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ALPS Series Trust

Filed: 10 Dec 18, 3:30pm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number: 811-22747

 

ALPS SERIES TRUST

(Exact name of registrant as specified in charter)

 

1290 Broadway, Suite 1100, Denver, Colorado 80203

(Address of principal executive offices) (Zip code)

 

303.623.5277

(Registrant’s telephone number, including area code)

 

Richard C. Noyes, Esq., Secretary

ALPS Series Trust

1290 Broadway, Suite 1100

Denver, CO 80203

(Name and address of agent for service)

 

Date of fiscal year end: September 30

 

Date of reporting period: October 1, 2017 – September 30, 2018

 

 

Item 1. Reports to Stockholders.

 

 (GRAPHIC)

 

 

Table of Contents

 

 

Shareholder Letter1
Portfolio Updates3
Disclosure of Fund Expenses11
Portfolio of Investments12
Statements of Assets and Liabilities19
Statements of Operations20
Statements of Changes in Net Assets22
Financial Highlights24
Notes to Financial Statements28
Report of Independent Registered Public Accounting Firm38
Additional Information39
Privacy Policy42
Trustees & Officers44

 

 

American Independence FundsShareholder Letter
 

September 30, 2018 (Unaudited)

 

Dear Shareholder,

 

We are pleased to present you with the Annual Report for the American Independence Global Tactical Allocation Fund and the American Independence Kansas Tax-Exempt Bond Fund (each a “Fund” and collectively “Funds”) for the year ended September 30, 2018. The Annual Report period is a shorter period as a result of the reorganization of the Funds into a series of ALPS Series Trust (“AST”).

 

In the fiscal 11 months, we’ve seen the strongest corporate profits in seven years, which drove the drove the equity market higher, while volatility dramatically increased in February, and continued rising interest rates constrained bond returns. Though the market’s appetite for risk remained, it was moderated as risk-taking was tempered somewhat, as shorter term, higher quality securities led the bond market and U.S. equities outperformed most international stock markets.

 

Relatively strong equity performance worldwide was driven by synchronized economic growth across the most influential economies and industry sectors. However, volatility around the globe rose, as U. S. and China trade relations and debt concerns weighed heavily on stock markets.

 

In addition, the following factors were of concern: (i) there were increased tensions between the U.S. and China that affected the Chinese stock market, (ii) Turkey became embroiled in a currency crisis shortly after the end of the reporting period, and (iii) Brexit concerns and uncertainties remain in the market.

 

In terms of interest rates, short-term interest rates for U.S. Treasuries rose the fastest, while longer-term rates slightly increased, heading to a negative return for long-term U.S. Treasuries and a substantial flattening of the yield curve. As discussed by industry commentators, many investors are concerned that the flattening of the yield curve is as a harbinger of a possible recession. But, given the extraordinary monetary measures and fiscal policy in the last decade, we believe a more accurate barometer of the economy are returns along the “risk spectrum” in stock and bond markets. Although the fundamentals in credit markets remained relatively solid, investment grade bonds declined slightly, and high-yield and tax-exempt bonds posted moderate returns.

 

In response to rising growth inflation, the U.S. Federal Reserve (“Fed”) increased short-term interest rates four times during the reporting period. Meanwhile, the European Central Bank announced a bond purchase program that would conclude at year end of 2018, while also expressing its commitment to low interest rates. In contrast, the Bank of Japan continued to expand its balance sheet through bond purchasing while lowering its expectation for inflation.

 

The U.S. economy continued to gain momentum despite the Fed’s reduction of economic stimulus. The national unemployment rate has continued to decline, with wages increasing and the number of job openings reaching record highs.

 

While U.S. monetary policy is seeking to restrain growth and inflation, fiscal policy has produced new sources of growth that could nourish the economy for the next few years. Corporate tax cuts and lower individual tax cuts could encourage the robust job market and refresh consumer spending.

 

We continue to believe the primary risks to economic expansion are trade protectionism, rapidly rising interest rates, and geo-political tensions. Given the deflationary forces of technology and globalization, we are encouraged. In this environment, investors need to think globally, extend their scope of diversification across an array of asset classes and be nimble with downside protection products.

 

We encourage you to talk to your financial advisor for further insights about investing in today’s markets.

 

As always, our mission is to continue to provide quality investment outcomes for clients and shareholders. The Funds’ sub-advisers bring expertise in significant disciplines – including macroeconomics, behavioral finance, and asset allocations using Exchange Traded Funds (ETFs) – to provide a unique lineup of investment solutions for shareholders, advisors, and institutions.

 

Portfolio reviews written by each sub-adviser follow this letter.

 

Thank you for your continued support.

 

Sincerely,

 

Jane A. Kanter 

Managing Partner and Chief Counsel
Manifold Partners LLC

 

 

Annual Report | September 30, 20181

 

 

American Independence FundsShareholder Letter

 

September 30, 2018 (Unaudited)

 

Basis Points: One hundredth of one percent.

 

Yield Curve: a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates.

 

Diversification does not eliminate the risk of experiencing investment losses.

 

The views and information discussed in this commentary are as of the date of publication, are subject to change, and may not reflect the writer’s current views. The views expressed are those of the Adviser only, and represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the fund(s) or any securities or any sectors mentioned in this letter. The subject matter contained in this letter has been derived from several sources believed to be reliable and accurate at the time of compilation. Neither the Fund nor the Adviser accepts any liability for losses either direct or consequential caused by the use of this information.

 

Not FDIC Insured – No Bank Guarantee – May Lose Value

 

Past performance does not guarantee future results.

 

ALPS Distributors, Inc. is not affiliated with Manifold Partners LLC, the investment adviser to the Funds.

 

 

2www.americanindependence.com

 

 

American Independence Global
Tactical Allocation Fund
Portfolio Update

 

September 30, 2018 (Unaudited)

 

2018 Commentary

 

The Institutional Class of the American Independence Global Tactical Allocation Fund (“GTA Fund” or “Fund”) returned 1.53% for the 11-month fiscal year ended September 30, 2018. Over the same period, the GTA Fund’s benchmark, the MSCI All Country World Index (“MSCI ACWI”), returned 7.54% and the Blended Benchmark (a monthly rebalanced mix comprised of 60% of the MSCI ACWI and 40% of the Bloomberg Barclays US Aggregate Bond Index) returned 4.03%.

 

The GTA Fund invests in equities and fixed income, targeting exposures in five regions for equities as well as global and domestic fixed income indices. It uses a quantitative model to determine the portfolio balances among these asset classes that best fits the current market climate. All non-cash positions are invested in exchange traded funds (“ETFs”), which gives the GTA Fund significant flexibility in terms of low-cost asset allocation.

 

Year in Review  

Fiscal 2018 was notably a transition year for the markets, and it was also a transition year for the management of the Fund. As of January 19, 2018, Manifold Fund Advisors, LLC (“MFA”), the prior adviser to the Fund, assumed sole responsibility for the management of the Fund and the prior sub-adviser to the Fund continued to provide advice to MFA as to the management of the Fund on an interim basis. As of March 24, 2018, MFA managed the Fund without advice from the Fund’s prior sub-adviser and began to accept research suggestions and trading signals from Lee Capital Management (“LCM”). On September 24, 2018, LCM assumed the role of sub-adviser to the Fund, in connection with the reorganization of the Fund as a series of ALPS Series Trust, and Manifold Partners LLC became the adviser to the Fund. Management of the Fund’s assets did not change as a result of the reorganization of the Fund into the ALPS Series Trust, and the GTA Fund continues to have substantially the same objective, strategies and risks as it did prior to the reorganization.

 

On the market side, the last several years’ relatively tranquil appreciation in global equities, supported by historically low capital market interest rates, persisted through January of 2018. However, that benign environment gave way for the rest of the fiscal year to higher bond yields and elevated equity volatility as central banks in major economies around the world went about removing, or making preparations to remove, the extraordinary monetary stimulus that was put in place following the global financial crisis of 2008. In early February, the accumulated increases in interest rates and anticipation of further monetary policy tightening led to a major spike of volatility. This ushered in declines in domestic and global equity markets that persisted for over two months; the start of the decline coincided with the start of Jerome Powell’s tenure as chairman of the Federal Reserve. Evidence of ebbing speculative enthusiasm was exhibited by dramatic (and widely reported) reversals in the prices of crypto-currencies such as Bitcoin, and later disclosure that margin borrowing in January (reported by U.S. securities dealers) had peaked at a level that exceeded the previous record (dating back to early 2000) before backing down as the markets declined.

 

November 2017 to March 2018

The Fund’s positioning at the start of the fiscal year showed relative caution, particularly with respect to bond yields, with 10% set aside as a cash cushion, 35% in fixed income, and 50% in equities (evenly split between domestic and international). Over the three months leading up to February’s selloff, equity exposure crept up to 55%, but the defensive “alternatives” allocation was doubled from 5% to 10% by adding diversified commodity exposure to the Fund’s longstanding position in gold, while the fixed income exposure and cash buffer were reduced to 30% and 5%, respectively.

 

What became clear during the February selloff was that the Fund’s fixed income allocation was no longer providing a defensive ballast to the portfolio’s equity positions. This challenge to maintaining stable performance through a relatively steady balance of stocks and bonds was exacerbated by the lackluster (or worse) performance of other “defensive” positions, in gold and other commodities. Based on guidance and advice from LCM, in late March, the Fund’s allocation to equity securities was significantly increased and all fixed income and alternatives holdings in the Fund were sold. The Fund’s new 75% equity allocation was split between 45% domestic and 30% international, and cash was raised to 25%, effectively assuming the defensive role formerly played by fixed income and alternatives. This repositioning of the Fund’s assets resulted in the realization of capital gains by the Fund, which will be passed through to the Fund’s shareholders.

 

Fund Changes 

In addition to the changes to the Fund’s portfolio described above, there were some other changes to the Fund’s investments, although the objective, strategy, goals and restrictions of the Fund remained constant. The two most significant changes are that (i) the Fund no longer utilized alternative investments (such as commodities) and (ii) positions in the Fund would no longer be updated on a fixed monthly schedule. In contrast to the prior methodology’s monthly allocation procedure, the Fund’s new approach continually reviews market developments, meaning that the Fund can rebalance holdings on any day, as needed. This decision to engage in more frequent trading also contributed to more portfolio turnover and increased trading costs and tax consequences.

 

 

Annual Report | September 30, 20183

 

 

American Independence Global
Tactical Allocation Fund
Portfolio Update

 

September 30, 2018 (Unaudited)

 

LCM believes that although risky assets, such as fixed income and equity, are almost certainly profitable in the long run, there are periods in which the risk of certain assets is not justified. During these periods, LCM seeks to reallocate in favor of other asset classes or cash.

 

April 2018 to September 2018  

There was a consistent underweight in the Fund to fixed income securities throughout the final six months of the Fund’s fiscal year. Only briefly, for a few days in early July, did the portfolio approach its normal (calm market) fixed income weight of 40%. On average, the fixed income weight was just under 19% for the six months ended September 30, 2018.

 

In general, this was a successful positioning, as the Bloomberg Barclays US Aggregate was close to flat over the period (down -0.14%) while equities rose sharply (S&P 500 up 12.95%, MSCI All Country World up 5.22%).

 

In contrast, the US equity allocation for the Fund, although variable, averaged under its normal weighting of 30% for US equity securities, at 25% for the six months, reached its allowed maximum of 45% in April and went as low as just over 14% in early August.

 

Although a larger allocation of the GTA Fund’s assets to US equity securities would have been more beneficial to the Fund, LCM believes that the significant exposure to US stocks had a positive impact on performance.

 

Emerging Market and Asia ex-Japan equity securities both spent April through July at or above their normal weightings of 6%. Then, in early and mid-August, as “trade war” concerns began to weigh heavily on export-driven economies, the Fund reduced its allocations to assets in both of those jurisdictions to approximately 1% of the portfolio, where both remained through September.

 

As measured by the MSCI Pacific ex-Japan Index, Asia ex-Japan equities gained 1.81% over the April-July (inclusive) period, and then fell -2.42% in August and September. The MSCI Emerging Markets Index declined in both periods, by -5.64% and -3.16% respectively.

 

The remaining equity asset classes, Japan and developed Europe, spent nearly the entire April to September period fully invested, with weightings between their normal targets and their maximums. The MSCI Japan Index gained 1.61% over the six months, while the MSCI Europe was almost perfectly flat, losing -0.03%.

 

Except for a brief period in early April, the Fund held meaningful cash positions throughout April to September, reaching a peak of over 40% in late May, and averaging approximately 20% throughout the period. Much of this cash holding was due to the underweighting of fixed income securities in the Fund, although it could also be said that had LCM’s view been more positive on equities, cash holdings would have been smaller. Relative to fixed income, the cash positioning had a neutral effect on performance, while relative to equity it was largely a drag.

 

LCM’s Outlook  

As the fourth calendar quarter begins, LCM believes that storm clouds are gathering on the horizon. Central banks worldwide seem to have become comfortable with tightening what had been notably lax and long-standing monetary policy. Fixed income markets appear to be settling in for years of rate increases.

 

Non-US equity appears to be under pressure. In Europe, Italian political and budgetary woes weigh heavily, and a disaster-averting Brexit deal continues to be elusive. Asia and Emerging markets are threatened by trade disputes with the United States.

 

LCM believes that the US equity market remains the only bright spot, and then partially by elimination. There are certainly reasons to suspect that the almost decade long bull market is showing its age. Media talk of “peak earnings” underlines the unspecific feeling that this is as good as it gets, that conditions cannot improve further so can only deteriorate.

 

LCM’s outlook for the coming fiscal year is the same as its outlook for most years: cautious optimism. Markets are more likely to be higher in a year than lower, but the wise investor understands that there are no guarantees and stands ready to exit if conditions make a turn for the worse.

 

 

4www.americanindependence.com

 

 

American Independence Global
Tactical Allocation Fund
Portfolio Update

 

September 30, 2018 (Unaudited)

 

Average Annual Total Returns (as of September 30, 2018)   
 1 Year3 Year5 YearSince Inception*
American Independence Global Tactical Allocation Fund - Institutional Class2.81%7.81%5.89%5.69%
American Independence Global Tactical Allocation Fund - Class A2.38%7.43%5.50%5.31%
MSCI All Country World Index(a)9.77%13.40%8.67%8.33%
60% MSCI ACWI / 40% Bloomberg Barclays US Agg Bond Index(b)5.35%8.53%6.15%5.99%

 

The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund shares will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Fund performance current to the most recent month-end is available by calling (833) 287-7933 or by visiting www.americanindependence.com.

 

*The Fund commenced operations on September 20, 2013. The Predecessor Fund, American Independence JAForlines Global Tactical Allocation Fund, managed by Manifold Fund Advisors, LLC, was reorganized into the American Independence Global Tactical Allocation Fund on September 24, 2018. Manifold Partners, LLC has been the Fund’s investment adviser since September 24, 2018, with Lee Capital Management, L.P. serving as sub-adviser. Fund performance prior to September 24, 2018 is reflective of the past performance of the Predecessor Fund.
(a)The MSCI All Country World Index (“ACWI”) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes.
(b)The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS (agency and non-agency). The index is not actively managed and does not reflect any deductions for fees, expenses or taxes.

 

Returns of less than 1 year are cumulative.

 

Indices are not actively managed and do not reflect deduction for fees, expenses or taxes. An investor cannot invest directly in an index.

 

The returns shown above do not reflect the deduction of taxes a shareholder would pay on Fund distributions or redemption of Fund shares.

 

The total annual operating expenses and total annual operating expenses after fee waivers and/or reimbursement you may pay as an investor in the Fund’s Institutional Class and Class A shares (as reported in the September 24, 2018 Prospectus) are 1.44% and 1.27% and 1.69% and 1.52%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2021.

 

Performance of $3,000,000 Initial Investment (as of September 30, 2018)

 

 (LINE GRAPH)

 

The graph shown above represents historical performance of a hypothetical investment of $3,000,000 in the Institutional Class. Due to differing expenses, performance of Class A will vary. Past performance does not guarantee future results. Returns do not reflect the deduction of fees, sales charges, or taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

 

Annual Report | September 30, 20185

 

 

American Independence Global
Tactical Allocation Fund
Portfolio Update

 

September 30, 2018 (Unaudited)

 

Portfolio Diversification (% of Net Assets as of September 30, 2018)

 

(PIE CHART) 

 

 

6www.americanindependence.com

 

 

 

American Independence Kansas
Tax-Exempt Bond Fund
Portfolio Update

September 30, 2018 (Unaudited)

 

2018 Commentary

 

2018 will likely be defined by several factors, including (i) much-improved economic conditions, (ii) record low unemployment, (iii) increasing wage growth, and (iv) rising U.S. interest rates. However, many questions remain unanswered including how far will the Federal Reserve (Fed) raise short-term interest rates year and what steps may be taken to achieve the Fed’s goal of “normalization”? Will these Fed moves create an “inverted” yield curve? And, ultimately, will a meaningful rise in interest rates bring an end to the U.S. equity markets’ 9-year bull run?

 

There have been a handful of noticeable “fits and starts” to U.S. equity markets so far this calendar year. Over that time, interest rates have tended to grind higher, albeit slowly. The yield on the 10- year U.S. Treasury Bond ended both fiscal 2017 and calendar 2017 at a yield of about 2.40% and was approximately 65 basis points higher (3.05%) at the end of September 2018. The 2-year to 10-year yield spread for U.S. Treasuries stood at just +25 basis points, close to its tightest this year.

 

Municipal bond yields tended to drift higher in sympathy with U.S. Treasuries. However, the municipal bond market has historically been driven more by supply and demand dynamics, than by interest rates specifically. Municipal bond new issuance set records in the fourth quarter of 2017 due to forward looking uncertainty about advance refundings [Pre Res] and marginal tax rates. The supply in 2018 has been relatively modest - far below annual averages – while demand has remained robust. Thus, municipal bonds have tended to be “rich” compared to U.S. Treasuries (lower yields relative to Treasuries than historical averages), especially in the short-end of the yield curve (inside 5 years). The 2-year-to 10-year spread in municipal bonds at the end of the third quarter of 2018 was much wider than that for U.S. Treasuries at +65 basis points.

 

In 2018, rating agencies such as Moody’s and S&P both issued reports noting solid improvements to municipal credit at the state and local levels, with the recovery in property values, higher tax receipts, increased reserves, stable direct debt, and accelerating economic growth all key factors.

 

In Kansas, the challenges to the various local economies mirror many of those at the national level, with “trade wars” and tariffs now taking center stage. Unemployment across the state has fallen to 3.3% with major strides coming specifically from nonfarm employment.

 

Unemployment Rate – State of Kansas [through 09/30/18]

 

(GRAPHIC)

Source: Bloomberg

 

The Kansas manufacturing sector has been a bright spot so far in 2018. Export sales in transportation and food products were major contributors, as were higher soybean exports. One thing to note: agriculture, while still a solid contributor to Gross Domestic Product ("GDP"), has decreased by over 40% over the last 5 years.

 

There is growing concern that tariffs might dampen productivity, and cause wages and personal income growth to stagnate. In late July, the Federal Reserve Bank of Kansas City’s monthly manufacturing survey reported strong activity and increased optimism, while labor shortages and tariffs remained top-of-mind.

 

 

Annual Report | September 30, 2018

7

 

 

 

American Independence Kansas
Tax-Exempt Bond Fund

Portfolio Update

 

September 30, 2018 (Unaudited)

 

One important issue to note is the state’s budget deficit. Kansas will continue to battle potential spending cuts, while trying to keep K-12 education funding a top priority. Thus, we would expect school districts across the state to continue to issue municipal bonds for that funding.

 

The Kansas Tax-Exempt Bond Fund focuses on preservation of capital while producing cash flows that are fully exempt from Federal taxes and Kansas state tax. The Fund continues to seek premium coupon general obligation (GO) and essential service revenue bonds in the investment grade rating category. Representative bond issues in the Fund include Kansas Department of Transportation Revenue, City of Wichita GO, Topeka Utility Revenue, Kansas Department of Finance Authority Revenue, and Wichita Water & Sewer Revenue. The Fund’s largest sector allocations are to School Districts (21%), Pre-Refunded bonds (16%), Utility Revenue bonds (13%), and General Obligation bonds (11%).

 

The Fund’s modified duration is 4.35 years, which is slightly longer than a year ago. We may look to alter the Fund’s duration over the next several quarters should value-added opportunities arise. The Fund holds 179 different bond issues, and over 60% of those are rated AA or better. The Institutional Share Class (I shares) return was essentially unchanged over the 12 month period ending September 30, 2018. Over this same time period, however, the Barclays Capital 7 year Municipal Bond Index returned a negative -0.59%. Over a 5-year time horizon, the I shares returned an average of 2.76% (annualized), compared to the comparable Barclays Index 2.62% annual average return.

 

The Fund did not employ any derivative investments during the fiscal year ending September 30, 2018.

 

 

8

www.americanindependence.com

 

 

 

American Independence Kansas
Tax-Exempt Bond Fund

Portfolio Update

September 30, 2018 (Unaudited)

 

Average Annual Total Returns (as of September 30, 2018)          
             
  1 Year 5 Year 10 Year Since Inception*
American Independence Kansas Tax                
Exempt Bond Fund - Institutional Class 0.00% 2.76% 3.63% 4.50%
American Independence Kansas Tax                
Exempt Bond Fund – Class A -0.39% 2.37% 3.23% 4.16%
Bloomberg Barclays US Municipal                
Bond: 7 Year (6-8) Index(a) -0.59% 2.62% 4.20% 2.43%

 

The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund shares will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Fund performance current to the most recent month-end is available by calling (833) 287-7933 or by visiting www.americanindependence.com.

 

*The Fund commenced operations on May 22, 2007. The Predecessor Fund, American Independence Kansas Tax-Exempt Bond Fund, managed by Manifold Fund Advisors, LLC, was reorganized into the American Independence Kansas Tax-Exempt Bond Fund on September 24, 2018. Manifold Partners, LLC has been the Fund’s investment adviser since September 24, 2018, with Carret Asset Management, LLC serving as sub-adviser. Fund performance prior to September 24, 2018, is reflective of the past performance of the Predecessor Fund.
(a)The Bloomberg Barclays 7-Year Municipal Bond Index is a total return performance benchmark for the investment-grade, geographically unrestricted 7-year tax-exempt bond market, consisting of municipal bonds with maturities of 6 to 8 years.

 

Returns of less than 1 year are cumulative.

 

Indices are not actively managed and do not reflect deduction for fees, expenses or taxes. An investor cannot invest directly in an index.

 

The returns shown above do not reflect the deduction of taxes a shareholder would pay on Fund distributions or redemption of Fund shares.

 

The total annual operating expenses and total annual operating expenses after fee waivers and/or reimbursement you may pay as an investor in the Fund’s Institutional Class and Class A shares (as reported in the September 24, 2018 Prospectus) are 0.57% and 0.48% and 0.82% and 0.73%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2021.

 

Performance of $3,000,000 Initial Investment (as of September 30, 2018)

 

(GRAPHIC)

 

The graph shown above represents historical performance of a hypothetical investment of $3,000,000 in the Institutional Class. Due to differing expenses, performance of Class A will vary. Past performance does not guarantee future results. Returns do not reflect the deduction of fees, sales charges, or taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

 

Annual Report | September 30, 2018

9

 

 

 

American Independence Kansas
Tax-Exempt Bond Fund

Portfolio Update

 

September 30, 2018 (Unaudited)

Portfolio Diversification (% of Net Assets as of September 30, 2018)

 

(GRAPHIC)

 

 

10

www.americanindependence.com

 

 

 

American Independence Funds

Disclosure of Fund Expenses

 

September 30, 2018 (Unaudited)

 

Examples. As a shareholder of the American Independence Global Tactical Allocation Fund or American Independence Kansas Tax-Exempt Bond Fund, you incur two types of costs: (1) transaction costs, including applicable redemption fees; and (2) ongoing costs, including management fees, distribution and service (12b-1) fees and other Fund expenses. The following examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested on April 1, 2018 and held through September 30, 2018.

 

Actual Expenses. The first line under each class in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expenses Paid During Period April 1, 2018 – September 30, 2018” to estimate the expenses you paid on your account during this period.

 

Hypothetical Example for Comparison Purposes. The second line under each class in the table below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in each Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

 

Please note that the expenses shown in the table are meant to highlight your ongoing Fund costs only and do not reflect any transactional costs, such as redemption fees. Therefore, the second line under each class in the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

 Beginning
Account Value
April 1, 2018
Ending
Account Value
September 30, 2018
Expense
Ratio(a)
Expenses Paid
During Period

April 1, 2018 -
September 30, 2018
(b)
American Independence Global Tactical Allocation Fund    
Institutional Class    
Actual$ 1,000.00$999.201.11%$5.56
Hypothetical (5% return before expenses)$ 1,000.00$1,019.501.11%$5.62
Class A    
Actual$ 1,000.00$996.601.49%$7.46
Hypothetical (5% return before expenses)$ 1,000.00$1,017.601.49%$7.54
American Independence Kansas Tax-Exempt Bond Fund    
Institutional Class    
Actual$ 1,000.00$1,002.200.64%$3.21
Hypothetical (5% return before expenses)$ 1,000.00$1,021.860.64%$3.24
Class A    
Actual$ 1,000.00$1,000.201.03%$5.16
Hypothetical (5% return before expenses)$ 1,000.00$1,019.901.03%$5.22

 

(a)Each Fund's expense ratios have been annualized based on the Fund's actual expenses for the 6 month period ending September 30, 2018.
(b)Expenses are equal to the annualized expense ratio shown above for the applicable class, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (183), divided by 365.

 

 

Annual Report | September 30, 2018

11

 

 

 

American Independence Global Tactical Allocation FundPortfolio of Investments
 

September 30, 2018

 

Security Description Shares  Value (Note 2) 
EXCHANGE TRADED PRODUCTS (86.13%)        
International Equity Exchange Traded Products (22.09%)        
Global X Scientific Beta Asia ex-Japan ETF  8,800  $219,983 
Global X Scientific Beta Europe ETF  43,594   1,181,031 
Global X Scientific Beta Japan ETF  34,600   1,067,465 
iShares® Europe ETF  104,600   4,714,322 
iShares® MSCI Emerging Markets ETF  11,500   493,580 
iShares® MSCI Japan ETF  30,900   1,861,107 
iShares® MSCI Pacific ex Japan ETF  1,000   45,420 
       9,582,908 
U.S. Equity Exchange Traded Products (46.07%)        
Global X Scientific Beta US ETF(a)  444,245   14,710,329 
SPDR® Doubleline Total Return Tactical ETF  59,300   2,801,925 
SPDR® S&P 500® ETF Trust  8,500   2,471,120 
       19,983,374 
U.S. Fixed-Income Exchange Traded Products (17.97%)        
iShares® Core U.S. Aggregate Bond ETF  73,900   7,797,928 
         
Total Exchange Traded Products (Cost $37,033,487)      37,364,210 

 

  7 - Day
Yield
  Shares  Value 
SHORT TERM INVESTMENT (14.71%)            
Money Market Fund (14.71%)            
Federated Government Obligations Fund, Premier Shares  1.939%  6,380,332   6,380,332 
             
TOTAL SHORT TERM INVESTMENT (Cost $6,380,332)          6,380,332 
TOTAL INVESTMENTS (100.84%) (Cost $43,413,819)         $43,744,542 
             
Total Liabilities in Excess of Other Assets (-0.84%)          (365,297)
             
NET ASSETS (100.00%)         $43,379,245 

 

(a)Represents an investment greater than 25% of the Fund's net assets. Performance of the Fund may be adversely impacted by concentrated investments in securities. The financial statements and portfolio holdings for these securities can be found at www.sec.gov.

 

Summary of Abbreviations 

ETF - Exchange Traded Funds

 

See Notes to Financial Statements.

 
12www.americanindependence.com

 

 

American Independence Kansas Tax-Exempt Bond FundPortfolio of Investments
 

September 30, 2018

 

Security Description Principal  Value (Note 2) 
MUNICIPAL BONDS (98.78%)        
Education (30.35%)        
Barton Community College, Certificate Participation,        
4.00%, 12/01/32 $555,000  $584,298 
4.00%, 12/01/34  250,000   259,780 
Bourbon County Unified School District No. 234-Fort Scott, General Obligation Unlimited,        
5.00%, 09/01/25  355,000   398,108 
Butler County Unified School District No. 385 Andover, General Obligation Unlimited,        
4.00%, 09/01/30  690,000   737,472 
4.00%, 09/01/31  500,000   530,795 
5.00%, 09/01/34  2,000,000   2,282,220 
Butler County Unified School District No. 490 El Dorado, General Obligation Unlimited,        
4.00%, 09/01/36  500,000   515,395 
Dodge City Community College, Higher Education, Revenue Bonds, 5.13%, 04/01/30  250,000   261,315 
Douglas County Unified School District No. 497 Lawrence, General Obligation Unlimited,        
4.00%, 09/01/31  1,500,000   1,609,245 
4.00%, 09/01/33  500,000   517,835 
Finney County Unified School District No. 457 Garden City, General Obligation Unlimited,        
4.00%, 09/01/31  500,000   519,945 
Ford County Unified School District No. 443 Dodge City, General Obligation Unlimited,        
4.00%, 03/01/34  1,000,000   1,034,670 
Franklin County Unified School District No. 290 Ottawa, General Obligation Unlimited,        
4.00%, 09/01/40  250,000   253,770 
5.00%, 09/01/31  1,715,000   1,926,545 
5.00%, 09/01/32  150,000   168,204 
5.00%, 09/01/33  1,000,000   1,119,380 
Geary County Unified School District No. 475, General Obligation Unlimited, 4.00%,        
09/01/38  2,000,000   2,049,760 
Hutchinson Community College & Area Vocational School, Certificate Participation, 4.00%,        
10/01/37  1,700,000   1,720,128 
Johnson & Miami Counties Unified School District No. 230 Spring Hills, General Obligation Unlimited,        
4.00%, 09/01/33  1,000,000   1,044,130 
4.00%, 09/01/35  1,000,000   1,030,790 
5.25%, 09/01/29  1,500,000   1,620,465 
Johnson County Unified School District No. 231 Gardner - Edgerton, General Obligation Unlimited,        
2.00%, 10/01/18  185,000   185,000 
4.00%, 10/01/18  200,000   200,000 
Johnson County Unified School District No. 233 Olathe, General Obligation Unlimited,        
4.00%, 09/01/31  1,000,000   1,060,550 
4.00%, 09/01/33  175,000   182,677 
4.00%, 09/01/33  730,000   759,967 
4.00%, 09/01/35  790,000   818,472 
4.00%, 09/01/36  480,000   495,806 
Johnson County Unified School District No. 512 Shawnee Mission, General Obligation        
Unlimited, 5.00%, 10/01/32  1,000,000   1,152,640 
Kansas Development Finance Authority, Revenue Bonds,        
4.00%, 05/01/34  1,000,000   1,034,380 
5.00%, 05/15/35  330,000   336,161 
5.38%, 03/01/30  1,000,000   1,043,800 

 

See Notes to Financial Statements.

 
Annual Report | September 30, 201813

 

 

American Independence Kansas Tax-Exempt Bond FundPortfolio of Investments
 

September 30, 2018

 

Security Description Principal  Value (Note 2) 
Leavenworth County Unified School District No. 453, General Obligation Unlimited,        
4.00%, 09/01/36 $1,000,000  $1,034,280 
4.75%, 03/01/25  535,000   548,690 
5.25%, 09/01/23  60,000   61,751 
Leavenworth County Unified School District No. 458, General Obligation Unlimited,        
5.00%, 09/01/29  395,000   405,815 
5.00%, 09/01/30  215,000   220,887 
Rice County Unified School District No. 376 Sterling, General Obligation Unlimited,        
5.25%, 09/01/35  165,000   169,693 
5.25%, 09/01/35  335,000   344,527 
Riley County Unified School District No. 383 Manhattan-Ogden, General Obligation        
Unlimited, 5.00%, 09/01/23  1,000,000   1,026,190 
Scott County Unified School District No. 466 Scott City, General Obligation Unlimited,        
4.00%, 09/01/37  1,000,000   1,004,780 
Sedgwick County Unified School District No. 259 Wichita, General Obligation Unlimited,        
3.00%, 10/01/21  500,000   511,540 
5.00%, 10/01/21  30,000   30,000 
5.00%, 10/01/21  55,000   55,000 
Sedgwick County Unified School District No. 260 Derby, General Obligation Unlimited,        
5.00%, 10/01/29  340,000   377,063 
Sedgwick County Unified School District No. 261 Haysville, General Obligation Unlimited,        
5.00%, 11/01/19  20,000   20,050 
5.00%, 11/01/23  5,000   5,012 
Sedgwick County Unified School District No. 262 Valley Center, General Obligation Unlimited,        
4.00%, 09/01/30  500,000   520,840 
5.00%, 09/01/33  750,000   831,143 
Sedgwick County Unified School District No. 264 Clearwater, General Obligation Unlimited,        
4.00%, 09/01/29  530,000   558,286 
Sedgwick County Unified School District No. 265 Goddard, General Obligation Unlimited,        
4.50%, 10/01/24  250,000   250,000 
5.00%, 10/01/24  370,000   421,219 
Sedgwick County Unified School District No. 266 Maize, General Obligation Unlimited,        
5.00%, 09/01/21  500,000   539,150 
Seward County Unified School District No. 480 Liberal, General Obligation Unlimited,        
5.00%, 09/01/29  1,500,000   1,684,035 
Shawne County Unified School District No. 437 Auburn - Washburn, General Obligation        
Unlimited, 3.95%, 09/01/28  825,000   854,576 
Sumner County Unified School District No. 353 Wellington, General Obligation Unlimited,        
5.00%, 09/01/26  230,000   254,297 
University of Kansas Hospital Authority, Revenue Bonds,        
5.00%, 09/01/28  250,000   283,173 
5.00%, 09/01/30  350,000   393,638 
5.00%, 09/01/31  500,000   560,680 
Washburn University/Topeka, Revenue Bonds,        
4.00%, 07/01/41  330,000   334,274 
5.00%, 07/01/35  500,000   556,450 
Wyandotte County Unified School District No. 500 Kansas City, General Obligation        
Unlimited, 5.00%, 09/01/30  500,000   571,105 
       41,881,847 

See Notes to Financial Statements.

 
14www.americanindependence.com

 

 

American Independence Kansas Tax-Exempt Bond FundPortfolio of Investments
 

September 30, 2018

 

Security Description Principal  Value (Note 2) 
General Obligation (29.98%)        
Ashland Public Building Commission, Revenue Bonds,        
4.00%, 09/01/19 $100,000  $100,974 
4.00%, 09/01/20  110,000   112,028 
5.00%, 09/01/35  720,000   748,872 
City of Abilene, General Obligation Unlimited,        
4.30%, 09/01/27  150,000   156,358 
4.60%, 09/01/30  500,000   523,995 
City of Abilene, Revenue Bonds,        
4.00%, 12/01/29  325,000   344,172 
4.00%, 12/01/31  445,000   466,569 
City of Dodge City, Revenue Bonds, 4.00%, 06/01/24  230,000   246,475 
City of Haysville, Certificate Participation, 4.13%, 11/01/32  460,000   465,203 
City of Junction City, General Obligation Unlimited, 4.50%, 09/01/31  1,000,000   1,027,300 
City of Lawrence, General Obligation Unlimited,        
4.00%, 09/01/30  470,000   505,969 
4.00%, 09/01/31  445,000   476,782 
City of Leawood, General Obligation Unlimited, 5.00%, 09/01/25  665,000   775,915 
City of Manhattan, General Obligation Unlimited, 5.00%, 11/01/25  570,000   660,733 
City of Merriam, General Obligation Unlimited, 5.00%, 10/01/27  1,670,000   1,995,617 
City of Newton, General Obligation Unlimited, 4.00%, 09/01/23  250,000   267,235 
City of Olathe, General Obligation Unlimited,        
4.00%, 10/01/28  1,315,000   1,434,258 
5.00%, 10/01/24  535,000   603,362 
City of Park City, General Obligation Unlimited,        
5.38%, 12/01/25  495,000   514,053 
5.38%, 12/01/25  5,000   5,101 
City of Phillipsburg, Revenue Bonds, 4.50%, 10/01/28  545,000   564,380 
City of Shawnee, General Obligation Unlimited, 4.00%, 12/01/27  425,000   456,917 
City of Topeka, General Obligation Unlimited, 4.50%, 08/15/30  450,000   457,875 
City of Wichita, General Obligation Unlimited,        
4.00%, 06/01/26  475,000   493,938 
4.00%, 06/01/27  780,000   811,099 
4.00%, 12/01/29  250,000   261,025 
4.00%, 06/01/30  820,000   889,298 
5.00%, 12/01/25  500,000   579,730 
County of Clay, General Obligation Unlimited, 4.00%, 10/01/36  750,000   775,875 
County of Johnson, General Obligation Unlimited,        
3.00%, 09/01/30  400,000   391,344 
4.00%, 09/01/28  1,125,000   1,222,571 
County of Scott, General Obligation Unlimited, 5.00%, 04/01/28  500,000   522,090 
County of Sedgwick / County of Shawnee, Revenue Bonds, 6.70%, 06/01/29  5,000   5,038 
Crawford County Public Building Commission, Revenue Bonds, 5.38%, 09/01/24  1,300,000   1,339,390 
Johnson County Public Building Commission, Revenue Bonds,        
4.00%, 09/01/24  500,000   517,340 
4.00%, 09/01/29  650,000   703,092 
4.00%, 09/01/31  1,500,000   1,611,510 
4.50%, 09/01/27  955,000   1,008,891 

 

See Notes to Financial Statements.

 
Annual Report | September 30, 201815

 

 

American Independence Kansas Tax-Exempt Bond FundPortfolio of Investments
 

September 30, 2018

 

Security Description Principal  Value (Note 2) 
Kansas Development Finance Authority, Revenue Bonds,        
4.00%, 10/01/20 $250,000  $258,547 
4.00%, 03/01/27  775,000   781,177 
4.75%, 09/01/34  360,000   367,924 
5.00%, 11/01/18  200,000   200,502 
5.00%, 04/01/25  800,000   884,576 
5.00%, 04/01/26  1,485,000   1,641,326 
5.00%, 11/01/29  2,060,000   2,121,450 
5.00%, 04/01/31  1,000,000   1,098,120 
5.00%, 04/01/34  2,000,000   2,177,660 
5.13%, 11/01/25  100,000   100,269 
5.25%, 11/15/21  25,000   25,849 
5.25%, 11/15/21  1,275,000   1,317,878 
5.25%, 11/01/28  305,000   305,851 
5.50%, 11/15/22  20,000   20,734 
5.50%, 11/15/22  980,000   1,017,985 
Overland Park Transportation Development District, Revenue Bonds, 5.90%, 04/01/32  1,025,000   1,052,429 
Unified Government of Greeley County, General Obligation Unlimited,        
4.00%, 12/01/29  250,000   260,102 
4.00%, 12/01/32  100,000   102,439 
Wyandotte County-Kansas City Unified Government, General Obligation Unlimited,        
4.00%, 08/01/30  500,000   516,505 
4.00%, 08/01/31  930,000   972,650 
5.00%, 08/01/29  1,000,000   1,051,230 
Wyandotte County-Kansas City Unified Government, Revenue Bonds,        
4.88%, 10/01/28  415,000   411,278 
5.00%, 12/01/23  570,000   638,320 
       41,367,175 
Health Care (11.12%)        
Allen County Public Building Commission, Revenue Bonds,        
5.05%, 12/01/31  1,310,000   1,458,292 
5.15%, 12/01/36  500,000   558,580 
City of Manhattan, Revenue Bonds, 5.00%, 11/15/29  680,000   734,502 
City of Olathe, Revenue Bonds,        
4.00%, 09/01/30  450,000   461,695 
5.25%, 09/01/25  580,000   596,652 
City of Wichita, Revenue Bonds,        
4.75%, 11/15/24  810,000   834,430 
5.00%, 11/15/29  3,070,000   3,332,546 
County of Franklin, Certificate Participation, 4.75%, 09/01/21  525,000   525,494 
Kansas Development Finance Authority, Revenue Bonds,        
4.00%, 04/01/24  230,000   235,688 
4.50%, 04/01/22  225,000   232,918 
5.00%, 02/01/22  555,000   575,624 
5.00%, 11/15/27  1,000,000   1,030,210 
5.00%, 04/01/29  650,000   677,839 
5.00%, 11/15/32  1,500,000   1,618,695 
5.00%, 11/15/34  350,000   376,568 
5.25%, 01/01/25  200,000   207,532 
5.25%, 11/15/30  250,000   258,323 
Lyon County Public Building Commission, Revenue Bonds, 5.00%, 12/01/35  1,335,000   1,475,068 
Pawnee County Public Building Commission, Revenue Bonds, 4.00%, 02/15/31  145,000   146,544 
       15,337,200 

 

See Notes to Financial Statements. 

 
16www.americanindependence.com

 

 

American Independence Kansas Tax-Exempt Bond FundPortfolio of Investments
 

September 30, 2018

 

Security Description Principal  Value (Note 2) 
Housing (2.49%)      
La Cygne Public Building Commission, Revenue Bonds, 5.00%, 11/01/29 $375,000  $385,616 
Pratt County Public Building Commission, Revenue Bonds, 3.25%, 12/01/32  655,000   649,099 
Topeka Public Building Commission, Revenue Bonds, 5.00%, 06/01/27  2,355,000   2,407,328 
       3,442,043 
Transportation (7.01%)        
Kansas Turnpike Authority, Revenue Bonds, 4.00%, 09/01/26  1,000,000   1,023,880 
State of Kansas Department of Transportation, Revenue Bonds,        
5.00%, 09/01/23 200,000  225,944 
5.00%, 09/01/24  500,000   574,240 
5.00%, 09/01/28  1,500,000   1,780,815 
5.00%, 09/01/29  1,000,000   1,147,550 
5.00%, 09/01/31  1,000,000   1,172,460 
5.00%, 09/01/34  1,260,000   1,428,034 
5.00%, 09/01/34  2,000,000   2,320,960 
       9,673,883 
Utilities (17.83%)        
City of Lawrence Water & Sewage System, Revenue Bonds,        
4.00%, 11/01/38  1,000,000   1,023,520 
4.30%, 11/01/22  235,000   235,477 
City of Olathe Water & Sewer System, Revenue Bonds, 4.00%, 07/01/24  250,000   269,602 
City of Topeka Combined Utility, Revenue Bonds,        
3.38%, 08/01/32  1,335,000   1,329,834 
3.50%, 08/01/33  2,285,000   2,286,531 
4.00%, 08/01/26  2,600,000   2,716,740 
4.50%, 08/01/33  650,000   659,847 
City of Wichita Water & Sewer Utility, Revenue Bonds,        
3.25%, 10/01/31  1,070,000   1,065,506 
4.00%, 10/01/20  500,000   519,085 
4.00%, 10/01/29  1,000,000   1,039,170 
4.00%, 10/01/30  1,000,000   1,039,170 
5.00%, 10/01/25  1,000,000   1,079,270 
5.00%, 10/01/28  2,650,000   2,855,296 
Kansas Power Pool, Revenue Bonds,        
5.00%, 12/01/19  600,000   621,222 
5.00%, 12/01/23  200,000   218,324 
5.00%, 12/01/28  700,000   784,350 
5.00%, 12/01/31  1,000,000   1,061,230 
Kansas Rural Water Finance Authority, Revenue Bonds, 4.10%, 09/01/34  270,000   271,350 
Wyandotte County-Kansas City Unified Government Utility System, Revenue Bonds,        
4.25%, 09/01/23  500,000   512,355 
5.00%, 09/01/24  800,000   810,456 
5.00%, 09/01/27  1,300,000   1,393,795 
5.00%, 09/01/31  850,000   949,229 
5.00%, 09/01/31  500,000   561,725 
5.00%, 09/01/32  1,090,000   1,185,462 
5.00%, 09/01/33  100,000   111,279 
       24,599,825 
        
TOTAL MUNICIPAL BONDS (Cost $135,491,962)      136,301,973 

 

See Notes to Financial Statements. 

 
Annual Report | September 30, 201817

 

 

 

American Independence Kansas Tax-Exempt Bond FundPortfolio of Investments
 

September 30, 2018

 

  

7 - Day  

Yield

  Shares  Value 
SHORT TERM INVESTMENT (0.42%)            
Money Market Fund (0.42%)            
Federated Treasury Obligations Fund, Institutional Shares  1.936%  579,959  $579,959 

 

TOTAL SHORT TERM INVESTMENT (Cost $579,959)  579,959 
TOTAL INVESTMENTS (99.20%) (Cost $136,071,921) $136,881,932 
     
Other Assets in Excess of Liabilities (0.80%)  1,101,598 
     
NET ASSETS (100.00%) $137,983,530 

 

See Notes to Financial Statements.

 
18swww.americanindependence.com

 

 

American Independence FundsStatements of Assets and Liabilities

 

September 30, 2018

 

 AMERICAN
INDEPENDENCE
GLOBAL TACTICAL
ALLOCATION FUND
  AMERICAN
INDEPENDENCE
KANSAS TAX-
EXEMPT BOND
FUND
 
ASSETS:      
Investments, at value (Cost $43,413,819 and $136,071,921) $43,744,542  $136,881,932 
Cash  10,003   4,297 
Receivable for shares sold  6,980   54,824 
Receivable due from adviser  6,243    
Dividends and interest receivable  11,591   1,553,618 
Other Assets  1,309   1,137 
Total Assets  43,780,668   138,495,808 
         
LIABILITIES:        
Distributions payable     321,898 
Administration and transfer agency fees payable  30,504   21,521 
Payable for shares redeemed  276,608   7,398 
Payable to adviser     16,847 
Payable for distribution and service fees  14,022   6,188 
Payable for printing  2,681   3,979 
Payable for professional fees  36,454   47,990 
Payable to trustees  54   168 
Payable to Chief Compliance Officer  1,975   2,938 
Accrued expenses and other liabilities  39,125   83,351 
Total Liabilities  401,423   512,278 
NET ASSETS $43,379,245  $137,983,530 
         
NET ASSETS CONSIST OF:        
Paid-in capital (Note 5) $37,753,000  $136,710,892 
Total distributable earnings (Note 3)  5,626,245   1,272,638 
NET ASSETS $43,379,245  $137,983,530 
         
PRICING OF SHARES        
Institutional Class:        
Net Asset Value, offering and redemption price per share $11.83  $10.59 
Net Assets $31,417,371  $133,235,166 
Shares of beneficial interest outstanding  2,655,093   12,584,917 
Class A:        
Net Asset Value, offering and redemption price per share $11.75  $10.59 
Net Assets $11,961,874  $4,748,364 
Shares of beneficial interest outstanding  1,017,731   448,473 
Maximum offering price per share(a) $12.47  $11.06 

 

(a)Net Asset Value/100% minus maximum sales charge of net asset value, 5.75% and 4.25% respectively for the Funds, adjusted to the nearest cent.

 

See Notes to Financial Statements. 

 

Annual Report | September 30, 201819

 

American Independence Global
Tactical Allocation Fund
Statements of Operations

 

 

  For the Period
Ended September 30, 2018(a)
  For the Year
Ended
October 31,
2017
 
INVESTMENT INCOME:        
Dividends $2,186,914  $3,269,954 
Interest  120,298   15,501 
Total Investment Income  2,307,212   3,285,455 
         
EXPENSES:        
Investment advisory fees (Note 6)  676,287   849,169 
Accounting fees     38,239 
Administration fees  150,025   141,528 
Shareholder service fees        
Class A  85,340   134,254 
Class C  7,228   11,192 
Distribution fees        
Class A  85,917   134,254 
Class C  21,685   33,575 
Custodian fees  18,083   22,621 
Legal fees  49,349   6,928 
Audit and tax fees  25,980   31,679 
Transfer agent fees  185,377   188,528 
Trustees fees and expenses  17,575   16,053 
Registration and filing fees  50,540   46,649 
Printing fees  20,093   18,026 
Chief Compliance Officer fees  26,374   17,371 
Insurance expense  38,716   10,577 
Other expenses  12,604   5,660 
Total Expenses  1,471,173   1,706,303 
Expenses reduced by: Adviser (Note 6)  (370,184)  (317,597)
Distribution/service fees (Class A) (Note 6)  (40,963)  (64,442)
Net Expenses  1,060,026   1,324,264 
NET INVESTMENT INCOME  1,247,186   1,961,191 
         
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:        
Net realized gain/(loss) on:        
Investments  10,687,068   3,920,283 
Long-term capital gain distributions from other investment companies  6,094    
Net realized gain  10,693,162   3,920,283 
Change in unrealized appreciation/(depreciation) on:        
Investments  (10,162,136)  9,660,783 
Net change  (10,162,136)  9,660,783 
         
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS  531,026   13,581,066 
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,778,212  $15,542,257 

 

(a)Effective September 24, 2018, the American Independence Global Tactical Allocation Fund merged with and into a clone series of ALPS Series Trust. The Funds were previously advised by Manifold Fund Advisors, LLC. In connection with the merger, the fiscal year-end changed from October 31 to September 30.

 

See Notes to Financial Statements.

 

20www.americanindependence.com

 

American Independence Kansas
Tax-Exempt Bond Fund
Statements of Operations

 

 

  For
the Period
Ended
September 30,
2018
(a)
  For the Year
Ended
October 31,
2017
 
INVESTMENT INCOME:        
Dividends $3,444  $ 
Interest  4,800,452   6,308,485 
Total Investment Income  4,803,896   6,308,485 
         
EXPENSES:        
Investment advisory fees (Note 6)  429,057   552,112 
Accounting fees     86,478 
Administration fees  251,944   230,047 
Shareholder service fees        
Class A  18,403   28,725 
Class C  1,179   2,418 
Distribution fees        
Class A  18,630   28,725 
Class C  3,536   7,256 
Custodian fees  28,623   36,824 
Legal fees  86,175   13,882 
Audit and tax fees  26,422   35,355 
Transfer agent fees  50,888   51,405 
Trustees fees and expenses  23,110   26,794 
Registration and filing fees  28,142   16,230 
Printing fees  16,670   15,964 
Chief Compliance Officer fees  33,951   23,954 
Insurance expense  91,159   21,243 
Other expenses  7,551   9,762 
Total Expenses  1,115,440   1,187,174 
Expenses reduced by: Adviser (Note 6)  (271,478)  (236,681)
Distribution/service fees (Class A) (Note 6)  (8,097)  (12,639)
Net Expenses  835,865   937,854 
NET INVESTMENT INCOME  3,968,031   5,370,631 
         
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:        
Net realized gain/(loss) on:        
Investments  1,077,483   (244,507)
Net realized gain/(loss)  1,077,483   (244,507)
Change in unrealized appreciation/(depreciation) on:        
Investments  (5,413,242)  (3,649,118)
Net change  (5,413,242)  (3,649,118)
         
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS  (4,335,759)  (3,893,625)
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(367,728) $1,477,006 

 

(a)Effective September 24, 2018, the American Independence Kansas Tax-Exempt Bond Fund merged with and into a clone series of ALPS Series Trust. The Funds were previously advised by Manifold Fund Advisors, LLC. In connection with the merger, the fiscal year-end changed from October 31 to September 30.

 

See Notes to Financial Statements.

 

Annual Report | September 30, 201821

 

American Independence Global
Tactical Allocation Fund
Statements of Changes in Net Assets

 

 

  For the Period
Ended September 30,
2018
(a)
  For the Year
Ended
October 31,
2017
  For the Year
Ended
October 31,
2016
 
OPERATIONS:         
Net investment income $1,247,186  $1,961,191  $1,887,661 
Net realized gain/(loss) on investments  10,693,162   3,920,283   (869,006)
Net change in unrealized appreciation/(depreciation) on investments  (10,162,136)  9,660,783   1,212,214 
Net increase in net assets resulting from operations  1,778,212   15,542,257   2,230,869 
             
TOTAL DISTRIBUTIONS TO SHAREHOLDERS:(b)            
Institutional Class  (2,800,890)  (720,260)  (484,129)
Class A(c)  (2,261,503)  (563,180)  (680,507)
Class C(c)  (145,462)  (17,786)  (69,943)
Total distributions  (5,207,855)  (1,301,226)  (1,234,579)
             
BENEFICIAL SHARE TRANSACTIONS (Note 5):            
Institutional Class            
Shares sold  24,535,873   30,834,298   30,189,836 
Dividends reinvested  1,859,235   490,606   367,108 
Shares redeemed  (65,522,791)  (11,783,964)  (5,318,822)
Net increase/(decrease) from beneficial share transactions  (39,127,683)  19,540,940   25,238,122 
Class A (c)            
Shares sold  9,225,330   24,876,625   32,234,644 
Dividends reinvested  1,790,835   281,975   281,631 
Shares redeemed  (59,181,296)  (26,350,301)  (14,830,497)
Net increase/(decrease) from beneficial share transactions  (48,165,131)  (1,191,701)  17,685,778 
Class C (c)            
Shares sold  221,432   540,680   2,075,353 
Dividends reinvested  116,345   15,079   57,172 
Shares redeemed  (4,373,476)  (2,146,016)  (2,168,925)
Net decrease from beneficial share transactions  (4,035,699)  (1,590,257)  (36,400)
             
Net increase/(decrease) in net assets  (94,758,156)  31,000,013   43,883,790 
             
NET ASSETS:            
Beginning of year  138,137,401   107,137,388   63,253,598 
End of period(b) $43,379,245  $138,137,401  $107,137,388 

 

(a)Effective September 24, 2018, the American Independence Global Tactical Allocation Fund merged with and into a clone series of ALPS Series Trust. The Funds were previously advised by Manifold Fund Advisors, LLC. In connection with the merger, the fiscal year-end changed from October 31 to September 30.

(b)For the prior year ended October 31, 2017, American Independence Global Tactical Allocation Fund had Total Distributions consisting of Net Investment Income of $1,301,226, and Net Realized Gains of $0 and Net Assets included accumulated net investment income of $798,190. For the prior year ended October 31, 2016, The Fund had Total Distributions consisting of Net Investment Income of $1,234,579, and Net Realized Gains of $0 and Net Assets included accumulated net investment income of $406,016.
(c)Class C shares were merged into Class A on September 24, 2018. The amounts presented represent the results of the Class A shares for the periods prior to the merger and the results of the combined share class for the period subsequent the merger. As a result of the merger, Shareholder equity in Class A increased by $2,040,463 and 172,662 shares

 

See Notes to Financial Statements.

 

22www.americanindependence.com

 

American Independence Kansas
Tax-Exempt Bond Fund
Statements of Changes in Net Assets

 

 

  For the Period
Ended September 30,
2018
(a)
  For the Year
Ended
October 31,
2017
  For the Year
Ended
October 31,
2016
 
OPERATIONS:         
Net investment income $3,968,031  $5,370,631  $5,686,354 
Net realized gain/(loss) on investments  1,077,483   (244,507)  3,335 
Net change in unrealized depreciation on investments  (5,413,242)  (3,649,118)  (477,351)
Net increase/(decrease) in net assets resulting from operations  (367,728)  1,477,006   5,212,338 
             
TOTAL DISTRIBUTIONS TO SHAREHOLDERS:(b)            
Institutional Class  (3,771,175)  (5,057,517)  (5,380,356)
Class A(c)  (180,929)  (294,193)  (287,049)
Class C(c)  (8,545)  (18,921)  (20,356)
Total distributions  (3,960,649)  (5,370,631)  (5,687,761)
             
BENEFICIAL SHARE TRANSACTIONS (Note 5):            
Institutional Class            
Shares sold  28,106,930   28,351,865   32,270,430 
Dividends reinvested  384,039   453,721   326,415 
Shares redeemed  (58,543,555)  (48,557,589)  (23,352,111)
Net increase/(decrease) from beneficial share transactions  (30,052,586)  (19,752,003)  9,244,734 
Class A (c)            
Shares sold  651,534   381,419   1,874,639 
Dividends reinvested  113,411   164,729   168,088 
Shares redeemed  (7,251,264)  (374,573)  (1,131,127)
Net increase/(decrease) from beneficial share transactions  (6,486,319)  171,575   911,600 
Class C (c)            
Shares sold  27,246   1,536   231,744 
Dividends reinvested  4,246   8,118   12,414 
Shares redeemed  (710,429)  (459,797)  (152,035)
Net increase/(decrease) from beneficial share transactions  (678,937)  (450,143)  92,123 
             
Net increase/(decrease) in net assets  (41,546,219)  (23,924,196)  9,773,034 
             
NET ASSETS:            
Beginning of year  179,529,749   203,453,945   193,680,911 
End of period(b) $137,983,530  $179,529,749  $203,453,945 

 

(a)Effective September 24, 2018, the American Independence Kansas Tax-Exempt Bond Fund merged with and into a clone series of ALPS Series Trust. The Funds were previously advised by Manifold Fund Advisors, LLC. In connection with the merger, the fiscal year-end changed from October 31 to September 30.

(b)For the prior year ended October 31, 2017, American Independence Kansas Tax-Exempt Bond Fund had Total Distributions consisting of Net Investment Income of $5,370,631, and Net Realized Gains of $0 and Net Assets included accumulated net investment income of $72,211. For the prior year ended October 31, 2016, The Fund had Total Distributions consisting of Net Investment Income of $5,687,761, and Net Realized Gains of $0 and Net Assets included accumulated net investment income of $72,211.

(c)Class C shares were merged into Class A on September 24, 2018. The amounts presented represent the results of the Class A shares for the periods prior to the merger and the results of the combined share class for the period subsequent the merger. As a result of the merger, Shareholder equity in Class A increased by $342,954 and 32,402 shares.

 

See Notes to Financial Statements.

 

Annual Report | September 30, 201823

 

American Independence Global Tactical Allocation FundFinancial Highlights
 
Institutional ClassFor a Share Outstanding Throughout the Periods Presented

  

  For the Period Ended September 30, 2018(a)  For the Year Ended October 31, 2017  For the Year Ended October 31, 2016  For the Year Ended October 31, 2015  For the Year Ended October 31, 2014  For the Period Ended October 31, 2013(b) 
NET ASSET VALUE, BEGINNING OF PERIOD $12.09  $10.68  $10.52  $10.69  $10.18  $10.00 
                         
INCOME/(LOSS) FROM OPERATIONS:                        
Net investment income(c)  0.17   0.22   0.26   0.32   0.21   0.01(d) 
Net realized and unrealized gain/(loss) on investments  0.01(e)   1.34   0.09   (0.10)  0.35   0.17 
Total from investment operations  0.18   1.56   0.35   0.22   0.56   0.18 
                         
LESS DISTRIBUTIONS:                        
From net investment income  (0.15)  (0.15)  (0.19)  (0.39)  (0.05)   
From net realized gains on investments  (0.29)               
Total Distributions  (0.44)  (0.15)  (0.19)  (0.39)  (0.05)   
NET INCREASE/(DECREASE) IN NET ASSET VALUE  (0.26)  1.41   0.16   (0.17)  0.51   0.18 
NET ASSET VALUE, END OF PERIOD $11.83  $12.09  $10.68  $10.52  $10.69  $10.18 
                         
TOTAL RETURN(f)  1.53%  14.78%  3.34%  2.10%  5.52%  1.80%
                         
SUPPLEMENTAL DATA:                        
Net assets, end of period (in 000s) $31,417  $72,454  $45,813  $20,028  $6,329  $6,934 
                         
RATIOS TO AVERAGE NET ASSETS                        
Operating expenses excluding reimbursement/waiver  1.42%(g)  1.23%  1.27%  1.33%  1.73%  10.18%(g)
Operating expenses including reimbursement/waiver  1.01%(g)  0.95%  0.95%  0.94%  0.90%  0.90%(g)
Net investment income including reimbursement/waiver  1.52%(g)  1.93%  2.48%  2.98%  2.00%  6.14%(g)(h)
                         
PORTFOLIO TURNOVER RATE(i)  193%  138%  129%  98%  166%  19%

 

(a)Effective September 24, 2018, the American Independence Global Tactical Allocation Fund merged with and into a clone series of ALPS Series Trust. The Funds were previously advised by Manifold Fund Advisors, LLC. In connection with the merger, the fiscal year-end changed from October 31 to September 30.
(b)Commenced operations on September 20, 2013.
(c)Per share amounts are based upon average shares outstanding, unless otherwise noted.
(d)Calculated based on ending shares outstanding during the period.
(e)Realized and unrealized gains and losses per share in this caption are balancing amounts necessary to reconcile the change in net asset value per share for the period and may not reconcile with the aggregate gains and losses in the Statement of Operations due to share transactions for the period.
(f)Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are for the period indicated and have not been annualized. Total returns would have been lower had certain expenses not been waived during the period. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
(g)Annualized.
(h)Due to the short life of the Fund and significant cash inflows into the Institutional Class at the end of the year in question; the ratio of net investment income is not indicative of future results.
(i)Portfolio turnover rate for periods less than one full year have not been annualized.

 

See Notes to Financial Statements.

 
24www.americanindependence.com

 

 

American Independence Global Tactical Allocation FundFinancial Highlights
 
Class AFor a Share Outstanding Throughout the Periods Presented

 

  For the Period Ended September 30, 2018(a)(b)  For the Year Ended October 31, 2017  For the Year Ended October 31, 2016  For the Year Ended October 31, 2015  For the Year Ended October 31, 2014  For the Period Ended October 31, 2013(c) 
NET ASSET VALUE, BEGINNING OF PERIOD $12.04  $10.64  $10.50  $10.65  $10.18  $10.00 
                         
INCOME/(LOSS) FROM OPERATIONS:                        
Net investment income(d)  0.14   0.18   0.23   0.29   0.24   0.00(e)(f) 
Net realized and unrealized gain/(loss) on investments  0.00(g)(h)   1.33   0.08   (0.10)  0.27   0.18 
Total from investment operations  0.14   1.51   0.31   0.19   0.51   0.18 
                         
LESS DISTRIBUTIONS:                        
From net investment income  (0.14)  (0.11)  (0.17)  (0.34)  (0.04)   
From net realized gains on investments  (0.29)               
Total Distributions  (0.43)  (0.11)  (0.17)  (0.34)  (0.04)   
NET INCREASE/(DECREASE) IN NET ASSET VALUE  (0.29)  1.40   0.14   (0.15)  0.47   0.18 
NET ASSET VALUE, END OF PERIOD $11.75  $12.04  $10.64  $10.50  $10.65  $10.18 
                         
TOTAL RETURN(i)  1.19%  14.34%  2.99%  1.75%  5.07%  1.80%
                         
SUPPLEMENTAL DATA:                        
Net assets, end of period (in 000s) $11,962  $61,546  $56,135  $38,019  $21,684  $3,876 
                         
RATIOS TO AVERAGE NET ASSETS                        
Operating expenses excluding reimbursement/waiver  1.91%(j)  1.73%  1.77%  1.75%  2.23%  10.77%(j)
Operating expenses including reimbursement/waiver  1.37%(j)  1.33%  1.33%  1.28%  1.28%  1.28%(j)
Net investment income including reimbursement/waiver  1.25%(j)  1.59%  2.23%  2.70%  2.32%  0.25%(j)(k)
                         
PORTFOLIO TURNOVER RATE(l)  193%  138%  129%  98%  166%  19%

 

(a)Effective September 24, 2018, the American Independence Global Tactical Allocation Fund merged with and into a clone series of ALPS Series Trust. The Funds were previously advised by Manifold Fund Advisors, LLC. In connection with the merger, the fiscal year-end changed from October 31 to September 30.
(b)Class C shares were merged into Class A on September 24, 2018. The amounts presented represent the results of the Class A shares for the periods prior to the merger and the results of the combined share class for the period subsequent the merger.
(c)Commenced operations on September 20, 2013.
(d)Per share amounts are based upon average shares outstanding, unless otherwise noted.
(e)Calculated based on ending shares outstanding during the period.
(f)Amount less than $0.005 per share.
(g)Less than $0.005 per share.
(h)Realized and unrealized gains and losses per share in this caption are balancing amounts necessary to reconcile the change in net asset value per share for the period and may not reconcile with the aggregate gains and losses in the Statement of Operations due to share transactions for the period.
(i)Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are for the period indicated and have not been annualized. Total returns would have been lower had certain expenses not been waived during the period. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
(j)Annualized.
(k)Due to the short life of the Fund and significant cash inflows into the Institutional Class at the end of the year in question; the ratio of net investment income is not indicative of future results.
(l)Portfolio turnover rate for periods less than one full year have not been annualized.

 

See Notes to Financial Statements.

 
Annual Report | September 30, 201825

 

 

American Independence Kansas Tax-Exempt Bond FundFinancial Highlights
 
Institutional ClassFor a Share Outstanding Throughout the Periods Presented

 

  For the Period Ended September 30, 2018(a)  For the Year Ended October 31, 2017  For the Year Ended October 31, 2016  For the Year Ended October 31, 2015  For the Year Ended October 31, 2014  For the Year Ended October 31, 2013 
NET ASSET VALUE, BEGINNING OF PERIOD $10.88  $11.09  $11.11  $11.16  $10.80  $11.28 
                         
INCOME/(LOSS) FROM OPERATIONS:                        
Net investment income(b)  0.27   0.32   0.33   0.35   0.37(c)  0.35(c)
Net realized and unrealized gain/(loss) on investments  (0.29)  (0.21)  (0.02)  (0.05)  0.36   (0.48)
Total from investment operations  (0.02)  0.11   0.31   0.30   0.73   (0.13)
                         
LESS DISTRIBUTIONS:                        
From net investment income  (0.27)  (0.32)  (0.33)  (0.35)  (0.37)  (0.35)
Total Distributions  (0.27)  (0.32)  (0.33)  (0.35)  (0.37)  (0.35)
NET INCREASE/(DECREASE) IN NET ASSET VALUE  (0.29)  (0.21)  (0.02)  (0.05)  0.36   (0.48)
NET ASSET VALUE, END OF PERIOD $10.59  $10.88  $11.09  $11.11  $11.16  $10.80 
                         
TOTAL RETURN(d)  (0.15%)  1.04%  2.80%  2.70%  6.89%  (1.13%)
                         
SUPPLEMENTAL DATA:                        
Net assets, end of period (in 000s) $133,235  $167,374  $190,780  $181,983  $183,423  $232,502 
                         
RATIOS TO AVERAGE NET ASSETS                        
Operating expenses excluding reimbursement/waiver  0.75%(e)  0.61%  0.60%  0.60%  0.58%  0.55%
Operating expenses including reimbursement/waiver  0.56%(e)  0.48%  0.48%  0.48%  0.48%  0.48%
Net investment income including reimbursement/waiver  2.80%(e)  2.95%  2.94%  3.12%  3.39%  3.20%
                         
PORTFOLIO TURNOVER RATE(f)  14%  9%  10%  13%  1%  8%

 

(a)Effective September 24, 2018, the American Independence Kansas Tax-Exempt Bond Fund merged with and into a clone series of ALPS Series Trust. The Funds were previously advised by Manifold Fund Advisors, LLC. In connection with the merger, the fiscal year-end changed from October 31 to September 30.
(b)Per share amounts are based upon average shares outstanding, unless otherwise noted.
(c)Calculated based on ending shares outstanding during the period.
(d)Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are for the period indicated and have not been annualized. Total returns would have been lower had certain expenses not been waived during the period. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
(e)Annualized.
(f)Portfolio turnover rate for periods less than one full year have not been annualized.

 

See Notes to Financial Statements.

 
26www.americanindependence.com

 

 

American Independence Kansas Tax-Exempt Bond FundFinancial Highlights
 
Class AFor a Share Outstanding Throughout the Periods Presented

  

  For the Period Ended September 30, 2018(a)(b)  For the Year Ended October 31, 2017  For the Year Ended October 31, 2016  For the Year Ended October 31, 2015  For the Year Ended October 31, 2014  For the Year Ended October 31, 2013 
NET ASSET VALUE, BEGINNING OF PERIOD $10.88  $11.09  $11.11  $11.16  $10.80  $11.28 
                         
INCOME/(LOSS) FROM OPERATIONS:                        
Net investment income(c)  0.24   0.28   0.29   0.31   0.33(d)  0.31(d)
Net realized and unrealized gain/(loss) on investments  (0.29)  (0.21)  (0.02)  (0.05)  0.36   (0.48)
Total from investment operations  (0.05)  0.07   0.27   0.26   0.69   (0.17)
                         
LESS DISTRIBUTIONS:                        
From net investment income  (0.24)  (0.28)  (0.29)  (0.31)  (0.33)  (0.31)
Total Distributions  (0.24)  (0.28)  (0.29)  (0.31)  (0.33)  (0.31)
NET INCREASE/(DECREASE) IN NET ASSET VALUE  (0.29)  (0.21)  (0.02)  (0.05)  0.36   (0.48)
NET ASSET VALUE, END OF PERIOD $10.59  $10.88  $11.09  $11.11  $11.16  $10.80 
                         
TOTAL RETURN(e)  (0.51%)  0.65%  2.41%  2.34%  6.47%  (1.52%)
                         
SUPPLEMENTAL DATA:                        
Net assets, end of period (in 000s) $4,748  $11,462  $11,509  $10,620  $10,186  $9,815 
                         
RATIOS TO AVERAGE NET ASSETS                        
Operating expenses excluding reimbursement/waiver  1.25%(f)  1.11%  1.10%  1.03%  1.08%  1.05%
Operating expenses including reimbursement/waiver  0.94%(f)  0.87%  0.87%  0.83%  0.87%  0.87%
Net investment income including reimbursement/waiver  2.43%(f)  2.56%  2.55%  2.76%  3.00%  2.82%
                         
PORTFOLIO TURNOVER RATE(g)  14%  9%  10%  13%  1%  8%

 

(a)Effective September 24, 2018, the American Independence Kansas Tax-Exempt Bond Fund merged with and into a clone series of ALPS Series Trust. The Funds were previously advised by Manifold Fund Advisors, LLC. In connection with the merger, the fiscal year-end changed from October 31 to September 30.
(b)Class C shares were merged into Class A on September 24, 2018. The amounts presented represent the results of the Class A shares for the periods prior to the merger and the results of the combined share class for the period subsequent the merger.
(c)Per share amounts are based upon average shares outstanding, unless otherwise noted.
(d)Calculated based on ending shares outstanding during the period.
(e)Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are for the period indicated and have not been annualized. Total returns would have been lower had certain expenses not been waived during the period. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
(f)Annualized.
(g)Portfolio turnover rate for periods less than one full year have not been annualized.

 

See Notes to Financial Statements.

 
Annual Report | September 30, 201827

 

 

American Independence FundsNotes to Financial Statements

 

September 30, 2018

 

1. ORGANIZATION

 

 

ALPS Series Trust (the “Trust”), a Delaware statutory trust, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (“1940 Act”). The Trust consists of multiple separate portfolios or series. This annual report describes the American Independence Global Tactical Allocation Fund ("Global Tactical Allocation Fund") (previously American Independence Global Tactical Allocation Fund) and American Independence Kansas Tax-Exempt Bond Fund ("Kansas Tax-Exempt Bond Fund") (previously American Independence Kansas Tax-Exempt Bond Fund) (each individually “Fund” or collectively “Funds”). Prior to September 24, 2018, the Funds were a series of American Independence Funds Trust. The Global Tactical Allocation Fund’s primary investment objective is to seek to provide long-term capital appreciation. The Kansas Tax-Exempt Bond Fund’s primary investment objective is to preserve capital while producing current income for the investor that is exempt from both federal and Kansas state income taxes. The Funds currently offer Institutional Class Shares and Class A Shares. Each share class has identical rights to earnings, assets and voting privileges, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. The Board of Trustees (“Board”) may establish additional funds and classes of shares at any time in the future without shareholder approval.

 

The Global Tactical Allocation Fund is the successor in interest to the American Independence Global Tactical Allocation Fund (“Predecessor GTA Fund”), and was a series of another investment company, American Independence Funds Trust (“Predecessor Trust”), which was advised by Manifold Fund Advisors, LLC. On September 18, 2018, the shareholders of the Predecessor GTA Fund approved the reorganization of the Institutional Class Shares, Class A Shares and Class C Shares of the Predecessor Fund with and into the Institutional Class Shares and Class A Shares of the American Independence Global Tactical Allocation Fund and Class C Shares exchanged for load-waived Class A Shares of the Global Tactical Allocation Fund, and effective as of the close of business on September 21, 2018, the assets and liabilities of the Predecessor GTA Fund were transferred to the Trust in exchange for designated shares of American Independence Global Tactical Allocation Fund. Costs incurred by the American Independence Global Tactical Allocation Fund in connection with the reorganization were paid by Manifold Partners, the new Adviser. The prior fiscal year end of the Predecessor GTA Fund was October 31, 2017. The reporting period for the American Independence Global Tactical Allocation Fund was an 11 month period from November 1, 2017 through September 30, 2018. Operations prior to September 24, 2018 were for the Predecessor GTA Fund. The reorganization was accomplished by a tax-free exchange of 3,758,879 shares of the Predecessor Fund’s shares, valued at $44,591,158 for the exact same shares (except for of Class C shares that were exchanged for load waived Class A shares) and value of the Global Tactical Allocation Fund’s shares. For financial reporting purposes, assets received and shares issued by the Global Tactical Allocation Fund were recorded at fair value; however, the cost basis of the investments received from the Predecessor GTA Fund was carried forward to align ongoing reporting of the Global Tactical Allocation Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. Immediately prior to the reorganization, the net assets of the Predecessor GTA Fund were $44,591,158, including $563,467 of net unrealized appreciation, $310,072 of undistributed (accumulated) net investment income, and $10,558,043 of undistributed (accumulated) net realized gain.

 

The Kansas Tax-Exempt Bond Fund is the successor in interest to the American Independence Kansas Tax-Exempt Bond Fund (“Predecessor Kansas Fund”), and was a series of another investment company, American Independence Funds Trust (“Predecessor Trust”), which was advised by Manifold Fund Advisors, LLC. On September 18, 2018, the shareholders of the Predecessor Kansas Fund approved the reorganization of the Institutional Class Shares, Class A Shares and Class C Shares of the Predecessor Fund with and into the Institutional Class Shares and Class A Shares of the Kansas Tax Exempt Bond Fund and Class C Shares exchanged for load-waived Class A Shares in the Kansas Tax Exempt Bond Fund, and effective as of the close of business on September 21, 2018, the assets and liabilities of the Predecessor Kansas Fund were transferred to the Trust in exchange for shares of the Kansas Tax-Exempt Bond Fund. Costs incurred by the Kansas Tax-Exempt Bond Fund in connection with the reorganization were paid by Manifold Partners, the new Adviser. The prior fiscal year end of the Predecessor Kansas Fund was October 31, 2017. The reporting period for the Kansas Tax-Exempt Bond Fund was an 11 month period from November 1, 2017 through September 30, 2018. Operations prior to September 24, 2018 were for the Predecessor Kansas Fund. The reorganization was accomplished by a tax-free exchange of 13,125,721 shares of the Predecessor Tax-Exempt Bond Fund’s shares, valued at $138,912,350 for the exact same shares (except for of Class C shares that were exchanged for load waived Class A shares) and value of the Kansas Tax-Exempt Bond Fund’s shares. For financial reporting purposes, assets received and shares issued by the Kansas Tax-Exempt Bond Fund were recorded at fair value; however, the cost basis of the investments received from the Predecessor Kansas Fund was carried forward to align ongoing reporting of the Kansas Tax-Exempt Bond Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. Immediately prior to the reorganization, the net assets of the Predecessor Kansas Fund were $138,912,350, including $757,310 of net unrealized appreciation, $72,211 of undistributed (accumulated) net investment income, and $383,483 of undistributed (accumulated) net realized gain.

 

The reorganizations did not result in any material changes to either of the existing Funds’ investment objectives or principal investment strategies or fundamental investment restrictions. However, upon completion of the reorganization, Manifold Partners, LLC (“Adviser”), an affiliate of the previous adviser, became the new investment adviser for the Funds and Lee Capital Management, L.P. became the new sub-adviser to the Global Tactical Allocation Fund. Carret Asset Management, LLC will continue to be the sub-adviser to the Kansas Tax-Exempt Bond Fund.

 

 

28www.americanindependence.com

 

 

American Independence FundsNotes to Financial Statements

 

September 30, 2018

 

The primary purpose of the reorganizations was to move the existing Funds from their existing trust to another multi-series trust, which the Adviser believed would allow the Funds to (i) lower total net annual fund operating expenses for each Fund and the potential for even lower total net annual fund expenses if the assets of the Funds grow as expected; and (ii) become part of a series of a stable fund family with significantly greater asset under management and potential economies of scale. Shareholders are expected to benefit accordingly and to enjoy an improvement in the level and quality of services provided to them and the Funds.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

 

The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for investment companies (“U.S. GAAP”). The Funds are considered registered investment companies under U.S. GAAP and follow the accounting and reporting guidance applicable to registered investment companies in the Financial Accounting Standards Board Accounting Standards Codification Topic 946. The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Funds in preparation of their financial statements.

 

Investment Valuation: The Funds generally value their securities based on market prices determined at the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern Time, on each day the NYSE is open for trading.

 

For equity securities and shares of registered investment companies that are traded on an exchange, the market price is usually the closing sale or official closing price on that exchange. In the case of equity securities not traded on an exchange, or if such closing prices are not otherwise available, the securities are valued at the mean of the most recent bid and ask prices on such day.

 

The market price for debt obligations is generally the price supplied by an independent third-party pricing service approved by the Board, which may use a matrix, formula or other objective method that takes into consideration quotations from dealers, market transactions in comparable investments, market indices and yield curves. If vendors are unable to supply a price, or if the price supplied is deemed to be unreliable, the market price may be determined using quotations received from one or more broker-dealers that make a market in the security.

 

Most securities listed on a foreign exchange are valued either at the last sale price at the close of the exchange on which the security is principally traded or at fair value (see description below). Foreign securities, currencies, and other assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the exchange rate of said currencies against the U.S. Dollar, as of Valuation Time, as provided by an independent pricing service approved by the Board.

 

Redeemable securities issued by open-end registered investment companies are valued at the investment company’s applicable net asset value, with the exception of exchange-traded open-end investment companies, which are priced as equity securities.

 

When such prices or quotations are not available, or when the Fair Value Committee appointed by the Board believes that they are unreliable, securities may be priced using fair value procedures approved by the Board.

 

Fair Value Measurements: The Funds disclose the classification of their fair value measurements following a three-tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.

 

 

Annual Report | September 30, 201829

 

 

American Independence FundsNotes to Financial Statements

 

September 30, 2018

 

Various inputs are used in determining the value of the Funds’ investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments. These inputs are categorized in the following hierarchy under applicable financial accounting standards:

 

Level 1 –Unadjusted quoted prices in active markets for identical investments, unrestricted assets or liabilities that the Fund has the ability to access at the measurement date;

 

Level 2 –Quoted prices which are not active, quoted prices for similar assets or liabilities in active markets or inputs other than quoted prices that are observable (either directly or indirectly); and

 

Level 3 –Significant unobservable prices or inputs (including the Fund’s own assumptions in determining the fair value of investments) where there is little or no market activity for the asset or liability at the measurement date.

 

The following is a summary of the inputs used to value the Funds’ investments as of September 30, 2018:

 

Global Tactical Allocation Fund

 

Investments in Securities at Value Level 1 - Unadjusted
Quoted Prices
  Level 2 - Other
Significant
Observable Inputs
  Level 3 - Significant
Unobservable Inputs
  Total 
International Equity Exchange Traded Products $9,582,908  $  $  $9,582,908 
U.S. Equity Exchange Traded Products  19,983,374         19,983,374 
U.S. Fixed-Income Exchange Traded Products  7,797,928         7,797,928 
Short Term Investment  6,380,332         6,380,332 
TOTAL $43,744,542  $  $  $43,744,542 

 

Kansas Tax-Exempt Bond Fund

 

Investments in Securities at Value Level 1 - Unadjusted
Quoted Prices
  Level 2 - Other
Significant
Observable Inputs
  Level 3 - Significant
Unobservable Inputs
  Total 
Municipal Bonds $  $136,301,973  $  $136,301,973 
Short Term Investment  579,959         579,959 
TOTAL $579,959  $136,301,973  $  $136,881,932 

 

The Funds recognize transfers between levels as of the end of the period. For the period ended September 30, 2018, the Funds did not have any transfers between Level 1 and Level 2 securities. There were no Level 3 securities held in either of the Funds at September 30, 2018.

 

Securities Purchased on a When-Issued Basis: Each Fund may purchase securities on a “when-issued” basis. When-issued securities are securities purchased for delivery beyond the normal settlement date at a stated price and/or yield, thereby involving the risk that the price and/or yield obtained may be more or less than those available in the market when delivery takes place. At the time a Fund makes the commitment to purchase a security on a when-issued basis, the Fund records the transaction and reflects the value of the security in determining net asset value. Normally, the settlement date occurs within one month of the purchase. No payment is made by the Fund and no interest accrues to the Fund during the period between purchase and settlement.

 

Cash & Cash Equivalents: The Funds consider their investment in a Federal Deposit Insurance Corporation ("FDIC") insured interest bearing account to be cash and cash equivalents. Cash and cash equivalents are valued at cost plus any accrued interest. The Funds maintain cash balances, which, at times may exceed federally insured limits. The Funds maintain these balances with a high-quality financial institution.

 

Concentration of Credit Risk: The Fund places its cash with a banking institution, which is insured by FDIC. The FDIC limit is $250,000. At various times throughout the year, the amount on deposit may exceed the FDIC limit and subject the Fund to a credit risk. The Funds do not believe that such deposits are subject to any unusual risk associated with investment activities.

 

 

30www.americanindependence.com

 

 

American Independence FundsNotes to Financial Statements

 

September 30, 2018

 

The Kansas Tax-Exempt Bond Fund invests primarily in debt obligations issued by the State of Kansas and its respective political subdivisions, agencies and public authorities. The Fund is more susceptible to economic and political factors adversely affecting issuers of Kansas specific municipal securities than are municipal bond funds that are not concentrated in these issuers to the same extent.

 

Trust Expenses: Some expenses of the Trust can be directly attributed to a Fund. Expenses that cannot be directly attributed to a Fund are apportioned among all funds in the Trust based on average net assets of each fund, including Trustees’ fees and expenses.

 

Fund Expenses: Some expenses can be directly attributed to a Fund and are apportioned among the classes based on average net assets of each class.

 

Class Expenses: Expenses that are specific to a class of shares are charged directly to that share class. Fees provided under the distribution (Rule 12b-1) and/or shareholder service plans for a particular class of each Fund are charged to the operations of such class.

 

Federal Income Taxes: The Funds intend to comply with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and intend to distribute substantially all of their net taxable income and net capital gains, if any, each year so that it will not be subject to excise tax on undistributed income and gains. The Funds are not subject to income taxes to the extent such distributions are made.

 

As of and during the period ended September 30, 2018, the Funds did not have a liability for any unrecognized tax benefits in the accompanying financial statements. The Funds recognize interest and penalties, if any, related to tax liabilities as income tax expense in the Statements of Operations. The Funds file U.S. federal, state and local income tax returns as required. The Funds’ tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return for federal purposes and four years for most state returns. The Funds’ administrator has analyzed the Funds’ tax positions taken on federal and state income tax returns for all open tax years and has concluded that, as of September 30, 2018, no provision for income tax is required in the Funds’ financial statements related to these tax positions.

 

Investment Transactions and Investment Income: Investment transactions are accounted for on the date the investments are purchased or sold (trade date basis for financial reporting purposes). Realized gains and losses from investment transactions are reported on an identified cost basis. Interest income, which includes accretion of discounts and amortization of premiums, is accrued and recorded as earned based on the effective yield method. Dividend income and realized gain distributions from underlying investments are recognized on the ex-dividend date. All of the realized and unrealized gains and losses and net investment income are allocated daily to each class in proportion to its average daily net assets.

 

Distributions to Shareholders: Distributions from net investment income for the Kansas Tax-Exempt Bond Fund are declared daily and paid monthly. Distributions from net investment income, if any, for the Global Tactical Allocation Fund are declared and paid quarterly. Distributions from net realized capital gains, if any, are distributed at least annually. Income dividend distributions are derived from interest, dividends and other income the Funds receive from their investments, including short- term capital gains. Long term capital gain distributions are derived from gains realized when a Fund sells a security it has owned for more than one year. A Fund may make additional distributions and dividends at other times if its portfolio manager or managers believe doing so may be necessary for the Fund to avoid or reduce taxes. Net investment income/(loss) and net realized gain/(loss) may differ for financial statement and tax purposes.

 

New Accounting Pronouncements: In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-08, “Premium Amortization on Purchased Callable Debt Securities.” This ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Today, entities generally amortize the premium over the contractual life of the security. This guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. ASU No. 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The guidance calls for a modified retrospective transition approach under which a cumulative effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Management is currently evaluating the provisions of ASU No. 2017-08 to determine the potential impact the new standard will have on the Kansas Tax Exempt Bond Fund's Financial Statements.

 

 

Annual Report | September 30, 201831

 

 

American Independence FundsNotes to Financial Statements

 

September 30, 2018

 

3. TAX BASIS INFORMATION

 

 

Tax Basis of Distributions to Shareholders: The character of distributions made during the period from net investment income or net realized gains may differ from its ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or realized gain were recorded by the Funds. The amounts and characteristics of tax basis distributions are estimated at the time of distribution and composition of distributable earnings/(accumulated losses) are finalized at fiscal year-end.

 

The tax character of distributions paid by the Funds for the fiscal periods or years ended September 30, 2018, October 31, 2017 and October 31, 2016 respectively, were as follows:

 

  Ordinary Income  Tax-Exempt Income  Long-Term Capital Gains 
Global Tactical Allocation Fund $5,006,179  $  $201,676 
Kansas Tax-Exempt Bond Fund  49,064   3,911,585    

 

  Ordinary Income  Tax-Exempt Income  Long-Term Capital Gains 
Global Tactical Allocation Fund $1,301,226  $  $ 
Kansas Tax-Exempt Bond Fund     5,370,631    

 

  Ordinary Income  Tax-Exempt Income  Long-Term Capital Gains 
Global Tactical Allocation Fund $1,234,579  $  $ 
Kansas Tax-Exempt Bond Fund  308   5,687,453    

 

Reclassifications: As of September 30, 2018, permanent differences in book and tax accounting were reclassified. The following reclassifications, which had no impact on results of operations or net assets, were recorded to reflect tax character:

 

  Paid-in Capital  Total Distributable Earnings 
Global Tactical Allocation Fund $5,566,466  $(5,566,466)

 

The primary reasons for the permanent differences is due to equalization and commodities in the Fund.

 

Unrealized Appreciation and Depreciation on Investments: As of September 30, 2018, the aggregate costs of investments, gross unrealized appreciation/(depreciation) and net unrealized appreciation for Federal tax purposes were as follows:

 

  Global Tactical Allocation Fund  Kansas
Tax-Exempt
Bond Fund
 
Gross unrealized appreciation (excess of value over tax cost) $495,048  $2,219,762 
Gross unrealized depreciation (excess of tax cost over value)  (349,513)  (1,409,751)
Net unrealized appreciation $145,535  $810,011 
Cost of investments for income tax purposes $43,599,007  $136,071,921 

 

The primary reason for the temporary differences is due to wash sales.

 

 

32www.americanindependence.com

 

 

American Independence FundsNotes to Financial Statements

 

September 30, 2018

 

Components of Distributable Earnings: At September 30, 2018, components of distributable earnings were as follows:

 

  Global Tactical
Allocation Fund
  Kansas
Tax-Exempt
Bond Fund
 
Undistributed ordinary income $4,551,049  $396,517 
Tax-Exempt Undistributed Income     4,974 
Accumulated capital gains  929,661   383,034 
Net unrealized appreciation  145,535   810,011 
Other cumulative effect of timing differences     (321,898)
Total $5,626,245  $1,272,638 

 

Capital loss carryovers used during the period ended September 30, 2018 were:

 

Fund Amount 
Kansas Tax-Exempt Bond Fund $694,449 

 

4. SECURITIES TRANSACTIONS

 

 

Purchases and sales of securities, excluding short-term securities, during the period ended September 30, 2018 were as follows:

 

  Purchases of
Securities
  Proceeds from Sales of
Securities
 
Global Tactical Allocation Fund $170,724,951  $268,777,085 
Kansas Tax-Exempt Bond Fund  20,101,983   53,422,577 

 

5. BENEFICIAL SHARE TRANSACTIONS

 

 

The capitalization of the Trust consists of an unlimited number of shares of beneficial interest with no par value per share. Holders of the shares of the Funds have one vote for each share held and a proportionate fraction of a vote for each fractional share. All shares issued and outstanding are fully paid and are transferable and redeemable at the option of the shareholder. Shares have no pre-emptive rights. Neither the Funds nor any of their creditors have the right to require shareholders to pay any additional amounts solely because the shareholder owns the shares.

 

 

Annual Report | September 30, 201833

 

 

American Independence FundsNotes to Financial Statements

 

September 30, 2018

 

Transactions in common shares were as follows:

 

  For the Period
Ended September 30,
2018
(a)
  For the Year Ended
October 31,
2017
  For the Year Ended
October 31,
2016
 
Global Tactical Allocation Fund            
Institutional Class            
Shares sold  2,040,221   2,718,628   2,852,595 
Shares issued in reinvestment of distributions to shareholders  156,547   45,399   35,067 
Shares redeemed  (5,533,403)  (1,062,820)  (501,530)
Net increase/(decrease) in shares outstanding  (3,336,635)  1,701,207   2,386,132 
Class A            
Shares sold  774,392   2,203,305   3,056,585 
Shares issued in reinvestment of distributions to shareholders  151,407   26,027   27,068 
Shares redeemed  (5,018,761)  (2,395,818)  (1,427,253)
Net increase/(decrease) in shares outstanding  (4,092,962)  (166,486)  1,656,400 
Class C            
Shares sold  18,642   48,482   198,648 
Shares issued in reinvestment of distributions to shareholders  10,002   1,324   5,602 
Shares redeemed  (377,558)  (196,239)  (210,633)
Net decrease in shares outstanding  (348,914)  (146,433)  (6,383)
             
Kansas Tax-Exempt Bond Fund            
Institutional Class            
Shares sold  2,618,566   2,598,718   2,882,357 
Shares issued in reinvestment of distributions to shareholders  35,603   41,610   29,217 
Shares redeemed  (5,458,564)  (4,458,454)  (2,089,537)
Net increase/(decrease) in shares outstanding  (2,804,395)  (1,818,126)  822,037 
Class A            
Shares sold  61,220   34,999   167,895 
Shares issued in reinvestment of distributions to shareholders  10,574   15,117   15,045 
Shares redeemed  (677,021)  (34,278)  (101,132)
Net increase/(decrease) in shares outstanding  (605,227)  15,838   81,808 
Class C            
Shares sold  2,509   142   20,631 
Shares issued in reinvestment of distributions to shareholders  396   745   1,111 
Shares redeemed  (66,742)  (42,133)  (13,672)
Net increase/(decrease) in shares outstanding  (63,837)  (41,246)  8,070 

 

(a)Effective September 24, 2018, the Predecessor Kansas Fund and Predecessor GTA Fund merged with and into clone series of ALPS Series Trust. The Funds were previously advised by Manifold Fund Advisors, LLC. In connection with the merger, the fiscal year-end changed from October 31 to September 30.

 

Control is defined by the 1940 Act as the beneficial ownership, either directly or through one or more controlled companies, of more than 25% of the voting securities of a company. Approximately 57% of the shares outstanding of the Global Tactical Allocation Fund are owned by two omnibus accounts. Approximately 93% of the shares outstanding of the Kansas Tax-Exempt Bond Fund are owned by one omnibus account.

 

6. MANAGEMENT AND RELATED PARTY TRANSACTIONS

 

 

Investment Advisory: Effective September 24, 2018, Manifold Partners LLC (“Adviser” or "Manifold Partners"), subject to the authority of the Board, is responsible for the overall management and administration of the Funds’ business affairs. The Adviser manages the investments of the Funds in accordance with each Fund’s investment objective, policies and limitations and investment guidelines established jointly by the Adviser and the Board.

 

Effective September 24, 2018, pursuant to the Investment Advisory Agreement (“Advisory Agreement”) with the Adviser, the Global Tactical Allocation Fund pays the Adviser an annual management fee of 0.75% based on the Fund’s average daily net assets, and the Kansas Tax-Exempt Bond Fund pays the Adviser an annual management fee of 0.30% based on the Fund’s average daily net assets. The management fees are paid on a monthly basis. The initial term of the Advisory Agreement is two years and the Board may extend the Advisory Agreement for additional one-year terms by approval at an in-person meeting called for the purpose of considering such matters. The Board and shareholders of the Funds may terminate the Advisory Agreement upon 30 days’ prior written notice. The Adviser may terminate the Advisory Agreement upon 60 days’ prior written notice.

 

 

34www.americanindependence.com

 

 

American Independence FundsNotes to Financial Statements
 

September 30, 2018 

 

Effective September 24, 2018, pursuant to a fee waiver letter agreement (“Fee Waiver Agreement”), the Adviser has contractually agreed to limit the amount of the Total Annual Fund Operating Expenses, exclusive of interest, dividend expense on short sales/interest expense, taxes, brokerage commissions, other investment related costs, acquired fund fees and expenses, distribution service fees (i.e., Rule 12b-1 fees), shareholder service fee, and extraordinary expenses, such as litigation and other expenses not incurred in the ordinary course of business, for the Global Tactical Allocation Fund and Kansas Fund to 0.95% and 0.48%, respectively, of each Fund’s average daily net assets for Institutional Class shares and Class A shares. The Fee Waiver Agreement is in effect through January 31, 2021. The Adviser will be permitted to recover, on a class-by-class basis, expenses it has borne through the Fee Waiver Agreement only to the extent that each Fund's expenses in later periods do not exceed the lesser of: (1) the contractual expense limit in effect at the time the Adviser waives or limits the expenses; or (2) the contractual expense limit in effect at the time the Adviser seeks to recover the expenses; provided, however, that the Fund will not be obligated to reimburse any such expenses borne by the Adviser more than three years after the date on which the fee or expense was waived or limited or assumed and paid by the Adviser, as calculated on a monthly basis. The Adviser may not discontinue this waiver without the approval by the Trust's Board. Fees waived or reimbursed for the period ended September 30, 2018 are disclosed in the Statements of Operations.

 

Prior to September 24, 2018, Manifold Fund Advisors, LLC. (“MFA”) served as the investment adviser to the Funds pursuant to an investment advisory agreement between the American Independence Funds Trust and MFA, under which MFA was entitled to receive an annual fee of 0.75% and 0.30% for Predecessor GTA Fund and the Predecessor Kansas Fund, respectively, computed daily and paid monthly.

 

Effective March 1, 2018 and through September 21, 2018, MFA voluntarily agreed to waive a portion of its investment advisory fee and to reimburse fees and expenses of the Funds in order to maintain the Funds’ total operating expenses (excluding of interest, dividend expense on short sales/interest expense, taxes, brokerage commissions, other investment related costs, acquired fund fees and expenses, distribution services fees (i.e., Rule 12b-1 fees), shareholder service fees, and extraordinary expenses, legal fees and expenses of counsel to the Independent Trustees that are unrelated to the reorganization of the Funds, or extraordinary expenses, at not more than the following percentages of average annual net assets:

 

FundInstitutional ClassClass A
Predecessor GTA Fund0.95%1.33%
Predecessor Kansas Fund0.48%0.87%

 

Under the Expense Limitation Agreement that was in effect until March 1, 2018, the waivers and reimbursements by the Adviser are subject to later adjustment to allow the Adviser to recoup amounts waived or reimbursed to the extent total annual operating expenses (excluding any taxes, interest expenses and dividends relating to short sales, brokerage fees, acquired fund fees and expenses and extraordinary expenses) for a fiscal year do not exceed the expense limit that was in place at the time the fees were waived or expenses were assumed. The Adviser was only entitled to recoup amounts for a period of three years from the date such amount was waived or reimbursed.

 

Effective September 24, 2018, Lee Capital Management, L.P. became sub-adviser (“Sub-Adviser”) to the Global Tactical Allocation Fund. Prior to that, J.A. Forlines, LLC (“JAF”) was the sub-adviser to the American Independence JAForlines Global Tactical Allocation Fund. As of December 31, 2017, JAF merged with and into W. E. Donoghue & Co., LLC.

 

Carret Asset Management, LLC is the Sub-Adviser (“Sub-Adviser”) to the Kansas Tax-Exempt Bond Fund.

 

Administrator: Effective September 24, 2018, ALPS Fund Services, Inc. (“ALPS”) (an affiliate of ALPS Distributors, Inc.) serves as administrator to the Funds. The Funds have agreed to pay expenses incurred in connection with its administrative activities. Pursuant to the Administration, Bookkeeping and Pricing Services Agreement with the Trust, ALPS will provide operational services to the Funds including, but not limited to, fund accounting and fund administration, and will generally assist in the Funds’ operations. The Funds’ administration fee is accrued on a daily basis and paid monthly. The officers and an Interested Trustee of the Trust are employees of ALPS. ALPS is reimbursed by the Funds for certain out of pocket expenses.

 

 

Annual Report | September 30, 201835

 

 

American Independence FundsNotes to Financial Statements

 

September 30, 2018

 

For the period from September 24, 2018 through September 30, 2018, the Global Tactical Allocation Fund and Kansas Tax- Exempt Bond Fund incurred Fund Administration and Accounting fees of $1,013 and $3,180, respectively, relating to services provided by ALPS.

 

Prior to September 24, 2018, MFA provided certain administrative services necessary for the Funds’ operations. The Funds were charged a fee for the services provided, and this fee was calculated based on each Fund's average daily net assets at an annual rate of 0.125%. MFA had entered into an agreement with UMB Fund Services, Inc. (“UMBFS”) whereby UMBFS provided the Funds with sub-administration services pursuant to sub-administrative services agreement with MFA.

 

Prior to September 24, 2018 and pursuant to the prior Fund Accounting Services Agreement, UMBFS served as the Predecessor Trust’s fund accounting agent. For the period from November 1, 2017 through September 21, 2018, the Global Tactical Allocation Fund and the Kansas Tax-Exempt Bond Fund incurred Fund Administration and Accounting fees of $36,689 and $72,346, respectively, relating to services provided by UMBFS. An officer of the Predecessor Trust is an employee of UMBFS.

 

Transfer Agent: Effective September 24, 2018, ALPS serves as transfer agent for the Funds under a Transfer Agency and Services Agreement with the Trust. Under this agreement, ALPS is paid an annual fee for services performed on behalf of the Funds plus fees for open accounts and is reimbursed for certain out-of-pocket expenses. For the period from September 24, 2018 through September 30, 2018, the Global Tactical Allocation Fund and Kansans Tax- Exempt Bond Fund incurred Transfer Agent fees of $348 and $467, respectively, relating to services provided by ALPS.

 

Prior to September 24, 2018, DST Systems Inc. served as the Funds’ transfer agent and dividend disbursing agent.

 

Compliance Services: Effective September 24, 2018, ALPS provides services as the Funds’ Chief Compliance Officer to monitor and test the policies and procedures of each Fund in conjunction with requirements under Rule 38a-1 of the 1940 Act pursuant to a Chief Compliance Officer Services Agreement with the Trust. Under this agreement, ALPS is paid an annual fee for services performed on behalf of the Funds and is reimbursed for certain out-of-pocket expenses. For the period from September 24, 2018 through September 30, 2018, the American Independence Global Tactical Allocation Fund and American Independence Kansans Tax- Exempt Bond Fund incurred Compliance Service fees of $447 and $618, respectively, relating to services provided by ALPS.

 

Prior to September 24, 2018, the Predecessor Trust had contracted with Compliance Solutions Associates LLC (“CSA”) to provide services with respect to the evaluation and monitoring of the Trust’s compliance program pursuant to Rule 38a-1 of the 1940 Act.

 

Distribution: Effective September 24, 2018, ALPS Distributors, Inc. (“Distributor”) (an affiliate of ALPS) acts as the principal underwriter of each Fund’s shares pursuant to a Distribution Agreement with the Trust. Shares of each Fund are offered on a continuous basis through the Distributor, as agent of the Funds. The Distributor is not obligated to sell any particular amount of shares of the Funds and is not entitled to any compensation for its services as the Fund’s principal underwriter pursuant to the Distribution Agreement.

 

Each Fund has adopted a shareholder services plan (“Shareholder Services Plan”) for its Class A Shares. Under the Shareholder Services Plan each Fund is authorized to pay banks and their affiliates and other institutions, including broker-dealers and Fund affiliates (“Participating Organizations”), an aggregate fee in an amount not to exceed on an annual basis 0.25% of the average daily net asset value of each Fund’s Class A Shares to Participating Organizations as compensation for providing shareholder service activities, which do not include distribution services, pursuant to an agreement with a Participating Organization. Each Fund can pay distribution and service fees at an annual rate of up to 0.25% of its Class A share assets. Effective September 24, 2018 Class C merged into (load waived) Class A and the Class C shares no longer exist. Prior to September 24, 2018, the Class C shares could pay distribution and service fees at an annual rate of up to 1.00% of the Class C assets.

 

For the period ended September 30, 2018, a portion of the distribution or service fees were waived and/or assumed and paid by the prior Adviser, MFA, for the Class A shares assets. As of September 30, 2018, both Funds assessed the full 0.25% of distribution fees. For the period ended September 30, 2018, the Global Tactical Allocation Fund and Kansas Tax-Exempt Bond Fund Class A shares assessed 0.12% and 0.13%, respectively, of the shareholder services fees. As of October 31, 2017, the Global Tactical Allocation Fund and Kansas Tax-Exempt Bond Fund, assessed 0.13%, and 0.14%, respectively, of the shareholder services fees. Shareholder Services Plan fees are included on the Statements of Operations. Starting as of September 24, 2018 the board authorized 0.00% to be paid on shareholder servicing fees.

 

 

36www.americanindependence.com

 

 

American Independence FundsNotes to Financial Statements

 

September 30, 2018

 

Prior to September 24, 2018, Matrix 360 Distributors, LLC served as the Predecessor Funds' distributor pursuant to a prior Distribution Agreement.

 

Each Predecessor Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the “Plan”) that allows its Class A shares and Class C shares to pay a distribution and service fee, as defined by the Financial Industry Regulatory Authority (“FINRA”), from its assets for selling and distributing its shares. Each Fund were permitted to pay distribution and service fees at an annual rate of up to 0.50% of its Class A share assets, and up to 1.00% of its Class C share assets. These fees consisted of up to 0.25% for shareholder services of the Class A share assets and Class C share assets, and up to 0.25% for distribution expenses, as defined by FINRA, of Class A share assets and up to 0.75% of Class C share assets. During the period ended September 21, 2018, a portion of the distribution or service fees were waived and/or assumed and paid by the prior Adviser, MFA, for the Class A shares assets of the Predecessor Funds. Effective September 24, 2018, the Funds adopted a plan pursuant to Rule 12b-1 under the 1940 Act (“Plan”) that allows its Class A shares to pay a distribution and service fee, as defined by the FINRA from its assets for selling and distributing its shares.

 

7. TRUSTEES

 

 

As of September 30, 2018, there were four Trustees, three of whom are not “interested persons” (as defined in the 1940 Act) of the Trust (“Independent Trustees”). Effective November 16, 2017, the Independent Trustees of the Trust receive a quarterly retainer of $6,000, plus $4,000 for each regular Board or Committee meeting attended and $2,000 for each special telephonic or in-person Board or Committee meeting attended. Additionally, the Audit Committee Chair receives a quarterly retainer of $1,250 and an Independent Chair receives a quarterly retainer of $2,500. The Independent Trustees are also reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings and for meeting-related expenses. Officers of the Trust and Trustees who are interested persons of the Trust receive no salary or fees from the Trust.

 

8. INDEMNIFICATIONS

 

 

Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that may contain general indemnification clauses which may permit indemnification to the extent permissible under applicable law. The Trust’s maximum exposure under these arrangements is unknown, as such exposure would involve future claims that may be made against the Trust that have not yet occurred.

 

9. SUBSEQUENT EVENTS

 

 

Subsequent events after the date of the Statements of Assets and Liabilities have been evaluated through the date the financial statements were issued.

 

On October 4, 2018, the SEC amended Regulation S-X to require certain financial statement disclosure requirements to conform them to US Generally Accepted Accounting Principles for investment companies. Effective November 4, 2018, the Funds adopted disclosure requirement changes for Regulation S-X and these changes are reflected throughout this report. The Funds’ adoption of those amendments, effective with the financial statements prepared as of September 30, 2018, had no effect on the Funds’ net assets or results of operations.

 

 

Annual Report | September 30, 201837

 

 

American Independence FundsReport of Independent Registered
Public Accounting Firm

 


To the Shareholders of American Independence Global Tactical Allocation Fund and
American Independence Kansas Tax-Exempt Bond Fund and
Board of Trustees of ALPS Series Trust

 

Opinion on the Financial Statements

 

We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of American Independence Global Tactical Allocation Fund (formerly, American Independence JAForlines Global Tactical Allocation Fund) and American Independence Kansas Tax-Exempt Bond Fund (the “Funds”), each a series of ALPS Series Trust, as of September 30, 2018, and the related statements of operations and changes in net assets, including the related notes, and the financial highlights for the period November 1, 2017 through September 30, 2018 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as of September 30, 2018, the results of their operations, the changes in their net assets, and the financial highlights for the period indicated above, in conformity with accounting principles generally accepted in the United States of America.

 

The Funds’ financial statements and financial highlights for the years or periods ended October 31, 2017, and prior, were audited by other auditors whose report dated December 28, 2017, expressed an unqualified opinion on those financial statements and financial highlights.

 

Basis for Opinion

 

These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2018, by correspondence with the custodian. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

We have served as the Funds’ auditor since 2018.

 

COHEN & COMPANY, LTD.

 

COHEN & COMPANY, LTD.
Cleveland, Ohio
November 29, 2018

 

 

38www.americanindependence.com

 

 

American Independence FundsAdditional Information

 

September 30, 2018 (Unaudited)

 

1. PROXY VOTING POLICIES AND VOTING RECORD

 

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available without charge, upon request, (i) by calling the Funds (toll-free) at 1-833-287-7933 or (ii) on the website of the Securities and Exchange Commission (“SEC”) at http://www.sec.gov.

 

Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (i) without charge, upon request, by calling the Funds (toll-free) at 1-833-287-7933 or (ii) on the SEC’s website at http://www.sec.gov.

 

2. PORTFOLIO HOLDINGS

 

 

The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds Forms N-Q are available on the SEC website at http://www.sec.gov. The Funds Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

 

3. TAX DESIGNATIONS

 

 

Qualified Dividend Income  

The percentage of ordinary income dividends distributed during the calendar year ended December 31, 2017 are designated as qualified dividend income (QDI) as defined in Section 1(h)(11) of the Internal Revenue Code in the following percentages:

 

  Amount
Global Tactical Allocation Fund  33.77%

 

Dividends Received Deduction

 

For corporate shareholders, the following ordinary dividends paid during the calendar year ended December 31, 2017 qualify for the corporate dividends received deduction:

 

  Amount
Global Tactical Allocation Fund  1.71%

 

Pursuant to Section 852(b)(3) of the Internal Revenue Code, the Global Tactical Allocation Fund designated $201,676 as long-term capital gain dividends.

 

For the year ended September 30, 2018, 98.76% of the distributions from net investment income for Kansas Tax Exempt Bond Fund are exempt from federal income tax.

 

4. SHAREHOLDER PROXY RESULTS

 

 

At a Joint Special Meeting of Shareholders of the Predecessor Funds, held at the offices of American Independence Funds Trust at 75 Virginia Road, Box 14, North White Plains, New York 10603 on September 18, 2018, shareholders of record as of the close of business on July 16, 2018 voted to approve the following proposals:

 

Proposal 1: To approve an Agreement and Plan of Reorganization for the Predecessor GTA Fund.

 

  Shares Voted
In Favor
  Shares Voted Against or Abstentions 
  1,840,456  519,240 

 

Proposal 2: To approve an Agreement and Plan of Reorganization for the Predecessor Kansas Fund.

 

   Shares Voted
In Favor
  Shares Voted Against or Abstentions 
  12,105,731  13,325 

 

 

Annual Report | September 30, 201839

 

 

American Independence FundsAdditional Information

 

September 30, 2018 (Unaudited)

 

5. DISCLOSURE REGARDING RENEWAL AND APPROVAL OF FUND ADVISORY AGREEMENT

 

 

On May 24, 2018, the Board of Trustees (“Board”) of ALPS Series Trust (“Trust”) met in person to discuss, among other things, the approval of the Investment Advisory Agreement between the Trust and Manifold Partners LLC (“Manifold Partners”), the Investment Sub-Advisory Agreement between Manifold Partners and Carret Asset Management (“Carret”), and the Investment Sub-Advisory Agreement between Manifold Partners and Lee Capital Management, LP (“Lee Capital”) in accordance with Section 15(c) of the 1940 Act. The Independent Trustees met with independent legal counsel during executive session and discussed the Investment Advisory Agreement and Investment Sub-Advisory Agreements and other related materials.

 

In approving the Investment Advisory Agreement with Manifold Partners, the Investment Sub-Advisory Agreement between Manifold Partners and Carret Asset Management with respect to the Kansas Tax Exempt Bond Fund, and the Investment Sub-Advisory Agreement between Manifold Partners and Lee Capital with respect to the Global Tactical Allocation Fund (together, “Funds”), the Trustees, including a majority of all the Independent Trustees, considered the following factors with respect to the Funds:

 

Investment Advisory Fee Rate: The Trustees reviewed and considered the proposed contractual annual advisory fees to be paid by the Trust of 0.75% of the Global Tactical Allocation Fund’s average daily net assets and 0.30% of the Kansas Bond Fund’s average daily net assets, considering the nature, extent and quality of the advisory services to be provided by Manifold Partners to the Funds. The Trustees considered that Manifold Partners would pay Lee Capital an annual fee of 0.375% of the Global Tactical Fund’s average daily net (less 50% of the total amount of waivers and reimbursement made to the Fund by the adviser), and that Manifold Partners would pay Carret an annual fee of 0.15% of the Kansas Bond Fund’s average daily net assets(less 50% of the total amount of waivers and reimbursement made to the Fund by the adviser).

 

The Trustees considered the information they received comparing each Fund’s contractual annual advisory fees and overall expenses with those of funds in each expense group and universe of funds provided by the Data Provider, an independent provider of investment company data (the “Data Provider”). The peer group for Global Tactical Allocation Fund consisted of tactical allocation funds identified by the Data Provider, and the peer group for Kansas Bond Fund consisted of single-state municipal bond funds identified by the Data Provider.

 

The Trustees noted that the Global Tactical Allocation Fund’s contractual advisory fee of 0.75% was below the Data Provider peer group median of 1.08% for Class A, and that the Fund’s projected total net expenses (after fee waiver and expense reimbursement) of 1.49% for Class A was below the Data Provider peer group average of 1.58%.

 

The Trustees noted that the Kansas Tax Exempt Bond Fund’s contractual advisory fee of .30% was below the Data Provider peer group median of 0.45% for Class A, and that the Fund’s projected total net expenses (after fee waiver and expense reimbursement) of .96% for Class A was above the Data Provider peer group average of 0.83%.

 

Nature, Extent and Quality of the Services under the Investment Advisory Agreement and Investment Sub-Advisory Agreements:

The Trustees received and considered information regarding the nature, extent and quality of services provided to the Funds under the Investment Advisory Agreement with Manifold Partners. The Trustees reviewed certain background materials supplied by Manifold Partners and each sub-adviser in its presentation, including each respective Form ADV and ownership structure.

 

The Trustees reviewed and considered Manifold Partners’ and each sub-adviser’s respective investment advisory personnel and its short history as an asset manager. The Trustees also discussed the research and decision-making processes utilized by Manifold Partners and each sub-adviser, including the methods adopted to seek to achieve compliance with the investment objectives, policies and restrictions of the Funds.

 

The Trustees considered the background and experience of Manifold Partners’ and each sub-adviser’s management relating to the Funds, including reviewing the qualifications, background and responsibilities of the portfolio managers primarily responsible for the day-to-day portfolio management of the Funds. The Trustees also considered the reputation of Manifold Partners and key personnel generally and its investment techniques, strategies, risk management controls and decision-making processes.

 

Performance: The Board noted that each Fund would be new and did not have a current track record, although each Fund intended to incorporate the track record of its Predecessor Fund upon completion of the contemplated reorganization into clone series of the Trust. They noted that the existing Kansas Tax-Exempt Bond Fund is currently sub-advised by Carret, and while the performance of the Predecessor Fund had trailed the peer group, the anticipated lower expenses after the contemplated reorganization could positively impact performance. The also discussed that the Predecessor Global Tactical Allocation Fund is not currently sub-advised. The Trustees noted that Lee Capital had provided performance information that indicated the firm could provide acceptable sub-advisory services to the Fund and its shareholders.

 

 

40www.americanindependence.com

 

 

American Independence FundsAdditional Information
 

September 30, 2018 (Unaudited)

 

Comparable Accounts: The Board discussed the comparable accounts to be managed by Manifold Partners, as well as those managed by Carret, and the fee structure and servicing requirements for these products;

 

The Adviser’s and Sub-Advisers’ Profitability: The Trustees received and considered an estimated profitability analysis prepared by Manifold Partners based on the estimated fees to be paid under each Investment Advisory Agreement. The Trustees considered the profits, if any, anticipated to be realized by Manifold Partners and each sub-adviser relating to the operation of each Fund, noting that the Funds were not yet operational. The Trustees then reviewed and discussed Manifold Partners’ and each sub-adviser’s financial statements to analyze the financial condition and stability and profitability of each entity.

 

Economies of Scale: The Trustees considered whether economies of scale in the provision of services to each Fund would be passed along to the shareholders under the Investment Advisory Agreement. However, economies of scale were not anticipated at projected asset levels in the near term for either Fund, and the Board recommended Manifold Partners to consider breakpoints in the future if conditions warrant such a discussion.

 

Other Benefits to the Adviser and Sub-Advisers: The Trustees reviewed and considered any other incidental benefits derived or to be derived by Manifold Partners and each sub-adviser from its relationship with each Fund, including research and other support services.

 

The Board summarized its deliberations with respect to the Investment Advisory Agreement and each Investment Sub-Advisory Agreement. In evaluating Manifold Partners, Lee Capital, and Carret and the fees to be charged under each respective Investment Advisory Agreement and Investment Sub-Advisory Agreements, the Trustees concluded that no single factor reviewed by the Trustees was identified by the Trustees to be determinative as the principal factor in whether to approve the Investment Advisory Agreement and each Investment Sub-Advisory Agreement. Further, the Independent Trustees were advised by independent legal counsel throughout the process.

 

The Trustees, including all the Independent Trustees, concluded that:

 

The Trustees determined that the proposed annual advisory and sub-advisory fees for each Fund were not unreasonable;

 

the terms of the fee waiver/expense reimbursement letter agreement between the Trust (on behalf of each Fund) and Manifold Partners were reasonable;

 

the nature, extent and quality of services to be rendered by Manifold Partners and each sub-adviser under the Investment Advisory Agreement and Investment Sub-advisory Agreements were adequate;

 

the performance of each Predecessor Fund was acceptable;

 

bearing in mind the limitations of comparing different types of accounts and the different levels of service typically associated with such accounts, the fee structures applicable to Manifold Partners other clients employing a comparable strategy to each Fund was not indicative of any unreasonableness with respect to the advisory fee payable by such Fund.

 

the estimated profitability of Manifold Partners and each sub-adviser relating to the management of each Fund was not unreasonable; and

 

there were no material economies of scale or other material incidental benefits expected to accrue to Manifold Partners or either sub-adviser because of their respective relationships with the Funds during the initial term of the Investment Advisory Agreement and Investment Sub-Advisory Agreements.

 

Based on the Trustees’ deliberations and their evaluation of the information described above, the Trustees, including a majority of the Independent Trustees, concluded each approval of the advisory agreement with Manifold Partners, and the sub-advisory agreement between Manifold Partners and each of Lee Capital and Carret’s was consistent with the best interests of each respective Fund and its shareholders.

 

 
Annual Report | September 30, 201841

 

 

American Independence FundsPrivacy Policy

 

September 30, 2018 (Unaudited)

 

FACTSWHAT DO THE FUNDS DO WITH YOUR PERSONAL INFORMATION?
WHY?Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share and protect your personal information. Please read this notice carefully to understand what we do.
WHAT?The types of personal information we collect and share depend on the product or service you have with us. This information can include:
 

●    Social Security number and account transactions

●    Account balances and transaction history

●    Wire transfer instructions

HOW?All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information, the reasons a Fund chooses to share, and whether you can limit this sharing.

REASONS WE CAN SHARE YOUR PERSONAL INFORMATIONDO THE FUNDS SHARE?CAN YOU LIMIT THIS SHARING?

For our everyday business purposes

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

YesNo

For our marketing purposes –

to offer our products and services to you

NoWe do not share.
For joint marketing with other financial companiesNoWe do not share.

For our affiliates’ everyday business purposes –

information about your transactions and experiences

YesNo

For our affiliates’ everyday business purposes –

information about your creditworthiness

NoWe do not share.
For non-affiliates to market to youNoWe do not share.
QUESTIONS?Call 1-888-266-8787 or go to www.americanindependence.com.

 

 
42www.americanindependence.com

 

 

American Independence FundsPrivacy Policy

 

September 30, 2018 (Unaudited)

 

WHO WE ARE 
Who is providing this notice?American Independence Global Tactical Allocation Fund and American Independence Kansas Tax-Exempt Bond Fund (the “Fund”)
WHAT WE DO 

How do the Funds protect my personal information?

To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.

How do the Funds collect my personal information?

We collect your personal information, for example, when you

 

●    open an account

●    provide account information or give us your contact information

●    make a wire transfer or deposit money

Why can’t I limit all sharing?

Federal law gives you the right to limit only

 

●    sharing for affiliates’ everyday business purposes-information about your creditworthiness

●    affiliates from using your information to market to you

●    sharing for non-affiliates to market to you 

 

State laws and individual companies may give you additional rights to limit sharing.

DEFINITIONS 
AffiliatesCompanies related by common ownership or control. They can be financial and nonfinancial companies.
Non-affiliates

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

●    The Funds do not share with non-affiliates so they can market to you.

Joint marketing

A formal agreement between non-affiliated financial companies that together market financial products or services to you.

 

●    The Funds do not jointly market.

OTHER IMPORTANT INFORMATION
California ResidentsIf your account has a California home address, your personal information will not be disclosed to nonaffiliated third parties except as permitted by applicable California law, and we will limit sharing such personal information with our affiliates to comply with California privacy laws that apply to us.

 

 

Annual Report | September 30, 201843

 

 

American Independence FundsTrustees & Officers

 

September 30, 2018 (Unaudited)

 

INDEPENDENT TRUSTEES

 

Name, Birth Year
& Address*
Position(s) Held
with Fund
Term of Office
and Length of
Time Served**
Principal Occupation(s)
During Past 5 Years***
Number of Funds in Fund Complex Overseen by Trustee****Other Directorships
Held by Trustee During
Past 5 Years***
Ward D. Armstrong,
Birth year: 1954
Trustee and ChairmanMr. Armstrong was appointed to the Board on May 27, 2016. Mr. Armstrong was appointed Chairman of the Board at the August 24, 2017 meeting of the Board of Trustees.Retired; Managing Partner, NorthRock Partners, LLC (October 2013 to July 2015); Managing Director, NorthRock Partners, a Private Wealth Advisory Practice of Ameriprise Financial (February 2010 to October 2013); Senior Vice President, Ameriprise Financial, Inc. (November 1984 to May 2007); President, American Express Asset Management (2002 to 2004); and Chairman, Ameriprise Trust Company (November 1996 to May 2007).12Mr. Armstrong is a Director of the Heartland Group, Inc. (5 funds).
J. Wayne Hutchens,
Birth year: 1944
TrusteeMr. Hutchens was elected to the Board on October 30, 2012.Mr. Hutchens is currently retired. From April 2006 to December 2012, he served as President and CEO of the University of Colorado (CU) Foundation and from April 2009 to December 2012, he was Executive Director of the CU Real Estate Foundation. Mr. Hutchens is also Trustee of the Denver Museum of Nature and Science (2000 to present), Director of AMG National Trust Bank (June 2012 to present) and Trustee of Children’s Hospital Colorado (May 2012 to present). Prior to these positions, Mr. Hutchens spent 29 years in the banking industry, retiring as Chairman of Chase Bank Colorado.12Mr. Hutchens is a Director of RiverNorth Opportunities Fund, Inc. (2013 to present)
Patrick Seese,
Birth year: 1971
TrusteeMr. Seese was elected to the Board on October 30, 2012.Mr. Seese is an owner and a Managing Director of Integris Partners, a middle-market investment banking firm serving closely-held companies, financial sponsors and public companies (February 2008 to present). Prior to this, Mr. Seese was a Managing Director of Headwaters MB, a middle-market investing banking firm (December 2003 to February 2008). Prior to that, Mr. Seese worked in Credit Suisse First Boston’s Mergers and Acquisitions Group and served as Head of Corporation Development, Katy Industries, a publicly traded industrial and consumer products company and at Deloitte & Touche LLP, where he began his career in 1994.12Mr. Seese is a Director of The Mile High Five Foundation (2013 to present) and SJ Panthers Foundation (2016 to present)

 

 
44www.americanindependence.com

 

 

American Independence FundsTrustees & Officers

 

September 30, 2018 (Unaudited)

 

INTERESTED TRUSTEE

 

Name, Birth Year
& Address*
Position(s) Held
with Fund

Term of Office
and Length of

Time Served**

Principal Occupation(s)
During Past 5 Years***
Number of Funds in Fund Complex Overseen by Trustee****Other Directorships
Held by Trustee During
Past 5 Years***
Jeremy O. May,
Birth year: 1970
Trustee and PresidentMr. May was elected Trustee and President on October 30, 2012. Mr. May was Chairman from October 30, 2012 to August 24, 2017.Mr. May joined ALPS in 1995 and is currently President and Director of ALPS Fund Services, Inc., ALPS Distributors, Inc., and ALPS Portfolio Solutions Distributor, Inc., Executive Vice President and Director of ALPS Holdings, Inc. and ALPS Advisors, Inc. Because of his positions with these entities, Mr. May is deemed an affiliate of the Trust as defined under the 1940 Act. Mr. May is also on the Board of Directors of the University of Colorado Foundation and the AV Hunter Trust.12Mr. May is Trustee of the Reaves Utility Income Fund (1 fund) and Elevation ETF Trust (1 ETF) and President and Director of RiverNorth Opportunities Fund, Inc.

 

 

Annual Report | September 30, 201845

 

 

American Independence FundsTrustees & Officers

 

September 30, 2018 (Unaudited)

 

OFFICERS

 

Name, Birth Year
& Address*
Position(s) Held
with Fund
Term of Office
and Length of
Time Served**
Principal Occupation(s) During Past 5 Years***
Kimberly R. Storms,
Birth year: 1972
TreasurerMs. Storms was elected Treasurer of the Trust on October 30, 2012.Ms. Storms is Senior Vice President and Director of Fund Administration of ALPS. Because of her position with ALPS, Ms. Storms is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Storms is also Treasurer of Financial Investors Trust, Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc.
Richard C. Noyes,
Birth year: 1970
SecretaryMr. Noyes was elected Secretary of the Trust on November 14, 2016.Mr. Noyes joined ALPS in 2015 and is Senior Vice President and General Counsel of ALPS. Prior to joining ALPS, Mr. Noyes served as Assistant Vice President and Senior Counsel of Janus Capital Management LLC. Mr. Noyes is deemed an affiliate of the Trust as defined under the 1940 Act.
Anne M. Berg,
Birth year: 1973
Assistant SecretaryMs. Berg was elected Assistant Secretary of the Trust on August 23, 2018.Ms. Berg joined ALPS as Senior Investment Company Act Paralegal in February 2017. Prior to joining ALPS, Anne was a Senior Legal Manager at Janus Capital Group Inc., a global investment manager in Denver, Colorado. Because of her position with ALPS, Ms. Berg is deemed an affiliate of the Trust as defined under the 1940 Act.
Alan Gattis*****,
Birth year: 1980
Assistant TreasurerMr. Gattis was elected Assistant Treasurer of the Trust on August 9, 2016.Mr. Gattis joined ALPS in 2011 and is currently Vice President and Fund Controller of ALPS. Prior to joining ALPS, Mr. Gattis was an Auditor at Spicer Jeffries LLP (2009 through 2011) and an Auditor at PricewaterhouseCoopers LLP (2004 - 2009). Because of his position with ALPS, Mr. Gattis is deemed an affiliate of the Trust as defined under the 1940 Act. Mr. Gattis is also Assistant Treasurer of Elevation ETF Trust and Financial Investors Trust.
Lucas D. Foss,
Birth Year: 1977
Chief Compliance Officer (“CCO”)Mr. Foss was elected CCO of the Trust on January 22, 2018.Mr. Foss joined ALPS in November 2017 as Vice President and Deputy Chief Compliance Officer. Prior to his current role, Mr. Foss served as the Director of Compliance at Transamerica Asset Management (July 2015-November 2017). Deputy Chief Compliance Officer at ALPS (September 2012 – June 2015) Compliance Manager at ALPS (January 2010 - August 2012) and a Senior Compliance Analyst at ALPS (November 2006 – December 2009). Before joining ALPS, Mr. Foss held positions at Bisys Hedge Fund Services and Deutsche Asset Management. Because of his position with ALPS, Mr. Foss is deemed an affiliate of the Trust as defined under the 1940 Act. Mr. Foss is also CCO of Harvest Volatility Edge Trust and Goehring & Rozencwajg Investment Funds.

 

*All communications to Trustees and Officers may be directed to ALPS Series Trust c/o 1290 Broadway, Suite 1100, Denver, CO 80203.

**This is the period for which the Trustee or Officer began serving the Trust. Each Trustee serves an indefinite term, until such Trustee’s successor is elected and appointed, or such Trustee resigns or is deceased. Officers are elected on an annual basis.

***Except as otherwise indicated, each individual has held the office shown or other offices in the same company for the last five years.

****The Fund Complex currently consists of 12 series of the Trust and any other investment companies for which Manifold Partners LLC, Lee Capital Management, L.P., or Carret Asset Management, LLC provides investment advisory services, currently none.

*****Mr. Gattis resigned effective November 15, 2018.

  

 

46www.americanindependence.com

 

 

 

 

 

Intentionally Left Blank

 

 

 

 

 

This material must be preceded or accompanied by a prospectus.

 

The American Independence Funds are distributed by ALPS Distributors, Inc

 

 

 

 

 

 

 

Table of Contents

 

 

Shareholder Letter2
Portfolio Update 
Beacon Accelerated Return Strategy Fund4
Beacon Planned Return Strategy Fund6
Disclosure of Fund Expenses8
Portfolios of Investments 
Beacon Accelerated Return Strategy Fund10
Beacon Planned Return Strategy Fund12
Statements of Assets and Liabilities15
Statements of Operations17
Statement of Changes in Net Assets 
Beacon Accelerated Return Strategy Fund18
Beacon Planned Return Strategy Fund19
Financial Highlights20
Notes to Financial Statements24
Report of Independent Registered Public Accounting Firm38
Additional Information39
Privacy Policy40
Trustees and Officers43

 

 

 

Beacon Trust FundsShareholder Letter

 

September 30, 2018 (Unaudited)

 

Through a disciplined process of trading options on market exposure, the Beacon Accelerated Return Strategy Fund and the Beacon Planned Return Strategy Fund (the “Beacon Funds”) seek to provide investors with targeted, stable returns based upon a particular market outlook. The strategies employ directional/enhanced, income and hedge return drivers to control risk, mitigate volatility and seek to deliver superior Sharpe Ratios over a full market cycle. The Beacon strategies manage both the upside potential and downside risk around a specific index to fit the market outlook, and risk and return boundaries of each investor. Our goal is to help investors avoid the irrational decision-making traps predicted by the study of behavioral finance by eliminating the temptation to market time or to make hasty, emotionally driven tactical asset allocation adjustments.

 

Since inception of the Beacon Funds on 10/2/17 through 9/30/18, BARLX was up 13.70% and BPRLX was up 7.64% versus the benchmark returns of 9.65% for the CBOE S&P 500 BuyWrite index and 0.11% for the HFRX Global Hedge Fund index. Both Funds maintain a top quartile peer group ranking since inception within their Morningstar category group. We attribute the outperformance of the Funds to the disciplined investment strategy that avoids behavioral mistakes and tactical errors through systematic monthly implementation and re-balancing process. Our directional market exposure, which we achieve through long call positions, added the most value, while portfolio hedges, or the long put positions, detracted from performance.

 

Funds maintained a steady risk profile, with Accelerated Return Strategy having a 0.7 beta to S&P 500, and Planned Return Strategy carrying a 0.4 beta to S&P 500. Both strategies continue to be negatively correlated to the Barclays Aggregate Bond index. We are proud of the risk mitigation provided by the Beacon Funds. During the 1/26/18 -2/8/18 market selloff when S&P 500 lost more than 10% of its value, BPRLX added 7% alpha and BARLX added 3% alpha, cushioning against a good portion of the market losses, while preserving a decent upside capture during the recovery. With the recent pick-up in market volatility (VIX), we expect to take advantage of lower valuations in equity markets through monthly options rolls and at the same time maintain a higher upside potential during the eventual recovery from the market lows.

 

As we enter the last quarter of 2018, several macro risks linger: global trade wars, the Fed's monetary tightening, flattening yield curve, rising retail bankruptcies, and geopolitical risks, to name a few. While we don't expect an imminent recession, we think that it is an appropriate time for investors to review the risk profile of their portfolios and to make sure that they have enough ballasts and hedges in place to protect the principal value of their portfolios during a downturn.

 

Historically, investors relied on fixed income instruments, such as Treasuries and corporate bonds, to diversify market risk. However, during a rising interest rate environment such as the one we are currently in, fixed income holdings no longer offer the protection that investors need. This is evidenced by the negative returns most fixed income sectors posted year-to-date.

 

We believe that Beacon Funds offer a superior solution to the dilemma investors face today, when traditional tools for portfolio diversification no longer work as intended. The Funds not only have very low sensitivity to interest rates, but they also benefit from rising rates by virtue of potentially higher payoff amounts from the systematic monthly investments, while maintaining a low risk profile.

 

Sincerely,

 

The Beacon Funds Management Team

 

 

2www.beacontrust.com

 

 

 

Beacon Trust FundsShareholder Letter

 

September 30, 2018 (Unaudited)

 

Alpha is a measure of performance. It is the excess return of an investment relative to the return of a benchmark index.

 

Barclays Aggregate Bond index is a broad base index, often used to represent investment grade bonds being traded in United States.

 

Beta is a measure of volatility. It measures the systematic risk of a portfolio in comparison the market as a whole.

 

HFRX Global Hedge Fund index is an index that is designed to be representative of the overall composition of the hedge fund universe.

 

S&P 500 is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ.

 

 

Annual Report | September 30, 20183

 

 

 

Beacon Accelerated Return Strategy FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Performance of a Hypothetical $10,000 Initial Investment (at Inception* through September 30, 2018)

 

(LINE GRAPH)

 

The graph shown above represents historical performance of a hypothetical investment of $10,000 in the Institutional Class. Due to differing expenses, performance of Class A will vary. Past performance does not guarantee future results. All returns reflect reinvested dividends, but do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Performance (as of September 30, 2018)

 

 1 Month3 Month6 MonthYTDSince Inception*
Beacon Accelerated Return Strategy Fund – Class A0.71%6.31%4.73%
CBOE S&P 500 BuyWrite Index0.03%4.91%3.76%
Beacon Accelerated Return Strategy Fund – Institutional Class0.71%6.40%11.00%8.97%13.70%
CBOE S&P 500 BuyWrite Index0.03%4.91%8.47%6.78%9.65%

 

The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund shares will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Fund performance current to the most recent month end is available by calling (844) 814-9222 or by visiting www.beacontrust.com.

 

*Inception date of October 2, 2017 for Institutional Class. Inception date of June 8, 2018 for Class A.

 

The Cboe S&P 500 BuyWrite Index (BXM) is a benchmark index designed to track the performance of a hypothetical buy-write strategy on the S&P 500 Index. The BXM is a passive total return index based on (1) buying an S&P 500 stock index portfolio, and (2) “writing” (or selling) the near-term S&P 500 Index (SPXSM) “covered” call option, generally on the third Friday of each month. The SPX call written will have about one month remaining to expiration, with an exercise price just above the prevailing index level (i.e., slightly out of the money). The SPX call is held until expiration and cash settled, at which time a new one-month, near-the-money call is written.

 

 

4www.beacontrust.com

 

 

 

Beacon Accelerated Return Strategy FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Returns of less than 1 year are cumulative.

 

Indices are not actively managed and do not reflect a deduction for fees, expenses or taxes. An investor cannot invest directly in an index.

 

The returns shown above do not reflect the deduction of taxes a shareholder would pay on Fund distributions or redemption of Fund shares.

 

The total annual operating expenses and total annual operating expenses after fee waivers and/or reimbursement you may pay as an investor in the Fund’s Institutional Class shares (as reported in the January 29, 2018 Prospectus), are 1.37% and 1.37%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2019.

 

Top Ten Holdings (as a % of Net Assets)*

 

Option ContractExpiration DateStrike Price 
S&P 500 Mini Index6/14/190.018.50%
S&P 500 Mini Index11/14/180.018.47%
S&P 500 Mini Index3/14/190.018.43%
S&P 500 Mini Index4/12/190.018.43%
S&P 500 Mini Index5/14/190.018.42%
S&P 500 Mini Index10/12/180.018.10%
S&P 500 Mini Index2/14/190.018.07%
S&P 500 Mini Index7/12/190.018.03%
S&P 500 Mini Index8/14/190.017.92%
S&P 500 Mini Index12/14/180.017.90%
Top Ten Holdings  82.27%

  

Asset Allocation (as a % of Net Assets)* 
  
Purchased Option Contracts105.60% 
Written Option Conctracts(7.02)%
Cash, Cash Equivalents, & Other Assets in Excess of Liabilities1.42% 
Total100.00%

 

*Holdings are subject to change, and may not reflect the current or future position of the portfolio.

 

 

Annual Report | September 30, 20185

 

 

 

Beacon Planned Return Strategy FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Performance of a Hypothetical $10,000 Initial Investment (at Inception* through September 30, 2018)

 

(LINE GRAPH)

 

The graph shown above represents historical performance of a hypothetical investment of $10,000 in the Institutional Class. Due to differing expenses, performance of the Class A will vary. Past performance does not guarantee future results. All returns reflect reinvested dividends, but do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Performance (as of September 30, 2018)

 

 1 Month3 Month6 MonthYTDSince Inception*
Beacon Planned Return Strategy Fund – Class A0.56%3.38%2.58%
CBOE S&P 500 BuyWrite Index0.03%4.91%3.76%
Beacon Planned Return Strategy Fund – Institutional Class0.56%3.47%6.24%5.30%7.64%
CBOE S&P 500 BuyWrite Index0.03%4.91%8.47%6.78%9.65%

 

The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund shares will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Fund performance current to the most recent month end is available by calling (844) 894-9222 or by visiting www.beacontrust.com.

 

*Inception date of October 2, 2017 for Institutional Class. Inception date of June 8, 2018 for Class A.

 

The Cboe S&P 500 BuyWrite Index (BXM) is a benchmark index designed to track the performance of a hypothetical buy-write strategy on the S&P 500 Index. The BXM is a passive total return index based on (1) buying an S&P 500 stock index portfolio, and (2) “writing” (or selling) the near-term S&P 500 Index (SPXSM) “covered” call option, generally on the third Friday of each month. The SPX call written will have about one month remaining to expiration, with an exercise price just above the prevailing index level (i.e., slightly out of the money). The SPX call is held until expiration and cash settled, at which time a new one-month, near-the-money call is written.

 

 

6www.beacontrust.com

 

 

 

Beacon Planned Return Strategy FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Returns of less than 1 year are cumulative.

 

Indices are not actively managed and do not reflect a deduction for fees, expenses or taxes. An investor cannot invest directly in an index.

 

The returns shown above do not reflect the deduction of taxes a shareholder would pay on Fund distributions or redemption of Fund shares.

 

The total annual operating expenses and total annual operating expenses after fee waivers and/or reimbursement you may pay as an investor in the Fund’s Institutional Class shares (as reported in the January 29, 2018 Prospectus), 1.32% and 1.32%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2019.

 

Top Ten Holdings (as a % of Net Assets)*

 

Option ContractExpiration DateStrike Price 
S&P 500 Mini Index4/12/1934.98.88%
S&P 500 Mini Index5/14/1935.38.32%
S&P 500 Mini Index7/12/1936.57.90%
S&P 500 Mini Index8/14/1936.57.89%
S&P 500 Mini Index9/13/1937.87.88%
S&P 500 Mini Index6/14/1936.127.20%
S&P 500 Mini Index2/14/1933.66.93%
S&P 500 Mini Index10/12/1833.356.02%
S&P 500 Mini Index11/14/1833.356.01%
S&P 500 Mini Index12/14/1833.356.00%
Top Ten Holdings  73.03%

 

Asset Allocation (as a % of Net Assets)* 
  
Purchased Option Contracts116.07% 
Written Option Contracts(17.24)%
Cash, Cash Equivalents, & Other Assets in Excess of Liabilities1.17% 
Total100.00%

 

*Holdings are subject to change, and may not reflect the current or future position of the portfolio.

 

 

Annual Report | September 30, 20187

 

 

 

Beacon Trust FundsDisclosure of Fund Expenses

 

September 30, 2018 (Unaudited)

 

Example. As a shareholder of the Beacon Accelerated Return Strategy Fund or Beacon Planned Return Strategy Fund (the “Funds”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees and other Fund expenses. The following examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested on April 1, 2018 and held through September 30, 2018.

 

Actual Expenses. The first line under each class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expenses Paid During Period April 1, 2018 – September 30, 2018” to estimate the expenses you paid on your account during this period.

 

Hypothetical Example for Comparison Purposes. The second line under each class in the following table provides information about hypothetical account values and hypothetical expenses based on a Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in a Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

 

Please note that the expenses shown in the table are meant to highlight your ongoing Fund costs only and do not reflect any transactional costs. Therefore, the second line under each class in the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

 

8www.beacontrust.com

 

 

 

Beacon Trust FundsDisclosure of Fund Expenses

 

September 30, 2018 (Unaudited)

 

 Beginning
Account Value
April 1, 2018
Ending
Account Value
September 30, 2018
Expense
Ratio(a)
Expenses Paid
During Period
April 1, 2018 -
September 30,
2018(b)
Beacon Accelerated Return Strategy Fund Class A    
Actual(c)$1,000.00$1,047.301.61%$5.01
Hypothetical (5% return before expenses)$1,000.00$1,017.001.61%$8.14
Institutional Class    
Actual$1,000.00$1,110.001.25%$6.61
Hypothetical (5% return before expenses)$1,000.00$1,018.801.25%$6.33
Beacon Planned Return Strategy Fund Class A    
Actual(c)$1,000.00$1,025.801.56%$4.81
Hypothetical (5% return before expenses)$1,000.00$1,017.251.56%$7.89
Institutional Class    
Actual$1,000.00$1,062.401.22%$6.31
Hypothetical (5% return before expenses)$1,000.00$1,018.951.22%$6.17

 

(a)Each Fund’s expense ratios have been annualized based on the Fund’s actual expenses for the 6 month period ending September 30, 2018.

(b)Expenses are equal to the annualized expense ratio shown above for the applicable class, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (183), divided by 365.

(c)The actual expenses paid during the period is based on the commencement of operations on June 11th, 2018.

 

 

Annual Report | September 30, 20189

 

 

 

Beacon Accelerated Return Strategy FundPortfolio of Investments

 

September 30, 2018

 

Counterparty Expiration
Date
  Strike
Price
  Contracts  Notional
Value
  Value
(Note 2)
 
PURCHASED OPTION CONTRACTS (105.60%)         
Call Option Contracts (105.60%)            
S&P 500® Mini Index:                    
Jefferies  10/12/2018  $0.01   430  $12,530,200  $12,523,169 
Jefferies  10/12/2018   255.15   240   6,993,600   871,964 
Jefferies  10/12/2018   255.60   190   5,536,600   681,783 
Jefferies  11/14/2018   0.01   450   13,113,000   13,090,027 
Jefferies  11/14/2018   257.00   450   13,113,000   1,578,355 
Jefferies  12/14/2018   0.01   420   12,238,800   12,202,996 
Jefferies  12/14/2018   267.30   420   12,238,800   1,098,431 
Jefferies  01/14/2019   0.01   415   12,093,100   12,047,895 
Jefferies  01/14/2019   279.38   415   12,093,100   702,714 
Jefferies  02/14/2019   0.01   430   12,530,200   12,467,922 
Jefferies  02/14/2019   271.27   430   12,530,200   1,073,974 
Jefferies  03/14/2019   0.01   450   13,113,000   13,031,971 
Jefferies  03/14/2019   275.98   450   13,113,000   992,505 
Jefferies  04/12/2019   0.01   450   13,113,000   13,022,544 
Jefferies  04/12/2019   268.35   450   13,113,000   1,329,608 
Jefferies  05/14/2019   0.01   450   13,113,000   13,007,278 
Jefferies  05/14/2019   270.50   450   13,113,000   1,300,735 
Jefferies  06/14/2019   0.01   455   13,258,700   13,134,587 
Jefferies  06/14/2019   276.97   455   13,258,700   1,130,118 
Jefferies  07/12/2019   0.01   430   12,530,200   12,402,933 
Jefferies  07/12/2019   279.74   430   12,530,200   1,024,312 
Jefferies  08/14/2019   0.01   425   12,384,500   12,242,639 
Jefferies  08/14/2019   281.20   425   12,384,500   1,016,706 
Jefferies  09/13/2019   0.01   365   10,636,100   10,501,986 
Jefferies  09/13/2019   289.57   365   10,636,100   699,393 
               301,307,600   163,176,545 
TOTAL PURCHASED OPTION CONTRACTS (Cost $146,412,139)       301,307,600   163,176,545 

 

 

  7 - Day
Yield
 Shares  Value
(Note 2)
 
SHORT TERM INVESTMENTS (1.19%)            
Money Market Funds (1.19%)            
BlackRock Liquidity Funds, T-Fund Portfolio(a)  1.43857%  449,139   449,139 
Invesco Short-Term Investments Trust Government & Agency Portfolio - Institutional Class  1.92429%  1,387,122   1,387,122 
           1,836,261 
            
TOTAL SHORT TERM INVESTMENTS (Cost $1,836,261)          1,836,261 

 

See Notes to Financial Statements.

 

10www.beacontrust.com

 

 

 

Beacon Accelerated Return Strategy FundPortfolio of Investments

 

September 30, 2018

 

TOTAL INVESTMENTS (106.79%) (Cost $148,248,400) $165,012,806 
     
Total Liabilities in Excess of Other Assets (-6.79%)  (10,484,515)
     
NET ASSETS (100.00%) $154,528,291 

 

(a)All or a portion is held as collateral at broker for written options.

 

WRITTEN OPTION CONTRACTS (7.02%)

 

Counterparty Expiration
Date
 Strike
Price
  Contracts Premiums
Received
  Notional Value  Value
(Note 2)
 
Call Option Contracts - (7.02%)                      
S&P 500® Mini Index:                      
Jefferies 10/12/2018 $272.98   (480) $169,770  $(13,987,200) $(894,386)
Jefferies 10/12/2018  273.13   (380)  140,099   (11,073,200)  (702,452)
Jefferies 11/14/2018  275.80   (900)  406,763   (26,226,000)  (1,554,334)
Jefferies 12/14/2018  286.10   (840)  369,555   (24,477,600)  (839,531)
Jefferies 01/14/2019  299.66   (830)  396,488   (24,186,200)  (288,040)
Jefferies 02/14/2019  294.11   (860)  538,102   (25,060,400)  (664,951)
Jefferies 03/14/2019  298.42   (900)  564,932   (26,226,000)  (577,395)
Jefferies 04/12/2019  291.25   (900)  596,432   (26,226,000)  (1,086,559)
Jefferies 05/14/2019  292.50   (900)  527,131   (26,226,000)  (1,134,658)
Jefferies 06/14/2019  299.59   (910)  470,198   (26,517,400)  (869,912)
Jefferies 07/12/2019  301.00   (860)  480,482   (25,060,400)  (852,832)
Jefferies 08/14/2019  303.32   (850)  486,798   (24,769,000)  (843,451)
Jefferies 09/13/2019  311.03   (730)  414,422   (21,272,200)  (537,737)
TOTAL WRITTEN OPTION CONTRACTS           $5,561,172  $(301,307,600) $(10,846,238)

 

See Notes to Financial Statements.

 

Annual Report | September 30, 201811

 

 

 

Beacon Planned Return Strategy FundPortfolio of Investments

 

September 30, 2018

 

Counterparty Expiration
Date
 Strike
Price
  Contracts  Notional
Value
  Value
(Note 2)
 
PURCHASED OPTION CONTRACTS  (116.07%)                
Call Option Contracts (113.95%)                  
S&P 500® Mini Index:                  
Jefferies 10/12/2018 $33.05   410  $11,947,400  $10,587,203 
Jefferies 10/12/2018  33.35   820   23,894,800   21,149,826 
Jefferies 10/12/2018  254.60   410   11,947,400   1,512,082 
Jefferies 10/12/2018  255.63   820   23,894,800   2,939,981 
Jefferies 11/14/2018  33.05   410   11,947,400   10,575,678 
Jefferies 11/14/2018  33.35   820   23,894,800   21,126,826 
Jefferies 11/14/2018  254.60   410   11,947,400   1,533,555 
Jefferies 11/14/2018  255.63   820   23,894,800   2,985,060 
Jefferies 12/14/2018  33.05   410   11,947,400   10,564,136 
Jefferies 12/14/2018  33.35   820   23,894,800   21,103,787 
Jefferies 12/14/2018  254.60   410   11,947,400   1,560,037 
Jefferies 12/14/2018  255.63   820   23,894,800   3,039,872 
Jefferies 01/14/2019  33.05   410   11,947,400   10,557,090 
Jefferies 01/14/2019  33.35   820   23,894,800   21,089,744 
Jefferies 01/14/2019  254.60   410   11,947,400   1,597,033 
Jefferies 01/14/2019  255.63   820   23,894,800   3,115,510 
Jefferies 02/14/2019  33.60   950   27,683,000   24,382,012 
Jefferies 02/14/2019  35.35   270   7,867,800   6,882,784 
Jefferies 02/14/2019  257.80   950   27,683,000   3,503,781 
Jefferies 02/14/2019  271.50   270   7,867,800   669,054 
Jefferies 03/14/2019  35.35   460   13,404,400   11,713,017 
Jefferies 03/14/2019  35.94   775   22,583,500   19,688,642 
Jefferies 03/14/2019  271.50   460   13,404,400   1,184,525 
Jefferies 03/14/2019  275.50   775   22,583,500   1,739,513 
Jefferies 04/12/2019  34.90   1,225   35,696,500   31,229,533 
Jefferies 04/12/2019  267.60   1,225   35,696,500   3,696,717 
Jefferies 05/14/2019  35.30   1,150   33,511,000   29,242,090 
Jefferies 05/14/2019  270.80   1,150   33,511,000   3,296,039 
Jefferies 06/14/2019  36.12   1,000   29,140,000   25,317,208 
Jefferies 06/14/2019  276.97   1,000   29,140,000   2,483,777 
Jefferies 07/12/2019  36.50   1,100   32,054,000   27,790,405 
Jefferies 07/12/2019  280.00   1,100   32,054,000   2,598,962 
Jefferies 08/14/2019  36.50   1,100   32,054,000   27,758,410 
Jefferies 08/14/2019  281.40   1,100   32,054,000   2,615,507 
Jefferies 09/13/2019  37.80   1,105   32,199,700   27,716,060 
Jefferies 09/13/2019  289.70   1,105   32,199,700   2,107,770 
             819,125,400   400,653,226 
Put Option Contracts (2.12%)                  
S&P 500® Mini Index:                  
Jefferies 10/12/2018  254.60   410   11,947,400   738 
Jefferies 10/12/2018  255.63   820   23,894,800   1,682 
Jefferies 11/14/2018  254.60   410   11,947,400   15,621 
Jefferies 11/14/2018  255.63   820   23,894,800   33,411 

 

See Notes to Financial Statements.

 

12www.beacontrust.com

 

 

 

Beacon Planned Return Strategy FundPortfolio of Investments

 

September 30, 2018

 

Jefferies  12/14/2018   254.60   410   11,947,400   37,024 
Jefferies  12/14/2018   255.63   820   23,894,800   77,910 
Jefferies  01/14/2019   254.60   410   11,947,400   63,206 
Jefferies  01/14/2019   255.63   820   23,894,800   131,754 
Jefferies  02/14/2019   257.80   950   27,683,000   236,201 
Jefferies  02/14/2019   271.50   270   7,867,800   107,068 
Jefferies  03/14/2019   271.50   460   13,404,400   220,233 
Jefferies  03/14/2019   275.50   775   22,583,500   421,632 
Jefferies  04/12/2019   267.60   1,225   35,696,500   617,438 
Jefferies  05/14/2019   270.80   1,150   33,511,000   738,587 
Jefferies  06/14/2019   276.97   1,000   29,140,000   844,814 
Jefferies  07/12/2019   280.00   1,100   32,054,000   1,087,259 
Jefferies  08/14/2019   281.40   1,100   32,054,000   1,222,400 
Jefferies  09/13/2019   289.70   1,105   32,199,700   1,572,266 
               409,562,700   7,429,244 
TOTAL PURCHASED OPTION CONTRACTS (Cost $364,506,870)       1,228,688,100   408,082,470 

 

 

  7 - Day
Yield
 Shares  Value
(Note 2)
 
SHORT TERM INVESTMENTS (1.30%)            
Money Market Funds (1.30%)            
BlackRock Liquidity Funds, T-Fund Portfolio(a)  1.43857%  842,231   842,231 
Invesco Short-Term Investments Trust Government & Agency Portfolio - Institutional Class  1.92429%  3,743,222   3,743,222 
           4,585,453 
             
TOTAL SHORT TERM INVESTMENTS (Cost $4,585,453)          4,585,453 
TOTAL INVESTMENTS (117.37%) (Cost $369,092,323)         $412,667,923 
             
Total Liabilities in Excess of Other Assets (-17.37%)          (61,062,736)
             
NET ASSETS (100.00%)         $351,605,187 

 

(a)All or a portion is held as collateral at broker for written options.

 

See Notes to Financial Statements.

 

Annual Report | September 30, 201813

 

 

 

Beacon Planned Return Strategy FundPortfolio of Investments

 

September 30, 2018

 

WRITTEN OPTION CONTRACTS (17.24%)

 

Counterparty Expiration
Date
 Strike
Price
  Contracts Premiums
Received
  Notional Value  Value
(Note 2)
 
Put Option Contracts - (0.92%)              
S&P 500® Mini Index:                      
Jefferies 10/12/2018 $229.14   (410) $263,910  $(11,947,400) $(13)
Jefferies 10/12/2018  230.07   (820)  534,596   (23,894,800)  (31)
Jefferies 11/14/2018  229.14   (410)  286,460   (11,947,400)  (2,783)
Jefferies 11/14/2018  230.07   (820)  583,796   (23,894,800)  (5,904)
Jefferies 12/14/2018  229.14   (410)  306,550   (11,947,400)  (11,189)
Jefferies 12/14/2018  230.07   (820)  627,256   (23,894,800)  (23,254)
Jefferies 01/14/2019  229.14   (410)  323,360   (11,947,400)  (22,634)
Jefferies 01/14/2019  230.07   (820)  658,416   (23,894,800)  (46,923)
Jefferies 02/14/2019  232.02   (950)  801,761   (27,683,000)  (93,487)
Jefferies 02/14/2019  244.35   (270)  239,942   (7,867,800)  (42,010)
Jefferies 03/14/2019  244.35   (460)  435,938   (13,404,400)  (95,448)
Jefferies 03/14/2019  247.95   (775)  689,517   (22,583,500)  (180,611)
Jefferies 04/12/2019  240.84   (1,225)  1,073,054   (35,696,500)  (284,203)
Jefferies 05/14/2019  243.72   (1,150)  890,909   (33,511,000)  (356,654)
Jefferies 06/14/2019  249.27   (1,000)  747,702   (29,140,000)  (421,045)
Jefferies 07/12/2019  252.00   (1,100)  804,058   (32,054,000)  (554,680)
Jefferies 08/14/2019  253.26   (1,100)  889,577   (32,054,000)  (642,246)
Jefferies 09/13/2019  260.73   (1,105)  791,961   (32,199,700)  (465,255)
             10,948,763   (409,562,700)  (3,248,370)
Call Option Contracts - (16.32%)                      
S&P 500® Mini Index:                      
Jefferies 10/12/2018  263.71   (820)  604,911   (23,894,800)  (2,280,447)
Jefferies 10/12/2018  264.90   (1,640)  1,264,362   (47,789,600)  (4,366,938)
Jefferies 11/14/2018  264.43   (820)  627,871   (23,894,800)  (2,289,307)
Jefferies 11/14/2018  266.00   (1,640)  1,323,402   (47,789,600)  (4,332,705)
Jefferies 12/14/2018  265.22   (820)  648,371   (23,894,800)  (2,302,120)
Jefferies 12/14/2018  266.85   (1,640)  1,357,842   (47,789,600)  (4,357,081)
Jefferies 01/14/2019  265.90   (820)  668,051   (23,894,800)  (2,344,616)
Jefferies 01/14/2019  267.75   (1,640)  1,384,082   (47,789,600)  (4,417,102)
Jefferies 02/14/2019  270.40   (1,900)  1,652,921   (55,366,000)  (4,887,070)
Jefferies 02/14/2019  284.72   (540)  569,535   (15,735,600)  (762,876)
Jefferies 03/14/2019  285.75   (920)  996,085   (26,808,800)  (1,334,563)
Jefferies 03/14/2019  288.48   (1,550)  1,644,094   (45,167,000)  (1,947,082)
Jefferies 04/12/2019  280.25   (2,450)  2,626,308   (71,393,000)  (4,888,675)
Jefferies 05/14/2019  283.13   (2,300)  2,126,828   (67,022,000)  (4,387,934)
Jefferies 06/14/2019  289.25   (2,000)  2,043,414   (58,280,000)  (3,185,642)
Jefferies 07/12/2019  292.00   (2,200)  2,158,117   (64,108,000)  (3,355,861)
Jefferies 08/14/2019  293.89   (2,200)  2,234,565   (64,108,000)  (3,367,855)
Jefferies 09/13/2019  302.10   (2,210)  2,025,932   (64,399,400)  (2,564,170)
             25,956,691   (819,125,400)  (57,372,044)
TOTAL WRITTEN OPTION CONTRACTS         $36,905,454  $(1,228,688,100) $(60,620,414)

 

See Notes to Financial Statements.

 

14www.beacontrust.com

 

 

 

Beacon Trust FundsStatements of Assets and Liabilities

 

September 30, 2018

 

  BEACON
ACCELERATED
RETURN
STRATEGY FUND
  BEACON
PLANNED RETURN
STRATEGY FUND
 
ASSETS:        
Investments, at value (Cost $148,248,400 and $369,092,323) $165,012,806  $412,667,923 
Cash  3,209   6,775 
Cash held at broker for written options  609,720   107,804 
Receivable for shares sold  6,500    
Dividends receivable  119   241 
Prepaid offering cost  233   230 
Other assets  8,658   23,336 
Total Assets  165,641,245   412,806,309 
         
LIABILITIES:        
Written options, at value (premiums received $5,561,172 and $36,905,454)  10,846,238   60,620,414 
Administration and transfer agency fees payable  38,069   84,473 
Payable to adviser  126,935   288,156 
Payable for distribution and service fees  57,833   131,992 
Payable for printing  531   1,178 
Payable for professional fees  22,181   27,498 
Payable to trustees  3,597   8,172 
Payable to chief compliance officer  1,528   3,472 
Accrued expenses and other liabilities  16,042   35,767 
Total Liabilities  11,112,954   61,201,122 
NET ASSETS $154,528,291  $351,605,187 
         
NET ASSETS CONSIST OF:        
Paid-in capital (Note 6) $136,544,775  $327,199,049 
Total distributable earnings  17,983,516   24,406,138 
NET ASSETS $154,528,291  $351,605,187 
         
PRICING OF SHARES        
Class A:        
Net Asset Value, offering and redemption price per share $11.29  $10.72 
Net Assets $10,470  $10,257 
Shares of beneficial interest outstanding  927   957 
Maximum offering price per share (NAV/0.95, based on maximum sales charge of 5.00% of the offering price) $11.89  $11.28 

 

See Notes to Financial Statements.

 
Annual Report | September 30, 201815

 

 

 

Beacon Trust FundsStatements of Assets and Liabilities

 

September 30, 2018

 

  

BEACON
ACCELERATED
RETURN
STRATEGY FUND 

  BEACON
PLANNED RETURN
STRATEGY FUND
 
Institutional Class:        
Net Asset Value, offering and redemption price per share $11.30  $10.73 
Net Assets $154,517,821  $351,594,930 
Shares of beneficial interest outstanding  13,669,359   32,764,886 

 

See Notes to Financial Statements.

 

16www.beacontrust.com

 

 

 

Beacon Trust FundsStatements of Operations

 

For the Period October 2, 2017 (Commencement of Operations) to September 30, 2018

 

  BEACON ACCELERATED RETURN STRATEGY FUND BEACON PLANNED RETURN STRATEGY FUND
INVESTMENT INCOME:    
Dividends $53,464  $87,955 
Total Investment Income  53,464   87,955 
EXPENSES:        
Investment advisory fees (Note 7)  1,414,516   3,372,905 
Administration fees  115,293   269,694 
Distribution and Shareholder service fees:        
Class A  12   12 
Institutional Class  129,783   314,397 
Custodian fees  5,096   7,009 
Legal fees  13,040   31,238 
Audit and tax fees  19,000   19,000 
Transfer agent fees  28,927   68,279 
Trustees fees and expenses  10,784   25,459 
Registration and filing fees  22,577   29,012 
Printing fees  3,024   7,344 
Chief compliance officer fees  8,824   21,015 
Insurance expense  2,035   6,372 
Offering costs  50,245   50,150 
Other expenses  3,791   6,127 
Total Expenses  1,826,947   4,228,013 
NET INVESTMENT LOSS  (1,773,483)  (4,140,058)
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND WRITTEN OPTIONS:        
Net realized gain/(loss) on:        
Investments  15,737,296   26,398,586 
Written options  (6,639,638)  (16,633,484)
Net realized gain  9,097,658   9,765,102 
Change in unrealized appreciation/depreciation) on:        
Investments  16,764,406   43,575,600 
Written options  (5,285,066)  (23,714,960)
Net change  11,479,340   19,860,640 
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND WRITTEN OPTIONS  20,576,998   29,625,742 
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $18,803,515  $25,485,684 

 

See Notes to Financial Statements.

 

Annual Report | September 30,201817

 

 

 

Beacon Accelerated

Return Strategy FundStatement of Changes in Net Assets
 

   

  For the Period Ended September 30, 2018(a)
OPERATIONS:  
Net investment loss $(1,773,483)
Net realized gain on investments and written options  9,097,658 
Net change in unrealized appreciation on investments and written options  11,479,340 
Net increase in net assets resulting from operations  18,803,515 
DISTRIBUTIONS TO SHAREHOLDERS:    
Class A   
Class I  (870,244)
Total distributions  (870,244)
     
BENEFICIAL SHARE TRANSACTIONS (Note 6):    
Class A:(b)    
Shares sold  10,000 
Net increase from beneficial share transactions  10,000 
Institutional Class:    
Shares sold  151,518,922 
Dividends reinvested  153,524 
Shares redeemed  (15,087,426)
Net increase from beneficial share transactions  136,585,020 
     
Net increase in net assets  154,528,291 
     
NET ASSETS:    
Beginning of period   
End of period $154,528,291 

  

(a)Commenced operations October 2, 2017.
(b)Commenced operations June 11, 2018.

 

See Notes to Financial Statements.

 

18www.beacontrust.com

 

 

 

Beacon Planned

Return Strategy FundStatement of Changes in Net Assets
 

  

  For the Period Ended September 30, 2018(a)
OPERATIONS:  
Net investment loss $(4,140,058)
Net realized gain on investments and written options  9,765,102 
Net change in unrealized appreciation on investments and written options  19,860,640 
Net increase in net assets resulting from operations  25,485,684 
DISTRIBUTIONS TO SHAREHOLDERS:    
Class A   
Class I  (1,129,696)
Total distributions  (1,129,696)
     
BENEFICIAL SHARE TRANSACTIONS (Note 6):    
Class A:(b)    
Shares sold  10,000 
Net increase from beneficial share transactions  10,000 
Institutional Class:    
Shares sold  370,673,094 
Dividends reinvested  293,880 
Shares redeemed  (43,727,775)
Net increase from beneficial share transactions  327,239,199 
     
Net increase in net assets  351,605,187 
     
NET ASSETS:    
Beginning of period   
End of period $351,605,187 

  

(a)Commenced operations October 2, 2017.

(b)Commenced operations June 11, 2018.

  

See Notes to Financial Statements.

 

Annual Report | September 30, 201819

 

 

 

Beacon Accelerated

Return Strategy Fund – Class AFinancial Highlights
 

For a Share Outstanding Throughout the Period Presented

 

  

For the Period

June 11, 2018
(Commencement of
Operations) to
September 30, 2018

NET ASSET VALUE, BEGINNING OF PERIOD $10.78
    
INCOME/(LOSS) FROM OPERATIONS:   
Net investment loss(a)  (0.05)
Net realized and unrealized gain on investments and written options  0.56
Total from investment operations  0.51
    
NET INCREASE IN NET ASSET VALUE  0.51
NET ASSET VALUE, END OF PERIOD $11.29
TOTAL RETURN(b)  4.73%
    
SUPPLEMENTAL DATA:   
Net assets, end of period (in 000s) $10
    
RATIOS TO AVERAGE NET ASSETS   
Operating expenses  1.61%(c)(d)
Net investment loss  (1.57%)(c)
    
PORTFOLIO TURNOVER RATE(e)(f)  0%

  

(a)Per share amounts are based upon average shares outstanding.
(b)Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal year. Total returns are for the period indicated and have not been annualized. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund share. Returns shown exclude any applicable sales charge.
(c)Annualized.
(d)According to the Fund's shareholder services plan with respect to the Fund's Class A shares, any amount of fees accrued according to the plan but not paid during the Fund's fiscal year for such service activities shall be reimbursed to the Fund as soon as practical. Fees were reimbursed to the Fund during the period ended September 30, 2018, respectively, in the amount of 0.11% (annualized) and 0.11% of average net assets of Class A shares.
(e)Portfolio turnover rate for periods less than one full year have not been annualized.
(f)All securities whose maturity or expiration date at time of acquisition were one year or less are excluded from the portfolio turnover calculation.

  

See Notes to Financial Statements.

 

20www.beacontrust.com

 

 

 

Beacon Accelerated

Return Strategy Fund – Institutional ClassFinancial Highlights
 

For a Share Outstanding Throughout the Period Presented

 

  For the Period
October 2, 2017
(Commencement of
Operations) to
September 30, 2018
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 
     
INCOME/(LOSS) FROM OPERATIONS:    
Net investment loss(a)  (0.13)
Net realized and unrealized gain on investments and written options  1.49 
Total from investment operations  1.36 
     
LESS DISTRIBUTIONS:    
From net realized gains on investments  (0.06)
Total distributions  (0.06)
NET INCREASE IN NET ASSET VALUE  1.30 
NET ASSET VALUE, END OF PERIOD $11.30 
     
TOTAL RETURN(b)  13.70%
     
SUPPLEMENTAL DATA:    
Net assets, end of period (in 000s) $154,518 
     
RATIOS TO AVERAGE NET ASSETS    
Operating expenses  1.29%(c)(d)
Net investment loss  (1.25%)(c)
     
PORTFOLIO TURNOVER RATE(e)(f)  0%

  

(a)Per share amounts are based upon average shares outstanding.
(b)Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal year. Total returns are for the period indicated and have not been annualized. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund share.
(c)Annualized.
(d)According to the Fund's shareholder services plan with respect to the Fund's Institutional Class shares, any amount of fees accrued according to the plan but not paid during the Fund's fiscal year for such service activities shall be reimbursed to the Fund as soon as practical. Fees were reimbursed to the Fund during the period ended September 30, 2018, respectively, in the amount of 0.06% (annualized) and 0.06% of average net assets of Institutional Class shares.
(e)Portfolio turnover rate for periods less than one full year have not been annualized.
(f)All securities whose maturity or expiration date at time of acquisition were one year or less are excluded from the portfolio turnover calculation.

 

See Notes to Financial Statements.

 

Annual Report | September 30, 201821

 

 

 

Beacon Planned

Return Strategy Fund – Class AFinancial Highlights
 

For a Share Outstanding Throughout the Period Presented

  

  For the Period
June 11, 2018
(Commencement of
Operations) to
September 30, 2018
NET ASSET VALUE, BEGINNING OF PERIOD $10.45 
     
INCOME/(LOSS) FROM OPERATIONS:    
Net investment loss(a)  (0.05)
Net realized and unrealized gain on investments and written options  0.32 
Total from investment operations  0.27 
     
NET INCREASE IN NET ASSET VALUE  0.27 
NET ASSET VALUE, END OF PERIOD $10.72 
     
TOTAL RETURN(b)  2.58%
     
SUPPLEMENTAL DATA:    
Net assets, end of period (in 000s) $10 
     
RATIOS TO AVERAGE NET ASSETS    
Operating expenses  1.56%(c)(d)
Net investment loss  (1.53%)(c)
     
PORTFOLIO TURNOVER RATE(e)(f)  0%

  

(a)Per share amounts are based upon average shares outstanding.
(b)Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal year. Total returns are for the period indicated and have not been annualized. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund share. Returns shown exclude any applicable sales charge.
(c)Annualized.
(d)According to the Fund's shareholder services plan with respect to the Fund's Class A shares, any amount of fees accrued according to the plan but not paid during the Fund's fiscal year for such service activities shall be reimbursed to the Fund as soon as practical. Fees were reimbursed to the Fund during the period ended September 30, 2018, respectively, in the amount of 0.11% (annualized) and 0.11% of average net assets of Class A shares.
(e)Portfolio turnover rate for periods less than one full 'year have not been annualized.
(f)All securities whose maturity or expiration date at time of acquisition were one year or less are  excluded  from  the portfolio  turnover  calculation.

  

See Notes to Financial Statements.

 

22www.beacontrust.com

 

 

 

Beacon Planned

Return Strategy Fund – Institutional ClassFinancial Highlights

 

For a Share Outstanding Throughout the Period Presented

 

  For the Period
October 2, 2017
(Commencement of
Operations) to
September 30, 2018
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 
     
INCOME/(LOSS) FROM OPERATIONS:    
Net investment loss(a)  (0.13)
Net realized and unrealized gain on investments and written options  0.89 
Total from investment operations  0.76 
     
LESS DISTRIBUTIONS:    
From net realized gains on investments  (0.03)
Total distributions  (0.03)
NET INCREASE IN NET ASSET VALUE  0.73 
NET ASSET VALUE, END OF PERIOD $10.73 
     
TOTAL RETURN(b)  7.64%
     
SUPPLEMENTAL DATA:    
Net assets, end of period (in 000s) $351,595 
     
RATIOS TO AVERAGE NET ASSETS    
Operating expenses  1.25%(c)(d)
Net investment loss  (1.23%)(c)
     
PORTFOLIO TURNOVER RATE(e)(f)  0%

  

(a)Per share amounts are based upon average shares outstanding.  
(b)Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and  redemption at the net asset value calculated on the last business day of the fiscal year. Total  returns are for the period indicated and have not been annualized. Returns shown do not  reflect the deduction of taxes that a shareholder would pay on Fund distributions or the  redemption of Fund share.
(c)Annualized.
(d)According to the Fund's shareholder services plan with respect to the Fund's Institutional Class shares, any amount of fees accrued according to the plan but not paid during the Fund's  fiscal year for such service activities shall be reimbursed to the Fund as soon as  practical. Fees were reimbursed to the Fund during the period ended September 30, 2018,  respectively, in the amount of 0.06% (annualized) and 0.06% of average net assets of  Institutional Class shares.
(e)Portfolio turnover rate for periods less than one full year have not been annualized.
(f)All securities whose maturity or expiration date at time of acquisition were one year or less are excluded from the portfolio turnover calculation.

  

See Notes to Financial Statements.

 

Annual Report | September 30, 201823

 

 

 

Beacon Trust FundsNotes to Financial Statements

 

September 30, 2018

 

1. ORGANIZATION

 

 

ALPS Series Trust (the "Trust"), a Delaware statutory trust, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust consists of multiple separate portfolios or series. This Annual Report describes the Beacon Accelerated Return Strategy Fund and the Beacon Planned Return Strategy Fund (each, a "Fund" and collectively, the "Funds"). The Funds are non-diversified and the primary investment objectives are to deliver capital appreciation and generate positive alpha for the Beacon Accelerated Return Strategy Fund, and capital preservation and capital appreciation for the Beacon Planned Return Strategy Fund. The Funds currently offer Class A shares and Institutional Class shares. Each share class of the Funds has identical rights to earnings, assets and voting privileges, except for class-specific expenses and exclusive rights to vote on matters affecting only individual classes. The Board of Trustees (the "Board") may establish additional funds and classes of shares at any time in the future without shareholder approval.

 

The Funds commenced operations on October 2, 2017.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

 

The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for investment companies ("U.S. GAAP"). The Funds are considered investment companies under U.S. GAAP and follow the accounting and reporting guidance applicable to investment companies in the Financial Accounting Standards Board Accounting Standards Codification Topic 946. The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Funds in preparation of their financial statements.

 

Investment Valuation: The Funds generally value their securities based on market prices determined at the close of regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern Time, on each day the NYSE is open for trading.

 

FLEX Options are customized option contracts available through the Chicago Board Options Exchange ("CBOE"). Flexible Exchange Options are valued based on prices supplied by an independent third-party pricing service, which utilizes pricing models that incorporate various inputs such as interest rates, credit spreads currency exchange rates and volatility measurements for in-the-money, at-the-money, and out-of-money contracts on a given strike price.

 

Redeemable securities issued by open-end registered investment companies are valued at the investment company's applicable net asset value ("NAV"), with the exception of exchange-traded open-end investment companies, which are priced as equity securities. Money market funds, representing short-term investments, are valued at their net asset value.

 

 
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Beacon Trust FundsNotes to Financial Statements

 

September 30, 2018

 

When such prices or quotations are not available, or when the Fair Value Committee appointed by the Board believes that they are unreliable, securities may be priced using fair value procedures approved by the Board.

 

Fair Value Measurements: The Funds disclose the classification of their fair value measurements following a three-tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.

 

Various inputs are used in determining the value of the Funds' investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments. These inputs are categorized in the following hierarchy under applicable financial accounting standards:

 

Level 1 –Unadjusted quoted prices in active markets for identical investments, unrestricted assets or liabilities that the Fund has the ability to access at the measurement date;

 

Level 2 –Quoted prices which are not active, quoted prices for similar assets or liabilities in active markets or inputs other than quoted prices that are observable (either directly or indirectly); and

 

Level 3 –Significant unobservable prices or inputs (including the Fund's own assumptions in determining the fair value of investments) where there is little or no market activity for the asset or liability at the measurement date.

 

 
Annual Report | September 30, 201825

 

 

 

Beacon Trust FundsNotes to Financial Statements

 

September 30, 2018

 

The following is a summary of the inputs used to value the Funds' investments as of September 30, 2018:

 

Beacon Accelerated Return Strategy Fund

 

Investments in Securities at Value Level 1 - Unadjusted
Quoted Prices
  Level 2 -
Other
Significant Observable
Inputs
  Level 3 -
Significant Unobservable Inputs
  Total 
Purchased Option Contracts $  $163,176,545  $  $163,176,545 
Short Term Investments  1,836,261         1,836,261 
TOTAL $1,836,261  $163,176,545  $  $165,012,806 
                 
  Valuation Inputs     
Other Financial Instruments Level 1  Level 2  Level 3  Total 
Liabilities                
Written Option Contracts $  $(10,846,238) $  $(10,846,238)
TOTAL $  $(10,846,238) $  $(10,846,238)

 

Beacon Planned Return Strategy Fund

 

Investments in Securities at Value Level 1 - Unadjusted
Quoted Prices
  Level 2 -
Other
Significant Observable
Inputs
  Level 3 -
Significant Unobservable Inputs
  Total 
Purchased Option Contracts $  $408,082,470  $  $408,082,470 
Short Term Investments  4,585,453         4,585,453 
TOTAL $4,585,453  $408,082,470  $  $412,667,923 
                 
  Valuation Inputs     
Other Financial Instruments Level 1  Level 2  Level 3  Total 
Liabilities                
Written Option Contracts $  $(60,620,414) $  $(60,620,414)
TOTAL $  $(60,620,414) $  $(60,620,414)

  

The Funds recognize transfers between levels as of the end of the period. For the fiscal period ended September 30, 2018, the Funds did not have any transfers between Level 1 and Level 2 securities. There were no Level 3 securities held during the period.

 

Cash & Cash Equivalents: The Funds consider their investment in a Federal Deposit Insurance Corporation ("FDIC") insured interest bearing account to be cash and cash equivalents. Cash and cash equivalents are valued at cost plus any accrued interest. The Funds maintains cash balances, which, at times may exceed federally insured limits. The Funds maintains these balances with a high quality financial institution.

 

Concentration of Credit Risk: The Funds place their cash with a banking institution, which is insured by FDIC. The FDIC limit is $250,000. At various times throughout the year, the amount on deposit may exceed the FDIC limit and subject the Funds to a credit risk. The Funds do not believe that such deposits are subject to any unusual risk associated with investment activities.

 

 
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Beacon Trust FundsNotes to Financial Statements

 

September 30, 2018 

 

Offering Costs: The Funds incurred offering costs during the period ended September 30, 2018. These offering costs, including fees for printing initial prospectuses, legal and registration fees, are being amortized over the first twelve months from the inception date of the Funds. Amounts amortized through September 30, 2018 are expensed in the Funds' Statements of Operations and amounts that remain to be amortized are shown on the Funds' Statements of Assets and Liabilities.

 

Trust Expenses: Some expenses of the Trust can be directly attributed to a Fund. Expenses that cannot be directly attributed to a Fund are apportioned among all funds in the Trust based on average net assets of each fund.

 

Fund Expenses: Some expenses can be directly attributed to a Fund and are apportioned among the classes based on average net assets of each class.

 

Class Expenses: Expenses that are specific to a class of shares are charged directly to that share class. Fees provided under the distribution and services plan for a particular class of a Fund are charged to the operations of such class.

 

Federal Income Taxes: The Funds comply with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and intend to distribute substantially all of their net taxable income and net capital gains, if any, each year so that they will not be subject to excise tax on undistributed income and gains. The Funds are not subject to income taxes to the extent such distributions are made.

 

As of and during the period ended September 30, 2018, the Funds did not have a liability for any unrecognized tax benefits in the accompanying financial statements. The Funds recognize interest and penalties, if any, related to tax liabilities as income tax expense in the Statements of Operations. The Funds file U.S. federal, state and local income tax returns as required. The Funds' tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return for federal purposes and four years for most state returns. The Funds' administrator has analyzed the Funds' tax positions and has concluded that as of September 30, 2018, no provision for income tax is required in the Funds' financial statements related to these tax positions.

 

Investment Transactions and Investment Income: Investment transactions are accounted for on the date the investments are purchased or sold (trade date basis) for financial reporting purposes. Realized gains and losses from investment transactions are reported on an identified cost basis. Interest income, which includes accretion of discounts and amortization of premiums, is accrued and recorded as earned. Dividend income is recognized on the ex-dividend date, or for certain foreign securities, as soon as information is available to a Fund. Withholding taxes on foreign dividends are paid (a portion of which may be reclaimable) or provided for in accordance with the applicable country's tax rules and rates and are disclosed in the Statements of Operations. All of the realized and unrealized gains and losses and net investment income are allocated daily to each class in proportion to its average daily net assets.

 

Distributions to Shareholders: The Funds normally pay dividends, if any, and distribute capital gains, if any, on an annual basis. Income dividend distributions are derived from interest, dividends and other income the Funds receive from their investments, including short-term capital gains.

 

 
Annual Report | September 30, 201827

 

 

 

Beacon Trust FundsNotes to Financial Statements

 

September 30, 2018

 

Long-term capital gain distributions are derived from gains realized when a Fund sells a security it has owned for more than one year. A Fund may make additional distributions and dividends at other times if its portfolio manager or managers believe doing so may be necessary for the Fund to avoid or reduce taxes. Net investment income/(loss) and net realized gain/(loss) may differ for financial statement and tax purposes.

 

3. DERIVATIVE INSTRUMENTS

 

 

The Funds' investment objectives permit the Funds to enter into various types of derivatives contracts, including, but not limited to, futures contracts, forward foreign currency contracts, currency swaps and purchased and written options. In doing so, the Funds may employ strategies in differing combinations to permit it to increase, decrease, or change the level or types of exposure to market factors. Central to those strategies are features inherent in derivatives that make them more attractive for this purpose than equity or debt securities; they require little or no initial cash investment, they can focus exposure on only certain selected risk factors, and they may not require the ultimate receipt or delivery of the underlying security (or securities) to the contract. This may allow the Funds to pursue their objectives more quickly and efficiently than if they were to make direct purchases or sales of securities capable of affecting a similar response to market factors.

 

Risk of Investing in Derivatives: The Funds' use of derivatives can result in losses due to unanticipated changes in the market risk factors and the overall market. In instances where the Funds are using derivatives to decrease, or hedge, exposures to market risk factors for securities held by the Funds, there are also risks that those derivatives may not perform as expected resulting in losses for the combined or hedged positions.

 

Derivatives may have little or no initial cash investment relative to their market value exposure and therefore can produce significant gains or losses in excess of their cost. This use of embedded leverage allows the Funds to increase their market value exposure relative to their net assets and can substantially increase the volatility of the Funds' performance.

 

Additional associated risks from investing in derivatives also exist and potentially could have significant effects on the valuation of the derivative and the Funds. Typically, the associated risks are not the risks that the Funds are attempting to increase or decrease exposure to, per their investment objectives, but are the additional risks from investing in derivatives.

 

Examples of these associated risks are liquidity risk, which is the risk that the Funds will not be able to sell or close out the derivative in a timely manner, and counterparty credit risk, which is the risk that the counterparty will not fulfill its obligation to the Funds. In addition, use of derivatives may increase or decrease exposure to the following risk factors:

 

Equity Risk: Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. Associated risks can be different for each type of derivative.

 

Option Contracts: Each Fund may enter into options transactions for hedging purposes and for nonhedging purposes such as seeking to enhance return. Each Fund may write covered put and call options on any stocks or stock indices, currencies traded on domestic and foreign securities exchanges, or futures contracts on stock indices, interest rates and currencies traded on domestic and, to the extent permitted by the U.S. Commodity Futures Trading Commission, foreign exchanges. A call option on an asset written by a Fund obligates the Fund to sell the specified asset to the holder (purchaser) at a stated price (the exercise price) if the option is exercised before a specified date (the expiration date). A put option on an asset written by a Fund obligates the Fund to buy the specified asset from the purchaser at the exercise price if the option is exercised before the expiration date. Premiums received when writing options are recorded as liabilities and are subsequently adjusted to the current value of the options written. Premiums received from writing options that expire are treated as realized gains. Premiums received from writing options, which are either exercised or closed, are offset against the proceeds received or amount paid on the transaction to determine realized gains or losses.

 

 
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Beacon Trust FundsNotes to Financial Statements

 

September 30, 2018

 

The Funds use FLEX Options, which are customized equity or index option contracts that trade on an exchange, but that provide investors with the ability to customize key contract terms like exercise prices, styles and expiration dates. Like standardized exchange-traded options, FLEX Options are guaranteed for settlement by The Options Clearing Corporation ("OCC"), a market clearinghouse. The OCC guarantees performance by each of the counterparties to the FLEX Options, becoming the "buyer for every seller and the seller for every buyer," protecting clearing members and options traders from counterparty risk. FLEX Options provide investors with the ability to customize key terms, while achieving price discovery in competitive, transparent auctions markets and avoiding the counterparty exposure of Over-the-Counter ("OTC") options positions. The Funds bear the risk that the OCC will be unable or unwilling to perform its obligations under the FLEX Options contracts. Additionally, FLEX Options may be less liquid than certain other securities such as standardized options. In a less liquid market for the FLEX Options, the Funds may have difficulty closing out certain FLEX Options positions at desired times and prices.

 

Purchased Options: When the Funds purchase an option, an amount equal to the premium paid by the Funds are recorded as an investment and is subsequently adjusted to the current value of the option purchased. If an option expires on the stipulated expiration date or if the Funds enter into a closing sale transaction, a gain or loss is realized. If a call option is exercised, the cost of the security acquired is increased by the premium paid for the call. If a put option is exercised, a gain or loss is realized from the sale of the underlying security, and the proceeds from such sale are decreased by the premium originally paid. Purchased options are non-income producing securities.

 

Written Options: When the Funds write an option, an amount equal to the premium received by the Funds are recorded as a liability and is subsequently adjusted to the current value of the option written. Premiums received from writing options that expire unexercised are treated by the Funds on the expiration date as realized gain from written options. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Funds have realized a gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Funds. The Funds, as writers of an option, bear the market risk of an unfavorable change in the price of the security underlying the written option.

 

 
Annual Report | September 30, 201829

 

 

 

Beacon Trust FundsNotes to Financial Statements

 

 September 30, 2018

 

The average option contract notional amount during the period ended September 30, 2018, is noted below for each of the Funds.

 

Derivative Type Unit of Measurement  Monthly Average 
Beacon Accelerated Return Strategy Fund       
Purchased Option Contracts Notional value of contracts outstanding  $9,456,350 
Written Option Contracts Notional value of contracts outstanding  $16,003,800 

 

Derivative Type Unit of Measurement  Monthly Average 
Beacon Planned Return Strategy Fund       
Purchased Option Contracts Notional value of contracts outstanding  $18,250,430 
Written Option Contracts Notional value of contracts outstanding  $27,375,645 

 

Derivative Instruments: The following tables disclose the amounts related to the Funds’ use of Derivative instruments.

 

The effect of derivative instruments on the Statements of Assets and Liabilities as of September 30, 2018:

  

Risk Exposure Statements of Assets and Liabilities Location Fair Value of Asset Derivatives  Statements of Assets and Liabilities Location Fair Value of Liability Derivatives 
Beacon Accelerated Return Strategy Fund           
Equity Contracts (Purchased Options/ Written Options) Investments, at value $163,176,545  Written Options, at value $10,846,238 
    $163,176,545    $10,846,238 
             
Beacon Planned Return Strategy Fund           
Equity Contracts (Purchased Options/ Written Options) Investments, at value $408,082,469  Written Options, at value $60,620,414 
    $408,082,469    $60,620,414 

 

 

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Beacon Trust FundsNotes to Financial Statements

 

 September 30, 2018

 

The effect of derivative instruments on the Statements of Operations for the period ended September 30, 2018:

 

Risk Exposure Statements of Operations Location Realized Gain (Loss) on Derivatives Recognized in Income  Change in Unrealized Gain (Loss) on Derivatives Recognized in Income 
Beacon Accelerated Return Strategy Fund        
Equity Contracts (Purchased Options) Net realized gain/(loss) on investments/Net change in unrealized appreciation/ (depreciation) on investments $15,737,296  $16,764,406 
Equity Contracts (Written Options) Net realized gain/(loss) on written option contracts/Net change in unrealized appreciation/ (depreciation) on written option contracts  (6,639,638)  (5,285,066)
Total   $9,097,658  $11,479,340 
Beacon Planned Return Strategy Fund          
Equity Contracts (Purchased Options) Net realized gain/(loss) on investments/Net change in unrealized appreciation/ (depreciation) on investments $26,398,586  $43,575,600 
Equity Contracts (Written Options) Net realized gain/(loss) on written option contracts/Net change in unrealized appreciation/ (depreciation) on written option contracts  (16,633,484)  (23,714,960)
Total   $9,765,102  $19,860,640 

 

4. TAX BASIS INFORMATION

 

 

Tax Basis of Distributions to Shareholders: The character of distributions made during the period from net investment income or net realized gains may differ from its ultimate characterization for Federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or realized gain were recorded by the Funds. The amounts and characteristics of tax basis distributions and composition of distributable earnings/(accumulated losses) are finalized at fiscal year-end.

 

 

Annual Report | September 30, 201831

 

 
 

 

Beacon Trust FundsNotes to Financial Statements

 

 September 30, 2018

 

The tax character of distributions paid during the fiscal period ended September 30, 2018, were as follows:

 

  Ordinary Income  Long-Term Capital Gains 
Beacon Accelerated Return Strategy Fund $101,843  $768,401 
Beacon Planned Return Strategy Fund     1,129,696 

 

Reclassifications: As of September 30, 2018, permanent differences in book and tax accounting were reclassified. The following reclassifications have been made on the Statements of Assets and Liabilities and have no impact on the net asset value of the Funds:

 

  Paid-in Capital  Distributable Earnings 
Beacon Accelerated Return Strategy Fund $(50,245) $50,245 
Beacon Planned Return Strategy Fund  (50,150)  50,150 

 

These reclassifications were primarily attributable to offering expenses that are non-deductible for tax.

 

Unrealized Appreciation and Depreciation on Investments and Derivative Instruments: As of September 30, 2018, the aggregate costs of investments, gross unrealized appreciation/(depreciation) and net unrealized appreciation of instruments and derivative instruments for Federal tax purposes were as follows:

 

  Beacon Accelerated Return Strategy Fund  Beacon Planned Return Strategy Fund 
Gross unrealized appreciation (excess of value over tax cost)(a) $  $ 
Gross unrealized depreciation (excess of tax cost over value)(a)    
Net unrealized appreciation/(depreciation) $  $ 
Cost of investments for income tax purposes $165,012,806  $412,667,923 

 

(a)Includes appreciation/(depreciation) on written options.

 

 

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Beacon Trust FundsNotes to Financial Statements

 

 September 30, 2018

 

Components of Distributable Earnings: At September 30, 2018, components of distributable earnings were as follows:

 

  Beacon Accelerated Return Strategy Fund  Beacon Planned Return Strategy Fund 
Undistributed ordinary income $6,405,718  $7,760,389 
Accumulated capital gains  11,577,798   16,645,749 
Total $17,983,516  $24,406,138 

 

5. SECURITIES TRANSACTIONS

 

 

Purchases and sales of securities, excluding short-term securities, during the period ended September 30, 2018 were as follows:

 

  Purchases of Securities  Proceeds from Sales of Securities 
Beacon Accelerated Return Strategy Fund $  $ 
Beacon Planned Return Strategy Fund      

 

6. BENEFICIAL SHARE TRANSACTIONS

 

 

The capitalization of the Trust consists of an unlimited number of shares of beneficial interest with no par value per share. Holders of the shares of the Funds have one vote for each share held and a proportionate fraction of a vote for each fractional share. All shares issued and outstanding are fully paid and are transferable and redeemable at the option of the shareholder. Shares have no pre-emptive rights. Neither the Funds nor any of their creditors have the right to require shareholders to pay any additional amounts solely because the shareholder owns the shares.

 

Shares redeemed within 60 days of purchase may incur a 2.00% short-term redemption fee deducted from the redemption amount. For the period ended September 30, 2018, the redemption fees charged by the Funds, if any, are presented in the Statements of Changes in Net Assets.

 

 

Annual Report | September 30, 201833

 

 
 

 

Beacon Trust FundsNotes to Financial Statements

 

 September 30, 2018

 

Transactions in common shares were as follows:

 

  For the Period Ended September 30, 2018 
Beacon Accelerated Return Strategy Fund    
Class A(a)    
Shares sold  927 
Shares issued in reinvestment of distributions to shareholders   
Shares redeemed   
Net increase in shares outstanding  927 
Institutional Class(b)    
Shares sold  15,086,370 
Shares issued in reinvestment of distributions to shareholders  14,805 
Shares redeemed  (1,431,816)
Net increase in shares outstanding  13,669,359 
     
Beacon Planned Return Strategy Fund    
Class A(a)    
Shares sold  957 
Shares issued in reinvestment of distributions to shareholders   
Shares redeemed   
Net increase in shares outstanding  957 
Institutional Class(b)    
Shares sold  37,004,843 
Shares issued in reinvestment of distributions to shareholders  28,840 
Shares redeemed  (4,268,797)
Net increase in shares outstanding  32,764,886 

 

(a)Commenced operations June 11, 2018.

(b)Commenced operations October 2, 2017.

 

Control is defined by the 1940 Act as the beneficial ownership, either directly or through one or more controlled companies, of more than 25% of the voting securities of a company. Approximately 96% of the outstanding shares of the Beacon Accelerated Return Fund are held by one omnibus account. Approximately 86% of the outstanding shares of the Beacon Planned Return Strategy Fund are owned by one omnibus account. Share transaction activities of these shareholders could have a material impact on the Funds.

 

7. MANAGEMENT AND RELATED PARTY TRANSACTIONS

 

 

Investment Advisory: Beacon Investment Advisory Services, Inc. (the “Adviser”), subject to the authority of the Board, is responsible for the management of the Funds’ portfolios. The Adviser manages the investments of the Funds in accordance with the Funds’ investment objectives, policies and limitations and investment guidelines established jointly by the Adviser and the Board.

 

 

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Beacon Trust FundsNotes to Financial Statements

 

 September 30, 2018

 

Pursuant to the Investment Advisory Agreement (the “Advisory Agreement”) with the Adviser, each Fund pays the Adviser an annual management fee that is based on the Fund’s average daily net assets. The management fee is paid on a monthly basis. The contractual management fee rate is 1.00% for the Beacon Accelerated Return Strategy Fund and Beacon Planned Return Strategy Fund. The initial term of the Advisory Agreement is two years. The Board may extend the Advisory Agreement for additional one-year terms. The Board and shareholders of a Fund may terminate the Advisory Agreement upon 30 days’ written notice. The Adviser may terminate the Advisory Agreement upon 60 days’ notice.

 

Pursuant to a fee waiver letter agreement (the “Fee Waiver Agreement”), the Adviser has contractually agreed to limit the amount of each Fund’s Total Annual Fund Operating Expenses, exclusive of Rule 12b-1 Fees, Acquired Fund Fees and Expenses, brokerage expenses, interest expenses, taxes and extraordinary expenses to an annual rate of 1.40% of the Beacon Accelerated Return Strategy Fund’s average daily net assets for each of the Class A shares and the Institutional Class shares and 1.40% of the Beacon Planned Return Strategy Fund’s average daily net assets for the Class A shares and the Institutional Class shares. The Fee Waiver Agreement is in effect through January 31, 2019. The Adviser may not terminate the Fee Waiver Agreement without the approval of the Trust’s Board. The Adviser will be permitted to recover, on a class-by-class basis, expenses it has borne through the Fee Waiver Agreement only to the extent that the Fund’s expenses in later periods do not exceed the lesser of: (1) the contractual expense limit in effect at the time the Adviser waives or limits the expenses; or (2) the contractual expense limit in effect at the time the Adviser seeks to recover the expenses; provided, however, that the Funds will not be obligated to reimburse any such expenses borne by the Adviser more than three years after the date on which the fee or expense was waived or limited or assumed and paid by the Adviser, as calculated on a monthly basis. There were no fees waived or reimbursed for the period ended September 30, 2018.

 

Administrator: ALPS Fund Services, Inc. (“ALPS”) (an affiliate of ALPS Distributors, Inc.) serves as administrator to each Fund. The Funds have agreed to pay expenses incurred in connection with its administrative activities. Pursuant to the Administration, Bookkeeping and Pricing Services Agreement with the Trust, ALPS will provide operational services to the Funds including, but not limited to, fund accounting and fund administration and generally assist in each Fund’s operations. Each Fund’s administration fee is accrued on a daily basis and paid monthly. The officers and an Interested Trustee of the Trust are employees of ALPS. Administration fees paid by the Funds for the period ended September 30, 2018 are disclosed in the Statements of Operations. ALPS is reimbursed by the Funds for certain out-of-pocket expenses.

 

Transfer Agent: ALPS serves as transfer agent for each Fund under a Transfer Agency and Services Agreement with the Trust. Under this agreement, ALPS is paid an annual fee for services performed on behalf of the Funds plus fees for open accounts and is reimbursed for certain out-of-pocket expenses.

 

Compliance Services: ALPS provides services as each Fund’s Chief Compliance Officer to monitor and test the policies and procedures of each Fund in conjunction with requirements under Rule 38a-l of the 1940 Act pursuant to a Chief Compliance Officer Services Agreement with the Trust. Under this agreement, ALPS is paid an annual fee for services performed on behalf of the Funds and is reimbursed for certain out-of-pocket expenses.

 

 

Annual Report | September 30, 201835

 

 
 

 

Beacon Trust FundsNotes to Financial Statements

 

 September 30, 2018

 

Distribution: ALPS Distributors, Inc. (the “Distributor”) (an affiliate of ALPS) acts as the principal underwriter of each Fund’s shares pursuant to a Distribution Agreement with the Trust. Shares of each Fund are offered on a continuous basis through the Distributor, as agent of the Funds. The Distributor is not obligated to sell any particular amount of shares and is not entitled to any compensation for its services as the Funds’ principal underwriter pursuant to the Distribution Agreement.

 

Each Fund has adopted a Distribution and Services Plan (the “Plan”) pursuant to Rule 12b-1 of the 1940 Act for their Class A shares. The Plan allows the Funds to use Class A assets to pay fees in connection with the distribution and marketing of Class A shares and/or the provision of shareholder services to Class A shareholders. The Plan permits payment for services in connection with the administration of plans or programs that use Class A shares of the Funds, if any, as their funding medium and for related expenses. The Plan permits the Funds to make total payments at an annual rate of up to 0.25% of the Fund’s average daily net assets attributable to its Class A shares. Because these fees are paid out of the Fund’s Class A assets, if any, on an ongoing basis, over time they will increase the cost of an investment in the Class A shares, if any, and Class A Plan fees may cost an investor more than other types of sales charges. Plan fees are shown as distribution and service fees on the Statements of Operations.

 

Each Fund has adopted a shareholder services plan (“Shareholder Services Plan”) for its Class A shares and Institutional Class. Under the Shareholder Services Plan each Fund is authorized to pay banks and their affiliates and other institutions, including broker-dealers and Fund affiliates (“Participating Organizations”), an aggregate fee in an amount not to exceed on an annual basis 0.15% of the average daily net assets of each Fund’s Class A shares and Institutional Class shares, respectively, to Participating Organizations as compensation for providing shareholder service activities, which do not include distribution services, pursuant to an agreement with a Participating Organization.

 

8. TRUSTEES

 

 

As of September 30, 2018, there were four Trustees, three of whom are not “interested persons” (as defined in the 1940 Act) of the Trust (the “Independent Trustees”). Effective November 16, 2017, the Independent Trustees of the Trust receive a quarterly retainer of $6,000, plus $4,000 for each regular Board or Committee meeting attended and $2,000 for each special telephonic or in-person Board or Committee meeting attended. Additionally, the Audit Committee Chair receives a quarterly retainer of $1,250 and an Independent Chair receives a quarterly retainer of $2,500. Prior to November 16, 2017, the Independent Trustees received a quarterly retainer of $5,000, plus $4,000 for each regular Board or Committee meeting attended, $2,000 for each special telephonic Board or Committee meeting attended and $2,000 for each special in-person Board meeting attended. The Independent Trustees are also reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings and for meeting-related expenses. Officers of the Trust and Trustees who are interested persons of the Trust receive no salary or fees from the Trust.

 

 

36www.beacontrust.com

 

 
 

 

Beacon Trust FundsNotes to Financial Statements

 

 September 30, 2018

 

9. INDEMNIFICATIONS

 

 

Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that may contain general indemnification clauses which may permit indemnification to the extent permissible under applicable law. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred.

 

10. SUBSEQUENT EVENTS

 

 

Subsequent events after the date of the Statements of Assets and Liabilities have been evaluated through the date the financial statements were issued.

 

On October 4, 2018, the SEC amended Regulation S-X to require certain financial statement disclosure requirements to conform them to US Generally Accepted Accounting Principles for investment companies. Effective November 4, 2018, the Funds adopted disclosure requirement changes for Regulation S-X and these changes are reflected throughout this report. The Funds’ adoption of those amendments, effective with the financial statements prepared as of September 30, 2018, had no effect on the Funds’ net assets or results of operations.

 

 

Annual Report | September 30, 201837

 

 
 

 

 Report of Independent Registered
Beacon Trust FundsPublic Accounting Firm
 

 

To the of Shareholders of Beacon Accelerated Return Strategy Fund and Beacon Planned Return Strategy Fund and Board of Trustees of ALPS Series Trust

 

Opinion on the Financial Statements

 

We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Beacon Accelerated Return Strategy Fund and Beacon Planned Return Strategy Fund (the “Funds”), each a series of ALPS Series Trust, as of September 30, 2018, and the related statements of operations and changes in net assets, including the related notes, and the financial highlights for the period October 2, 2017 (commencement of operations) through September 30, 2018 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as of September 30, 2018, the results of their operations, the changes in their net assets, and the financial highlights for the period indicated above, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2018, by correspondence with the custodian and broker. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

We have served as the Funds’ auditor since 2018.

 

COHEN & COMPANY, LTD.
Cleveland, Ohio
November 29, 2018

 

 
38www.beacontrust.com

 

 

 

Beacon Trust FundsAdditional Information
 

September 30, 2018 (Unaudited)

 

1. PROXY VOTING POLICIES AND VOTING RECORD

 

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available without charge, upon request, (i) by calling the Funds (toll-free) at 1-844-894-9222 or (ii) on the website of the Securities and Exchange Commission (the “SEC”) at http://www.sec.gov.

 

Information regarding how each Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (i) without charge, upon request, by calling the Funds (toll-free) at 1-844-894-9222 or (ii) on the SEC’s website at http://www.sec.gov.

 

2. PORTFOLIO HOLDINGS

 

 

The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Form N-Qs are available on the SEC website at http://www.sec.gov. The Funds’ Form N-Qs may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

 

3. TAX DESIGNATIONS

 

 

Pursuant to Section 852(b)(3) of the Internal Revenue Code the following Funds designate the amounts listed below as long-term capital gain dividends:

 

Beacon Accelerated Return Strategy: $768,401 

Beacon Planned Return Strategy Fund: $1,129,696

 

The following Funds designate the percentages listed below of the income dividends distributed in 2017 as qualified dividend income (QDI) as defined in Section l(h)(ll) of the Internal Revenue Code:

 

Beacon Accelerated Return Strategy: 0.00% 

Beacon Planned Return Strategy Fund: 0.00%

 

The following Funds designate the percentages listed below of the income dividends distributed in 2017 as qualifying for the corporate dividends received deduction (DRD) as defined in Section 854(b)(2) of the Internal Revenue Code:

 

Beacon Accelerated Return Strategy: 0.00% 

Beacon Planned Return Strategy Fund: 0.00%

 

 
Annual Report | September 30, 201839

 

 

 

Beacon Trust FundsPrivacy Policy
 

September 30, 2018 (Unaudited)

 

FACTSWHAT DOES THE FUND DO WITH YOUR PERSONAL INFORMATION?

WHY?

 

Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.
WHAT?

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

●    Social Security number and account transactions

●    Account balances and transaction history

●    Wire transfer instructions

HOW?All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information, the reasons a Fund chooses to share, and whether you can limit this sharing.
REASONS WE CAN SHARE YOUR
PERSONAL INFORMATION
DOES THE
FUND SHARE:
CAN YOU LIMIT THIS SHARING?

For our everyday business purposes -

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

YesNo

For our marketing purposes -

to offer our products and services to you

NoWe do not share.
For joint marketing with other financial companiesNoWe do not share.

For our affiliates’ everyday business purposes - 

information about your transactions and experiences

YesNo

For our affiliates’ everyday business purposes -

information about your creditworthiness

NoWe do not share.
For non-affiliates to market to youNoWe do not share.
QUESTIONS?   Call 1-844-894-9222 or go to www.beacontrust.com.

 

 
40www.beacontrust.com

 

 

 

Beacon Trust FundsPrivacy Policy
 

September 30, 2018 (Unaudited)

 

WHO WE ARE
Who is providing this notice?Beacon Accelerated Return Strategy fund and Beacon Planned Return Strategy fund (each, a “Fund”)
WHAT WE DO
How does the Fund protect my personal information?To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.
How does the Fund collect my personal information?

We collect your personal information, for example, when you

 

●    open an account 

●    provide account information or give us your contact information

●    make a wire transfer or deposit money

Why can’t I limit all sharing?

Federal law gives you the right to limit only

 

●    sharing for affiliates’ everyday business purposes-information about your creditworthiness

●    affiliates from using your information to market to you

●    sharing for non-affiliates to market to you

●    State laws and individual companies may give you additional rights to limit sharing

DEFINITIONS
AffiliatesCompanies related by common ownership or control. They can be financial and nonfinancial companies.
Non-affiliates

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

●    The Fund does not share with non-affiliates so they can market to you.

Joint marketing

A formal agreement between non-affiliated financial companies that together market financial products or services to you.

 

●    The Fund does not jointly market.

 

 
Annual Report | September 30, 201841

 

 

 

Beacon Trust FundsPrivacy Policy
 

September 30, 2018 (Unaudited)

 

OTHER IMPORTANT INFORMATION
California ResidentsIf your account has a California home address, your personal information will not be disclosed to nonaffiliated third parties except as permitted by applicable California law, and we will limit sharing such personal information with our affiliates to comply with California privacy laws that apply to us.
Vermont ResidentsThe State of Vermont requires financial institutions to obtain your consent prior to sharing personal information that they collect about you with affiliated companies and nonaffiliated third parties other than in certain limited circumstances. Except as permitted by law, we will not share personal information we collect about you with nonaffiliated third parties or other affiliated companies unless you provide us with your written consent to share such information.

 

 
42www.beacontrust.com

 

 

 

Beacon Trust FundsTrustees and Officers
 

September 30, 2018 (Unaudited)

 

INDEPENDENT TRUSTEES

 
Name,
Birth Year
& Address*
Position(s)
Held with
Fund
Term of
Office and
Length of
Time
Served**
Principal Occupation(s)
During Past 5 Years***
Number of
Funds in
Fund
Complex
Overseen
by
Trustee****
Other
Directorships
Held by Trustee
During Past
5 Years***

Ward D. Armstrong

Birth year: 1954

 

Trustee and ChairmanMr. Armstrong was appointed to the Board on May 27, 2016. Mr. Armstrong was appointed Chairman of the Board at the August 24, 2017 meeting of the Board of Trustees.Retired; Managing Partner, NorthRock Partners, LLC (October 2013 to July 2015); Managing Director, NorthRock Partners, a Private Wealth Advisory Practice of Ameriprise Financial (February 2010 to October 2013); Senior Vice President, Ameriprise Financial, Inc. (November 1984 to May 2007); President, American Express Asset Management (2002 to 2004); and Chairman, Ameriprise Trust Company (November 1996 to May 2007).12Mr. Armstrong is a Director of the Heartland Group, Inc. (5 funds).

 

*All communications to Trustees and Officers may be directed to ALPS Series Trust c/o 1290 Broadway, Suite 1100, Denver, CO 80203.
**This is the period for which the Trustee or Officer began serving the Trust. Each Trustee serves an indefinite term, until such Trustee’s successor is elected and appointed, or such Trustee resigns or is deceased. Officers are elected on an annual basis.
***Except as otherwise indicated, each individual has held the office shown or other offices in the same company for the last five years.
****The Fund Complex currently consists of 12 series of the Trust and any other investment companies for which Beacon Investment Advisory Services, Inc. provides investment advisory services, currently none.

 

 
Annual Report | September 30, 201843

 

 

 

Beacon Trust FundsTrustees and Officers
 

September 30, 2018 (Unaudited)

 

Name,
Birth Year
& Address*
Position(s)
Held with
Fund
Term of
Office and
Length of
Time
Served**
Principal Occupation(s)
During Past 5 Years***
Number of
Funds in
Fund
Complex
Overseen
by
Trustee****
Other
Directorships
Held by Trustee
During Past
5 Years***

J. Wayne Hutchens

Birth year: 1944

 

TrusteeMr. Hutchens was elected to the Board on October 30, 2012.Mr. Hutchens is currently retired. From April 2006 to December 2012, he served as President and CEO of the University of Colorado (CU) Foundation and from April 2009 to December 2012, he was Executive Director of the CU Real Estate Foundation. Mr. Hutchens is also Trustee of the Denver Museum of Nature and Science (2000 to present), Director of AMG National Trust Bank (June 2012 to present) and Trustee of Children’s Hospital Colorado (May 2012 to present). Prior to these positions, Mr. Hutchens spent 29 years in the banking industry, retiring as Chairman of Chase Bank Colorado.12Mr. Hutchens is a Director of RiverNorth Opportunities Fund, Inc. (2013 to present)

Patrick Seese

Birth year: 1971

 

TrusteeMr. Seese was elected to the Board on October 30, 2012.Mr. Seese is an owner and a Managing Director of Integris Partners, a middle-market investment banking firm serving closely-held companies, financial sponsors and public companies (February 2008 to present). Prior to this, Mr. Seese was a Managing Director of Headwaters MB, a middle-market investing banking firm (December 2003 to February 2008). Prior to that, Mr. Seese worked in Credit Suisse First Boston’s Mergers and Acquisitions Group and served as Head of Corporation Development, Katy Industries, a publicly traded industrial and consumer products company and at Deloitte & Touche LLP, where he began his career in 1994.12Mr. Seese is a Director of The Mile High Five Foundation (2013 to present) and SJ Panthers Foundation (2016 to present)

 

*All communications to Trustees and Officers may be directed to ALPS Series Trust c/o 1290 Broadway, Suite 1100, Denver, CO 80203.
**This is the period for which the Trustee or Officer began serving the Trust. Each Trustee serves an indefinite term, until such Trustee’s successor is elected and appointed, or such Trustee resigns or is deceased. Officers are elected on an annual basis.
***Except as otherwise indicated, each individual has held the office shown or other offices in the same company for the last five years.
****The Fund Complex currently consists of 12 series of the Trust and any other investment companies for which Beacon Investment Advisory Services, Inc. provides investment advisory services, currently none.

 

 
44www.beacontrust.com

 

 

 

Beacon Trust FundsTrustees and Officers
 

September 30, 2018 (Unaudited)

 

INTERESTED TRUSTEE

 
Name,
Birth Year
& Address*
Position(s)
Held with
Fund
Term of
Office and
Length of
Time
Served**
Principal Occupation(s)
During Past 5 Years***
Number of
Funds in
Fund
Complex
Overseen
by
Trustee****
Other
Directorships
Held by Trustee
During Past
5 Years***

Jeremy O. May

Birth year: 1970

 

Trustee and PresidentMr. May was elected Trustee and President on October 30, 2012. Mr. May was Chairman from October 30, 2012 to August 24, 2017.Mr. May joined ALPS in 1995 and is currently President and Director of ALPS Fund Services, Inc., ALPS Distributors, Inc., and ALPS Portfolio Solutions Distributor, Inc., Executive Vice President and Director of ALPS Holdings, Inc. and ALPS Advisors, Inc. Because of his positions with these entities, Mr. May is deemed an affiliate of the Trust as defined under the 1940 Act. Mr. May is also on the Board of Directors of the University of Colorado Foundation and the AV Hunter Trust.12Mr. May is Trustee of the Reaves Utility Income Fund (1 fund) and Elevation ETF Trust (1 ETF) and President and Director of RiverNorth Opportunities Fund, Inc.

 

*All communications to Trustees and Officers may be directed to ALPS Series Trust c/o 1290 Broadway, Suite 1100, Denver, CO 80203.
**This is the period for which the Trustee or Officer began serving the Trust. Each Trustee serves an indefinite term, until such Trustee’s successor is elected and appointed, or such Trustee resigns or is deceased. Officers are elected on an annual basis.
***Except as otherwise indicated, each individual has held the office shown or other offices in the same company for the last five years.
****The Fund Complex currently consists of 12 series of the Trust and any other investment companies for which Beacon Investment Advisory Services, Inc. provides investment advisory services, currently none.

 

 
Annual Report | September 30, 201845

 

 

 

Beacon Trust FundsTrustees and Officers

 

September 30, 2018 (Unaudited)

 

OFFICERS

 

Name,
Birth Year
& Address*
Position(s)
Held with
Fund
Term of
Office and
Length of
Time
Served**
Principal Occupation(s) During Past 5 Years***

Kimberly R. Storms Birth year: 1972

 

TreasurerMs. Storms was elected Treasurer of the Trust on October 30, 2012.Ms. Storms is Senior Vice President and Director of Fund Administration of ALPS. Because of her position with ALPS, Ms. Storms is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Storms is also Treasurer of Financial Investors Trust, Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc.

Richard C. Noyes

Birth year: 1970

 

SecretaryMr. Noyes was elected Secretary of the Trust on November 14, 2016.Mr. Noyes joined ALPS in 2015 and is Senior Vice President and General Counsel of ALPS. Prior to joining ALPS, Mr. Noyes served as Assistant Vice President and Senior Counsel of Janus Capital Management LLC. Mr. Noyes is deemed an affiliate of the Trust as defined under the 1940 Act.

Anne M. Berg

Birth year: 1973

 

Assistant SecretaryMs. Berg was elected Assistant Secretary of the Trust on August 23, 2018.Ms. Berg joined ALPS as Senior Investment Company Act Paralegal in February 2017. Prior to joining ALPS, Anne was a Senior Legal Manager at Janus Capital Group Inc., a global investment manager in Denver, Colorado. Because of her position with ALPS, Ms. Berg is deemed an affiliate of the Trust as defined under the 1940 Act.

Alan Gattis****

Birth year: 1980

 

Assistant TreasurerMr. Gattis was elected Assistant Treasurer of the Trust on August 9, 2016.Mr. Gattis joined ALPS in 2011 and is currently Vice President and Fund Controller of ALPS. Prior to joining ALPS, Mr. Gattis was an Auditor at Spicer Jeffries LLP (2009 through 2011) and an Auditor at PricewaterhouseCoopers LLP (2004 - 2009). Because of his position with ALPS, Mr. Gattis is deemed an affiliate of the Trust as defined under the 1940 Act. Mr. Gattis is also Assistant Treasurer of Elevation ETF Trust and Financial Investors Trust.

 

*All communications to Trustees and Officers may be directed to ALPS Series Trust c/o 1290 Broadway, Suite 1100, Denver, CO 80203.
**This is the period for which the Trustee or Officer began serving the Trust. Each Trustee serves an indefinite term, until such Trustee’s successor is elected and appointed, or such Trustee resigns or is deceased. Officers are elected on an annual basis.
***Except as otherwise indicated, each individual has held the office shown or other offices in the same company for the last five years.
****Mr. Gattis resigned effective November 15, 2018.

 

 
46www.beacontrust.com

 

 

 

Beacon Trust FundsTrustees and Officers
 

September 30, 2018 (Unaudited)

 

Name,
Birth Year
& Address*
Position(s)
Held with
Fund
Term of
Office and
Length of
Time
Served**
Principal Occupation(s) During Past 5 Years***

Lucas D. Foss

Birth year: 1977

 

Chief Compliance Officer (“CCO”)Mr. Foss was elected CCO of the Trust on January 22, 2018.Mr. Foss joined ALPS in November 2017 as Vice President and Deputy Chief Compliance Officer. Prior to his current role, Mr. Foss served as the Director of Compliance at Transamerica Asset Management (July 2015-November 2017). Deputy Chief Compliance Officer at ALPS (September 2012 - June 2015) Compliance Manager at ALPS (January 2010 -August 2012) and a Senior Compliance Analyst at ALPS (November 2006 - December 2009). Before joining ALPS, Mr. Foss held positions at Bisys Hedge Fund Services and Deutsche Asset Management. Because of his position with ALPS, Mr. Foss is deemed an affiliate of the Trust as defined under the 1940 Act. Mr. Foss is also CCO of Harvest Volatility Edge Trust and Goehring & Rozencwajg Investment Funds.

 

*All communications to Trustees and Officers may be directed to ALPS Series Trust c/o 1290 Broadway, Suite 1100, Denver, CO 80203.
**This is the period for which the Trustee or Officer began serving the Trust. Each Trustee serves an indefinite term, until such Trustee’s successor is elected and appointed, or such Trustee resigns or is deceased. Officers are elected on an annual basis.
***Except as otherwise indicated, each individual has held the office shown or other offices in the same company for the last five years.

 

Additional information about members of the Board of Trustees and officers of the Trust is available in the Statement of Additional Information and is available, without charge, upon request, by calling the Fund (toll-free) at 1-844-894-9222.

 

 
Annual Report | September 30, 201847

 

 

 

 

This material must be preceded by a prospectus.

The Beacon Investment Funds are distributed by ALPS Distributors, Inc.

 

 

 

(CLARKSTON FUNDS)

 

 

 

Table of Contents

Shareholder Letter2
Portfolio Update 
Clarkston Partners Fund7
Clarkston Fund12
Clarkston Select Fund17
Clarkston Founders Fund22
Disclosure of Fund Expenses27
Portfolios of Investments 
Clarkston Partners Fund29
Clarkston Fund31
Clarkston Select Fund33
Clarkston Founders Fund35
Statements of Assets and Liabilities37
Statements of Operations39
Statements of Changes in Net Assets 
Clarkston Partners Fund41
Clarkston Fund42
Clarkston Select Fund43
Clarkston Founders Fund44
Financial Highlights45
Notes to Financial Statements53
Report of Independent Registered Public Accounting Firm65
Additional Information66
Privacy Policy71
Trustees and Officers74

 

 

 

Clarkston FundsShareholder Letter

 

September 30, 2018 (Unaudited)

 

Introduction

 

On August 22, 2018, this current bull market, which began March 9, 2009, reached 3,452 days, becoming the longest running bull since World War II. By definition, a bull market is a market that has not experienced a 20% or more decline. As of September 30, 2018, the broader U.S. market was up more than 300 percent since its low almost nine and a half years ago.

 

The market refused to lose steam as evidenced by the Russell 3000® Index. We looked at the Index in 12-month increments as of the end of September 30, 2018.

 

The nine-year annualized return (beginning September 30, 2009) was 14.3%; a significant four points higher than the approximate average 10% annual nominal return for equities since 1928.

 

The three-year annualized return for the Russell 3000® Index was 17%.

 

In the last 12 years, the Russell 3000® Index experienced only three negative one-year  returns as of September 30: 2008, 2009, and 2015 when it was down only 50 basis points (0.50%).

Growth businesses shined during the last nine years as evidenced by the performance of the Russell 3000® Growth Index versus the Russell 3000® Value Index.

 

During the nine years ended September 30, 2018, the Growth Index grew 16.2%  annually versus the Value Index’s annual growth of 12.3%, a significant average difference of four points for each of those years.

 

An outsized portion of the growth-value performance delta occurred over the last three  years. Growth trounced Value with three-year annualized returns of 20.4% vs. 13.8% as of September 30, 2018.

 

The Value Index outperformed the Growth Index in only three of the last 12 twelve-month periods. Shares of growth businesses outperformed value shares in both up and down markets.

 

On a relative basis, the performance of the Clarkston Funds (the “Funds”) more closely resembled that of the Russell 3000® Value Index, with all four Funds underperforming their respective benchmarks for the twelve-month period ended September 30, 2018.

 

Is Value Investing Dead?

 

Based on the above data we are not surprised that people might ask themselves, “Is value investing dead?” For reasons, obvious to us, we disagree with that sentiment, but we realize that a discussion of why we disagree would be helpful.

The modern-day value investor is difficult to classify. There was a time when value investors sat behind desks thumbing through the pages of Value Line Investment Survey in search of stocks trading below book value. Technology has rendered that competency less useful and value investors have been forced to evolve. While value investors subscribe to some or all of Benjamin Graham’s founding axioms, many have designed and/or adopted some concepts of their own. This evolution of value investing has resulted in a diverse lot who possess slightly different philosophies and processes. Low price-book investors still exist, but modern value investors are looking for investments in non-traditional value sectors such as technology and biotech.

 

 

2www.clarkstonfunds.com

 

 

Clarkston FundsShareholder Letter

 

September 30, 2018 (Unaudited)

 

Clarkston’s Quality and Value investment philosophy does not discriminate based on growth or value; we invest in businesses in both indices. If you asked our investment team, we might have a difficult time identifying which index holds the businesses in the Funds’ portfolios. We focus our time on individual businesses and their fundamentals and pay little attention to index membership.

 

We evaluate our performance similarly to how we evaluate performance of the businesses we own. We do so over long-time horizons; at least five years. Over short time periods, markets can be influenced by extremes. In such periods, the only thing we can control is the steady application of our investment process and philosophy. As such, we feel it is important to remind shareholders about our Quality and Value investment philosophy. For the purposes of this Letter, we have chosen to focus on how we handle uncertainty and risk and then why we execute with a defensive investment style.

 

Modelling for Uncertainty

 

We believe the value of a business is a function of the future cash flows it will generate. The challenge is that the future is unknowable and therefore, valuing a business is difficult and uncertain. It is dependent upon assumptions and forecasts, some of which are more difficult to make than others. We believe that simplicity is the best way to deconstruct a complex world. Therefore, over time, our legacy discounted free cash flow model evolved into an internal rate of return (IRR) model, requiring fewer assumptions and estimates.

In Clarkston’s valuation model, the value of a business is driven by two distinct components: the normalized earnings power of the business, as defined by free cash flow yield, and the future growth in those earnings. The two components added together equal an estimated internal rate of return (IRR) that we think an investment can achieve over a five- to seven-year time horizon. Normalized earnings, while not entirely objective, are less difficult for us to estimate. The challenge is determining whether the company is currently over or underearning. Therefore, earnings power must be adjusted or “normalized” for things such as cyclicality, one-time and/or special accounting items, over or underinvestment in the business (capital expenditures, marketing, pricing, etc.), interest expense, and taxes. We have a healthy level of confidence in our ability to produce a normalized earnings estimate.

The growth component is more uncertain and therefore difficult to estimate. Growth is subjective and dependent on estimable but unknowable or unreliable factors, such as the economy, management’s skill, existing competition, new entrants, new technology, future pricing power, governmental regulation, central bank administration, global unrest, and wars. Many of these items cannot be controlled by us, management, or anyone.

 

Good investors understand that the future is uncertain. Great investors proceed with humility. They not only understand that we live in an uncertain world but are also unafraid of uttering the words, “I don’t know.” We, as value investors, believe that it is extremely difficult to know what a business will look like ten or even five years into the future, but that does not preclude us from investing successfully. What we think makes us capable investors is our humility, a healthy respect for the risk that comes with buying a business in the face of uncertainty, and demanding a “margin of safety”, as conceptualized by Benjamin Graham almost 70 years ago.

 

 
Annual Report | September 30, 20183

 

 

Clarkston FundsShareholder Letter

 

September 30, 2018 (Unaudited)

 

Risk and the Margin of Safety

 

While academics have long defined and measured risk via volatility, it is not share price fluctuations that scare us. We fear the destruction of capital and therefore, we define risk as the permanent loss of capital. Capital can be destroyed in one of two ways. First, we can incorrectly assess quality. This means we overestimated financial strength, the durability of the business model, and/or management’s competence (a discussion for future letters). The second way we may destroy capital, and the focus for the rest of this section, is if we incorrectly estimate the intrinsic value of a business and pay too much. This highlights the importance of valuing a business conservatively and buying with a margin of safety to compensate for knowable and unknowable risks.

 

For Clarkston, a healthy margin of safety is achieved when we pay only for the normalized earnings power of a high-quality business. We will not pay much for growth; and better yet, we like to get the growth for free. We do not get overly excited about valuation until we start to see high-single-digit earnings yields. Ideally, we would like a 10% earnings yield or greater, which happens to be equal to our absolute hurdle rate; the rate we have chosen to be a reasonable return on owning a high-quality business. This 10% earnings yield would also suggest, if our normalized earnings power estimates are conservative, that we are paying nothing for the growth of the business.

 

This margin of safety methodology is a direct reflection of the earlier discussion on risk. Earnings yield is easier to calculate. We have confidence in our estimate of current earnings and are willing to pay for it. Growth is difficult. Instead of making precisely wrong estimates, we try to make conservative approximations of growth and then refuse to pay for it.

 

Defense

 

Through the steady application of our process; buying high-quality businesses and only paying for their normalized earnings, we believe we increase the probability of winning over longer time horizons. This is a conservative philosophy and defensive in nature and therefore, we typically underperform in rising markets and outperform in down markets.

 

Our primary focus is on protecting capital; and after that, we pursue returns. Our view of defensive investing is not that you can’t win, it’s that you win by avoiding losses.

 

In the recent market environment, we have been using very conservative normalized earnings and growth estimates in our valuation model for the following reasons:

 

While the economy seems to be performing well, there is still much uncertainty  surrounding the unwinding of easy money policies facilitated by central banks almost a decade ago. It is also difficult to understand the long-term effects these policies will have on investors and their attitudes toward risks.

 

 

4www.clarkstonfunds.com

 

 

Clarkston FundsShareholder Letter

 

September 30, 2018 (Unaudited)

 

It is difficult to know how rising interest rates will ultimately affect individuals, corporations, and governments; many of which have taken on record amounts of leverage.

 

Investment in growthy companies during the last nine years, and particularly during the last three years, gives us some indication that investors have been feeling positive about the market and economy. While this optimistic environment is not necessarily a contrarian sign that all investors should turn negative, we believe valuations are becoming increasingly less attractive.

 

Consequently, we have found margin of safety harder to come by in the recent environment. The nine year plus run-up in broader markets has stretched valuations. As we look at businesses on the Clarkston bench, most of them are trading at free cash flow yields under 5%. That means if we invested in them at this time, the Funds would be paying for at least 5% growth; a little pricey given our preference for paying little to nothing for growth.

 

Our defensive nature has likely muted recent performance of the Funds. We  would rather endure the pain of missing some of the upside than endure the pain of destroying capital because we purchased shares of a company knowing it was overvalued, and the share price fell. We are continually working to identify new investment ideas, but there are times like now when valuations may be stretched, and we view the opportunities as scarce. During these environments we do not feel it is necessary for the Funds to be fully invested. There is simply too much risk in the pursuit of every last bit of return a market has to offer.

 

On the positive side, some businesses on our bench are becoming more attractive, especially those operating in unexciting end markets that are being ignored by other investors. These businesses tend to operate in smaller, low-growth niche markets that typically are characterized by high returns on capital. We like these types of businesses, especially when we can buy them for just their normalized earnings power. We continue to focus intently on the businesses in the Funds’ portfolios and look for new opportunities as they become available. We will do so with the primary goal of protecting capital via careful execution of our investment philosophy with a healthy respect for risk.

 

Sincerely, 
  
Jeffrey A. Hakala, CFA, CPAJerry W. Hakala, CFA
  
(GRAPHIC) (GRAPHIC) 

 

The Russell 3000® Index measures the  performance of  the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. Russell defines growth companies as those with relatively strong growth characteristics assessed on various criteria related to past and expected future revenue and earnings growth. Value companies are defined as those with relatively low valuation measures. You cannot invest directly in an index. Although reinvestment of dividend and interest payments is assumed, no expenses are netted against an index’s return. Index performance information was furnished by sources deemed reliable and is believed to be accurate, however, no warranty or representation is made as to the accuracy thereof and the information is subject to correction.

 

 
Annual Report | September 30, 20185

 

 

Clarkston FundsShareholder Letter

 

September 30, 2018 (Unaudited)

 

Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/ or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.

 

The Russell  3000® Growth Index is an unmanaged index comprised of those Russell 3000 companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000 Growth or the Russell 2000 Growth indices. It is not possible to invest directly in an index.

 

The Russell 3000® Value Index is an unmanaged market-capitalization weighted equity index based on the Russell 3000 Index, which measures how U.S. stocks in the equity value segment perform. It is not possible to invest directly in an index.

 

Value Line Investment Survey is a stock analysis newsletter widely used as an independent investment research resource.

 

Benjamin Graham’s investment philosophy stressed investor psychology, minimal debt, buy-and-hold investing, fundamental analysis, concentrated diversification, buying within the margin of safety, activist investing, and contrarian mindsets.

 

Free cash flow yield is a financial ratio that standardizes the free cash flow a company is expected to earn by dividing it by its market capitalization.

 

Past performance does not guarantee future results. The views and information discussed in this letter are as of the date of publication, are subject to change, and may not reflect the writer’s current views. The views expressed are those of Clarkston Capital Partners, LLC, the investment adviser to the Clarkston Funds, and represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. The information provided does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned in this letter. The subject matter contained in this letter has been derived from several sources believed to be reliable and accurate at the time of compilation. Neither the Clarkston Funds nor Clarkston Capital Partners, LLC accepts any liability for losses, either direct or consequential, caused by the use of this information.

 

 

6www.clarkstonfunds.com

 

 

Clarkston Partners FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Partners Fund Commentary

 

For the twelve months ended September 30, 2018, the Clarkston Partners Fund – Institutional Class (the “Fund”) gained 8.52%. The Russell 2500TM Index gained 16.19% during the same period.

 

The large majority of the Fund’s underperformance relative to the Index was the result of exclusion, not inclusion. Our inability to find what we considered to be attractive values, or as we like to say, our refusal to overpay for businesses, resulted in most of the underperformance. We chose to hold cash (about 30% of the Fund’s portfolio) and the interest earned on this cash position was much less than the return on the average stock in the Index. A smaller but significant portion of the underperformance was the result of the Fund’s lack of exposure to technology and health care companies, which were the two best performing sectors in the Russell 2500 TM Index during the period.

 

The two largest individual detractors from the Fund’s performance over the past twelve months were Legg Mason, Inc. (LM) and Stericycle, Inc. (SRCL). For Legg, the continued shift in the investment management industry of assets from actively managed to passively managed, muted asset flow growth, and the perceived impact of rising rates on Legg’s fixed income affiliates were the primary drivers behind the 20% plus drop in the company’s shares. While we recognize these concerns, we feel investors are ignoring management’s exceptional use of capital, which in our opinion has positioned Legg for long-term growth.

 

Over the past five years, Legg has invested in its global distribution platform, made acquisitions to optimize its affiliate line-up, and diversified its assets under management with new asset classes and vehicles; all of which have positively contributed to the company’s free cash flow. Further, management has financed most of these acquisitions with low interest rate debt, half of which matures in over two decades. Finally, Legg structured acquisitions in a tax-efficient manner, which further facilitates strong free cash flow generation and capital return to shareholders.

 

Still, there continues to be a widening disconnect between the transformative actions Legg has taken and its share price, which has been trading at less than book value. We applaud management’s execution and believe Legg is well-positioned to navigate and ultimately benefit in an environment of lower fees and consolidating customer platforms.

 

We believe Stericycle is a high-quality business facing temporary challenges self-inflicted from past acquisitions made outside of its core competency; all of which occurred prior to the Fund’s investment in Stericycle’s shares. Because of these acquisitions, Stericycle’s business became operationally complex, more exposed to cyclical end markets, and incurred higher than historical debt levels. Additionally, a portion of Stericycle’s core regulated medical waste business is facing pricing headwinds in certain customer segments.

 

Stericycle, to address these challenges, has implemented a business transformation plan that includes streamlining operations, implementing a new enterprise resource planning system, and divesting non-core assets. The combination of the investments in these initiatives, pricing pressure, and cyclical end markets is temporarily suppressing cash earnings. We believe the quality of the company’s core businesses is being masked by the “noise.”

 

 
Annual Report | September 30, 20187

 

 

Clarkston Partners FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Stericycle’s regulated medical waste and document destruction businesses have leading positions in their end markets with 50% and 30% market share, respectively. These businesses operate in micro-niche industries, have attractive returns on capital and difficult-to-impossible to replicate assets, and benefit from scale economies and some degree of cost advantage. In addition, we believe the document destruction business has respectable growth potential. Competition is highly fragmented, enabling Stericycle to continue its roll-up strategy through low-risk, tuck-in acquisitions.

 

Lastly, we are encouraged by the engagement of Stericycle’s board of directors in the company’s business transformation plan. This coupled with our belief in the quality of the core businesses and attractive valuation of the company’s shares, leads us to be optimistic about the Fund’s investment in Stericycle.

 

The largest contributors to Fund performance during the quarter were Broadridge Financial Solutions, Inc. (BR) and LPL Financial Holdings, Inc. (LPLA).

 

During the twelve months ended September 30, 2018, we added three new holding to the Fund: Nielsen Holdings Plc (NLSN), CDK Global, Inc. (CDK), and Artisan Partners Asset Management, Inc. (APAM). We also added capital to several existing holdings. We eliminated Cintas Corporation (CTAS) and Equifax, Inc. (EFX) and trimmed several other existing holdings due to what we considered to be excessive valuations.

 

Past performance does not guarantee future results. The views and information discussed in this letter are as of the date of publication, are subject to change, and may not reflect the writer’s current views. The views expressed are those of Clarkston Capital Partners, LLC, the investment adviser to the Clarkston Funds, and represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. The information provided does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned in this letter. The subject matter contained in this letter has been derived from several sources believed to be reliable and accurate at the time of compilation. Neither the Clarkston Funds nor Clarkston Capital Partners, LLC accepts any liability for losses, either direct or consequential, caused by the use of this information.

 

 

8www.clarkstonfunds.com

 

 

Clarkston Partners FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Top Ten Holdings (as a % of Net Assets)* 

 

The Western Union Co.5.88%
Stericycle, Inc.5.36%
Brown & Brown, Inc.5.30%
Legg Mason, Inc.5.12%
Nielsen Holdings PLC5.06%
Willis Towers Watson PLC4.83%
LPL Financial Holdings, Inc.3.69%
CH Robinson Worldwide, Inc.3.02%
Broadridge Financial Solutions, Inc.3.02%
John Wiley & Sons, Inc.3.00%
Top Ten Holdings44.28%

 

Sector Allocation (as a % of Net Assets)* 

 

Financial Services30.43%
Producer Durables18.56%
Consumer Discretionary10.78%
Consumer Staples4.09%
Technology3.79%
Materials & Processing1.72%
Cash, Cash Equivalents, & Other Net Assets30.63%
Total100.00%

 

*Holdings are subject to change, and may not  reflect the current or future position of the portfolio.

 

 
Annual Report | September 30, 20189

 

 

Clarkston Partners FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Performance of a Hypothetical $25,000 Initial Investment (at Inception* through September 30, 2018)

 

 (GRAPHIC)

 

The graph shown above represents historical performance of a hypothetical investment of $25,000 in the Institutional Class. Due to differing expenses, performance of the Founders Class will vary. Past performance does not guarantee future results. All returns reflect reinvested dividends, but do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Average Annual Total Returns (as of September 30, 2018)

 

 3 Month6 Month1 Year3 YearSince
Inception*
Clarkston Partners Fund – Founders Class0.91%3.42%8.70%12.07%10.78%
Clarkston Partners Fund – Institutional Class0.84%3.28%8.52%11.88%10.60%
Russell 2500TM Index TR4.70%10.67%16.19%16.13%13.95%

 

The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund shares will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Fund performance current to the most recent month end is available by calling (844) 680-6562 or by visiting www.clarkstonfunds.com.

 

*Fund’s inception date is September 15, 2015.

 

The Russell 2500TM Index TR measures the performance of the small- to mid-cap segment of the U.S. equity universe, commonly referred to as “smid” cap. The Russell 2500TM Index TR is a subset of the Russell 3000® Index. It includes approximately 2,500 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2500TM Index TR is constructed to provide a comprehensive and unbiased barometer for the small- to mid-cap segment. The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.

 

 

10www.clarkstonfunds.com

 

 

Clarkston Partners FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes or underlying data and no party may rely on any Russell Indexes and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.

 

Returns of less than 1 year are cumulative.

 

Indices are not actively managed and do not reflect a deduction for fees, expenses or taxes. An investor cannot invest directly in an index.

 

The returns shown above do not reflect the deduction of taxes a shareholder would pay on Fund distributions or redemption of Fund shares.

 

The total annual operating expenses and total annual operating expenses after fee waivers and/or reimbursement you may pay as an investor in the Fund’s Founders Class and Institutional Class shares (as reported in the January 29, 2018 Prospectus), are 0.96% and 0.85% and 1.11% and 1.00%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2019.

 

 
Annual Report | September 30, 201811

 

 

Clarkston FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Clarkston Fund Commentary

 

For the twelve months ended September 30, 2018, the Clarkston Fund – Institutional Class (the “Fund”) gained 5.99%. The Russell 1000® Index gained 17.76% during the same period.

 

Most of the relative underperformance of the Fund was due to three measures: continuing to hold General Electric Company (GE) while it experienced challenges resulting in pressure on its share price, the Fund’s mid-teens average cash position, and an overweight to consumer defensive businesses and underweight to consumer cyclicals. While all three weighed on short-term performance, we believe these decisions will benefit the Fund longer-term.

 

General Electric was the worst performer and largest detractor from the Fund’s performance during the last twelve months. The company struggled with the complexity of its business model, legacy issues in GE Capital related to its long-term care insurance portfolio, and a top-line growth and marketing culture that arguably led to untimely expensive acquisitions and overcapacity in its Power business. These issues culminated in a new CEO, a dividend cut, a restructuring plan, and cash infusion into GE Capital.

 

We continued to hold GE in the Fund’s portfolio for several reasons. First, the company was simplifying the business and cutting its net-debt and pension obligations. In the summer of 2018, CEO John Flannery introduced a restructuring plan that highlighted three industrial core businesses (Aviation, Power, and Renewables), the separation of GE Healthcare into an independent company, the merger of GE Transportation with a third party, the orderly separation of Baker Hughes, and the shrinking of GE Capital.

 

Second, we believe GE owns world-class assets. The Aviation, Power, and Renewables businesses each have leading positions in their end markets with 60%, 55% and 35% market share, respectively. Healthcare is the market share leader in several of its categories with more than 30% share in U.S. medical diagnostic imaging. These businesses have attractive returns on capital, high customer switching costs, substantial after the sale contractual revenue streams, and each benefits from scale economies, customer captivity, and some degree of cost advantage.

 

Lastly, we believe GE’s shares are inexpensive and the company’s assets are worth much more than the current share price reflects. We acknowledge GE does have challenges ahead. There is no quick fix and GE will surely encounter additional challenges. We believe, however, that patient investors who possess the ability to see this turnaround all the way through will be rewarded.

 

On October 1, 2018, GE named Lead Director and retired Danaher CEO and Chairman Larry Culp as Chairman and CEO. At the writing of this commentary, we know little about his plans, however, we view Culp’s appointment as a positive due to his previous experience and success at Danaher. Additionally, we like the fact that Culp is viewed as an outsider and can bring a fresh perspective to GE’s turnaround. He may also have an advantage over insiders in that he may be better positioned to make unemotionally-tied decisions in the best interest of GE shareholders.

 

Anheuser-Busch InBev SA/NV Sponsored ADR (BUD-US) was the second largest detractor from the Fund’s performance during the quarter. While the company has been challenged by volume declines in the United States, we believe much of the recent pressure on its shares was due to a sharp depreciation of emerging-market currencies against the U.S. dollar, AB InBev’s reporting currency. While this was unwelcomed, we believe AB InBev’s share price more than reflects this currency devaluation in emerging markets. We believe the company’s geographical diversification is a positive in this environment.

 

 

12www.clarkstonfunds.com

 

 

Clarkston FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

The largest contributors to Fund performance during the quarter were Microsoft Corporation (MSFT) and Cisco Systems, Inc. (CSCO).

 

During the twelve months ended September 30, 2018, we added one new holding to the Fund, Nestle S.A. Sponsored ADR (NSRGY), and added capital to several existing holdings. We eliminated Anthem, Inc. (ANTM) and Emerson Electric Co. (EMR) and trimmed other existing holdings due to what we considered to be excessive valuations.

 

Past performance does not guarantee future results. The views and information discussed in this letter are as of the date of publication, are subject to change, and may not reflect the writer’s current views. The views expressed are those of Clarkston Capital Partners, LLC, the investment adviser to the Clarkston Funds, and represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. The information provided does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned in this letter. The subject matter contained in this letter has been derived from several sources believed to be reliable and accurate at the time of compilation. Neither the Clarkston Funds nor Clarkston Capital Partners, LLC accepts any liability for losses, either direct or consequential, caused by the use of this information.

 

 
Annual Report | September 30, 201813

 

 

Clarkston FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Top Ten Holdings (as a % of Net Assets)* 

 

The Procter & Gamble Co.6.44%
General Electric Co.6.31%
The Western Union Co.4.93%
Willis Towers Watson PLC4.67%
Microsoft Corp.4.51%
American Express Co.4.37%
Johnson & Johnson4.36%
PepsiCo, Inc.4.24%
Sysco Corp.4.16%
Cisco Systems, Inc.4.07%
Top Ten Holdings48.06%

 

Sector Allocation (as a % of Net Assets)* 

 

Consumer Staples27.75%
Financial Services24.88%
Technology12.40%
Producer Durables11.27%
Health Care9.90%
Consumer Discretionary3.81%
Cash, Cash Equivalents, & Other Net Assets9.99%
Total100.00%

  

*Holdings are subject to change, and may not  reflect the current or future position of the portfolio.

 

 

14www.clarkstonfunds.com

 

 

Clarkston FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Performance of a Hypothetical $10,000 Initial Investment (at Inception* through September 30, 2018)

 

 (GRAPHIC)

 

The graph shown above represents historical performance of a hypothetical investment of $10,000 in the Institutional Class. Past performance does not guarantee future results. All returns reflect reinvested dividends, but do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Average Annual Total Returns (as of September 30, 2018) 

 

 3 Month6 Month1 YearSince
Inception*
Clarkston Fund – Institutional Class3.54%4.72%5.99%8.57%
Russell 1000® Index TR7.42%11.25%17.76%16.99%

 

The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund shares will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Fund performance current to the most recent month-end is available by calling (844) 680-6562 or by visiting www.clarkstonfunds.com.

 

*Fund’s inception date is April 1, 2016.

 

The Russell 1000® Index TR measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000® Index TR represents approximately 92% of the U.S. market. The Russell 1000® Index TR is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to ensure new and growing equities are reflected.

 

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes or underlying data and no party may rely on any Russell Indexes and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.

 

 
Annual Report | September 30, 201815

 

 

Clarkston FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Returns of less than 1 year are cumulative.

 

Indices are not actively managed and do not reflect a deduction for fees, expenses or taxes. An investor cannot invest directly in an index.

 

The returns shown above do not reflect the deduction of taxes a shareholder would pay on Fund distributions or redemption of Fund shares.

 

The total annual operating expenses and total annual operating expenses after fee waivers and/or reimbursement you may pay as an investor in the Fund’s Institutional Class shares (as reported in the January 29, 2018 Prospectus), are 1.00% and 0.70%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2019.

 

 

16www.clarkstonfunds.com

 

 

Clarkston Select FundPortfolio Update
 

September 30, 2018 (Unaudited)

 

Select Fund Commentary

 

For the twelve months ended September 30, 2018, the Clarkston Select Fund – Institutional Class (the “Fund”) gained 6.02%. The Russell 1000® Index gained 17.76% during the same period.

 

Most of the relative underperformance of the Fund was due to three measures: continuing to hold General Electric Company (GE) while it experienced challenges resulting in pressure on its share price, the Fund’s mid-teens average cash position, and an overweight to consumer defensive businesses and underweight to consumer cyclicals. While all three weighed on short-term performance, we believe these decisions will benefit the Fund longer-term.

 

General Electric was the worst performer and largest detractor from the Fund’s performance during the last twelve months. The company struggled with the complexity of its business model, legacy issues in GE Capital related to its long-term care insurance portfolio, and a top-line growth and marketing culture that arguably led to untimely expensive acquisitions and overcapacity in its Power business. These issues culminated in a new CEO, a dividend cut, a restructuring plan, and cash infusion into GE Capital.

 

We continued to hold GE in the Fund’s portfolio for several reasons. First, the company was simplifying the business and cutting its net-debt and pension obligations. In the summer of 2018, CEO John Flannery introduced a restructuring plan that highlighted three industrial core businesses (Aviation, Power, and Renewables), the separation of GE Healthcare into an independent company, the merger of GE Transportation with a third party, the orderly separation of Baker Hughes, and the shrinking of GE Capital.

 

Second, we believe GE owns world-class assets. The Aviation, Power, and Renewables businesses each have leading positions in their end markets with 60%, 55% and 35% market share, respectively. Healthcare is the market share leader in several of its categories with more than 30% share in U.S. medical diagnostic imaging. These businesses have attractive returns on capital, high customer switching costs, substantial after the sale contractual revenue streams, and each benefits from scale economies, customer captivity, and some degree of cost advantage.

 

Lastly, we believe GE’s shares are inexpensive and the company’s assets are worth much more than the current share price reflects. We acknowledge GE does have challenges ahead. There is no quick fix and GE will surely encounter additional challenges. We believe, however, that patient investors who possess the ability to see this turnaround all the way through will be rewarded.

 

On October 1, 2018, GE named Lead Director and retired Danaher CEO and Chairman Larry Culp as Chairman and CEO. At the writing of this commentary, we know little about his plans, however, we view Culp’s appointment as a positive due to his previous experience and success at Danaher. Additionally, we like the fact that Culp is viewed as an outsider and can bring a fresh perspective to GE’s turnaround. He may also have an advantage over insiders in that he may be better positioned to make unemotionally-tied decisions in the best interest of GE shareholders.

 

Anheuser-Busch InBev SA/NV Sponsored ADR (BUD-US) was the second largest detractor from the Fund’s performance during the quarter. While the company has been challenged by volume declines in the United States, we believe much of the recent pressure on its shares was due to a sharp depreciation of emerging-market currencies against the U.S. dollar, AB InBev’s reporting currency. While this was unwelcomed, we believe AB InBev’s share price more than reflects this currency devaluation in emerging markets. We believe the company’s geographical diversification is a positive in this environment.

 

 
Annual Report | September 30, 201817

 

 

Clarkston Select FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

The largest contributors to Fund performance during the quarter were Microsoft Corporation (MSFT) and Cisco Systems, Inc. (CSCO).

 

During the twelve months ended September 30, 2018, we added one new holding to the Fund, Nestle S.A. Sponsored ADR (NSRGY), and added capital to several existing holdings. We eliminated Emerson Electric Co. (EMR) and trimmed other existing holdings due to what we considered to be excessive valuations.

 

Past performance does not guarantee future results. The views and information discussed in this letter are as of the date of publication, are subject to change, and may not reflect the writer’s current views. The views expressed are those of Clarkston Capital Partners, LLC, the investment adviser to the Clarkston Funds, and represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. The information provided does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned in this letter. The subject matter contained in this letter has been derived from several sources believed to be reliable and accurate at the time of compilation. Neither the Clarkston Funds nor Clarkston Capital Partners, LLC accepts any liability for losses, either direct or consequential, caused by the use of this information.

 

 

18www.clarkstonfunds.com

 

 

Clarkston Select FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Top Ten Holdings (as a % of Net Assets)* 

 

The Procter & Gamble Co.7.18%
General Electric Co.6.25%
Nielsen Holdings PLC5.07%
International Business Machines Corp.4.89%
PepsiCo, Inc.4.83%
The Western Union Co.4.66%
Cisco Systems, Inc.4.55%
Microsoft Corp.4.52%
Paychex, Inc.4.50%
Sysco Corp.4.22%
Top Ten Holdings50.67%

 

Sector Allocation (as a % of Net Assets)* 

 

Consumer Staples26.62%
Producer Durables16.99%
Financial Services15.34%
Technology13.97%
Health Care7.28%
Consumer Discretionary7.10%
Materials & Processing3.09%
Cash, Cash Equivalents, & Other Net Assets9.61%
Total100.00%

 

*Holdings are subject to change, and may not  reflect the current or future position of the portfolio.

 

 
Annual Report | September 30, 201819

 

 

Clarkston Select FundPortfolio Update

 

September 30, 2018 (Unaudited)

 

Performance of a Hypothetical $10,000 Initial Investment (at Inception* through September 30, 2018)

 

 (GRAPHIC)

 

The graph shown above represents historical performance of a hypothetical investment of $10,000 in the Institutional Class. Past performance does not guarantee future results. All returns reflect reinvested dividends, but do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Average Annual Total Returns (as of September 30, 2018)

 

 3 Month6 Month1 YearSince
Inception*
Clarkston Select Fund – Institutional Class4.82%5.97%6.02%7.40%
Russell 1000® Index TR7.42%11.25%17.76%18.06%

 

The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund shares will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Fund performance current to the most recent month end is available by calling (844) 680-6562 or by visiting www.clarkstonfunds.com.

 

*Fund’s inception date is January 31, 2017.

 

The Russell 1000® Index TR measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000® represents approximately 92% of the U.S. market. The Russell 1000® Index TR is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to ensure new and growing equities are reflected.

 

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes or underlying data and no party may rely on any Russell Indexes and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.

  

 

20www.clarkstonfunds.com

 

 

Clarkston Select FundPortfolio Update
 

September 30, 2018 (Unaudited)

 

Returns of less than 1 year are cumulative.

 

Indices are not actively managed and do not reflect a deduction for fees, expenses or taxes. An investor cannot invest directly in an index.

 

The returns shown above do not reflect the deduction of taxes a shareholder would pay on Fund distributions or redemption of Fund shares.

 

The total annual operating expenses and total annual operating expenses after fee waivers and/or reimbursement you may pay as an investor in the Fund’s Institutional Class shares (as reported in the January 29, 2018 Prospectus), are 1.62% and 0.70%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2019.

 

 
Annual Report | September 30, 201821

 

 

Clarkston Founders FundPortfolio Update
 

September 30, 2018 (Unaudited)

 

Founders Fund Commentary

 

For the twelve months ended September 30, 2018, the Clarkston Founders Fund – Institutional Class (the “Fund”) gained 7.01%. The Russell Midcap® Index gained 13.98% during the same period.

 

The large majority of the Fund’s underperformance relative to the Index over the past twelve months was the result of exclusion, not inclusion. Our inability to find what we considered to be attractive values, or as we like to say, our refusal to overpay for businesses, resulted in most of the underperformance. We chose to hold cash (about one-third of the Fund’s portfolio) and the interest earned on this cash position was much less than the return on the average stock in the Index. A smaller but significant portion of the underperformance was the result of the Fund’s lack of exposure to technology, which was by far the best performing sector in the Russell Midcap® Index during the period.

 

The two largest individual detractors from the Fund’s performance over the past twelve months were Legg Mason, Inc. (LM) and Stericycle, Inc. (SRCL). For Legg, the continued shift in the investment management industry of assets from actively managed to passively managed, muted asset flow growth, and the perceived impact of rising rates on Legg’s fixed income affiliates were the primary drivers behind the 20% plus drop in the company’s shares. While we recognize these concerns, we feel investors are ignoring management’s exceptional use of capital, which in our opinion has positioned Legg for long-term growth.

 

Over the past five years, Legg has invested in its global distribution platform, made acquisitions to optimize its affiliate line-up, and diversified its assets under management with new asset classes and vehicles; all of which have positively contributed to the company’s free cash flow. Further, management has financed most of these acquisitions with low interest rate debt, half of which matures in over two decades. Finally, Legg structured acquisitions in a tax-efficient manner, which further facilitates strong free cash flow generation and capital return to shareholders.

 

Still, there continues to be a widening disconnect between the transformative actions Legg has taken and its share price, which has been trading at less than book value. We applaud management’s execution and believe Legg is well-positioned to navigate and ultimately benefit in an environment of lower fees and consolidating customer platforms.

 

We believe Stericycle is a high-quality business facing temporary challenges self-inflicted from past acquisitions made outside of its core competency; all of which occurred prior to the Fund’s investment in Stericycle’s shares. Because of these acquisitions, Stericycle’s business became operationally complex, more exposed to cyclical end markets, and incurred higher than historical debt levels. Additionally, a portion of Stericycle’s core regulated medical waste business is facing pricing headwinds in certain customer segments.

 

Stericycle, to address these challenges, has implemented a business transformation plan that includes streamlining operations, implementing a new enterprise resource planning system, and divesting non-core assets. The combination of the investments in these initiatives, pricing pressure, and cyclical end markets is temporarily suppressing cash earnings. We believe the quality of the company’s core businesses is being masked by the “noise.”

 

 

22www.clarkstonfunds.com

 

 

Clarkston Founders FundPortfolio Update
 

September 30, 2018 (Unaudited)

 

Stericycle’s regulated medical waste and document destruction businesses have leading positions in their end markets with 50% and 30% market share, respectively. These businesses operate in micro-niche industries, have attractive returns on capital and difficult-to-impossible to replicate assets, and benefit from scale economies and some degree of cost advantage. In addition, we believe the document destruction business has respectable growth potential. Competition is highly fragmented, enabling Stericycle to continue its roll-up strategy through low-risk, tuck-in acquisitions.

 

Lastly, we are encouraged by the engagement of Stericycle’s board of directors in the company’s business transformation plan. This coupled with our belief in the quality of the core businesses and attractive valuation of the company’s shares, leads us to be optimistic about the Fund’s investment in Stericycle.

 

The largest contributors to Fund performance during the quarter were Broadridge Financial Solutions, Inc. (BR) and Sysco Corporation (SYY).

 

During the twelve-months ended September 30, 2018, we added one new holding to the Fund, CDK Global, Inc. (CDK), and added capital to several existing holdings. We eliminated Equifax, Inc. (EFX) and trimmed several other existing holdings due to what we considered to be excessive valuations.

 

Past performance does not guarantee future results. The views and information discussed in this letter are as of the date of publication, are subject to change, and may not reflect the writer’s current views. The views expressed are those of Clarkston Capital Partners, LLC, the investment adviser to the Clarkston Funds, and represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. The information provided does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned in this letter. The subject matter contained in this letter has been derived from several sources believed to be reliable and accurate at the time of compilation. Neither the Clarkston Funds nor Clarkston Capital Partners, LLC accepts any liability for losses, either direct or consequential, caused by the use of this information.

 

 
Annual Report | September 30, 201823

 

 

Clarkston Founders FundPortfolio Update
 

September 30, 2018 (Unaudited)

Top Ten Holdings (as a % of Net Assets)* 

 

The Western Union Co.6.13%
Stericycle, Inc.5.49%
Nielsen Holdings PLC5.18%
Willis Towers Watson PLC4.95%
Brown & Brown, Inc.4.84%
Legg Mason, Inc.4.11%
Sysco Corp.4.07%
McKesson Corp.3.10%
Broadridge Financial Solutions, Inc.3.01%
CH Robinson Worldwide, Inc.2.86%
Top Ten Holdings43.74%

 

Sector Allocation (as a % of Net Assets)* 

 

Financial Services28.20%
Producer Durables15.29%
Consumer Discretionary7.12%
Consumer Staples6.11%
Health Care5.28%
Technology3.67%
Materials & Processing2.04%
Cash, Cash Equivalents, & Other Net Assets32.29%
Total100.00%

  

*Holdings are subject to change, and may not  reflect the current or future position of the portfolio.

 

 

24www.clarkstonfunds.com

 

 

Clarkston Founders FundPortfolio Update
 

September 30, 2018 (Unaudited)

 

Performance of a Hypothetical $10,000 Initial Investment (at Inception* through September 30, 2018)

 

(GRAPHIC) 

 

The graph shown above represents historical performance of a hypothetical investment of $10,000 in the Institutional Class. Past performance does not guarantee future results. All returns reflect reinvested dividends, but do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Average Annual Total Returns (as of September 30, 2018)

 

 3 Month6 Month1 YearSince
Inception*
Clarkston Founders Fund – Institutional Class1.43%2.72%7.01%8.12%
Russell Midcap® Index TR5.00%7.96%13.98%14.01%

 

The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund shares will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Fund performance current to the most recent month end is available by calling (844) 680-6562 or by visiting www.clarkstonfunds.com.

 

*Fund’s inception date is January 31, 2017.

 

The Russell Midcap® Index is a market capitalization weighted index that measures the performance of the mid-capitalization sector of the U.S. equity market and includes approximately 800 of the smallest issuers in the Russell 1000® Index. The Russell 1000® Index includes the 1,000 largest stocks in the Russell 3000® Index, which consists of the 3,000 largest U.S. public companies.

 

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes or underlying data and no party may rely on any Russell Indexes and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.

 

 
Annual Report | September 30, 201825

 

 

Clarkston Founders FundPortfolio Update
 

September 30, 2018 (Unaudited)

 

Returns of less than 1 year are cumulative.

 

Indices are not actively managed and do not reflect a deduction for fees, expenses or taxes. An investor cannot invest directly in an index.

 

The returns shown above do not reflect the deduction of taxes a shareholder would pay on Fund distributions or redemption of Fund shares.

 

The total annual operating expenses and total annual operating expenses after fee waivers and/or reimbursement you may pay as an investor in the Fund’s Institutional Class shares (as reported in the January 29, 2018 Prospectus), are 1.43% and 0.95%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2019.

 

 

26www.clarkstonfunds.com

 

 

Clarkston FundsDisclosure of Fund Expenses
 

September 30, 2018

  

Example. As a shareholder of the Clarkston Partners Fund, Clarkston Fund, Clarkston Select Fund, or Clarkston Founders Fund (the “Funds”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees and other Fund expenses. The following examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested on April 1, 2018 and held through September 30, 2018.

 

Actual Expenses. The first line under each class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expenses Paid During Period April 1, 2018 – September 30, 2018” to estimate the expenses you paid on your account during this period.

 

Hypothetical Example for Comparison Purposes. The second line under each class in the following table provides information about hypothetical account values and hypothetical expenses based on a Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in a Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

 

Please note that the expenses shown in the table are meant to highlight your ongoing Fund costs only and do not reflect any transactional costs. Therefore, the second line under each class in the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

 
Annual Report | September 30, 201827

 

 

Clarkston FundsDisclosure of Fund Expenses

 

 September 30, 2018

 

 Beginning
Account Value
April 1,
2018
Ending
Account Value September 30,
2018
Expense
Ratio(a)
Expenses Paid During Period April 1, 2018 -September 30,
2018(b)
Clarkston Partners Fund    
Founders Class    
Actual$1,000.00$1,034.200.85%$4.33
Hypothetical (5% return before expenses)$1,000.00$1,020.810.85%$4.31
Institutional Class    
Actual$1,000.00$1,032.800.99%$5.04
Hypothetical (5% return before expenses)$1,000.00$1,020.100.99%$5.01
Clarkston Fund    
Institutional Class    
Actual$1,000.00$1,047.200.65%$3.34
Hypothetical (5% return before expenses)$1,000.00$1,021.810.65%$3.29
Clarkston Select Fund    
Institutional Class    
Actual$1,000.00$1,059.700.65%$3.36
Hypothetical (5% return before expenses)$1,000.00$1,021.810.65%$3.29
Clarkston Founders Fund    
Institutional Class    
Actual$1,000.00$1,027.200.91%$4.62
Hypothetical (5% return before expenses)$1,000.00$1,020.510.91%$4.61

 

(a)Each Fund's expense ratios have been annualized based on the Fund's actual expenses for the 6 month period ending September 30, 2018.
(b)Expenses are equal to the annualized expense ratio shown above for the applicable class, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (183), divided by 365.

 

 
28www.clarkstonfunds.com

 

 

 

 

Clarkston Partners FundPortfolio of Investments
 
 September 30, 2018

 

  Shares  Value
(Note 2)
 
COMMON STOCKS (69.37%)        
Consumer Discretionary (10.78%)        
John Wiley & Sons, Inc., Class A  433,307  $26,258,404 
Matthews International Corp., Class A  475,000   23,821,250 
Nielsen Holdings PLC  1,600,000   44,256,000 
Total Consumer Discretionary      94,335,654 
         
Consumer Staples (4.09%)        
McCormick & Co., Inc.  130,000   17,127,500 
Post Holdings, Inc.(a)  190,000   18,627,600 
Total Consumer Staples      35,755,100 
         
Financial Services (30.43%)        
Artisan Partners Asset Management, Inc., Class A  260,180   8,429,832 
Broadridge Financial Solutions, Inc.  200,000   26,390,000 
Brown & Brown, Inc.  1,570,000   46,424,900 
Legg Mason, Inc.  1,435,000   44,815,050 
LPL Financial Holdings, Inc.  500,000   32,255,000 
Markel Corp.(a)  12,000   14,261,880 
The Western Union Co.  2,700,000   51,462,000 
Willis Towers Watson PLC  300,000   42,282,000 
Total Financial Services      266,320,662 
         
Materials & Processing (1.72%)        
Fastenal Co.  260,000   15,085,200 
Total Materials & Processing      15,085,200 
         
Producer Durables (18.56%)        
Actuant Corp., Class A  864,610   24,122,619 
CH Robinson Worldwide, Inc.  270,000   26,438,400 
Graco, Inc.  165,000   7,646,100 
Hillenbrand, Inc.  330,000   17,259,000 
Landstar System, Inc.  205,000   25,010,000 
Stericycle, Inc.(a)  800,000   46,944,000 
Waters Corp.(a)  77,000   14,990,360 
Total Producer Durables      162,410,479 
         
Technology (3.79%)        
CDK Global, Inc.  271,281   16,971,340 
IHS Markit, Ltd.(a)  300,000   16,188,000 
Total Technology      33,159,340 
         
TOTAL COMMON STOCKS (Cost $478,830,332)      607,066,435 

 

See Notes to Financial Statements.   

 

Annual Report | September 30, 2018  29

 

 

 

Clarkston Partners FundPortfolio of Investments

 

 September 30, 2018

 

  Value
(Note 2)
 
TOTAL INVESTMENTS (69.37%) (Cost 478,830,332) $607,066,435 
     
Other Assets In Excess Of Liabilities (30.63%)  268,071,975 
NET ASSETS (100.00%) $875,138,410 

 

(a)Non-income producing security.

 

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indices or ratings group indices and/or as defined by Fund management. This definition may not apply for purposes of this report, which may use a different classification system or may combine industry sub-classifications for reporting ease. Industries are shown as a percent of the Fund's net assets. (Unaudited)

 

See Notes to Financial Statements. 

 

30www.clarkstonfunds.com

 

 

 

Clarkston FundPortfolio of Investments

 

 September 30, 2018

 

  Shares  Value
(Note 2)
 
COMMON STOCKS (90.01%)        
Consumer Discretionary (3.81%)        
Walmart, Inc.  8,500  $798,235 
The Walt Disney Co.  3,500   409,290 
Total Consumer Discretionary      1,207,525 
         
Consumer Staples (27.75%)        
Anheuser-Busch InBev SA/NV, Sponsored ADR  14,200   1,243,494 
Diageo PLC, Sponsored ADR  8,500   1,204,195 
Mondelez International, Inc., Class A  15,000   644,400 
Nestle SA ADR  12,000   998,400 
PepsiCo, Inc.  12,000   1,341,600 
The Procter & Gamble Co.  24,500   2,039,135 
Sysco Corp.  18,000   1,318,500 
Total Consumer Staples      8,789,724 
         
Financial Services (24.88%)        
American Express Co.  13,000   1,384,370 
Capital One Financial Corp.  9,000   854,370 
The Charles Schwab Corp.  18,000   884,700 
Markel Corp.(a)  275   326,835 
Mastercard, Inc., Class A  3,500   779,135 
US Bancorp  11,500   607,315 
The Western Union Co.  82,000   1,562,920 
Willis Towers Watson PLC  10,500   1,479,870 
Total Financial Services      7,879,515 
         
Health Care (9.90%)        
AmerisourceBergen Corp.  4,200   387,324 
Johnson & Johnson  10,000   1,381,700 
McKesson Corp.  5,100   676,515 
Medtronic PLC  7,000   688,590 
Total Health Care      3,134,129 
         
Producer Durables (11.27%)        
CH Robinson Worldwide, Inc.  6,500   636,480 
General Electric Co.  177,000   1,998,330 
United Parcel Service, Inc., Class B  8,000   934,000 
Total Producer Durables      3,568,810 
         
Technology (12.40%)        
Cisco Systems, Inc.  26,500   1,289,225 
International Business Machines Corp.  8,000   1,209,680 

 

See Notes to Financial Statements.   

 

Annual Report | September 30, 2018  31

 

 

 

Clarkston FundPortfolio of Investments

 

 September 30, 2018

 

  Shares  Value
(Note 2)
 
Technology (continued)        
Microsoft Corp.  12,500  $1,429,625 
Total Technology      3,928,530 
        
TOTAL COMMON STOCKS (Cost $25,157,058)      28,508,233 
        
TOTAL INVESTMENTS (90.01%) (Cost 25,157,058)     $28,508,233 
         
Other Assets In Excess Of Liabilities (9.99%)      3,164,735 
NET ASSETS (100.00%)     $31,672,968 

 

(a)Non-income producing security.

 

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indices or ratings group indices and/or as defined by Fund management. This definition may not apply for purposes of this report, which may use a different classification system or may combine industry sub-classifications for reporting ease. Industries are shown as a percent of the Fund's net assets. (Unaudited)

 

See Notes to Financial Statements. 

 

32www.clarkstonfunds.com

 

Clarkston Select FundPortfolio of Investments

 

 September 30, 2018

 

  Shares  Value
(Note 2)
 
COMMON STOCKS (90.39%)        
Consumer Discretionary (7.10%)        
Nielsen Holdings PLC  25,500  $705,330 
Walmart, Inc.  3,000   281,730 
Total Consumer Discretionary      987,060 
         
Consumer Staples (26.62%)        
Anheuser-Busch InBev SA/NV, Sponsored ADR  6,100   534,177 
Diageo PLC, Sponsored ADR  3,200   453,344 
Nestle SA ADR  5,500   457,600 
PepsiCo, Inc.  6,000   670,800 
The Procter & Gamble Co.  12,000   998,760 
Sysco Corp.  8,000   586,000 
Total Consumer Staples      3,700,681 
         
Financial Services (15.34%)        
American Express Co.  4,000   425,960 
Capital One Financial Corp.  3,800   360,734 
T Rowe Price Group, Inc.  3,000   327,540 
US Bancorp  7,000   369,670 
The Western Union Co.  34,000   648,040 
Total Financial Services      2,131,944 
         
Health Care (7.28%)        
Johnson & Johnson  3,500   483,595 
Pfizer, Inc.  12,000   528,840 
Total Health Care      1,012,435 
         
Materials & Processing (3.09%)        
Fastenal Co.  7,400   429,348 
Total Materials & Processing      429,348 
         
Producer Durables (16.99%)        
3M Co.  500   105,355 
CH Robinson Worldwide, Inc.  3,000   293,760 
General Electric Co.  77,000   869,330 
Paychex, Inc.  8,500   626,025 
United Parcel Service, Inc., Class B  4,000   467,000 
Total Producer Durables      2,361,470 
         
Technology (13.97%)        
Cisco Systems, Inc.  13,000   632,450 
International Business Machines Corp.  4,500   680,445 

 

See Notes to Financial Statements.   

 

Annual Report | September 30, 2018  33

 

 

 

Clarkston Select FundPortfolio of Investments

 

 September 30, 2018

 

  Shares  Value
(Note 2)
 
Technology (continued)        
Microsoft Corp.  5,500  $629,035 
Total Technology      1,941,930 
        
TOTAL COMMON STOCKS (Cost $11,922,775)      12,564,868 
        
TOTAL INVESTMENTS (90.39%) (Cost 11,922,775)     $12,564,868 
         
Other Assets In Excess Of Liabilities (9.61%)      1,336,487 
NET ASSETS (100.00%)     $13,901,355 

 

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indices or ratings group indices and/or as defined by Fund management. This definition may not apply for purposes of this report, which may use a different classification system or may combine industry sub-classifications for reporting ease. Industries are shown as a percent of the Fund's net assets. (Unaudited)

 

See Notes to Financial Statements. 

 

34www.clarkstonfunds.com

 

Clarkston Founders FundPortfolio of Investments

 

 September 30, 2018

 

  Shares  Value
(Note 2)
 
COMMON STOCKS (67.71%)        
Consumer Discretionary (7.12%)        
LKQ Corp.(a)  21,000  $665,070 
Nielsen Holdings PLC  64,000   1,770,240 
Total Consumer Discretionary      2,435,310 
         
Consumer Staples (6.11%)        
McCormick & Co., Inc.  5,300   698,275 
Sysco Corp.  19,000   1,391,750 
Total Consumer Staples      2,090,025 
         
Financial Services (28.20%)        
Broadridge Financial Solutions, Inc.  7,800   1,029,210 
Brown & Brown, Inc.  56,000   1,655,920 
The Charles Schwab Corp.  17,000   835,550 
FactSet Research Systems, Inc.  1,500   335,565 
Legg Mason, Inc.  45,000