accrued advisory fees and waived fees for the following
fiscal years are shown in the table below.
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|
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|
|
|
|
|
|
|
| |
Fiscal
Year Ended, |
Fees
Accrued |
Fees
Waived |
Total
Fees Paid to Trillium |
June
30, 2022 |
$8,298,507 |
$0 |
$8,298,507 |
June
30, 2021* |
$6,320,302 |
$0 |
$6,320,302 |
June
30, 2020 |
$4,791,275 |
$0 |
$4,791,275 |
*
Prior to October 31, 2021, the Adviser was entitled to receive a monthly
management fee of 0.85% of average daily net assets.
The
SMID Fund’s accrued advisory fees and waived fees for the following fiscal
period are shown in the table below.
|
|
|
|
|
|
|
|
|
|
| |
Fiscal
Year Ended, |
Fees
Accrued |
Fees
Waived |
Total
Fees Paid to Trillium |
June
30, 2022 |
$267,575 |
$134,419 |
$133,156 |
June
30, 2021(1) |
$156,523 |
$156,523 |
$0 |
June
30, 2020(1) |
$137,835 |
$137,835 |
$0 |
(1) The
Adviser paid expenses of the SMID Fund in the amount of $35,929, and $9,395, for
the fiscal years ended
June
30, 2020, and 2021, respectively.
Each
Fund is responsible for its own operating expenses. The Adviser has
contractually agreed to reduce fees and/or pay Fund expenses (excluding acquired
fund fees and expenses, interest expense in connection with investment
activities, tax, extraordinary expenses, Rule 12b-1 fees, shareholder servicing
fees and any other class-specific expenses) in order to limit the SMID Fund’s
Total Annual Fund Operating Expenses (the “Expense Cap”). For the SMID
Fund,
the
Expense Cap is 0.98%. The Expense Cap for the SMID Fund will remain in effect
through at least October 31, 2023 as shown in the Example contained in
the Prospectus and may continue thereafter for an indefinite period, as
determined by the Board. The Adviser is permitted to be reimbursed for fee
reductions and/or expense payments made in the prior three years from the date
the fees were waived and/or expenses paid. Any such reimbursement is subject to
the Board’s review and approval. This reimbursement may be requested by the
Adviser if the aggregate amount actually paid by the Funds toward operating
expenses for such period (taking into account the reimbursement) does not exceed
the lesser of the Expense Cap in place at the time of waiver or at the time of
reimbursement.
Laura
McGonagle, Elizabeth Levy, and Mitali Prasad are responsible for the day-to-day
management of the SMID Fund, while Matthew Patsky, Patrick Wollenberg, Laura
McGonagle and John Quealy are responsible for the day-to-day management of the
Global Equity Fund. Mr. Patsky serves as the lead portfolio manager of the
Global Equity Fund. The portfolio managers did not manage any performance-based
assets. The following provides information regarding other accounts managed by
each portfolio manager as of June 30, 2022. Asset
amounts are approximate and have been rounded.
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|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Portfolio
Manager |
Registered
Investment Companies (excluding the Funds) |
Other
Pooled Investment Vehicles |
Other
Accounts |
Number
of Accounts |
Total
Assets in the Accounts |
Number
of Accounts |
Total
Assets in the Accounts |
Number
of Accounts |
Total
Assets in the Accounts |
Elizabeth
Levy |
1 |
$156,032,318 |
0 |
$0 |
1,421 |
$1,589,546,028 |
Laura
McGonagle |
0 |
$0 |
2 |
$102,509,455 |
1,467 |
$1,661,241,188 |
Matthew
Patsky |
1 |
$372,470,595 |
3 |
$117,413,735 |
378 |
$538,164,119 |
Mitali
Prasad |
1 |
$156,032,318 |
0 |
$0 |
636 |
$704,103,616 |
Patrick
Wollenberg |
0 |
$0 |
1 |
$15,625,769 |
0 |
$0 |
John
Quealy |
0 |
$0 |
1 |
$15,625,769 |
0 |
$0 |
Portfolio
Managers’ Compensation. Portfolio
managers are compensated with base salaries and bonuses consistent with industry
standards. Salaries are not based on the performance of the Funds or their
overall net assets. Portfolio managers each receive a bonus based on a
combination of quantitative and qualitative assessments of the Portfolio
Manager’s performance/contribution to the firm in addition to the Adviser’s
profitability. The Adviser also allows the employees to participate in a
profit-sharing plan, which receives a discretionary annual contribution from the
Adviser’s income stream. The profit-sharing is contributed to the employees’
401(k). From time to time, senior employees may receive the opportunity to
purchase ownership interest in the advisory firm and may receive dividends
associated with such interest.
Portfolio
Managers’ Ownership Interest in the Funds.
The
following indicates the dollar range of beneficial ownership of the Funds’
shares by the portfolio managers as of June 30, 2022:
|
|
|
|
|
|
|
| |
Portfolio
Manager |
Dollar
Range of Equity Securities 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) |
Global
Equity Fund |
SMID
Fund |
Elizabeth
Levy |
$10,001
- $50,000 |
$50,001
- $100,000 |
Laura
McGonagle |
$50,001
- $100,000 |
$100,001
- $500,000 |
Matthew
Patsky |
Over
$1,000,000 |
$100,001
- $500,000 |
Mitali
Prasad |
None |
$10,001
- $50,000 |
Patrick
Wollenberg |
$100,001
- $500,000 |
None |
John
Quealy |
$100,001
- $500,000 |
None |
Managing
Conflicts of Interest.
Actual or apparent material conflicts of interest may arise when a portfolio
manager has day-to-day management responsibilities with respect to more than one
investment account or in other circumstances. Portfolio managers of the Funds
may be presented with potential conflicts of interests in the allocation of
investment opportunities, the allocation of their time and investment ideas and
the allocation of aggregated orders among the Funds’ accounts and other accounts
managed by the portfolio managers, affiliated client accounts, and any accounts
in which the portfolio managers may have personal investments. As described
above, the portfolio managers participate in the profit-sharing plan and
therefore are entitled to earnings proportionate to their respective ownership
interests in the plan. The Adviser believes such inherent conflicts of interest
in managing accounts for various clients are controlled and mitigated by the
Adviser’s Trade Allocation Policy, Code of Ethics and other compliance policies
and procedures to which the portfolio managers are subject.
Administrator,
Fund Accountant, Transfer Agent and Dividend Disbursing Agent
Pursuant
to an administration agreement (the “Administration Agreement”), 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 Funds. Fund Services provides certain services to the
Funds including, among other responsibilities, coordinating the negotiation of
contracts and fees with, and the monitoring of performance and billing of, the
Funds’ independent contractors and agents; preparation for signature by an
officer of the Trust of all documents required to be filed for compliance by the
Trust and the Funds with applicable laws and regulations, excluding those of the
securities laws of various states; arranging for the computation of performance
data, including NAV and yield; responding to shareholder inquiries; and
arranging for the maintenance of books and records of the Funds, and providing,
at its own expense, office facilities, equipment and personnel necessary to
carry out its duties. In this capacity, Fund Services does not have any
responsibility or authority for the portfolio management of the Funds, the
determination of investment policy, or for any matter pertaining to the
distribution of a Fund’s shares.
Pursuant
to the Administration Agreement, as compensation for its services, Fund Services
receives from the Funds, a fee based on the Funds’ current average daily net
assets. Fund Services also is entitled to certain out-of-pocket expenses. Fund
Services also acts as fund accountant, transfer agent and dividend disbursing
agent under separate agreements. Additionally, Fund Services provides CCO
services to the Trust under a separate agreement. The cost for the CCO’s
services is charged to the Funds and approved by the Board
annually.
The
table below shows the amount of administration fees paid by the Global Equity
Fund to Fund Services for the years shown.
|
|
|
|
| |
Fiscal
Year Ended, |
Administration
Fee Paid |
June
30, 2022 |
$477,487 |
June
30, 2021 |
$390,696 |
June
30, 2020 |
$311,723 |
The
table below shows the amount of administration fees paid by the SMID Fund to
Fund Services for the period shown.
|
|
|
|
| |
Fiscal
Year Ended, |
Administration
Fee Paid |
June
30, 2022 |
$56,956 |
June
30, 2021 |
$52,454 |
June
30, 2020 |
$45,112 |
Custodian
U.S.
Bank N.A., is the custodian of the assets of the Funds (the “Custodian”)
pursuant to a custody agreement between the Custodian and the Trust, whereby the
Custodian provides services for fees on a transactional basis plus out-of-pocket
expenses. The Custodian’s address is 1555 N. RiverCenter Drive, Suite 302,
Milwaukee, Wisconsin 53212. The Custodian does not participate in decisions
relating to the purchase and sale of securities by the Funds. Fund Services and
U.S. Bank N.A. are affiliated entities under the common control of U.S. Bancorp.
The Custodian and its affiliates may participate in revenue sharing arrangements
with the service providers of mutual funds in which the Funds may
invest.
Independent
Registered Public Accounting Firm and Legal Counsel
Tait,
Weller & Baker LLP, Two Liberty Place, 50 South 16th
Street, Suite 2900, Philadelphia, Pennsylvania, 19102, is the independent
registered public accounting firm providing audit services, tax services and
assistance with respect to the preparation of filings with the U.S. Securities
and Exchange Commission for the Funds.
Sullivan
& Worcester LLP, 1633 Broadway, 32nd Floor, New York, New York 10019, serves
as legal counsel to the Trust. Sullivan & Worcester also serves as
independent legal counsel to the Board of Trustees.
Securities
Lending Activities
The
Global Equity Fund participates in securities lending arrangements whereby it
lends certain of its portfolio securities to brokers, dealers and financial
institutions (not with individuals) in order to receive additional income and
increase the rate of return of its portfolio. U.S. Bank N.A. serves as the
Fund’s securities lending agent. For the most recent fiscal year ended June 30,
2022, the Global Equity Fund’s securities lending activities resulted in the
following:
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|
|
|
|
|
|
| |
|
| Global
Equity Fund |
Gross
income from securities lending activities: |
$ |
6,645 |
Fees
and/or compensation for securities lending activities and related
services: |
| |
Fees
paid to securities lending agent from a revenue split |
$ |
(1,817) |
Fees
paid for any cash collateral management service (including fees deducted
from a pooled cash collateral reinvestment vehicle) that are not included
in the revenue split |
$ |
(408) |
Administrative
fees not included in revenue split |
$ |
0 |
Indemnification
fee not included in revenue split |
$ |
0 |
Rebates
(paid to borrower) |
$ |
(180) |
Other
fees not included in revenue split (specify) |
$ |
0 |
Aggregate
fees/compensation for securities lending activities: |
$ |
(2,405) |
Net
income from securities lending activities: |
$ |
4,240 |
U.S.
Bank N.A. oversees the securities lending process, which includes the screening,
selection and ongoing review of borrowers, monitoring the availability of
securities, negotiating rebates, daily marking to market of loans, monitoring
and maintaining cash collateral levels, processing securities movements and
reinvesting cash collateral as directed by the Adviser.
Pursuant
to the Advisory Agreement, the Adviser determines which securities are to be
purchased and sold by each Fund and which broker-dealers are eligible to execute
a Fund’s portfolio transactions. Purchases and sales of securities in the
over-the-counter market will generally be executed directly with a
“market-maker” unless, in the opinion of the Adviser, a better price and
execution can otherwise be obtained by using a broker for the
transaction.
Purchases
of portfolio securities for the Funds also may be made directly from issuers or
from underwriters. Where possible, purchase and sale transactions will be
effected through dealers (including banks) that specialize in the types of
securities which a Fund will be holding, unless better executions are available
elsewhere. Dealers and underwriters usually act as principal for their own
accounts. Purchases from underwriters will include a concession paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the asked price. If the execution and price offered by more
than one dealer or underwriter are comparable, the order may be allocated to a
dealer or underwriter that has provided research or other services as discussed
below.
In
placing portfolio transactions, the Adviser will seek best execution. The full
range and quality of services will be considered in making this determination,
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, such as the research and other services provided
by the broker-dealer. In those instances where it is reasonably determined that
more than one broker-dealer can offer the best execution, the Adviser considers
such information, which is in addition to and not in lieu of the services
required to be performed by it under the Advisory Agreement with the Funds, to
be useful in varying degrees, but of indeterminable value. Portfolio
transactions may be placed with broker-dealers who sell shares of the Funds
subject to rules adopted by the Financial Industry Regulatory Authority
(“FINRA”) and the SEC.
In
accordance with Section 28(e) under the Securities and Exchange Act of 1934, the
Adviser is permitted to cause the Funds to pay a higher commission to a
broker-dealer that provides it with brokerage and
research
services in a “soft-dollar” arrangement, even if the services it receives in
exchange are not directly useful to the Fund and may be useful to the Adviser in
advising other clients. The Adviser may do this when it determines in good faith
that the higher commission is reasonable in relation to the value of the
brokerage and research services provided by the executing broker. In selecting
brokers, the Adviser seeks competitively-priced brokerage services where the
broker-dealer can provide value-added, company-specific, and thematic industry
research, including meetings with management and conferences. However, if the
Adviser were to obtain research products or services through “soft dollar”
arrangements, there would be a conflict between the Adviser’s interests and
clients’ interests because the Adviser would not have to pay for the research,
research products and services that are paid for with soft-dollar credits. In
such case, the Adviser would mitigate this conflict of interest by periodically
examining the value of the services provided by the brokers with whom it does
business and the amount of brokerage given to these brokers as opposed to
execution-only brokers. Currently, the Adviser does not pay soft dollar
commissions, but rather it does obtain research from brokers with whom they
trade.
Often,
identical securities will be acceptable for both a Fund and one or more of the
Adviser’s client accounts or mutual funds. In such event, the position of a Fund
and such client account(s) or mutual funds in the same issuer may vary and the
length of time that each may choose to hold its investment in the same issuer
may likewise vary. However, to the extent any of these client accounts or mutual
fund seeks to acquire the same security as a Fund at the same time, a 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 or mutual fund 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 such Fund and all such client
accounts or mutual funds in a manner deemed equitable by the Adviser, taking
into account the respective sizes of the accounts and the amount 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
such Fund.
The
Funds do not effect securities transactions through brokers in accordance with
any formula, nor do they effect securities transactions through brokers for
selling shares of the Funds. However, as stated above, broker-dealers who
execute brokerage transactions may effect purchases of shares of a Fund for
their customers.
The
table below shows the amount of brokerage commission paid by the Global Equity
Fund and SMID Fund with respect to transactions for the fiscal years
shown.
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|
|
|
|
|
|
|
|
|
| |
Brokerage
Fees Paid |
| June
30, 2022 |
June
30, 2021 |
June
30, 2020 |
Global
Equity Fund |
$143,365 |
$108,516(1) |
$46,602 |
SMID
Fund |
$9,544 |
$7,209 |
$11,168 |
(1)
The brokerage commissions for the Global Equity Fund will vary year to year
based on a number of factors, including, but not limited to, overall trading
activity and frequency, the specific markets where the Fund was active, the
specific brokers that were used, and any increase or decrease in net assets of
the Fund. The total brokerage commissions paid increased for the fiscal period
ended June 30, 2021 compared to the fiscal period ended June 30, 2020, due to
the increase in net assets of the Fund during such periods.
At
the close of the most recent fiscal year, the Global Equity Fund and the SMID
Fund did not own any securities of their regular broker-dealers.
Shares
issued by the Funds have no preemptive, conversion or subscription rights.
Shareholders have equal and exclusive rights as to dividends and distributions
as declared by the Funds and to the net assets of the Funds upon liquidation or
dissolution. The Funds, each a separate series of the Trust, vote separately on
matters affecting only the Funds (e.g.,
approval of the Advisory Agreement); all series of the Trust vote as a single
class on matters affecting all series jointly or the Trust as a whole
(e.g.,
election or removal of Trustees). Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in any election of Trustees can,
if they so choose, elect all of the Trustees. While the Trust is not required
and does not intend to hold annual meetings of shareholders, such meetings may
be called by the Trustees in their discretion, or upon demand by the holders of
10% or more of the outstanding shares of the Trust, for the purpose of electing
or removing Trustees.
The
NAV per share of a Fund is determined as of the close of regular trading on the
New York Stock Exchange (the “NYSE”) (generally 4:00 p.m., Eastern time), each
day the NYSE is open for trading. The NYSE annually announces the days on which
it will not be open for trading. It is expected that the NYSE will not be open
for trading on the following holidays: New Year’s Day, Martin Luther King, Jr.
Day, Presidents’ Day, Good Friday, Memorial Day, Juneteenth National
Independence Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
Generally,
a Fund’s investments are valued at market value or, in the absence of a market
value, at fair value as determined in good faith pursuant to procedures approved
by the Adviser. Pursuant to those procedures, the Adviser considers, among other
things: (1) the last sales price on the securities exchange, if any, on
which a security is primarily traded; (2) the mean between the bid and asked
prices; (3) price quotations from an approved pricing service, and
(4) other factors as necessary to determine a fair value under certain
circumstances.
Securities
primarily traded on U.S. national or foreign securities exchanges for which
market quotations are readily available shall be valued at either the last
reported sale price on the day of valuation, or the exchange’s official closing
price, if applicable. If there has been no sale on such day, then the mean
between the bid and asked prices will be used. Securities and assets for which
market quotations are not readily available (including restricted securities
which are subject to limitations as to their sale) are valued at fair value as
determined in good faith under procedures approved by or under the direction of
the Adviser.
Short-term
debt obligations, including short-term debt obligations having a maturity of
less than 60 days, are valued at the mean evaluated price supplied by a
pricing service.
The
securities in a Fund’s portfolio, including ADRs, EDRs and GDRs, which are
traded on securities exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any reported sales, at the mean between
the last available bid and asked price. Securities that are traded on more than
one exchange are valued on the exchange determined by the Adviser to be the
primary market.
The
Funds may
invest
in foreign securities, and as a result, the calculation of a Fund’s NAV may not
take place contemporaneously with the determination of the prices of certain of
the Fund’s securities used in the calculation. Occasionally, events which affect
the values of such securities and such exchange rates may occur between the
times at which they are determined and the close of the NYSE and will therefore
not be reflected in the computation of a Fund’s NAV. If events materially
affecting the value of such securities occur
during
such period, then these securities may be valued at their fair value as
determined in good faith under procedures established by the Adviser as
described above. Portfolio securities that are traded both on an exchange and in
the OTC market will be valued according to the broadest and most representative
market. All assets and liabilities initially expressed in foreign currency
values will be converted into U.S. dollar values at the mean between the bid and
offered quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. When portfolio securities are traded, the valuation will be
the last reported sale price on the day of valuation.
For
foreign securities traded on foreign exchanges the Trust has selected ICE Data
Service’s Fair Value Information Services ("FVIS") to provide pricing data with
respect to foreign security holdings held by the Global Equity Fund. The use of
this third-party pricing service is designed to capture events occurring after a
foreign exchange closes that may affect the value of certain holdings of the
Global Equity Fund’s securities traded on those foreign exchanges. The Global
Equity Fund utilizes a confidence interval when determining the use of the FVIS
provided prices. The confidence interval is a measure of the historical
relationship that each foreign exchange traded security has to movements in
various indices and the price of the security’s corresponding American
Depositary Receipt, if one exists. FVIS provides the confidence interval for
each security for which it provides a price. If the FVIS provided price falls
within the confidence interval the Global Equity Fund will value the particular
security at that price. If the FVIS provided price does not fall within the
confidence interval the particular security will be valued at the preceding
closing price on its respective foreign exchange, or if there were no
transactions on such day, at the mean between the bid and asked
prices.
All
other assets of the Funds are valued in such manner as the Adviser in good faith
deems appropriate to reflect their fair value.
The
information provided below supplements the information contained in the Funds’
Prospectuses regarding the purchase and redemption of Fund shares.
How
to Buy Shares
In
addition to purchasing shares directly from the Funds, you may purchase shares
of the Funds through certain financial intermediaries and their agents that have
made arrangements with the Funds and are authorized to buy and sell shares of
the Funds (collectively, “Financial Intermediaries”). Investors should contact
their Financial Intermediary directly for appropriate instructions, as well as
information pertaining to accounts and any service or transaction fees that may
be charged. If you transmit your order to these Financial Intermediaries before
the close of regular trading (generally 4:00 p.m., Eastern time) on a day that
the NYSE is open for business, your order will be priced at a Fund’s NAV next
computed after it is received by the Financial Intermediary. Investors should
check with their Financial Intermediary to determine if it participates in these
arrangements.
The
public offering price of Fund shares is its NAV. Shares are purchased at the
public offering price next determined after Fund Services receives your order in
proper form as discussed in the Funds’ Prospectuses. In order to receive that
day’s public offering price, Fund Services must receive your order in proper
form before the close of regular trading on the NYSE, normally 4:00 p.m.,
Eastern time.
The
Trust reserves the right in its sole discretion (1) to suspend the
continued offering of a Fund’s shares, (2) to reject purchase orders in
whole or in part when in the judgment of the Adviser or the distributor such
rejection is in the best interest of a Fund, and (3) to reduce or waive the
minimum for initial and
subsequent
investments for certain fiduciary accounts or under circumstances where certain
economies can be achieved in sales of a Fund’s shares.
How
to
Sell Shares and Delivery of Redemption Proceeds
You
can sell your Fund shares any day the NYSE is open for regular trading. The
Funds typically send redemption proceeds on the next business day (a day when
the NYSE is open for normal business) after the redemption request is received
in good order and prior to market close, regardless of whether the redemption
proceeds are sent via check, wire, or automated clearing house (ACH) transfer.
Under unusual circumstances, the Funds may suspend redemptions, or postpone
payment for up to seven days, as permitted by federal securities
law.
The
Funds typically expect that they will hold cash or cash equivalents to meet
redemption requests. The Funds may also use the proceeds from the sale of
portfolio securities to meet redemption requests if consistent with the
management of the Funds. In situations in which investment holdings in cash or
cash equivalents are not sufficient to meet redemption requests or when the sale
of portfolio securities is not sufficient to meet redemption requests, the
Global Equity Fund will typically borrow money through the Fund’s line of
credit. These redemption methods will be used regularly and may also be used in
stressed market conditions. The Funds reserve the right to pay redemption
proceeds to you in whole or in part through a redemption in-kind as described
under “Redemptions In-Kind” below. Redemptions in-kind are typically used to
meet redemption requests that are a large percentage of a Fund’s net assets in
order to minimize the effect of large redemptions on a Fund and its remaining
shareholders. Redemptions in-kind may be used regularly in such circumstances
and may also be used in stressed market conditions.
A
Fund may suspend the right of redemption or postpone the date of payment during
any period when (a) trading on the NYSE is restricted as determined by the
SEC or the NYSE is closed for other than weekends and holidays; (b) an
emergency exists as determined by the SEC making disposal of portfolio
securities or valuation of net assets of a Fund not reasonably practicable; or
(c) for such other period as the SEC may permit for the protection of a
Fund’s shareholders.
The
value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of a Fund’s portfolio
securities at the time of redemption or repurchase. As with all investments, the
purchase of shares in the Funds involves the risk of loss.
Telephone
Redemptions
Shareholders
with telephone transactions privileges established on their account may redeem
Fund shares by telephone. Upon receipt of any instructions or inquiry by
telephone from a person claiming to be the shareholder, a Fund or its authorized
agent may carry out the instructions and/or respond to the inquiry, consistent
with the shareholder’s previously established account service options. For joint
accounts, instructions or inquiries from either party will be carried out
without prior notice to the other account owners. In acting upon telephone
instructions, the Funds and their agents use procedures that are reasonably
designed to ensure that such instructions are genuine. These include recording
all telephone calls, requiring pertinent information about the account and
sending written confirmation of each transaction to the registered
owner.
Fund
Services will employ these and other reasonable procedures to confirm that
instructions communicated by telephone are genuine. If Fund Services fails to
employ reasonable procedures, a Fund and Fund Services may be liable for any
losses due to unauthorized or fraudulent instructions. If these procedures are
followed, however, to the extent permitted by applicable law, neither the Funds
nor their agents will be liable for any loss, liability, cost or expense arising
out of any redemption request, including any fraudulent or unauthorized request.
For additional information, contact Fund Services.
During
periods of unusual market changes and shareholder activity, you may experience
delays in contacting Fund Services by telephone. In this event, you may wish to
submit a written redemption request, as described in the Prospectus or contact
your investment representative. Telephone redemption privileges may be modified
or terminated without notice.
Redemptions
In-Kind
The
Trust has elected to be governed by Rule 18f-1 under the 1940 Act so that each
Fund is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any
shareholder of that Fund. Each Fund has reserved the right to pay the redemption
price of its shares in excess of $250,000 or 1% of its net asset value, either
totally or partially, by a distribution-in-kind of portfolio securities (instead
of cash). The securities so distributed would be valued at the same amount as
that assigned to them in calculating the net asset value for the shares being
sold. If a shareholder receives a distribution in-kind, the shareholder could
incur brokerage or other charges in converting the securities to cash and would
bear any market risks associated with such securities until they are converted
into cash. Distributions in-kind are taxable events for shareholders.
A
Fund, like virtually all mutual funds, may from time to time hold a small
percentage of securities that are illiquid. In the unlikely event a Fund were to
elect to make an in-kind redemption, the Fund expects that it would follow the
Trust protocol of making such distribution by way of a pro rata distribution of
securities that are traded on a public securities market or are otherwise
considered liquid pursuant to the Fund’s liquidity policies and procedures.
Except as otherwise may be approved by the Trustees, based on its entire
portfolio securities that would not be included in an in-kind distribution
include (1) unregistered securities which, if distributed, would be required to
be registered under the 1933 Act, as amended; (2) securities issued by entities
in countries which (a) restrict or prohibit the holding of securities by
non-nationals other than through qualified investment vehicles, such as a fund,
or (b) permit transfers of ownership of securities to be effected only by
transactions conducted on a local stock exchange; and (3) certain Fund assets
that, although they may be liquid and marketable, must be traded through the
marketplace or with the counterparty to the transaction in order to effect a
change in beneficial ownership.
Distributions
Dividends
from net investment income of each Fund and distributions from net profits from
the sale of securities are generally made annually. Also, each Fund expects to
distribute any undistributed net investment income on or about December 31 of
each year. Any net capital gains realized through the twelve months ended
October 31 of each year will also be distributed by December 31 of each
year.
In
January of each year, the Funds will issue to each shareholder a statement of
the federal income tax status of all distributions made during the previous
year. The form and character of each distribution will be specified by the Fund
in a notice to shareholders.
Tax
Information
Each
series of the Trust is treated as a separate entity for federal income tax
purposes. The Funds have elected and intend to continue to qualify as “regulated
investment companies” under Subchapter M of the Code and to comply with all
applicable requirements regarding the source of their income, diversification of
their assets and the timing and amount of their distributions. It is the Funds’
policy to distribute to their shareholders
all
of the Funds’ net taxable income and any net realized capital gains for each
fiscal year in a manner that complies with the distribution requirements of the
Code so that the Funds will not be subject to any federal income tax or excise
taxes based on net income. However, the Funds can give no assurance that their
distributions will be sufficient to eliminate all taxes. To avoid the
nondeductible excise tax, the Funds must also distribute (or be deemed to have
distributed) by December 31 of each calendar year (1) at least 98% of their
ordinary income for such year, (2) at least 98.2% of the excess of their
realized capital gains over their realized capital losses for the one-year
period ending on October 31 during such year and (3) any amounts from the
prior calendar year that were not distributed and on which a Fund paid no
federal excise tax. If a Fund does not qualify as a regulated investment
company, it will be taxed as a regular corporation.
In
order to qualify as a regulated investment company, each Fund must, among other
things, derive at least 90% of its gross income each year from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock or securities or foreign currency gains
related to investments in stock or securities, or other income (generally
including gains from options, futures or forward contracts) derived with respect
to the business of investing in stock, securities or currency, and net income
derived from an interest in a qualified publicly traded partnership. Each Fund
must also satisfy the following two asset diversification tests. At the end of
each quarter of each taxable year, (i) at least 50% of the value of the Fund’s
total assets must be represented by cash and cash items (including receivables),
U.S. Government securities, the securities of other regulated investment
companies, and other securities, with such other securities being limited in
respect of any one issuer to an amount not greater than 5% of the value of the
Fund’s total assets and not more than 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of the Fund’s total
assets may be invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), the securities of any two or more issuers (other than the securities
of other regulated investment companies) that the Fund controls (by owning 20%
or more of their outstanding voting stock) and that are determined to be engaged
in the same or similar trades or businesses or related trades or businesses, or
the securities of one or more qualified publicly traded partnerships. Each Fund
must also distribute each taxable year sufficient dividends to its shareholders
to claim a dividends-paid deduction equal to at least the sum of 90% of the
Fund’s net taxable income (which generally includes dividends, interest, and the
excess of net short-term capital gain over net long-term capital loss) and 90%
of the Fund’s net tax-exempt interest, if any.
A
Fund’s ordinary income generally consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carryforward of a Fund. As of June 30, 2022, there
were no capital loss carryovers for the Global Equity Fund or the SMID
Fund.
Distributions
of net investment income and net short-term capital gains are taxable to
shareholders as ordinary income. For individual shareholders, a portion of the
distributions paid by a Fund may be qualified dividends eligible under current
law for taxation at long-term capital gain rates to the extent a Fund reports
the amount distributed as a qualifying dividend and holding period requirements
are met. In the case of corporate shareholders, a portion of the distributions
may qualify for the intercorporate dividends-received deduction to the extent a
Fund reports the amount distributed as a qualifying dividend. The aggregate
amount so reported to either individual or corporate shareholders cannot,
however, exceed the aggregate amount of qualifying dividends received by the
applicable Fund for its taxable year. In view of the Funds’ investment policies,
it is expected that dividends from domestic corporations will be part of the
Funds’ gross income and that, accordingly, part of the distributions by the
Funds may be eligible for treatment as qualified income for individual
shareholders and for the dividends-received deduction for corporate
shareholders. However, the portion of the Funds’ gross income attributable to
qualifying dividends is largely dependent on the Funds’ investment activities
for a particular year and therefore cannot be predicted with any certainty. The
deduction, if any, may be reduced or eliminated if Fund shares held by an
individual investor are held less than 61 days, or if Fund shares held by a
corporate investor are treated as debt-financed or are held for fewer than 46
days.
Any
long-term capital gain distributions are taxable to shareholders as long-term
capital gains regardless of the length of time they have held their shares.
Capital gains distributions are not eligible for the dividends received
deduction referred to in the previous paragraph. There is no requirement that
the Funds take into consideration any tax implications when implementing their
investment strategies. Distributions of any ordinary 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 an individual shareholder’s liability for the alternative minimum
tax. Shareholders should note that the Funds may make taxable distributions of
income and capital gains even when share values have declined.
For
taxable years beginning after 2017 and before 2025, non-corporate taxpayers
generally may deduct 20% of “qualified business income” derived either directly
or through partnerships or S corporations. For this purpose, “qualified business
income” generally includes ordinary dividends paid by a real estate investment
trust (“REIT”) and certain income from publicly traded partnerships. Regulations
recently adopted by the United States Treasury allow non-corporate shareholders
of a Fund to benefit from the 20% deduction with respect to net REIT dividends
received by the Fund if the Fund meets certain reporting requirements, but do
not permit any such deduction with respect to publicly traded
partnerships.
The
Funds may be subject to foreign withholding taxes on dividends and interest
earned with respect to securities of foreign corporations.
Redemption
of Fund shares may result in recognition of a taxable gain or loss. Any loss
realized upon redemption or sale of shares within six months from the date of
their purchase will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gains during such
six-month period. Any loss realized upon a redemption or sale may be disallowed
under certain wash sale rules to the extent shares of the Fund are purchased
(through reinvestment of distributions or otherwise) within 30 days before or
after the redemption.
Under
the Code, the Funds must report to the Internal Revenue Service (“IRS”) all
distributions of ordinary income and capital gains as well as gross proceeds
from the redemption or exchange of portfolio shares, except in the case of
exempt shareholders, which includes most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
capital gains and proceeds from the redemption of portfolio shares may be
subject to withholding of federal income tax at the rate set under
Section 3406 of the Code for U.S. residents in the case of non-exempt
shareholders who fail to furnish the Funds with their correct taxpayer
identification numbers and with required certifications regarding their status
under the federal income tax law or if the IRS notifies the Funds that such
backup withholding is required. If the withholding provisions are applicable,
any such distributions and proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
Corporate and other exempt shareholders should provide the Funds with their
taxpayer identification numbers or certify their exempt status in order to avoid
possible erroneous application of backup withholding. Backup withholding is not
an additional tax and any amounts withheld may be credited against a
shareholder’s ultimate federal income tax liability if proper documentation is
provided. Each Fund reserves the right to refuse to open an account for any
person failing to provide a certified taxpayer identification
number.
If
more than 50% in value of a Fund’s total assets at the end of its fiscal year is
invested in stock or securities of foreign corporations, the Fund may elect to
pass through to its shareholders the pro rata share of all foreign income taxes
paid by the Fund. If this election is made, shareholders will be
(1) required to include
in
their gross income their pro rata share of the Funds’ foreign source income
(including any foreign income taxes paid by the Funds), and (2) entitled
either to deduct their share of such foreign taxes in computing their taxable
income or to claim a credit for such taxes against their U.S. income tax,
subject to certain limitations under the Code, including certain holding period
requirements. In this case, shareholders will be informed in writing by the
Funds at the end of each calendar year regarding the availability of any credits
on and the amount of foreign source income (including or excluding foreign
income taxes paid by the Funds) to be included in their income tax returns. If
not more than 50% in value of a Fund’s total assets at the end of its fiscal
year is invested in stock or securities of foreign corporations, the Fund will
not be entitled under the Code to pass through to its shareholders their pro
rata share of the foreign taxes paid by the Fund. In this case, these taxes will
be taken as a deduction by the Fund.
The
use of hedging strategies, such as entering into forward contracts, involves
complex rules that will determine the character and timing of recognition of the
income received in connection therewith by the Funds. Income from foreign
currencies (except certain gains therefrom that may be excluded by future
regulations) and income from transactions in forward contracts derived by a Fund
with respect to its business of investing in securities or foreign currencies
will qualify as permissible income under Subchapter M of the Code.
Any
security or other position entered into or held by a Fund that substantially
diminishes the Fund’s risk of loss from any other position held by a Fund may
constitute a “straddle” for federal income tax purposes. In general, straddles
are subject to certain rules that may affect the amount, character and timing of
the Fund’s gains and losses with respect to straddle positions by requiring,
among other things, that the loss realized on disposition of one position of a
straddle be deferred until gain is realized on disposition of the offsetting
position; that the Fund’s holding period in certain straddle positions not begin
until the straddle is terminated (possibly resulting in the gain being treated
as short–term capital gain rather than long–term capital gain); and that losses
recognized with respect to certain straddle positions, which would otherwise
constitute short–term capital losses, be treated as long–term capital losses.
Different elections are available to the Funds that may mitigate the effects of
the straddle rules.
Certain
forward contracts that are subject to Section 1256 of the Code (“Section 1256
Contracts”) and that are held by the Funds at the end of the taxable year
generally will be required to be “marked-to-market” for federal income tax
purposes; that is, deemed to have been sold at market value. Sixty percent of
any net gain or loss recognized on these deemed sales and 60% of any net gain or
loss realized from any actual sales of Section 1256 Contracts will be
treated as long–term capital gain or loss, and the balance will be treated as
short–term capital gain or loss.
Section
988 of the Code contains special tax rules applicable to certain foreign
currency transactions that may affect the amount, timing and character of
income, gain or loss recognized by the Funds. Under these rules, foreign
exchange gain or loss realized with respect to foreign currency forward
contracts is treated as ordinary income or loss. Some part of a Fund’s gain or
loss on the sale or other disposition of shares of a foreign corporation may,
because of changes in foreign currency exchange rates, be treated as ordinary
income or loss under Section 988 of the Code rather than as capital gain or
loss.
Distributions
and the transactions referred to in the preceding paragraphs may be subject to
state and local income taxes, and the tax treatment thereof may differ from the
federal income tax treatment.
The
Foreign Account Tax Compliance Act (“FATCA”).
A 30% withholding tax on your Fund’s ordinary income distributions generally
applies if paid to a foreign entity unless: (i) if the foreign entity is a
“foreign financial institution,” it undertakes certain due diligence, reporting,
withholding and certification obligations, (ii) if the foreign entity is
not a “foreign financial institution,” it identifies certain of its U.S.
investors or (iii) the foreign entity is otherwise excepted under FATCA. If
applicable, and subject to any intergovernmental agreement, withholding under
FATCA is required generally with respect to ordinary income
distributions
from the Funds. If withholding is required under FATCA on a payment related to
your shares, investors that otherwise would not be subject to withholding (or
that otherwise would be entitled to a reduced rate of withholding) on such
payment generally will be required to seek a refund or credit from the IRS to
obtain the benefits of such exemption or reduction. The Funds will not pay any
additional amounts in respect of amounts withheld under FATCA. You should
consult your tax adviser regarding the effect of FATCA based on your individual
circumstances.
The
foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. citizens or residents and U.S. domestic
corporations, estates, the income of which is subject to United States federal
income taxation regardless of its source and trusts that (1) are subject to the
primary supervision of a court within the United States and one or more United
States persons have the authority to control all substantial decisions of the
trust or (2) have a valid election in effect under applicable United States
Treasury regulations to be treated as a United States person. Each shareholder
who is not a U.S. person should consider the U.S. and foreign tax consequences
of ownership of shares of a Fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30 percent (or
at a lower rate under an applicable income tax treaty) on a Fund’s
distributions.
In
addition, the foregoing discussion of tax law is based on existing provisions of
the Code, existing and proposed regulations thereunder, and current
administrative rulings and court decisions, all of which are subject to change.
Any such changes could affect the validity of this discussion. The discussion
also represents only a general summary of tax law and practice currently
applicable to the Funds and certain shareholders therein, and, as such, is
subject to change. In particular, the consequences of an investment in shares of
the Funds under the laws of any state, local or foreign taxing jurisdictions are
not discussed herein.
The
advice herein was prepared for the Funds. The Funds do not plan seek a ruling
from the Internal Revenue Service on any tax issues with respect to the Funds or
their investors. Any person reviewing this discussion should seek advice based
on such person’s particular circumstances from an independent tax
adviser.
Quasar
Distributors, LLC, 111 East Kilbourn Avenue, Suite 2200, Milwaukee,
Wisconsin 53202 (“Quasar”), serves as principal underwriter and distributor for
shares of the Funds in a continuous public offering of each Fund’s shares.
Pursuant to a distribution agreement between each Fund and Quasar, Quasar
provides certain administration services and promotes and arranges for the sale
of each Fund’s shares. Quasar is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of FINRA.
The
distribution agreement continues in effect for periods not exceeding one year if
approved at least annually by (1) the Board or the vote of a majority of
the outstanding shares of the applicable Fund (as defined in the 1940 Act) and
(2) a majority of the Trustees who are not interested persons of any such
party, in each case cast in person at a meeting called for the purpose of voting
on such approval. The agreement may be terminated without penalty by the parties
thereto upon a 60-day written notice, and is automatically terminated in the
event of its assignment as defined in the 1940 Act.
Each
Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under
the 1940 Act on behalf of its Retail Class shares under which the Retail Class
pays the Distributor an amount which is accrued daily and paid quarterly, at an
annual rate of up to 0.25% of the average daily net assets of the Funds. Amounts
paid under the Plan, by each Fund, are paid to the Distributor to compensate
broker-dealers and service providers that provide distribution-related services
to the Shares for the costs of the services provided and the expenses borne in
the distribution of a Fund’s shares, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund’s shares to prospective investors; and preparation,
printing and distribution of sales literature and advertising materials. The
services provided by selected dealers pursuant to the Plan are primarily
designed to promote the sale of shares of the Funds and include the furnishing
of office space and equipment, telephone facilities, personnel and assistance to
a Fund in servicing such shareholders. The services provided by the
administrators pursuant to the Plan are designed to provide support services to
the Funds and include establishing and maintaining shareholders’ accounts and
records, processing purchase and redemption transactions, answering routine
client inquiries regarding a Fund and providing other services to a Fund as may
be required.
Under
the Plan, the Trustees will be furnished quarterly with information detailing
the amount of expenses paid under the Plan and the purposes for which payments
were made. The Plan may be terminated at any time by vote of a majority of the
Trustees of the Trust who are not interested persons. Continuation of the Plan
is considered by such Trustees no less frequently than annually. With the
exception of the Distributor, in its capacity as the Funds’ principal
underwriter and distribution coordinator, no interested person has or had a
direct or indirect financial interest in the Plan or any related
agreement.
While
there is no assurance that the expenditures of a Fund’s assets to finance
distribution of shares will have the anticipated results, the Board believes
there is a reasonable likelihood that one or more of such benefits will result,
and because the Board is in a position to monitor the distribution expenses, it
is able to determine the benefit of such expenditures in deciding whether to
continue the Plan.
The
table below shows the 12b-1 payments paid by the Retail Class shares of the
Global Equity Fund pursuant to the Plan for the fiscal year ended June 30,
2022.
|
| |
12b-1
Payments Paid |
$721,761 |
Of
this amount, payments were made for the following activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Advertising
and Marketing |
Printing
and Postage |
Payment
to Distributor |
Payment
to Dealers |
Compensation
to Sales Personnel |
Other
Expenses (Travel) |
Interest,
carrying or other financing charges |
$0 |
$0 |
$0 |
$721,761 |
$0 |
$0 |
$0 |
Shareholder
Servicing Plan – SMID Fund (Retail Shares)
Pursuant
to a Shareholder Service Plan (the “Plan”) adopted by the Trust and established
by the SMID Fund with respect to the Retail shares of the Fund, 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 Fund (“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 Fund.
Shareholder
Servicing Activities shall include one or more of the following:
(1) establishing and maintaining accounts and records relating for
shareholders of the Fund; (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 Fund; (5) preparing tax reports or forms
on behalf of shareholders; (6) forwarding communications from the Fund to
shareholders; (7) assisting shareholders in changing the Fund’s 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, the Fund pays the Adviser
a fee of up to 0.10% annually of the Fund’s Retail shares’ average daily net
assets of the shares owned by investors for which the shareholder servicing
agent maintains a servicing relationship or $22 per account.
Any
material amendment to the Plan must be approved by the Board, including a
majority of the Independent Trustees, or by a vote of a “majority” (as defined
in the 1940 Act) of the outstanding voting securities of the applicable
class or classes. The Plan may be terminated, with respect to a class or classes
of the Fund, without penalty at any time: (1) by vote of a majority of the
Board, including a majority of the Independent Trustees; or (2) by a vote
of a “majority” (as defined in the 1940 Act) of the outstanding voting
securities of the applicable class or classes.
Sub-Accounting
Service Fees
In
addition to the fees that a Fund may pay to its Transfer Agent, the Board has
authorized the Fund to pay service fees, at the annual rate of up to 0.10% of
applicable average net assets or $22 per account, to intermediaries such as
banks, broker-dealers, financial advisers or other financial institutions for
sub-administration, sub-transfer agency, recordkeeping (collectively,
“sub-accounting services”) and other shareholder services associated with
shareholders whose shares are held of record in omnibus, networked, or other
group accounts or accounts traded through registered securities clearing agents.
Any sub-accounting fees paid by a Fund are included in the total amount of
“Other Expenses” listed in the Fund’s Fees and Expenses table in the
Prospectus.
The
Global Equity Fund pays certain financial intermediaries fees for sub-accounting
services or other shareholder services. For the twelve-month period ended
December 31, 2021, the Global Equity Fund paid $148,532 for sub-accounting
services.
The
Adviser, out of its own resources and without additional cost to the Funds or
their shareholders, may provide additional cash payments or other compensation
to certain financial intermediaries who sell shares of the Funds. Such payments
may be divided into categories as follows:
Support
Payments
Payments
may be made by the Adviser to certain Financial Intermediaries in connection
with the eligibility of the Funds to be offered in certain programs and/or in
connection with meetings between the Funds’ representatives and Financial
Intermediaries and their sales representatives. The Adviser may make cash
payments to Financial Intermediaries for providing shareholder servicing,
marketing and support and/or access to sales meetings, sale representatives and
management representatives of the Financial Intermediaries. Such meetings may be
held for various purposes, including providing education and training about the
Funds and other general financial topics to assist Financial Intermediaries’
sales representatives in making informed recommendations to, and decisions on
behalf of, their clients. Cash compensation may also be paid to Financial
Intermediaries for inclusion of the Funds on a sales list, including a preferred
or select sales list, in other sales programs or as an expense reimbursement in
cases where the Financial Intermediary provides shareholder services to the
Funds’ shareholders.
Entertainment,
Conferences and Events
The
Adviser also may pay cash or non-cash compensation to sales representatives of
financial intermediaries in the form of (1) occasional gifts;
(2) occasional meals, tickets or other entertainment; and/or
(3) sponsorship support for the financial intermediary’s client seminars
and cooperative advertising. In addition, the Adviser may pay for exhibit space
or sponsorships at regional or national events of financial
intermediaries.
During
the Funds’ fiscal year, the following financial intermediaries were paid from
the Adviser’s revenues:
|
| |
Organization
or Entity |
Axos
Advisor Services |
Charles
Schwab & Company, Inc. |
ETRADE
Advisor Services |
Fidelity
Investments |
Financial
Data Services |
LPL
Financial |
Merrill
Lynch Pierce Fenner & Smith Incorporated |
MSCS
Financial Services |
National
Financial Services, LLC |
Nationwide
Financial Services, Inc. |
Pershing,
LLC |
Raymond
James & Associates Inc. |
RBC
Capital Markets, LLC |
TD
Ameritrade |
TIAA-Cref |
UBS
Financial Services |
Vanguard
Brokerage Services |
Wells
Fargo |
The
prospect of receiving, or the receipt of additional payments or other
compensation as described above by financial intermediaries may provide such
intermediaries and/or their salespersons with an incentive to favor sales of
shares of the Funds, and other mutual funds whose affiliates make similar
compensation
available,
over sale of shares of mutual funds (or non-mutual fund investments) not making
such payments. You may wish to take such payment arrangements into account when
considering and evaluating any recommendations relating to each Fund’s
shares.
The
Annual
Report
to shareholders for the Global Equity Fund and SMID Fund for the fiscal year
ended June 30, 2022 is available, without charge, upon request by
calling 1.800.548.5684, and the financial statements, accompanying notes and
report of the independent registered public accounting firm appearing therein
are incorporated by reference into this SAI.
Shareholders
of the Funds will be informed of the Funds’ progress through periodic reports
when those reports become available. Financial statements certified by the
Funds’ independent public accounting firm will be submitted to shareholders at
least annually.
DESCRIPTION
OF SECURITIES RATINGS
Short-Term
Credit Ratings
An
S&P
Global Ratings
short-term issue credit rating is generally assigned to those obligations
considered short-term in the relevant market. The following summarizes the
rating categories used by S&P Global Ratings for short-term
issues:
“A-1”
- A short-term obligation rated “A-1” is rated in the highest category by
S&P Global Ratings. The obligor’s capacity to meet its financial commitments
on the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor’s capacity to
meet its financial commitment on these obligations is extremely
strong.
“A-2”
- A short-term obligation rated “A-2” is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor’s capacity to meet
its financial commitments on the obligation is satisfactory.
“A-3”
- A short-term obligation rated “A-3” exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to weaken an obligor’s capacity to meet its financial commitments on the
obligation.
“B”
- A short-term obligation rated “B” is regarded as vulnerable and has
significant speculative characteristics. The obligor currently has the capacity
to meet its financial commitments; however, it faces major ongoing uncertainties
that could lead to the obligor’s inadequate capacity to meet its financial
commitments.
“C”
- A short-term obligation rated “C” is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitments on the obligation.
“D”
- A short-term obligation rated “D” is in default or in breach of an imputed
promise. For non-hybrid capital instruments, the “D” rating category is used
when payments on an obligation are not made on the date due, unless S&P
Global Ratings believes that such payments will be made within any stated grace
period. However, any stated grace period longer than five business days will be
treated as five business days. The “D” rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action and where default on
an obligation is a virtual certainty, for example due to automatic stay
provisions. A rating on an obligation is lowered to “D” if it is subject to a
distressed exchange offer.
Local
Currency and Foreign Currency Ratings - S&P Global Ratings’ issuer credit
ratings make a distinction between foreign currency ratings and local currency
ratings. A foreign currency rating on an issuer will differ from the local
currency rating on it when the obligor has a
different
capacity to meet its obligations denominated in its local currency, versus
obligations denominated in a foreign currency.
“NR”
- This indicates that a rating has not been assigned or is no longer
assigned.
Moody’s
Investors Service (“Moody’s”)
short-term ratings are forward-looking opinions of the relative credit risks of
financial obligations with an original maturity of thirteen months or less and
reflect both on the likelihood of a default or impairment on contractual
financial obligations and the expected financial loss suffered in the event of
default or impairment.
Moody’s
employs the following designations to indicate the relative repayment ability of
rated issuers:
“P-1”
- Issuers (or supporting institutions) rated Prime-1 have a superior ability to
repay short-term debt obligations.
“P-2”
- Issuers (or supporting institutions) rated Prime-2 have a strong ability to
repay short-term debt obligations.
“P-3”
- Issuers (or supporting institutions) rated Prime-3 have an acceptable ability
to repay short-term obligations.
“NP”
- Issuers (or supporting institutions) rated Not Prime do not fall within any of
the Prime rating categories.
“NR”
- Is assigned to an unrated issuer.
Fitch,
Inc. / Fitch Ratings Ltd. (“Fitch”)
short-term issuer or obligation rating is based in all cases on the short-term
vulnerability to default of the rated entity and relates to the capacity to meet
financial obligations in accordance with the documentation governing the
relevant obligation. Short-term deposit ratings may be adjusted for loss
severity. Short-term ratings are assigned to obligations whose initial maturity
is viewed as “short-term” based on market convention. Typically, this means up
to 13 months for corporate, sovereign, and structured obligations and up to 36
months for obligations in U.S. public finance markets. The following summarizes
the rating categories used by Fitch for short-term obligations:
“F1”
- Securities possess the highest short-term credit quality. This designation
indicates the strongest intrinsic capacity for timely payment of financial
commitments; may have an added “+” to denote any exceptionally strong credit
feature.
“F2”
- Securities possess good short-term credit quality. This designation indicates
good intrinsic capacity for timely payment of financial
commitments.
“F3”
- Securities possess fair short-term credit quality. This designation indicates
that the intrinsic capacity for timely payment of financial commitments is
adequate.
“B”
- Securities possess speculative short-term credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
heightened vulnerability to near term adverse changes in financial and economic
conditions.
“C”
- Securities possess high short-term default risk. Default is a real
possibility.
“RD”
- Restricted default. Indicates an entity that has defaulted on one or more of
its financial commitments, although it continues to meet other financial
obligations. Typically applicable to entity ratings only.
“D”
- Default. Indicates a broad-based default event for an entity, or the default
of a short-term obligation.
Plus
(+) or minus (-) - The “F1” rating may be modified by the addition of a plus (+)
or minus (-) sign to show the relative status within that major rating
category.
“NR”
- Is assigned to an unrated issue of a rated issuer.
The
DBRS®
Ratings Limited (“DBRS”)
short-term debt rating scale provides an opinion on the risk that an issuer will
not meet its short-term financial obligations in a timely manner. Ratings are
based on quantitative and qualitative considerations relevant to the issuer and
the relative ranking of claims. The R-1 and R-2 rating categories are further
denoted by the sub-categories “(high)”, “(middle)”, and “(low)”.
The
following summarizes the ratings used by DBRS for commercial paper and
short-term debt:
“R-1
(high)” - Short-term debt rated “R-1 (high)” is of the highest credit quality.
The capacity for the payment of short-term financial obligations as they fall
due is exceptionally high. Unlikely to be adversely affected by future
events.
“R-1
(middle)” - Short-term debt rated “R-1 (middle)” is of superior credit quality.
The capacity for the payment of short-term financial obligations as they fall
due is very high. Differs from “R-1 (high)” by a relatively modest degree.
Unlikely to be significantly vulnerable to future events.
“R-1
(low)” - Short-term debt rated “R-1 (low)” is of good credit quality. The
capacity for the payment of short-term financial obligations as they fall due is
substantial. Overall strength is not as favorable as higher rating categories.
May be vulnerable to future events, but qualifying negative factors are
considered manageable.
“R-2
(high)” - Short-term debt rated “R-2 (high)” is considered to be at the upper
end of adequate credit quality. The capacity for the payment of short-term
financial obligations as they fall due is acceptable. May be vulnerable to
future events.
“R-2
(middle)” - Short-term debt rated “R-2 (middle)” is considered to be of adequate
credit quality. The capacity for the payment of short-term financial obligations
as they fall due is acceptable. May be vulnerable to future events or may be
exposed to other factors that could reduce credit quality.
“R-2
(low)” - Short-term debt rated “R-2 (low)” is considered to be at the lower end
of adequate credit quality. The capacity for the payment of short-term financial
obligations as they fall due is acceptable. May be vulnerable to future events.
A number of challenges are present that could affect the issuer’s ability to
meet such obligations.
“R-3”
- Short-term debt rated “R-3” is considered to be at the lowest end of adequate
credit quality. There is a capacity for the payment of short-term financial
obligations as they fall due. May be vulnerable to future events and the
certainty of meeting such obligations could be impacted by a variety of
developments.
“R-4”
- Short-term debt rated “R-4” is considered to be of speculative credit quality.
The capacity for the payment of short-term financial obligations as they fall
due is uncertain.
“R-5”
- Short-term debt rated “R-5” is considered to be of highly speculative credit
quality. There is a high level of uncertainty as to the capacity to meet
short-term financial obligations as they fall due.
“D”
- Short-term debt rated “D” is assigned when the issuer has filed under any
applicable bankruptcy, insolvency or winding up statute or there is a failure to
satisfy an obligation after the exhaustion of grace periods, a downgrade to “D”
may occur. DBRS may also use “SD” (Selective Default) in cases where only some
securities are impacted, such as the case of a “distressed
exchange”.
Long-Term
Credit Ratings
The
following summarizes the ratings used by S&P
Global Ratings
for long-term issues:
“AAA”
- An obligation rated “AAA” has the highest rating assigned by S&P Global
Ratings. The obligor’s capacity to meet its financial commitments on the
obligation is extremely strong.
“AA”
- An obligation rated “AA” differs from the highest-rated obligations only to a
small degree. The obligor’s capacity to meet its financial commitments on the
obligation is very strong.
“A”
- An obligation rated “A” is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its financial
commitments on the obligation is still strong.
“BBB”
- An obligation rated “BBB” exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to weaken
the obligor’s capacity to meet its financial commitments on the
obligation.
“BB,”
“B,” “CCC,” “CC” and “C” - Obligations rated “BB,” “B,” “CCC,” “CC” and “C” are
regarded as having significant speculative characteristics. “BB” indicates the
least degree of speculation and “C” the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposure to adverse conditions.
“BB”
- An obligation rated “BB” is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions that could lead to the
obligor’s inadequate capacity to meet its financial commitments on the
obligation.
“B”
- An obligation rated “B” is more vulnerable to nonpayment than obligations
rated “BB”, but the obligor currently has the capacity to meet its financial
commitments on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor’s capacity or willingness to meet its
financial commitments on the obligation.
“CCC”
- An obligation rated “CCC” is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitments on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitments on the
obligation.
“CC”
- An obligation rated “CC” is currently highly vulnerable to nonpayment. The
“CC” rating is used when a default has not yet occurred but S&P Global
Ratings expects default to be a virtual certainty, regardless of the anticipated
time to default.
“C”
- An obligation rated “C” is currently highly vulnerable to nonpayment, and the
obligation is expected to have lower relative seniority or lower ultimate
recovery compared with obligations that are rated higher.
“D”
- An obligation rated “D” is in default or in breach of an imputed promise. For
non-hybrid capital instruments, the “D” rating category is used when payments on
an obligation are not made on the date due, unless S&P Global Ratings
believes that such payments will be made within five business days in the
absence of a stated grace period or within the earlier of the stated grace
period or 30 calendar days. The “D” rating also will be used upon the filing of
a bankruptcy petition or the taking of similar action and where default on an
obligation is a virtual certainty, for example due to automatic stay provisions.
An obligation’s rating is lowered to “D” if it is subject to a distressed
exchange offer.
Plus
(+) or minus (-) - The ratings from “AA” to “CCC” may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within the
rating categories.
“NR”
- This indicates that a rating has not been assigned, or is no longer
assigned.
Local
Currency and Foreign Currency Risks - S&P Global Ratings’ issuer credit
ratings make a distinction between foreign currency ratings and local currency
ratings. An issuer’s foreign currency rating will differ from its local currency
rating on it when the obligor has a different
capacity
to meet its obligations denominated in its local currency, versus obligations
denominated in a foreign currency.
Moody’s
long-term ratings are forward-looking opinions of the relative credit risks of
financial obligations with an original maturity of one year or more. Such
ratings reflect both on the likelihood of default or impairment on contractual
financial obligations and the expected financial loss suffered in the event of
default or impairment. The following summarizes the ratings used by Moody’s for
long-term debt:
“Aaa”
- Obligations rated “Aaa” are judged to be of the highest quality, subject to
the lowest level of credit risk.
“Aa”
- Obligations rated “Aa” are judged to be of high quality and are subject to
very low credit risk.
“A”
- Obligations rated “A” are judged to be upper-medium grade and are subject to
low credit risk.
“Baa”
- Obligations rated “Baa” are judged to be medium-grade and subject to moderate
credit risk and as such may possess certain speculative characteristics.
“Ba”
- Obligations rated “Ba” are judged to be speculative and are subject to
substantial credit risk.
“B”
- Obligations rated “B” are considered speculative and are subject to high
credit risk.
“Caa”
- Obligations rated “Caa” are judged to be speculative of poor standing and are
subject to very high credit risk.
“Ca”
- Obligations rated “Ca” are highly speculative and are likely in, or very near,
default, with some prospect of recovery of principal and interest.
“C”
- Obligations rated “C” are the lowest rated and are typically in default, with
little prospect for recovery of principal or interest.
Note:
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating
classification from “Aa” through “Caa.” The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
“NR”
- Is assigned to unrated obligations.
The
following summarizes long-term ratings used by Fitch:
“AAA”
- Securities considered to be of the highest credit quality. “AAA” ratings
denote the lowest expectation of credit risk. They are assigned only in cases of
exceptionally strong capacity for
payment
of financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
“AA”
- Securities considered to be of very high credit quality. “AA” ratings denote
expectations of very low credit risk. They indicate very strong capacity for
payment of financial commitments. This capacity is not significantly vulnerable
to foreseeable events.
“A”
- Securities considered to be of high credit quality. “A” ratings denote
expectations of low credit risk. The capacity for payment of financial
commitments is considered strong. This capacity may, nevertheless, be more
vulnerable to adverse business or economic conditions than is the case for
higher ratings.
“BBB”
- Securities considered to be of good credit quality. “BBB” ratings indicate
that expectations of credit risk are currently low. The capacity for payment of
financial commitments is considered adequate, but adverse business or economic
conditions are more likely to impair this capacity.
“BB”
- Securities considered to be speculative. “BB” ratings indicate that there is
an elevated vulnerability to credit risk, particularly in the event of adverse
changes in business or economic conditions over time; however, business or
financial alternatives may be available to allow financial commitments to be
met.
“B”
- Securities considered to be highly speculative. “B” ratings indicate that
material credit risk is present.
“CCC”
- A “CCC” rating indicates that substantial credit risk is present.
“CC”
- A “CC” rating indicates very high levels of credit risk.
“C”
- A “C” rating indicates exceptionally high levels of credit risk.
Defaulted
obligations typically are not assigned “RD” or “D” ratings but are instead rated
in the “CCC” to “C” rating categories, depending on their recovery prospects and
other relevant characteristics. Fitch believes that this approach better aligns
obligations that have comparable overall expected loss but varying vulnerability
to default and loss.
Plus
(+) or minus (-) may be appended to a rating to denote relative status within
major rating categories. Such suffixes are not added to the “AAA” obligation
rating category, or to corporate finance obligation ratings in the categories
below “CCC”.
“NR”
- Is assigned to an unrated issue of a rated issuer.
The
DBRS
long-term rating scale provides an opinion on the risk of default. That is, the
risk that an issuer will fail to satisfy its financial obligations in accordance
with the terms under which an obligation has been issued. Ratings are based on
quantitative and qualitative considerations relevant to the issuer, and the
relative ranking of claims. All rating categories other than AAA and D also
contain
subcategories “(high)” and “(low)”. The absence of either a “(high)” or “(low)”
designation indicates the rating is in the middle of the category. The following
summarizes the ratings used by DBRS for long-term debt:
“AAA”
- Long-term debt rated “AAA” is of the highest credit quality. The capacity for
the payment of financial obligations is exceptionally high and unlikely to be
adversely affected by future events.
“AA”
- Long-term debt rated “AA” is of superior credit quality. The capacity for the
payment of financial obligations is considered high. Credit quality differs from
“AAA” only to a small degree. Unlikely to be significantly vulnerable to future
events.
“A”
- Long-term debt rated “A” is of good credit quality. The capacity for the
payment of financial obligations is substantial, but of lesser credit quality
than “AA.” May be vulnerable to future events, but qualifying negative factors
are considered manageable.
“BBB”
- Long-term debt rated “BBB” is of adequate credit quality. The capacity for the
payment of financial obligations is considered acceptable. May be vulnerable to
future events.
“BB”
- Long-term debt rated “BB” is of speculative, non-investment grade credit
quality. The capacity for the payment of financial obligations is uncertain.
Vulnerable to future events.
“B”
- Long-term debt rated “B” is of highly speculative credit quality. There is a
high level of uncertainty as to the capacity to meet financial
obligations.
“CCC”,
“CC” and “C” - Long-term debt rated in any of these categories is of very highly
speculative credit quality. In danger of defaulting on financial obligations.
There is little difference between these three categories, although “CC” and “C”
ratings are normally applied to obligations that are seen as highly likely to
default, or subordinated to obligations rated in the “CCC” to “B” range.
Obligations in respect of which default has not technically taken place but is
considered inevitable may be rated in the “C” category.
“D”
- A security rated “D” is assigned when the issuer has filed under any
applicable bankruptcy, insolvency or winding up statute or there is a failure to
satisfy an obligation after the exhaustion of grace periods, a downgrade to “D”
may occur. DBRS may also use “SD” (Selective Default) in cases where only some
securities are impacted, such as the case of a “distressed
exchange”.
Municipal
Note Ratings
An
S&P
Global Ratings
U.S. municipal note rating reflects S&P Global Ratings’ opinion about the
liquidity factors and market access risks unique to the notes. Notes due in
three years or less will likely receive a note rating. Notes with an original
maturity of more than three years will most likely receive a long-term debt
rating. In determining which type of rating, if any, to assign, S&P Global
Ratings’ analysis will review the following considerations:
•Amortization
schedule - the larger the final maturity relative to other maturities, the more
likely it will be treated as a note; and
•Source
of payment - the more dependent the issue is on the market for its refinancing,
the more likely it will be treated as a note.
Municipal
Short-Term Note rating symbols are as follows:
“SP-1”
- A municipal note rated “SP-1” exhibits a strong capacity to pay principal and
interest. An issue determined to possess a very strong capacity to pay debt
service is given a plus (+) designation.
“SP-2”
- A municipal note rated “SP-2” exhibits a satisfactory capacity to pay
principal and interest, with some vulnerability to adverse financial and
economic changes over the term of the notes.
“SP-3”
- A municipal note rated “SP-3” exhibits a speculative capacity to pay principal
and interest.
“D”
- This rating is assigned upon failure to pay the note when due, completion of a
distressed exchange offer, or the filing of a bankruptcy petition or the taking
of similar action and where default on an obligation is a virtual certainty, for
example due to automatic stay provisions.
Moody’s
uses the global short-term Prime rating scale (listed above under Short-Term
Credit Ratings) for commercial paper issued by U.S. municipalities and
nonprofits. These commercial paper programs may be backed by external letters of
credit or liquidity facilities, or by an issuer’s self-liquidity.
For
other short-term municipal obligations, Moody’s uses one of two other short-term
rating scales, the Municipal Investment Grade (“MIG”) and Variable Municipal
Investment Grade (“VMIG”) scales provided below.
Moody’s
uses the MIG scale for U.S. municipal cash flow notes, bond anticipation notes
and certain other short-term obligations, which typically mature in three years
or less. Under certain circumstances, Moody’s uses the MIG scale for bond
anticipation notes with maturities of up to five years.
MIG
Scale
“MIG-1”
- This designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for refinancing.
“MIG-2”
- This designation denotes strong credit quality. Margins of protection are
ample, although not as large as in the preceding group.
“MIG-3”
- This designation denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to be less
well-established.
“SG”
- This designation denotes speculative-grade credit quality. Debt instruments in
this category may lack sufficient margins of protection.
“NR”
- Is assigned to an unrated obligation.
In
the case of variable rate demand obligations (“VRDOs”), a two-component rating
is assigned: a long or short-term debt rating and a demand obligation rating.
The long-term rating addresses the issuer’s ability to meet scheduled principal
and interests payments. The short-term demand obligation rating addresses the
ability of the issuer or the liquidity provider to make payments associated with
the purchase-price-upon demand feature (“demand feature”) of the VRDO. The
short-term demand obligation rating uses the VMIG scale. VMIG ratings with
liquidity support use as an input the short-term Counterparty Risk Assesment of
the support provider, or the long-term rating of the underlying obligor in the
absence of third party liquidity support. Transitions of VMIG Ratings of demand
obligations with conditional liquidity support differ from transitions on the
Prime scale to reflect the risk that external liquidity support will terminate
if the issuer’s long-term rating drops below investment grade.
Moody’s
typically assigns the VMIG short-term demand obligation rating if the frequency
of the demand feature is less than every three years. If the frequency of the
demand feature is less than three years but the purchase price is payable only
with remarketing proceeds, the short-term demand obligation rating is
“NR”.
“VMIG-1”
- This designation denotes superior credit quality. Excellent protection is
afforded by the superior short-term credit strength of the liquidity provider
and structural and legal protections that ensure the timely payment of purchase
price upon demand.
“VMIG-2”
- This designation denotes strong credit quality. Good protection is afforded by
the strong short-term credit strength of the liquidity provider and structural
and legal protections that ensure the timely payment of purchase price upon
demand.
“VMIG-3”
- This designation denotes acceptable credit quality. Adequate protection is
afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment of
purchase price upon demand.
“SG”
- This designation denotes speculative-grade credit quality. Demand features
rated in this category may be supported by a liquidity provider that does not
have a sufficiently strong short-term rating or may lack the structural and/or
legal protections necessary to ensure the timely payment of purchase price upon
demand.
“NR”
- Is assigned to an unrated obligation.
About
Credit Ratings
An
S&P
Global Ratings
issue credit rating is a forward-looking opinion about the creditworthiness of
an obligor with respect to a specific financial obligation, a specific class of
financial obligations, or a specific financial program (including ratings on
medium-term note programs and commercial paper programs). It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation and takes into account the currency in
which the obligation is denominated. The opinion reflects S&P Global
Ratings’ view of the obligor’s capacity and willingness to meet its financial
commitments as they come due, and this opinion may assess terms, such as
collateral security and subordination, which could affect ultimate payment in
the event of default.
Ratings
assigned on Moody’s
global long-term and short-term rating scales are forward-looking opinions of
the relative credit risks of financial obligations issued by non-financial
corporates, financial institutions, structured finance vehicles, project finance
vehicles, and public sector entities.
Fitch’s
credit ratings relating to issuers are an opinion on the relative ability of an
entity to meet financial commitments, such as interest, preferred dividends,
repayment of principal, insurance claims or counterparty obligations. Fitch
credit ratings are used by investors as indications of the likelihood of
receiving the money owed to them in accordance with the terms on which they
invested. Fitch’s credit ratings cover the global spectrum of corporate,
sovereign financial, bank, insurance, and public finance entities (including
supranational and sub-national entities) and the securities or other obligations
they issue, as well as structured finance securities backed by receivables or
other financial assets.
Credit
ratings provided by DBRS
are forward-looking opinions about credit risk which reflect the
creditworthiness of an issuer, rated entity, security and/or obligation. Credit
ratings are not statements of fact. While historical statistics and performance
can be important considerations, credit ratings are not based solely on such;
they include subjective considerations and involve expectations for future
performance that cannot be guaranteed. To the extent that future events and
economic conditions do not match expectations, credit ratings assigned to
issuers, entities, securities and/or obligations can change. Credit ratings are
also based on approved and applicable methodologies (“Methodologies”), which are
periodically updated and when material changes are deemed necessary, this may
also lead to rating changes.
Credit
ratings typically provide an opinion on the risk that investors may not be
repaid in accordance with the terms under which the obligation was issued. In
some cases, credit ratings may also include consideration for the relative
ranking of claims and recovery, should default occur. Credit ratings are meant
to provide opinions on relative measures of risk and are not based on
expectations of any specific default probability, nor are they meant to predict
such.
The
data and information on which DBRS bases its opinions is not audited or verified
by DBRS, although, DBRS conducts a reasonableness review of information received
and relied upon in accordance with its Methodologies and policies.
DBRS
uses rating symbols as a concise method of expressing its opinion to the market,
but there are a limited number of rating categories for the possible slight risk
differentials that exist across the rating spectrum and DBRS does not assert
that credit ratings in the same category are of “exactly” the same
quality.