ck0000887215-20230531
DESCRIPTION
OF THE FUND
History
and Classification
The
Jensen Quality Growth Fund Inc. (the “Fund”) is an open-end, non-diversified,
management investment company registered under the Investment Company Act of
1940, as amended (“1940 Act”). The Class J, Class I and Class Y shares are
considered no load mutual fund share classes. The Fund was organized as an
Oregon corporation on April 17, 1992 and commenced operations on
August 3, 1992. Prior to that date, the Fund had no operations other than
organizational matters. The Fund’s name prior to March 1, 2018 was The Jensen
Portfolio, Inc. dba Jensen Quality Growth Fund. Shareholders of the Fund
approved the Fund’s name change at a meeting of shareholders on November 15,
2017.
The
Fund is designed to provide individuals and trusts, pension and profit sharing
plans, employee benefit trusts, endowments, foundations, other institutions, and
corporations with access to the professional investment management services
offered by Jensen Investment Management, Inc., which serves as the investment
adviser (the “Adviser”) to the Fund.
In
accordance with a Multiple Class Plan adopted pursuant to Rule 18f‑3 under
the 1940 Act, the Fund offers four classes of shares for investors—Class J,
Class I, Class R and Class Y shares. Class J is the class of shares comprising
the original Jensen Fund. Class J shares are available to retail investors and
assessed a combined distribution and shareholder servicing fee of 0.25% per year
of the Fund’s average daily net assets for Class J shares. Class R shares are
available to defined contribution plans and other retirement plans and assessed
a combined distribution and shareholder servicing fee of 0.50% per year of the
Fund’s average daily net assets for Class R shares. In addition, Class R shares
are assessed an additional shareholder servicing fee not to exceed 0.25% per
year of the Fund’s average daily net assets for Class R shares to pay for
shareholder support services, including the recordkeeping and administrative
services provided by retirement plan administrators to retirement plans (and
their participants) that are shareholders of Class R shares. Class I shares
are available to institutional investors and individuals willing to make a
significant initial investment in the Fund. Class I shares are assessed a
shareholder
servicing
fee not to exceed 0.10% per year of the Fund’s average daily net assets for
Class I shares, and are not subject to any distribution fees. More information
regarding the Rule 12b‑1 Plan and Shareholder Servicing Plan can be found
under the section entitled “Distribution and Servicing of Fund Shares –
Distribution and Shareholder Servicing Plans.” Class Y shares are available only
to institutional and individual investors willing to make a higher, significant
initial investment in the Fund and to employees and clients of the Adviser.
Class Y shares are not subject to any shareholder servicing or distribution
fees.
See
the sections entitled “Management of the Fund” and “Investment Advisory and
Other Services” in this SAI for more information about the Adviser.
Investment
Policies, Strategies and Associated Risks
Investment
Objective
The
Fund’s investment objective is long-term capital appreciation. The Fund’s
investment objective is not a fundamental policy and may be changed by the Board
of Directors without shareholder approval upon 60 days’ written notice to
shareholders.
The
Fund’s Prospectus discusses the types of securities in which the Fund will
invest, and describe the Fund’s investment objectives and strategies. See the
section entitled “Investment Objective, Principal Investment Strategies and
Primary Risks” in the Prospectus. This Statement of Additional Information
(“SAI”) contains information supplemental to the Prospectus concerning the
techniques and operations of the Fund, the securities the Fund will invest in,
and the policies the Fund follows.
Commercial
Paper Ratings
Moody’s
Investors Services (“Moody’s”) and Standard & Poor’s Corporation (“S&P”)
are private services that provide ratings of the credit quality of commercial
paper. A description of the ratings assigned to commercial paper by Moody’s and
S&P are included as Appendix A to this SAI. The Fund may purchase
commercial paper that is rated P‑1 by Moody’s or A‑1 by S&P and demand notes
issued by companies whose commercial paper receives such
ratings.
American
Depositary Receipts
The
Fund may invest in certain foreign securities, directly and by purchasing
American Depositary Receipts (“ADRs”). In addition, the Fund invests in domestic
companies that engage in substantial foreign business. Some of the risk factors
associated with such investments are described in the Prospectus under
“Principal Risks—International Risk, Foreign Securities and ADRs.” This
information supplements the information about ADRs contained in the
Prospectus.
Generally,
ADRs are denominated in United States dollars and are publicly traded on
exchanges or over-the-counter in the United States. ADRs are receipts issued by
domestic banks or trust companies evidencing the deposit of a security of a
foreign issuer.
ADRs
may be issued in sponsored or unsponsored programs. In sponsored programs, an
issuer has made arrangements to have its securities trade in the form of ADRs.
In unsponsored programs, the issuer may not be directly involved in the creation
of the program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. The Fund will acquire only ADRs issued in
sponsored programs.
Fundamental
Investment Restrictions
The
Fund has adopted the fundamental investment restrictions below. These
restrictions may not be changed without the approval of the shareholders. Any
change must be approved by the lesser of:
(1)67%
or more of the Fund’s shares present at a shareholder meeting if the holders of
more than 50% of the Fund’s outstanding shares are present in person or by
proxy; or
(2)More
than 50% of the Fund’s outstanding shares.
In
accordance with these restrictions, the Fund may not:
1.At
the close of any fiscal quarter, have less than 50% of its total assets
represented by:
(i)Cash
and cash equivalents permitted by Section 851 of the Internal Revenue Code
of 1986, as amended (the “Code”), and government securities; and
(ii)Other
securities limited, with respect to any one issuer, to an amount not greater in
value than 5% of the value of the total assets of the Fund and to not more than
10% of the outstanding voting securities of such issuer.
Compliance
with the Fund’s policy limiting to 5% the amount of assets that may be invested
in any one issuer is measured at the close of each fiscal quarter. The
percentage of Fund assets in any one issuer could amount to more than 5% due to
market appreciation of the Fund’s investment. Changes to valuations between
measurement dates will not necessarily affect compliance with this policy. The
Fund’s investment in any one issuer will not, however, exceed 25% of the value
of the Fund’s total assets at the close of any fiscal quarter.
2.Concentrate
its investments in any one industry if, as a result, 25% or more of the Fund’s
assets will be invested in such industry. This restriction, however, does not
limit the Fund from investing in obligations issued or guaranteed by the U.S.
government, or its agencies or instrumentalities.
3.Borrow
money, except as permitted under the 1940 Act.
4.Purchase
securities on margin, except such short-term credits as are standard in the
industry for the clearance of transactions.
5.Make
short sales of securities or maintain a short position.
6.Lend
portfolio securities.
7.Make
loans to any person or entity, except that the Fund may, consistent with its
investment objectives and policies, invest in: (a) publicly traded debt
securities; (b) commercial paper; and (c) demand notes, even though
the investment in such obligations may be deemed to be the making of
loans.
8.Invest
in, or engage in transactions involving: real estate or real estate mortgage
loans; commodities or commodities contracts, including futures contracts; oil,
gas or other mineral exploration or development programs, or option
contracts.
9.Invest
in any security that would expose the Fund to unlimited liability.
10.Underwrite
the securities of other issuers, or invest in restricted or illiquid
securities.
11.Invest
in securities of other investment companies, except as permitted under the 1940
Act.
12.Issue
any senior securities.
13.Change
the investment policies set forth in the Fund’s then current Prospectus and SAI,
unless at least 30 days’ prior written notice is provided to each
shareholder describing each policy change and the reasons for the
change.
Temporary
Defensive Strategies
For
temporary defensive purposes, in response to adverse market, economic, political
or other conditions, the Adviser may invest up to 25% of the Fund’s assets in
cash or cash equivalents.
Portfolio
Turnover
The
Fund purchases portfolio securities with the expectation of holding them for
long-term appreciation. The Fund will not sell its position in a portfolio
company unless the Adviser determines that:
•The
portfolio company should be replaced with another qualifying security that the
Adviser has
determined
to have a greater opportunity to achieve the Fund’s objective (as further
described in the Fund’s Prospectus); or
•The
issuer of the security no longer meets one or more of the investment criteria
specified in the Fund’s Prospectus. However, if such failure is due to an
extraordinary situation that the Adviser believes will not have a material
adverse impact on the company’s operating performance, then the Fund may hold
and continue to invest in the company.
Accordingly,
the Fund does not expect its annual portfolio turnover generally to exceed 25%.
The turnover rate could, however, be significantly higher or lower depending on
the performance of the portfolio companies, the number of shares of the Fund
that are redeemed, or other external factors outside the control of the Fund and
the Adviser.
High
portfolio turnover rates (100% or more) will generally result in higher
brokerage expenses, may result in a greater number of taxable transactions, and
may increase the volatility of the Fund.
In
computing the portfolio turnover rate, all securities whose maturity or
expiration dates at the time of acquisition was one year or less are excluded.
The turnover rate is calculated by dividing (a) the lesser of purchases or
sales of portfolio securities for the fiscal year by (b) the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year.
The
following are the portfolio turnover rates for the fiscal years ended
May 31, 2023 and 2022:
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Portfolio
Turnover Rate For the Fiscal Years Ended May 31, |
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2023 |
2022 |
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15.67% |
10.87% |
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DISCLOSURE
OF PORTFOLIO HOLDINGS INFORMATION
The
Fund’s Board of Directors has adopted portfolio holdings disclosure policies
and
procedures that
govern the timing and circumstances of disclosing the Fund’s portfolio
investments to shareholders and third-parties to ensure that disclosure is in
the best interests of the Fund’s shareholders. In adopting the policies
and
procedures,
the Board of Directors considered actual and potential material conflicts that
could arise between the interests of Fund shareholders, the Adviser,
distributor, or any other person affiliated with the Fund.
The
Fund’s complete portfolio holdings are filed with the SEC within 60 days of the
end of each fiscal quarter in the Fund’s Annual Report and Semi-Annual Report to
shareholders on Form N-CSR and in the Fund’s quarterly holdings reports 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. The Fund also discloses its
portfolio holdings as of each calendar quarter end on its website at
www.jenseninvestment.com. The portfolio holdings information is normally updated
within ten days after each quarter end and remains posted on the website until
replaced with the next calendar quarter’s portfolio holdings information. In the
event that the Fund makes significant changes to its portfolio holdings during
the calendar quarter, the Fund may choose to update its portfolio holdings
information on the website.
To
assure that the Fund’s portfolio holdings information is disseminated fairly to
the public and to prevent selective disclosure of such information and to avoid
conflicts of interest with the Fund’s shareholders, the Adviser, Distributor (as
defined below), or any other affiliated person of the Fund, the Fund’s portfolio
holdings information may not be disclosed to any person earlier than the day
after the portfolio holdings information is first published on the Fund’s
website, except as described below or otherwise when the Fund’s Chief Compliance
Officer determines that such disclosure is in the best interests of the Fund’s
shareholders. The Fund may provide to third-party service providers portfolio
holdings information on a more frequent basis when there is a legitimate
business purpose for such disclosure. These third party service providers may
include the custodian,
administrator,
transfer agent, distributor, legal counsel, independent registered public
accounting firm, proxy services, printers, broker-dealers executing fund
transactions and investment research data services. The Fund’s service
arrangements with each of these entities include a duty of confidentiality
(including appropriate limitations on trading) regarding portfolio holdings data
by each service provider and its employees, either by law or by
contract.
The
Fund’s portfolio holdings policies and procedures prohibit the Adviser, its
affiliates or employees, and the Fund from receiving any direct or indirect
compensation in connection with the disclosure of information about the Fund’s
portfolio holdings.
The
Fund’s Board of Directors receives a report from the Chief Compliance Officer on
an annual basis on his/her review and assessment of the adequacy and
reasonableness of the Fund’s portfolio holdings disclosure policies and
procedures.
MANAGEMENT
OF THE FUND
Board
of Directors and Officers
The
Fund is managed under the supervision of its Board of Directors (the “Board”),
which consists of six individuals (each a “Director”), five of whom are not
“interested” persons of the Fund or the Adviser as that term is defined under
the 1940 Act (“Independent Directors”). The Board is responsible for the overall
management of the Fund, including the general supervision and review of the
Fund’s investment policies and activities. The Board appoints the officers who
conduct the day-to-day business of the Fund. The directors are fiduciaries for
the Fund’s shareholders and are governed by the laws of the state of Oregon in
this capacity.
Board
Leadership Structure
The
Board conducts regular quarterly in-person meetings and may hold telephonic,
video or special in-person meetings as necessary. At these regular quarterly
meetings, the Board receives information from the Adviser concerning the Fund’s
performance, portfolio holdings, adherence to the Fund’s investment discipline
and restrictions, market outlook and other information. In
addition,
in connection with its consideration of whether to renew the Fund’s investment
advisory contract with the Adviser, the Board reviews the nature, extent and
quality of the services provided to the Fund by the Adviser. The Board annually
reviews the Fund’s service contracts with the Fund Services, Custodian and
Distributor (each as defined herein). The Independent Directors also hold
quarterly regularly scheduled in-person meetings outside of the presence of the
interested Directors and the Adviser, and may meet as needed in between their
regularly scheduled meetings. The Fund’s Chief Compliance Officer (“CCO”)
reports to the Board at the regular quarterly Board meetings and meets
separately with the Independent Directors at their quarterly
meetings.
The
Fund’s current Chair of the Board is an Independent Director. The Board has
adopted a policy that the Board should be composed of 75% or more Independent
Directors and a Chair who is an Independent Director.
Kenneth
Thrasher, an Independent Director, serves as Chair of the Board. The Chair’s
duties include setting the agenda for each Board meeting in consultation with
the Adviser and the other Directors and presiding over Board meetings. The Chair
also meets with the Adviser between meetings and facilitates communications
between the Board and the Adviser, and serves as the point person for addressing
issues in between regular Board meetings, including serving as a conduit of
information from Independent Directors to the Adviser. The Chair also acts as
the primary contact for the Directors with the Fund’s CCO and the Adviser. The
Directors believe this structure facilitates the orderly and efficient flow of
information to the Directors from the Adviser. The Fund believes that Mr.
Thrasher’s extensive management and financial experience
serving
as a Chief Executive Officer or President of both publicly-traded and private
companies, and serving as Chief Financial Officer in his career at each,
qualifies him to serve as Chair of the Board.
The
Board reviews its leadership structure periodically as part of its annual
self-assessment process. The Directors have concluded that the Board’s
leadership structure of a Chair who is an Independent Director and a Board
constituted of more than 75% Independent Directors is appropriate given the
specific characteristics or circumstances of the Fund.
The
Directors believe the Board’s leadership structure allows them to effectively
perform their oversight responsibilities and to act in the best interests of the
Fund’s shareholders.
As
described in more detail below under the section heading “Board
Committees”,
the Board has two standing committees—the Audit and Governance Committees. All
of the committees are chaired by Independent Directors and are composed solely
of Independent Directors. Each committee meets periodically to perform its
delegated oversight responsibilities and report its findings and recommendations
to the Board. The Board may establish additional committees or ad hoc or special
committees in the future or as needed to assist the Board in carrying out its
oversight responsibilities.
Directors
and Officers
The
directors and officers of the Fund are listed below, together with information
about their principal business occupations during at least the last five
years:
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Name,
Address and Age |
Position(s)
Held with the Fund |
Term
of Office and Length of Time Served** |
Principal
Occupation During Past Five Years |
#
of Portfolios in Fund Complex Overseen by Director |
Other
Directorships Held by Director During the Past Five Years |
INDEPENDENT
DIRECTORS |
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Name,
Address and Age |
Position(s)
Held with the Fund |
Term
of Office and Length of Time Served** |
Principal
Occupation During Past Five Years |
#
of Portfolios in Fund Complex Overseen by Director |
Other
Directorships Held by Director During the Past Five Years |
Roger
A. Cooke
The
Jensen Quality Growth Fund Inc.
5500
Meadows Road
Suite
200
Lake
Oswego, OR 97035
Year
of Birth: 1948 |
Independent
Director |
Indefinite
Term; since June 1999. |
Retired.
Senior Vice President, General Counsel and Secretary of Precision
Castparts Corp., a diversified manufacturer of complex metal products
(2000 – 2013); Executive Vice President – Regulatory and Legal Affairs of
Fred Meyer, Inc. (now a division of Kroger), a retail grocery and general
merchandise company (1992 – 2000).
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None |
Kenneth
Thrasher
The
Jensen Quality Growth Fund Inc.
5500
Meadows Road
Suite
200
Lake
Oswego, OR 97035
Year
of Birth: 1949
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Chair and
Independent Director
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Indefinite
Term;
since
July 2007
and
Chair
since
July 2022.
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Retired.
Chairman (2002 – 2018) and CEO (2002 – 2009) of Complí, a web-based
compliance and risk management software solution company; President and
CEO of Fred Meyer, Inc. (now a division of Kroger), a retail grocery and
general merchandise company, from 1999-2001, and other executive positions
at Fred Meyer, Inc., including EVP and Chief Administrations Officer and
SVP and Chief Financial Officer, from 1982-1999.
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Northwest
Natural Holding Company and Northwest Natural Gas Company (a natural gas
distribution and service provider).
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Janet
G. Hamilton, PhD, CFA
The
Jensen Quality Growth Fund Inc.
5500
Meadows Road
Suite
200
Lake
Oswego, OR 97035
Year
of Birth: 1955
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Independent
Director
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Indefinite
Term; since October 2016.
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Associate
Professor, Finance, Portland State University’s School of Business (1986 –
present) and Area Director (2016-present). |
1 |
None |
Kathleen
J. Kee, CFP
The
Jensen Quality Growth Fund Inc.
5500
Meadows Road
Suite
200
Lake
Oswego, OR 97035
Year
of Birth: 1961
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Independent
Director |
Indefinite
Term; since October 2021. |
Senior
Wealth Advisor, Buckingham Strategic Wealth (2020 - present); Chief
Executive Officer, Confluence Wealth Management LLC (2011 -
2020). |
1 |
None |
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Name,
Address and Age |
Position(s)
Held with the Fund |
Term
of Office and Length of Time Served** |
Principal
Occupation During Past Five Years |
#
of Portfolios in Fund Complex Overseen by Director |
Other
Directorships Held by Director During the Past Five Years |
Charles
A. Wilhoite, CPA
The
Jensen Quality Growth Fund Inc.
5500
Meadows Road
Suite
200
Lake
Oswego, OR 97035
Year
of Birth: 1964 |
Independent
Director |
Indefinite
Term; since January 2023. |
Managing
Director (1995 – present) of Willamette Management Associates, a
Citizens Company, a financial advisory services firm. |
1 |
Northwest
Natural Holding Company and Northwest Natural Gas Company (a natural gas
distribution and service provider). |
INTERESTED
DIRECTOR |
Robert
D. McIver*
Jensen
Investment Management, Inc.
5500
Meadows Road
Suite
200
Lake
Oswego, OR 97035
Year
of Birth: 1965 |
Director
and President |
Indefinite
Term; since July 2015; 1 Year Term as President of the Fund; Served as
President since February 2007. |
Director
(since July 2015) of the Fund; President and Director (February 2007 –
present) and Director of Operations (2004 – February 2007) of Jensen
Investment Management, Inc.
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1 |
Jensen
Investment Management, Inc. (since February 2007) |
OFFICERS
OF THE FUND |
Robert
D. McIver* SEE ABOVE
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Eric
H. Schoenstein*
Jensen
Investment Management, Inc.
5500
Meadows Road
Suite
200
Lake
Oswego, OR 97035
Year
of Birth: 1965
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Vice
President |
1
Year Term; Served since January 2011. |
Chief
Investment Officer and Portfolio Manager (since 2021); and Director and
Vice President of Business Analysis (2002 – 2021) for Jensen Investment
Management, Inc. |
N/A |
Trustee
of the Oregon State University Foundation (2008-present) |
Richard
W. Clark***
Jensen
Investment Management, Inc.
5500
Meadows Road
Suite
200
Lake
Oswego, OR 97035
Year
of Birth: 1969
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Vice
President |
1
Year Term; Served since April 2017. |
Director
– Business Development (since August 2022), Director - Sales and Marketing
for Jensen Investment Management, Inc. (2001-2022). |
N/A |
N/A |
Shannon
M. Contreras*
Jensen
Investment Management, Inc.
5500
Meadows Road
Suite
200
Lake
Oswego, OR 97035
Year
of Birth: 1973
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Treasurer
and Vice President |
1
Year Term; Served since February 2020. |
Director
(since 2022), Director of Finance and Treasurer (February 2020 – Present),
Senior Compliance Officer and Associate - Finance (October 2014 –
February 2020) of Jensen Investment Management, Inc. |
N/A |
N/A |
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Name,
Address and Age |
Position(s)
Held with the Fund |
Term
of Office and Length of Time Served** |
Principal
Occupation During Past Five Years |
#
of Portfolios in Fund Complex Overseen by Director |
Other
Directorships Held by Director During the Past Five Years |
Gabriel
L. Goddard*
Jensen
Investment Management, Inc.
5500
Meadows Road
Suite
200
Lake
Oswego, OR 97035
Year
of Birth: 1972 |
Chief
Compliance Officer and AML Officer; Vice President and Secretary |
1
Year Term; Served since January 2018 (as Vice President and Secretary)
and since February 2020 as Chief Compliance Officer and AML
Officer. |
Vice
President and Secretary (January 2018-present), Secretary, General
Counsel, Chief Compliance Officer (2012-present), and Director
(2017-present) of Jensen Investment Management, Inc. |
N/A |
N/A |
* This
individual is an “interested person” of the Fund within the meaning of the 1940
Act because the individual
also serves as an officer of the Adviser and owns securities of the
Adviser.
** Each
Director serves for an indefinite term in accordance with the Bylaws of the Fund
until the date a Director dies, resigns, retires or is removed in accordance
with the Bylaws of the Fund.
*** This
individual is an “interested person” of the Fund within the meaning of the 1940
Act because the
individual
owns securities of the Adviser.
Role
in Risk Oversight
The
Fund is subject to several risks, including compliance, investment, operational
and reputational risk, among others. The Board is responsible for oversight of
the management and affairs of the Fund, including oversight of risk management.
The day-to-day management of the Fund’s investment and operational risks is
overseen and performed primarily by the Adviser and the Fund’s other service
providers including the custodian, administrator, fund accountant, transfer
agent and the distributor, subject to supervision by the Adviser. To aid in the
management of risk, whether compliance, operational, investment, reputational or
other, the Fund has adopted compliance policies and procedures to identify
particular risks and to minimize the occurrence of events or circumstances that
could have a material adverse effect on the Fund’s investment performance or its
operations. In addition, the Fund’s service providers use a variety of
processes, procedures and controls to identify and manage particular risks. All
of these service providers have an independent interest in managing risk
appropriately, however, their policies and procedures to manage risks may differ
from the Fund’s and each other’s in the setting of priorities, the resources
available or the effectiveness of relevant controls.
The
Board implements its risk oversight function in a variety of ways, including by
the whole Board and through Board committees. At the regular Board and Board
committee meetings, the Board receives reports from the
Adviser
and other service providers on the Fund’s activities and various risks relating
to the Fund. In addition, the Fund’s CCO regularly reports to the Board his
review of the Fund’s compliance with the Fund’s policies and procedures and
includes material compliance matters since the last report. Not less than
annually, the CCO provides to the Board a report on whether the Fund’s
compliance policies and procedures are adequately and effectively designed to
avoid violations by the Fund of the federal securities laws. The Fund’s
independent accountant reviews with the Audit Committee (and interested
Directors) on not less than an annual basis its audit report of the Fund’s
financial statements, including discussions of major risks identified by the
independent accountant and whether there are any significant deficiencies or
material weaknesses in the Fund’s internal controls. Board oversight of risk is
also performed in between regular Board meetings through communications between
the Board and the Adviser. Independent Directors are encouraged to communicate
directly, or through the Fund’s Chair, with the Fund’s management.
The
Board recognizes that it cannot identify or quantify all the risks facing the
Fund, and some risks cannot be mitigated or eliminated in a cost-effective
manner. Moreover, there are limitations to the effectiveness of the processes,
methods and controls the Fund uses to manage risk. Some risks, such as
investment-related risk, are simply part of the Fund’s business and are
necessary to achieve the Fund’s investment goals.
Accordingly,
there are limitations to the Board’s oversight of risk and the Fund’s ability to
manage risk.
Board
Conclusion on Individual Director Skills, Attributes, Qualifications, and
Experience
The
Governance Committee of the Board is responsible for assessing the experience,
qualifications, attributes and skills of potential candidates for nomination to
serve as directors of the Fund. The Governance Committee is composed of all of
the Fund’s Independent Directors and takes into account a wide variety of
factors and the specific work experience and other qualifications of candidates
to serve as directors. On an annual basis, the Board conducts a self-assessment
and considers, among other things, whether the existing Directors have the
requisite experience and skills to provide effective oversight. The Board
intends that its Directors must continually meet the following criteria among
other criteria considered by the Governance Committee:
•They
possess skills and abilities relevant to the mutual fund and investment company
industry, including an ability to read and understand financial
statements;
•They
possess knowledge of matters relating to the mutual fund and investment company
industry, and remain active enough to keep them in contact with the markets, the
business and technical environments and the communities in which the Fund is
active;
•They
are able to function as a part of an effective group, willing to speak their
mind but respecting and cooperating with other members of the Board;
•They
recognize in their activities for the Fund the predominance of overall Fund
performance above any particular area of special personal interest;
and
•They
are of good reputation and character, conduct themselves in accordance with high
ethical standards and possess personal and professional integrity, in this and
in other ways maintaining the respect of their fellow
directors.
The
Board has concluded that each of the Directors is qualified and should continue
to serve on the Board because he or she meets the criteria described above, and
based on (i) his or her individual skills, attributes, qualifications or
business experience and (ii) the skills, attributes, qualifications or business
experience of the Directors as a group. Information about the specific skills,
attributes, qualifications or business experience of each Director is as
follows.
Roger
A. Cooke.
Mr. Cooke is an Independent Director and has served as a Director since 1999.
From 2000 through 2013, Mr. Cooke served as the Senior Vice President, General
Counsel and Secretary of Precision Castparts Corp., a diversified manufacturer
of complex metal products formerly traded on the New York Stock Exchange. Prior
to joining Precision Castparts Corp., Mr. Cooke was for eight years the
Executive Vice President – Regulatory and Legal Affairs of Fred Meyer, Inc., a
former publicly traded retail grocery and general merchandise company acquired
by The Kroger Co. in 1998. Based on the foregoing, and because of the experience
gained serving as a Director since 1999, the Board concluded that Mr. Cooke
should continue to serve as a Director of the Fund.
Kenneth
Thrasher.
Mr. Thrasher is an Independent Director and has served as a Director of the Fund
since 2007 and Chair since July 20, 2022. Mr. Thrasher has been designated an
“audit committee financial expert” by the Board based on his extensive
management and financial experience serving in the capacity of Chief Executive
Officer or President of both publicly traded and private companies, as well as
serving as Chief Financial Officer in his career at each. Mr. Thrasher served as
the Chair of the Board of Directors at Complí, a web-based compliance and risk
management software solution company, and serves on the Board of Directors of
each of Northwest Natural Holding Company and Northwest Natural Gas Company, a
publicly traded natural gas distribution and service provider. Based on the
foregoing, and because of the experience gained serving as a Director since
2007, the Board concluded that Mr. Thrasher should continue to serve as a
Director of the Fund.
Prof.
Janet G. Hamilton, PhD, CFA.
Dr. Hamilton is an Independent Director and has served as a Director of the Fund
since October 19, 2016. Dr. Hamilton has been designated an “audit committee
financial expert” by the Board based on her extensive academic experience,
financial
analysis skills and status as a Chartered Financial Analyst (“CFA”). Dr.
Hamilton serves as an Associate Professor and Area Director, Finance, at
Portland State University’s School of Business where she has been employed since
1986. Additionally, Dr. Hamilton served on the Finance Faculty for the Oregon
Executive MBA program at the University of Oregon from 1989 to 2012. In her
roles as both an associate professor of finance and member of the finance
faculty, Dr. Hamilton has developed skills in economic problem solving,
valuation, and financial analysis. Her academic research has been published in
various finance journals. Dr. Hamilton has previously served in several
capacities on the Board of Directors for the CFA Society of Portland, including
as President. Based on the foregoing, and because of her experience gained
serving as a Director since October 2016, the Board concluded that Dr. Hamilton
should continue to serve as a Director of the Fund.
Kathleen
J. Kee.
Ms. Kee has served as an Independent Director of the Fund since October 13,
2021. Ms. Kee has served as a Senior Wealth Advisor for Buckingham Strategic
Wealth, a registered investment advisor providing financial planning and wealth
management services since December 2020. She previously served as the Chief
Executive Officer for Confluence Wealth Management LLC, a boutique registered
investment advisor wealth management firm working with high-net-worth
individuals and families, from 2011 to November 2020. Based on the foregoing,
and her extensive experience in the investment management industry, the Board
concluded that Ms. Kee should serve as a Director of the Fund.
Charles
A. Wilhoite, CPA.
Charles
A. Wilhoite was elected to serve as an Independent Director of the Fund
commencing on January 1, 2023. Mr. Wilhoite has served as a Managing Director of
Willamette Management Associates, a Citizens Company, a financial advisory
services firm specializing in financial advisory, business and intangible asset
valuation, forensic analysis, and litigation support services, since 1995. Mr.
Wilhoite serves on the Board of Directors of each of Northwest Natural Holding
Company and Northwest Natural Gas Company, a publicly traded natural gas
distribution and service provider. Based on the foregoing, and his accounting
background and extensive experience in the financial
services
and valuation industry, the Board concluded that Mr. Wilhoite should serve as a
Director of the Fund.
Robert
D. McIver.
Mr. McIver has served as a Director of the Fund since July 2015. He has served
as President and Director of the Adviser since 2007 and as Director of
Operations from 2004-2007. Prior to the Adviser, Mr. McIver was General Manager
of Fairmont Villa Management and Vice President of Fairmont Riverside Golf
Estates Ltd. from 2001-2004, and before that was a portfolio manager at Schroder
Investment Management for 10 years, and Chief Investment Officer at Schroder
& Co. Trust Bank for two years. Based on the foregoing, and because of the
experience gained serving as President and Director of the Adviser since 2007,
and his knowledge of the investment management industry, the Board concluded
that Mr. McIver should continue to serve as a Director of the Fund.
Board
Committees
Audit
Committee
The
Fund’s Audit Committee is comprised of all of the Independent Directors, and Ms.
Kee is the Chair of the Audit Committee. The Audit Committee reviews financial
statements and other audit-related matters for the Fund. The Audit Committee
also holds discussions with management and with the independent registered
public accounting firm engaged by the Fund concerning the scope of the audit and
the independent registered public accounting firm’s independence. The Audit
Committee meets twice a year, and if necessary, more frequently. The
Audit Committee met twice during the fiscal year ended May 31,
2023.
Governance
Committee
The
Fund’s Governance Committee is comprised of all of the Independent Directors,
and Dr. Hamilton is the Chair of the Governance Committee. The Governance
Committee evaluates and nominates Board candidates to fill vacancies and for
election and re-election as and when required. The Board has adopted the
following procedures by which shareholders may recommend nominees to the
Governance Committee. While the Governance Committee normally is able to
identify from its own resources an ample number of qualified candidates, the
Governance Committee will consider properly qualified candidates for the Board
submitted
by shareholders, so long as the shareholder or shareholder group submitting a
proposed nominee (1) beneficially owns more than 5% of the Fund’s voting shares;
(2) has held such shares continuously for the past two years; and (3) is not an
adverse holder (i.e.,
the shareholder or shareholder group has acquired such shares in the ordinary
course of business and not with the purpose nor with the effect of changing or
influencing the control of the Fund). Such suggestions must be sent in writing
to the Fund’s Secretary at the address of the Fund (5500 Meadows Road, Suite
200, Lake Oswego, OR 97035-3623) and must be accompanied by the shareholder’s
contact information, the nominee’s contact information and number of Fund shares
owned by the nominee, all information regarding the nominee that would be
required to be disclosed in solicitations of proxies for elections of directors
required under the Securities Exchange Act of 1934, as amended, and a notarized
letter from the nominee stating his or her intention to serve as a nominee and
be named in the Fund’s proxy statement, if so designated by the Governance
Committee. Shareholder recommendations for nominations to the Board will be
accepted on an ongoing basis and such recommendations will be kept on file for
consideration when there is a vacancy on the Board.
The
Governance Committee met five times during the fiscal year ended May 31,
2023.
Compensation
The
Fund does not compensate directors who are officers or employees of the Adviser.
The Independent Directors are each paid an annual retainer of $45,000
from the Fund, plus a fee of $5,000 for each Board meeting attended in person
and $3,000 for each Board meeting held by telephone. In addition, the Chair of
the Board is paid an annual fee of $15,000, the Chair of the Audit Committee is
paid an annual fee of $6,000,
and the Chair of the Governance Committee is paid an annual fee of $5,000.
They are also reimbursed for travel and other reasonable out-of-pocket expenses
in connection with attendance at Board meetings, but such reimbursements are not
considered “compensation” and therefore are not included in the amounts shown in
the table below. The Fund does not offer any retirement benefits for the
directors. The Board holds regular quarterly meetings. During the fiscal year
ended May 31, 2023, the directors received the following compensation from
the Fund:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name
of Person |
Aggregate
Compensation From Fund |
Pension
or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated
Annual Benefit Upon Retirement |
Total
Compensation from Fund Paid to Directors |
Interested
Directors |
|
|
| |
Robert
D. McIver |
None |
None |
None |
None |
|
|
|
| |
Independent
Directors |
|
|
| |
Robert
E. Harold(1) |
$43,750 |
None |
None |
$43,750 |
Roger
A. Cooke |
$77,250 |
None |
None |
$77,250 |
Kenneth
Thrasher(2) |
$89,750 |
None |
None |
$89,750 |
Janet
G. Hamilton |
$81,500 |
None |
None |
$81,500 |
Kathleen
J. Kee |
$81,250 |
None |
None |
$81,250 |
Charles
A. Wilhoite(3) |
$37,250 |
None |
None |
$37,250 |
(1)
Mr.
Harold served as a Director until October 17, 2022.
(2)
Mr.
Thrasher served as chair of the Board starting on July 22, 2022, for which he
received an annual fee of $15,000 (prorated for the fiscal year ended
May
31, 2023) included in the fees above.
(3)
Mr.
Wilhoite became a Director on January 1, 2023.
For
the fiscal year ended May 31, 2023, members of the Audit Committee and
Governance Committee were paid a fee of $2,000 for each meeting attended in
person, and
Independent
Directors were paid a fee of $2,000 for each meeting of the Independent
Directors attended in person.
Director
Ownership of Fund Shares and Certain Transactions
The
following table shows the dollar range of shares beneficially owned by each
director in the Fund as of December
31, 2022:
Interested
Directors:
|
|
|
|
| |
Name
of Director |
Aggregate
Dollar Range of Equity Securities in the Fund |
Robert
D. McIver |
Over
$100,000 |
Independent
Directors:
|
|
|
|
| |
Name
of Director |
Aggregate
Dollar Range of Equity Securities in the Fund |
Roger
A. Cooke |
Over
$100,000 |
Kenneth
Thrasher |
Over
$100,000 |
Janet
G. Hamilton |
Over
$100,000 |
Kathleen
J. Kee |
Over
$100,000 |
Charles
A. Wilhoite |
None |
As
of December 31, 2022, none of the Independent Directors or members of their
immediate families owned any securities of the Adviser, the Distributor or any
other entity directly or indirectly controlling, controlled by, or under common
control with the Adviser or Distributor.
During
the two most recently completed calendar years, none of the Independent
Directors nor members of their immediate families conducted any reportable
transactions (or series of transactions) with the Fund or with any other
investment company advised by the Adviser or distributed by the Distributor, an
officer of the Fund or of any other investment company advised by the Adviser or
distributed by the Distributor, the Adviser, Distributor, an officer of the
Adviser or Distributor or any affiliate of the Adviser or Distributor in which
the amount exceeded $120,000.
CONTROL
PERSONS AND PRINCIPAL SHAREHOLDERS
Control
Persons
As
of August 31, 2023, officers and directors, as a group, owned of record or
beneficially less than 1% of the Class J, Class I, Class R and Class Y shares of
the Fund. As of August 31, 2023, there
were no control persons of the Fund. The term “control” means:
•The
beneficial ownership, either directly or through one or more controlled
companies, of more than 25% of the voting securities of a company;
•The
acknowledgment or assertion by either the controlled or controlling party of the
existence of control; or
•A
final adjudication under section 2(a)(9) of the 1940 Act that control
exists.
Principal
Shareholders
As
of August
31, 2023,
the following shareholders owned of record or were known by the Fund to own
beneficially 5 percent or more of any class of the Fund’s outstanding
shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Class
J Shares
|
Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc. Reinvestment Account Special Custody Account
FBO Its Customers 211 Main Street San Francisco, CA
94105-1901
|
The
Charles Schwab Corporation |
DE |
41.65% |
Record |
National
Financial Services LLC
FBO
Its Customers
499
Washington Boulevard, 4th Floor
Jersey
City, NJ 07310-1995 |
Fidelity
Global Brokerage Group, Inc. |
DE |
23.26% |
Record |
TD
Ameritrade, Inc. For the Exclusive Benefit of Our Clients P.O. Box
2226 Omaha, NE 68103-2226 |
N/A |
N/A |
7.46% |
Record |
Morgan
Stanley Smith Barney For the Exclusive Benefit of Our Clients 1 New
York Plaza, 39th Floor New York, NY 10004-1932
|
N/A |
N/A |
6.33% |
Record |
|
|
|
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Class
I Shares
|
Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
|
|
|
| |
Wells
Fargo Clearing Services, LLC 1 North Jefferson Avenue MSC
M03970 St. Louis, MO 63103-2287 |
Wells
Fargo Advisors, LLC |
DE |
37.65% |
Record |
Charles
Schwab & Co., Inc. Reinvestment Account Special Custody Account
FBO Its Customers 211 Main Street San Francisco, CA
94105-1901
|
N/A |
N/A |
21.29% |
Record |
National
Financial Services LLC FBO Its Customers 499 Washington Boulevard,
4th Floor Jersey City, NJ 07310-1995 |
N/A |
N/A |
14.39% |
Record |
Pershing
LLC
1
Pershing Plaza
Jersey
City, NJ 07399-0001
|
N/A |
N/A |
6.53% |
Record |
|
|
|
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Class
R Shares
|
Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
State
Street Bank & Trust Co.
Trustee
and/or Custodian
FBO
ADP Access Product
1
Lincoln Street
Boston,
MA 02111-2900
|
N/A |
N/A |
24.96% |
Record |
Great-West
Life & Annuity Insurance Company
c/o
Fascorp
8515
East Orchard Road, #2T2
Greenwood
Village, CO 80111-5002
|
N/A |
N/A |
22.57% |
Record |
Great-West
Trust Company LLC
Employee
Benefits Clients 401K
8515
East Orchard Road, #2T2
Greenwood
Village, CO 80111-5002
|
Power
Financial Corporation |
Québec,
Canada |
19.01% |
Record |
Pershing
LLC
1
Pershing Plaza
Jersey
City, NJ 07399-0001
|
N/A |
N/A |
7.74% |
Record |
National
Financial Services LLC
FBO
Its Customers
499
Washington Boulevard, 4th
Floor
Jersey
City, NJ 07310-1995 |
N/A |
N/A |
6.66% |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Class
Y Shares |
|
|
| |
Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
|
|
|
| |
|
|
|
| |
Edward
D. Jones and Co. For the Benefit of Customers 12555 Manchester
Road St. Louis, MO 63131-3710 |
Edward
D. Jones & Co., L.P. |
MO |
41.22% |
Record |
Wells
Fargo Bank NA FBO Omnibus Cash Account P.O. Box 1533 Minneapolis,
MN 55480-1533 |
N/A |
N/A |
12.46% |
Record |
|
|
|
| |
Pershing
LLC
1
Pershing Plaza
Jersey
City, NJ 07399-0001
|
N/A |
N/A |
10.70% |
Record |
|
|
|
| |
|
|
|
| |
National
Financial Services LLC
FBO
Its Customers
499
Washington Boulevard, 4th
Floor
Jersey
City, NJ 07310-1995 |
N/A |
N/A |
5.42% |
Record |
|
|
|
| |
|
|
|
| |
|
|
|
| |
INVESTMENT
ADVISORY AND OTHER SERVICES
Adviser
Jensen
Investment Management, Inc., the investment adviser to the Fund since its
inception in 1992, provides investment advisory services to the Fund pursuant to
an Investment Advisory and Service Contract dated February 28, 2018 (“Advisory
Agreement”), which was approved by the Board of Directors on July 18, 2017 and
by the Fund’s shareholders on November 15, 2017. The current term of the
Advisory Agreement commenced on August
1, 2023 and
will continue until July
31, 2024
unless terminated earlier in accordance with its terms. Under the Advisory
Agreement, the Adviser is responsible for the overall management of the Fund.
The Adviser reviews the portfolio of securities and investments in the Fund, and
advises and assists the Fund in the selection, acquisition, holding or disposal
of securities and makes recommendations with respect to other aspects and
affairs of the Fund. The Adviser is also responsible for placing orders for the
purchase and sale of the Fund’s investments directly with the issuers or with
brokers or dealers selected by the Adviser. See the section entitled “Brokerage
Allocation and Other Portfolio Transactions” in this SAI. Additional information
about the services provided by the
Adviser
to the Fund is described under the section entitled “Management of the Fund” in
the Fund’s Prospectus.
The
Adviser also serves as the investment adviser to the Jensen Quality Value Fund
and the Jensen Global Quality Growth Fund, each of which is an open-end mutual
fund.
Management
of the Adviser
Robert
D. McIver, Gabriel L. Goddard, Eric H. Schoenstein, Shannon M. Contreras -- each
of whom is an officer of the Fund -- and Allen T. Bond are officers and
directors of the Adviser. Mr. Schoenstein and Mr. McIver, each a Managing
Director of the Adviser and a portfolio manager of the Fund,
each beneficially
owns 25% or more of the outstanding stock of the Adviser. Accordingly, Mr.
Schoenstein and Mr. McIver are each presumed to be a control person of the
Adviser. For further information, see below and “Management of the Fund” in this
SAI.
For
its services to the Fund, the Investment Adviser receives an investment advisory
fee paid monthly by the Fund at an annual rate calculated as a percentage of the
average daily net assets of the Fund. The table below illustrates the Fund’s
base investment advisory fee annual rate and the reduced annual fee rates on
Fund assets in excess of certain levels (breakpoints):
|
|
|
|
|
|
|
|
|
|
| |
Annual
Investment Advisory Fee (as a percentage of the Fund’s average daily
net assets) |
|
$4
billion or less |
More
than $4 billion, up to $8 billion |
More
than $8 billion, up to $12 billion |
More
than $12 billion |
0.500% |
0.475% |
0.450% |
0.425% |
The
investment advisory fees paid to the Adviser for the services provided to the
Fund for the past three fiscal years were as follows:
|
|
|
|
|
|
|
|
|
|
| |
Investment
Advisory Fees Paid During Fiscal Years Ended May 31, |
2023 |
2022 |
2021 |
|
| |
$47,517,961 |
$50,101,016 |
$46,527,639 |
|
| |
The
investment advisory fee paid by the Fund is allocated among the Fund’s four
share classes based on the average daily net assets of each share
class.
The
Advisory Agreement provides that, in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard for its obligations or duties
thereunder, the Adviser is not liable for any act or omission or loss in
the
course of, or in connection with, the rendering of services under the Advisory
Agreement. The Advisory Agreement does not restrict the ability of the Adviser
to act as investment adviser for any other person, firm or corporation, and the
Adviser advises other individual and institutional investors. The Adviser also
serves as the investment adviser to the Jensen Quality Value Fund and the Jensen
Global Quality Growth Fund, each an open-end mutual fund.
The
Advisory Agreement continues in effect from year-to-year, so long as such
continuance is approved annually by either (1) the Board; or (2) a vote of the
majority of the outstanding voting shares of the Fund.
The
Advisory Agreement is terminable without penalty on not less than 60 days’
written notice by the Board, by vote of the majority of the outstanding voting
shares of the Fund, or upon not less than 60 days’ written notice by the
Adviser. The Advisory Agreement terminates automatically upon its assignment as
defined in the 1940 Act. In addition, the Advisory Agreement provides that, in
the event of a material change in the management or ownership of the Adviser,
whether caused by death, disability or other reason, the Board is required to
meet as soon as practicable after such event to consider whether another
investment adviser should be selected for the Fund. In such event, the Advisory
Agreement may be terminated without any prior notice.
The
Advisory Agreement reserves to the Adviser the right to grant the use of a name
similar to the Fund’s name to another investment company or business enterprise
without approval of the Fund’s shareholders and reserves the right of the
Adviser to withdraw the use of the Fund’s name from the Fund. However, if the
Adviser chooses to withdraw from the Fund the use of the Fund’s name, at the
time of such withdrawal, the Adviser would have to submit to the Fund’s
shareholders the question of whether they wish to continue the Advisory
Agreement.
As
used in this SAI and in the Fund’s Prospectus, when referring to approval of the
Advisory Agreement to be obtained from shareholders of the Fund, the term
“majority” means the vote, at any meeting of the shareholders, of the lesser
of:
(1)67%
or more of the Fund’s shares present at such meeting, if the holders of more
than 50% of the Fund’s outstanding shares are present in person or by proxy;
or
(2)More
than 50% of the Fund’s outstanding shares.
Board
Consideration and Approval of the Advisory Agreement
A
discussion regarding the Board’s approval of the Fund’s investment advisory
agreement with the Adviser will be available in the Fund’s Semi-Annual Report to
shareholders dated November
30, 2023.
Portfolio
Manager
The
Fund is managed by an investment team consisting of Eric H. Schoenstein, Robert
D. McIver, Kurt M. Havnaer, Allen T. Bond, Kevin J. Walkush and Adam D. Calamar.
The information provided below supplements the information provided in the
Prospectus under the heading “Portfolio Managers” with respect to the investment
professionals responsible, either individually or jointly, for the day-to-day
management of the Fund, other accounts including two registered open-end
investment companies, a collective investment fund, private clients and
institutional investors, including pension plans, foundations and endowments
(“other accounts”), as set forth below as of May 31,
2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
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 (in
Millions) |
|
|
|
| |
Robert
D. McIver |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
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 (in
Millions) |
Other
Registered Investment Companies |
1 |
$44 |
0 |
$0 |
Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
Other
Accounts |
46 |
$69 |
0 |
$0 |
Eric
H. Schoenstein |
|
|
| |
Other
Registered Investment Companies |
2 |
$221 |
0 |
$0 |
Other
Pooled Investment Vehicles |
5 |
$1,594 |
0 |
$0 |
Other
Accounts |
151 |
$561 |
0 |
$0 |
Kurt
M. Havnaer |
|
|
| |
Other
Registered Investment Companies |
1 |
$177 |
0 |
$0 |
Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
Other
Accounts |
0 |
$0 |
0 |
$0 |
Allen
T. Bond |
|
|
| |
Other
Registered Investment Companies |
1 |
$44 |
0 |
$0 |
Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
Other
Accounts |
0 |
$0 |
0 |
$0 |
Kevin
J. Walkush |
|
|
| |
Other
Registered Investment Companies |
1 |
$44 |
0 |
$0 |
Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
Other
Accounts |
0 |
$0 |
0 |
$0 |
Adam
D. Calamar |
|
|
| |
Other
Registered Investment Companies |
1 |
$177 |
0 |
$0 |
Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
Other
Accounts |
0 |
$0 |
0 |
$0 |
The
Fund’s investment team and certain portfolio managers manage other accounts that
share the Fund’s primary investment objective of long-term capital appreciation
and generally have the same principal investment strategies. Because the Adviser
employs a similar investment approach in managing the Fund and the other
accounts, conflicts of interest may arise. As a result, the Adviser has adopted
trade allocation procedures that, among other things, ensure that the trades are
allocated fairly and equitably to the other accounts and the Fund consistent
with the Adviser’s fiduciary duty to each client.
In
determining a fair allocation, the Adviser evaluates a number of factors,
including among others, the size of the transaction, transaction costs and the
relative size of a client’s account. Because the substantial majority of the
equity securities purchased by the Adviser for its clients has abundant
liquidity and high average daily trading volume, market impact is often not a
significant concern. However, when the same investment decision is made for more
than one client account, which may include the Fund, all client orders given to
each broker are generally combined for execution as a “block” trade. Execution
prices for block trades are averaged and each participating account receives
that average price. Partially filled orders
are
allocated pro rata each day in proportion to each account’s order
size.
Conflicts
of interest may also arise when portfolio managers trade securities for their
own accounts that the Adviser recommends to the Fund and other Adviser client
accounts. These trades are subject to the Adviser’s and Fund’s joint Code of
Ethics and Standards of Conduct (the “Code of Ethics”), which is designed to
identify and limit conflicts of interest and help portfolio managers and other
covered persons comply with applicable laws in the conduct of the Adviser’s
business. The Code of Ethics requires all employees of the Adviser, including
portfolio managers to place the interests of the Adviser’s clients ahead of
their own interests and the interests of the Adviser, that they not take
inappropriate advantage of their position with the Adviser and that they conduct
their personal securities transactions in a manner that is not inconsistent with
the interests of the Adviser’s clients. The Code of Ethics includes restrictions
and prohibitions on personal trading and various reporting obligations regarding
the portfolio manager’s personal securities transactions and
holdings.
The
Adviser has not identified any other material conflicts between the Fund and
other accounts managed by the portfolio managers. However, actual or apparent
conflicts of interest may arise in connection with the day-to-day management of
the Fund and other accounts. Portfolio managers may give advice, exercise
investment responsibility or take other actions that differ among clients. While
portfolio managers treat all clients on a fair and equitable basis relative to
each other, each account has differing tax considerations, account sizes,
policies and investment restrictions. Clients may not participate in all
investments or they may participate in different degrees or at different times
as other clients. As a result, unequal time and attention may be devoted to the
Fund and other accounts. In addition, the various management fees charged to
some of the other accounts are generally higher than the management fee charged
to the Fund. This could
create
a conflict of interest where a portfolio manager appears to have favored an
account with a higher management fee solely because the account has outperformed
the Fund. However, this apparent conflict is mitigated by the fact that the Fund
represents the primary source of the Adviser’s total management fee revenue and
the portfolio managers do not directly receive any separate compensation based
on management fees generated or performance-based fees.
The
investment team’s compensation is paid by the Adviser. The investment team’s
compensation consists primarily of a fixed salary and a bonus. Each member’s
salary is reviewed annually and is based upon consideration of various factors,
including, but not limited to, merit, cost of living increases, employment
market competition and the individual member’s job performance. Discretionary
bonuses are paid to all employees of the Adviser. After considering its
profitability each year, the Adviser determines a percentage for its use in
calculating bonuses which is uniformly applied to each employee’s annual salary.
In addition, the investment team, along with all eligible employees of the
Adviser, participates in the Adviser’s discretionary annual Profit Sharing Plan.
At each year end, contributions to the plan are calculated as a percentage of
each eligible employee’s annual salary plus bonus. This percentage is decided
upon after considering the Adviser’s profitability each year and is also applied
uniformly to each such employee. None of the investment team’s compensation is
related to the performance of the Fund or the amount of the Fund’s
assets.
Each
member of the investment team is a shareholder of the Adviser. As a result, each
investment team member also receives his proportional share of any net profit
earned by the Adviser.
As
of May 31, 2023, the portfolio managers beneficially owned shares of the Fund as
follows:
|
|
|
|
| |
Name
of Portfolio Manager |
Dollar
Range of
Equity
Securities in the Fund(1) |
Allen
T. Bond |
$100,001-$500,000 |
Adam
D. Calamar |
$100,001-$500,000 |
Kurt
M. Havnaer |
$100,001-$500,000 |
Robert
D. McIver |
Over
$1,000,000 |
|
|
|
|
| |
Name
of Portfolio Manager |
Dollar
Range of
Equity
Securities in the Fund(1) |
Eric
H. Schoenstein |
Over
$1,000,000 |
Kevin
J. Walkush |
$100,001-$500,000 |
(1)The
dollar
range shown above includes Fund shares beneficially owned by the investment team
member’s account in the Adviser’s Profit Sharing Plan.
Administrator
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services
(“Fund Services”), 615 East Michigan Street, Milwaukee, Wisconsin 53202, the
Fund’s administrator, performs administrative functions for the Fund in addition
to services it provides as the Fund’s transfer agent and dividend disbursing
agent. The administrative duties it performs include:
•Compiling
data for the Fund;
•Assisting
in updating the Fund’s Prospectus, SAI, proxy statements, if any, and notices to
the Securities and Exchange Commission (“SEC”) required pursuant to
Rule 24f‑2 under the 1940 Act;
•Preparing
Annual Reports on Form N-CEN and other required Fund regulatory
filings;
•Preparing
and filing all federal and state tax returns and required tax filings, other
than those required to be made by the Fund’s custodian and transfer
agent;
•Preparing
compliance filings pursuant to state securities laws;
•Preparing
financial statements for the Fund’s Annual and Semi-Annual Reports to
Shareholders with the advice of the Fund’s independent registered public
accounting firm, as needed, and assisting in editing these reports if requested
by the Adviser;
•Monitoring
the Fund’s expense accruals;
•Monitoring
the Fund’s status as a regulated investment company under Subchapter M of
the Code;
•Maintaining
the Fund’s fidelity bond as required by the 1940 Act;
•Periodically
monitoring the Fund’s compliance with the 1940 Act and the investment
limitations of the Fund as set forth in the Fund’s Prospectus; and
•Generally
assisting in the Fund’s administrative operations.
For
the fiscal years indicated below, the following administrative fees were paid to
Fund Services by the Fund:
|
|
|
|
|
|
|
|
|
|
| |
Administration
Fees Paid During Fiscal Years Ended May 31, |
2023 |
2022 |
2021 |
|
| |
$1,511,478 |
$1,604,883 |
$1,446,892 |
|
| |
Fund
Services is relieved of liability to the Fund for any act or omission in the
course of its performance under the administration agreement, so long as Fund
Services acts in good faith and is not negligent or guilty of any willful
misconduct. The administration agreement continues in effect from year-to-year.
The agreement, however, may be terminated by the Fund or by Fund Services
without penalty after at least 90 days’ written notice.
Custodian,
Transfer Agent and Dividend Disbursing Agent, and Fund Accountant
U.S.
Bank National Association (the “Custodian”) 1555 North RiverCenter Drive, Suite
302, Milwaukee, WI 53212, serves as the custodian of the Fund’s cash and
securities. For its custodial services to the Fund, the Custodian receives
monthly fees based upon the Fund’s month-end, aggregate net asset value, plus
certain charges for securities transactions. U.S. Bank National Association and
Fund Services are affiliated entities.
Fund
Services serves as the Fund’s transfer agent and dividend disbursing agent. Fund
Services processes requests for the purchase or redemption of the Fund’s shares,
sends statements of ownership to shareholders, and performs other administrative
duties on behalf of the Fund. Fund Services does not play any role in
establishing the investment policies of the Fund or in determining which
securities are to be purchased or sold by the Fund. All fees and expenses of
Fund Services are paid by the Fund. For its services as transfer agent and
dividend disbursing agent, Fund Services receives fees from the Fund based upon
the number of shareholder accounts maintained and the number of transactions
effected. Fund Services is also reimbursed by the Fund for out-of-pocket
expenses.
Fund
Services also serves as the Fund’s fund accountant. Fund Services maintains the
financial accounts and records of the Fund and provides other accounting
services to the Fund, including calculation of the net asset value (“NAV”) per
share for each share class of the Fund. For its services as fund accountant,
Fund Services receives monthly fees based upon the Fund’s month-end, aggregate
NAV, plus certain charges for pricing the Fund’s portfolio holdings pursuant to
its calculation of the per share NAV for each share class of the
Fund.
DISTRIBUTION
AND SERVICING OF FUND SHARES
Distributor
Quasar
Distributors, LLC (the “Distributor”), 111 East Kilbourn Avenue, Suite 2200,
Milwaukee, Wisconsin, 53202, is the Fund’s principal underwriter and the
distributor of the Funds’ shares pursuant to a distribution agreement between
the Distributor and the Fund (the
“Distribution
Agreement”). The offering of the Fund’s shares is continuous. Pursuant to the
Distribution Agreement, the Distributor, as agent, sells shares of the Fund on a
best efforts basis. The Distributor is a registered broker-dealer and member of
the Financial Industry Regulatory Authority, Inc.
The
Distribution Agreement must be renewed annually by the Board of Directors or the
vote of a majority of the Fund's outstanding voting securities and, in either
case, by a majority of the Board of Directors who are not "interested persons"
(as defined in the 1940 Act) of any party to the Distribution Agreement. The
Distribution Agreement may be terminated, without the payment of any penalty, by
the Fund upon no less than 60 days' written notice through a vote of (i) a
majority of the Fund's outstanding voting securities or (ii) a majority of the
Board of Directors who are not "interested persons" and who have no direct or
indirect financial interest in the operation of the Distribution Agreement. The
Distribution Agreement may be terminated by Distributor upon no less than 60
days' written notice to the Fund. The Distribution Agreement will automatically
terminate in the event of its assignment.
Distribution
and Shareholder Servicing Plans
As
noted in the Fund’s Prospectus, the Fund has adopted an Amended and Restated
Distribution and Shareholder Servicing Plan pursuant to Rule 12b‑1
promulgated by the SEC pursuant to the 1940 Act (the “12b‑1 Plan” or the
“Plan”) for Class J shares and Class R shares. The 12b-1 Plan was
unanimously renewed by the Fund’s Board of Directors on July
18, 2023.
Under the Plan, Class J shares and Class R shares pay the Distributor or other
qualified recipients an amount from Fund assets at the following annual
rates:
|
|
|
|
| |
Class |
Maximum
Fee under 12b‑1 Plan (as a % of average daily net assets) |
Class
J |
0.25% |
Class
R |
0.50% |
If
the Distributor or other qualified recipient is due more monies for its services
rendered than are payable annually under the Plan, the unpaid amount is carried
forward from period to period (not to exceed three years) while the Plan is in
effect until such time as it is paid.
The
12b‑1 Plan is a “compensation” plan (i.e.
the distribution fee is payable to the Distributor regardless of the
distribution-related expenses actually incurred on behalf of the Fund’s Class J
and Class R shares) that provides for payment by each class to the Distributor
and
other
qualified recipients (e.g.
securities dealers, financial institutions and other industry professionals,
collectively, “financial intermediaries”) for the services they provide that are
principally related to the sale and promotion of the Fund’s Class J and Class R
shares or to provide certain shareholder services, including services provided
by broker-dealers that maintain individual shareholder account records for, and
provide account maintenance and shareholder servicing to, their customers who
invest in the Fund through a single “omnibus” account.
Activities
covered by the 12b‑1 Plan include:
•Advertising
and marketing of the Fund’s Class J shares and Class R shares;
•Preparing,
printing, and distributing prospectuses and sales literature to prospective
shareholders, brokers, or administrators;
•Implementing
and operating the 12b‑1 Plan; and
•Providing
shareholder services and maintenance of shareholder accounts by qualified
recipients.
The
Plan must be renewed annually by the Board of Directors, including a majority of
the Independent Directors who have no direct or indirect financial interest in
the operation of the 12b‑1 Plan, cast in person at a meeting called for
that purpose. The Board believes the Plan could be a significant factor in the
growth and retention of Fund assets resulting in a more advantageous expense
ratio that would benefit Fund shareholders.
The
Plan and any related agreements may not be amended to increase the amount spent
for distribution expenses without the approval of those shareholders holding a
majority of the Fund’s outstanding shares. All material amendments to the Plan,
the Distribution Agreement, or any other related agreements must be approved by
a vote of the Independent Directors, cast in person at a meeting called for the
purpose of voting on any such amendment.
The
Distributor is required to report in writing to the Board, at least quarterly,
on the amounts and purpose of any payment made under the Plan. The Distributor
is also required to provide the Board with other information as requested so as
to enable the Directors to make an informed decision on whether to continue the
Plan from year to year.
With
the exception of the Adviser and the Distributor, no “interested person” of the
Fund, as defined in the 1940 Act, and no Independent Director of the Fund has or
had a direct or indirect financial interest in the Plan, the Distribution
Agreement, or any other related agreement.
The
tables below show the amount of 12b-1 fees incurred and the allocation of such
fees by the Fund for the fiscal year ended May 31,
2023.
Class
J shares of the Fund paid the following amounts under the 12b-1
Plan:
|
|
|
|
| |
Expenses |
12b-1
Expenses Paid |
Advertising |
$0 |
Printing/Postage |
$5,198 |
Payments
to Distributor |
$38,908 |
Payments
to broker-dealers |
$5,498,066 |
Payments
to sales personnel |
$0 |
Interest,
carrying or other financing charges |
$0 |
Other
(Payments to Adviser) |
$279,731 |
TOTAL |
$5,821,902 |
Class
R shares of the Fund paid the following amounts under the 12b-1
Plan:
|
|
|
|
| |
Expenses |
12b-1
Expenses Paid |
Advertising |
$0 |
Printing/Postage |
$3,350 |
Payments
to Distributor |
$0 |
Payments
to broker-dealers |
$72,542 |
Payments
to sales personnel |
$0 |
Interest,
carrying or other financing charges |
$0 |
Other
(Payments to Adviser) |
$1,894 |
TOTAL |
$77,787 |
During
each of the Fund’s last three fiscal years ended May 31, 2021, 2022 and 2023,
respectively, the Distributor did not receive any net underwriting commissions
on the sale of the Fund’s shares.
As
of May 31, 2023, the Class J shares of the Fund had $53,974 of unreimbursed
expenses under the Plan paid by the Adviser for services it rendered to the Fund
under the Plan in prior years. Such unreimbursed expenses represented less than
0.000% of Class J shares assets (and less than 0.000% of the Fund’s net assets)
as of May 31, 2023.
As
of May 31, 2023, the Class R shares of the Fund had $5,729 of unreimbursed
expenses under the Plan paid by the Adviser for services it rendered to the Fund
under the Plan in prior years. Such unreimbursed expenses represented (0.07)% of
Class R shares assets (and less than 0.000% of the Fund’s net assets) as of May
31, 2023.
Payments
made by the Fund to financial intermediaries (including those that sponsor
mutual fund supermarket programs) are based primarily on the dollar amount of
assets invested in the Class J shares and Class R shares of the Fund
attributable to a particular financial intermediary. Financial intermediaries
may pay a portion of the payments received from the Fund to their investment
professionals and to other financial intermediaries for which they provide
clearing services. In addition, Class J shares and Class R shares of the Fund
may, from time to time, make payments under the 12b-1 Plan to defray expenses
incurred by financial intermediaries for the marketing support they provide for
the Fund, such as conducting training and educational meetings regarding various
aspects of the Fund for their investment professionals, hosting client seminars
where the Fund is
discussed,
and providing exhibition space to Adviser sales and marketing personnel at
industry trade shows and conferences sponsored by the financial intermediaries.
Payments made by the Fund to the Adviser are to reimburse the Adviser for the
costs it incurs in providing distribution and shareholder servicing and related
activities to the Fund, including compensation and travel expense for sales and
marketing personnel of the Adviser, including the Adviser's Director
-
Business Development as
well as other sales and marketing employees of the Adviser, preparation of
marketing materials and payments made to media relations and marketing
consulting firms.
With
respect to all share classes, to the extent payments made to financial
intermediaries exceed the fees payable from the class under the applicable 12b-1
Plan or Shareholder Service Plan and the sub-transfer agency fees paid by the
Class J shares, the Adviser makes payments to such intermediaries from its past
profits and other resources, including from its relationship with the Fund. A
number of factors are considered in determining the amount of these additional
payments to intermediaries, including the amount of assets invested with the
Fund and other mutual funds sponsored by the Adviser, the stability of such
assets over time, the distribution capabilities of the intermediary and the
quality of the firm’s relationship with the Adviser, the Fund and other mutual
funds sponsored by the Adviser. The total amount of these payments is
substantial, may be substantial to any given recipient and may exceed the costs
and expenses incurred by the recipient for any fund-related marketing or
shareholder servicing activities. The payments described in this paragraph may
be considered “revenue sharing payments.” To the extent that financial
intermediaries receiving revenue sharing payments sell more shares of the Fund,
the Adviser benefits from the increase in assets. For the fiscal
year
ended May 31, 2023, the Adviser's payments to financial intermediaries in excess
of the 12b-1 fees and sub-transfer agency fees paid by the Fund were made
primarily to the following broker-dealers that sponsor mutual fund supermarket
programs (see discussion below) and other financial intermediaries that provide
shareholder recordkeeping and servicing and retirement plan services, and whose
customers have invested in the Fund: Charles Schwab & Co., Inc., Fidelity
Brokerage Services, Inc., Pershing LLC, Great West Financial Services, LPL
Financial, SEI, Nationwide Investment Services, Morgan Stanley Smith Barney,
MSCS Financial Services, Vanguard Brokerage Services, TD Ameritrade, Inc., TD
Ameritrade Trust, Financial Data Services/Merrill Lynch, RBC Wealth Management,
ADP Broker Dealer, Ascensus, Benefit Plan Administrative Services, Raymond
James, Ameriprise Financial, J.P. Morgan Securities LLC, Principal and U.S.
Bank. The Adviser expects that additional firms may be added to this list from
time to time.
The
Fund does not participate in any joint distribution activities with any other
investment company.
Investors
should consult their financial intermediary regarding the details of the
payments such intermediary and their investment professionals receive in
connection with the sale or servicing of Fund shares. The receipt of payments
and other compensation described in this section provides a financial
intermediary and its investment professionals with an incentive to favor sales
of the Fund over shares of other mutual funds or to favor one class over another
class of with respect to which the intermediary does not receive payment or
receives a lower amount.
Fund
Supermarkets
The
Fund's Class J shares participate in various "fund supermarket" programs in
which a mutual fund supermarket sponsor (generally a broker-dealer) offers many
mutual funds to the sponsor's customers without charging the customers a sales
charge or transaction fee. The Fund pays the fund supermarket sponsor a
negotiated fee for distributing the Fund's Class J shares and for maintaining
shareholder account records and providing shareholder services to the sponsor's
customers holding shares of the Fund. If the fund supermarket sponsor's fees
exceed the 12b-1 fees with respect to the Fund's Class J shares and the
sub-transfer agency fees paid by these shares, the Adviser pays the excess from
its past profits
and
other resources, including from its relationship with the Fund.
Sub-Transfer
Agency Fees
The
Fund's Class J shares make payments to certain financial intermediaries who have
chosen to maintain an “omnibus account" with the Fund, which is a single account
in the Fund that contains the combined investment in Class J shares for all of a
financial intermediary's customers. In turn, these financial intermediaries
provide shareholder record-keeping and servicing to their individual customers
who are beneficial owners of the Fund through these omnibus accounts. These
payments, commonly known as sub-transfer agency fees, made by the Fund to such
financial intermediaries for the shareholder recordkeeping and servicing they
provide to their individual customers who are indirect Fund shareholders
approximate the fees that would be paid by the Fund to Fund Services for
maintaining and servicing these accounts if the financial intermediaries'
customers were instead direct shareholders of the Fund. The sub-transfer agency
fees paid to these financial intermediaries is reviewed and approved annually by
the Board of Directors and is determined based on the fees and expenses paid by
the Fund to Fund Services during the previous year for the services Fund
Services provided to the Fund's direct shareholders.
Shareholder
Servicing Plan – Class I Shares
The
Fund has adopted an Amended Shareholder Servicing Plan for the Class I shares to
pay for shareholder support services from the Fund's assets pursuant to a
Shareholder Servicing Agreement in an amount not to exceed 0.10% of Class I
shares' average daily net assets. Class I shares are responsible for paying
shareholder servicing fees to various shareholder servicing agents, including
retirement plan administrators and other service providers, who have written
shareholder servicing agreements with the Fund, and perform shareholder
servicing functions and maintenance of shareholder accounts, including
participant recordkeeping and administrative services for participants in
retirement plans, on behalf of the Class I shareholders. Class
I shares paid $3,959,060 in shareholder servicing fees during the fiscal year
ended May 31, 2023.
To
the extent amounts paid to financial intermediaries exceed the payments made
under the Class I Shares Amended Shareholder Servicing Plan, the excess is paid
by the Adviser from its past profits and other resources, including from its
relationship with the Fund. The total amount of these payments is substantial,
may be substantial to any given recipient and may exceed the costs and expenses
incurred by the recipient for any fund-related marketing or shareholder
servicing activities. For the fiscal year ended May 31, 2023, the Adviser's
payments to financial intermediaries in excess of the shareholder servicing fees
paid by the Fund were made primarily to the following broker-dealers and
financial intermediaries that provide shareholder servicing functions and
maintenance of shareholder accounts, and retirement plan services, and whose
customers have invested in the Fund: Charles Schwab & Co., Inc., Fidelity
Brokerage Services, Inc., Ascensus, Vanguard Brokerage Services, Financial Data
Services/Merrill Lynch, Ameriprise Financial, J.P. Morgan Securities, LPL
Financial, RBC Wealth Management, MassMutual, and Midatlantic. The Adviser
expects that additional firms may be added to this list from time to
time.
Shareholder
Servicing Plan – Class R Shares
The
Fund has adopted a Shareholder Servicing Plan for its Class R shares that
authorizes the Fund to make payments to financial intermediaries, retirement
plan administrators and other service providers in return for their shareholder
servicing and maintenance of Class R shareholder accounts, including participant
recordkeeping and administrative services provided for participants in
retirement plans that maintain Class R accounts in the Fund. The shareholder
servicing and maintenance fees authorized under the Shareholder Servicing Plan
for Class R shares may not exceed 0.25% per year of the Fund's average daily net
assets for Class R shares and may not be used to pay for any service in
connection with the distribution and sale of Class R shares.
Class R shares paid $26,483 in shareholder servicing fees during the fiscal year
ended May 31, 2023.
Code
of Ethics
The
Fund and the Adviser have adopted a written code of ethics under Rule 17j-1 of
the 1940 Act. The Fund and the Adviser have adopted a joint Code of Ethics and
Standards of Conduct (the “Code of Ethics”). Subject to the provisions of the
Code of Ethics, directors, officers and
employees
of the Adviser (“Covered Persons”) are permitted to purchase and sell for their
own accounts the same securities the Adviser recommends to the Fund. The Code of
Ethics is designed to identify and limit conflicts of interest and help Covered
Persons comply with applicable laws in the conduct of the Adviser’s business.
The Code of Ethics requires all Covered Persons to place the interests of the
Adviser’s clients ahead of their own interests and the interests of the Adviser,
that they not take inappropriate advantage of their position with the Adviser
and that they conduct their personal securities transactions in a manner that is
not inconsistent with the interests of the Adviser’s clients. For Covered
Persons deemed to have access to nonpublic trading and holdings information for
the Adviser’s clients, the Code of Ethics sets forth procedures, limitations and
prohibitions that govern their personal securities transactions in accounts held
in their name as well as accounts in which they have indirect ownership. The
Distributor relies on the principal underwriter’s exception under Rule
17j-1(c)(3) from the requirements to adopt a code of ethics pursuant to Rule
17j-1 because the Distributor is not affiliated with the Fund or the Adviser,
and no officer, director, or general partner of the Distributor serves as an
officer or director of the Fund or the Adviser.
Covered
Persons are required to pre-clear all transactions in securities not otherwise
exempt under the Code of Ethics. Requests to trade will not be approved when the
proposed personal transaction would be contrary to the provisions of the Code of
Ethics, including instances where the Adviser has purchased or sold the security
(or has a pending trade order for the security) for a client account
including
the Fund,
that day or within the previous seven calendar days (the “Blackout Period”). The
pre-clearance requirement and Blackout Period do not apply to de minimis
personal securities transactions effected by Covered Persons in securities of
relatively large capitalization companies, as defined in the Code of Ethics. The
Code of Ethics includes other restrictions and prohibitions on personal trading,
such as a ban on short-term trading (i.e.,
securities cannot be purchased and sold within 60 calendar days at a profit and
for Fund shares, this prohibition is extended to 90 calendar days) and short
sales of any security held in a client account or
in the Fund,
and restrictions on the purchase of securities in an IPO or private placement.
The prohibitions of the Code of Ethics do not apply to certain exempt
securities, such as mutual
funds
(excluding the Fund) and certain short-term debt securities.
In
addition to the limitations and prohibitions described above, the Code of Ethics
subjects Covered Persons to various periodic reporting obligations regarding
their investment accounts, personal securities transactions and holdings. The
Code of Ethics is administered by the Adviser, which reviews all reportable
transactions for compliance. Violations of the Code of Ethics are reviewed by
Adviser management and may subject such Covered Persons to sanctions as deemed
appropriate under the circumstances.
The
Code of Ethics also contains policies on insider trading that include procedures
designed to prevent trading or communications by Covered Persons that might
constitute the misuse of material, nonpublic information.
The
Code of Ethics is available by accessing the SEC’s website at www.sec.gov.
Proxy
Voting Guidelines
The
Adviser provides a voice on behalf of shareholders of the Fund. The Adviser
views the proxy voting process as an integral part of the relationship with the
Fund. The Adviser is also in a better position to monitor corporate actions,
analyze proxy proposals, make voting decisions and ensure that proxies are
submitted promptly. Therefore, the Fund delegates its authority to vote proxies
to the Adviser, subject to the supervision of the Board. The Fund’s proxy voting
policies are summarized below.
Policies
of the Fund’s Adviser
It
is the Adviser’s policy to vote all proxies received by the Fund on a timely
basis. Upon receiving each proxy, the Adviser will review the issues presented
and make a decision to vote for, against or abstain on each of the issues
presented in accordance with the proxy voting guidelines that it has adopted.
The Adviser will consider information from a variety of sources in evaluating
the issues presented in a proxy. The Adviser generally supports policies, plans
and structures that give quality management teams enough flexibility to run the
business in order to maximize value for owners. Conversely, the Adviser
generally opposes proposals that it believes may restrict the ability of
shareholders to realize the full potential value of their
investment.
Conflicts
of Interest
The
Adviser’s duty is to vote in the best interests of the Fund’s shareholders.
Therefore, in the event that a potential material conflict of interest arises
between the Adviser and the Fund, the Adviser will take one of the following
steps to resolve the conflict:
1.Vote
the securities based on a pre-determined voting policy if the application of the
policy to the matter presented involves little discretion on the part of the
Adviser;
2.Disclose
the conflict to the Independent Directors of the Fund and obtain their direction
on how to vote the proxy; or
3.Vote
the securities in accordance with a pre-determined policy based upon the
recommendations of an independent third party, such as a proxy voting
service.
More
Information
The
Fund’s voting records relating to its portfolio securities during the most
recent 12-month period ended June 30 is available on the SEC’s website at
www.sec.gov.
In addition, a copy of the Fund’s proxy voting policies and procedures, and the
voting records described in the previous sentence, are also available without
charge, upon request by calling the Fund at 800-992-4144. These materials will
be sent within three business days of receipt of a request.
Anti-Money
Laundering Program
The
Fund has established an Anti-Money Laundering Compliance Program (the “Program”)
as required by the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT
Act”). To ensure compliance with this law, the Fund’s Program provides for the
development of internal practices, procedures and controls, designation of
anti-money laundering compliance officers, an ongoing training program and an
independent audit function to determine the effectiveness of the
Program.
Procedures
to implement the Program include, but are not limited to, determining that the
Fund’s Distributor and transfer agent have established proper anti-money
laundering procedures, reporting suspicious and/or
fraudulent
activity and a complete and thorough review of all new opening account
applications. The Fund will not transact business with any person or legal
entity whose identity and beneficial owners, if applicable, cannot be adequately
verified under the provisions of the USA PATRIOT Act.
As
a result of the Program, the Fund may be required to “freeze” the account of a
shareholder if the shareholder appears to be involved in suspicious activity or
if certain account information matches information on government lists of known
terrorists or other suspicious persons, or the Fund may be required to transfer
the account or proceeds of the account to a governmental agency.
BROKERAGE
ALLOCATION AND OTHER PORTFOLIO TRANSACTIONS
General
Considerations
The
Adviser is responsible for the execution of the Fund’s portfolio transactions
and the allocation of brokerage transactions. The Adviser’s objective in
selecting broker/dealers and in effecting portfolio transactions is to seek the
best combination of price and execution with respect to the Fund’s portfolio
transactions. The best net price, giving consideration to brokerage commissions,
spreads and other costs, is an important factor in this decision, but a number
of other factors are also considered.
These
factors may include, but are not limited to: (1) the Adviser’s knowledge of
negotiated commission rates and spreads currently available; (2) the nature of
the security to be traded; (3) the size and type of transaction; (4) the nature
and character of the markets for the security to be purchased or sold; (5) the
desired timing of the trade; (6) the activity existing and expected in the
market for the particular security; (7) confidentiality and anonymity; (8)
execution; (9) clearance and settlement capabilities as well as the
broker/dealer’s reputation and perceived financial soundness; (10) the Adviser’s
knowledge of broker/dealer operational problems; (11) the broker/dealer’s
execution services rendered on a continuing basis and in other transactions; and
(12) the reasonableness of spreads or commissions. With respect to fixed income
transactions, the Adviser may compare broker or dealer bids or offers on the
basis of best net price.
The
Adviser has no pre-existing obligations to deal with any broker or group of
brokers regarding the execution of the Fund’s portfolio transactions. However,
the Adviser uses only a few brokers to execute most, if not all, of the Fund’s
equity securities transactions. These brokers have agreed to execute all Fund
equity securities trades at commission rates and with execution services that
the Adviser believes are favorable to the Fund and its shareholders. To evaluate
the execution quality of these trades, the Adviser analyzes all of the Fund’s
trades each quarter and reports its findings to the Board. The Fund paid the
following amounts in total brokerage commissions during the past three fiscal
years:
|
|
|
|
|
|
|
|
|
|
| |
Brokerage
Commissions Paid During Fiscal Years Ended May 31, |
2023 |
2022 |
2021 |
|
| |
$122,183 |
$79,611 |
$162,153 |
|
| |
The
Fund’s investment philosophy generally results in a low portfolio turnover rate
due to the relatively few portfolio transactions during any period, other than
those required by the purchase or sale of Fund shares. As a result, for the
fiscal year ended May
31, 2023,
brokerage commissions represented less than 0.01% of the Fund’s average net
assets.
To
the knowledge of the Fund’s management, during the Fund’s three most recent
fiscal years, the Fund did not pay any brokerage commissions to any broker who
was (i)
an
affiliated person of the Fund; (ii) affiliated with an affiliated person of the
Fund; or (iii) affiliated with the Adviser or Distributor. The Fund did not
acquire securities of its regular brokers or dealers (as defined in Rule 10b-1
under the 1940 Act) or their parents during its most recent fiscal
year.
The
Adviser does not enter into “soft-dollar” arrangements to obtain research,
meaning that it does not use the Fund’s commissions to pay for and receive
investment research from any of its brokers.
Investment
decisions for the Fund are made independently from those of other accounts
managed by the Adviser. However, because of the similar investment approach
employed by the Adviser, securities of the same issuer may be purchased, held or
sold by the Fund and other accounts. As a result, the Adviser has adopted trade
allocation procedures that, among other things, seek to allocate trades fairly
and equitably to all accounts, including the Fund, consistent with Adviser’s
fiduciary duty to each client. In determining a fair allocation, the Adviser
evaluates a number of factors, including among others, the size of the
transaction, transaction costs and the relative size of a client’s
account.
When
the same investment decision is made for more than one client account, which may
include the Fund purchase or sale, orders for a security are not required to be
combined for execution as a “block” trade unless the Adviser believes that one
or more such orders has the potential to impact the market. Because the majority
of the equity securities purchased by the Adviser for its clients have
significant liquidity and high average daily trading volume, market impact is
often not a significant concern. However, the potential for market impact may
exist when (i) the investment team decides to liquidate or significantly reduce
a security position held in all or substantially all clients accounts; (ii) the
investment team makes the decision to purchase a new security in all or
substantially all client accounts; or (iii) sizeable orders for the same
security for multiple accounts are submitted by one or more portfolio managers
and reach the trading desk at approximately the same time.
In
these circumstances, the Adviser will generally combine all client orders given
to each broker for execution as a “bunched” or block trade. When multiple block
trades are placed with multiple brokers, the sequence in which brokers are
contacted and given the block trade orders is randomly determined using computer
software.
Additionally,
the Adviser generally attempts to combine orders even if market impact is not a
significant concern. However, where the Adviser does not block trades (as set
forth above), it will work trades in the order received from portfolio managers.
If similar orders for different accounts are received after the first order,
traders may begin aggregating the remaining orders if all accounts would be
treated in a fair and equitable manner.
Execution
prices for each block trade are averaged and each account participating in the
block trade receives that average price. Partially filled orders for each block
trade are allocated pro rata each day in proportion to each participating
account’s order size.
Although
the Adviser believes that ultimately the ability to participate in block trades
will be beneficial to the Fund, in some cases this procedure may adversely
affect the price paid or received or the size of the position purchased or sold
by the Fund.
Capital
Stock
The
Fund was incorporated under Oregon law on April 17, 1992. The Fund has an
authorized capital of 5,000,000,000 shares of Common Stock, all of which have
been authorized for existing share classes. The Fund offers Class J, Class I,
Class R, and Class Y shares pursuant to a Rule 18f-3 Plan adopted by the Board
in accordance with the 1940 Act. Shares of each class represent an equal pro
rata interest in the Fund and, generally, have identical voting, dividend,
liquidation, and other relative rights, preferences, limitations, and terms and
conditions, except: (1) each class has a different designation; (2) each class
of shares bears expenses attributable to that class as set forth in the Rule
18f-3 Plan and the Prospectus; (3) each class has exclusive voting rights on
matters submitted to shareholders and relate solely to the class or its
distribution and service plan adopted under Rule 12b-1, if applicable; and (4)
each class has separate voting rights on matters submitted to shareholders in
which the interests of one class differ from the interests of another class. The
differences among the classes are subject to change by action of the Board to
the extent permitted by the 1940 Act and the Fund’s Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws. All issued and
outstanding shares of the Fund are fully paid and non-assessable. No share class
has preemptive rights. Fractional shares have the same rights proportionately as
full shares. The Fund’s shares do not have cumulative voting rights, which means
that shareholders owning more than 50 percent of Fund shares voting for the
election of directors may elect all the directors. Under the Fund’s Amended and
Restated Articles of Incorporation and Amended and Restated Bylaws, there are no
restrictions on the right of Fund shareholders to retain or dispose of the
Fund’s shares, other than the possible termination of the
Fund.
PURCHASE,
REDEMPTION AND PRICING OF FUND SHARES
Information
concerning the purchase and redemption of the Fund’s shares is set forth in the
sections “How to Buy Fund Shares” and “How to Redeem Fund Shares” in the Fund’s
Prospectus.
Purchases
and Redemptions
Shares
are directly sold by the Fund on a continuous basis. Shares may also be
purchased or sold through certain broker-dealers, financial institutions or
other service providers, as described in the Fund’s Prospectus. The Fund does
not charge any sales load or commission in connection with the purchase of
shares.
Although
the Fund and Adviser have established a minimum investment amount of $2,500 for
Class J shares and Class R shares, $250,000 for Class I shares
and $1,000,000 for Class Y shares, the Fund, in its sole discretion, may approve
smaller amounts for certain investors.
The
Fund reserves the right to suspend or postpone redemptions during any period
when:
(1)Trading
on the New York Stock Exchange (the “NYSE”) is closed for other than customary
weekend and holiday closing, or restricted as determined by the
SEC;
(2)The
SEC has by order permitted the Fund to suspend redemptions; or
(3)An
emergency exists, as determined by the SEC, which makes the disposal of the
Fund’s portfolio securities or a determination of the net asset value of the
Fund’s shares not reasonably practicable.
The
Fund may institute a policy that requires the automatic redemption of Fund
shares if a shareholder’s account balance drops below a certain amount as a
result of redemptions by the shareholder. If an automatic redemption policy is
adopted, the Fund may not cause a redemption to occur if the decrease in a
shareholder’s account balance was caused by any reason other than a
shareholder’s
redemption of Fund shares. As of the date of this SAI, the Fund has not adopted
a policy imposing the automatic redemption of a shareholder’s account if it
falls below a certain amount. Authorization for adopting and implementing such a
policy rests with the Board. The Board will enact an automatic redemption policy
if it determines that it is in the best interests of the Fund and its
shareholders.
None
of the Fund, the Adviser or Fund Services will be liable for any loss or expense
of effecting redemptions upon instructions believed by them to be genuine and in
accordance with the procedures described in the Fund’s Prospectus.
Conversion
Privileges
Shareholders
of Class J shares have the privilege of converting their shares to Class I,
Class R, and Class Y shares, provided that immediately after the conversion, the
Class J shareholder meets the then applicable eligibility requirements for Class
I, Class R or Class Y shares.
Shareholders
of Class I shares have the privilege of converting their shares to Class Y
shares, provided that immediately after conversion, the Class I shareholder
meets the then applicable eligibility requirements for Class Y
shares.
Investors
who hold Class I or Class Y shares of the Fund through a fee-based program of a
financial intermediary, but who subsequently become ineligible to participate in
the program or withdraw from the program, may be subject to conversion of their
Class I or Class Y shares by their program provider to another class of shares
of the Fund having expenses (including Rule 12b-1 fees) that may be higher than
the expenses of the Class I or Class Y shares. Investors should contact their
program provider to obtain information about their eligibility for the
provider’s program and the class of shares they would receive upon such a
conversion.
A
share conversion from one class of shares of the Fund to a different class of
the same Fund generally will not result in a realization of a capital gain or
loss for federal income tax purposes. You should consult your tax adviser before
converting shares of one class of the Fund for another class of shares of the
Fund.
Pricing
of Fund Shares
As
indicated in the Fund’s Prospectus, the Fund’s net asset value per share (“NAV”)
for each class of the Fund’s shares is determined as of the close of business on
the NYSE (currently, 4 p.m. Eastern time) on each day the NYSE is open for
trading. The NAV will not be determined on the following holidays: New Year’s
Day, Martin Luther King, Jr. Day, President’s Day, Good Friday, Memorial Day,
Juneteenth National Independence Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
The
Fund’s NAV for each class of Fund shares is computed by dividing the value of
the Fund’s securities and any cash or other assets (including interest and
dividends accrued but not yet received) allocated to the class, minus all
liabilities (including accrued expenses) allocated to that class, by the total
number of shares outstanding for the class at such time. Expenses, including the
fees payable to the Adviser, are accrued daily as is practicable. Dividend
income is recorded on the ex-dividend date and interest on bonds or other
interest-bearing securities is accrued daily.
Securities
that are listed on United States stock exchanges or the NASDAQ®
Stock Market are valued at the last sale price or official closing price on the
day the securities are valued or, if there has been no sale on that day, at the
last available bid price. Quotations are taken from the market in which the
security is primarily traded. Over-the-counter securities are valued at their
current bid price. Securities for which market quotations are not readily
available are valued at fair value, pursuant to the Adviser’s procedures subject
to oversight by the Board. Notwithstanding the above procedures, fixed-income
securities may be valued on the basis of prices provided by an approved pricing
service when the Adviser believes that such prices reflect market
values.
An
example of how the shares of the Fund calculated their total offering price per
share as of May 31, 2023 is as follows:
Class
J Shares
|
|
|
|
|
|
|
| |
Net
Assets |
= |
Net
Asset Value Per Share |
Shares
Outstanding |
|
| |
$2,363,726,389 |
= |
$57.43 |
41,155,198 |
Class
I Shares
|
|
|
|
|
|
|
| |
Net
Assets |
= |
Net
Asset Value Per Share |
Shares
Outstanding |
|
| |
$4,909,179,886 |
= |
$57.38 |
85,556,761 |
Class
R Shares
|
|
|
|
|
|
|
| |
Net
Assets |
= |
Net
Asset Value Per Share |
Shares
Outstanding |
|
| |
$13,531,492 |
= |
$57.10 |
236,986 |
Class
Y Shares
|
|
|
|
|
|
|
| |
Net
Assets |
= |
Net
Asset Value Per Share |
Shares
Outstanding |
|
|
|
|
|
|
|
| |
|
| |
$2,822,512,860 |
= |
$57.37 |
49,196,176 |
TAXATION
OF THE FUND
This
section is not intended to be a full discussion of federal income tax laws and
the effect of such laws on you.
This
section is based on the Code, Treasury Regulations, judicial decisions, and IRS
guidance on the date hereof, all of which are subject to change, and possibly
with retroactive effect. These changes could impact the Fund’s investment or the
tax consequences to you of investing in the Fund. Some of the changes could
affect the timing, amount and tax treatment of Fund distributions made to
shareholders. There may be other federal, state, foreign or local tax
considerations relevant to a particular shareholder. No assurance can be given
that legislative, judicial, or administrative changes will not be forthcoming
which could affect the accuracy of any statements made in this section. Please
consult your tax advisor before investing.
The
Fund expects to qualify continuously as a regulated investment company (“RIC”)
under Part I of Subchapter M of the Code. To qualify as a RIC, the Fund
generally must satisfy a gross income test and certain diversification tests.
The Fund’s policy is to distribute to its shareholders all of its investment
company taxable income and any net capital gain for each fiscal year in a manner
that complies with the distribution requirements of the Code, so that the Fund
will not be subject to any federal income or excise taxes on amounts
distributed. However, the Fund can give no assurances that its anticipated
distributions will be sufficient to eliminate all Fund level taxes. If the Fund
does not qualify as a RIC, and is unable to obtain relief from such failure, it
would be taxed as a regular corporation and, in such case, it would be more
beneficial for a shareholder to directly own the Fund’s underlying investments
rather than indirectly owning them through the Fund.
Tax
Status of the Fund
To
qualify as a RIC for any taxable year, the Fund must, among other things:
(a) derive at least 90% of its gross income from dividends, interest,
payments with
respect
to securities loans, gain from sale or other disposition of stock or securities,
and certain other types of income; and (b) diversify its holdings so that,
at the end of each fiscal quarter: (i) the Fund holds cash, government
securities, securities of other RICs and other securities that represent at
least 50% of the value of all Fund assets; (ii) the other securities of any one
issuer used to satisfy this 50% asset test constitute no more than 5% of the
value of the assets of the Fund and 10% of the outstanding voting securities of
the issuer; and (iii) no more than 25% of the value of the assets of the
Fund is invested in the securities (other than government securities or the
securities of other RICs) of any one issuer or of two or more issuers that the
Fund “controls” within the meaning of Section 851 of the Code and that meet
certain other criteria. In certain situations, however, a RIC such as the Fund,
that fails to satisfy either or both of these requirements will continue to be
treated as a RIC but the Fund will be subject to an additional tax, which will
reduce the amounts available for distribution to shareholders. In addition, the
Fund must file, or have filed, a proper election with the Internal Revenue
Service.
Generally,
to be taxed as a RIC, the Fund must distribute in each taxable year at least 90%
of its “investment company taxable income” for the taxable year, which includes,
among other items, dividends, interest and net short-term capital gain in excess
of net long-term capital loss, computed without any deduction for dividends
paid.
A
RIC, such as the Fund, that meets the requirements described above is taxed on
its investment company taxable income to the extent such income is not
distributed to the shareholders of the Fund. In addition, any excess of net
long-term capital gain over net short-term capital loss that is not distributed
to the shareholders of the Fund is taxed to the Fund at the current corporate
income tax rate of 21%.
If
the Fund retains any net long-term capital gain in excess of net short-term
capital loss and pays federal income tax on such excess (at the current
corporate income tax rate of 21%), it may designate such capital gain as
having
been distributed to shareholders but not in an amount that exceeds such
shareholder’s proportionate share of the amount subject to tax. If the Fund
designates the undistributed capital gains, shareholders:
•Will
be taxed on such amounts as long-term capital gain;
•May
claim their proportionate share of the federal income tax paid by the Fund on
such gain as a credit against their own federal income tax liabilities;
and
•Generally,
will be entitled to increase the adjusted tax basis of their shares in the Fund
by the difference between their pro rata shares of such gains and their tax
credits.
The
Fund may be liable for a special excise tax if it fails to make sufficient
distributions during the calendar year. The required distributions for each
calendar year generally equal the sum of (a) 98% of the ordinary income for the
calendar year plus (b) 98.2% of the capital gain net income for the one-year
period that ends on October 31 during the calendar year, plus (c) an
adjustment relating to any shortfall for the prior taxable year. If the actual
distributions are less than the required distributions, a federal excise tax of
4% applies to the difference between such amounts.
If
the Fund were unable to continue to qualify as a RIC for any reason, and is
unable to obtain relief from such failure, it would become liable for federal
income tax on its net income and net capital gain (and, possibly, other taxes)
for the taxable year or years in which it fails to qualify. Moreover, except to
the extent that certain dividend distributions to individuals are taxable at
long-term capital gain rates, distributions to shareholders for such period(s)
would be treated as dividends taxable at ordinary income rates to the extent of
the Fund’s current and accumulated earnings and profits, even though all or part
of such distributions might have qualified for treatment as long-term capital
gain to shareholders had the Fund continued to qualify as a RIC.
There
can be no assurance that the requirements for treatment as a RIC will be met by
the Fund in all possible circumstances. The remainder of this discussion assumes
the Fund qualifies as a RIC and has satisfied the annual income, investment, and
distribution requirements.
Taxation
of Fund Distributions
Distributions
of investment company taxable income are treated as ordinary income.
Distributions of qualified dividend income to a non-corporate shareholder paid
out of the Fund’s investment company taxable income will be taxable at long-term
capital gain rates. All of the ordinary income dividends paid by a Fund will be
taxable as qualified dividend income if the qualified dividend income received
by a Fund is equal to 95% (or a greater percentage) of the Fund’s gross income
(exclusive of net capital gain) in any taxable year. In the case of a corporate
shareholder, a portion of the distributions paid by the Fund may be eligible for
the dividends-received deduction because a portion of the Fund’s income may
consist of dividends paid by U.S. corporations. Distributions properly reported
by the Fund as a capital gain dividend (i.e.,
as representing the excess of net long-term capital gain over net short-term
capital loss) in written statements furnished to the Fund’s shareholders are
taxable to shareholders as long-term capital gain, regardless of the length of
time shareholders have held shares of the Fund. Any loss that is realized and
allowed on redemption of shares of the Fund six months or less from the date of
purchase of such shares and following the receipt of a capital gain dividend
will be treated as a long-term capital loss to the extent of the capital gain
dividend. The Code contains special rules on the computation of a shareholder’s
holding period for this purpose.
Distributions
will be taxable as described above, whether paid in shares or in cash. Each
distribution will be accompanied by a brief explanation of the form and
character of the distribution. Shareholders will be notified annually as to the
federal income tax status of distributions, and shareholders receiving
distributions in the form of newly-issued shares will receive a report as to the
NAV of the shares received.
A
distribution will be taxable to a shareholder even if the distribution reduces
the NAV of the shares held below their cost (and is, in an economic sense, a
return of the shareholder’s capital). This is more likely when shares are
purchased shortly before an annual distribution of capital gain or other
earnings.
Other
Tax Considerations
The
Fund must obtain from each shareholder a certification of the shareholder’s
taxpayer identification number and certain other information. The Fund will not
accept
an investment to establish a new account that does not comply with this
requirement. If a shareholder fails to certify such number and other
information, or upon receipt of certain notices from the Internal Revenue
Service, the Fund may be required to withhold a percentage of any reportable
interest or dividends, or redemption proceeds, payable to the shareholder, and
to remit such sum to the Internal Revenue Service for credit toward the
shareholder’s federal income taxes. A shareholder’s failure to provide a correct
social security number or other tax identification number may subject the
shareholder to a penalty of $50
imposed by the Internal Revenue Service. In addition, that failure may subject
the Fund to a separate penalty of $60. This penalty will be charged against the
shareholder’s account, which may then be closed. Any such closure of the account
may result in a capital gain or loss to the shareholder.
If
the Fund declares a dividend in October, November or December payable to the
shareholders of record on a certain date in such a month and pays the dividend
during January of the following year, the shareholders will be taxed as if they
had received the dividend on December 31 of the year in which the dividend
was declared. Thus, a shareholder may be taxed on the dividend in a taxable year
prior to the year of actual receipt.
Individuals,
trusts and estates are subject to a tax of 3.8% (in addition to regular income
tax) on net investment income. The net investment income tax is imposed on the
lesser of the taxpayer’s (i) investment income, net of deductions properly
allocable to such income or (ii) the amount by which the taxpayer’s modified
adjusted gross income exceeds certain thresholds ($250,000 for married
individuals filing jointly, $200,000 for unmarried individuals and $125,000 for
married individuals filing separately). The Fund anticipates that it will
distribute income that will be includable in investment income and modified
adjusted gross income for purposes of this net investment income
tax.
A
redemption of Fund shares may result in taxable gain or loss to the redeeming
shareholder, depending upon whether the redemption proceeds payable to the
shareholder are more or less than the shareholder’s adjusted basis for the
redeemed shares.
Under
the Foreign Account Tax Compliance Act (“FATCA”), the Fund may be required to
withhold a 30% tax
on
distributions of (i) investment company taxable income and (ii) net capital gain
and the gross proceeds of a sale, exchange or redemption of Fund shares. FATCA
withholding (i) applies to distributions of investment company taxable income,
and (ii) is scheduled to apply, to distributions of net capital gain and the
gross proceeds of a sale, exchange or redemption of Fund shares. FATCA
withholding applies to distributions to (i) certain “foreign financial
institutions” unless the applicable foreign financial institution complies with
certain information reporting requirements generally intended to allow the IRS
to obtain information about U.S. accountholders, among other items, and (ii)
certain “non-financial foreign entities” unless the applicable institution or
entity provides the Fund with a properly completed Form W-8BEN-E Certificate of
Status of Beneficial Owner for United States Tax Withholding and Reporting
(Entities), certifying that it is not subject to FATCA withholding. The Treasury
Department has issued proposed Treasury Regulations that would eliminate FATCA
withholding on Fund distributions of the gross proceeds from a sale or
redemption of Fund shares. Although taxpayers are entitled to rely on these
proposed Treasury Regulations until final Treasury Regulations are issued, these
proposed Treasury Regulations have not been finalized, may not be finalized in
their proposed form, and are potentially subject to change.
Shareholders
and prospective investors are urged to consult their tax adviser regarding the
application of this FATCA withholding tax to their investment in the Fund and
the potential certification, compliance, due diligence, reporting, and
withholding obligations to which shareholders and prospective investors may
become subject in order to avoid this withholding tax.
Additional
Information
The
foregoing summary and the summary of the tax consequences of an investment in
the Fund included in the Prospectus under “Distributions and Taxes” are
necessarily general and abbreviated. No attempt has been made to present a
complete or detailed explanation of tax matters. The summary does not identify
or address all statutory provisions that presently are scheduled to become
inapplicable or “sunset” as of a future date. Furthermore, the provisions of the
statutes and regulations on which these summaries are based are subject to
prospective or retroactive change by legislative or administrative action. State
and local taxes are beyond the scope of this discussion. Prospective investors
in the Fund should
consult
their own tax advisers regarding federal, state or local tax
matters.
COST
BASIS REPORTING
The
Fund is required to report to the IRS the cost basis of shares acquired by a
shareholder on or after January 1, 2012 (“covered shares”) when the shareholder
sells, exchanges or redeems such shares. These requirements do not apply to
shares held through a tax-deferred arrangement, such as a 401(k) plan or an IRA,
or to shares held by tax-exempt organizations, financial institutions,
corporations (other than S corporations), banks, credit unions, and certain
other entities and governmental bodies. Shares acquired before January 1, 2012
(“non-covered shares”) are treated as if held in a separate account from covered
shares. The Fund is not required to determine or report a shareholder’s cost
basis in non-covered shares and is not responsible for the accuracy and
reliability of any information provided for non-covered shares.
The
cost basis of a share is generally its purchase price adjusted for
distributions, returns of capital and other corporate actions. Cost basis is
used to determine whether the sale, exchange or redemption of a share results in
a capital gain or loss. If you sell, exchange or redeem covered shares during
any year, then the Fund will report the gain or loss, cost basis, and holding
period of such covered shares to the IRS and you on Consolidated Form
1099.
A
cost basis method is the method by which the Fund determines which specific
shares are deemed to be sold, exchanged or redeemed when a shareholder sells,
exchanges or redeems less than its entire holding of Fund shares and has made
multiple purchases of Fund shares on different dates at differing net asset
values. If a shareholder does not affirmatively elect a cost basis method, the
Fund will use the loss/gain utilization method, which depletes shares with
losses prior to shares with gains. For lots that yield losses, short-term shares
are sold, exchanged or redeemed prior to long-term shares. For lots that yield
gains, long-term shares are sold, exchanged or redeemed prior to short-term
shares. Each shareholder may elect in writing (and not over the telephone) any
alternate IRS-approved cost basis method to calculate the cost basis in its
covered shares. The default cost basis
method
applied by the Fund or the alternate method elected by a shareholder may not be
changed after the settlement date of a sale, exchange or redemption of Fund
shares.
If
you hold Fund shares through a broker (or another nominee), please contact that
broker or nominee with respect to the reporting of cost basis and available
elections for your account.
You
are encouraged to consult your tax adviser regarding the application of these
cost basis reporting rules and, in particular, which cost basis calculation
method you should elect.
GENERAL
INFORMATION
Independent
Registered Public Accounting Firm
Cohen
& Company, Ltd., 342 North Water Street, Suite 830, Milwaukee, Wisconsin
53202 serves as the Fund’s independent registered public accounting firm. In
addition to reporting on the annual financial statements of the Fund, Cohen
& Company, Ltd. may review certain of the Fund’s filings that are filed with
the SEC, as necessary.
Limitation
of Director Liability
The
Fund’s Amended and Restated Articles of Incorporation and Amended and Restated
Bylaws include provisions that limit the personal liability of the Fund’s
directors to the Fund or its shareholders for monetary damages for conduct as a
director. The provisions eliminate such liability to the fullest extent
permitted by law. Oregon law permits elimination of such liability, except in
the following cases: (i) any breach of the director’s duty of loyalty to
the Fund or its shareholders; (ii) acts or omissions not in good faith or
which involved intentional misconduct or a knowing violation of law;
(iii) any unlawful distribution, as defined by Oregon law; or (iv) any
transaction from which the director derived an improper personal benefit. The
general effect of the provisions is to eliminate monetary damages as one of the
remedies available to shareholders for enforcement of a director’s duty of
care.
Financial
Statements
The
audited financial statements of the Fund for the fiscal year ended May 31,
2023 and the report of the Fund’s independent registered public accounting firm
in connection therewith, are included in the Fund’s Annual
Report
to
Shareholders
dated May
31, 2023,
as filed with the Securities and Exchange Commission on Form N-CSR on
August
1, 2023,
which is incorporated by reference into this SAI.
APPENDIX
A
COMMERCIAL
PAPER RATINGS
Prime 1
(P-1) and A-1 are the highest commercial paper ratings issued by Moody’s
Investor Services, Inc. (“Moody’s”) and Standard & Poor’s Corporation
(“S&P”), respectively.
Description
of Moody’s Commercial Paper Ratings
Issuers
within the Prime category may be given ratings 1, 2 or 3, depending on the
relative strengths of certain factors. Among the factors considered by Moody’s
in assigning ratings are the following:
(1)Evaluation
of the management of the issuer;
(2)Economic
evaluation of the issuer’s industry or industries and an appraisal of
speculative type risks that may be inherent in certain areas;
(3)Evaluation
of the issuer’s products in relation to competition and customer acceptance;
(4)Liquidity;
(5)Amount
and quality of long-term debt;
(6)Trend
of earnings over a period of ten years;
(7)Financial
strength of a parent company and the relationships which exist with the issuer;
and
(8)Recognition
by the management of obligations that may be present or may arise as a result of
public interest questions and preparations to meet obligations.
Description
of S&P’s Commercial Paper Ratings
An
issuer’s commercial paper rated A by S&P has the following characteristics:
(1)Liquidity
ratios are adequate to meet cash requirements;
(2)Long-term
senior debt of the issuer should be rated A or better, although in some cases
BBB credits may be allowed if other factors outweigh the BBB;
(3)The
issuer has access to at least two additional channels of borrowing;
(4)Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances;
(5)Typically,
the issuer’s industry should be well established and the issuer should have a
strong position in the industry, and the reliability and quality of management
should be unquestioned. Commercial paper rated A is further referred to by the
use of numbers 1, 2 and 3 to denote relative strength within this highest
classification, with “1” being the highest rating.