STATEMENT
OF ADDITIONAL INFORMATION
August 28,
2022
Oakhurst
Strategic Defined Risk Fund
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Institutional
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OASDX |
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Advisor
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c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
Wisconsin 53201-0701
844-OAKHRST
(844-625-4778)
This
Statement of Additional Information (“SAI”) is not a prospectus, but should be
read in conjunction with the Prospectus of the Oakhurst Strategic Defined Risk
Fund (the “Fund”), a series of Series Portfolios Trust (the “Trust”), dated
August 28, 2022, as may be supplemented from time to time, which is
incorporated by reference into this SAI. You may obtain a copy of the Prospectus
without charge by contacting the Fund c/o U.S. Bank Global Fund Services at the
address or telephone number listed above.
The
Fund’s audited financial statements and notes thereto for the fiscal year ended
April 30, 2022, and the unqualified opinion of Cohen & Company, Ltd., the
Fund’s independent registered public accounting firm, on such financial
statements are included in the Fund’s annual
report to shareholders
for the fiscal year ended April 30, 2022, and are incorporated by reference into
this SAI. A copy of the annual
report
may be obtained, without charge, upon request by contacting the Fund c/o U.S.
Bank Global Fund Services at the address or telephone number listed above.
TABLE
OF CONTENTS
THE
TRUST
The
Trust is a Delaware statutory trust organized on July 27, 2015, and is
registered with the U.S. Securities and Exchange Commission (“SEC”) as an
open-end management investment company. The Trust’s Declaration of Trust, as
amended and/or restated to date (the “Declaration of Trust”) permits the Trust’s
Board of Trustees (the “Board”) to issue an unlimited number of full and
fractional shares of beneficial interest, without par value, which may be issued
in any number of series. The Board may from time to time issue other series, the
assets and liabilities of which will be separate and distinct from any other
series. This SAI relates only to the Fund.
The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Fund’s assets for any Trustee or Trust officer held
personally liable for obligations of the Fund or the Trust. All such rights are
limited to the assets of the Fund. The Declaration of Trust further provides
that the Trust may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Trust, its
shareholders, trustees, officers, employees and agents to cover possible claims
and other liabilities. However, the activities of the Trust as an investment
company would not likely give rise to liabilities in excess of the Trust’s total
assets. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the Fund itself is unable to meet its
obligations.
Lido
Advisers, LLC (the “Advisor”) serves as the investment adviser for the Fund.
Prior to August 23, 2022, Oakhurst Advisors, LLC (the “Predecessor Adviser”), an
affiliate of the Advisor, served as the Fund's investment adviser.
INVESTMENT
POLICIES, STRATEGIES AND ASSOCIATED RISKS
The
following information supplements the information concerning the Fund’s
investment objective, policies and limitations found in the
Prospectus.
Investment
Objective
The
Fund seeks capital appreciation while seeking to limit short-term risk. The
Fund’s investment objective is non-fundamental and may be changed without the
approval of the Fund’s shareholders, upon approval by the Board and prior
written notice to shareholders.
Diversification
The
Fund is diversified. Under applicable federal laws, to qualify as a diversified
fund, the Fund, with respect to 75% of its total assets, may not invest more
than 5% of its total assets in any one issuer and may not hold more than 10% of
the securities of one issuer. The remaining 25% of the Fund’s total assets does
not need to be “diversified” and may be invested in securities of a single
issuer, subject to other applicable laws. The diversification of the Fund’s
holdings is measured at the time the Fund purchases a security. However, if the
Fund purchases a security and holds it for a period of time, the security may
become a larger percentage of the Fund’s total assets due to movements in the
financial markets. If the market affects several securities held by the Fund,
the Fund may have a greater percentage of its assets invested in securities of
fewer issuers. Because the Fund is diversified, the Fund is less subject to the
risk that its performance may be hurt disproportionately by the poor performance
of relatively few securities despite the Fund qualifying as a diversified Fund
under applicable federal laws.
General
Market Risks
U.S.
and global markets have experienced significant volatility in recent years. The
Fund is subject to investment and operational risks associated with financial,
economic and other global market developments and disruptions, including those
arising from war, terrorism, market manipulation, government interventions,
defaults and shutdowns, political changes or diplomatic developments, public
health emergencies (such as the spread of infectious diseases, pandemics and
epidemics) and natural/environmental disasters, which can all negatively impact
the securities markets and cause the Fund to lose value. These events can also
impair the technology and other operational systems upon which the Fund’s
service providers, including the Fund’s investment adviser, rely, and could
otherwise disrupt the Fund’s service providers’ ability to fulfill their
obligations to the Fund.
The
recent spread of an infectious respiratory illness caused by a novel strain of
coronavirus (known as COVID-19) has caused volatility, severe market
dislocations and liquidity constraints in many markets, including markets for
the securities the Fund holds, and may adversely affect the Fund’s investments
and operations. The transmission of COVID-19 and efforts to contain its spread
have resulted in travel restrictions and disruptions, closed international
borders, enhanced health screenings at ports of entry and elsewhere, disruption
of and delays in healthcare service preparation and delivery, quarantines, event
and service cancellations or interruptions, disruptions to business operations
(including staff furloughs and reductions) and supply chains, and a reduction in
consumer and business spending, as well as general concern and uncertainty that
has negatively affected the economy. These disruptions have led to instability
in the market place, including equity and debt market losses and overall
volatility, and the jobs market. The impact of COVID-19, and other infectious
illness outbreaks, epidemics or pandemics that may arise in the future, could
adversely affect the economies of many nations or the entire global economy, the
financial well-being and performance of individual issuers, borrowers and
sectors and the health of the markets generally in potentially significant and
unforeseen ways. In addition, the impact of infectious illnesses, such as
COVID-19, in emerging market countries may be greater due to generally less
established healthcare systems. This crisis or other public health crises may
exacerbate other pre-existing political, social and economic risks in certain
countries or globally.
The
foregoing could lead to a significant economic downturn or recession, increased
market volatility, a greater number of market closures, higher default rates and
adverse effects on the values and liquidity of securities or other assets. Such
impacts, which may vary across asset classes, may adversely affect the
performance of the Fund. In certain cases, an exchange or market may close or
issue trading halts on specific securities or even the entire market, which may
result in the Fund being, among other things, unable to buy or sell certain
securities or financial instruments or to accurately price its investments.
These and other developments may adversely affect the liquidity of the Fund’s
holdings.
Investment
Strategies and Related Risks
The
Fund’s principal investment strategies utilized by the Advisor and the principal
risks associated with the same are set forth in the Fund’s Prospectus. The
following discussion provides additional information about those principal
investment strategies and related risks, as well as information about investment
strategies (and related risks) that the Fund may utilize, even though they are
not considered to be “principal” investment strategies. Accordingly, an
investment strategy (and related risk) that is described below, but which is not
described in the Prospectus, should not be considered to be a non‑principal
strategy (or related risk) applicable to the Fund. The following strategies and
risks apply to the Fund directly or indirectly through its investments in
exchange-traded funds and derivatives.
Equity
Securities
Equity
securities in which the Fund invests may include common stocks, preferred stocks
and securities convertible into common stocks, such as convertible bonds,
warrants, rights and options. The value of equity securities varies in response
to many factors, including the activities and financial condition of individual
companies, the business market in which individual companies compete and general
market and economic conditions. Equity securities fluctuate in value, often
based on factors unrelated to the value of the issuer of the securities, and
such fluctuations can be significant.
Common
Stock
Common
stock represents an equity (ownership) interest in a company, and usually
possesses voting rights and earns dividends. Dividends on common stock are not
fixed but are declared at the discretion of the issuer. Common stock generally
represents the riskiest investment in a company. In addition, common stock
generally has the greatest appreciation and depreciation potential because
increases and decreases in earnings are usually reflected in a company’s stock
price.
Other
Investment Companies
The
Fund may invest in exchange-traded funds (“ETFs”), which are securities of other
investment companies. The Fund limits its investments in securities issued by
other investment companies in accordance with the 1940 Act. With certain
exceptions, Section 12(d)(1) of the 1940 Act precludes the Fund from acquiring
(i) more than 3% of the total outstanding shares of another investment company;
(ii) shares of another investment company having an aggregate value in excess of
5% of the value of the total assets of the Fund; or (iii) shares of another
registered investment company and all other investment companies having an
aggregate value in excess of 10% of the value of the total assets of the Fund
(such limits do not apply to investments in money market funds). The Fund will
invest in ETFs in reliance on Section 12(d)(1)(F) of the 1940 Act. 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 the 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 the Fund and all
affiliated persons of such Fund; and (ii) the 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 offering price that includes a sales load of more than 1
½%. Rule 12d1-3 under the 1940 Act provides, however, that the Fund may rely on
the Section 12(d)(1)(F) exemption and charge a sales load in excess of 1 1/2%
provided the sales load and any service fee charged does not exceed limits set
forth in applicable rules of the Financial Industry Regulatory Authority, Inc.
(“FINRA”).
If
the Fund invests in investment companies, including ETFs, pursuant to Section
12(d)(1)(F), it must comply with the following voting restrictions: when the
Fund exercises voting rights, by proxy or otherwise, with respect to investment
companies owned by such Fund, the Fund will either seek instruction from its
shareholders with regard to the voting of all proxies and vote in accordance
with such instructions, or vote the shares held by the Fund in the same
proportion as the vote of all other holders of the securities of the investment
company. In addition, an investment company purchased by the Fund pursuant to
Section 12(d)(1)(F) shall not be required to redeem its shares in an amount
exceeding 1% of such investment company’s total outstanding shares in any period
of less than thirty days. To the extent the Fund is unable to redeem such shares
within 7 days of a redemption request, the shares will be deemed illiquid and
subject to the limitation that the Fund may not invest more than 15% of the
value of its net assets, computed at the time of investment, in illiquid
securities. In addition to the advisory and operational fees the Fund bears
directly in connection with its own operation, the Fund will also bear its pro
rata portion of the advisory and operational expenses incurred indirectly
through its investments in other investment companies.
In
October 2020, the SEC adopted certain regulatory changes and took other actions
related to the ability of an investment company to invest in another investment
company. These changes include, among other things, amendments to Rule 12d1-1,
the rescission of Rule 12d1-2, the adoption of Rule 12d1-4, and the rescission
of certain exemptive relief issued by the SEC permitting such investments in
excess of statutory limits. Compliance with these new requirements was required
by January 19, 2022 and, following the compliance date, these regulatory changes
may adversely impact the Fund’s investment strategies and operations. The Fund
has adopted a policy to comply with these new regulations.
Exchange
Traded Funds.
ETFs are funds that track their related index and have the flexibility of
trading like a security. They are managed by professionals and provide the
investor with diversification, cost and tax efficiency, liquidity,
marginability, are useful for hedging, have the ability to go long and short,
and some provide quarterly dividends. ETFs generally have two markets. The
primary market is where institutions swap “creation units” in block-multiples of
shares, typically 25,000 or 50,000 for in-kind securities and cash in the form
of dividends. The secondary market is where individual investors can trade as
little as a single share during trading hours on the exchange. This is different
from open-ended mutual funds that are traded after hours once the net asset
value (“NAV”) is calculated. ETFs share many similar risks with open-end and
closed-end funds.
There
is a risk that an ETF in which the Fund invests may terminate due to
extraordinary events that may cause any of the service providers to the ETF,
such as the trustee or sponsor, to close or otherwise fail to perform their
obligations to the ETF. Also, because the ETFs in which the Fund intends to
principally invest may be granted licenses by agreement to use the indices as a
basis for determining their compositions and/or otherwise to use certain trade
names, the ETFs may terminate if such license agreements are terminated. In
addition, an ETF may terminate if its entire net asset value falls below a
certain amount. Although the Advisor may believe that, in the event of the
termination of an underlying ETF, it will be able to invest instead in shares of
an alternate ETF tracking the same market index or another market index with the
same general market, there is no guarantee that shares of an alternate ETF would
be available for investment at that time. To the extent that the Fund invests in
a sector product, the Fund is subject to the risks associated with that
sector.
Derivatives
The
Fund purchases and sells (writes) options, a type of derivative instruments, as
part of its principal investment strategies. Generally, derivatives are
financial contracts whose value depends upon, or is derived from, the value of
an underlying asset, reference rate, or index, and may relate to bonds, interest
rates, currencies, commodities, and related indexes. With respect to certain
kinds of derivative transactions that involve obligations to make future
payments to third parties, the Fund must “set aside” liquid assets, or engage in
other measures to “cover” open positions with respect to such transactions.
In
October 2020, the SEC adopted Rule 18f-4 under the 1940 Act, which became
effective on August 19, 2022. The rule replaces the current standard for funds’
use of derivatives. Funds that are subject to the rule are required to limit
their use of derivatives based on the fund’s value-at-risk (“VaR”). VaR is a
measure of estimated potential losses on an instrument or portfolio, expressed
as a percentage of the value of the portfolio’s assets (or net assets when
computing a fund’s VaR), over a specified time horizon and at a given confidence
level. A fund must limit its derivatives usage to 200% of the VaR of a
designated reference portfolio, which may be an index that meets certain
requirements or the fund’s own securities portfolio. Alternatively, if this test
is impractical based on the fund’s portfolio, the fund may comply with the
“absolute VaR test” which limits the fund’s VaR to 20% of its net assets. Rule
18f-4 also requires (i) the appointment of a derivatives risk manager by the
fund’s board to oversee the program, (ii) monitoring and stress testing
requirements, and (iii) reporting and escalation procedures if thresholds are
breached.
Funds
that limit derivatives exposure to 10% of net assets are exempt from many of the
requirements of Rule 18f-4.
Option
Transactions
Option
transactions in which the Fund may engage involve the specific risks described
above as well as the following risks:
•the
writer of an option may be assigned an exercise at any time during the option
period;
•disruptions
in the markets for underlying instruments could result in losses for options
investors;
•there
may be an imperfect or no correlation between the option and the securities
being hedged; and
•the
insolvency of a broker could present risks for the broker’s
customers.
In
addition, a liquid secondary market for options, whether traded
over-the-counter or on an exchange, may not exist due to the
following:
•there
may be insufficient trading interest in a particular option;
•restrictions
may be imposed by an exchange on opening transactions or closing transactions or
both;
•trading
halts, suspensions, or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities;
•unusual
or unforeseen circumstances may interrupt normal operations on an exchange;
•the
facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading value; or
•one
or more exchanges could, for economic or other reasons, decide or be compelled
at some future date to discontinue the trading of options (or a particular class
or series of options), in which event the secondary market on that exchange (or
in that class or series of options) would cease to exist, although outstanding
options that had been issued by the Options Clearing Corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms.
The
option activities of the Fund may affect its portfolio turnover rate and the
amount of brokerage commissions paid by the Fund due to the Advisor closing out
options trades approximately one year after the date in which the trades are
entered and entering into new options trades. The success of the Fund in using
the option strategies described above depends, among other things, on the
Advisor’s ability to predict the direction and volatility of price movements in
the options and securities markets and the Advisor’s ability to select the
proper time, type and duration of the options.
By
writing call options, the Fund forgoes the opportunity to profit from an
increase in the market price of the underlying security above the exercise price
except insofar as the premium represents such a profit. The Fund may also seek
to earn additional income through receipt of premiums by writing covered put
options. The risk involved in writing such options is that there could be a
decrease in the market value of the underlying security. If this occurred, the
option could be exercised and the underlying security would then be sold to the
Fund at a higher price than its then current market value.
The
Fund may purchase put and call options to attempt to provide protection against
adverse price effects from anticipated changes in prevailing prices of
securities. The purchase of a put option generally protects the value of
portfolio holdings in a falling market, while the purchase of a call option
generally protects cash reserves from a failure to participate in a rising
market. In purchasing a call option, the Fund would be in a position to realize
a gain if, during the option period, the price of the security increased by an
amount
greater than the premium paid. The Fund would realize a loss if the price of the
security decreased or remained the same or did not increase during the period by
more than the amount of the premium. If a put or call option purchased by the
Fund were permitted to expire without being sold or exercised, its premium would
represent a realized loss to the Fund.
The
imperfect correlation in price movement between an option and the underlying
financial instrument and/or the costs of implementing such an option may limit
the effectiveness of the strategy. The Fund’s ability to establish and close out
options positions will be subject to the existence of a liquid secondary market.
Although the Fund generally will purchase or sell only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option or
at any particular time. If an option purchased by the Fund expires unexercised,
the Fund will lose the premium it paid. In addition, the Fund could suffer a
loss if the premium paid by the Fund in a closing transaction exceeds the
premium income it received. When the Fund writes a call option, its ability to
participate in the capital appreciation of the underlying obligation is limited.
The Fund can cover a call option by owning:
•The
underlying security (or securities convertible into the underlying security
without additional consideration), index, interest rate, foreign currency or
futures contract;
•A
call option on the same security or index with the same or lesser exercise
price;
•A
call option on the same security or index with a greater exercise price and
segregating cash or liquid securities in an amount equal to the difference
between the exercise prices;
•Cash
or liquid securities equal to at least the market value of the optioned
securities, interest rate, foreign currency or futures contract; or
•In
the case of an index, the basket of securities that corresponds to the
index.
The
Fund can cover a put option by:
•Entering
into a short position in the underlying security;
•Purchasing
a put option on the same security, index, interest rate, foreign currency or
futures contract with the same or greater exercise price;
•Purchasing
a put option on the same security, index, interest rate, foreign currency or
futures contract with a lesser exercise price and segregating cash or liquid
securities in an amount equal to the difference between the exercise prices;
or
•Maintaining
the entire exercise price in liquid securities.
When
the Fund purchases a call option, it obtains the right to purchase the
underlying instrument at the option’s strike price. In return for this right,
the Fund pays the current market price for the option (known as the “option
premium”). A Fund may purchase call options to offset or hedge against an
increase in the market value of its short positions or to benefit from an
increase in the price of securities that it does not own. A Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying instrument increased above the exercise price sufficiently to cover
the premium paid and related transaction costs. However, if the price of the
underlying instrument does not rise enough to offset the cost of purchasing the
option, a call buyer would lose the premium and related transaction
costs.
Put
options are similar to call options, except that the Fund obtains the right to
sell, rather than purchase, the underlying instrument at the option’s strike
price. In return for this right, the Fund pays the option premium. A Fund may
purchase put options to offset or hedge against a decline in the market value of
its securities or to benefit from a decline in the price of securities that it
does not own. A Fund would ordinarily realize a gain if, during the option
period, the value of the underlying instrument decreased
below
the exercise price sufficiently to cover the premium paid and related
transaction costs. However, if the price of the underlying instrument does not
fall enough to offset the cost of purchasing the option, a put buyer would lose
the premium and related transaction costs.
The
purchaser of an option may terminate its position by:
•allowing
it to expire and losing its entire premium;
•exercising
the option and either buying (in the case of a call option) or selling (in the
case of a put option) the underlying instrument at the strike price;
or
•closing
it out in the secondary market at its current price.
Options
on securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement payments and does
not involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market, rather than price fluctuations
in a single security.
Corporate
Debt Securities
The
may invest in ETFs that hold corporate debt securities. Corporate debt
securities are fixed-income securities issued by businesses to finance their
operations, although corporate debt instruments may also include bank loans to
companies. Notes, bonds, debentures and commercial paper are the most common
types of corporate debt securities, with the primary difference being their
maturities and secured or unsecured status. Commercial paper has the shortest
term and is usually unsecured. Corporate debt may be rated investment grade or
below investment grade and may carry variable or floating rates of
interest.
Because
of the wide range of types, and maturities, of corporate debt securities, as
well as the range of creditworthiness of its issuers, corporate debt securities
have widely varying potentials for return and risk profiles. For example,
commercial paper issued by a large established domestic corporation that is
rated investment grade may have a modest return on principal, but carries
relatively limited risk. On the other hand, a long-term corporate note issued by
a small foreign corporation from an emerging market country that has not been
rated may have the potential for relatively large returns on principal, but
carries a relatively high degree of risk.
Corporate
debt securities carry both credit risk and interest rate risk. Credit risk is
the risk that the Fund could lose money if the issuer of a corporate debt
security is unable to pay interest or repay principal when it is due. Some
corporate debt securities that are rated below investment grade are generally
considered speculative because they present a greater risk of loss, including
default, than higher quality debt securities. The credit risk of a particular
issuer’s debt security may vary based on its priority for repayment. For
example, higher ranking (senior) debt securities have a higher priority than
lower ranking (subordinated) securities. This means that the issuer might not
make payments on subordinated securities while continuing to make payments on
senior securities. In addition, in the event of bankruptcy, holders of
higher-ranking senior securities may receive amounts otherwise payable to the
holders of more junior securities. Interest rate risk is the risk that the value
of certain corporate debt securities will tend to fall when interest rates rise.
In general, corporate debt securities with longer terms tend to fall more in
value when interest rates rise than corporate debt securities with shorter
terms.
United
States Government Obligations
These
consist of various types of marketable securities issued by the United States
Treasury, i.e., bills, notes and bonds. Such securities are direct obligations
of the United States government and differ mainly in the length of their
maturity. Treasury bills, the most frequently issued marketable government
security,
have
a maturity of up to one year and are issued on a discount basis. The Fund may
also invest in Treasury Inflation-Protected Securities (“TIPS”). TIPS are
special types of treasury bonds that were created in order to offer bond
investors protection from inflation. The values of the TIPS are automatically
adjusted to the inflation rate as measured by the Consumer Price Index (“CPI”).
If the CPI goes up by half a percent, the value of the bond (the TIPS) would
also go up by half a percent. If the CPI falls, the value of the bond does not
fall because the government guarantees that the original investment will stay
the same. TIPS decline in value when real interest rates rise. However, in
certain interest rate environments, such as when real interest rates are rising
faster than nominal interest rates, TIPS may experience greater losses than
other fixed income securities with similar duration.
Other
Investment Policies
Temporary
Defensive Positions
The
Fund, as well as the underlying investment companies in which the Fund invests,
may, from time to time, take temporary defensive positions that are inconsistent
with the Fund’s investment objective and principal investment strategies in an
attempt to respond to adverse or unstable market, economic, political, or other
conditions when the Advisor deems it appropriate to do so. During such an
unusual set of circumstances, the Fund (or its underlying investment companies)
may hold up to 100% of its portfolios in cash or cash equivalent positions
(e.g., money market securities, U.S. Government securities, and/or similar
securities). When the Fund (or its underlying investment companies) takes a
temporary or defensive position, the Fund may not be able to pursue or achieve
its investment objective.
Illiquid
Investments and Restricted Securities.
Pursuant
to Rule 22e-4 under the 1940 Act, the Fund may not acquire any “illiquid
investment” if, immediately after the acquisition, the Fund would have invested
more than 15% of its net assets in illiquid investments that are assets. An
“illiquid investment” is any investment that the Fund reasonably expects cannot
be sold or disposed of in current market conditions in seven calendar days or
less without the sale or disposition significantly changing the market value of
the investment. The Fund has implemented a liquidity risk management program and
related procedures to identify illiquid investments pursuant to Rule 22e-4. The
15% limit is applied as of the date the Fund purchases an illiquid investment.
It is possible that the Fund’s holding of illiquid investments could exceed the
15% limit, for example as a result of market developments or
redemptions.
The
Fund may purchase certain restricted securities that can be resold to
institutional investors and which may be determined not to be illiquid
investments pursuant to the Fund’s liquidity risk management program. In many
cases, those securities are traded in the institutional market pursuant to Rule
144A under the Securities Act of 1933, as amended, and are called Rule 144A
securities.
Investments
in illiquid investments involve more risks than investments in similar
securities that are readily marketable. Illiquid investments may trade at a
discount from comparable, more liquid investments. Investment of the Fund’s
assets in illiquid investments may restrict the ability of the Fund to dispose
of its investments in a timely fashion and for a fair price as well as its
ability to take advantage of market opportunities. The risks associated with
illiquidity will be particularly acute where the Fund’s operations require cash,
such as when the Fund has net redemptions, and could result in the Fund
borrowing to meet short-term cash requirements or incurring losses on the sale
of illiquid investments.
Illiquid
investments are often restricted securities sold in private placement
transactions between issuers and their purchasers and may be neither listed on
an exchange nor traded in other established markets. In many cases, the
privately placed securities may not be freely transferable under the laws of the
applicable
jurisdiction
or due to contractual restrictions on resale. To the extent privately placed
securities may be resold in privately negotiated transactions, the prices
realized from the sales could be less than those originally paid by a Fund or
less than the fair value of the securities. In addition, issuers whose
securities are not publicly traded may not be subject to the disclosure and
other investor protection requirements that may be applicable if their
securities were publicly traded. If any privately placed securities held by a
Fund are required to be registered under the securities laws of one or more
jurisdictions before being resold, the Fund may be required to bear the expenses
of registration. Private placement investments may involve investments in
smaller, less seasoned issuers, which may involve greater risks than investments
in more established companies. These issuers may have limited product lines,
markets or financial resources, or they may be dependent on a limited management
group. In making investments in private placement securities, a Fund may obtain
access to material non-public information, which may restrict the Fund’s ability
to conduct transactions in those securities.
Lending
of Portfolio Securities.
In order to generate additional income, the Fund may lend portfolio securities
in an amount up to 33% of total Fund assets to broker-dealers, major banks, or
other recognized domestic institutional borrowers of securities which the
Advisor has determined are creditworthy under guidelines established by the
Board. In determining whether the Fund will lend securities, the Advisor will
consider all relevant facts and circumstances. The Fund may not lend securities
to any company affiliated with the Advisor. Each loan of securities will be
collateralized by cash, securities, or equivalent collateral. The Fund might
experience a loss if the borrower defaults on the loan.
The
borrower at all times during the loan must maintain with the Fund cash or cash
equivalent collateral. While the loan is outstanding, the borrower will pay the
Fund any interest paid on the loaned securities, and the Fund may invest the
cash collateral to earn additional income. Alternatively, the Fund may receive
an agreed-upon amount of interest income from the borrower who has delivered
equivalent collateral. It is anticipated that the Fund may share with the
borrower some of the income received on the collateral for the loan or the Fund
will be paid a premium for the loan. Voting rights for loaned securities will
typically pass to the borrower, but the Fund will retain the right to call any
security in anticipation of a vote that the Advisor deems material to the
security on loan. Loans are subject to termination at the option of the Fund or
the borrower at any time. The Fund may pay reasonable administrative and
custodial fees in connection with a loan, and may pay a negotiated portion of
the income earned on the cash to the borrower or placing broker. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower fail financially.
Securities
lending involves counterparty risk, including the risk that the loaned
securities may not be returned or returned in a timely manner and/or a loss of
rights in the collateral if the borrower or the lending agent defaults or fails
financially. This risk will be increased if a continuation of the current
downturn in the economic conditions in the United States and around the world,
particularly the recent failures of several major financial services firms,
causes further declines in the securities markets and/or causes further
financial instability in the borrowers or lending agents. This risk is increased
when the Fund’s loans are concentrated with a single or limited number of
borrowers. There are no limits on the number of borrowers the Fund may use, and
the Fund may lend securities to only one or a small group of borrowers. Mutual
funds participating in securities lending bear the risk of loss in connection
with investments of the cash collateral received from the borrowers, which do
not trigger additional collateral requirements from the borrower.
Borrowing.
The Fund may borrow money for investment purposes, which is a form of
leveraging. Leveraging investments, by purchasing securities with borrowed
money, is a speculative technique that increases investment risk while
increasing investment opportunity. Such borrowing may make the Fund’s
NAV
more volatile than funds that do not borrow for investment purposes because
leverage magnifies changes in the Fund’s NAV and on the Fund’s investments.
Although the principal of borrowings will be fixed, the Fund’s assets may change
in value during the time the borrowing is outstanding. Leverage also creates
interest expenses for the Fund. To the extent the income derived from securities
purchased with borrowed funds exceeds the interest the Fund will have to pay,
the Fund’s net income will be greater than it would be if leverage were not
used. Conversely, if the income from the assets obtained with borrowed funds is
not sufficient to cover the cost of leveraging, the net income of the Fund will
be less than it would be if leverage were not used, and therefore the amount
available for distribution to shareholders as dividends will be reduced. The use
of derivatives in connection with leverage creates the potential for significant
loss. The Fund does not intend to use leverage in excess of 5% of total assets
and will not make additional investments when outstanding borrowings exceed 5%
of the Fund’s total assets. Any leveraging will comply with the applicable
requirements of the 1940 Act and the applicable guidance of no-action letters
issued by the SEC, including Investment Company Act Release No. 10666 (Apr. 18,
1979), intended to minimize the use of leverage and the possibility that the
Fund’s liabilities will exceed the value of its assets.
The
Fund may also borrow money to meet redemptions or for other emergency purposes.
Such borrowings may be on a secured or unsecured basis at fixed or variable
rates of interest. The 1940 Act requires the Fund to maintain continuous asset
coverage of not less than 300% with respect to all borrowings. If such asset
coverage should decline to less than 300% due to market fluctuations or other
reasons, the Fund will be required to reduce the amount of its borrowings within
three days (not including Sundays and holidays), and may be required to dispose
of some portfolio holdings in order to reduce the Fund’s debt and restore the
300% asset coverage, even though it may be disadvantageous from an investment
standpoint to dispose of assets at that time. The Fund also may be required to
maintain minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit. Either of these
requirements would increase the cost of borrowing over the stated interest
rate.
Cybersecurity
and Operational Risk
With
the increased use of technologies such as the Internet to conduct business, the
Fund and its service providers are susceptible to operational, information
security and related risks. In general, cyber incidents can result from
deliberate attacks or unintentional events. Cyber-attacks include, but are not
limited to, gaining unauthorized access to digital systems (e.g., through
“hacking” or malicious software coding) for purposes of misappropriating assets
or sensitive information, corrupting data, or causing operational disruption.
Cyber-attacks may also be carried out in a manner that does not require gaining
unauthorized access, such as causing denial-of-service attacks on websites
(i.e., efforts to make network services unavailable to intended users). Cyber
incidents affecting the Fund or its service providers may cause disruptions and
impact business operations, potentially resulting in financial losses,
interference with the Fund’s ability to calculate its NAV, impediments to
trading, the inability of fund shareholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, or additional compliance
costs. Similar adverse consequences could result from cyber incidents affecting
issuers of securities in which a fund invests, counterparties with which the
Fund engages in transactions, governmental and other regulatory authorities,
exchange and other financial market operators, banks, brokers, dealers,
insurance companies and other financial institutions (including financial
intermediaries and service providers for fund shareholders) and other parties.
In addition, substantial costs may be incurred in order to prevent any cyber
incidents in the future. While the Fund’s service providers have established
business continuity plans in the event of, and risk management systems to
prevent, such cyber incidents, there are inherent limitations in such plans and
systems including the possibility that certain risks have not been identified.
Furthermore,
the Funds cannot control the cyber security plans and systems put in place by
its service providers or any other third parties whose operations may affect the
Fund or its shareholders. The Fund and its shareholders could be negatively
impacted as a result.
Large
Shareholder Risk.
Certain account holders may from time to time own or control a significant
percentage of the Fund’s shares. The Fund is subject to the risk that a
redemption by large shareholders of all or a portion of their Fund shares or a
purchase of Fund shares in large amounts and/or on a frequent basis will
adversely affect the Fund’s performance if it is forced to sell portfolio
securities or invest cash when the Advisor would not otherwise choose to do so.
This risk will be particularly pronounced if one shareholder owns a substantial
portion of the Fund. Redemptions of a large number of shares may affect the
liquidity of the Fund’s portfolio, increase the Fund’s transaction costs and/or
lead to the liquidation of the Fund. Such transactions also potentially limit
the use of any capital loss carryforwards and certain other losses to offset
future realized capital gains (if any).
Liquidation
of the Fund.
The Board may determine to close and liquidate the Fund at any time, which may
have adverse tax consequences to shareholders. In the event of the liquidation
of the Fund, shareholders will receive a liquidating distribution in cash or
in-kind equal to their proportionate interest in the Fund. A liquidating
distribution would generally be a taxable event to shareholders, resulting in a
gain or loss for tax purposes, depending upon a shareholder’s basis in his or
her shares of the Fund. A shareholder of the liquidating Fund will not be
entitled to any refund or reimbursement of expenses borne, directly or
indirectly, by the shareholder (such as sales loads, account fees, or fund
expenses), and a shareholder may receive an amount in liquidation less than the
shareholder’s original investment.
Regulatory
Risk.
Financial entities, such as investment companies and investment advisers, are
generally subject to extensive government regulation and intervention.
Government regulation and/or intervention may change the way the Fund is
regulated, affect the expenses incurred directly by the Fund and the value of
its investments, and limit and/or preclude the Fund’s ability to achieve its
investment objective. Government regulation may change frequently and may have
significant adverse consequences. Moreover, government regulation may have
unpredictable and unintended effects. While there continues to be uncertainty
about the full impact of recent regulatory changes, it is the case that the Fund
likely will be subject to a more complex regulatory framework, and may incur
additional costs to comply with new requirements as well as to monitor for
compliance in the future.
INVESTMENT
RESTRICTIONS
The
investment restrictions applicable to the Fund are set forth below and are
either fundamental or non-fundamental. Fundamental restrictions may not be
changed without a majority vote of shareholders as required by the 1940 Act.
Non-fundamental policies or restrictions may be changed by the Board without
shareholder approval.
Fundamental
Investment Restrictions
The
Trust (on behalf of the Fund) has adopted the following restrictions as
fundamental policies, which may not be changed without the affirmative vote of
the holders of a “majority” of the outstanding voting securities of the Fund.
Under the 1940 Act, the “vote of the holders of a majority of the outstanding
voting securities” means the vote of the holders of the lesser of (i) 67%
or more of the shares of the Fund present at a meeting at which the holders of
more than 50% of the Fund’s outstanding shares are present or represented by
proxy or (ii) more than 50% of the outstanding shares of the
Fund.
As
a matter of fundamental policy:
1.The
Fund may not lend money or other assets except to the extent permitted by (i)
the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other
authority with appropriate jurisdiction, or (ii) exemptive or other relief or
permission from the SEC, SEC staff or other authority.
2.The
Fund may not borrow money, except as permitted by (i) the 1940 Act, or
interpretations or modifications by the SEC, SEC staff or other authority with
appropriate jurisdiction, or (ii) exemptive or other relief or permission from
the SEC, SEC staff or other authority.
3.The
Fund may not issue senior securities except as permitted by (i) the 1940 Act, or
interpretations or modifications by the SEC, SEC staff or other authority with
appropriate jurisdiction, or (ii) exemptive or other relief or permission from
the SEC, SEC staff or other authority.
4.The
Fund may not concentrate its investments in a particular industry, as
concentration is defined under the 1940 Act, the rules or regulations thereunder
or any exemption therefrom, as such statute, rules or regulations may be amended
or interpreted from time to time, except that the Fund may invest without
limitation in: (i) securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities; (ii) tax-exempt obligations of state or municipal
governments and their political subdivisions; (iii) securities of other
investment companies; and (iv) repurchase agreements.
5.The
Fund may not purchase or sell real estate, except as permitted by (i) the 1940
Act, or interpretations or modifications by the SEC, SEC staff or other
authority with appropriate jurisdiction, or (ii) exemptive or other relief or
permission from the SEC, SEC staff or other authority.
6.The
Fund may not buy or sell commodities or commodity (futures) contracts, except as
permitted by (i) the 1940 Act, or interpretations or modifications by the SEC,
SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or
other relief or permission from the SEC, SEC staff or other
authority.
7.The
Fund may not engage in the business of underwriting the securities of other
issuers except as permitted by (i) the 1940 Act, or interpretations or
modifications by the SEC, SEC staff or other authority with appropriate
jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC
staff or other authority, and except to the extent that the Fund may be deemed
to be an underwriter within the meaning of the Securities Act in connection with
the purchase and sale of portfolio securities.
Except
with respect to borrowing and liquidity, all percentage or rating restrictions
on an investment or use of assets set forth herein or in the Prospectus are
adhered to at the time of investment. Later changes in the percentage or rating
resulting from any cause other than actions by the Fund will not be considered a
violation of the Fund’s investment restrictions. If the value of the Fund’s
holdings of illiquid securities at any time exceeds the percentage limitation
applicable due to subsequent fluctuations in value or other reasons, the Board
will consider what actions are appropriate to maintain adequate
liquidity.
Additional
Information Regarding Fundamental Investment Restrictions
The
following descriptions of the 1940 Act may assist investors in understanding the
above policies and restrictions.
Lending.
The 1940 Act does not prohibit a fund from making loans (including lending its
securities); however, SEC staff interpretations currently prohibit funds from
lending more than one-third of their total assets (including lending its
securities), except through the purchase of debt obligations or the use of
repurchase agreements. In addition, collateral arrangements with respect to
options, forward currency and futures transactions and other derivative
instruments (as applicable), as well as delays in the settlement of securities
transactions, will not be considered loans.
For
purposes of the Fund’s fundamental investment restriction with respect to
lending, the entry into repurchase agreements, lending securities and acquiring
of debt securities shall not constitute loans by the Fund.
Senior
Securities and Borrowing.
The 1940 Act prohibits the Fund from issuing any class of senior securities or
selling any senior securities of which it is the issuer, except that the Fund is
permitted to borrow from a bank so long as, immediately after such borrowings,
there is an asset coverage of at least 300% for all borrowings of the Fund (not
including borrowings for temporary purposes in an amount not exceeding 5% of the
value of the Fund’s total assets). In the event that such asset coverage falls
below this percentage, the Fund is required to reduce the amount of its
borrowings within three days (not including Sundays and holidays) so that the
asset coverage is restored to at least 300%. Asset coverage means the ratio that
the value of a fund’s total assets (including amounts borrowed), minus
liabilities other than borrowings, bears to the aggregate amount of all
borrowings. Borrowing money to increase portfolio holdings is known as
“leveraging.” Certain trading practices and investments, such as reverse
repurchase agreements, may be considered to be borrowings or involve leverage
and thus are subject to the 1940 Act restrictions. In accordance with SEC staff
guidance and interpretations, when a fund engages in such transactions, the fund
instead of maintaining asset coverage of at least 300%, may segregate or earmark
liquid assets, or enter into an offsetting position, in an amount at least equal
to the fund’s exposure, on a mark-to-market basis, to the transaction (as
calculated pursuant to requirements of the SEC). The fundamental restriction in
(2) above will be interpreted to permit the Fund to engage in trading practices
and investments that may be considered to be borrowing or to involve leverage to
the extent permitted by the 1940 Act and to permit the Fund to segregate or
earmark liquid assets or enter into offsetting positions in accordance with the
1940 Act. Short-term credits necessary for the settlement of securities
transactions and arrangements with respect to securities lending will not be
considered to be borrowings under the policy. Practices and investments that may
involve leverage but are not considered to be borrowings are not subject to the
policy.
Derivative
instruments are not considered to be borrowings for purposes of the Fund’s
Fundamental Investment Restrictions because they will be “covered,” as described
above under “Investment Policies, Strategies and Associated Risks.”
Concentration.
The SEC staff has defined concentration as investing 25% or more of a fund’s
total assets in any particular industry or group of industries, with certain
exceptions such as with respect to investments in obligations issued or
guaranteed by the U.S. government or its agencies and instrumentalities, or
tax-exempt obligations of state or municipal governments and their political
subdivisions. The SEC staff has further maintained that a fund should consider
the underlying investments, where easily determined, of investment companies in
which the fund is invested when
determining
concentration of the fund. For purposes of the Fund’s concentration policy, the
Fund may classify and re-classify companies in a particular industry and define
and re-define industries in any reasonable manner, consistent with SEC and SEC
staff guidance. In this regard, the Advisor may analyze the characteristics of a
particular issuer and instrument and may assign an industry classification
consistent with those characteristics. The Advisor may, but need not, consider
industry classifications provided by third parties.
Diversification.
Under the 1940 Act and the rules, regulations and interpretations thereunder, an
investment company is a “diversified company” if, as to 75% of its total assets,
it does not purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. government or its agencies, or instrumentalities or
securities of other investment companies) if, as a result, more than 5% of its
total assets would be invested in the securities of such issuer, or more than
10% of the issuer’s voting securities would be held by the investment company.
For purposes of the Fund’s diversification policy, the identification of the
issuer of a security may be determined in any reasonable manner, consistent with
SEC guidance.
However,
since the Fund intends to qualify as a “regulated investment company” under
Subchapter M of the Internal Revenue Code of 1986, as amended, (the “Code”), the
Fund will limit its investment, excluding cash, cash items (including
receivables), U.S. government securities and securities of other regulated
investment companies, so that at the close of each quarter of the taxable year,
(1) not more than 25% of the Fund’s total assets will be invested in the
securities of a single issuer, and (2) with respect to 50% of its total assets,
not more than 5% of the Fund’s total assets will be invested in the securities
of a single issuer nor represent more than 10% of the issuer’s outstanding
voting securities.
Underwriting.
The 1940 Act does not prohibit a fund from engaging in the underwriting business
or from underwriting the securities of other issuers; in fact, in the case of
diversified funds, the 1940 Act permits a fund to have underwriting commitments
of up to 25% of its assets under certain circumstances. Those circumstances
currently are that the amount of the fund’s underwriting commitments, when added
to the value of the fund’s investments in issuers where the fund owns more than
10% of the outstanding voting securities of those issuers, cannot exceed the 25%
cap.
PORTFOLIO
TURNOVER
The
frequency of the Fund’s portfolio transactions (the portfolio turnover rate)
will vary from year to year depending on many factors. Higher portfolio turnover
rates may result in increased brokerage costs to the Fund and a possible
increase in short-term capital gains or losses. The Fund’s portfolio turnover
rate for the most recent fiscal years ended April 30 was as
follows:
PORTFOLIO
HOLDINGS INFORMATION
The
Trust, on behalf of the Fund, has adopted a portfolio holdings disclosure policy
that governs the timing and circumstances of disclosure of portfolio holdings of
the Fund. The Advisor has also adopted a policy with respect to disclosure of
Fund’s portfolio holdings (the “Advisor’s Policy”). Information about the Fund’s
portfolio holdings will not be distributed to any third party except in
accordance with the
portfolio
holdings policies and the Advisor’s Policy (the “Disclosure Policies”). The
Advisor and the Board considered the circumstances under which the Fund’s
portfolio holdings may be disclosed under the Disclosure Policies and the actual
and potential material conflicts that could arise in such circumstances between
the interests of the Fund’s shareholders and the interests of the Advisor, the
Fund’s distributor, Quasar Distributors, LLC (the “Distributor”) or any other
affiliated person of the Fund. After due consideration, the Advisor and the
Board determined that the Fund has a legitimate business purpose for disclosing
portfolio holdings to persons described in the Disclosure Policies, including
mutual fund rating or statistical agencies, or persons performing similar
functions, and internal parties involved in the investment process,
administration or custody of the Fund. Pursuant to the Disclosure Policies, the
Trust’s Chief Compliance Officer (“CCO”) is authorized to consider and authorize
dissemination of portfolio holdings information to additional third parties,
after considering the best interests of the Fund shareholders and potential
conflicts of interest in making such disclosures.
The
Board exercises continuing oversight of the disclosure of the Fund’s portfolio
holdings by (1) overseeing the implementation and enforcement of the Disclosure
Policies, Codes of Ethics and other relevant policies of the Fund and its
service providers by the Trust’s CCO, (2) by considering reports and
recommendations by the Trust’s CCO concerning any material compliance matters
(as defined in Rule 38a-1 under the 1940 Act), and (3) by considering the
approval of any amendment to the Disclosure Policies. The Board reserves the
right to amend the Disclosure Policies at any time without prior notice to
shareholders in its sole discretion.
Disclosure
of the Fund’s complete holdings is required to be made quarterly within 60 days
of the end of each period covered by the Annual Report and Semi-Annual Report to
Fund shareholders and in the holdings report on Part F of Form N-PORT. These
reports are available, free of charge, on the EDGAR database on the SEC’s
website at www.sec.gov. Portfolio holdings information posted on the Fund’s
website may be separately provided to any person, commencing on the day after it
is first published on the Fund’s website. In addition, the Fund may provide its
complete portfolio holdings at the same time that it is filed with the
SEC.
In
the event of a conflict between the interests of the Fund and the interests of
the Advisor or an affiliated person of the Advisor, the CCO of the Advisor, in
consultation with the Trust’s CCO, shall make a determination in the best
interests of the Fund, and shall report such determination to the Board at the
end of the quarter in which such determination was made. Any employee of the
Advisor who suspects a breach of this obligation must report the matter
immediately to the Advisor’s CCO or to his or her supervisor.
In
addition, material non-public holdings information may be provided without lag
as part of the normal investment activities of the Fund to each of the following
entities, which, by explicit agreement or by virtue of their respective duties
to the Fund, are required to maintain the confidentiality of the information
disclosed, including a duty not to trade on non-public information: the fund
administrator, fund accountant, custodian, transfer agent, auditors, counsel to
the Fund or the Board, broker-dealers (in connection with the purchase or sale
of securities or requests for price quotations or bids on one or more
securities) and regulatory authorities. Portfolio holdings information not
publicly available with the SEC or through the Fund’s website may only be
provided to additional third parties, including mutual fund ratings or
statistical agencies, in accordance with the Disclosure Policies, when the Fund
has a legitimate business purpose and the third party recipient is subject to a
confidentiality agreement that includes a duty not to trade on non-public
information. As of the date of this SAI these parties include Lipper,
Morningstar, S&P, Bloomberg, Thomson Financial, Vickers Stock and
CapitalBridge, Inc., all of which
may
receive such information between the 5th and 10th business day of the month
following the end of a calendar quarter.
In
no event shall the Advisor, its affiliates or employees, the Fund, or any other
party receive any direct or indirect compensation in connection with the
disclosure of information about the Fund’s portfolio holdings.
There
can be no assurance that the Disclosure Policies will protect the Fund from
potential misuse of portfolio holdings information by individuals or entities to
which it is disclosed.
TRUSTEES
AND EXECUTIVE OFFICERS
The
Board oversees the management and operations of the Trust. The Board, in turn,
elects the officers of the Trust, who are responsible for the day-to-day
operations of the Trust and its separate series. The current Trustees and
officers of the Trust, their year of birth, positions with the Trust, terms of
office with the Trust and length of time served, principal occupations during
the past five years and other directorships are set forth in the table below.
Unless noted otherwise, the principal business address of each Trustee is c/o
U.S. Bank Global Fund Services, 615 East Michigan Street, Milwaukee, Wisconsin
53202.
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Name
and Year of Birth |
Positions
with the Trust |
Term
of Office and Length of Time Served |
Principal
Occupations During Past Five Years |
Number
of Portfolios in Fund Complex(2)
Overseen by Trustees |
Other
Directorships Held During Past Five Years |
Independent
Trustees of the Trust(1) |
Koji
Felton (born 1961) |
Trustee |
Indefinite
Term; Since September 2015. |
Retired |
1 |
Independent
Trustee, Listed Funds Trust (15 portfolios) (Since 2019). |
Debra
McGinty-Poteet (born 1956) |
Trustee |
Indefinite
Term; Since September 2015. |
Retired.
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1 |
Independent
Trustee, F/m Funds Trust (3 portfolios) (Since May 2015). |
Daniel
B. Willey (born 1955) |
Trustee |
Indefinite
Term; Since September 2015. |
Retired.
Chief Compliance Officer, United Nations Joint Staff Pension Fund (2009 -
2017). |
1 |
None |
Interested
Trustee |
Elaine
E. Richards(3) (born
1968) |
Chair,
Trustee |
Indefinite
Term; Since July 2021. |
Senior
Vice President, U.S. Bank Global Fund Services (since
2007). |
1 |
None |
Officers
of the Trust |
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Name
and Year of Birth |
Positions
with the Trust |
Term
of Office and Length of Time Served |
Principal
Occupations During Past Five Years |
Number
of Portfolios in Fund Complex(2)
Overseen by Trustees |
Other
Directorships Held During Past Five Years |
Ryan
L. Roell (born 1973) |
President
and Principal Executive Officer |
Indefinite
Term; Since July 2019. |
Vice
President, U.S. Bank Global Fund Services (since 2005). |
Not Applicable |
Not
Applicable |
Cullen
O. Small (born 1987) |
Vice
President, Treasurer and Principal Financial Officer |
Indefinite
Term; Since January 2019. |
Vice
President, U.S. Bank Global Fund Services (since 2010). |
Not Applicable |
Not Applicable |
Donna
Barrette (born 1966) |
Vice
President, Chief Compliance Officer and Anti-Money Laundering
Officer |
Indefinite
Term; Since November 2019. |
Senior
Vice President and Compliance Officer, U.S. Bank Global Fund Services
(since 2004). |
Not Applicable |
Not Applicable |
Adam
W. Smith (born 1981) |
Secretary |
Indefinite
Term; Since June 2019. |
Vice
President, U.S. Bank Global Fund Services (since 2012). |
Not Applicable |
Not Applicable |
Hailey
S. Glaser (born 1989) |
Assistant
Treasurer |
Indefinite
Term; Since July 2019. |
Assistant
Vice President, U.S. Bank Global Fund Services (since 2015). |
Not
Applicable |
Not Applicable |
Kristen
M. Pierson (born 1979) |
Assistant
Treasurer |
Indefinite
Term; Since July 2019. |
Assistant
Vice President, U.S. Bank Global Fund Services (since 2017). |
Not Applicable |
Not Applicable |
(1) The
Trustees of the Trust who are not “interested persons” of the Trust as defined
by the 1940 Act (“Independent Trustees”).
(2) As
of the date of this SAI, the Trust was comprised of 11 portfolios (including the
Fund) managed by unaffiliated investment advisors. The term “Fund Complex”
applies only to the Fund. The Fund does not hold itself out as related to any
other series within the Trust for investment purposes, nor does it share the
same investment adviser with any other series within the Trust.
(3) Ms.
Richards, as a result of her employment with U.S. Bank Global Fund Services,
which acts as transfer agent, administrator, and fund accountant to the Trust,
is considered to be an “interested person” of the Trust, as defined by the 1940
Act.
Additional
Information Concerning the Board of Trustees
The
Role of the Board
The
Board oversees the management and operations of the Trust. Like all mutual
funds, the day-to-day management and operation of the Trust is the
responsibility of the various service providers to the Trust,
such
as the Advisor, the Distributor, the Administrator, the Custodian, and the
Transfer Agent, each of which are discussed in greater detail in this SAI. The
Board has appointed various senior employees of the Administrator as officers of
the Trust, with responsibility to monitor and report to the Board on the Trust’s
operations. In conducting this oversight, the Board receives regular reports
from these officers and the service providers. For example, the Treasurer
provides reports as to financial reporting matters and the President provides
reports as to matters relating to the Trust’s operations. In addition, the
Advisor provides regular reports on the investment strategy and performance of
the Fund. The Board has appointed a CCO who administers the Trust’s compliance
program and regularly reports to the Board as to compliance matters. These
reports are provided as part of formal “Board Meetings” which are typically held
quarterly, in person, and involve the Board’s review of recent operations. In
addition, various members of the Board also meet with management in less formal
settings, between formal “Board Meetings,” to discuss various topics. In all
cases, however, the role of the Board and of any individual Trustee is one of
oversight and not of management of the day-to-day affairs of the Trust and its
oversight role does not make the Board a guarantor of the Trust’s investments,
operations or activities.
Board
Structure, Leadership
The
Board has structured itself in a manner that it believes allows it to perform
its oversight function effectively. It has established three standing
committees, a Governance and Nominating Committee, an Audit Committee, which
also serves as the Qualified Legal Compliance Committee, and a Valuation
Committee, which are discussed in greater detail below under “Trust Committees”.
The Board is comprised of one Interested Trustee and three Independent Trustees,
which are Trustees that are not affiliated with the Advisor, the principal
underwriter, or their affiliates. The Governance and Nominating Committee, Audit
Committee and Qualified Legal Compliance Committee are comprised entirely of
Independent Trustees. The Chair of the Board is an Interested Trustee. The Board
has determined not to appoint a lead Independent Trustee; however, the
Independent Trustees are advised by independent counsel. The President and
Principal Executive Officer of the Trust is not a Trustee, but rather is a
senior employee of the Administrator who routinely interacts with the
unaffiliated investment advisers of the Trust and comprehensively manages the
operational aspects of the funds in the Trust. The Trust has determined that it
is appropriate to separate the Principal Executive Officer and Chair of the
Board positions because the day-to day responsibilities of the Principal
Executive Officer are not consistent with the oversight role of the Trustees and
because of the potential conflict of interest that may arise from the
Administrator’s duties with the Trust. The Board reviews its structure and the
structure of its committees annually. Given the specific characteristics of the
Trust, as described above, the Board has determined that the structure of the
Interested Chair, the composition of the Board, and the function and composition
of its various committees are appropriate means to address any potential
conflicts of interest that may arise.
Board
Oversight of Risk Management
As
part of its oversight function, the Board receives and reviews various risk
management reports and discusses these matters with appropriate management and
other personnel. Because risk management is a broad concept comprised of many
elements (e.g.,
investment risk, issuer and counterparty risk, compliance risk, operational
risks, business continuity risks, etc.), the oversight of different types of
risks is handled in different ways. For example, the Audit Committee meets with
the Treasurer and the Trust’s independent registered public accounting firm to
discuss, among other things, the internal control structure of the Trust’s
financial reporting function. The Board meets regularly with the CCO to discuss
compliance and operational risks and how they are managed. The Board also
receives reports from the
Advisor
as to investment risks of the Fund. In addition to these reports, from time to
time the Board receives reports from the Administrator and the Advisor as to
enterprise risk management.
Information
about Each Trustee’s Qualification, Experience, Attributes or Skills
The
Board believes that each of the Trustees has the qualifications, experience,
attributes and skills (“Trustee Attributes”) appropriate to their continued
service as Trustees of the Trust in light of the Trust’s business and structure.
The Board annually conducts a “self-assessment” wherein the effectiveness of the
Board and individual Trustees is reviewed.
In
addition to the information provided in the chart above, below is certain
additional information concerning each particular Trustee and his/her Trustee
Attributes. The information is not all-inclusive. Many Trustee Attributes
involve intangible elements, such as intelligence, integrity, work ethic, the
ability to work together, the ability to communicate effectively, the ability to
exercise judgment, to ask incisive questions, and commitment to shareholder
interests.
Koji
Felton. Mr.
Felton has served as a Trustee since 2015 and has substantial experience with
the mutual fund industry and familiarity with federal securities laws and
regulations. Mr. Felton’s prior experience includes serving as Director and
Counsel for KKR Credit Advisors LLC, the asset manager arm of Kohlberg Kravis
Roberts & Co. L.P. (2013 – 2015). Prior to that Mr. Felton served as counsel
in the Financial Services Group at Dechert LLP from (2011 – 2013), as well as in
various capacities, and ultimately as Senior Vice President and Deputy General
Counsel for mutual funds, at Charles Schwab & Co., Inc. (1998 – 2011). Mr.
Felton also worked as a staff attorney and served as an Enforcement Branch Chief
for the San Francisco District Office of the SEC (1992 – 1998). Mr. Felton began
his career as a litigation associate specializing in securities and banking
litigation at Shearman & Sterling (1986 – 1992).
Debra
McGinty-Poteet.
Ms.
McGinty-Poteet has served as a Trustee since 2015 and has significant mutual
fund industry experience, including her current and prior experience on mutual
fund boards. Ms. McGinty-Poteet currently also serves an Independent Trustee and
Chair of the Audit Committee for First Western Funds Trust. Prior to becoming a
Trustee of the Trust, Ms. McGinty-Poteet served as the President, Chair of the
Board, and Interested Trustee for Brandes Investment Trust where she also
oversaw the proprietary and sub-advisory mutual fund business for Brandes
Investment Advisors (1999 – 2012). Ms. McGinty-Poteet previously served as Chief
Operating Officer of North American Trust Company (1997 – 1998); Global Managing
Director of Mutual Funds at Bank of America (1992 – 1996); and in various
capacities, and ultimately as Global Head of Mutual Funds, at Security Pacific
Bank (1982 – 1992).
Daniel
Willey.
Mr. Willey has served as a Trustee since 2015 and has significant work history
and experience in the investment management industry. As a chief compliance
officer, Mr. Willey has valuable experience in an oversight role and in working
with regulatory compliance matters. Mr. Willey served as the Chief Compliance
Officer of the United Nations Joint Staff Pension Fund (2009 – 2017). Prior to
this role, Mr. Willey served as the Chief Operating and Chief Compliance Officer
of Barrett Associates, Inc. (investment adviser and affiliate of Legg Mason)
(2007 – 2009); President and Chief Executive Officer of TIMCO, Citigroup Asset
Management (2004 – 2006); Head Equity Trader of TIMCO (1994 – 2004); Vice
President, Shawmut National Bank (1992 – 1994); Investment Officer, State of
Connecticut (1990 – 1992); Vice President, Bank of New England (Connecticut Bank
& Trust) (1981 – 1990); Registered Representative, Tucker Anthony and R.L.
Day, Inc. (1979 – 1981); and Assistant Analyst, The Travelers Insurance Company
(1977 – 1979).
Elaine
Richards.
Ms. Richards has served as a Trustee since 2021 and has over 25 years of
experience, knowledge, and understanding of the mutual fund industry. Ms.
Richards currently serves as a Senior Vice President of U.S. Bank Global Fund
Services and has extensive experience in the 1940 Act, securities law in general
and SEC compliance and regulatory matters. In addition, Ms. Richards has
extensive experience in the oversight of regulatory examinations and providing
support and assistance to mutual fund clients implementing new regulatory
requirements. Prior to joining U.S. Bank Global Fund Services, Ms. Richards was
Vice President and senior counsel at Wells Fargo Funds Management.
Trust
Committees
The
Trust has three standing committees: the Governance and Nominating Committee,
the Audit Committee, which also serves as the Qualified Legal Compliance
Committee (“QLCC”), and the Valuation Committee.
The
Governance and Nominating Committee, comprised of all the Independent Trustees,
is responsible for making recommendations to the Board regarding various
governance-related aspects of the Board’s responsibilities and seeking and
reviewing candidates for consideration as nominees for Trustees and meets only
as necessary. The Governance and Nominating Committee will consider nominees
nominated by shareholders. Recommendations by shareholders for consideration by
the Governance and Nominating Committee should be sent to the President of the
Trust in writing together with the appropriate biographical information
concerning each such proposed nominee, and such recommendation must comply with
the notice provisions set forth in the Trust Bylaws. In general, to comply with
such procedures, such nominations, together with all required biographical
information, must be delivered to and received by the President of the Trust at
the principal executive offices of the Trust no less than 120 days and no more
than 150 days prior to the shareholder meeting at which any such nominee would
be voted on. The Governance and Nominating Committee did not meet during the
Fund’s most recent fiscal year ended April 30, 2022.
The
Audit Committee is comprised of all of the Independent Trustees. The Audit
Committee generally meets on a quarterly basis with respect to the various
series of the Trust, and may meet more frequently. The function of the Audit
Committee, with respect to each series of the Trust, is to review the scope and
results of the audit of such series’ financial statements and any matters
bearing on the audit or the financial statements, and to ensure the integrity of
the series’ pricing and financial reporting. The Audit Committee met four times
during the Fund’s most recent fiscal year ended April 30, 2022.
The
function of the QLCC is to receive reports from an attorney retained by the
Trust of evidence of a material violation by the Trust or by any officer,
director, employee or agent of the Trust.
The
Board has delegated day-to-day valuation issues to a Valuation Committee that is
comprised of certain officers of the Trust and the Interested Trustee of the
Trust, and is overseen by the Board. The function of the Valuation Committee is
to oversee and approve the fair value of securities held by any series of the
Trust for which current and reliable market quotations are not readily
available. Such securities are valued at their respective fair values as
determined in good faith by the Valuation Committee. The actions of the
Valuation Committee are subsequently reviewed and ratified by the Board. The
Valuation Committee meets as needed. The Valuation Committee held eleven
meetings during the Fund’s most recent fiscal year ended April 30,
2022.
Trustee
Ownership of Fund Shares and Other Interests
No
Trustee beneficially owned shares of the Fund as of December 31, 2021.
Furthermore, neither the Independent Trustees nor members of their immediate
family, own securities beneficially or of record in the Advisor, the Fund’s
principal underwriter, or any of their affiliates as of the same date.
Compensation
Independent
Trustees each receive an annual retainer of $40,000. Prior to January 1, 2022,
Independent Trustees received an annual retainer of $35,000 and $500 per any
special meeting attended telephonically. Independent Trustees receive additional
fees from applicable portfolios for any special meetings at rates assessed by
the Trustees depending on the length of the meeting and whether in-person
attendance is required. Independent Trustees are also reimbursed for expenses in
connection with each Board meeting attended. These reimbursements are allocated
among applicable portfolios of the Trust. The Trust has no pension or retirement
plan. No other entity affiliated with the Trust pays any compensation to the
Trustees. The Trust does not pay any fees to, or reimburse expenses of, the
Interested Trustee. For the Fund’s fiscal year ended April 30, 2022, the
Independent Trustees received the following compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
of Person/ Position |
Aggregate
Compensation From the Fund(1) |
Pension
or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Compensation from Fund and Fund Complex(2)
Paid to Trustees |
Koji
Felton, Independent Trustee |
$3,445 |
None |
None |
$3,445 |
Debra
McGinty Poteet, Independent Trustee |
$3,445 |
None |
None |
$3,445 |
Daniel
Willey, Independent Trustee |
$3,445 |
None |
None |
$3,445 |
(1)Trustees’
fees and expenses are allocated among the Fund and all other series comprising
the Trust.
(2)As
of the date of this SAI, the Trust was comprised of 11 portfolios (including the
Fund) managed by unaffiliated investment advisers. The term “Fund Complex”
applies only to the Fund, and not to other series of the Trust. For the Fund’s
fiscal year ended April 30, 2022, aggregate Independent Trustees’ fees and
expenses amounted to $112,500.
CODES
OF ETHICS
The
Trust, the Advisor and the Distributor have each adopted separate codes of
ethics pursuant to Rule 17j‑1 of the 1940 Act. These codes of ethics
permit, subject to certain conditions, personnel of the Advisor and the
Distributor to invest in securities that may be purchased or held by the
Fund.
PROXY
VOTING POLICIES AND PROCEDURES
The
Board has adopted Proxy Voting Policies and Procedures (the “Trust Proxy
Policies”) on behalf of the Trust which delegate the responsibility for voting
proxies to the Advisor, subject to the Board’s continuing oversight. The Trust’s
Proxy Policies require that the Advisor vote proxies received in a manner
consistent with the best interests of the Fund and its shareholders. The Trust
Proxy Policies also require the Advisor to present to the Board, at least
annually, the Advisor’s proxy policies and a record of each proxy voted by the
Advisor on behalf of the Fund, including a report on the resolution of all
proxies identified by the Advisor as involving a conflict of
interest.
The
Advisor has adopted proxy policies, which may be amended from time to time. In
voting proxies, the Advisor is guided by fiduciary principles. All proxies are
to be voted solely in the best interests of the beneficial owners of the
securities. The Advisor’s proxy policies are attached as Appendix
A.
The
Trust is required to file a Form N-PX, with the Fund’s complete proxy voting
record for the 12 months ended June 30, no later than August 31 of each year.
Form N-PX for the Fund will be available without charge, upon request, by
calling toll-free 844-OAKHRST (844-625-4778) and on the SEC’s website at
www.sec.gov.
CONTROL
PERSONS, PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP
A
principal shareholder is any person who owns of record or beneficially owns 5%
or more of the outstanding shares of the Fund. A control person is any person
who owns beneficially or through controlled companies more than 25% of the
voting securities of the Fund or acknowledges the existence of control.
As
of July 31, 2022, the following shareholders were considered to be either a
control person or principal shareholder of the Fund:
Institutional
Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
and Address |
%
Ownership |
Parent Company |
State
of Jurisdiction |
Type
of Ownership |
National
Financial Services, LLC For the Exclusive Benefit of Our
Customers Attn: Mutual Funds Dept., 4th FL 499 Washington
Blvd. Jersey City, NJ 07310-1995 |
87.52% |
Fidelity
Brokerage Company |
DE |
Record |
Wells
Fargo Clearing Services LLC Special Custody Account 1 N Jefferson
Ave. St. Louis MO 63103-2287
|
9.29% |
N/A |
N/A |
Record |
Since
the Advisor Class had not commenced operations prior to the date of this SAI,
there are no principal shareholders or control persons of the Advisor Class as
of July 31, 2022. As of July 31, 2022, the Trustees and officers of the Trust as
a group did not own more than 1% of the outstanding shares of any class of the
Fund.
THE
FUND’S INVESTMENT ADVISOR
As
stated in the Prospectus, investment advisory services are provided to the Fund
by Lido Advisers, LLC, pursuant to an Investment Advisory Agreement (the
“Advisory Agreement”). Prior to August 23, 2022, the Predecessor Adviser served
as the investment adviser to the Fund.
As
compensation, the Fund pays the Advisor a monthly performance fee (accrued
daily) based upon the average daily net assets of the Fund at the annual rate of
1.00%.
The
Advisory Agreement continues in effect for an initial two year period, and from
year to year thereafter only if such continuance is specifically approved at
least annually by the Board or by vote of a majority of the Fund’s outstanding
voting securities and by a majority of the Independent Trustees, who are not
parties to the Advisory Agreement or interested persons of any such party, in
each case cast in person at a meeting called for the purpose of voting on the
Advisory Agreement. The Advisory Agreement is terminable without penalty by the
Trust on behalf of the Fund on not more than 60 days’, nor less than 30 days’,
written notice to the Advisor when authorized either by a majority vote of the
Fund’s shareholders or by a vote of a majority of the Trustees, or by the
Advisor on not more than 60 days’, nor less than 30 days’, written notice to the
Trust, and will automatically terminate in the event of its “assignment” (as
defined in the 1940 Act). The Advisory Agreement provides that the Advisor shall
not be liable under such agreement 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 Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations and duties
thereunder.
In
addition, the Advisor has contractually agreed to waive a portion or all of its
management fee and reimburse Fund expenses until at least August 23, 2024,
to ensure that Total Annual Fund Operating Expenses after fee waiver and/or
expense reimbursement (excluding front-end or contingent deferred sales loads,
Rule 12b-1 fees, shareholder servicing plan fees, taxes, leverage/borrowing
interest, interest expense, dividends paid on short sales, brokerage and other
transactional expenses, acquired fund fees and expenses, expenses incurred in
connection with any merger or reorganization, or extraordinary expenses) will
not exceed 1.50% of the average daily net assets of the Fund (the “Expense
Cap”). The Expense Cap will remain in effect through at least August 23,
2024, and may be terminated at any time upon 60 days’ written notice by the
Board or the Advisor. The Advisor may request recoupment of previously waived
fees or reimbursed expenses from the Fund for three years from the date they
were waived or reimbursed, provided that after payment of the recoupment, the
Total Annual Fund Operating Expenses do not exceed the lesser of the Expense
Cap: (i) in effect at the time of the waiver or reimbursement, or (ii) in effect
at the time of recoupment.
For
the fiscal years ended April 30, the Fund paid the following management fees to
the Predecessor Adviser:
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|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year End |
Investment
Advisory Fees Earned |
Net
Advisory Fees (Waived) or Fund Expenses Reimbursed by Advisor |
Advisory
Fees Recouped by Advisor |
Net
Advisory Fees Paid to Advisor |
2022 |
$1,129,470 |
$0 |
$238,518 |
$1,367,988 |
2021 |
$581,368 |
$(36,278) |
$57,299 |
$602,389 |
2020 |
$247,784 |
$(112,979) |
$0 |
$134,805 |
Portfolio
Managers
Jason
Ozur serves as portfolio manager for the Fund and is primarily responsible for
the day-to-day management of the Fund. Mr. Jeffrey Garden and Mr. Michael Reis
each serve as Co-Portfolio Managers of the Fund. The following tables provide
information regarding other accounts managed by the Portfolio Managers as of
April 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
of Account |
Total
Number of Accounts Managed |
Total
Assets in Accounts Managed (in millions) |
Number
of Accounts for which Advisory Fee is Based on Performance |
Assets
in Accounts for which Advisory Fee is Based on Performance |
Accounts
Managed by Jason Ozur |
Other
Registered Investment Companies |
0 |
$0 |
0 |
$0 |
Other
Pooled Investment Vehicles |
9 |
$239.9 |
0 |
$0 |
Other
Accounts |
14,943 |
$9,549.0 |
0 |
$0 |
Accounts
Managed by Jeffrey Garden |
Other
Registered Investment Companies |
0 |
$0 |
0 |
$0 |
Other
Pooled Investment Vehicles |
9 |
$239.9 |
0 |
$0 |
Other
Accounts |
14,943 |
$9,549.0 |
0 |
$0 |
Accounts
Managed by Michael Reis* |
Other
Registered Investment Companies |
0 |
$0 |
0 |
$0 |
Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
Other
Accounts |
0 |
$0 |
0 |
$0 |
*As
of July 31, 2022.
Compensation
Each
portfolio manager’s compensation varies with the general success of the Advisor
as a firm. The portfolio manager’s compensation is based on net revenue after
all firm expenses and profit sharing. The portfolio manager’s compensation is
not directly linked to the Fund’s performance, although positive performance and
growth in managed assets are factors that may contribute to the Advisor’s
distributable profits and assets under management.
Conflicts
of Interest
The
Advisor seeks to treat all clients (including the Fund and separately managed
accounts) fairly and equitably and has adopted policies and procedures designed
to ensure that no client is disadvantaged over another where both clients have
the ability to invest in similar securities. Special attention is paid to
situations where the activities of the Fund may conflict with the activities of
other advisory clients so that the Fund is not disadvantaged. There is no
guarantee, however, that the policies and procedures adopted will be able to
detect and/or prevent every situation in which an actual or potential conflict
may appear.
Although
clients of the Advisor have accounts managed with the same overall investment
philosophy, different clients of the Advisor have different objectives,
strategies, or restrictions on their permitted activities, whether by statute,
contract, or instruction of the client. Taking into account total asset size and
investment restrictions, the Fund and the Advisor’s separately managed accounts
may own different securities and performance may materially differ.
Specifically,
the separately managed accounts are typically permitted to invest without regard
to liquidity, have provisions restricting liquidity on behalf of investors, and
may pursue strategies not available to or otherwise limited by the Fund or other
clients.
Furthermore,
separately managed accounts may be more concentrated in specific securities (and
therefore generate higher or lower returns) than the account of the Fund, where
concentrations are limited by the 1940 Act or other statutes.
Other
potential conflicts include:
Allocation
of Limited Time and Attention.
A portfolio manager who is responsible for managing multiple funds and/or
accounts may devote unequal time and attention to the management of those funds
and/or accounts. As a result, the portfolio manager may not be able to formulate
as complete a strategy or identify equally attractive investment opportunities
for each of those accounts as might be the case if he or she were to devote
substantially more attention to the management of a single fund. The effects of
this potential conflict may be more pronounced where funds and/or accounts
overseen by a particular portfolio manager have different investment strategies.
Allocation
of Limited Investment Opportunities.
If a portfolio manager identifies a limited investment opportunity that may be
suitable for multiple funds and/or accounts, the opportunity may be allocated
among these several funds or accounts, which may limit a fund’s ability to take
full advantage of the investment opportunity.
Selection
of Brokers/Dealers.
Portfolio managers may be able to select or influence the selection of the
brokers and dealers that are used to execute securities transactions for the
funds and/or account that they supervise. In addition to executing trades, some
brokers and dealers provide portfolio managers with brokerage and research
services (as those terms are defined in Section 28(e) of the 1934 Act), which
may result in the payment of higher brokerage fees than might have otherwise
been available. These services may be more beneficial to certain funds or
accounts than to others. Although the payment of brokerage commissions is
subject to the requirement that the portfolio manager determine in good faith
that the commissions are reasonable in relation to the value of the brokerage
and research services provided to the fund, a portfolio manager’s decision as to
the selection of brokers and dealers could yield disproportionate costs and
benefits among the funds and/or accounts that he or she manages.
Variation
in Compensation.
A conflict of interest may arise where the financial or other benefits available
to the portfolio manager differ among the funds and/or accounts that he or she
manages. If the structure of the investment adviser’s management fee and/or the
portfolio manager’s compensation differs among funds and/or accounts (such as
where certain funds or accounts pay higher management fees or performance-based
management fees), the portfolio manager might be motivated to help certain funds
and/or accounts over others. The portfolio manager might be motivated to favor
funds and/or accounts in which he or she has an interest or in which the
investment advisor and/or its affiliates have interests. Similarly, the desire
to maintain or raise assets under management or to enhance the portfolio
manager’s performance record or to derive other rewards, financial or otherwise,
could influence the portfolio
manager
to lend preferential treatment to those funds and/or accounts that could most
significantly benefit the portfolio manager. Currently, none of the funds
managed by the portfolio managers charge a performance fee and management fee
levels vary minimally among the funds.
Ownership
of Shares of the Fund
The
following table sets forth the dollar range of equity securities of the Fund
beneficially owned by the portfolio managers as of April 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
|
Dollar
Range of Equity Securities in the Fund Beneficially Owned |
|
|
|
Jason
Ozur |
|
$100,001
- $500,000 |
|
|
|
Jeffrey
Garden |
|
$0
- $100,000 |
|
|
|
Michael
Reis* |
|
$0 |
*As
of July 31, 2022.
SERVICE
PROVIDERS
Administrator,
Transfer Agent and Fund Accountant
Pursuant
to an administration agreement (the “Administration Agreement”), U.S. Bancorp
Fund Services, LLC, doing business as U.S. Bank Global Fund Services (“Fund
Services”), 615 East Michigan Street, Milwaukee, Wisconsin 53202, acts as the
Administrator to the Fund. Fund Services provides certain services to the Fund
including, among other responsibilities, coordinating the negotiation of
contracts and fees with, and the monitoring of performance and billing of, the
Fund’s independent contractors and agents; preparation for signature by an
officer of the Trust of all documents required to be filed for compliance by the
Trust and the Fund 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 Fund, 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 Fund, the determination of
investment policy, or for any matter pertaining to the distribution of the
Fund’s shares.
Pursuant
to the Administration Agreement, as compensation for its services, Fund Services
receives from the Fund, a fee based on the Fund’s current average daily net
assets, subject to a minimum annual fee. Fund Services also is entitled to
certain out-of-pocket expenses. Fund Services also acts as fund accountant,
transfer agent and dividend disbursing agent under separate agreements.
For
services rendered to the Fund, Fund Services received the following fees during
the fiscal years indicated below:
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended April 30, |
2022 |
2021 |
2020 |
$118,657 |
$104,761 |
$87,986 |
Custodian
U.S.
Bank National Association is the custodian of the assets of the Fund (the
“Custodian”) pursuant to a custody agreement between the Custodian and the
Trust. For its services, the Custodian receives a monthly fee based on a
percentage of the Fund’s assets, in addition to certain transaction based fees,
and is reimbursed for out of pocket expenses. The Custodian’s address is
1555 N. Rivercenter Drive, Suite 302, Milwaukee, Wisconsin 53212. The
Custodian does not participate in decisions relating to the purchase and sale of
securities by the Fund. Fund Services, the Custodian, and the Fund’s principal
underwriter are affiliated entities under the common control of U.S. Bancorp.
The Custodian and its affiliates may participate in revenue sharing arrangements
with the service providers of mutual funds in which the Fund may
invest.
Independent
Registered Public Accounting Firm and Legal Counsel
Cohen
& Company, Ltd., 342 N. Water Street, Suite 830, Milwaukee, Wisconsin, is
the independent registered public accounting firm for the Fund and performs an
annual audit of the Fund’s financial statements.
Goodwin
Procter LLP, 1900 N Street, NW, Washington, DC 20036, serves as legal counsel to
the Trust and to the Independent Trustees.
EXECUTION
OF PORTFOLIO TRANSACTIONS
The
Advisor is authorized to determine the broker or dealer to be used for each
securities transaction for the Fund. The Fund will not use an affiliated
broker-dealer to execute trades on its behalf. In selecting brokers or dealers
to execute transactions, the Advisor need not solicit competitive bids and does
not have an obligation to seek the lowest available commission cost.
The
Advisor may not give consideration to sales of shares of the Fund as a factor in
selecting broker-dealers to execute portfolio securities transactions. The
Advisor may, however, place portfolio transactions with broker-dealers that
promote or sell the Fund’s shares so long as such transactions are done in
accordance with the policies and procedures established by the Trustees that are
designed to ensure that the selection is based on the quality of the broker’s
execution and not on its sales efforts. In selecting brokers to be used in
portfolio transactions, the general guiding principle is to obtain the best
overall execution for each trade, which is a combination of price and execution.
With respect to execution, the Advisor considers a number of discretionary
factors, including, without limitation, the actual handling of the order, the
ability of the broker to settle the trade promptly and accurately, the financial
standing of the broker, the ability of the broker to position stock to
facilitate execution, past experience with similar trades, and other factors
that may be unique to a particular order. Recognizing the value of these
discretionary factors, the Advisor may select brokers who charge a brokerage
commission that is higher than the lowest commission that might otherwise be
available for any given trade. When investing in underlying investment
companies, the Advisor will seek to invest the Fund’s assets in Institutional
Class shares, when available. With respect to the underlying investment
companies, the advisers for such investment companies generally have similar
policies and procedures to the Advisor’s
with
respect to the selection of broker-dealers for execution transactions for such
underlying investment companies.
Under
Section 28(e) of the Securities Exchange Act of 1934, as well as both the
Investment Advisory Agreement, the Advisor are authorized to pay a brokerage
commission in excess of that which another broker might have charged for
effecting the same transaction, in recognition of the value of brokerage and/or
research services provided by the broker. The research received by the Advisor
may include, without limitation: information on the United States and other
world economies; information on specific industries, groups of securities,
individual companies, and political and other relevant news developments
affecting markets and specific securities; technical and quantitative
information about markets; analysis of proxy proposals affecting specific
companies; accounting and performance systems that allow the Advisor to
determine and track investment results; and trading systems that allow the
Advisor to interface electronically with brokerage firms, custodians, and other
providers. Research is received in the form of written reports, telephone
contacts, personal meetings, research seminars, software programs, and access to
computer databases. In some instances, research products or services received by
the Advisor may also be used for functions that are not research related (i.e.
not related to the making of investment decisions). Where a research product or
service has a mixed use, the Advisor will make a reasonable allocation according
to the use and will pay for the non-research function in cash using its own
funds.
The
research and investment information services described above make the views and
information of individuals and research staffs of other securities firms
available to the Advisor for their analysis and consideration. These services
may be useful to the Advisor in connection with advisory clients other than the
Fund and not all such services may be useful to the Advisor in connection with
the Fund. Although such information may be a useful supplement to the Advisor’s
own investment information in rendering services to the Fund, the value of such
research and services is not expected to reduce materially the expenses of the
Advisor in the performance of its services under the Investment Advisory
Agreement and will not reduce the management fees payable to the Advisor by the
Fund.
The
Fund may invest in securities traded in the over-the-counter market. In these
cases, the Fund may initiate trades through brokers on an agency basis and pay a
commission in connection with the transaction. The Fund may also effect these
transactions by dealing directly with the dealers who make a market in the
securities involved, in which case the costs of such transactions would involve
dealer spreads rather than brokerage commissions. With respect to securities
traded only in the over-the-counter market, orders will be executed on a
principal basis with primary market makers in such securities except where
better prices or executions may be obtained on an agency basis or by dealing
with those other than a primary market maker.
Normally,
any fixed income portfolio transactions will be principal transactions executed
in over the counter markets and will be executed on a “net” basis, which may
include a dealer mark up. With respect to securities traded only in the over the
counter market, orders will be executed on a principal basis with primary market
makers in such securities except where better prices or executions may be
obtained on an agency basis or by dealing with other than a primary market
maker.
The
Fund may participate, if and when practicable, in bidding for the purchase of
Fund securities directly from an issuer in order to take advantage of the lower
purchase price available to members of a bidding group. The Fund will engage in
this practice, however, only when the Advisor, in its sole discretion, believe
such practice to be otherwise in the Fund’s interest.
Aggregated
Trades. While
investment decisions for the Fund are made independently of the Advisor’s other
client accounts, the other client accounts may invest in the same securities as
the Fund. To the extent permitted by law, the Advisor may aggregate the
securities to be sold or purchased for the Fund with those to be sold or
purchased for other investment companies or accounts in executing transactions.
When a purchase or sale of the same security is made at substantially the same
time on behalf of the Fund and another investment company or account, the
transaction will be averaged as to price and available investments allocated as
to amount in a manner which the Advisor believes to be equitable to the Fund and
such other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained or sold by the Fund.
For
the fiscal years ended April 30, the Fund paid the following aggregate brokerage
commissions:
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended April 30, |
2022 |
2021 |
2020 |
$29,991 |
$21,701 |
$16,055 |
As
of April 30, 2022, the Fund did not own any securities issued by any of its
regular broker-dealers.
CAPITAL
STOCK
Shares
issued by the Fund have no preemptive, conversion, or subscription rights.
Shares issued and sold by the Fund are deemed to be validly issued, fully paid
and non-assessable by the Trust. Shareholders have equal and exclusive rights as
to dividends and distributions as declared by the Fund and to the net assets of
the Fund upon liquidation or dissolution. The Fund, as a separate series of the
Trust, votes separately on matters affecting only the Fund (e.g.,
approval of the Advisory Agreement); all series of the Trust vote as a single
class on matters affecting all series jointly or the Trust as a whole
(e.g.,
election or removal of Trustees). Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in any election of Trustees can,
if they so choose, elect all of the Trustees. While the Trust is not required
and does not intend to hold annual meetings of shareholders, such meetings may
be called by the Board in its discretion, or upon demand by the holders of 10%
or more of the outstanding shares of the Trust, for the purpose of electing or
removing Trustees.
The
Delaware Statutory Trust Act provides that a shareholder of a Delaware statutory
trust shall be entitled to the same limitation of personal liability extended to
shareholders of Delaware corporations. The Declaration of Trust further provides
that Trustees shall have no power to bind any shareholder personally for the
payment of any sum of money other than such as the shareholder may personally
agree to pay.
DETERMINATION
OF SHARE PRICE
The
NAV of shares of the Fund will be determined once daily ordinarily as of the
scheduled close of public trading on the New York Stock Exchange (“NYSE”)
(normally, 4:00 p.m. Eastern Time) on each day that the NYSE is open for
trading. It is expected that the NYSE will be closed on Saturdays and Sundays
and on New Year’s Day, Martin Luther King Jr. Day, Presidents’ Day, Good Friday,
Memorial Day, Juneteenth Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas. The Fund does not expect to determine the NAV of shares on any day
when the NYSE is not open for trading even if there is sufficient trading in its
portfolio securities on such days to materially affect the NAV per share.
In
valuing the Fund’s assets for calculating NAV, readily marketable portfolio
securities listed on a national securities exchange are valued at the last sale
price on the business day as of which such value is being determined. If there
has been no sale on such exchange on such day, the security is valued at the
mean between the bid and asked prices on such day. Securities primarily traded
in the Nasdaq National Market System (“Nasdaq”) for which market quotations are
readily available shall be valued using the Nasdaq Official Closing Price
(“NOCP”). If the NOCP is not available, such securities shall be valued at the
last sale price on the day of valuation, or if there has been no sale on such
day, at the mean between the bid and asked prices. Readily marketable securities
traded only in the over-the market and not on Nasdaq are valued at the most
recent trade price. All other assets of the Fund are valued in such manner as
the Board in good faith deems appropriate to reflect their fair
value.
Trading
in foreign securities markets is normally completed well before the close of the
NYSE. In addition, foreign securities trading may not take place on all days on
which the NYSE is open for trading, and may occur in certain foreign markets on
days on which the Fund’s NAV is not calculated. Events affecting the values of
portfolio securities that occur between the time their prices are determined and
the close of the NYSE will not be reflected in the calculation of NAV unless the
Board deems that the particular event would affect NAV, in which case an
adjustment will be made in such manner as the Board in good faith deems
appropriate to determine fair market value. Assets or liabilities expressed in
foreign currencies are translated, in determining NAV, into U.S. dollars based
on the spot exchange rates, or at such other rates as the Advisor, pursuant to
fair value procedures adopted by the Board, may determine to be
appropriate.
Fair
value represents a good faith approximation of the value of a security. Fair
value determinations involve the consideration of a number of subjective
factors, an analysis of applicable facts and circumstances and the exercise of
judgment. As a result, it is possible that the fair value for a security
determined in good faith in accordance with the Fund’s fair value procedures may
differ from valuations for the same security determined by other funds using
their own valuation procedures. Although the Fund’s fair value procedures are
designed to value a security at the price the Fund may reasonably expect to
receive upon its sale in an orderly transaction, there can be no assurance that
any fair value determination thereunder would, in fact, approximate the amount
that the Fund would actually realize upon the sale of the security or the price
at which the security would trade if a reliable market price were readily
available.
ADDITIONAL
PURCHASE AND REDEMPTION INFORMATION
The
information provided below supplements the information contained in the
Prospectus regarding the purchase and redemption of the Fund’s
shares.
How
to Buy Shares
In
addition to purchasing shares directly from the Fund, you may purchase shares
through certain financial intermediaries and their agents that have made
arrangements with the Fund and are authorized to buy and sell shares of the Fund
(collectively, “Financial Intermediaries”). Investors should contact their
Financial Intermediaries directly for appropriate instructions, as well as
information pertaining to accounts and any service or transaction fees that may
be charged. If you transmit your order to these Financial Intermediaries before
the close of regular trading (generally, 4:00 p.m., Eastern Time) on a day that
the NYSE is open for business, your order will be priced at the Fund’s NAV, plus
any applicable sales charge, next computed after it is received by the Financial
Intermediaries. Investors should check with their Financial Intermediaries to
determine if it participates in these arrangements.
The
public offering price of the Fund’s shares is the NAV, plus any applicable sales
charge. Shares are purchased at the public offering price next determined after
the Fund Services transfer agent (the “Transfer Agent”) receives your
transaction request in good order, as discussed in the Fund’s Prospectus. In
order to receive that day’s public offering price, the transfer agent must
receive your transaction request 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 Fund’s shares, (ii) to reject purchase orders in
whole or in part when in the judgment of the Advisor or the Distributor such
rejection is in the best interest of the Fund, 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 Fund’s shares.
In
addition to cash purchases, the Fund’s shares may be purchased by tendering
payment in-kind in the form of shares of stock, bonds or other securities. Any
securities used to buy the Fund’s shares must be readily marketable; their
acquisition consistent with the Fund’s objective and otherwise acceptable to the
Advisor and the Board.
Automatic
Investment Plan
The
Fund provides an Automatic Investment Plan (“AIP”) for the convenience of
investors who wish to purchase shares of the Fund on a regular basis. All record
keeping and custodial costs of the AIP are paid by the Fund. The market value of
the Fund’s shares is subject to fluctuation. Prior to participating in the AIP
the investor should keep in mind that this plan does not assure a profit nor
protect against depreciation in declining markets.
How
to
Sell Shares and Delivery of Redemption Proceeds
You
can sell your Fund shares any day the NYSE is open for regular trading, either
directly to the Fund or through your Financial Intermediary.
Payments
to shareholders for shares of the Fund redeemed directly from the Fund will be
made as promptly as possible, but no later than seven days after receipt by the
Transfer Agent of the written request in good order, with the appropriate
documentation as stated in the Prospectus, except that the Fund may suspend the
right of redemption or postpone the date of payment during any period when
(a) trading on the NYSE is restricted as determined by the SEC or the NYSE
is closed for other than weekends and holidays; (b) an emergency exists as
determined by the SEC making disposal of portfolio securities or valuation of
net assets of the Fund not reasonably practicable; or (c) for such other
period as the SEC may permit for the protection of the Fund’s shareholders.
Under unusual circumstances, the Fund may suspend redemptions, or postpone
payment for more than seven days, but only as authorized by SEC
rules.
A
redemption is generally treated for U.S. federal income tax purposes as a
taxable sale of the redeemed shares, the consequences of which are described
below in “Tax Information”.
The
value of shares on redemption or repurchase may be more or less than the
investor’s cost, depending upon the market value of the 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 Fund or its authorized agents may carry out
the instructions and/or to respond to the inquiry consistent with the
shareholder’s previously established account service options. For joint
accounts, instructions or inquiries from either party will be carried out
without prior notice to the other account owners. In acting upon telephone
instructions, the Fund and its agents use procedures that are reasonably
designed to ensure that such instructions are genuine. These include recording
all telephone calls, requiring pertinent information about the account and
sending written confirmation of each transaction to the registered
owner.
The
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 Fund and the transfer agent may be liable for any
losses due to unauthorized or fraudulent instructions. If these procedures are
followed, however, that to the extent permitted by applicable law, neither the
Fund nor its 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.
Redemptions
In-Kind
The
Trust has filed an election under Rule 18f-1 under the 1940 Act committing to
pay in cash all redemptions by a shareholder of record up to amounts specified
by the rule (in excess of the lesser of (1) $250,000 or (2) 1% of the
Fund’s assets). The Fund has reserved the right to pay the redemption price of
its shares in excess of the amounts specified by the rule, either totally or
partially, by a distribution in-kind of portfolio securities (instead of cash).
The securities so distributed would be valued at the same amount as that
assigned to them in calculating the NAV for the shares being sold. If a
shareholder receives a distribution in-kind, the shareholder could incur
brokerage or other charges in converting the securities to cash and will bear
any market risks associated with such securities until they are converted into
cash. An in-kind redemption is generally treated for U.S. federal income tax
purposes as a taxable sale of the redeemed shares, the consequences of which are
described below in “Tax Information.”
The
Fund may hold up to 15% of its net assets (plus any borrowings for investment
purposes) in illiquid securities. In the unlikely event the Fund were to elect
to make an in-kind redemption, the Fund expects that it would follow the normal
protocol of making such distribution by way of a pro rata distribution based on
its entire portfolio. Because the Fund may hold illiquid securities, such
distribution may contain a pro rata portion of such illiquid securities or the
Fund may determine, based on a materiality assessment, not to include illiquid
securities in the in-kind redemption. The Fund does not anticipate that it would
ever selectively distribute a greater than pro rata portion of any illiquid
securities to satisfy a redemption request. If such securities are included in
the distribution, shareholders may not be able to liquidate such securities and
may be required to hold such securities indefinitely. Shareholders’ ability to
liquidate such securities distributed in-kind may be restricted by resale
limitations or substantial restrictions on transfer imposed by the issuers of
the securities or by law. Shareholders may only be able to liquidate such
securities distributed in-kind at a substantial discount from their value, and
there may be higher brokerage costs associated with any subsequent disposition
of these securities by the recipient.
DISTRIBUTIONS
AND TAX INFORMATION
Distributions
Dividends
of net investment income and distributions of net capital gains from the sale of
securities are generally made annually, as described in the Prospectus. The Fund
typically distributes any undistributed net investment income on or about
December 31 of each year. Any net capital gains realized through the period
ended October 31 of each year will also typically be distributed by December 31
of each year.
All
distributions generally reduce the NAV of the Fund’s shares by the amount of the
distribution. If you purchase shares prior to a distribution, the distribution
will be taxable to you even though economically it may represent a return on
your investment.
Each
distribution by the Fund is accompanied by a brief explanation of the form and
character of the distribution. In January of each year, the Fund will issue to
each shareholder a statement addressing the U.S. federal income tax status of
all distributions that relate to the previous year. You are responsible for the
payment of taxes with respect to your investment in the Fund.
Tax
Information
The
following summary describes the material U.S. federal income tax consequences to
United States Holders (as defined below) of shares in the Fund. This summary is
based upon the Code, Treasury regulations promulgated thereunder, administrative
pronouncements and judicial decisions, all as in effect as of the date of this
SAI and all of which are subject to change, possibly with retroactive effect.
This summary addresses only shares that are held as capital assets within the
meaning of Section 1221 of the Code and does not address all of the tax
consequences that may be relevant to shareholders in light of their particular
circumstances or to certain types of Shareholders subject to special treatment
under the Code, including, without limitation, certain financial institutions,
dealers in securities or commodities, traders in securities who elect to apply a
mark-to-market method of accounting, insurance companies, tax-exempt
organizations, partnerships or S-corporations (and persons who own their
interest in shares through a partnership or S-corporation), expatriates of the
United States, persons who are subject to alternative minimum tax, persons that
have a “functional currency” other than the United States dollar, persons who
hold shares as a position in a “straddle” or as a part of a “hedging,”
“conversion” or “constructive sale” transaction for U.S. federal income tax
purposes or persons who received their shares as compensation. This summary also
does not address the state, local or foreign tax consequences of an investment
in the Fund.
For
purposes of this discussion, a “United States Holder” means a holder of shares
that for U.S. federal income tax purposes is:
•a
citizen or resident of the United States;
•a
corporation (or other entity treated as a corporation for U.S. federal income
tax purposes) created or organized in the United States or under the laws of the
United States, any State or the District of Columbia;
•an
estate, the income of which is includable in gross income for U.S. federal
income tax purposes regardless of its source; or
•a
trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all of its
substantial
decisions, or which has a valid election in effect under applicable Treasury
regulations to be treated as a United States person.
If
a partnership (or other entity treated as a partnership for U.S. federal income
tax purposes) holds shares, the tax treatment of a partner will generally depend
upon the status of such person and the activities of the limited liability
company or partnership. A shareholder that is a partnership should consult its
own tax advisors regarding the treatment of its partners.
Prospective
shareholders are urged to consult with their own tax advisors and financial
planners regarding the U.S. federal income tax consequences of an investment in
the Fund, the application of state, local, or foreign laws, and the effect of
any possible changes in applicable tax laws on their investment in the
Fund.
Tax
Treatment of the Fund
Each
series of the Trust is treated as a separate entity for U.S. federal income tax
purposes. The Fund has elected to qualify and intends to continue to qualify
annually as a regulated investment company under Subchapter M of the Code,
requiring it to comply with all applicable requirements regarding its income,
assets and distributions. Provided that the Fund qualifies as a regulated
investment company, it is eligible for a dividends paid deduction, allowing it
to offset dividends it pays to shareholders against its taxable income; if the
Fund fails to qualify as a regulated investment company under Subchapter M, it
will be taxed as a regular corporation.
The
Fund’s policy is to distribute to its shareholders all of its taxable income,
including any net realized capital gains (taking into account any capital loss
carry-forward of the Fund), each year in a manner that complies with the
distribution requirements applicable to regulated investment companies under the
Code, and results in the Fund not being subject to any U.S. federal income or
excise taxes. In particular, in order to avoid the non-deductible 4% excise tax,
the Fund must also distribute (or be deemed to have distributed) by
December 31 of each calendar year (1) at least 98% of its ordinary
income for such year, (2) at least 98.2% of the excess of its realized
capital gains over its realized capital losses for the 12-month period ending on
October 31 during such year and (3) any amounts from the prior
calendar year that were not distributed and on which the Fund paid no federal
income tax. However, the Fund can give no assurances that its distributions will
be sufficient to eliminate all U.S. federal income taxes. The Fund is not
required to consider tax consequences in making or disposing of
investments.
In
order to qualify as a regulated investment company, the Fund must, among other
things, derive at least 90% of its gross income each year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to the business of investing in stock,
securities or currencies, and net income derived from an interest in a qualified
publicly traded partnership. The Fund must also satisfy the following two asset
diversification tests. At the end of each quarter of each taxable year, (i) at
least 50% of the value of the Fund’s total assets must be represented by cash
and cash items (including receivables), U.S. Government securities, the
securities of other regulated investment companies, and other securities, with
such other securities being limited in respect of any one issuer to an amount
not greater than 5% of the value of the Fund’s total assets and not more than
10% of the outstanding voting securities of such issuer, and (ii) not more than
25% of the value of the Fund’s total assets may be invested in the securities of
any one issuer (other than U.S. Government securities or the securities of other
regulated investment companies), the securities of any two or more issuers
(other than the securities of other regulated investment companies) that the
Fund
controls (by owning 20% or more of their outstanding voting stock) and which are
determined under Treasury regulations to be engaged in the same or similar
trades or businesses or related trades or businesses, or the securities of one
or more qualified publicly traded partnerships. The Fund must also distribute
each taxable year sufficient dividends to its shareholders to claim a dividends
paid deduction equal to at least the sum of 90% of the Fund’s investment company
taxable income (as adjusted under Section 852(b)(2) of the Code, but not taking
into account the Fund’s dividends paid deduction; in the case of the Fund
generally consisting of interest and dividend income, less expenses) and 90% of
the Fund’s net tax-exempt interest, if any.
The
Fund’s ordinary income generally consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carry-forward of the Fund.
Distributions
of net investment income and net short-term capital gains are taxable to
shareholders as ordinary income. For individual shareholders, a portion of the
distributions paid by the Fund may be qualified dividends currently eligible for
federal income taxation at long-term capital gain rates to the extent the Fund
reports the amount distributed as a qualifying dividend and certain holding
period requirements are met. In the case of corporate shareholders, a portion of
the distributions may qualify for the inter-corporate dividends-received
deduction to the extent the Fund reports the amount distributed as a qualifying
dividend and certain holding period requirements are met. The aggregate amount
so reported to either individual or corporate shareholders cannot, however,
exceed the aggregate amount of qualifying dividends received by the Fund for its
taxable year. In view of the Fund’s investment policy, it is expected that
dividends from domestic corporations will be part of the Fund’s gross income and
that, accordingly, part of the distributions by the Fund may be eligible for
treatment as qualified dividend income by individual shareholders, or for the
dividends-received deduction for corporate shareholders under federal tax law.
However, the portion of the Fund’s gross income attributable to qualifying
dividends is largely dependent on the Fund’s investment activities for a
particular year and therefore cannot be predicted with any certainty. The
Qualified dividend treatment may be eliminated if the Fund shares held by an
individual investor are held for less than 61 days, and the corporate-dividends
received deduction may be eliminated if the Fund shares held by a corporate
investor are treated as debt-financed or are held for less than 46 days.
Distributions will be taxable to you even if the share price of the Fund has
declined.
The
sale or exchange of Fund shares is a taxable transaction for federal income tax
purposes. You will generally recognize a gain or loss on such transactions equal
to the difference, if any, between the amount of your net sales proceeds and
your adjusted tax basis in the Fund shares. Such gain or loss will be capital
gain or loss if you held your Fund shares as capital assets. Any capital gain or
loss will be treated as long-term capital gain or loss if you held the Fund
shares for more than one year at the time of the sale or exchange. Any capital
loss arising from the sale or exchange of shares held for six months or less,
however, will be treated as long-term capital loss to the extent of the amount
of net long-term capital gain distributions with regard to these shares.
A
regulated investment company may elect for any taxable year to treat any portion
of any qualified late year loss as arising on the first day of the next taxable
year. Qualified late year losses are certain capital, and ordinary losses which
occur during the portion of the Fund’s taxable period subsequent to October 31
and December 31, respectively.
Tax
Treatment of United States Holders – Taxation of Distributions
Distributions
paid out of the Fund’s current and accumulated earnings and profits are
generally dividends taxable at ordinary income rates to each shareholder.
Dividends will be taxable to you even if the share price of the Fund has
declined. Distributions in excess of the Fund’s current and accumulated earnings
and profits will first be treated as a nontaxable return of capital up to the
amount of a shareholder’s tax basis in its shares, and then as capital gain.
For
individual shareholders, a portion of the dividends paid by the Fund may be
qualified dividends currently eligible for U.S. federal income taxation at
long-term capital gain rates to the extent the Fund reports the amount
distributed as a qualifying dividend and certain shareholder level holding
period requirements (discussed further below) are met. In the case of corporate
shareholders, subject to certain limitations (not all of which are discussed
herein), a portion of the distributions may qualify for the inter-corporate
dividends-received deduction to the extent the Fund reports the amount
distributed as a qualifying dividend and certain shareholder level holding
period requirements (discussed further below) are met. The aggregate amount so
reported to either individual or corporate shareholders cannot exceed the
aggregate amount of qualifying dividends received by the Fund for its taxable
year. Although no assurances can be provided, the Fund generally expects that
dividends from domestic corporations will be part of the Fund’s gross income and
that, accordingly, part of the distributions by the Fund may be eligible for
treatment as qualified dividend income by individual shareholders, or for the
dividends-received deduction for corporate shareholders. Qualified dividend
treatment may be eliminated if the Fund shares held by an individual investor
are held for less than 61 days, and the corporate dividends-received deduction
may be eliminated if Fund shares held by a corporate investor are treated as
debt-financed or are held for less than 46 days.
Distributions
properly reported by the Fund as capital gain dividends (Capital Gain Dividends)
will be taxable to shareholders as long-term capital gain (to the extent such
distributions do not exceed the Fund’s actual net long-term capital gain for the
taxable year), regardless of how long a shareholder has held Fund shares, and do
not qualify as dividends for purposes of the dividends received deduction or as
qualified dividend income. The Fund will report Capital Gain Dividends, if any,
in written statements furnished to its shareholders.
Tax
Treatment of United States Holders - Sales and Dispositions of
Shares
The
sale or exchange of Fund shares, including a redemption of Fund shares treated
as a sale or exchange, is a taxable transaction for U.S. federal income tax
purposes. A shareholder will generally recognize a capital gain or loss on any
such transaction equal to the difference, if any, between the amount of its net
sales proceeds and its adjusted tax basis in its Fund shares. Any capital gain
or loss will be treated as long-term capital gain or loss if you held the Fund
shares for more than one year at the time of the sale or exchange. Any capital
loss arising from the sale or exchange of shares held for six months or less,
however, will be treated as long-term capital loss to the extent of the amount
of net long-term capital gain distributions with regard to these
shares.
Holders
of “publicly offered” shares in a regulated investment company are generally
entitled to treat proceeds from a redemption upon demand of their shares as
distributions in part or full payment in exchange for such their shares. The
definition of publicly offered for this purpose, however, requires the shares to
be (a) continuously offered pursuant to a public offering (within the meaning of
section 4 of the Securities Act of 1933),(b) regularly traded on an established
securities market, or (c) held by or for no fewer than 500 persons at all times
during the taxable year. Holders of any class of interests in the Fund
that
do not satisfy these requirements should consult their tax advisors in
connection with a redemption of their shares.
Tax
Treatment of United States Holders - Medicare Tax
A
3.8% Medicare tax is currently imposed on net investment income earned by
certain individuals, estates and trusts. “Net investment income,” for these
purposes, means investment income, including ordinary and Capital Gain dividends
and net gains from taxable dispositions of Fund shares, reduced by the
deductions properly allocable to such income. In the case of an individual, the
tax will be imposed on the lesser of (1) the shareholder’s net investment
income or (2) the amount by which the shareholder’s modified adjusted gross
income exceeds $250,000 (if the shareholder is married and filing jointly or a
surviving spouse), $125,000 (if the shareholder is married and filing
separately) or $200,000 (in any other case). This Medicare tax, if applicable,
is reported by you on, and paid with, your U.S. federal income tax
return.
Tax
Treatment of Non-U.S. Shareholders
The
foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary
income.
Backup
Withholding
The
Fund may be required to withhold 24% of certain payments to a shareholder unless
the shareholder has completed and submitted to the Fund a Form W-9 providing the
shareholder’s taxpayer identification number and certifying under penalties of
perjury: (i) that such number is correct, (ii) that (A) the
shareholder is exempt from backup withholding, (B) the shareholder has not
been notified by the IRS that the shareholder is subject to backup withholding
as a result of an under-reporting of interest or dividends, or (C) the IRS
has notified the shareholder that the shareholder is no longer subject to backup
withholding, and (iii) the shareholder is a U.S. citizen or other U.S.
person (as defined in IRS Form W-9); or (b) an exception applies under
applicable law and Treasury regulations. Backup withholding is not an additional
tax, and any amounts withheld may be credited against a shareholder’s ultimate
U.S. federal income tax liability if proper documentation is provided. The Fund
reserves the right to refuse to open an account for any person failing to
provide a certified taxpayer identification number.
FATCA
and Similar Foreign Rules
The
Foreign Account Tax Compliance Act (“FATCA”) provisions of the Code impose a
withholding tax of 30% on certain types of U.S. sourced income (e.g., dividends,
interest, and other types of passive income) paid, and will be required to
impose a 30% withholding tax on proceeds from the sale or other disposition of
property producing U.S. sourced income paid effective January 1, 2019 to (i)
foreign financial institutions (“FFIs”), including non-U.S. investment funds,
unless they agree to collect and disclose to the IRS information regarding their
direct and indirect U.S. account holders and (ii) certain nonfinancial foreign
entities (“NFFEs”), unless they certify certain information regarding their
direct and indirect U.S. owners. FATCA withholding will apply to any shareholder
that does not properly certify its status as a U.S. person, or, in the case of a
non-U.S. shareholder, the basis for its exemption from FATCA
withholding.
If the Fund is required to withhold amounts from payments pursuant to FATCA,
investors will receive distributions that are reduced by such withholding
amounts.
To
implement FATCA, the U.S. government has entered into agreements with non-U.S.
governments (and is otherwise bound via automatic exchange of information
agreements in treaties) to provide reciprocal exchanges of taxpayer information
to non-U.S. governments. The Fund will be required to perform due diligence
reviews to classify non-U.S. entity investors for FATCA purposes. Shareholders
agree to provide information necessary to allow the Fund to comply with the
FATCA and similar foreign rules.
THE
FUND’S PRINCIPAL UNDERWRITER AND DISTRIBUTOR
Quasar
Distributors, LLC, 111 East Kilbourn Avenue, Suite 2200, Milwaukee, Wisconsin
53202, serves as the Fund’s principal underwriter and distributor in a
continuous public offering of the Fund’s shares. Pursuant to a distribution
agreement between the Trust, on behalf of the Fund, and the Distributor (the
“Distribution Agreement”), the Distributor acts as the Fund’s principal
underwriter and distributor and provides certain administrative services and
arranges for the sale of the Fund’s shares. The Distributor is a registered
broker-dealer under the Securities Exchange Act of 1934, as amended, and is a
member of FINRA.
The
Distribution Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by vote of a majority of
the Fund’s outstanding voting securities and, in either case, by a majority of
the Independent Trustees. The Distribution Agreement is terminable without
penalty by the Trust on behalf of the Fund on a 60-day written notice when
authorized either by a majority vote of the Fund’s shareholders or by vote of a
majority of the Board, including a majority of the Independent Trustees, or by
the Distributor upon a 60-day written notice, and will automatically terminate
in the event of its “assignment” (as defined in the 1940 Act).
Distribution
Plan
The
Trust, on behalf of the Advisor Class shares of the Fund, has adopted a
Distribution Plan (the “Rule 12b-1 Plan”) pursuant to Rule 12b-1 under the 1940
Act under which the Fund pays the Distributor an amount which is accrued daily
and paid quarterly, at an annual rate of 0.25% of the average daily net assets
of the Advisor Class shares of the Fund. Amounts paid under the Rule 12b-1 Plan
are paid to the Distributor to compensate it for costs of the services it
provides and the expenses it bears in the distribution of the Fund’s shares,
including overhead and telephone expenses; printing and distribution of
prospectuses and reports used in connection with the offering of the Fund’s
shares to prospective investors; and preparation, printing and distribution of
sales literature and advertising materials.
Under
the Rule 12b-1 Plan, the Trustees will be furnished quarterly with information
detailing the amount of expenses paid under the Rule 12b-1 Plan and the purposes
for which payments were made. The Rule 12b-1 Plan may be terminated at any time
by vote of a majority of the Trustees of the Trust who are not interested
persons. Continuation of the Rule 12b-1 Plan is considered by such Trustees no
less frequently than annually. With the exception of the Distributor and the
Advisor, in their capacities as the Fund’s principal underwriter and
distribution coordinator, respectively, no interested person has or had a direct
or indirect financial interest in the Rule 12b-1 Plan or any related
agreement.
While
there is no assurance that the expenditures of the Fund’s assets to finance
distribution of shares will have the anticipated results, the Board believes
there is a reasonable likelihood that one or more of such benefits will result,
and because the Board is in a position to monitor the distribution expenses, it
is able to determine the benefit of such expenditures in deciding whether to
continue the Rule 12b-1 Plan.
As
of the date of this SAI, the Plan has not yet been implemented.
Shareholder
Servicing Plan
In
addition, pursuant to a Shareholder Service Plan (the “Shareholder Servicing
Plan”) adopted by the Trust on behalf of the Fund, the Advisor is authorized to
engage financial institutions, securities dealers and other industry
professionals (each a “Shareholder Servicing Agent”) to provide personal
shareholder services relating to the servicing and maintenance of shareholder
accounts not otherwise provided to the Fund. Payments made pursuant to the
Shareholder Servicing Plan shall not exceed 0.10% of the average daily NAV of
the Fund’s Institutional Class shares and Advisor Class shares.
Payments
made under the Shareholder Servicing Plan shall be used to compensate
Shareholder Servicing Agents for providing general shareholder liaison services,
including, but not limited to: (i) answering inquiries from shareholders
regarding account status and history, the manner in which purchases and
redemptions of the Fund shares may be effected, and other matters pertaining to
the Fund; (ii) assisting shareholders in designating and changing dividend
options, account designations and addresses; (iii) arranging for wiring of funds
and transmitting and receiving funds in connection with orders to purchase or
redeem Fund shares; (iv) verifying and guaranteeing shareholder signatures in
connection with orders to purchase or redeem Fund shares; (v) providing such
other similar services related to the maintenance of shareholder accounts; and
(vi) providing necessary personnel and facilities to conduct the activities
described above.
For
the fiscal year ended April 30, 2022, the Fund made payments of $112,947 under
the Shareholder Servicing Plan.
MARKETING
AND SUPPORT PAYMENTS
The
Advisor, out of its own resources and without additional cost to the Fund or its
shareholders, may provide additional cash payments or other compensation to
certain financial intermediaries who sell shares of the Fund. The Advisor does
not currently intend to make such payments, but reserves the right to initiate
payments in the future without notice to shareholders. These payments may be
divided into categories as follows:
Support
Payments
Payments
may be made by the Advisor to certain financial intermediaries in connection
with the eligibility of the Fund to be offered in certain programs and/or in
connection with meetings between the Fund’s representatives and Financial
Intermediaries and their sales representatives. Such meetings may be held for
various purposes, including providing education and training about the Fund and
other general financial topics to assist financial intermediaries’ sales
representatives in making informed recommendations to, and decisions on behalf
of, their clients.
Entertainment,
Conferences and Events
The
Advisor also may pay cash or non-cash compensation to sales representatives of
Financial Intermediaries in the form of (1) occasional gifts;
(2) occasional meals, tickets or other entertainments; and/or
(3) sponsorship support for the Financial Intermediaries’ client seminars
and cooperative advertising. In addition, the Advisor pays for exhibit space or
sponsorships at regional or national events of Financial
Intermediaries.
The
prospect of receiving, or the receipt of additional payments or other
compensation as described above by Financial Intermediaries may provide such
Financial Intermediaries and/or their salespersons with an incentive to favor
sales of shares of the Fund, and other mutual funds whose affiliates make
similar compensation available, over sale of shares of mutual funds (or
non-mutual fund investments) not making such payments. You may wish to take such
payment arrangements into account when considering and evaluating any
recommendations relating to Fund shares.
As
of the date of this SAI, the Advisor does not have agreements with any firms to
pay such support payments. Future support payments may be structured in three
ways: (1) as a percentage of net sales; (2) as a percentage of net
assets; and/or (3) a flat fee.
FINANCIAL
STATEMENTS
The
audited financial statements and financial highlights of the Fund for the fiscal
year ended April 30, 2022, as set forth in the Fund’s annual
report to shareholders,
including the notes thereto and the report of the registered independent public
accounting firm, are incorporated by reference into this SAI. You can obtain a
copy of the financial statements contained in the Fund’s Annual or Semi-Annual
Report without charge by calling the Fund at 844-OAKHRST
(844-625-4778).
APPENDIX
A
LIDO
ADVISORS, LLC
PROXY
VOTING AND CORPORATE ACTION
POLICIES
AND PROCEDURES
JANUARY
1, 2022
The
policy of Lido Advisors, LLC (“LAL”) is to not vote proxies or assist with
corporate actions for clients, with the exception of its registered investment
company clients (the “Oakhurst Fund”). LAL has been delegated proxy voting and
corporate action responsibility by the Oakhurst Fund for proxies and corporate
actions solicited on the securities held in the Oakhurst Fund’ portfolios, which
are managed by LAL. Examples of corporate actions include, but are not limited
to tender offers, exchanges, and class actions.
These
policies and procedures, which may be amended from time to time, apply to the
voting of such proxies and handling of such corporate actions by
LAL.
SECTION
1 - VOTING RESPONSIBILITY
LAL’s
Chief Compliance Officer (“CCO”) has the responsibility of overseeing the voting
of the Oakhurst Fund’ proxies received by LAL. The Oakhurst Fund’s portfolio
managers are responsible for voting each proxy received (the “Responsible Voting
Party”). LAL may delegate to a non-affiliated third-party vendor, the
responsibility to vote proxies on behalf of LAL.
SECTION
2- PROXY VOTING GUIDELINES
It
is anticipated that most, if not all of the investments made by the Oakhurst
Fund will be in securities that do not issue proxies. However, should Oakhurst
Fund invest in securities that issue proxies, the fundamental guidelines
followed by LAL in voting such proxies on behalf of the Oakhurst Fund will be to
make every effort to ensure that the manner in which shares are voted is in the
best interest of the respective Oakhurst Fund and the value of the specific
investment.
LAL
may choose not to vote proxies in certain situations, such as: 1) where LAL
deems the cost of voting would exceed any anticipated benefit to the Oakhurst
Fund, or 2) where a proxy is received for a security no longer held in any of
the Oakhurst Fund’ portfolios (i.e., LAL had previously sold the entire
position).
SECTION
3 - CONFLICTS OF INTEREST
If
at any time LAL and/or the Responsible Voting Party become aware of any type of
potential or actual material conflict of interest relating to a particular proxy
proposal, they will promptly report such conflict to the CCO. For the purpose of
this policy, a “conflict of interest” shall be deemed to occur when LAL, an
Oakhurst Fund’s principal underwriter, or an affiliated person of LAL or a
principal underwriter has a financial interest in a matter presented by a proxy
to be voted on behalf of an Oakhurst Fund, other than the obligation LAL incurs
as investment adviser to the Oakhurst Fund, which may compromise LAL’s or the
Responsible Voting Party’s independence of judgment and action in voting the
proxy.
Conflicts
of interest will be handled by notifying and obtaining consent from the
respective Trust’s Board prior to voting on such proposal. To enable the Board
to make an informed decision regarding the vote in question, such disclosure to
the Board shall include sufficient detail regarding the matter to be voted on
and
the nature of the conflict. When the Board does not respond to such a conflict
disclosure request, or denies the request, LAL shall abstain from voting the
securities held by that Oakhurst Fund.
To
the extent there is a conflict of interest between LAL, a Fund’s principal
underwriter, or an affiliated person of LAL or a principal underwriter and an
Oakhurst Fund, and LAL notifies the appropriate Board of such conflict, the
Board may vote the proxy in accordance with the recommendation of an independent
third party.
SECTION
4 – CORPORATE ACTIONS
LAL
will provide any guidance and administrative support deemed necessary by each
Trust’s CCO and/or Board to assist with the completion and filings of corporate
actions received that pertain to any Oakhurst Fund portfolio
holding.
SECTION
5 - PROXY VOTING AND CORPORATE ACTION RECORDS
LAL
will maintain the following records under these policies and
procedures:
i.A
copy of all policies and procedures.
ii.A
copy of each proxy statement and corporate action received regarding the
Oakhurst Fund’s securities.
iii.A
record of each proxy vote cast and corporate action filing made by LAL on behalf
of the Oakhurst Fund.
iv.A
copy of any document created by LAL that was material to making a decision on
how to vote proxies on behalf of the Oakhurst Fund or that memorialize the basis
for that decision.
v.A
copy of each written request by the Oakhurst Fund for information on how LAL
voted proxies on behalf of the Funds, and a copy of any written response by LAL
to any (written or verbal) request for information on how LAL voted proxies on
behalf of the Oakhurst Fund.
The
foregoing records will be retained for at least six (6) years from the end of
the year the document was created. LAL may rely on one or more third parties to
create and retain the records referred to in items II and III
above.
SECTION
5 – REPORTING AND DISCLOSURES
A
copy of these policies and procedures will be provided to the Oakhurst Fund’s
CCOs and their Board of Trustees anytime upon request and at least annually for
review and approval. In addition, information on each proxy voted will be
provided to the Oakhurst Fund, in accordance with its written policies and
procedures as follows:
i.The
Responsible Voting Party or designee shall complete and provide a written report
to the CCO and each Oakhurst Fund’s CCO, on a quarterly basis that includes the
following:
•The
name of the issuer of the portfolio security;
•The
exchange ticker symbol of the portfolio security;
•The
CUSIP number for the portfolio security;
•The
shareholder meeting date;
•A
brief identification of the matter voted on;
•Whether
the matter was proposed by the issuer or by a security holder;
•Whether
the registrant cast its vote on the matter;
•How
the registrant cast its vote (e.g., for or against proposal, or abstain; for or
withhold regarding election of directors); and
•Whether
the registrant cast its vote for or against management.
ii.The
CCO shall provide the Oakhurst Fund’ Boards of Trustees, at least annually, a
copy of LAL’s Proxy Voting Policy, along with a record of each proxy voted on
behalf of each respective Oakhurst Fund, including a report on the resolution of
all proxies identified by LAL as involving a conflict of interest.
iii.At
least annually, the CCO shall provide to the Oakhurst Fund’ Boards of Trustees a
record of each proxy voted with respect to portfolio securities held by each
respective Oakhurst Fund during the year. With respect to any proxies that LAL
has identified as involving a conflict of interest, the CCO shall submit a
separate report indicating the nature of the conflict of interest and how that
conflict was resolved with respect to the voting of the proxy.
The
CCO and the Oakhurst Fund’ CCOs are responsible for ensuring that LAL’s proxy
voting policy is properly disclosed in the Oakhurst Fund’s Statement of
Additional Information.
SECTION
6 – FORM N-PX
The
Oakhurst Fund’ Trusts shall file an annual report of each proxy voted with
respect to portfolio securities held by the Oakhurst Fund during the
twelve-month period ended June 30 on Form N-PX not later than August 31 of each
year. The CCO will review each draft Form N-PX prior to filing to help ensure
accuracy.