ck0001141819-20240229
Statement
of Additional Information
June 28,
2024
BRIGHT
ROCK MID CAP GROWTH FUND
Institutional
Class Shares (BQMGX)
Investor
Class Shares (BQMIX) (not
currently offered)
BRIGHT
ROCK QUALITY LARGE CAP FUND
Institutional
Class Shares (BQLCX)
Investor
Class Shares (BQLIX) (not
currently offered)
This
Statement of Additional Information (“SAI”) provides general information about
the Bright Rock Mid Cap Growth Fund (the “Mid Cap Growth Fund”) and the Bright
Rock Quality Large Cap Fund (the “Quality Large Cap Fund”) (each, a “Fund,” and
collectively, the “Funds” or the “Bright Rock Funds”), each a series of Trust
for Professional Managers (the “Trust”). This SAI is not a prospectus and should
be read in conjunction with the Funds’ current prospectus dated June 28,
2024 (the “Prospectus”), as supplemented and amended from time to time, which is
incorporated herein by reference. The Funds’ audited financial statements for
the fiscal year ended February 29, 2024, are incorporated herein by reference
from the Funds’ 2024 Annual
Report to Shareholders.
To
obtain a copy of the Prospectus and/or the Funds’ 2024 Annual Report to
Shareholders free of charge, please write or call the Funds at the address or
toll-free telephone number below, or visit the Funds’ website at
www.brightrockfunds.com.
Bright
Rock Funds
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
Wisconsin 53201-0701
1-866-273-7223
An
investment in the Funds is not a deposit of or guaranteed by Rockland Trust
Company, is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency, and is subject to investment risks,
including possible loss of the principal invested.
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The
Trust
The
Trust is a Delaware statutory trust organized on May 29, 2001, and is registered
with the Securities and Exchange Commission (“SEC”) as an open-end management
investment company. Each Fund is one series of the Trust. Each Fund is a
diversified series and has its own investment objective and policies. Shares of
other series of the Trust are offered in separate prospectuses and SAIs. The
Trust may register additional series and offer shares of a new fund or share
class under the Trust at any time.
The
Trust is authorized to issue an unlimited number of interests (or shares). Each
share of the Trust has equal voting rights and liquidation rights, and is voted
in the aggregate and not by the series or class of shares, except in matters
where a separate vote is required by the Investment Company Act of 1940, as
amended (the “1940 Act”), or when the matters affect only the interest of a
particular series or class of shares. When matters are submitted to shareholders
for a vote, each shareholder is entitled to one vote for each full share owned
and fractional votes for fractional shares owned. Shares of each series or class
generally vote together, except when required under federal securities laws to
vote separately on matters that affect only a particular class. The Trust does
not normally hold annual meetings of shareholders. The Trust’s Board of Trustees
(the “Board” or the “Board of Trustees”) shall promptly call and give notice of
a meeting of shareholders for the purpose of voting upon removal of any trustee
when requested to do so in writing by shareholders holding 10% or more of the
Trust’s outstanding shares.
With
respect to the Funds, the Trust may offer more than one class of shares. The
Trust has adopted a multiple class plan pursuant to Rule 18f-3 under the 1940
Act, detailing the attributes of each share class of the Funds, and has reserved
the right to create and issue additional series or classes. Each share of a
series or class represents an equal proportionate interest in that series or
class with each other share of that series or class. Each Fund offers two
classes of shares: Institutional Class and Investor Class. However, the Funds do
not currently offer Investor Class shares for purchase.
Each
share of a Fund represents an equal proportionate interest in the assets and
liabilities belonging to that Fund and is entitled to such distributions out of
the income belonging to the Funds as are declared by the Board of Trustees. The
Board of Trustees has the authority from time to time to divide or combine the
shares of any series into a greater or lesser number of shares of that series so
long as the proportionate beneficial interests in the assets belonging to that
series and the rights of shares of any other series are in no way affected.
Additionally, in case of any liquidation of a series, the holders of shares of
the series being liquidated are entitled to receive a distribution out of the
assets, net of the liabilities, belonging to that series. Expenses attributable
to any series or class are borne by that series or class. Any general expenses
of the Trust not readily identifiable as belonging to a particular series or
class are allocated by, or under the direction of, the Board of Trustees on the
basis of relative net assets, the number of shareholders or another equitable
method. No shareholder is liable to further calls or to assessment by the Trust
without his or her express consent.
The
assets of a Fund received for the issue or sale of its shares, and all income,
earnings, profits and proceeds thereof, subject only to the rights of creditors,
shall constitute the underlying assets of a Fund. In the event of the
dissolution or liquidation of a Fund, the holders of shares of that Fund are
entitled to share pro rata in the net assets of that Fund available for
distribution to shareholders.
Bright
Rock Capital Management, LLC (the “Adviser”) serves as the investment adviser
for the Funds.
Investment
Policies, Strategies and Associated Risks
Investment
Objective
The
investment objective of each Fund is long-term capital appreciation. Each Fund’s
investment objective may be changed without the approval of the Funds’
shareholders upon approval by the Board and 60 days’ prior written notice to
shareholders.
Diversification
The
Funds are diversified. Under applicable federal laws, to qualify as a
diversified fund, each Fund, with respect to at least 75% of its total assets,
may not invest more than 5% of its assets in any one issuer and may not hold
more than 10% of the securities of one issuer. The remaining 25% of a Fund’s
total assets does not need to be “diversified” and may be invested in the
securities of a single issuer, subject to other applicable laws. The
diversification of a Fund’s holdings is measured at the time the Fund purchases
a security. However, if a Fund purchases a security and holds it for a period of
time, the security may become a larger percentage of the Fund’s total assets due
to movements in the financial markets. If the market affects several securities
held by a Fund, the Fund may have a greater percentage of its assets invested in
securities of fewer issuers.
Investment
Strategies and Related Risks
There
is no assurance that the Funds will achieve their investment objectives. The
following discussion supplements the description of the Funds’ investment
objectives and principal investment strategies set forth in the Prospectus.
Except for the fundamental investment restrictions listed below (see “Investment
Restrictions”), the Funds’ investment strategies and policies are not
fundamental and may be changed by sole action of the Board of Trustees, without
shareholder approval. While the Funds are permitted to hold securities and
engage in various strategies as described hereafter, they are not obligated to
do so.
Whenever
an investment policy or investment restriction states a maximum percentage of a
Fund’s assets that may be invested in any security, or other asset, or sets
forth a policy regarding quality standards, such standard or percentage
limitation will be determined immediately after and as a result of a Fund’s
acquisition or sale of such security or other asset. Accordingly, except with
respect to borrowing or illiquid investments, any subsequent change in values,
net assets or other circumstances will not be considered when determining
whether an investment complies with a Fund’s investment policies and investment
restrictions set forth herein or in the Prospectus. In addition, if a bankruptcy
or other extraordinary event occurs concerning a particular investment by a
Fund, that Fund may receive stock, real estate or other investments that the
Fund would not, or could not, buy. If this happens, that Fund will sell such
investments as soon as practicable while trying to maximize the return to its
shareholders.
An
investment in the Funds is not a deposit of Rockland Trust Company (the
Adviser’s parent company) and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
General
Market Risk
Global
economies and financial markets are increasingly interconnected, which increases
the probabilities that conditions in one country or region might adversely
impact issues in a different country or region. In some cases, the stock prices
of individual companies have been negatively impacted even though there may be
little or no apparent degradation in the financial condition or prospects of
that company. As a result of this volatility, many of the risks associated with
an investment in the Funds may be increased. Continuing market problems may have
adverse effects on the Funds.
Equity
Securities
An
equity security (such as a stock, partnership interest or other beneficial
interest in an issuer) represents a proportionate share of the ownership of a
company. Its value is based on the success of the company’s business, any income
paid to stockholders, the value of its assets and general market conditions.
Common stocks and preferred stocks are examples of equity securities. 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. Some preferred stocks may be convertible into common stock. Convertible
securities are securities (such as debt securities or preferred stock) that may
be converted into or exchanged for a specified amount of common stock of the
same or different issuer within a particular period of time at a specified price
or formula. More information regarding common stock, preferred stock and
convertible securities appears below.
The
risks of investing in companies in general include business failure and reliance
on erroneous reports. Larger, more established companies may be unable to
respond quickly to new competitive challenges such as changes in consumer tastes
or innovative smaller competitors. Also, large-cap companies are sometimes
unable to attain the high growth rates of successful, smaller companies,
especially during extended periods of economic expansion. Mid-sized companies
may pose additional risks, including liquidity risk, because these companies
tend to have limited product lines, markets and financial resources, and may
depend upon a relatively small management group.
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 the Fund as a holder of common
stock. It is possible that all assets of that company will be exhausted before
any payments are made to the Fund.
Preferred
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 is a blend of the characteristics of a bond and common
stock. It can offer the higher yield of a bond and has priority over common
stock in equity ownership, but does not have the seniority of a bond and, unlike
common stock, its participation in the issuer’s growth may be limited. Although
the dividend is set at a fixed annual rate, in some circumstances it can be
changed or omitted by the issuer.
Convertible
Securities
Convertible
securities include fixed income securities that may be exchanged or converted
into a predetermined number of shares of the issuer’s underlying common stock or
other equity security at the option of the holder during a specified period.
Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of “usable” bonds and warrants
or a combination of the features of several of these securities. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for a variety of investment strategies. A
Fund will exchange or convert convertible securities into shares of underlying
common stock when, in the opinion of the Adviser, the investment characteristics
of the underlying common stock or other equity security will assist the Fund in
achieving its investment objective. The Funds may also elect to hold or trade
convertible securities. In selecting convertible securities, the Adviser
evaluates the investment characteristics of the convertible security as a fixed
income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these
matters
with respect to a particular convertible security, the Adviser considers
numerous factors, including the economic and political outlook, the value of the
security relative to other investment alternatives, trends in the determinants
of the issuer’s profits, and the issuer’s management capability and
practices.
Other
Investment Companies
The
Funds may invest in shares of other investment companies, including other mutual
funds or exchange-traded funds (“ETFs”). The Funds limit their investments in
securities issued by other investment companies in accordance with the 1940 Act.
Section 12(d)(1) of the 1940 Act precludes a Fund from acquiring (i) more than
3% of the total outstanding shares of another investment company; (ii) shares of
another investment company having an aggregate value in excess of 5% of the
value of the total assets of a Fund; or (iii) shares of another registered
investment company and all other investment companies having an aggregate value
in excess of 10% of the value of the total assets of a Fund. However, Section
12(d)(1)(F) of the 1940 Act provides that the provisions of paragraph 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 shares of such investment company is owned by such Fund and all
affiliated persons of such Fund; and (ii) a Fund has not offered or sold, and is
not proposing to offer or sell its shares through a principal underwriter or
otherwise at a public or offering price that includes a sales load of more than
1 1/2%.
The
Funds may also rely on Rule 12d1-4 of the 1940 Act, which provides an exemption
from Section 12d-1 that allows a Fund to invest all of its assets in other
registered investment companies, including ETFs, if the Fund satisfies certain
conditions specified in the Rule including, among other conditions, that the
Funds and their advisory group will not control (individually or in the
aggregate) an acquired fund (e.g.,
hold more than 25% of the outstanding voting securities of an acquired fund that
is a registered open-end management investment company).
Exchange-Traded
Funds
ETFs
are open-end investment companies whose shares are listed on a national
securities exchange. An ETF is similar to a traditional mutual fund, but trades
at different prices during the day on a security exchange like a stock. Similar
to investments in other investment companies discussed above, a Fund’s
investments in ETFs will involve duplication of advisory fees and other expenses
since the Fund will be investing in another investment company. In addition, a
Fund’s investment in ETFs is also subject to its limitations on investments in
investment companies discussed above. To the extent a Fund invests in ETFs which
focus on a particular market segment or industry, the Fund will also be subject
to the risks associated with investing in those sectors or industries. To the
extent a Fund invests in inverse ETFs, such investments are subject to the risk
that their performance will decline as the value of their benchmark indices
rises. The shares of the ETFs in which a Fund will invest will be listed on a
national securities exchange and the Fund will purchase or sell these shares on
the secondary market at its current market price, which may be more or less than
its net asset value (“NAV”) per share.
As
purchasers of ETF shares on the secondary market, the Funds will be subject to
the market risk associated with owning any security whose value is based on
market price. ETF shares historically have tended to trade at or near their NAV,
but there is no guarantee that they will continue to do so. Unlike traditional
mutual funds, shares of an ETF may be purchased and redeemed directly from the
ETFs only in large blocks and only through participating organizations that have
entered into contractual agreements with the ETF. The Funds do not expect to
enter into such agreements and therefore will not be able to purchase and redeem
ETF shares directly from the ETF.
Foreign
Investments and Currencies
The
Funds may invest in securities of foreign issuers that are not publicly traded
in the United States, purchase and sell foreign currency on a spot basis and
enter into forward currency contracts (see “Forward Currency Contracts,” below).
The Funds may also invest in American Depositary Receipts (“ADRs”) and foreign
securities that are publicly traded on a U.S. exchange. In considering whether
to invest in the securities of a foreign company, the Adviser considers such
factors as the characteristics of the particular company, differences between
economic trends and the performance of securities markets within the U.S. and
those within other countries, and also factors relating to the general economic,
governmental and social conditions of the country or countries where the company
is located. The extent to which the Funds will be invested in foreign companies
and countries and depositary receipts will fluctuate from time to time within
the limitations described in the Prospectus, depending on the Adviser’s
assessment of prevailing market, economic and other conditions. Investments in
ADRs and foreign securities involve certain inherent risks, including the
following:
Depositary
Receipts.
The Funds may invest their assets in securities of foreign issuers in the form
of depositary receipts, including ADRs, which are securities representing
securities of foreign issuers. A purchaser of unsponsored depositary receipts
may not have unlimited voting rights and may not receive as much information
about the issuer of the underlying securities as with a sponsored depositary
receipt. Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed for use in the U.S. securities markets. ADRs are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying securities. For purposes of the Funds’ investment policies, ADRs are
deemed to have the same classification as the underlying securities they
represent. Thus, an ADR representing ownership of common stock will be treated
as common stock.
Political
and Economic Factors.
Individual foreign economies of certain countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency,
diversification and balance of payments position. Governments in certain foreign
countries also continue to participate to a significant degree, through
ownership interest or regulation, in their respective economies. Action by these
governments could include restrictions on foreign investment, nationalization,
expropriation of goods or imposition of taxes, and could have a significant
effect on market prices of securities and payment of interest. The economies of
many foreign countries are heavily dependent upon international trade and are
accordingly affected by the trade policies and economic conditions of their
trading partners. Enactment by these trading partners of protectionist trade
legislation could have a significant adverse effect upon the securities markets
of such countries.
There
is still market uncertainty regarding the potential consequences of “Brexit”
(the United Kingdom’s (UK) withdrawal from the European Union (EU)) including
Brexit’s long-term ramifications. The range of possible political, regulatory,
economic and market outcomes are difficult to predict. The uncertainty
surrounding the UK’s economy may cause disruption in securities markets,
including increased volatility and illiquidity, as well as currency fluctuations
in the British pound’s exchange rate against the U.S. dollar.
The
Russian invasion of Ukraine has resulted in an ongoing military conflict and
economic sanctions against certain Russian individuals and companies; this
conflict may expand and military attacks could occur elsewhere in Europe. This
conflict could also drive a rise in traditional and cyber terrorism in Europe
and other parts of the world. Further, sanctions against Russian individuals and
companies could adversely affect the price and availability of certain
commodities.
Currency
Fluctuations.
The Funds may invest in securities denominated in foreign currencies.
Accordingly, a change in the value of any such currency against the U.S. dollar
will result in a corresponding change in the U.S. dollar value of a Fund’s
assets denominated in that currency. Such changes will also affect the Fund’s
income. The value of a Fund’s assets may also be affected significantly by
currency restrictions and exchange control regulations enacted from time to
time.
Market
Characteristics.
The Adviser expects that many foreign securities in which the Funds may invest
could be purchased in over-the-counter (“OTC”) markets or on exchanges located
in the countries in which the principal offices of the issuers of the various
securities are located, if that is the best available market. Foreign exchanges
and markets may be more volatile than those in the United States. While growing
in volume, they usually have substantially less volume than U.S. markets, and
the Funds’ foreign securities may be less liquid and more volatile than U.S.
securities. Moreover, settlement practices for transactions in foreign markets
may differ from those in U.S. markets, and may include delays beyond periods
customary in the United States. Foreign security trading practices, including
those involving securities settlement where Fund assets may be released prior to
receipt of payment or securities, may expose the Funds to increased risk in the
event of a failed trade or the insolvency of a foreign
broker-dealer.
Legal
and Regulatory Matters.
Certain foreign countries may have less supervision of securities markets,
brokers and issuers of securities, and less financial information available from
issuers, than is available in the United States. Additionally, issuers of
foreign securities may not be required to provide operational or financial
information that is as timely or reliable as those required for issuers of U.S.
securities.
Taxes.
The interest and dividends payable on certain of the Funds’ foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to Fund shareholders.
Costs.
To the extent that a Fund invests in foreign securities, its expense ratio is
likely to be higher than those of investment companies investing only in
domestic securities, because the cost of maintaining the custody of foreign
securities is higher.
Emerging
Markets.
Each Fund may invest up to 25% of its net assets in securities of companies
located in developing or emerging markets, which entail additional risks,
including less social, political and economic stability; smaller securities
markets and lower trading volume, which may result in less liquidity and greater
price volatility; national policies that may restrict a Fund’s investment
opportunities, including restrictions on investments in issuers or industries,
or expropriation or confiscation of assets or property; and less developed legal
structures governing private or foreign investment.
Many
emerging markets have histories of political instability and abrupt changes in
policies. As a result, their governments may be more likely to take actions that
are hostile or detrimental to private enterprise or foreign investment than
those of more developed countries, including expropriation of assets,
confiscatory taxation or unfavorable diplomatic developments. Some emerging
countries have pervasive corruption and crime that may hinder investments.
Certain emerging markets may also face other significant internal or external
risks, including the risk of war, and ethnic, religious and racial conflicts. In
addition, governments in many emerging market countries participate to a
significant degree in their economies and securities markets, which may impair
investment and economic growth. National policies that may limit the Funds’
investment opportunities include restrictions on investment in issuers or
industries deemed sensitive to national interests.
Emerging
markets may also have differing legal systems and the existence or possible
imposition of exchange controls, custodial restrictions or other laws or
restrictions applicable to investments differ from
those
found in more developed markets. Sometimes, they may lack, or be in the
relatively early development of, legal structures governing private and foreign
investments and private property. In addition to withholding taxes on investment
income, some emerging market countries may impose different capital gains taxes
on foreign investors.
Practices
in relation to settlement of securities transactions in emerging market
countries involve higher risks than those in developed markets, in part because
the Funds will need to use brokers and counterparties that are less well
capitalized, and custody and registration of assets in some countries may be
unreliable. The possibility of fraud, negligence, and/or undue influence being
exerted by the issuer or refusal to recognize ownership exists in some emerging
markets, and, along with other factors, could result in ownership registration
being completely lost. The Funds would absorb any loss resulting from such
registration problems and may have no successful claim for compensation. In
addition, communications between parties in the U.S. and parties in emerging
market countries may be unreliable, increasing the risk of delayed settlements
or losses of security certificates.
Short
Sales
The
Funds may engage in short sales of securities, provided the securities are fully
listed on a national securities exchange. In a short sale, a Fund sells a
security that it does not own, in anticipation of a decline in the market value
of the security. To complete the transaction, a Fund must borrow the security to
make delivery to the buyer. A Fund is then obligated to replace the security
borrowed by purchasing it at the market price at the time of replacement. This
price may be more or less than the price at which the security was sold by a
Fund. A Fund will incur a loss on a short sale if the price of the security
increases between the date of the short sale and the date on which the Fund
replaces the borrowed security. A Fund will realize a gain if the security
declines in price between those dates. The amount of any gain will be decreased,
and the amount of any loss increased, by the amount of the premium, dividends,
interest or expenses a Fund may be required to pay in connection with the short
sale.
Typically,
the Funds will segregate liquid assets, which are marked-to-market daily, equal
to the difference between (a) the market value of the securities sold short
at the time they were sold short and (b) the value of the collateral
deposited with the broker in connection with the short sale (not including the
proceeds from the short sale). While the short position is open, the Funds must
maintain segregated assets at such a level that the amount segregated plus the
amount deposited with the broker as collateral equal the current market value of
the securities sold short.
Options,
Futures and Other Strategies
General.
The Funds may, but do not currently, invest in derivatives and may use certain
options (both traded on an exchange and OTC), futures contracts (sometimes
referred to as “futures”) and options on futures contracts (collectively,
“Financial Instruments”) as a substitute for a comparable market position in the
underlying security, to attempt to hedge or limit the exposure of a Fund’s
position, to create a synthetic money market position, for certain tax-related
purposes and to effect closing transactions.
The
Funds’ use of Financial Instruments is subject to applicable regulations of the
SEC (including Rule 18f-4 under the 1940 Act), the several exchanges upon which
they are traded and the Commodity Futures Trading Commission (the “CFTC”). In
addition, a Fund’s ability to use Financial Instruments will be limited by tax
considerations (see “Federal Income Tax Matters”). The regulation of derivatives
markets in the United States is a rapidly changing area of law and is subject to
modification by government and judicial action. New laws and regulations may
negatively impact the Funds by increasing transaction or regulatory compliance
costs, limiting the availability of certain derivatives, or otherwise adversely
affecting the value or performance of derivatives the Funds trade. Other
potentially adverse regulatory obligations can develop suddenly and without
notice.
In
addition to the instruments, strategies and risks described below, the Adviser
may discover additional opportunities in connection with Financial Instruments
and other similar or related techniques. These new opportunities may become
available as the Adviser develops new techniques, as regulatory authorities
broaden the range of permitted transactions and as new Financial Instruments or
other techniques are developed. The Adviser may utilize these opportunities to
the extent that they are consistent with the Funds’ investment objectives and
permitted by the Funds’ investment limitations and applicable regulatory
authorities. The Prospectus or this SAI will be supplemented to the extent that
new products or techniques involve materially different risks than those
described below or in the Prospectus.
Special
Risks.
The use of Financial Instruments involves special considerations and risks,
certain of which are described below. Risks pertaining to particular Financial
Instruments are described in the sections that follow.
(1)Successful
use of most Financial Instruments depends upon the Adviser’s ability to predict
movements of the overall securities markets, which requires different skills
than predicting changes in the prices of individual securities. The ordinary
spreads between prices in the cash and futures markets, due to the differences
in the natures of those markets, are subject to distortion. Due to the
possibility of distortion, a correct forecast of stock market trends by the
Adviser may still not result in a successful transaction. The Adviser may be
incorrect in its expectations as to the extent of market movements or the time
span within which the movements take place, which, thus, may result in the
strategy being unsuccessful.
(2)Options
and futures prices can diverge from the prices of their underlying instruments.
Options and futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
instrument and the time remaining until expiration of the contract, which may
not affect security prices the same way. Imperfect or no correlation also may
result from differing levels of demand in the options and futures markets and
the securities markets, from structural differences in how options and futures
and securities are traded, and from imposition of daily price fluctuation limits
or trading halts.
(3)As
described below, the Funds might be required to maintain assets as “cover,”
maintain segregated accounts or make margin payments when they take positions in
Financial Instruments involving obligations to third parties (e.g., Financial
Instruments other than purchased options). If the Funds were unable to close out
their positions in such Financial Instruments, they might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair a Fund’s ability to
sell a portfolio security or make an investment when it would otherwise be
favorable to do so or require that the Fund sells a portfolio security at a
disadvantageous time. The Funds’ ability to close out a position in a Financial
Instrument prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the other party to the transaction (the “counter-party”) to enter
into a transaction closing out the position. Therefore, there is no assurance
that any position can be closed out at a time and price that is favorable to the
Funds.
(4)Losses
may arise due to unanticipated market price movements, lack of a liquid
secondary market for any particular instrument at a particular time or due to
losses from premiums paid by the Funds on options transactions.
Cover.
Transactions using Financial Instruments, other than purchased options, expose
the Funds to an obligation to another party. A Fund will not enter into any such
transactions unless it owns either (1) an offsetting (“covered”) position in
securities or other options or futures contracts or (2) cash and liquid assets
with a value, marked-to-market daily, sufficient to cover its potential
obligations to the extent not covered as provided in (1) above. The Funds will
comply with SEC guidelines regarding cover for these instruments and will, if
the guidelines so require, set aside cash or liquid assets in an account with
their custodian, U.S. Bank National Association (the “Custodian”), in the
prescribed amount as determined daily.
Assets
used as cover or held in an account cannot be sold while the position in the
corresponding Financial Instrument is open, unless they are replaced with other
appropriate assets. As a result, the commitment of a large portion of a Fund’s
assets to cover accounts could impede portfolio management or the Fund’s ability
to meet redemption requests or other current obligations.
Options.
The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment and general market conditions. Options that expire unexercised have
no value. Options currently are traded on the Chicago Board Options Exchange,
the NYSE Amex Options exchange and other exchanges, as well as the OTC
markets.
By
buying a call option on a security, the Funds have the right, in return for the
premium paid, to buy the security underlying the option at the exercise price.
By writing (selling) a call option and receiving a premium, the Funds become
obligated during the term of the option to deliver securities underlying the
option at the exercise price if the option is exercised. By buying a put option,
the Funds have the right, in return for the premium, to sell the security
underlying the option at the exercise price. By writing a put option, the Funds
become obligated during the term of the option to purchase the securities
underlying the option at the exercise price.
Because
options premiums paid or received by the Funds are small in relation to the
market value of the investments underlying the options, buying and selling put
and call options can be more speculative than investing directly in
securities.
The
Funds may effectively terminate their right or obligation under an option by
entering into a closing transaction. For example, the Funds may terminate their
obligation under a call or put option that they had written by purchasing an
identical call or put option. This is known as a closing purchase transaction.
Conversely, the Funds may terminate a position in a put or call option they had
purchased by writing an identical put or call option. This is known as a closing
sale transaction. Closing transactions permit the Funds to realize profits or
limit losses on an option position prior to its exercise or
expiration.
Risks
of Options on Commodities, Currencies and Securities.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed that, in
effect, guarantees completion of every exchange-traded option transaction. In
contrast, OTC options are contracts between a Fund and its counter-party
(usually a securities dealer or a bank) with no clearing organization guarantee.
Thus, when a Fund purchases an OTC option, it relies on the counter-party from
whom it purchased the option to make or take delivery of the underlying
investment upon exercise of the option. Failure by the counter-party to do so
would result in the loss of any premium paid by a Fund as well as the loss of
any expected benefit of the transaction.
A
Fund’s ability to establish and close out positions in exchange-traded options
depends on the existence of a liquid market. However, there can be no assurance
that such a market will exist at any particular
time.
Closing transactions can be made for OTC options only by negotiating directly
with the counter-party or by a transaction in the secondary market if any such
market exists. There can be no assurance that the Funds will in fact be able to
close out an OTC option position at a favorable price prior to expiration. In
the event of insolvency of the counter-party, the Funds might be unable to close
out an OTC option position at any time prior to its expiration.
If
the Funds were unable to effect a closing transaction for an option they had
purchased, they would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by the Funds could cause material losses because the Funds would be
unable to sell the investment used as cover for the written option until the
option expires or is exercised.
Options
on Indices.
An index fluctuates with changes in the market values of the securities included
in the index. Options on indices give the holder the right to receive an amount
of cash upon exercise of the option. Receipt of this cash amount will depend
upon the closing level of the index upon which the option is based being greater
than (in the case of a call) or less than (in the case of put) the exercise
price of the option. Some stock index options are based on a broad market index
such as the S&P 500®
Index, the NYSE Composite Index or the NYSE Arca Major Market Index or on a
narrower index such as the Philadelphia Stock Exchange Over-the-Counter
Index.
Each
of the exchanges has established limitations governing the maximum number of
call or put options on the same index that may be bought or written by a single
investor, whether acting alone or in concert with others (regardless of whether
such options are written on the same or different exchanges or are held or
written on one or more accounts or through one or more brokers). For purposes of
these limitations, option positions of all investment companies advised by the
Adviser are combined. Pursuant to these limitations, an exchange may order the
liquidation of positions and may impose other sanctions or restrictions. These
position limitations may restrict the number of listed options that the Funds
may buy or sell.
Puts
and calls on indices are similar to puts and calls on securities or futures
contracts except that all settlements are in cash and gain or loss depends on
changes in the index in question rather than on price movements in individual
securities or futures contracts. When the Funds write a call on an index, they
receive a premium and agree that, prior to the expiration date, the purchaser of
the call, upon exercise of the call, will receive from the Funds an amount of
cash if the closing level of the index upon which the call is based is greater
than the exercise price of the call. The amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
call times a specified multiple (“multiplier”), which determines the total value
for each point of such difference. When the Funds buy a call on an index, they
pay a premium and have the same rights to such call as are indicated above. When
the Funds buy a put on an index, they pay a premium and have the right, prior to
the expiration date, to require the seller of the put, upon the Funds’ exercise
of the put, to deliver to the Funds an amount of cash if the closing level of
the index upon which the put is based is less than the exercise price of the
put, which amount of cash is determined by the multiplier, as described above
for calls. When the Funds write a put on an index, they receive a premium and
the purchaser of the put has the right, prior to the expiration date, to require
the Funds to deliver to it an amount of cash equal to the difference between the
closing level of the index and the exercise price times the multiplier if the
closing level is less than the exercise price.
Risks
of Options on Indices.
If the Funds have purchased an index option and exercise it before the closing
index value for that day is available, they run the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Funds
will
be required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the assigned
writer.
OTC
Options.
Unlike exchange-traded options, which are standardized with respect to the
underlying instrument, expiration date, contract size and strike price, the
terms of OTC options (options not traded on exchanges) generally are established
through negotiation with the other party to the option contract. While this type
of arrangement allows the Funds great flexibility to tailor the option to their
need, OTC options generally involve greater risk than exchange-traded options,
which are guaranteed by the clearing organization of the exchanges where they
are traded.
Futures
Contracts and Options on Futures Contracts.
A futures contract obligates the seller to deliver (and the purchaser to take
delivery of) the specified security on the expiration date of the contract. An
index futures contract obligates the seller to deliver (and the purchaser to
take) an amount of cash equal to a specific dollar amount times the difference
between the value of a specific index at the close of the last trading day of
the contract and the price at which the agreement is made. No physical delivery
of the underlying securities in the index is made.
When
the Funds write an option on a futures contract, they become obligated, in
return for the premium paid, to assume a position in the futures contract at a
specified exercise price at any time during the term of the option. If the Funds
write a call, they assume a short futures position. If they write a put, they
assume a long futures position. When the Funds purchase an option on a futures
contract, they acquire the right in return for the premium they pay to assume a
position in a futures contract (a long position if the option is a call and a
short position if the option is a put).
Whether
the Funds realize a gain or loss from futures activities depends upon movements
in the underlying security or index. The extent of a Fund’s loss from an
unhedged short position in futures contracts or from writing unhedged call
options on futures contracts is potentially unlimited. The Funds only purchase
and sell futures contracts and options on futures contracts that are traded on a
U.S. exchange or board of trade.
No
price is paid upon entering into a futures contract. Instead, at the inception
of a futures contract the Funds are required to deposit “initial margin” in an
amount generally equal to 10% or less of the contract value. Margin also must be
deposited when writing a call or put option on a futures contract, in accordance
with applicable exchange rules. Unlike margin in securities transactions,
initial margin does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Funds at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Funds may be required by an exchange to increase the level of their initial
margin payment, and initial margin requirements might be increased generally in
the future by regulatory action.
Subsequent
“variation margin” payments are made to and from the futures commission merchant
daily as the value of the futures position varies, a process known as
“marking-to-market.” Variation margin does not involve borrowing, but rather
represents a daily settlement of the Funds’ obligations to or from a futures
commission merchant. When the Funds purchase an option on a futures contract,
the premium paid plus transaction costs is all that is at risk. In contrast,
when the Funds purchase or sell a futures contract or write a call or put option
thereon, they are subject to daily variation margin calls that could be
substantial in the event of adverse price movements. If the Funds have
insufficient cash to meet daily variation margin requirements, they might need
to sell securities at a time when such sales are disadvantageous.
Purchasers
and sellers of futures contracts and options on futures can enter into
offsetting closing transactions, similar to closing transactions in options, by
selling or purchasing, respectively, an instrument identical to the instrument
purchased or sold. Positions in futures and options on futures contracts may be
closed only on an exchange or board of trade that provides a secondary market.
However, there can be no assurance that a liquid secondary market will exist for
a particular contract at a particular time. In such event, it may not be
possible to close a futures contract or options position.
Under
certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a futures contract or an option on a futures contract
can vary from the previous day’s settlement price. Once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If
the Funds were unable to liquidate a futures contract or an option on a futures
position due to the absence of a liquid secondary market or the imposition of
price limits, they could incur substantial losses. The Funds would continue to
be subject to market risk with respect to the position. In addition, except in
the case of purchased options, the Funds would continue to be required to make
daily variation margin payments and might be required to maintain cash or liquid
assets in an account.
Risks
of Futures Contracts and Options Thereon.
The ordinary spreads between prices in the cash and futures markets (including
the options on futures markets), due to differences in the natures of those
markets, are subject to the following factors, which may create distortions.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationships between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
Combined
Positions.
A Fund may purchase and write options in combination with each other. For
example, a Fund may purchase a put option and write a call option on the same
underlying instrument in order to construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
Warrants
and Rights
The
Funds may purchase warrants and rights, which are instruments that permit the
Funds to acquire, by subscription, the capital stock of a corporation at a set
price, regardless of the market price for such stock. Warrants may be either
perpetual or of limited duration, but they usually do not have voting rights or
pay dividends. The market price of warrants is usually significantly less than
the current price of the underlying stock. Thus, there is a greater risk that
warrants might drop in value at a faster rate than the underlying
stock.
U.S.
Government Obligations
The
Funds may invest in U.S. Government obligations. U.S. Government obligations
include securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. U.S. Treasury obligations differ
mainly in the length of their maturity. Treasury bills, the most frequently
issued marketable government securities, have a maturity of up to one year and
are issued on a discount basis. U.S. Government obligations also include
securities issued or guaranteed by federal agencies or instrumentalities,
including government-sponsored enterprises.
Payment
of principal and interest on U.S. Government obligations may be backed by the
full faith and credit of the United States or may be backed solely by the
issuing or guaranteeing agency or instrumentality itself. In the latter case,
the investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government would provide financial support to its agencies or instrumentalities
(including government-sponsored enterprises) where it is not obligated to do so.
See “Agency Obligations,” below. In addition, U.S. Government obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
Agency
Obligations
The
Funds may invest in agency obligations, such as the Export-Import Bank of the
United States, Tennessee Valley Authority, Resolution Funding Corporation,
Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate
Credit Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Government National Mortgage Association, commonly known as
“Ginnie Mae,” Federal National Mortgage Association (“FNMA”), commonly known as
“Fannie Mae,” Federal Home Loan Mortgage Corporation (“FHLMC”), commonly known
as “Freddie Mac,” and the Student Loan Marketing Association (“SLMA”). Some,
such as those of the Export-Import Bank of United States, are supported only by
the right of the issuer to borrow from the Treasury; others, such as those of
the FNMA and FHLMC, are supported by only the discretionary authority of the
U.S. government to purchase the agency’s obligations; still others, such as
those of the SLMA, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. government would provide financial support
to U.S. government-sponsored instrumentalities because they are not obligated by
law to do so. As a result, there is a risk that these entities will default on a
financial obligation. For instance, in September 2008, at the direction of the
U.S. Treasury, FNMA and FHLMC were placed into conservatorship under the Federal
Housing Finance Agency, an independent regulator. Although the conservatorship
remains ongoing, if the conservatorship is terminated, the investments of
holders of mortgage-backed securities and other obligations issued by FNMA and
FHLMC will no longer have the protection of the U.S. Treasury.
When-Issued
Securities
When-issued
securities transactions involve a commitment by the Funds to purchase or sell
particular securities with payment and delivery taking place at a future date,
and permit the Funds to lock in a price or yield on a security they own or
intend to purchase, regardless of future changes in interest rates or market
action. No income accrues to the purchaser of a security on a when-issued basis
prior to delivery. Such securities are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed-upon purchase price,
in which case
there
could be an unrealized loss at the time of delivery. The Funds will only make
commitments to purchase securities on a when-issued basis with the intention of
actually acquiring the securities, but may sell them before the settlement date
if it is deemed advisable. The Funds will establish in a segregated account, or
earmark as segregated on the books of the Custodian, an amount of liquid assets
equal to 102% of the amount of their commitment to purchase securities on a
when-issued basis. These assets will be marked-to-market daily, and the Funds
will increase the aggregate value of the assets, as necessary, to ensure that
the assets are at least equal to 102% of the amount of the Funds’
commitments.
Exchange-Traded
Notes
The
Funds may also invest in shares of exchange-traded notes (“ETNs”). An ETN is a
type of unsecured, unsubordinated debt security that differs from other types of
bonds and notes because ETN returns are typically based upon the performance of
a market index. ETNs are publicly traded on a U.S. securities exchange. An ETN
incurs certain expenses not incurred by its applicable index, and an investment
in an ETN will bear its proportionate share of any fees and expenses borne by
the ETN. The market value of an ETN share may differ from its NAV; the share may
trade at a premium or discount to its NAV, which may be due to, among other
things, differences in the supply and demand in the market for the share.
Although an ETN is a debt security, it is unlike a typical bond, in that there
are no periodic interest payments and principal is not protected. ETNs are
subject to credit risk and the value of the ETN may drop due to a downgrade in
the issuer’s credit rating, despite the underlying market benchmark or strategy
remaining unchanged. Depending on the underlying investments of an ETN and/or
the structure of the Funds’ investment in such ETN, the ETN may or may not
derive qualifying income, as defined in Code Section 851(b)(2).
Initial
Public Offerings
The
Funds may invest in securities of companies in initial public offerings
(“IPOs”). Because IPO shares frequently are volatile in price, the Funds may
hold IPO shares for a very short period of time. This may increase the turnover
of the Funds’ portfolios and may lead to increased expenses to the Funds, such
as commissions and transaction costs. By selling IPO shares, the Funds may
realize taxable short-term capital gains that they will subsequently distribute
to shareholders as ordinary income. Investing in IPOs has added risks because
their shares are frequently volatile in price. As a result, their performance
can be more volatile and they face greater risk of business failure, which could
increase the volatility of a Fund’s portfolio.
Private
Placements and Restricted Securities
The
Funds may invest in restricted securities (securities with limited
transferability under the securities laws) acquired from the issuer in “private
placement” transactions. Private placement securities are not registered under
the Securities Act of 1933, as amended (the “Securities Act”), and are subject
to restrictions on resale. They are eligible for sale only to certain qualified
institutional buyers, like the Funds, and are not sold on a trading market or
exchange. While private placement securities offer attractive investment
opportunities otherwise not available on an open market, because such securities
are available to few buyers, they are often difficult both to sell and to value.
Certain of the Funds’ investments may be placed in smaller, less seasoned,
issuers that present a greater risk due to limited product lines and/or
financial resources. The issuer of privately placed securities may not be
subject to the disclosure and other investor protection requirements of a public
trade. Additionally, the Funds could obtain material non-public information from
the issuer of such securities that would restrict the Funds’ ability to conduct
portfolio transactions.
Privately
placed securities can usually only be resold to other qualified institutional
buyers, or in a private transaction, or to a limited number of purchasers, or in
limited quantities after they have been held for a specified period of time and
other conditions are met pursuant to an exemption from registration. The
Funds
may incur more cost in the disposition of such securities because of the time
and legal expense required to negotiate a private placement. Because of the
limited market, the Funds may find it difficult to sell the securities when they
find it advisable to do so and, to the extent such securities are sold in
private negotiations, they may be sold for less than the price for which they
were purchased or less than their fair market value.
Privately
placed securities cannot be resold to the public unless they have been
registered under the Securities Act or they are sold pursuant to an exemption,
such as Rule 144A. Although securities which may be resold only to “qualified
institutional buyers” in accordance with the provisions of Rule 144A under the
Securities Act are technically considered “restricted securities,” the Funds may
purchase Rule 144A securities without regard to the Funds’ limitation on
investments in illiquid investments set forth in the non-fundamental investment
restrictions described below, provided that a determination is made that such
securities are not illiquid investments. The Funds may also purchase certain
commercial paper issued in reliance on the exemption from registration in
Section 4(a)(2) of the Securities Act (“4(a)(2) Paper”). The Adviser will
determine the liquidity of Rule 144A securities and 4(a)(2) Paper. The liquidity
of Rule 144A securities and 4(a)(2) Paper will be monitored by the Adviser, and
if as a result of changed conditions it is determined that a Rule 144A security
or 4(a)(2) Paper is no longer liquid, the Funds’ holdings of illiquid
investments will be reviewed to determine what, if any, action is required to
assure that the Funds do not exceed their applicable percentage limitation for
investments in illiquid investments.
Temporary
Strategies; Cash or Similar Investments
For
temporary defensive purposes, the Adviser may invest up to 100% of a Fund’s
total assets in high-quality, short-term debt securities and money market
instruments. These short-term debt securities and money market instruments
include shares of other mutual funds, commercial paper, certificates of deposit,
bankers’ acceptances, U.S. Government securities and repurchase agreements.
Taking a temporary defensive position may result in a Fund not achieving its
investment objective.
For
longer periods of time, a Fund may hold a substantial cash position. If the
market advances during periods when a Fund is holding a large cash position, the
Fund may not participate to the extent it would have if the Fund had been more
fully invested, and this may result in the Fund not achieving its investment
objective during that period.
The
Funds may invest in any of the following securities and
instruments:
Money
Market Mutual Funds.
The Funds may invest in money market mutual funds in connection with their
management of daily cash positions, to maintain liquidity in order to satisfy
redemption requests, pay unanticipated expenses, or as a temporary defensive
measure. To the extent that a Fund uses a money market fund for its cash
position, there will be some duplication of expenses because the Fund would bear
its pro rata portion of such money market fund’s advisory fees and operational
expenses. Generally, money market mutual funds seek to earn income consistent
with the preservation of capital and maintenance of liquidity. They primarily
invest in high quality money market obligations, including securities issued or
guaranteed by the U.S. Government or its agencies and instrumentalities, bank
obligations and high-grade corporate instruments. These investments generally
mature within 397 days from the date of purchase. An investment in a money
market mutual fund is not a bank deposit and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any government agency.
Your
cost of investing in the Funds will generally be higher than the cost of
investing directly in the underlying money market mutual fund shares. You will
indirectly bear fees and expenses charged by the underlying money market mutual
funds in addition to the Funds’ direct fees and expenses. Furthermore,
the
use of this strategy could affect the timing, amount and character of
distributions to you and therefore may increase the amount of taxes payable by
you.
Bank
Certificates of Deposit, Bankers’ Acceptances and Time Deposits.
The Funds may acquire certificates of deposit, bankers’ acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
monies deposited in a commercial bank for a definite period of time and earning
a specified return. Bankers’ acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are “accepted” by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers’ acceptances acquired by the Funds will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and
foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully
insured by the U.S. Government.
Domestic
banks and foreign banks are subject to different governmental regulations with
respect to the amount and types of loans that may be made and interest rates
that may be charged. In addition, the profitability of the banking industry
depends largely upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operations of
the banking industry.
As
a result of federal and state laws and regulations, domestic banks are, among
other things, required to maintain specified levels of reserves, limited in the
amount which they can loan to a single borrower and subject to other regulations
designed to promote financial soundness. However, such laws and regulations do
not necessarily apply to foreign bank obligations that the Funds may
acquire.
In
addition to purchasing certificates of deposit and bankers’ acceptances, to the
extent permitted under the investment objectives and policies stated above and
in the Prospectus, the Funds may make interest-bearing time or other
interest-bearing deposits in commercial or savings banks. Time deposits are
non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
Savings
Association Obligations.
The Funds may invest in certificates of deposit (interest-bearing time deposits)
issued by savings banks or savings and loan associations that have capital,
surplus and undivided profits in excess of $100 million, based on latest
published reports, or less than $100 million if the principal amount of
such obligations is fully insured by the U.S. Government.
Commercial
Paper, Short-Term Notes and Other Corporate Obligations.
The Funds may invest a portion of their assets in commercial paper and
short-term notes. Commercial paper consists of unsecured promissory notes issued
by corporations. Issues of commercial paper and short-term notes will
normally have maturities of less than nine months and fixed rates of return,
although such instruments may have maturities of up to one year.
Commercial
paper and short-term notes will consist of issues rated at the time of purchase
“A‑2” or higher by Standard & Poor’s Rating Services (“S&P”), “Prime-1”
or “Prime-2” by Moody’s Investor Services, Inc. (“Moody’s”), or similarly rated
by another nationally recognized statistical rating organization or, if unrated,
will be determined by the Adviser to be of comparable quality.
Corporate
obligations include bonds and notes issued by corporations to finance
longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, the Funds may
purchase corporate obligations which have remaining maturities of one year or
less from the date of purchase and which are rated “A” or higher by S&P or
“A” or higher by Moody’s.
Securities
Lending
Each
Fund may lend securities from its portfolio to brokers, dealers and financial
institutions (but not individuals) in order to increase the return on its
portfolio. The value of the loaned securities may not exceed one-third of a
Fund’s total net assets and loans of portfolio securities are fully
collateralized based on values that are marked-to-market daily. The Funds will
not enter into any portfolio security lending arrangement having a duration of
longer than one year. The principal risk of portfolio lending is potential
default or insolvency of the borrower. In either of these cases, a Fund could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. The Funds may pay reasonable
administrative and custodial fees in connection with loans of portfolio
securities and may pay a portion of the interest or fee earned thereon to the
borrower or a placing broker. For loans secured by cash, the Funds retain the
interest earned on cash collateral, but the Funds are required to pay the
borrower a rebate for the use of the cash collateral.
In
determining whether or not to lend a security to a particular broker, dealer or
financial institution, the Adviser considers all relevant facts and
circumstances, including the size, creditworthiness and reputation of the
broker, dealer or financial institution. 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 a
Fund’s investment portfolio at the time of the loan and, in the event of a
default by the borrower, a Fund will, if permitted by law, dispose of such
collateral except for such part thereof that is a security in which a Fund is
permitted to invest. During the time securities are on loan, the borrower will
pay the Funds any accrued income on those securities, and the Funds may invest
the cash collateral and earn income or receive an agreed-upon fee from a
borrower that has delivered cash collateral. The Funds will be responsible for
the risks associated with the investment of the cash collateral, including the
risk that the Funds may lose money on the investment or may fail to earn
sufficient income to meet their obligation to the borrower. Any fee income
received from a borrower in lieu of a dividend payment on a borrowed security
will not constitute “qualified dividend” income for federal income tax purposes,
which is generally taxed at the same rates as long-term capital gains for
federal income tax purposes. While the Funds do not have the right to vote
securities on loan, they would terminate the loan and regain the right to vote
if that were considered important with respect to the investment.
Repurchase
Agreements
The
Funds may enter into repurchase agreements. Under such agreements, the seller of
the security agrees to repurchase it at a mutually agreed upon time and price.
The repurchase price may be higher than the purchase price, the difference being
income to the Funds, or the purchase and repurchase prices may be the same, with
interest at a stated rate due to the Funds together with the repurchase price on
repurchase. In either case, the income to the Funds is unrelated to the interest
rate on the security itself. Such repurchase agreements will be made only with
banks with assets of $500 million or more that are insured by the Federal
Deposit Insurance Corporation or with Government securities dealers recognized
by the Federal Reserve Board and registered as broker‑dealers with the SEC or
exempt from such registration. The Funds will generally enter into repurchase
agreements of short durations, from overnight to one week, although the
underlying securities generally have longer maturities. The Funds may not enter
into a repurchase agreement with more than seven days to maturity if, as a
result, more than 5% of the value of a Fund’s net assets would be invested in
illiquid investments including such repurchase agreements.
For
purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from a
Fund to the seller of the U.S. Government security that is subject to the
repurchase agreement. It is not clear whether a court would consider the U.S.
Government security acquired by a Fund subject to a repurchase agreement as
being owned by a Fund or as being collateral for a loan by a Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the U.S. Government security before its repurchase
under a repurchase agreement, a Fund could encounter delays and incur costs
before being able to sell the security. Delays may involve loss of interest or a
decline in price of the U.S. Government security. If a court characterizes the
transaction as a loan and a Fund has not perfected a security interest in the
U.S. Government security, a Fund may be required to return the security to the
seller’s estate and be treated as an unsecured creditor of the seller. As an
unsecured creditor, a Fund would be at the risk of losing some or all of the
principal and income involved in the transaction. As with any unsecured debt
instrument purchased for the Funds, the Adviser seeks to minimize the risk of
loss through repurchase agreements by analyzing the creditworthiness of the
other party, in this case the seller of the U.S. Government
security.
Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security. However, a Fund will always
receive as collateral for any repurchase agreement to which it is a party
securities acceptable to the Adviser, the market value of which is equal to at
least 100% of the amount invested by a Fund plus accrued interest, and a Fund
will make payment against such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the market
value of the U.S. Government security subject to the repurchase agreement
becomes less than the repurchase price (including interest), a Fund will direct
the seller of the U.S. Government security to deliver additional securities so
that the market value of all securities subject to the repurchase agreement will
equal or exceed the repurchase price. It is possible that a Fund could be
unsuccessful in seeking to enforce on the seller a contractual obligation to
deliver additional securities.
Reverse
Repurchase Agreements
The
Funds may borrow by entering into reverse repurchase agreements with the same
parties with whom they may enter into repurchase agreements. Under a reverse
repurchase agreement, a Fund sells securities and agrees to repurchase them at a
mutually agreed to price. At the time a Fund enters into a reverse repurchase
agreement, it will establish and maintain a segregated account with an approved
custodian containing liquid high-grade securities, marked-to-market daily,
having a value not less than the repurchase price (including accrued interest).
Reverse repurchase agreements involve the risk that the market value of
securities retained in lieu of sale by a Fund may decline below the price of the
securities a Fund has sold but is obliged to repurchase. If the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, such buyer or its trustee or receiver may receive an extension of
time to determine whether to enforce a Fund’s obligation to repurchase the
securities. During that time, a Fund’s use of the proceeds of the reverse
repurchase agreement effectively may be restricted. Reverse repurchase
agreements create leverage, a speculative factor, and are considered borrowings
for the purpose of a Fund’s limitation on borrowing.
Illiquid
Investments
Historically,
illiquid investments have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act, securities which are otherwise not readily marketable, and
securities such as repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the Securities Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. In recent years, however, a
large institutional market has developed for certain securities that are not
registered under the Securities Act including repurchase agreements, commercial
paper, foreign
securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer’s ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments. Such securities may not be deemed illiquid investments
notwithstanding their legal or contractual restrictions on resale. In all other
cases, however, securities subject to restrictions on resale will be deemed
illiquid.
The
term “illiquid security” is defined as a security which 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 security. Factors considered in determining whether a
security is illiquid may include, but are not limited to: the frequency of
trades and quotes for the security; the number of dealers willing to purchase
and sell the security and the number of potential purchasers; the number of
dealers who undertake to make a market in the security; the nature of the
security, including whether it is registered or unregistered, and the market
place; whether the security has been rated by an NRSRO; the period of time
remaining until the maturity of a debt instrument or until the principal amount
of a demand instrument can be recovered through demand; the nature of any
restrictions on resale; and with respect to municipal lease obligations and
certificates of participation, there is reasonable assurance that the obligation
will remain liquid throughout the time the obligation is held and, if unrated,
an analysis similar to that which would be performed by an NRSRO is performed. A
Fund will not invest more than 15% of the value of its net assets, taken at the
time of investment, in illiquid investments, including repurchase agreements
providing for settlement in more than seven days after notice, non-negotiable
fixed time deposits with maturities over seven days, OTC options and certain
restricted securities not determined to be liquid. Under the supervision of the
Board, the Adviser determines the liquidity of each Fund’s investments subject
to guidelines as set forth in the Trust’s and the Adviser’s liquidity risk
management program. Illiquid investments will generally be valued in such manner
as the Board in good faith deems appropriate to reflect their fair market
value.
Cybersecurity
With
the increasing use of the Internet and technology in connection with the Funds’
operations, the Funds are susceptible to greater operational and information
security risks through breaches in cyber-security. Cybersecurity breaches
include, without limitation, infection by computer viruses and unauthorized
access to the Funds’ systems through “hacking” or other means for the purpose of
misappropriating assets or sensitive information, corrupting data, or causing
operations to be disrupted. Cybersecurity breaches may also occur in a manner
that does not require gaining unauthorized access, such as denial-of-service
attacks or situations where authorized individuals intentionally or
unintentionally release confidential information stored on the Funds’ systems. A
cybersecurity breach may cause disruptions and impact the Funds’ business
operations, which could potentially result in financial losses, inability to
determine the Funds’ NAVs, violation of applicable law, regulatory penalties
and/or fines, compliance and other costs. The Funds and their shareholders could
be negatively impacted as a result. In addition, because the Funds work closely
with third-party service providers (e.g., custodians), indirect cybersecurity
breaches at such third-party service providers may subject Fund shareholders to
the same risks associated with direct cybersecurity breaches. Further, indirect
cyber-security breaches at an issuer of securities in which the Funds invest may
similarly negatively impact Fund shareholders because of a decrease in the value
of these securities. While the Funds have established risk management systems
designed to reduce the risks associated with cybersecurity breaches, there can
be no assurances that such measures will be successful particularly since the
Funds do not control the cybersecurity systems of issuers or third-party service
providers.
Investment
Restrictions
Fundamental
Investment Restrictions
The
Trust (on behalf of the Funds) 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
applicable Fund, as defined under the 1940 Act. Under the 1940 Act, the “vote of
the holders of a majority of the outstanding voting securities” means the vote
of the holders of the lesser of (i) 67% of the shares of a Fund represented
at a meeting at which the holders of more than 50% of its outstanding shares are
represented; or (ii) more than 50% of the outstanding shares of a
Fund.
Each
Fund may not:
1.issue
senior securities, borrow money or pledge its assets, except that (i) a
Fund may borrow from banks in amounts not exceeding one-third of its total
assets (including the amount borrowed); and (ii) this restriction shall not
prohibit a Fund from engaging in options transactions or short sales in
accordance with its objectives and strategies;
2.underwrite
the securities of other issuers (except that a Fund may engage in transactions
involving the acquisition, disposition or resale of its portfolio securities
under circumstances where it may be considered to be an underwriter under the
Securities Act);
3.purchase
or sell real estate or interests in real estate, unless acquired as a result of
ownership of securities (although a Fund may purchase and sell securities which
are secured by real estate and securities of companies that invest or deal in
real estate);
4.purchase
or sell commodities or commodities contracts, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent a Fund from engaging in transactions involving currencies and
futures contracts and options thereon or investing in securities or other
instruments that are secured by commodities;
5.make
loans of money (except for the lending of their portfolio securities and
purchases of debt securities consistent with the investment policies of the
applicable Fund);
6.with
respect to 75% of its total assets, purchase the securities of any one issuer
if, immediately after and as a result of such purchase, (a) the value of the
Fund’s holdings in the securities of such issuer exceeds 5% of the value of the
Fund’s total assets, or (b) the Fund owns more than 10% of the outstanding
voting securities of the issuer (with the exception that this restriction does
not apply to the Funds’ investments in the securities of the U.S. Government, or
its agencies or instrumentalities, or other investment companies);
or
7.invest
in the securities of any one industry if, as a result, 25% or more of the Fund’s
total assets would be invested in the securities of such industry, except that
the foregoing does not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Non-Fundamental
Investment Restrictions
The
following lists the non-fundamental investment restrictions applicable to the
Funds. These restrictions can be changed by the Board of Trustees, but the
change will only be effective after prior written notice is given to
shareholders of the applicable Fund.
Each
Fund may not:
1.Invest
more than 15% of the value of its net assets, computed at the time of
investment, in illiquid investments(1);
or
2.make
any change in its investment policy of investing at least 80% of net assets in
investments suggested by the Fund’s name without first changing the Fund’s name
and providing shareholders with at least 60 days’ prior written
notice.
(1)
The term “illiquid investment” is defined as a security
which 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 security.
Management
of the Funds
Board
of Trustees
The
management and affairs of the Funds are supervised by the Board of Trustees. The
Board of Trustees consists of seven individual Trustees (each, a “Trustee,” and
collectively, the “Trustees”). The Trustees are fiduciaries for the Funds’
shareholders and are governed by the laws of the State of Delaware in this
regard. The Board of Trustees establishes policies for the operation of the
Funds and appoints the officers who conduct the daily business of the
Funds.
Trustees
and Officers
The
Trustees and the officers of the Trust are listed below with their addresses,
present positions with the Trust and principal occupations over at least the
last five years.
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Name,
Address and Year of Birth |
Position(s)
Held with the Trust |
Term
of Office and Year Service Began |
Number
of Portfolios in the Trust Overseen by Trustee |
Principal
Occupation(s) During the Past Five Years |
Other
Directorships Held by Trustee During the Past Five Years |
Independent
Trustees |
Michael
D. Akers, Ph.D. 615 E. Michigan St. Milwaukee, WI 53202 Year of
Birth: 1955 |
Trustee |
Indefinite
Term; Since August 22, 2001 |
29 |
Professor
Emeritus, Department of Accounting (June 2019-present), Professor,
Department of Accounting (2004-2019), Marquette University.
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Independent
Trustee, USA MUTUALS (an open-end investment company)
(2001-2021).
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Gary
A. Drska 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1956 |
Trustee |
Indefinite
Term; Since August 22, 2001 |
29 |
Retired;
Former Pilot, Frontier/Midwest Airlines, Inc. (airline company)
(1986-2021).
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Independent
Trustee, USA MUTUALS (an open-end investment company)
(2001-2021).
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Name,
Address and Year of Birth |
Position(s)
Held with the Trust |
Term
of Office and Year Service Began |
Number
of Portfolios in the Trust Overseen by Trustee |
Principal
Occupation(s) During the Past Five Years |
Other
Directorships Held by Trustee During the Past Five Years |
Vincent
P. Lyles 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1961 |
Trustee |
Indefinite
Term; Since April 6, 2022 |
29 |
Executive
Director, Milwaukee Succeeds (education advocacy organization)
(2023-present); System Vice President of Community Relations, Advocate
Aurora Health Care (health care provider) (2019-2022).
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Independent
Director, BMO Funds, Inc. (an open-end investment company)
(2017-2022). |
Erik
K. Olstein 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1967 |
Trustee
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Indefinite
Term; Since April 6, 2022 |
29 |
Retired;
President and Chief Operating Officer, Olstein Capital Management, L.P.
(asset management firm) (2000-2020).
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N/A |
Lisa
Zúñiga Ramírez 615 E. Michigan St. Milwaukee, WI 53202 Year of
Birth: 1969 |
Trustee
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Indefinite
Term; Since April 6, 2022 |
29 |
Retired;
Principal and Senior Portfolio Manager, Segall, Bryant & Hamill, LLC
(asset management firm) (2018-2020).
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Director,
Peoples Financial Services Corp. (a publicly-traded bank holding company)
(2022-present); Director, Century Communities, Inc. (a publicly-traded
homebuilding company) (2023-present).
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Name,
Address and Year of Birth |
Position(s)
Held with the Trust |
Term
of Office and Year Service Began |
Number
of Portfolios in the Trust Overseen by Trustee |
Principal
Occupation(s) During the Past Five Years |
Other
Directorships Held by Trustee During the Past Five Years |
Gregory
M. Wesley 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1969 |
Trustee
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Indefinite
Term; Since April 6, 2022 |
29 |
Senior
Vice President of Strategic Alliances and Business Development, Medical
College of Wisconsin (2016-present).
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N/A |
Interested
Trustee and Officers |
John
P. Buckel* 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1957 |
Chairperson,
Trustee, President and Principal Executive Officer
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Indefinite
Term; Chairperson and Trustee (since January 19, 2023); President and
Principal Executive Officer (since January 24, 2013)
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29 |
Vice
President, U.S. Bancorp Fund Services, LLC (2004-present).
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N/A |
Jennifer
A. Lima 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1974 |
Vice
President, Treasurer and Principal Financial and Accounting
Officer
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Indefinite
Term; Since January 24, 2013 |
N/A |
Vice
President, U.S. Bancorp Fund Services, LLC (2002-present). |
N/A |
Deanna
B. Marotz 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1965 |
Chief
Compliance Officer, Vice President and Anti-Money Laundering
Officer |
Indefinite
Term; Since October 21, 2021 |
N/A |
Senior
Vice President, U.S. Bancorp Fund Services, LLC (2021-present); Chief
Compliance Officer, Keeley-Teton Advisors, LLC and Teton Advisors, Inc
(2017-2021).
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N/A |
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Name,
Address and Year of Birth |
Position(s)
Held with the Trust |
Term
of Office and Year Service Began |
Number
of Portfolios in the Trust Overseen by Trustee |
Principal
Occupation(s) During the Past Five Years |
Other
Directorships Held by Trustee During the Past Five Years |
Jay
S. Fitton 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1970 |
Secretary |
Indefinite
Term; Since July 22, 2019 |
N/A |
Vice
President, U.S. Bancorp Fund Services, LLC (2019-present); Partner,
Practus, LLP (2018-2019).
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N/A |
Kelly
A. Strauss 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1987
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Assistant
Treasurer |
Indefinite
Term; Since April 23, 2015 |
N/A |
Assistant
Vice President, U.S. Bancorp Fund Services, LLC
(2011-present).
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N/A |
Laura
A. Carroll 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1985
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Assistant
Treasurer |
Indefinite
Term; Since August 20, 2018 |
N/A |
Assistant
Vice President, U.S. Bancorp Fund Services, LLC
(2007-present).
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N/A |
Shannon
L. Coyle 615 E. Michigan St. Milwaukee, WI 53202 Year of Birth:
1990
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Assistant
Treasurer |
Indefinite
Term; Since August 26, 2022 |
N/A |
Officer,
U.S. Bancorp Fund Services, LLC (2015-present). |
N/A |
Marissa
J. Pawlinski 615 E. Michigan St. Milwaukee, WI 53202 Year of
Birth: 1996 |
Assistant
Secretary |
Indefinite
Term; Since January 18, 2024 |
N/A |
Assistant
Vice President, U.S. Bancorp Fund Services, LLC (since 2023); Regulatory
Administration Attorney, U.S. Bancorp Fund Services, LLC (since 2022);
Judicial Law Clerk, Milwaukee County Circuit Court (2021-2022); Legal
Intern, City of Brookfield (2020-2021); Student, Marquette University Law
School (2019-2021). |
N/A |
*Mr.
Buckel is deemed to be an “interested person” of the Trust as defined by the
1940 Act due to his position and material business relationship with the
Trust.
Role
of the Board
The
Board of Trustees provides oversight of the management and operations of the
Trust. Like all funds, the day-to-day responsibility for the management and
operation of the Trust is the responsibility of various service providers to the
Trust and its individual series, such as the Adviser, Distributor (defined
below), Custodian, and the Funds’ administrator and transfer agent, each of
which are discussed in greater detail in this SAI. The Board approves all
significant agreements with the Adviser, Distributor, Custodian, and the Funds’
administrator and transfer agent. The Board has appointed various individuals of
certain of these service providers as officers of the Trust, with responsibility
to monitor and report to the Board on the Trust’s day-to-day operations. In
conducting this oversight, the Board receives regular reports from these
officers and service providers regarding the Trust’s operations. The Board has
appointed a Chief Compliance Officer (“CCO”) who reports directly to the Board
and who administers the Trust’s compliance program and regularly reports to the
Board as to compliance matters, including an annual compliance review. Some of
these reports are provided as part of formal Board meetings, which are generally
held five times per year, and at such other times as the Board determines is
necessary, and involve the Board’s review of recent Trust operations. From time
to time, one or more members of the Board may also meet with Trust officers in
less formal settings, between formal Board meetings, to discuss various topics.
In all cases, however, the role of the Board and of any individual Trustee is
one of oversight and not of management of the day-to-day affairs of the Trust
and its oversight role does not make the Board a guarantor of the Trust’s
investments, operations or activities.
Board
Leadership Structure
The
Board has structured itself in a manner that it believes allows it to perform
its oversight function effectively. The Board is composed of six Independent
Trustees – Dr. Michael D. Akers, Gary A. Drska, Vincent P. Lyles, Erik K.
Olstein, Lisa Zúñiga Ramírez and Gregory M. Wesley – and one Trustee who is an
“interested person” (as defined by the 1940 Act) of the Trust (the “Interested
Trustee”) – John P. Buckel. Accordingly, more than 85% of the members of the
Board are Independent Trustees, Trustees who are not affiliated with the Adviser
or its affiliates, or any other investment adviser or service provider to the
Trust or any underlying fund. The Board of Trustees has established two standing
committees, an Audit Committee and a Nominating Committee, which are discussed
in greater detail under “Board Committees” below. Each of the Audit Committee
and the Nominating Committee is composed entirely of Independent Trustees. The
Independent Trustees have engaged their own independent counsel to advise them
on matters relating to their responsibilities in connection with the
Trust.
The
Trust’s Chairperson, Mr. Buckel, is deemed to be an “interested person” of the
Trust, as defined by the 1940 Act, due to his position and material business
relationship with the Trust. Mr. Buckel also serves as a Vice President of U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services
(“Fund Services”), the Funds’ administrator. The Trust has not appointed a lead
Independent Trustee.
In
accordance with the fund governance standards prescribed under the 1940 Act, the
Independent Trustees on the Nominating Committee select and nominate all
candidates for Independent Trustee positions. Each Trustee was appointed to
serve on the Board of Trustees because of his or her experience, qualifications,
attributes and skills as set forth in the subsection “Trustee Qualifications”
below.
The
Board reviews its structure regularly in light of the characteristics and
circumstances of the Trust, including the unaffiliated nature of each investment
adviser and the funds managed by such adviser; the number of funds that comprise
the Trust; the variety of asset classes that those funds reflect; the net assets
of the Trust; the committee structure of the Trust; and the independent
distribution arrangements of each of the Trust’s underlying funds.
The
Board has determined that the function and composition of the Audit Committee
and the Nominating Committee are appropriate to address any potential conflicts
of interest that may arise from the Chairperson’s status as an Interested
Trustee. In addition, the inclusion of all Independent Trustees as members of
the Audit Committee and the Nominating Committee allows these Trustees to
participate in the full range of the Board’s oversight duties, including
oversight of risk management processes discussed below. Given the specific
characteristics and circumstances of the Trust as described above, the Trust has
determined that the Board’s leadership structure is appropriate.
Board
Oversight of Risk Management
As
part of its oversight function, the Board receives and reviews various risk
management reports and assessments and discusses these matters with appropriate
management and other personnel, including personnel of the Trust’s service
providers. Because risk management is a broad concept composed of many elements
(such as, for example, investment risk, issuer and counterparty risk, compliance
risk, operational risk, business continuity risk, etc.) the oversight of
different types of risks is handled in different ways. For example, the CCO
regularly reports to the Board during Board meetings and meets in executive
session with the Independent Trustees and their legal counsel to discuss
compliance and operational risks. In addition, the Independent Trustee
designated as the Audit Committee’s “audit committee financial expert” meets
with the Treasurer and the Funds’ independent registered public accounting firm
to discuss, among other things, the internal control structure of the Trust’s
financial reporting function. The full Board receives reports from the
investment advisers to the underlying funds and the portfolio managers as to
investment risks as well as other risks that may be discussed during Audit
Committee meetings.
Trustee
Qualifications
The
Board believes that each of the Trustees has the qualifications, experience,
attributes and skills appropriate to his or her continued service as a Trustee
of the Trust in light of the Trust’s business and structure. The Trustees have
substantial business and professional backgrounds that indicate they have the
ability to critically review, evaluate and assess information provided to them.
Certain of these business and professional experiences are set forth in detail
in the table above. In addition, the Trustees have substantial board experience
and, in their service to the Trust, have gained substantial insight as to the
operation of the Trust. The Board annually conducts a “self-assessment” wherein
the effectiveness of the Board and the individual Trustees is
reviewed.
In
addition to the information provided in the table above, below is certain
additional information concerning each individual Trustee. The information
provided below, and in the table above, is not all-inclusive. Many of the
Trustees’ qualifications to serve on the Board involve intangible elements, such
as intelligence, integrity, work ethic, the ability to work together, the
ability to communicate effectively, the ability to exercise judgment, the
ability to ask incisive questions, and commitment to shareholder interests. In
conducting its annual self-assessment, the Board has determined that the
Trustees have the appropriate attributes and experience to continue to serve
effectively as Trustees of the Trust.
Michael
D. Akers, Ph.D., CPA.
Dr. Akers has served as an Independent Trustee of the Trust since 2001. Dr.
Akers previously served as an independent trustee of USA Mutuals, an open-end
investment company, from 2001 to June 2021. Dr. Akers has been a Professor
Emeritus, Department of Accounting at Marquette University since June 2019, was
Professor, Department of Accounting at Marquette University from 2004 to May
2019, was Chair of the Department of Accounting at Marquette University from
2004 to 2017, and was Associate Professor, Department of Accounting at Marquette
University from 1996 to 2004. Dr. Akers is a certified public accountant, a
certified fraud examiner, a certified internal auditor and a certified
management accountant. Through his experience as an investment
company
trustee and his employment experience, Dr. Akers is experienced with financial,
accounting, regulatory and investment matters.
Gary
A. Drska.
Mr. Drska has served as an Independent Trustee of the Trust since 2001. Mr.
Drska previously served as an independent trustee of USA Mutuals from 2001 to
June 2021. Mr. Drska previously served as a Pilot of Frontier/Midwest Airlines,
Inc., an airline company, from 1986 to September 2021. Through his experience as
an investment company trustee, Mr. Drska is experienced with financial,
accounting, regulatory and investment matters.
Vincent
P. Lyles. Mr.
Lyles has served as an Independent Trustee of the Trust since 2022. Mr. Lyles
has served as Executive Director of Milwaukee Succeeds since January 2023. He
previously served as System Vice President of Community Relations at Advocate
Aurora Health Care from 2019 to 2022. He served as an Independent Director of
BMO Funds, Inc., an open-end investment company, from 2017 to 2022. Mr. Lyles is
a board member and finance committee member of Badger Mutual Insurance Company
and a Trustee and member of the Committee of Student Experience & Mission on
the Board of Trustees at Marquette University. Mr. Lyles previously served as
President and Chief Executive Officer of the Boys & Girls Club of Greater
Milwaukee from 2012 to 2018, President of M&I Community Development
Corporation from 2006 to 2011, and as a Director of Public Finance of Robert W.
Baird & Co. from 1995 to 2006. He received his Juris Doctor degree from the
University of Wisconsin-Madison Law School in 1987. Through his experience as an
investment company trustee and his employment experience, Mr. Lyles is
experienced with legal, financial, accounting, regulatory and investment
matters.
Erik
K. Olstein. Mr.
Olstein has served as an Independent Trustee of the Trust since 2022. Mr.
Olstein served as President and Chief Operating Officer from 2000 to 2020 and
Vice President of Sales and Chief Operating Officer from 1995 to 2000 at Olstein
Capital Management, L.P., an asset management firm he co-founded. During his
time at Olstein Capital Management, L.P., Mr. Olstein was responsible for
fiduciary oversight and management of The Olstein Funds, an open-end investment
company, where he served as Trustee, Secretary and Assistant Treasurer from 1995
to 2018. Mr. Olstein currently serves as President and Trustee of the Board of
Trustees of the Trinity-Pawling School and has previously held Board positions
with the American Friends of the National Museum of the Royal Navy, National
Maritime Historical Society and U.S. Naval Service Personal Education Assistance
Fund. Through his experience as an investment company trustee and his employment
experience, Mr. Olstein is experienced with financial, accounting, regulatory
and investment matters.
Lisa
Zúñiga Ramírez, CFA®,
FSA.
Ms. Ramírez has served as an Independent Trustee of the Trust since 2022. Ms.
Ramírez has served on the Board of Directors of Peoples Financial Services
Corp., a publicly-traded bank holding company, since 2022, and on the Board of
Directors of Century Communities, Inc., a publicly-traded homebuilding company,
since 2023. Ms. Ramírez served as Senior Portfolio Manager at Segall Bryant
& Hamill, LLC, an asset management firm, from 2018 to 2020. She served as
Partner and Senior Portfolio Manager from 2009 to 2018, Partner and Senior
Equity Analyst from 2002 to 2009 and Equity Analyst from 1997 to 2002 at Denver
Investments, LLC, an asset management firm that was acquired by Segall Bryant
& Hamill, LLC in 2018. Ms. Ramírez currently serves as an Independent
Director on the Bow River Capital Advisory Board, an asset management firm, and
is a Director of the Denver Employees Retirement Plan. In addition, she serves
on the boards of The Denver Foundation, NACD (National Association of Corporate
Directors) Colorado Chapter, the Boettcher Foundation and Vuela for Health. Ms.
Ramírez is a CFA®
charterholder (CFA®
is a registered trademark owned by the CFA Institute) and holds the Fundamentals
of Sustainability Accounting (FSA) credential from the Sustainability Accounting
Standards Board. Through her employment experience, Ms. Ramírez is
experienced
with financial, accounting, ESG (environmental, social and governance),
regulatory and investment matters.
Gregory
M. Wesley. Mr.
Wesley has served as an Independent Trustee of the Trust since 2022. Mr. Wesley
has served as Senior Vice President of Strategic Alliances and Business
Development at the Medical College of Wisconsin since 2016. Prior to his current
role at the Medical College of Wisconsin, he was a Partner at MWH Law Group LLP,
a law firm during 2016, and a Partner at Gonzalez, Saggio & Harlan LLP, a
law firm from 2002 to 2016. Mr. Wesley serves on the Board of Directors of the
Metropolitan Milwaukee Association of Commerce, MHS Health Wisconsin, Versiti,
Inc., and the Greater Milwaukee Committee. He also serves on the Board of
Trustees of the Johnson Foundation at Wingspread and the Greater Milwaukee
Foundation. He previously sat on the Board of Trustees of the Medical College of
Wisconsin from 2009 to 2016 and the Board of Directors of Park Bank Milwaukee
from 2015 to 2020. Mr. Wesley received his Juris Doctor degree from the
University of Wisconsin-Madison Law School in 1997. Through his sustained
employment and board experience, Mr. Wesley is experienced with legal,
financial, accounting, regulatory and investment matters.
John
P. Buckel. Mr.
Buckel has served as a Trustee of the Trust since 2023 and has served as
President of the Trust since 2013. Mr. Buckel has served as a Vice President of
Fund Services, a multi-line service provider to investment companies, since
2004. Through his experience as an investment company trustee and his employment
experience, Mr. Buckel is experienced with financial, accounting, regulatory and
investment matters.
Trustee
Ownership of Fund Shares
As
of December 31, 2023, the following Trustee beneficially owned shares of certain
series of the Trust as follows. No other Trustee or Officer of the Trust
beneficially owned shares of the Funds or any other series of the
Trust.
|
|
|
|
|
|
|
| |
Trustee |
Dollar
Range of Shares Owned in the Funds |
Aggregate
Dollar Range of Shares Owned of Series in the Trust |
Lisa
Zúñiga Ramírez |
None |
Over
$100,000 |
Furthermore,
as of December 31, 2023, neither the Independent Trustees nor members of their
immediate families, owned securities beneficially or of record in the Adviser,
the Distributor, or an affiliate of the Adviser or Distributor. Accordingly,
neither the Independent Trustees nor members of their immediate families, have a
direct or indirect interest, the value of which exceeds $120,000, in the
Adviser, the Distributor or any of their affiliates. In addition, during the two
most recently completed calendar years, neither the Independent Trustees nor
members of their immediate families had a direct or indirect interest, the value
of which exceeds $120,000 in (i) the Adviser, the Distributor or any of their
affiliates; (ii) any transaction or relationship in which such entity, the
Funds, the Trust, any officer of the Trust, the Adviser, the Distributor, or any
of their affiliates was a party; or (iii) any other relationship related to
payments for property or services to the Funds, the Trust, any officer of the
Trust, the Adviser, the Distributor, or any of their affiliates.
Board
Committees
Audit
Committee.
The Trust has an Audit Committee, which is composed of the Independent Trustees,
Dr. Michael D. Akers, Mr. Gary A. Drska, Mr. Vincent P. Lyles, Mr. Erik K.
Olstein, Ms. Lisa Zúñiga Ramírez and Mr. Gregory M. Wesley. The Audit Committee
reviews financial statements and other audit-related matters for the Funds. The
Audit Committee also holds discussions with management and
with
the Funds’ independent auditor concerning the scope of the audit and the
auditor’s independence. Dr. Akers is designated as the Audit Committee chairman
and serves as the Audit Committee’s “audit committee financial expert,” as
stated in the annual reports relating to the series of the Trust. During the
past fiscal year, the Audit Committee met two times with respect to the
Funds.
Nominating
Committee.
The Trust has a Nominating Committee, which is composed of the Independent
Trustees, Dr. Michael D. Akers, Mr. Gary A. Drska, Mr. Vincent P. Lyles, Mr.
Erik K. Olstein, Ms. Lisa Zúñiga Ramírez and Mr. Gregory M. Wesley. The
Nominating Committee is responsible for seeking and reviewing candidates for
consideration as nominees for the position of trustee and meets only as
necessary. As part of this process, the Nominating Committee considers criteria
for selecting candidates sufficient to identify a diverse group of qualified
individuals to serve as trustees.
The
Nominating Committee will consider nominees recommended by shareholders for
vacancies on the Board of Trustees. Recommendations for consideration 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’s Nominating Committee Charter. In general, to comply
with such procedures, such nominations, together with all required information,
must be delivered to and received by the President of the Trust at the principal
executive office of the Trust not later than 60 days prior to the shareholder
meeting at which any such nominee would be voted on. Shareholder recommendations
for nominations to the Board of Trustees will be accepted on an ongoing basis
and such recommendations will be kept on file for consideration when there is a
vacancy on the Board of Trustees. During the Funds’ past fiscal year, the
Nominating Committee met one time.
Trustee
Compensation
The
Independent Trustees receive
from the Trust an
annual retainer
of $100,000(1),
$4,500 for each regular Board meeting attended and $1,000 for each special Board
meeting attended, as well as reimbursement for expenses incurred in connection
with attendance at Board meetings. Members of the Audit Committee receive $2,000
for each meeting of the Audit Committee attended. The chairman of the Audit
Committee receives an annual retainer of $5,000. Interested Trustees do not
receive any compensation for their service as Trustees.
For the fiscal year ended February 29, 2024, the Trustees received the following
compensation from the Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name
of Person/Position |
Aggregate
Compensation From the |
Pension
or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Compensation from the Funds and the Trust(3)
Paid
to Trustees |
Mid
Cap Growth Fund(2) |
Quality
Large Cap Fund(2) |
Dr.
Michael D. Akers,
Independent
Trustee(4)(5) |
$4,493 |
$4,493 |
None |
None |
$113,250 |
Gary
A. Drska,
Independent
Trustee(4) |
$4,303 |
$4,303 |
None |
None |
$108,250 |
Vincent
P. Lyles
Independent
Trustee(4) |
$4,303 |
$4,303 |
None |
None |
$108,250 |
Erik
K. Olstein
Independent
Trustee(4) |
$4,303 |
$4,303 |
None |
None |
$108,250 |
Lisa
Zúñiga Ramírez
Independent
Trustee(4) |
$4,303 |
$4,303 |
None |
None |
$108,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name
of Person/Position |
Aggregate
Compensation From the |
Pension
or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Compensation from the Funds and the Trust(3)
Paid
to Trustees |
Mid
Cap Growth Fund(2) |
Quality
Large Cap Fund(2) |
Gregory
M. Wesley
Independent
Trustee(4) |
$4,303 |
$4,303 |
None |
None |
$108,250 |
John
P. Buckel Interested Trustee |
None |
None |
None |
None |
None |
(1) Prior
to January
1, 2024, the Independent
Trustees received an annual
retainer of
$65,000.
(2) Trustees’
fees and expenses are allocated among the Funds and any other series comprising
the Trust.
(3) There
are currently twenty-seven other series comprising the Trust.
(4) Audit
Committee member.
(5) Audit
Committee chairman.
Control
Persons and Principal Shareholders
A
principal shareholder is any person who owns of record or beneficially 5% or
more of the outstanding shares of a Fund. A control person is one who owns
beneficially or through controlled companies more than 25% of the voting
securities of a Fund or acknowledges the existence of control. Shareholders with
a controlling interest could affect the outcome of proxy voting or the direction
of the management of a Fund. As of May 31, 2024, to the best of the Trust’s
knowledge, no person was a control person of a Fund, and all Trustees and
officers as a group owned beneficially (as defined in Section 13(d) of the
Securities Exchange Act of 1934) less than 1% of shares of each Fund. As of May
31, 2024, the following shareholders are known by the Funds to own of record or
to beneficially own 5% or more of the outstanding shares of the
Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Principal
Shareholders – Mid Cap Growth Fund – Institutional Class |
Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
SEI
Private Trust Company FBO Rockland Trust Company 1 Freedom Valley
Drive Oaks, PA 19456-9989
|
SEI
Investments Management Corp |
PA |
84.60% |
Record |
LPL
Financial Omnibus Customer Account 4707 Executive Drive San
Diego, CA 92121-3091 |
LPL
Holdings, Inc. |
CA |
14.53% |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Principal
Shareholders – Quality Large Cap Fund – Institutional Class |
Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
SEI
Private Trust Company FBO Rockland Trust Company 1 Freedom Valley
Drive Oaks, PA 19456-9989
|
SEI
Investments Management Corp |
PA |
68.08% |
Record |
LPL
Financial Omnibus Customer Account 4707 Executive Drive San
Diego, CA 92121-3091 |
LPL
Holdings, Inc. |
CA |
30.91% |
Record |
Investment
Adviser
As
stated in the Prospectus, investment advisory services are provided to the Funds
by the Adviser, Bright Rock Capital Management, LLC, pursuant to an investment
advisory agreement (the “Advisory Agreement”) between the Adviser and the Trust,
on behalf of the Funds. The Adviser is a wholly-owned subsidiary of Rockland
Trust Company, a Massachusetts trust company regulated by the Commissioner of
Banks of the Commonwealth of Massachusetts. Rockland Trust Company is a
wholly-owned subsidiary of Independent Bank Corp., a publicly-traded company
(NASDAQ: INDB).
The
Advisory Agreement continues in effect from year to year with respect to the
Funds, only if such continuance is specifically approved at least annually by:
(i) the Board of Trustees or the vote of a majority of the Funds outstanding
voting securities; and (ii) the vote of a majority of the Trustees of the Trust
who are not parties to the Advisory Agreement nor interested persons thereof,
cast in person (or in another manner permitted by the 1940 Act or pursuant to
exemptive relief therefrom) 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 the Funds, upon 60 days’ written notice to the Adviser, when
authorized by either: (i) a majority vote of the outstanding voting securities
of a Fund; or (ii) by a vote of a majority of the Board of Trustees, or by the
Adviser upon 60 days’ written notice to the Trust. The Advisory Agreement will
automatically terminate in the event of its “assignment” (as defined in the 1940
Act). The Advisory Agreement provides that the Adviser under such agreement
shall not be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution of
portfolio transactions for the Funds, except for willful misfeasance, bad faith
or negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties thereunder.
In
consideration of the services provided by the Adviser pursuant to the Advisory
Agreement, the Adviser is entitled to receive from the Mid Cap Growth Fund and
the Quality Large Cap Fund, a management fee which is calculated daily and paid
monthly, based on a rate equal to 0.75% and 0.65%, respectively, of each Fund’s
average annual net assets, as specified in the Prospectus. However, the Adviser
may voluntarily agree to waive a portion of the management fees payable to it on
a month‑to‑month basis, including additional fees above and beyond any
contractual agreement the Adviser may have to waive management fees and/or
reimburse Fund expenses.
The
tables below set forth, for the fiscal years ended February 29, 2024 and
February 28, 2023 and 2022, the advisory fees accrued by the Funds under the
Advisory Agreement, the amount of the advisory fees waived or recouped by the
Adviser, and the total advisory fees paid by the Funds to the Adviser under the
Advisory Agreement:
|
|
|
|
|
|
|
|
|
|
| |
Mid
Cap Growth Fund |
Fiscal
Year Ended |
Advisory
Fee |
Recoupment
/ (Waiver) |
Advisory
Fee after Recoupment / (Waiver) |
February
29, 2024 |
$660,505 |
$0 |
$660,505 |
February
28, 2023 |
$669,729 |
$0 |
$669,729 |
February
28, 2022 |
$693,564 |
$0 |
$693,564 |
|
|
|
|
|
|
|
|
|
|
| |
Quality
Large Cap Fund |
Fiscal
Year Ended |
Advisory
Fee |
Recoupment
/ (Waiver) |
Advisory
Fee after Recoupment / (Waiver) |
February
29, 2024 |
$2,220,660 |
$0 |
$2,220,660 |
February
28, 2023 |
$2,007,500 |
$0 |
$2,007,500 |
February
28, 2022 |
$2,125,054 |
$0 |
$2,125,054 |
Fund
Expenses.
Each Fund is responsible for its own operating expenses. The Adviser has agreed
to waive management fees payable to it by the Funds and/or to reimburse each
Fund’s operating expenses to the extent necessary to limit the Funds’ aggregate
annual operating expenses (exclusive of any front-end or contingent deferred
loads, Rule 12b-1 fees, shareholder servicing plan fees, taxes, leverage
expenses (i.e.,
any expenses incurred in connection with borrowings made by the Funds), interest
(including interest incurred in connection with bank and custody overdrafts),
brokerage commissions, expenses incurred in connection with any merger or
reorganization, dividends or interest expenses on short positions, acquired fund
fees and expenses or extraordinary expenses (such as litigation) to the limit
set forth in the Funds’ Prospectus. The Adviser may request recoupment of
previously waived fees and paid expenses from the Funds for three years from the
date such fees and expenses were waived or paid, subject to the operating
expense limitation agreement, if such reimbursements will not cause a Fund’s
expense ratio, after recoupment has been taken into account, to exceed the
lesser of: (1) the expense limitation in place at the time of the waiver and/or
expense payment; or (2) the expense limitation in place at the time of the
recoupment. Any such recoupment is also contingent upon the Board of Trustees’
subsequent review and ratification of the reimbursed amounts.
Portfolio
Managers
As
disclosed in the Prospectus, Douglas S. Butler and David B. Smith are the
portfolio managers for the Mid Cap Growth Fund and the Quality Large Cap Fund
(collectively, the “Portfolio Managers”).
Other
Accounts Managed by the Portfolio Managers
The
following provides information regarding other accounts managed by the Portfolio
Managers as of February 29, 2024:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Category
of Account |
Total
Number of Accounts Managed |
Total
Assets in Accounts Managed |
Number
of Accounts for which Advisory Fee is Based on Performance |
Assets
in Accounts for which Advisory Fee is Based on Performance |
|
|
|
| |
Douglas
S. Butler |
|
|
| |
Other
Registered Investment Companies |
0 |
$0 |
0 |
$0 |
Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
Other
Accounts |
434 |
$142,729,153 |
0 |
$0 |
|
|
|
| |
David
B. Smith |
|
|
| |
Other
Registered Investment Companies |
0 |
$0 |
0 |
$0 |
Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
Other
Accounts |
294 |
$500,244,886 |
0 |
$0 |
Material
Conflicts of Interest
The
Portfolio Managers’ management of “other accounts” may give rise to potential
conflicts of interest in connection with the management of the Funds’
investments, on the one hand, and the investments of the other accounts, on the
other. The other accounts may have the same investment objective as a Fund.
Therefore, a potential conflict of interest may arise as a result of the
identical investment objectives, whereby the Portfolio Managers could favor one
account over another. Another potential conflict could include the Portfolio
Managers’ knowledge about the size, timing and possible market impact of Fund
trades, whereby the Portfolio Managers could use this information to the
advantage of other accounts and to the disadvantage of the Funds. However, the
Adviser has established policies and procedures to ensure that the purchase and
sale of securities among all accounts it manages are fairly and equitably
allocated.
Portfolio
Manager Compensation
The
following is a description of the structure of, and method used to determine,
the compensation received by the Funds’ portfolio managers or management team
members from the Funds, the Adviser, or any other source with respect to
managing the Funds and any other accounts, as of February 29, 2024.
The
Adviser compensates the Portfolio Managers for their management of the Funds.
Each Portfolio Manager receives a salary and a discretionary cash incentive
based on product investment performance and financial success.
Ownership
of Securities in the Funds by the Portfolio Managers
As
of February 29, 2024, the Portfolio Managers beneficially owned shares of the
Funds as follows:
|
|
|
|
|
|
|
| |
Dollar
Range of Equity Securities in the Funds |
Name
of Portfolio Manager |
Mid
Cap Growth Fund |
Quality
Large Cap Fund |
Douglas
S. Butler |
$10,001
- $50,000 |
$100,001
- $500,000 |
David
B. Smith |
$10,001
- $50,000 |
$100,001
- $500,000 |
Service
Providers
Fund
Administrator, Transfer Agent and Fund Accountant
Pursuant
to a fund administration and servicing agreement (the “Administration
Agreement”) between the Trust and Fund Services, 615 East Michigan Street,
Milwaukee, Wisconsin 53202, Fund Services acts as the Funds’ administrator. Fund
Services provides certain administrative services to the Funds, including, among
other responsibilities, coordinating the negotiation of contracts and fees with,
and the monitoring of performance and billing of, the Funds’ independent
contractors and agents; preparing for signature by an officer of the Trust all
of the documents required to be filed for compliance by the Trust and the Funds
with applicable laws and regulations excluding those of the securities laws of
various states; arranging for the computation of performance data, including NAV
and yield; responding to shareholder inquiries; and arranging for the
maintenance of books and records of the Funds; and providing, at its own
expense, office facilities, equipment and personnel necessary to carry out its
duties. In this capacity, Fund Services does not have any responsibility or
authority for the management of the Funds, the determination of investment
policy, or for any matter pertaining to the distribution of Fund shares.
Pursuant
to the Administration Agreement, as compensation for its services, Fund Services
receives from the Funds a fee for fund administration services based on each
Fund’s current average daily net assets. Fund Services is also entitled to be
reimbursed for certain out-of pocket expenses. In addition to its role as
administrator, Fund Services also acts as fund accountant, transfer agent
(“Transfer Agent”) and dividend disbursing agent under separate agreements with
the Trust.
For
the fiscal years indicated below, the Funds paid the following administration
fees to Fund Services:
|
|
|
|
|
|
|
|
|
|
| |
Administration
Fees Paid During Fiscal Years Ended |
|
February
29,
2024 |
February
28,
2023 |
February
28,
2022 |
Mid
Cap Growth Fund |
$100,076 |
$96,866 |
$106,280 |
Quality
Large Cap Fund |
$298,805 |
$278,411 |
$294,263 |
Custodian
U.S.
Bank National Association, an affiliate of Fund Services (the “Custodian”),
serves as the custodian of the assets of the Funds pursuant to a custody
agreement between the Custodian and the Trust, on behalf of the Funds, whereby
the Custodian charges fees on a transactional basis plus out-of-pocket expenses.
The Custodian has custody of all assets and securities of the Funds, delivers
and receives payments for securities sold, receives and pays for securities
purchased, collects income from investments and performs other duties, all as
directed by the officers of the Trust. The Custodian’s address is 1555 North
River Center Drive, Suite 302, Milwaukee, Wisconsin 53212. The Custodian does
not participate in decisions relating to the purchase and sale of securities by
the Funds. The Custodian and its affiliates may participate in revenue sharing
arrangements with service providers of funds in which the Funds may
invest.
Legal
Counsel
Godfrey
& Kahn, S.C., 833 East Michigan Street, Suite 1800, Milwaukee, Wisconsin
53202, serves as legal counsel to the Funds and the Independent
Trustees.
Independent
Registered Public Accounting Firm
Deloitte
& Touche LLP (“Deloitte”), 111 South Wacker Drive, Chicago, Illinois 60606,
serves as the independent registered public accounting firm for the Funds.
Deloitte audits and reports on the Funds’ annual financial statements, reviews
certain regulatory reports and performs other audit services when engaged to do
so. Deloitte Tax LLP performs certain tax services for the Funds.
Distribution
of Fund Shares
The
Trust has entered into a distribution agreement (the “Distribution Agreement”)
with Quasar Distributors, LLC, a wholly-owned subsidiary of Foreside Financial
Group, LLC d/b/a ACA Group (the “Distributor”), Three Canal Plaza, Suite 100,
Portland, Maine 04101, pursuant to which the Distributor acts as the Funds’
principal underwriter, provides certain administration services and promotes and
arranges for the sale of the Funds’ shares. The offering of the Funds’ shares is
continuous, and the Distributor distributes the Funds’ shares on a best efforts
basis. The Distributor is not obligated to sell any certain number of shares of
the Funds. The Distributor is a registered broker-dealer and member of the
Financial Industry Regulatory Authority, Inc. (“FINRA”).
The
Distribution Agreement continues in effect only if its continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of a Fund’s outstanding voting securities and, in either case, by a
majority of the trustees who are not parties to the Distribution Agreement or
“interested persons” (as defined in the 1940 Act) of any such party. The
Distribution Agreement is terminable without penalty by the Trust, on behalf of
the Funds, on 60 days’ written notice when authorized either by a majority
vote of the outstanding voting securities of a Fund or by vote of a majority of
the Trustees who are not “interested persons” (as defined in the 1940 Act).
The Distribution Agreement is terminable without penalty by the Distributor upon
60 days’ written notice to the Trust. The Distribution Agreement will
automatically terminate in the event of its “assignment” (as defined in the
1940 Act).
During
the last three fiscal years, the Distributor did not receive any net
underwriting commissions on the sale of the Funds’ shares.
Distribution
(Rule 12b-1) Plan
The
Funds have adopted a distribution plan (the “Distribution Plan”) pursuant to
Rule 12b‑1 under the 1940 Act on behalf of the Funds.
Rule
12b-1 Distribution Fee
Under
the Distribution Plan, each Fund is authorized to pay the Distributor, or such
other entities as approved by the Board of Trustees, a Rule 12b-1 fee for the
sale and distribution of the Funds’ Investor Class shares (the “Distribution
Fee”). The maximum amount of the Distribution Fee authorized is an annual rate
of 0.25% of each Fund’s average daily NAV attributable to Investor Class shares.
The Distribution Plan provides that the Distributor may use all or any portion
of such Distribution Fee to finance any activity that is principally intended to
result in the sale of Investor Class shares of the Funds, subject to the terms
of the Distribution Plan. Institutional Class shares of the Funds are not
subject to a Distribution Fee.
The
Distribution Fee is payable to the Distributor regardless of the
distribution-related expenses actually incurred. Because the Distribution Fee is
not directly tied to expenses, the amount of Distribution Fees paid by the Funds
during any year may be more or less than actual expenses incurred pursuant to
the Distribution Plan. For this reason, this type of distribution fee
arrangement is characterized by the staff of the SEC as a “compensation”
plan.
The
Distributor may use the Distribution Fee to pay for services covered by the
Distribution Plan including, but not limited to, advertising, compensating
underwriters, dealers and selling personnel engaged in the distribution of Fund
shares, the printing and mailing of prospectuses, statements of additional
information and reports to other than current Fund shareholders, the printing
and mailing of sales literature pertaining to the Funds, and obtaining whatever
information, analyses and reports with respect to marketing and promotional
activities that the Funds may, from time to time, deem advisable.
Investor
Class shares of the Funds are not currently offered for purchase and therefore
did not incur any Rule 12b-1 expenditures for the fiscal year ended February 29,
2024.
To
the extent these asset-based fees and other payments made under the Distribution
Plan to financial intermediaries for the distribution services they provide to
the Funds’ shareholders exceed the Distribution Fees available, these payments
are made by the Adviser from its own resources, which may include its profits
from the advisory fee it receives from the Funds. In addition, the Funds may
participate in various “fund supermarkets” in which a mutual fund supermarket
sponsor (usually a broker-dealer) offers many mutual funds to the sponsor’s
customers without charging the customers a sales charge. In connection with its
participation in such platforms, the Adviser may use all or a portion of the
Distribution Fee to pay one or more supermarket sponsors a negotiated fee for
distributing a Fund’s shares. In addition, in its discretion, the Adviser may
pay additional fees to such intermediaries from its own assets.
The
Distribution Plan provides that it will continue from year-to-year upon approval
by the majority vote of the Board of Trustees, including a majority of the
trustees who are not “interested persons” of the Funds, as defined in the 1940
Act, and who have no direct or indirect financial interest in the operations of
the Distribution Plan or in any agreement related to such plan (the “Independent
Trustees”), as required by the 1940 Act, cast in person at a meeting called for
that purpose. It is also required that the trustees who are not “interested
persons” of the Funds select and nominate all other trustees who are not
“interested persons” of the Funds. The Distribution Plan and any related
agreements may not be amended to materially increase the amounts to be spent for
distribution expenses without approval of shareholders holding a majority of a
Fund’s shares outstanding. All material amendments to the Distribution Plan or
any related agreements must be approved by a vote of a majority of the Board of
Trustees, including a majority of the Independent Trustees, cast in person (or
in another manner permitted by the 1940 Act or pursuant to exemptive relief
therefrom) at a meeting called for the purpose of voting on any such
amendment.
The
Distribution Plan requires that the Distributor provide to the Board of
Trustees, at least quarterly, a written report on the amounts and purpose of any
payment made under the Distribution Plan. The Distributor is also required to
furnish the Board of Trustees with such other information as may reasonably be
requested in order to enable the Board of Trustees to make an informed
determination of whether the Distribution Plan should be continued. The
Distribution Plan may be continued from year-to-year only if the Board,
including a majority of the Independent Trustees, concludes at least annually
that continuation of the Distribution Plan is reasonably likely to benefit
shareholders. In particular, the Board of Trustees has determined that it
believes that the Distribution Plan is reasonably likely to provide an incentive
for brokers, dealers and other financial intermediaries to engage in sales and
marketing efforts on behalf of the Funds and to provide enhanced services to
holders of Investor Class shares. With the exception of the Adviser and the
Distributor, in its capacity as the Funds’ principal underwriter, no “interested
person” of the Funds, as defined in the 1940 Act, and no Independent Trustee of
the Funds has or had a direct or indirect financial interest in the Distribution
Plan or any related agreement.
As
noted above, the Distribution Plan provides for the ability to use Fund assets
to pay financial intermediaries (including those that sponsor mutual fund
supermarkets), plan administrators and other service providers to finance any
activity that is principally intended to result in the sale of Fund shares
(distribution services). The payments made by the Funds to these financial
intermediaries are based primarily on the dollar amount of assets invested in
the Funds through the financial intermediaries. These financial intermediaries
may pay a portion of the payments that they receive from the Funds to their
investment professionals. In addition to the ongoing asset-based fees paid to
these financial intermediaries under the Distribution Plan, the Funds may, from
time to time, make payments under the Distribution Plan that help defray the
expenses incurred by these intermediaries for conducting training and
educational meetings about various aspects of the Funds for their employees. In
addition, the Funds may make payments under the Distribution Plan for exhibition
space and otherwise help defray the expenses these financial intermediaries
incur in hosting client seminars where the Funds are discussed.
Sub-Accounting
Service Fees
In
addition to the fees that the Funds may pay to the Transfer Agent, the Board has
authorized the Funds to pay service fees to certain 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,
up to the following annual limits:
•0.15%
of applicable average net assets or $20 per account for Omnibus
Non-Institutional Accounts
•0.10%
of applicable average net assets or $10 per account for Omnibus Institutional
Accounts
•0.10%
of applicable average net assets or $7 per account for Networked
Accounts
Unless
the Funds have adopted a specific shareholder servicing plan which is broken out
as a separate expense, a sub-accounting fee paid by the Funds is included in the
total amount of “Other Expenses” listed in the Funds’ Fees and Expenses table in
the Prospectus.
Portfolio
Transactions and Brokerage
Pursuant
to the Advisory Agreement, the Adviser determines which securities are to be
purchased and sold by the Funds and which broker-dealers are eligible to execute
the Funds’ portfolio transactions. Purchases and sales of securities in the OTC
market will generally be executed directly with a “market-maker” unless, in the
opinion of the Adviser, a better price or execution can otherwise be obtained by
using a broker for the transaction.
Purchases
of portfolio securities for the Funds will be effected through broker-dealers
(including banks) that specialize in the types of securities that the Funds will
be holding, unless the Adviser believes that better executions are available
elsewhere. Dealers usually act as principal for their own accounts. Purchases
from dealers will include a spread between the bid and the asked price. If the
execution and price offered by more than one dealer are comparable, the order
may be allocated to a dealer that has provided research or other services as
discussed below.
In
placing portfolio transactions, the Adviser will use reasonable efforts to
choose broker-dealers capable of providing the services necessary to obtain the
most favorable price and execution available. The full range and quality of
services available, 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 will be considered in making these determinations.
In those instances where it is reasonably determined that more than one
broker-dealer can offer the services needed to obtain the most favorable price
and execution available, consideration may be given to those broker-dealers that
furnish or supply research and statistical information to the Adviser that it
may lawfully and appropriately use in its investment advisory capacities, as
well as provide other brokerage services in addition to execution services. The
Adviser considers such information, which is in addition to and not in lieu of
the services required to be performed by it under its 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 FINRA and the SEC. Portfolio transactions may
also be placed with broker-dealers in which the Adviser has invested on behalf
of the Funds and/or client accounts.
While
it is the Funds’ general policy to first seek to obtain the most favorable price
and execution available in selecting a broker-dealer to execute portfolio
transactions for the Funds, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Funds or to the
Adviser, even if the specific services are not directly useful to the Funds and
may be useful to the Adviser in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Funds may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Adviser to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer. The standard of reasonableness
is to be measured in light of the Adviser’s overall responsibilities to the
Funds.
Investment
decisions for the Funds are made independently from those of other client
accounts. Nevertheless, it is possible that at times identical securities will
be acceptable for both the Funds and one or more of such client accounts. In
such event, the position of the Funds and such client account(s) in the same
issuer may vary and the length of time that each may choose to hold its
investment in the same issuer may likewise vary. However, to the extent any of
these client accounts seek to acquire the same security as the Funds at the same
time, the Funds 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, the Funds may not be able to obtain as high a price
for, or as large an execution of, an order to sell any particular security at
the same time. If one or more of such client accounts simultaneously purchases
or sells the same security that the Funds are purchasing or selling, each day’s
transactions in such security will be allocated between the Funds and all such
client accounts in a manner deemed equitable by the Adviser, taking into account
the respective sizes of the accounts and the amount being purchased or sold. It
is recognized that in some cases this system could have a detrimental effect on
the price or value of the security insofar as the Funds are concerned. In other
cases, however, it is believed that the ability of the Funds to participate in
volume transactions may produce better executions for the Funds. Notwithstanding
the above, the Adviser may execute buy and sell orders for accounts and take
action in performance of its duties with respect to any of its accounts that may
differ from actions taken with respect to another account, so long as the
Adviser shall, to the extent practicable, allocate investment opportunities to
accounts, including the Funds, over a period of time on a fair and equitable
basis and in accordance with applicable law.
When
buying or selling securities, the Adviser may execute trades for the Funds with
broker-dealers that are affiliated with the Trust, the Adviser or their
affiliates, and the Funds may pay commissions to such broker-dealers in
accordance with procedures adopted by the Board. The Trust has adopted
procedures to
monitor
and control such affiliated brokerage transactions, which are reported to and
reviewed by the Board at least quarterly.
The
Funds are required to identify any securities of their “regular brokers or
dealers” that a Fund has acquired during its most recent fiscal year. The Mid
Cap Growth Fund did not hold any securities of its “regular brokers or dealers”
as of February 29, 2024. The following table lists such securities that the
Quality Large Cap Fund held as of February 29, 2024:
|
|
|
|
|
|
|
| |
Fund |
Regular
Broker-Dealer |
Value
of Holding |
Quality
Large Cap Fund |
JP
Morgan Chase & Co. |
$15,815,100 |
The
Funds are also required to identify any brokerage transactions during their most
recent fiscal year that were directed to a broker because of research services
provided, along with the amount of any such transactions and any related
commissions paid by the Funds. The following table shows the amount of any such
transactions and related commissions paid by the Funds for research services for
the fiscal year ended February 29, 2024:
|
|
|
|
|
|
|
| |
Fund |
Commissions |
Transactions |
Mid
Cap Growth Fund |
$18,350 |
$70,319,015 |
Quality
Large Cap Fund |
$58,237 |
$254,702,128 |
The
following table shows the amounts paid by each Fund in brokerage commissions for
the fiscal years ended February 29, 2024 and February 28, 2023 and
2022:
|
|
|
|
|
|
|
|
|
|
| |
Brokerage
Commissions Paid During Fiscal Years Ended |
|
February
29,
2024 |
February
28,
2023 |
February
28,
2022 |
Mid
Cap Growth Fund |
$19,020 |
$32,955 |
$17,208 |
Quality
Large Cap Fund |
$75,887 |
$88,339 |
$91,100 |
Portfolio
Turnover
Although
the Funds generally will not invest for short-term trading purposes, portfolio
securities may be sold without regard to the length of time they have been held
when, in the opinion of the Adviser, investment considerations warrant such
action. Portfolio turnover rate is calculated by dividing (1) the lesser of
purchases or sales of portfolio securities for the fiscal year by (2) the
monthly average of the value of portfolio securities owned during the fiscal
year. A 100% turnover rate would occur if all the securities in a Fund’s
portfolio, with the exception of securities whose maturities at the time of
acquisition were one year or less, were sold and either repurchased or replaced
within one year. A high rate of portfolio turnover (100% or more) generally
leads to above-average transaction and brokerage commission costs and may
generate capital gains, including short-term capital gains taxable to
shareholders at ordinary income rates. To the extent that a Fund experiences an
increase in brokerage commissions due to a higher portfolio turnover rate, the
performance of the Fund could be negatively impacted by the increased expenses
incurred by the Fund. Furthermore, a high portfolio turnover rate may result in
a greater number of taxable transactions.
The
following table shows the portfolio turnover rates for the Funds for the fiscal
years indicated below:
|
|
|
|
|
|
|
| |
Portfolio
Turnover During Fiscal Years Ended |
|
February
29,
2024 |
February
28,
2023 |
Mid
Cap Growth Fund |
8.3% |
17.5% |
Quality
Large Cap Fund |
27.2% |
39.6% |
Code
of Ethics
The
Trust and the Adviser have each adopted a Code of Ethics under Rule 17j-1 of the
1940 Act. These Codes of Ethics permit, subject to certain conditions, personnel
of the Trust and the Adviser to invest in securities that may be purchased or
held by the Funds. The Distributor relies on the principal underwriters
exception under Rule 17j-1(c)(3) of the 1940 Act from the requirements to adopt
a code of ethics pursuant to Rule 17j-1 because the Distributor is not
affiliated with the Trust or the Adviser, and no officer, director, or general
partner of the Distributor serves as an officer, director or general partner of
the Trust or the Adviser.
Proxy
Voting Procedures
The
Board of Trustees has adopted Proxy Voting Policies and Procedures (the “Proxy
Policies”) on behalf of the Trust which has delegated to the Adviser, subject to
the Board of Trustee’s continuing oversight the responsibility for voting
proxies. The Proxy Policies require that the Adviser vote proxies received in a
manner consistent with the best interests of the Funds and their shareholders.
Policies
of the Adviser
Upon
receiving each proxy, the Adviser will review the issues presented and make a
decision to vote for, against or abstain on each of the issues presented in
accordance with the proxy voting guidelines that it has adopted. Generally,
proxies will be voted along management’s guidelines as indicated on the proxy.
Any non-routine matters will be referred to the Adviser’s Investment Policy
Committee.
The
Adviser’s duty is to vote in the best interests of the Funds’ shareholders,
meaning that the Adviser’s proxy voting decisions will be consistent with the
Adviser’s fiduciary duty to the Trust and its shareholders and the Funds’
investment objectives and policies.
In
the event of a conflict between the interests of the Adviser and a Fund, the
Adviser’s policies provide that the conflict may be disclosed to the Board of
Trustees or its delegate, who shall provide direction on how to vote the proxy.
The Board of Trustees has delegated this authority to the Independent Trustees,
and the proxy voting direction in such a case shall be determined by a majority
of the Independent Trustees.
The
Funds’ actual voting records relating to portfolio securities during the most
recent 12-month period ended June 30 are available without charge, upon request,
by calling toll-free, 1-866-273-7223 or by accessing the SEC’s website at
www.sec.gov.
Anti-Money
Laundering Compliance Program
The
Trust has established an Anti-Money Laundering Compliance Program (the
“Program”) as required by the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the
“USA PATRIOT Act”) and related anti-money laundering laws and regulations. To
ensure compliance with these laws, the Trust’s Program provides for the
development of internal practices, procedures and controls, designation of
anti-money laundering compliance officers, an ongoing training program and an
independent audit function to determine the effectiveness of the Program. Ms.
Deanna B. Marotz has been designated as the Trust’s Anti-Money Laundering
Compliance Officer.
Procedures
to implement the Program include, but are not limited to: determining that the
Distributor and the Transfer Agent have established proper anti-money laundering
procedures; and reporting suspicious and/or fraudulent activity.
Portfolio
Holdings Information
The
Trust, on behalf of the Funds, has adopted portfolio holdings disclosure
policies (the “Disclosure Policies”) that govern the timing and circumstances of
disclosure of portfolio holdings of the Funds. Information about the Funds’
portfolio holdings will not be distributed to any third party except in
accordance with these Disclosure Policies. The Board of Trustees considered the
circumstances under which the Funds’ portfolio holdings may be disclosed under
the Disclosure Policies, considering 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. After due consideration, the Board determined
that the Funds have a legitimate business purpose for disclosing portfolio
holdings to persons described in these Disclosure Policies.
Information
about the Funds’ portfolio holdings will not be distributed to any third party
except as described below:
•the
disclosure is required to respond to a regulatory request, court order or other
legal proceeding;
•the
disclosure is to a mutual fund rating or evaluation services organization (such
as FactSet, Morningstar, Inc. (“Morningstar”) and Lipper, a Thompson Reuters
Company (“Lipper”)), or statistical agency or person performing similar
functions, or due diligence department of a broker-dealer or wirehouse, who has,
if necessary, signed a confidentiality agreement, or is bound by applicable
duties of confidentiality imposed by law, with the Funds;
•the
disclosure is made to the Funds’ service providers who generally need access to
such information in the performance of their contractual duties and
responsibilities, and who are subject to duties of confidentiality imposed by
law and/or contract, such as the Adviser, the Board of Trustees, the Funds’
independent registered public accountants, regulatory authorities, counsel to
the Funds or the Board of Trustees, proxy voting service providers and financial
printers involved in the reporting process;
•the
disclosure is made by the Adviser’s trading desk to broker-dealers in connection
with the purchase or sale of securities or requests for price quotations or bids
on one or more securities; in addition, the Adviser’s trading desk may
periodically distribute a holdings list (consisting of names only) to
broker-dealers so that such brokers can provide the Adviser with order flow
information;
•the
disclosure is made to institutional consultants evaluating the Funds on behalf
of potential investors;
•the
disclosure is (a) in connection with a quarterly, semi-annual or annual report
that is available to the public or (b) relates to information that is otherwise
available to the public; or
•the
disclosure is made pursuant to prior written approval of the Trust’s CCO, or
other person so authorized, is for a legitimate business purpose and is in the
best interests of the Funds’ shareholders.
For
purposes of the Disclosure Policies, portfolio holdings information does not
include descriptive information if that information does not present material
risks of dilution, arbitrage, market timing, insider trading or other
inappropriate trading for the Funds. Information excluded from the definition of
portfolio holdings information generally includes, without limitation: (i)
descriptions of allocations among asset classes, regions, countries or
industries/sectors; (ii) aggregated data such as average or median ratios, or
market capitalization, performance attributions by industry, sector or country;
or (iii) aggregated risk statistics. It is the policy of the Trust to prohibit
any person or entity from receiving any direct or indirect compensation or
consideration of any kind in connection with the disclosure of information about
the Funds’ portfolio holdings.
The
Trust’s CCO must document any decisions regarding non-public disclosure of
portfolio holdings and the rationale therefor. In connection with the oversight
responsibilities by the Board of Trustees, any documentation regarding decisions
involving the non-public disclosure of portfolio holdings of the Funds to third
parties must be provided to the full Board of Trustees or its authorized
committee. In addition, on a quarterly basis, the Board will review any
disclosures of portfolio holdings outside of the permitted disclosures described
above to address any conflicts between the interests of Funds shareholders and
those of the Adviser or any other Fund affiliate.
Currently,
on the 15th calendar day following each month end, the Funds provide their
portfolio holdings to rating and ranking organizations, including Lipper,
Morningstar, Standard & Poor’s Financial Services, LLC, FactSet,
Intercontinental Exchange (“ICE”), Bloomberg L.P., Thomson Reuters Corporation,
Vickers Stock Research Corporation and Capital-Bridge, Inc. Lipper and
Morningstar then post a list of the Funds’ top portfolio holdings to their
respective websites. The Funds’ top ten holdings are also available in the
Funds’ quarterly Fact Sheets posted to the Funds’ website,
www.brightrockfunds.com. Portfolio holdings disclosure may be approved under the
Disclosure Policies by the Trust’s CCO. Disclosure of the Funds’ complete
holdings is required to be made quarterly within 60 days of the end of each
fiscal quarter, in the annual and semi-annual reports to Fund shareholders, and
in the quarterly holdings report on Part F of Form N-PORT. These reports are
made available, free of charge, on the EDGAR database on the SEC’s website at
www.sec.gov.
Any
suspected breach of this policy must be reported immediately to the Trust’s CCO,
or to the chief compliance officer of the Adviser who is to report it to the
Trust’s CCO. The Board of Trustees reserves the right to amend the Disclosure
Policies at any time without prior notice in its sole discretion.
Determination
of Net Asset Value
The
NAV of a Fund’s shares will fluctuate and is determined as of the close of
trading on the New York Stock Exchange (the “NYSE”) (generally 4:00 p.m.,
Eastern time) each business day. The NYSE annually announces the days on which
it will not be open for trading. The most recent announcement indicates that the
NYSE will not be open on the following days: New Year’s Day, Martin Luther King,
Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Juneteenth National
Independence Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. However, the NYSE may close on days not included in that announcement. If
the NYSE closes early, the Funds will calculate their NAVs as of the close of
trading on the NYSE on that day. If an emergency exists as permitted by the
SEC,
the NAVs may be calculated at a different time.
The
NAV per share is computed by dividing the value of the securities held by a Fund
plus any cash or other assets (including interest and dividends accrued but not
yet received) minus all liabilities (including accrued expenses) by the total
number of shares in the Funds outstanding at such time.
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|
| |
Net
Assets |
= |
Net
Asset Value Per Share |
Shares
Outstanding |
Generally,
the Funds’ investments are valued at market value or, in the absence of a market
value, at fair value as determined in good faith by the Adviser and the
Valuation Committee pursuant to procedures approved by or under the direction of
the Board of Trustees.
Each
equity security owned by a Fund, including depositary receipts, that is traded
on a national securities exchange, except for securities listed on the NASDAQ
Stock Market LLC (“NASDAQ”), is valued at its last sale price on the exchange on
which such security is traded, as of the close of business on the day the
security is being valued. All equity securities that are not traded on a listed
exchange are valued at the last sales price at the close of the OTC market. If a
non-exchange listed security does not trade on a particular day, then the mean
between the last quoted bid and the asked prices will be used as long as it
continues to reflect the value of the security.
Securities
that are traded on more than one exchange are valued using the price of the
exchange that the Funds generally consider to be the principal exchange on which
the security is traded. Fund securities listed on NASDAQ will be valued using
the NASDAQ Official Closing Price, which may not necessarily represent the last
sales price. If there has been no sale on such exchange or on NASDAQ on such
day, the security will be valued at the mean between the most recent quoted bid
and the asked prices at the close of the exchange on such day, or the security
shall be valued at the latest sales price on the “composite market” for the day
such security is being valued. The composite market is defined as a
consolidation of the trade information provided by a national securities and
foreign exchange and OTC markets as published by an approved independent pricing
service (“Pricing Service”). Money market instruments are valued at cost. If
cost does not represent current market value, the securities will be priced at
fair value.
Debt
securities, including short-term debt instruments having a maturity of 60 days
or less, are valued at the mean in accordance with prices provided by a Pricing
Service. Pricing Services may use various valuation methodologies such as the
mean between the bid and the asked prices, matrix pricing or other analytical
pricing models as well as market transactions and dealer quotations. If a price
is not available from a Pricing Service, the most recent quotation obtained from
one or more broker-dealers known to follow the issue will be obtained. In the
absence of available quotations, the securities will be priced at fair value.
Quotations will be valued at the mean between the bid and the offer. Fixed
income securities purchased on a delayed-delivery basis are typically marked to
market daily until settlement at the forward settlement date. Any discount or
premium is accrued or amortized using the constant yield method until
maturity.
Exchange
traded options are valued at the composite price, using the National Best Bid
and Offer quotes (“NBBO”). NBBO consists of the highest bid price and lowest ask
price across any of the exchanges on which an option is quoted, thus providing a
view across the entire U.S. options marketplace. Specifically, composite pricing
looks at the last trades on the exchanges where the options are traded. If there
are no trades for the option on a given business day composite option pricing
calculates the mean of the highest bid price and lowest ask price across the
exchanges where the option is traded.
Futures
contracts and options thereon traded are valued at the settlement price at the
close of trading on such exchange or board of trade.
Pursuant
to Rule 2a-5 under the 1940 Act, other assets of the Funds are valued in such
manner as the Adviser in good faith deems appropriate to reflect their fair
value.
Additional
Purchase and Redemption Information
The
information provided below supplements the information contained in the
Prospectus regarding the purchase and redemption of Fund shares.
How
to Purchase Shares
You
may purchase shares of the Funds directly from the Funds, or from securities
brokers, dealers or other financial intermediaries (collectively, “Financial
Intermediaries”). Investors should contact their Financial Intermediary directly
for appropriate instructions, as well as information pertaining to accounts and
any service or transaction fees that may be charged. The Funds may enter into
arrangements with certain Financial Intermediaries whereby such Financial
Intermediaries (and their authorized designees) are authorized to accept your
order on behalf of the Funds (each an “Authorized Intermediary”). If you
transmit your purchase request to an Authorized Intermediary before the close of
regular trading (generally 4:00 p.m., Eastern time) on a day that the NYSE is
open for business, shares will be purchased at the next calculated NAV, after
the Financial Intermediary receives the request. Investors should check with
their Financial Intermediary to determine if it is an Authorized
Intermediary.
Investors
wishing to purchase Fund shares should contact the Funds toll free at
1-866-273-7223. If you are purchasing shares through a Financial Intermediary,
you must follow the procedures established by your Financial Intermediary. Your
Financial Intermediary is responsible for sending your purchase order and wiring
payment to the Transfer Agent. Your Financial Intermediary holds the shares in
your name and receives all confirmations of purchases and sales.
Shares
are purchased at the next calculated NAV, after the Transfer Agent or Authorized
Intermediary receives your purchase request in good order. In most cases, in
order to receive that day’s NAV, the Transfer Agent must receive your order in
good order before the close of regular trading on the NYSE (generally
4:00 p.m., Eastern time).
The
Trust reserves the right in its sole discretion: (i) to suspend the
continued offering of the Funds’ shares; (ii) to reject purchase orders in
whole or in part when in the judgment of the Adviser or the Distributor such
rejection is in the best interest of the Funds; and (iii) 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 the Funds’ shares.
The
Adviser reserves the right to reject any initial or additional
investments.
How
to Redeem Shares and Delivery of Redemption Proceeds
You
may redeem your Fund shares any day the NYSE is open for regular trading, either
directly with the Funds or through your Financial Intermediary.
Payments
to shareholders for shares of the Funds redeemed directly from the Funds will be
made as promptly as possible, but no later than seven days after receipt by the
Transfer Agent of the written request in proper form, with the appropriate
documentation as stated in the Prospectus, except that the Funds may suspend the
right of redemption or postpone the date of payment upon redemption for more
than
seven calendar days as determined by the SEC 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 the Funds not reasonably practicable; or (c) for such other
period as the SEC may permit for the protection of the Funds’
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.
Telephone
Redemptions
Shareholders
with telephone transaction privileges established on their account may redeem
Fund shares by telephone. Upon receipt of any instructions or inquiries by
telephone from the shareholder, the Funds or their authorized agents may carry
out the instructions and/or respond to the inquiry consistent with the
shareholder’s previously established account service options. For joint
accounts, instructions or inquiries from either party will be carried out
without prior notice to the other account owners. In acting upon telephone
instructions, the 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.
The
Transfer Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If the Transfer Agent fails to employ
reasonable procedures, the Funds and the Transfer Agent may be liable for any
losses due to unauthorized or fraudulent instructions. If these procedures are
followed, however, to the extent permitted by applicable law, neither the Funds
nor their agents will be liable for any loss, liability, cost or expense arising
out of any redemption request, including any fraudulent or unauthorized request.
For additional information, contact the Transfer Agent.
Redemption
In-Kind
The
Funds do not intend to redeem shares in any form except cash. The Trust,
however, has filed a notice of election under Rule 18f-1 of the 1940 Act that
allows the Funds to redeem in-kind redemption requests of a certain amount.
Specifically, if the amount you are redeeming during any 90-day period is in
excess of the lesser of $250,000 or 1% of the net assets of a Fund, valued at
the beginning of such period, the Fund has the right to redeem your shares by
giving you the amount that exceeds $250,000 or 1% of the net assets of the Fund
in securities instead of cash. If a Fund pays your redemption proceeds by a
distribution of securities, you could incur brokerage or other charges in
converting the securities to cash, and will bear any market risks associated
with such securities until they are converted into cash. For federal income tax
purposes, redemptions made in-kind are taxed in the same manner to a redeeming
shareholder as redemptions made in cash. In addition, sales of in-kind
securities may generate taxable gains.
Federal
Income Tax Matters
This
section is not intended to be a full discussion of federal income tax laws and
the effect of such laws on you.
This
section is based on the Code, Treasury Regulations, judicial decisions, and IRS
guidance as of the date hereof, all of which are subject to change, and possibly
with retroactive effect. These changes could impact the Funds’ investments or
the tax consequences to you of investing in the Funds. Some of the changes could
affect the timing, amount and tax treatment of the Funds’ distributions to
shareholders. There may be other federal, state, foreign or local tax
considerations to a particular shareholder. No assurance can be given that
legislative, judicial, or administrative changes will not be forthcoming which
could
affect the accuracy of any statements made in this section. Please consult your
tax advisor before investing.
Each
series of the Trust is treated as a separate entity for federal income tax
purposes. The Funds, each a series of the Trust, intend to qualify and elect to
be treated as regulated investment companies (“RICs”) under Subtitle A, Chapter
1, Subchapter M of the Code, provided they comply with all applicable
requirements regarding the source of their income, diversification of their
assets and timing and amount of their distributions. Each Fund’s policy is to
distribute to its shareholders all of its investment company taxable income and
net capital gain for each fiscal year in a manner that complies with the
distribution requirements of the Code, so that the Fund will not be subject to
any federal income or excise taxes on amounts distributed. However, the Funds
can give no assurances that their anticipated distributions will be sufficient
to eliminate all Fund level taxes. If a Fund does not qualify as a RIC and is
unable to obtain relief from such failure, it would generally be taxed as a
regular corporation and, in such case, it would be more beneficial for a
shareholder to directly own the Fund’s underlying investments rather than
indirectly owning them through the Fund.
To
qualify as a RIC, a Fund must derive at least 90% of its gross income from “good
income,” which includes: (1) dividends, interest, certain payments with respect
to securities loans and gains from the sale or other disposition of stock,
securities or foreign currencies; and (2) other income (including but not
limited to gains from options, futures or forward contracts) derived with
respect to a Fund’s business of investing in such stock, securities or foreign
currencies, and (3) net income derived from interests in qualified publicly
traded partnerships. Although Code Section 851(b) authorizes the U.S. Treasury
Department to issue Treasury Regulations excluding “foreign currency gains” that
are not directly related to a RIC’s principal business of investing in stock or
securities from qualifying income, Treasury Regulations currently provide that
gains from the sale or other disposition of foreign currencies is qualifying
income. Nevertheless, there can be no absolute assurances that future Treasury
Regulations will not come to a different conclusion or that a Fund will satisfy
all requirements to be taxed as a RIC.
Furthermore,
a Fund must diversify its holdings such that at the end of each fiscal quarter,
(i) at least 50% of the value of the Fund’s assets consists of cash, cash
equivalents, U.S. government securities, securities of other RICs, and other
acceptable securities, with such other securities limited, in respect to any one
issuer, to an amount not greater in value than 5% of the value of the Fund’s
total assets and to not more than 10% of the outstanding voting securities of
such issuer; and (ii) no more than 25% of the value of the Fund’s assets may be
invested in the securities of any one issuer (other than U.S. government
securities or securities of other RICs), or of any two or more issuers that are
controlled, as determined under applicable Code rules, by the Fund and that are
engaged in the same, similar or related trades or businesses, or of certain
qualified publicly traded partnerships.
Each
Fund will be subject to a nondeductible 4% federal excise tax on certain
undistributed income if it does not distribute to its shareholders in each
calendar year an amount at least equal to 98% of its ordinary income for the
calendar year plus 98.2% of its capital gain net income for the one-year period
ending on October 31 of that year, subject to an increase for any shortfall in
the prior year’s distribution. The Funds intend to declare and distribute
dividends and distributions in the amounts and at the times necessary to avoid
the application of the excise tax, but can make no assurances that all such tax
liability will be eliminated.
Investment
company taxable income generally consists of interest, dividends, net short-term
capital gain and net gain from foreign currency transactions, less expenses. Net
capital gain is the excess of the net long-term gain from a Fund’s sales or
exchanges of capital assets over the net short-term loss from such
sales
or exchanges, taking into account any capital loss carryforward of the Fund. The
Funds may elect to defer certain losses for tax purposes. As of February 29,
2024, the Mid Cap Growth Fund had short-term capital loss carryforwards of
$1,394,661, which have an unlimited carryover period.
Distributions
of investment company taxable income are generally taxable to shareholders as
ordinary income. For a non-corporate shareholder, a portion of a Fund’s
distributions of investment company taxable income may consist of “qualified
dividend” income eligible for taxation at the reduced federal income tax rates
applicable to long-term capital gains to the extent that the amount distributed
is attributable to and reported as “qualified dividend” income and the
shareholder meets certain holding period requirements with respect to its Fund
shares. For a corporate shareholder, a portion of a Fund’s distributions of
investment company taxable income may qualify for the intercorporate
dividends‑received deduction to the extent a Fund received dividends directly or
indirectly from U.S. corporations, reports the amount distributed as eligible
for deduction and the shareholder meets certain holding period requirements with
respect to its shares. The aggregate amount so reported to either non-corporate
or corporate shareholders, as applicable, cannot, however, exceed the aggregate
amount of such dividends received by a Fund for its taxable year.
Distributions
of net capital gain are taxable to shareholders as long-term capital gain
regardless of the length of time that a shareholder has owned Fund shares.
Distributions of net capital gain are not eligible for “qualified dividend”
income treatment or the dividends‑received deduction referred to
above.
Distributions
of any investment company taxable income and net capital gain will be taxable as
described above whether received in additional Fund shares or in cash.
Shareholders who choose to receive distributions in the form of additional Fund
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 and paid the following January
are taxable as if received on December 31. Distributions are generally
includable in alternative minimum taxable income in computing a non-corporate
shareholder’s liability for the alternative minimum tax.
Certain
individuals, trusts and estates may be subject to a Net Investment Income
(“NII”) tax of 3.8% (in addition to the regular income tax). The NII tax is
imposed on the lesser of: (i) the taxpayer’s investment income, net of
deductions properly allocable to such income; or (ii) the amount by which such
taxpayer’s modified adjusted gross income exceeds certain thresholds ($250,000
for married individuals filing jointly, $200,000 for unmarried individuals and
$125,000 for married individuals filing separately). Each Fund’s distributions
are includable in a shareholder’s investment income for purposes of this NII
tax. In addition, any capital gain realized by a shareholder upon the sale,
exchange or redemption of Fund shares is includable in such shareholder’s
investment income for purposes of this NII tax.
A
sale, redemption or exchange of Fund shares, whether for cash or in kind
proceeds, may result in recognition of a taxable capital gain or loss. Gain or
loss realized upon a sale, redemption or exchange of Fund shares will generally
be treated as a long-term capital gain or loss if the shares have been held for
more than one year, and, if held for one year or less, as a short-term capital
gain or loss. However, any loss realized upon a sale, redemption or exchange of
shares held for six months or less will be treated as a long‑term capital loss
to the extent of any distributions of net capital gain received or deemed to be
received with respect to such shares. In determining the holding period of such
shares for this purpose, any period during which the shareholder’s risk of loss
is offset by means of options, short sales, or similar transactions is not
counted. Any loss realized upon a sale, redemption or exchange of Fund shares
may be disallowed under certain wash sale rules to the extent shares of the same
Fund are purchased (through
reinvestment
of distributions or otherwise) within 30 days before or after the sale,
redemption or exchange. If a shareholder’s loss is disallowed under the wash
sale rules, the basis of the new shares will be increased to preserve the loss
until a future sale, redemption or exchange of the shares.
Under
the Foreign Account Tax Compliance Act (“FATCA”), a Fund may be required to
withhold a generally nonrefundable 30% tax on (i) distributions of investment
company taxable income, and (ii) distributions of net capital gain and the gross
proceeds of a sale, exchange or redemption of Fund shares paid to (A) certain
“foreign financial institutions” unless such foreign financial institution
agrees to verify, monitor, and report to the IRS the identity of certain of its
accountholders, among other items (unless such entity is deemed compliant under
the terms of an intergovernmental agreement with the United States), and (B)
certain “non-financial foreign entities” unless such entity certifies to the
Fund that it does not have any substantial U.S. owners or provides the name,
address, and taxpayer identification number of each substantial U.S. owner,
among other items. In December 2018, the IRS and Treasury Department released
proposed Treasury Regulations that would eliminate FATCA withholding on Fund
distributions of net capital gain and the gross proceeds from a sale, redemption
or exchange of Fund shares. Although taxpayers are entitled to rely on these
proposed Treasury Regulations until final Treasury Regulations are issued, these
proposed Treasury Regulations have not been finalized, may not be finalized in
their proposed form, and are potentially subject to change. This FATCA
withholding tax could also affect a Fund’s return on its investments in foreign
securities or affect a shareholder’s return if the shareholder holds its Fund
shares through a foreign intermediary. You are urged to consult your tax advisor
regarding the application of this FATCA withholding tax to your investment in a
Fund and the potential certification, compliance, due diligence, reporting, and
withholding obligations to which you may become subject in order to avoid this
withholding tax.
Except
in the case of certain exempt shareholders, if a shareholder does not furnish a
Fund with its correct Social Security Number or other applicable taxpayer
identification number and certain certifications or a Fund receives notification
from the IRS requiring backup withholding, such Fund is required by federal law
to withhold federal income tax from the shareholder’s distributions and
redemption proceeds at a rate set under Section 3406 of the Code for U.S.
residents.
Foreign
taxpayers (including nonresident aliens) are generally subject to a tax
withholding at a flat rate of 30% on U.S.-source income that is not effectively
connected with the conduct of a trade or business in the U.S. This withholding
rate may be lower under the terms of a tax treaty or convention.
Certain
of a Fund’s investments may be subject to complex provisions of the Code
(including provisions relating to options, futures, forward contracts, and
certain other derivatives or financial instruments) that, among other things,
may affect a Fund’s ability to qualify as a RIC, affect the character of gains
and losses realized by a Fund (e.g.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to a Fund, and defer losses. These rules could therefore
affect the character, amount, and timing of distributions to shareholders. These
provisions also may require a Fund to mark-to-market certain types of positions
in its portfolio (i.e., treat them as if they were closed out) which may cause a
Fund to recognize income without the Fund receiving cash with which to make
distributions in amounts sufficient to enable the Fund to satisfy the RIC
distribution requirements for avoiding Fund-level income and excise taxes. Each
Fund intends to monitor its transactions, intends to make appropriate tax
elections, and intends to make appropriate entries in its books and records to
mitigate the effect of these rules and preserve the Fund’s qualification for
treatment as a RIC. To the extent a Fund invests in an underlying fund that is
taxable as a RIC, the rules applicable to the tax treatment of complex
securities will also apply to the underlying funds that also invest in such
complex securities and investments.
Distributions
Each
Fund will receive income primarily in the form of dividends and interest earned
on such Fund’s investments in securities. This income, less the expenses
incurred in its operations, is a Fund’s net investment income, substantially all
of which will be distributed to the Fund’s shareholders.
The
amount of a Fund’s distributions is dependent upon the amount of net investment
income received by the Fund from its portfolio holdings, is not guaranteed and
is subject to the discretion of the Board of Trustees. The Funds do not pay
“interest” or guarantee any fixed rate of return on an investment in their
shares.
A
Fund may also realize capital gains or losses in connection with sales or other
dispositions of its portfolio securities. Any net gain that a Fund may realize
from transactions involving investments held less than the period required for
long-term capital gain or loss recognition or otherwise producing short-term
capital gains and losses (taking into account any capital loss carryforward)
will comprise part of net investment income. If during any year a Fund realizes
a net gain on transactions involving investments held for the period required
for long-term capital gain or loss recognition or otherwise producing long-term
capital gains and losses, the Fund will generally have a net long-term capital
gain. After deduction of the amount of any net short-term capital loss, the
balance (to the extent not offset by any capital loss carryforward) will be
distributed and treated as long-term capital gains in the hands of the
shareholders regardless of the length of time that the Fund shares may have been
held by the shareholders. Net capital losses realized by a Fund may be carried
forward indefinitely and will generally retain their character as short-term or
long-term capital losses. For more information concerning applicable capital
gains tax rates, please consult your tax adviser.
Any
distribution paid by a Fund reduces the Fund’s NAV per share on the date paid by
the amount of the distribution per share. Accordingly, a distribution paid
shortly after a purchase of shares by a shareholder would represent, in
substance, a partial return of capital (to the extent it is paid on the shares
so purchased), even though it would be subject to federal income
taxes.
Distributions
will be made in the form of additional shares of the distributing Fund unless
the shareholder has otherwise indicated. Shareholders have the right to change
their elections with respect to the reinvestment of distributions by notifying
the Transfer Agent. However, any such change will be effective only as to
distributions for which the record date is five or more calendar days after the
Transfer Agent has received the request.
Cost
Basis Reporting
The
Funds are required to report to certain shareholders and the IRS the cost basis
of Fund shares acquired on or after January 1, 2012 by such shareholder
(“covered shares”) when the shareholder sells, exchanges or redeems such shares.
These requirements do not apply to shares held through a tax-deferred
arrangement, such as a 401(k) plan or an IRA, or to shares held by tax-exempt
organizations, financial institutions, corporations (other than S corporations),
banks, credit unions and certain other entities and governmental bodies. Shares
acquired before January 1, 2012 (“non-covered shares”) are treated as if held in
a separate account from covered shares. The Funds are not required to determine
or report a shareholder’s cost basis in non-covered shares and are not
responsible for the accuracy or reliability of any information provided for
non-covered shares.
The
cost basis of a share is generally its purchase price adjusted for
distributions, returns of capital, and other corporate actions. Cost basis is
used to determine whether the sale, exchange or redemption of a share results in
a capital gain or loss. If you sell, exchange or redeem covered shares during
any year,
then
the Funds will report the gain or loss, cost basis, and holding period of such
covered shares to the IRS and you on Form 1099.
A
cost basis method is the method by which a Fund determines which specific
covered shares are deemed to be sold, exchanged or redeemed when a shareholder
sells, exchanges or redeems less than its entire holding of Fund shares and has
made multiple purchases of Fund shares on different dates at differing net asset
values. If a shareholder does not affirmatively elect a cost basis method, each
Fund will use the average cost method, which averages the basis of all Fund
shares in an account regardless of holding period, and shares sold, exchanged or
redeemed are deemed to be those with the longest holding period first. Each
shareholder may elect in writing (and not over the telephone) any alternate
IRS-approved cost basis method to calculate the cost basis in its covered
shares. The default cost basis method applied by the Funds or the alternate
method elected by a shareholder may not be changed after the settlement date of
a sale, exchange or redemption of Fund shares.
If
you hold Fund shares through a broker (or another nominee), please contact that
broker or nominee with respect to the reporting of cost basis and available
elections for your account.
You
are encouraged to consult your tax advisor regarding the application of these
cost basis reporting rules and, in particular, which cost basis calculation
method you should elect.
Financial
Statements
The
audited financial statements, accompanying notes and report of the independent
registered public accounting firm appearing in the Funds’ 2024 Annual
Report to Shareholders
are incorporated by reference in this SAI.