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ALPS Series Trust

Filed: 7 Dec 20, 1:02pm

 

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 1000, Denver, Colorado 80203

(Address of principal executive offices) (Zip code)

 

(303) 623-2577

(Registrant’s telephone number, including area code)

 

Vilma Valdez DeVooght, Esq., Secretary

ALPS Series Trust

1290 Broadway, Suite 1000

Denver, CO 80203

(Name and address of agent for service)

 

Date of fiscal year end:    September 30

 

Date of reporting period:  October 1, 2019 – September 30, 2020

 

 
 

Item 1.    Reports to Stockholders.

 

 

 

 

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 Operations16
Statements of Changes in Net Assets 
Beacon Accelerated Return Strategy Fund17
Beacon Planned Return Strategy Fund18
Financial Highlights19
Notes to Financial Statements23
Report of Independent Registered Public Accounting Firm37
Disclosure Regarding Renewal and Approval of Fund Advisory Agreement38
Additional Information41
Liquidity Risk Management Program42
Privacy Policy43
Trustees and Officers46

 

Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Funds’ annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website at www.beacontrust.com and you will be notified by mail each time a report is posted and provided with a website link to access the report.

 

You may, notwithstanding the availability of shareholder reports online, elect to receive all future shareholder reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with a Fund, you can call 1-844-894-9222 to let the Fund know you wish to continue receiving paper copies of your shareholder reports.

 

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from a Fund electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by enrolling at www.beacontrust.com.

 
 
Beacon Funds TrustShareholder Letter

 

September 30, 2020 (Unaudited)

 

Now that we reached the end of 2020 fiscal year, we would like to provide an update on the Beacon Accelerated Return Strategy Fund (BARLX) and the Beacon Planned Return Strategy Fund (BPRLX).

 

Beacon investment strategies are disciplined, rules-based equity strategies for investors who are looking for a supplement or an alternative to traditional stock-picking strategies which can be negatively impacted by investment styles or market sectors falling in and out of favor, as well as behavioral biases embedded in stock picking strategies.

 

Beacon’s rules-based strategies, on the other hand, attempt to add value through intelligent portfolio design and implementation, not through individual security or sector selection. They seek to offer a diversified portfolio of domestic equity exposure with contractually defined outcomes and stable returns, taking the emotion out of investing.

 

Both portfolios consist of approximately 12 unique monthly investments, each one seeking to offer exposure to the S&P 500 price index over a 12 month period, potential for enhanced upside participation, as well as a potential monthly income stream from option premiums. Each monthly BPRLX investment also seeks to mitigate risk by providing 10% downside protection against losses in the S&P 500 price index over a 12 month period. The portfolios are systematically re-balanced each month to minimize portfolio risk.

 

In our view, the current environment of economic uncertainty caused by a serious pandemic, high political anxiety, heightened market volatility, expensive market valuations, and range-bound equity returns bodes well for both Accelerated Return Strategy and Planned Return Strategy. The strategies not only seek to provide a cushion against losses in the equity markets (in the case of BPRLX) and high equity participation, but they can also provide potential upside enhancement on positive results.

 

During the 2/19/20 – 3/23/20 bear market when S&P 500 lost more than a third of its value, Planned Return Strategy protected against more than 30% of the index losses (more than 10% in absolute protection), providing strong portfolio insurance while preserving a great upside capture during the eventual recovery. While downside protection is not its primary goal, Accelerated Return Strategy also provided approximately 3% cushion against the losses in a period that saw most active equity managers underperform the broad equity benchmark.

 

The past 12 months saw a normalization and elevation of market volatility after a long period of subdued volatility prior to the pandemic. We saw a strong rally in late 2019, a sharp and sudden drop in the first quarter of 2020, followed by a strong recovery, and what could be the beginning of a second round of selloff here in the fall of 2020. During this volatile period, the benchmark index for Beacon Funds, CBOE BuyWrite index returned -5.7%. We are happy to report that both Accelerated Return Strategy and Planned Return Strategy outperformed its benchmark significantly during the 2020 fiscal year. BARLX was up 10.3% (16% of outperformance), while BPRLX was up +7.2% (13% of outperformance) with less than half of the volatility of the broad equity indices during the same time period. Moreover, Beacon Funds continued to have stellar peer group results, with BARLX ranking in the top 12% of its Morningstar peer group universe and BPRLX ranking in the top 33% of the same peer group universe during the 2020 fiscal year1.

 

 

2www.beacontrust.com

 
 
Beacon Funds TrustShareholder Letter

 

September 30, 2020 (Unaudited)

 

Directional component of returns generated from long call options, and income component of returns generated from short call and put options helped results, while the portfolio hedging helped maintain a low volatility profile during the past 12 months.

 

The rules-based, systematic equity strategies, with built-in portfolio insurance in the case of BPRLX, that Beacon pioneered over a decade ago have been gaining good traction with individual and institutional investors over the past three years, as evidenced by the popularity and robust asset gathering of the defined outcome strategies offered by various fund sponsors and ETF providers.

 

Beacon’s Accelerated Return Strategy and Planned Return Strategy are early adopters in the defined outcome strategy space and they are managed by an experienced team. They are much easier to understand alternatives to expensive hedge fund strategies, unproven absolute return products, and hard to understand black swan strategies that investors have used in the past to manage equity risk.

 

We believe Beacon’s systematic equity strategies also offer a good solution to the dilemma bond investors face today in the ultra-low yield environment when fixed income securities do not offer sufficient yields to meet investors’ return objectives.

 

10-year Treasury bonds yield 0.75% as of the time of this writing, which is the most investors can earn over the next 10 years unless yields are suppressed even lower, which we believe to be an unlikely event. If bond yields move up 1% however, which we believe is a likely event, investors could lose approximately 9% of the value of their Treasury bonds as bond yields and prices move in opposite directions.

 

Beacon Funds seek to have similar portfolio diversification benefits and the low risk-profile of bonds, however, they also seek to generate much better total return outcomes than bonds without any sensitivity to interest rates. As a result, we believe Beacon’s rules-based strategies not only pair up well with traditional equities, but are also good supplements to traditional bond strategies.

 

Beacon Funds Portfolio Management Team

 

1Rankings are based on Morningstar’s US Fund Option Writing category over the 9/30/19 – 9/30/20 period. BARLX was the 24th best fund out of 188 funds, and BPRLX was the 55th best fund out of 188 funds in the category based on investment performance.

 

 

Annual Report | September 30, 20203

 
 
Beacon Accelerated Return Strategy FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

Performance of a Hypothetical $1,000,000 Initial Investment

(at Inception* through September 30, 2020)

 

 

 

The graph shown above represents historical performance of a hypothetical investment of $1,000,000 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.

 

Performance (as of September 30, 2020)

 

 3 Month6 Month1 YearSince Inception*
Beacon Accelerated Return Strategy Fund – Institutional Class7.08%27.86%10.32%9.67%
CBOE S&P 500 BuyWrite Index6.52%16.26%-5.66%0.76%

 

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.

 

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.

 

Returns of less than 1 year are cumulative.

 

 

4www.beacontrust.com

 
 
Beacon Accelerated Return Strategy FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

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 28, 2020 Prospectus), are 1.24% and 1.24%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2021.

 

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

 

Option ContractExpiration DateStrike Price 
S&P 500® Mini Index2/12/210.0110.09%
S&P 500® Mini Index3/12/210.0110.08%
S&P 500® Mini Index6/14/210.0110.05%
S&P 500® Mini Index4/14/210.019.50%
S&P 500® Mini Index10/14/200.019.27%
S&P 500® Mini Index8/13/210.018.88%
S&P 500® Mini Index5/14/210.018.63%
S&P 500® Mini Index7/14/210.018.61%
S&P 500® Mini Index11/13/200.018.39%
S&P 500® Mini Index12/14/200.017.22%
Top Ten Holdings  90.72%
    
Asset Allocation (as a % of Net Assets)*   
    
Purchased Option Contracts  110.16%
Written Option Contracts  (12.78%)
Cash, Cash Equivalents, & Other Assets in Excess of Liabilities  2.62%
Total  100.00%

 

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

 

 

Annual Report | September 30, 20205

 
 
Beacon Planned Return Strategy FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

Performance of a Hypothetical $1,000,000 Initial Investment

(at Inception* through September 30, 2020)

 

 

 

The graph shown above represents historical performance of a hypothetical investment of $1,000,000 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.

 

Performance (as of September 30, 2020)

 

 3 Month6 Month1 YearSince Inception*
Beacon Planned Return Strategy Fund – Institutional Class4.48%18.93%7.21%6.89%
CBOE S&P 500 BuyWrite Index6.52%16.26%-5.66%0.76%

 

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.

 

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.

 

Returns of less than 1 year are cumulative.

 

 

6www.beacontrust.com

 
 
Beacon Planned Return Strategy FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

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 28, 2020 Prospectus), 1.20% and 1.20%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2021.

 

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

 

Option ContractExpiration DateStrike Price 
S&P 500® Mini Index7/14/2142.1010.14%
S&P 500® Mini Index9/14/2144.129.23%
S&P 500® Mini Index5/14/2136.808.75%
S&P 500® Mini Index3/12/2132.508.61%
S&P 500® Mini Index6/14/2139.808.37%
S&P 500® Mini Index8/13/2144.158.23%
S&P 500® Mini Index12/14/2043.008.06%
S&P 500® Mini Index4/14/2136.287.55%
S&P 500® Mini Index2/12/2143.855.81%
S&P 500® Mini Index10/14/2040.655.38%
Top Ten Holdings  80.13%
    
Asset Allocation (as a % of Net Assets)*   
    
Purchased Option Contracts  120.32%
Written Option Contracts  (22.00%)
Cash, Cash Equivalents, & Other Assets in Excess of Liabilities  1.68%
Total  100.00%

 

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

 

 

Annual Report | September 30, 20207

 
 
Beacon Funds TrustDisclosure of Fund Expenses

 

September 30, 2020 (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, shareholder service 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, 2020 and held through September 30, 2020.

 

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, 2020 – September 30, 2020” 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 Funds TrustDisclosure of Fund Expenses

 

September 30, 2020 (Unaudited)

 

 Beginning Account Value April 1, 2020Ending Account Value September 30, 2020

Expense

Ratio(a)

Expenses Paid During Period April 1, 2020 -September 30, 2020(b)
Beacon Accelerated Return Strategy Fund    
Institutional Class    
Actual$1,000.00$1,278.601.23%$7.01
Hypothetical (5% return before expenses)$1,000.00$1,018.851.23%$6.21
Beacon Planned Return Strategy Fund    
Institutional Class    
Actual$1,000.00$1,189.301.19%$6.51
Hypothetical (5% return before expenses)$1,000.00$1,019.051.19%$6.01

 

(a)Each Fund’s expense ratios have been annualized based on the Fund's most recent fiscal half-year expenses after any applicable waivers and reimbursements.
(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 366.

 

 

Annual Report | September 30, 20209

 
 
Beacon Accelerated Return Strategy FundPortfolio of Investments

 

September 30, 2020

  

Counterparty Expiration Date Strike Price  Contracts  Notional Value  Value
(Note 2)
 
PURCHASED OPTION CONTRACTS - (110.16%)         
Call Option Contracts (110.16%)           
S&P 500® Mini Index:         
Cowen 10/14/2020 $310.65   235  $7,903,050  $613,994 
Cowen 10/14/2020  0.01   320   10,761,600   10,751,491 
Cowen 10/14/2020  299.74   85   2,858,550   311,171 
Cowen 11/13/2020  319.60   230   7,734,900   533,595 
Cowen 11/13/2020  310.65   60   2,017,800   181,183 
Cowen 11/13/2020  0.01   290   9,752,700   9,733,779 
Cowen 12/14/2020  0.01   250   8,407,500   8,379,577 
Cowen 12/14/2020  329.50   250   8,407,500   498,259 
Cowen 01/14/2021  0.01   250   8,407,500   8,377,361 
Cowen 01/14/2021  336.30   250   8,407,500   459,807 
Cowen 02/12/2021  0.01   350   11,770,500   11,714,120 
Cowen 02/12/2021  247.00   350   11,770,500   3,189,043 
Cowen 03/12/2021  277.21   350   11,770,500   2,283,184 
Cowen 03/12/2021  0.01   350   11,770,500   11,698,853 
Cowen 04/14/2021  0.01   330   11,097,900   11,022,958 
Cowen 04/14/2021  285.01   330   11,097,900   1,982,881 
Cowen 05/14/2021  0.01   300   10,089,000   10,010,168 
Cowen 05/14/2021  306.65   300   10,089,000   1,337,027 
Cowen 06/14/2021  0.01   350   11,770,500   11,663,618 
Cowen 06/14/2021  321.98   350   11,770,500   1,234,119 
Cowen 07/14/2021  0.01   300   10,089,000   9,987,881 
Cowen 07/14/2021  338.25   300   10,089,000   780,888 
Cowen 08/13/2021  341.50   310   10,425,300   779,483 
Cowen 08/13/2021  0.01   310   10,425,300   10,309,231 
             228,684,000   127,833,671 
TOTAL PURCHASED OPTION CONTRACTS            
(Cost $111,438,720)  $228,684,000 $127,833,671 

 

See Notes to Financial Statements.

 

10www.beacontrust.com

 

 

Beacon Accelerated Return Strategy FundPortfolio of Investments

 

September 30, 2020

 

  7 Day Yield  Shares  

Value

(Note 2)

 
SHORT TERM INVESTMENTS (2.72%)            
Money Market Funds            
Goldman Sachs Financial Square Treasury Instruments Fund Administration Shares(a)  0.00%  2,118,167   2,118,167 
Invesco Short-Term Investments Trust Government & Agency Portfolio - Institutional Class  0.02%  1,032,767   1,032,767 
           3,150,934 
TOTAL SHORT TERM INVESTMENTS            
(Cost $3,150,934)          3,150,934 
             
TOTAL INVESTMENTS (112.88%)            
(Cost $114,589,654)         $130,984,605 
             
LIABILITIES IN EXCESS OF OTHER ASSETS (-12.88%)          (14,943,423)
             
NET ASSETS (100.00%)         $116,041,182 

 

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

 

WRITTEN OPTION CONTRACTS (12.78%)

Counterparty 

Expiration

Date

 

Strike

 Price

  Contracts  Premiums Received  Notional Value  

Value

(Note 2)

 
Call Option Contracts - (12.78%)       
S&P 500® Mini Index              
Cowen 10/14/20 $323.36   (170) $113,501$  (5,717,100) $(253,267)
Cowen 10/14/20  333.40   (470)  311,934   (15,806,100)  (351,428)
Cowen 11/13/20  335.40   (120)  85,395   (4,035,600)  (148,812)
Cowen 11/13/20  343.50   (460)  284,597   (15,469,800)  (368,661)
Cowen 12/14/20  353.00   (500)  299,846   (16,815,000)  (365,195)
Cowen 01/14/21  359.91   (500)  318,846   (16,815,000)  (354,524)
Cowen 02/12/21  283.80   (700)  984,687   (23,541,000)  (4,115,752)
Cowen 03/12/21  312.14   (700)  813,888   (23,541,000)  (2,649,022)
Cowen 04/14/21  315.61   (660)  744,939   (22,195,800)  (2,445,704)
Cowen 05/14/21  339.00   (600)  702,417   (20,178,000)  (1,396,014)
Cowen 06/14/21  353.21   (700)  759,288   (23,541,000)  (1,177,927)
Cowen 07/14/21  373.00   (600)  571,019   (20,178,000)  (594,285)
Cowen 08/13/21  376.50   (620)  697,313   (20,850,600)  (606,176)
                       
TOTAL WRITTEN OPTION CONTRACTS   $6,687,670  $(228,684,000) $(14,826,767)

 

See Notes to Financial Statements.

 

Annual Report | September 30, 202011

 

 

Beacon Planned Return Strategy FundPortfolio of Investments

 

September 30, 2020

  

Counterparty Expiration
Date
 Strike
Price
  Contracts  Notional
Value
  Value
(Note 2)
 
PURCHASED OPTION CONTRACTS - (120.32%)         
Call Option Contracts (114.51%)         
S&P 500® Mini Index:         
Cowen 10/14/2020 $40.65   575  $19,337,250  $16,982,361 
Cowen 10/14/2020  38.85   375   12,611,250   11,142,950 
Cowen 10/14/2020  299.95   375   12,611,250   1,365,141 
Cowen 10/14/2020  311.54   575   19,337,250   1,454,356 
Cowen 11/13/2020  41.71   400   13,452,000   11,518,092 
Cowen 11/13/2020  319.70   400   13,452,000   925,024 
Cowen 11/13/2020  311.54   400   13,452,000   1,179,005 
Cowen 11/13/2020  40.65   400   13,452,000   11,800,464 
Cowen 12/14/2020  330.60   870   29,258,100   1,671,845 
Cowen 12/14/2020  43.00   870   29,258,100   25,421,417 
Cowen 01/14/2021  43.85   300   10,089,000   8,737,930 
Cowen 01/14/2021  43.00   570   19,169,100   16,650,506 
Cowen 01/14/2021  330.60   570   19,169,100   1,251,542 
Cowen 01/14/2021  336.00   300   10,089,000   557,161 
Cowen 02/12/2021  43.85   630   21,186,900   18,324,261 
Cowen 02/12/2021  336.00   630   21,186,900   1,292,594 
Cowen 02/12/2021  44.15   200   6,726,000   5,811,227 
Cowen 02/12/2021  338.21   200   6,726,000   384,139 
Cowen 03/12/2021  245.53   900   30,267,000   8,365,657 
Cowen 03/12/2021  32.50   900   30,267,000   27,159,619 
Cowen 04/14/2021  36.28   800   26,904,000   23,821,815 
Cowen 04/14/2021  279.72   800   26,904,000   5,146,229 
Cowen 05/14/2021  284.01   930   31,275,900   5,747,765 
Cowen 05/14/2021  36.80   930   31,275,900   27,611,487 
Cowen 06/14/2021  304.70   900   30,267,000   4,233,174 
Cowen 06/14/2021  39.80   900   30,267,000   26,412,712 
Cowen 07/14/2021  42.10   1,100   36,993,000   31,994,641 
Cowen 07/14/2021  321.79   1,100   36,993,000   4,002,273 
Cowen 08/13/2021  44.15   900   30,267,000   25,959,559 
Cowen 08/13/2021  338.21   900   30,267,000   2,434,801 
Cowen 09/14/2021  341.50   1,010   33,966,300   2,642,991 
Cowen 09/14/2021  44.12   1,010   33,966,300   29,098,180 
             730,443,600   361,100,918 

 

See Notes to Financial Statements.

 

12www.beacontrust.com

 

 

Beacon Planned Return Strategy FundPortfolio of Investments

 

September 30, 2020

 

Counterparty Expiration
Date
 Strike
Price
  Contracts  Notional Value  Value
(Note 2)
 
PURCHASED OPTION CONTRACTS - (120.32%) (continued)          
Put Option Contracts (5.81%)          
S&P 500® Mini Index:          
Cowen 10/14/2020 $299.95   375  $12,611,250  $13,127 
Cowen 10/14/2020  311.54   575   19,337,250   47,672 
Cowen 11/13/2020  311.54   400   13,452,000   213,063 
Cowen 11/13/2020  319.70   400   13,452,000   285,450 
Cowen 12/14/2020  330.60   870   29,258,100   1,267,490 
Cowen 01/14/2021  330.60   570   19,169,100   990,532 
Cowen 01/14/2021  336.00   300   10,089,000   581,750 
Cowen 02/12/2021  336.00   630   21,186,900   1,368,690 
Cowen 02/12/2021  338.21   200   6,726,000   452,485 
Cowen 03/12/2021  245.53   900   30,267,000   372,473 
Cowen 04/14/2021  279.72   800   26,904,000   792,277 
Cowen 05/14/2021  284.01   930   31,275,900   1,117,153 
Cowen 06/14/2021  304.70   900   30,267,000   1,650,485 
Cowen 07/14/2021  321.79   1,100   36,993,000   2,758,248 
Cowen 08/13/2021  338.21   900   30,267,000   2,926,577 
Cowen 09/14/2021  341.50   1,010   33,966,300   3,563,222 
             365,221,800   18,400,694 
TOTAL PURCHASED OPTION CONTRACTS             
(Cost $345,974,854)  $1,095,665,400 $379,501,612 

 

  7 Day Yield  Shares  Value
(Note 2)
 
SHORT TERM INVESTMENTS (1.79%)            
Money Market Funds            
Goldman Sachs Financial Square Treasury Instruments Fund Administration Shares(a)  0.00%  55,946   55,946 
Invesco Short-Term Investments Trust Government & Agency Portfolio - Institutional Class  0.02%  5,576,086   5,576,086 
           5,632,032 
TOTAL SHORT TERM INVESTMENTS            
(Cost $5,632,032)          5,632,032 
             
TOTAL INVESTMENTS (122.11%)            
(Cost $351,606,886)         $385,133,644 
             
LIABILITIES IN EXCESS OF OTHER ASSETS (-22.11%)          (69,744,611)
             
NET ASSETS (100.00%)         $315,389,033 

 

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

 

See Notes to Financial Statements.

 

Annual Report | September 30, 202013

 

 

Beacon Planned Return Strategy FundPortfolio of Investments

 

September 30, 2020

 

WRITTEN OPTION CONTRACTS (22.00%)

Counterparty Expiration
Date
 Strike
Price
  Contracts  Premiums
Received
  Notional
Value
  Value
(Note 2)
 
Put Option Contracts - (3.38%)             
S&P 500® Mini Index             
Cowen 10/14/20 $269.96   (375) $388,757  $(12,611,250) $(2,733)
Cowen 10/14/20  280.39   (575)  555,274   (19,337,250)  (5,977)
Cowen 11/13/20  280.39   (400)  431,074   (13,452,000)  (71,241)
Cowen 11/13/20  287.73   (400)  375,474   (13,452,000)  (88,156)
Cowen 12/14/20  297.54   (870)  777,519   (29,258,100)  (520,618)
Cowen 01/14/21  297.54   (570)  546,455   (19,169,100)  (477,452)
Cowen 01/14/21  302.40   (300)  286,403   (10,089,000)  (281,169)
Cowen 02/12/21  302.40   (630)  646,188   (21,186,900)  (719,632)
Cowen 02/12/21  304.39   (200)  244,933   (6,726,000)  (237,690)
Cowen 03/12/21  220.98   (900)  2,364,031   (30,267,000)  (217,869)
Cowen 04/14/21  251.75   (800)  1,773,359   (26,904,000)  (453,644)
Cowen 05/14/21  255.61   (930)  2,039,211   (31,275,900)  (659,863)
Cowen 06/14/21  274.23   (900)  2,030,130   (30,267,000)  (1,014,723)
Cowen 07/14/21  289.61   (1,100)  2,314,073   (36,993,000)  (1,734,375)
Cowen 08/13/21  304.39   (900)  1,807,833   (30,267,000)  (1,865,955)
Cowen 09/14/21  307.35   (1,010)  2,132,821   (33,966,300)  (2,307,788)
             18,713,535   (365,221,800)  (10,658,885)
                       
Call Option Contracts - (18.62%)             
S&P 500® Mini Index             
Cowen 10/14/20  313.09   (750)  846,523   (25,222,500)  (1,788,886)
Cowen 10/14/20  323.70   (1,150)  1,293,408   (38,674,500)  (1,682,312)
Cowen 11/13/20  325.20   (800)  949,359   (26,904,000)  (1,536,481)
Cowen 11/13/20  332.70   (800)  902,159   (26,904,000)  (1,127,427)
Cowen 12/14/20  342.60   (1,740)  1,892,607   (58,516,200)  (2,116,800)
Cowen 01/14/21  343.66   (1,140)  1,276,461   (38,338,200)  (1,625,146)
Cowen 01/14/21  348.25   (600)  692,217   (20,178,000)  (710,525)
Cowen 02/12/21  349.50   (1,260)  1,507,846   (42,373,800)  (1,653,587)
Cowen 02/12/21  349.34   (400)  535,876   (13,452,000)  (528,089)
Cowen 03/12/21  271.56   (1,800)  3,630,070   (60,534,000)  (12,592,605)
Cowen 04/14/21  301.79   (1,600)  2,797,928   (53,808,000)  (7,525,282)
Cowen 05/14/21  304.77   (1,860)  3,103,793   (62,551,800)  (8,542,783)
Cowen 06/14/21  327.00   (1,800)  3,129,670   (60,534,000)  (5,769,061)
Cowen 07/14/21  341.61   (2,200)  3,611,755   (73,986,000)  (5,298,866)
Cowen 08/13/21  357.45   (1,800)  2,899,276   (60,534,000)  (3,045,431)
Cowen 09/14/21  362.43   (2,020)  3,609,153   (67,932,600)  (3,192,423)
             32,678,101   (730,443,600)  (58,735,704)
                       
TOTAL WRITTEN OPTION CONTRACTS  $51,391,636  $(1,095,665,400) $(69,394,589)

 

See Notes to Financial Statements.

 

14www.beacontrust.com

 

 

Beacon Funds TrustStatements of Assets and Liabilities

 

September 30, 2020

 

  

BEACON

ACCELERATED

 RETURN

STRATEGY FUND

  

BEACON

PLANNED RETURN

 STRATEGY FUND 

 
         
ASSETS:        
Investments, at value (Cost $114,589,654 and $351,606,886) $130,984,605  $385,133,644 
Receivable for shares sold  14,169    
Dividends and interest receivable  83   182 
Other assets  16,023   16,751 
Total Assets  131,014,880   385,150,577 
         
LIABILITIES:        
Written options, at value (premiums received $6,687,670 and $51,391,636)  14,826,767   69,394,589 
Payable for administration and transfer agent fees  19,811   43,416 
Payable for shares redeemed     13,045 
Payable to adviser  95,152   257,738 
Payable for distribution and service fees  2,933   9,931 
Payable for printing fees  394   914 
Payable for professional fees  23,389   29,233 
Payable for trustees' fees and expenses  3,683   9,848 
Payable to Chief Compliance Officer fees  716   1,918 
Accrued expenses and other liabilities  853   912 
Total Liabilities  14,973,698   69,761,544 
NET ASSETS $116,041,182  $315,389,033 
         
NET ASSETS CONSIST OF:        
Paid-in capital (Note 5) $106,942,629  $299,299,899 
Total distributable earnings  9,098,553   16,089,134 
NET ASSETS $116,041,182  $315,389,033 
         
PRICING OF SHARES        
Institutional Class :        
Net Asset Value, offering and redemption price per share $10.74  $10.49 
Net Assets $116,041,182  $315,389,033 
Shares of beneficial interest outstanding  10,804,867   30,070,756 

 

See Notes to Financial Statements.

 

Annual Report | September 30, 202015

 

 

Beacon Funds TrustStatements of Operations

 

For the Year Ended September 30, 2020

 

  

BEACON

ACCELERATED

 RETURN

STRATEGY FUND

  

BEACON

PLANNED RETURN

 STRATEGY FUND 

 
INVESTMENT INCOME:      
Dividends $10,218  $29,487 
Total Investment Income  10,218   29,487 
         
EXPENSES:        
Investment advisory fees (Note 7)  1,128,082   2,987,780 
Administration fees  98,634   239,466 
Shareholder service fees Institutional Class  27,491   122,379 
Custody fees  5,326   5,431 
Legal fees  10,444   27,567 
Audit and tax fees  19,000   19,000 
Transfer agent fees  29,313   58,291 
Trustees fees and expenses  14,838   39,290 
Registration and filing fees  27,080   28,914 
Printing fees  2,360   5,797 
Chief Compliance Officer fees  8,587   22,743 
Insurance fees  5,187   13,365 
Other expenses  4,062   6,522 
Total Expenses  1,380,404   3,576,545 
NET INVESTMENT LOSS  (1,370,186)  (3,547,058)
         
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND WRITTEN OPTIONS:        
Net realized gain/(loss) on: 
Investments  16,512,562   37,042,661 
Written options  (4,965,103)  (14,391,596)
Net realized gain  11,547,459   22,651,065 
Change in unrealized appreciation/(depreciation) on:   
Investments  7,637,023   13,632,953 
Written options  (6,369,302)  (12,330,137)
Net change  1,267,721   1,302,816 
         
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND WRITTEN OPTIONS  12,815,180   23,953,881 
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $11,444,994  $20,406,823 

 

See Notes to Financial Statements.

 

16www.beacontrust.com

 

 

Beacon Accelerated 
Return Strategy FundStatements of Changes in Net Assets

 

 

  

For the Year

Ended

 September 30,

2020

  

For the Year

Ended

 September 30,

2019

 
OPERATIONS:      
Net investment loss $(1,370,186) $(1,416,335)
Net realized gain on investments and written options  11,547,459   8,582,606 
Net change in unrealized appreciation/(depreciation) on investments and written options  1,267,721   (4,491,207)
Net increase in net assets resulting from operations  11,444,994   2,675,064 
DISTRIBUTIONS TO SHAREHOLDERS        
Class A (a)     (1,311)
Institutional Class  (5,021,704)  (17,982,239)
Total distributions  (5,021,704)  (17,983,550)
         
BENEFICIAL SHARE TRANSACTIONS (Note 6):        
Class A (a)        
Dividends reinvested     1,311 
Shares redeemed     (10,971)
Net decrease from beneficial share transactions     (9,660)
Institutional Class        
Shares sold  2,294,251   20,818,136 
Dividends reinvested  4,912,463   17,459,214 
Shares redeemed  (16,630,726)  (58,445,591)
Net decrease from beneficial share transactions  (9,424,012)  (20,168,241)
Net decrease in net assets  (3,000,722)  (35,486,387)
         
NET ASSETS:        
Beginning of year  119,041,904   154,528,291 
End of year $116,041,182  $119,041,904 

 

(a)Effective as of September 26, 2019, the Fund has suspended the offering of its Class A shares.

 

See Notes to Financial Statements.

 

Annual Report | September 30, 202017

 

 

Beacon Planned 
Return Strategy FundStatements of Changes in Net Assets

 

 

  For the Year
Ended
September 30,
2020
  For the Year
Ended
September 30,
2019
 
OPERATIONS:      
Net investment loss $(3,547,058) $(3,508,699)
Net realized gain on investments and written options  22,651,065   24,344,083 
Net change in unrealized appreciation/(depreciation) on investments and written options  1,302,816   (5,639,651)
Net increase in net assets resulting from operations  20,406,823   15,195,733 
DISTRIBUTIONS TO SHAREHOLDERS        
Class A (a)     (762)
Institutional Class  (19,513,463)  (24,405,566)
Total distributions  (19,513,463)  (24,406,328)
         
BENEFICIAL SHARE TRANSACTIONS (Note 6):        
Class A (a)        
Dividends reinvested     762 
Shares redeemed     (10,816)
Net decrease from beneficial share transactions     (10,054)
Institutional Class        
Shares sold  27,902,211   23,162,773 
Dividends reinvested  16,951,434   21,646,863 
Shares redeemed  (36,881,950)  (80,670,196)
Net increase/(decrease) from beneficial share transactions  7,971,695   (35,860,560)
Net increase/(decrease) in net assets  8,865,055   (45,081,209)
         
NET ASSETS:        
Beginning of year  306,523,978   351,605,187 
End of year $315,389,033  $306,523,978 

 

(a)Effective as of September 26, 2019, the Fund has suspended the offering of its Class A shares.

 

See Notes to Financial Statements.

 

18www.beacontrust.com

 

 

Beacon Accelerated 

Return Strategy Fund – Institutional Class 

Financial Highlights

 

For a Share Outstanding Throughout the Period Presented

 

  

For the Year  

Ended 

September 30, 

2020 

  

For the Year  

Ended 

September 30, 

2019 

  

For the Period  

Ended 

September 30,  

2018 (a)  

 
NET ASSET VALUE, BEGINNING OF PERIOD $10.15  $11.30  $10.00 
             
INCOME/(LOSS) FROM OPERATIONS:            
Net investment loss(b)  (0.12)  (0.11)  (0.13)
Net realized and unrealized gain on investments  1.15   0.37   1.49 
Total from investment operations  1.03   0.26   1.36 
             
LESS DISTRIBUTIONS:            
From net realized gains on investments  (0.44)  (1.41)  (0.06)
Total Distributions  (0.44)  (1.41)  (0.06)
NET INCREASE/(DECREASE) IN            
NET ASSET VALUE  0.59   (1.15)  1.30 
NET ASSET VALUE, END OF PERIOD $10.74  $10.15  $11.30 
             
TOTAL RETURN(c)  10.32%  5.09%  13.70%
             
SUPPLEMENTAL DATA:            
Net assets, end of period (in 000s) $116,041  $119,042  $154,518 
             
RATIOS TO AVERAGE NET ASSETS            
Operating expenses (d)  1.22%  1.20%  1.29%(e)
Net investment loss  (1.21%)  (1.16%)  (1.25%)(e)
             
PORTFOLIO TURNOVER RATE(f)  0%  0%  0%

 

(a)Commenced operations on October 2, 2017.
(b)Calculated using the average shares method.
(c)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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

See Notes to Financial Statements.

 

Annual Report | September 30, 202019

 

 

Beacon Accelerated 

Return Strategy Fund – Institutional Class 

Financial Highlights

 

For a Share Outstanding Throughout the Period Presented

 

(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, 2020, the period ended September 30, 2019, and the period ended September 30, 2018, respectively, in the amount of 0.00% (annualized), 0.14% (annualized), and 0.06% (annualized) of average net assets of Institutional Class shares.
(e)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 Planned 

Return Strategy Fund – Institutional Class 

Financial Highlights

 

For a Share Outstanding Throughout the Period Presented

 

  

For the Year 

Ended 

September 30,

2020 

  

For the Year 

Ended 

September 30,

2019 

  

For the Period 

Ended

September 30, 

2018 (a)

 
NET ASSET VALUE, BEGINNING OF PERIOD $10.44  $10.73  $10.00 
             
INCOME/(LOSS) FROM OPERATIONS:            
Net investment loss(b)  (0.12)  (0.11)  (0.13)
Net realized and unrealized gain on investments  0.85   0.62   0.89 
Total from investment operations  0.73   0.51   0.76 
             
LESS DISTRIBUTIONS:            
From net realized gains on investments  (0.68)  (0.80)  (0.03)
Total Distributions  (0.68)  (0.80)  (0.03)
NET INCREASE/(DECREASE) IN            
NET ASSET VALUE  0.05   (0.29)  0.73 
NET ASSET VALUE, END OF PERIOD $10.49  $10.44  $10.73 
             
TOTAL RETURN(c)  7.21%  5.77%  7.64%
             
SUPPLEMENTAL DATA:            
Net assets, end of period (in 000s) $315,389  $306,524  $351,595 
             
RATIOS TO AVERAGE NET ASSETS            
Operating expenses (d)  1.20%  1.17%  1.25%(e)
Net investment loss  (1.19%)  (1.13%)  (1.23%)(e)
             
PORTFOLIO TURNOVER RATE(f)  0%  0%  0%

 

(a)Commenced operations on October 2, 2017.
(b)Calculated using the average shares method.
(c)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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

See Notes to Financial Statements.

 

Annual Report | September 30, 202021

 

 

Beacon Planned 

Return Strategy Fund – Institutional Class 

Financial Highlights

 

For a Share Outstanding Throughout the Period Presented

 

(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, 2020, the period ended September 30, 2019, and the period ended September 30, 2018, respectively, in the amount of 0.00% (annualized), 0.14% (annualized), and 0.06% (annualized) of average net assets of Institutional Class shares.
(e)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 Funds Trust

Notes to Financial Statements 

 

September 30, 2020

 

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 Institutional Class shares. The Board of Trustees (the “Board”) may establish additional funds and classes of shares at any time in the future without shareholder approval.

 

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 (“FASB”) 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 increases and decreases in net assets from operations 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”). Money market funds, representing short-term investments, are valued at their NAV.

 

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.

 

 

Annual Report | September 30, 202023

 

 

Beacon Funds TrustNotes to Financial Statements

 

September 30, 2020

 

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.

 

The following is a summary of the inputs used to value the Funds’ investments as of September 30, 2020:

 

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 $  $127,833,671  $  $127,833,671 
Short Term Investments  3,150,934         3,150,934 
Total $3,150,934  $127,833,671  $  $130,984,605 

 

  Valuation Inputs    
Other Financial Instruments Level 1  Level 2  Level 3  Total 
Liabilities            
Written Option Contracts $  $(14,826,767) $  $(14,826,767)
Total $  $(14,826,767) $  $(14,826,767)

 

 

24www.beacontrust.com

 

 

Beacon Funds TrustNotes to Financial Statements

 

September 30, 2020

 

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 $  $379,501,612  $  $379,501,612 
Short Term Investments  5,632,032         5,632,032 
Total $5,632,032  $379,501,612  $  $385,133,644 

 

  Valuation Inputs    
Other Financial Instruments Level 1  Level 2  Level 3  Total 
Liabilities            
Written Option Contracts $  $(69,394,589) $  $(69,394,589)
Total $  $(69,394,589) $  $(69,394,589)

 

There were no Level 3 securities held during the year.

 

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 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.

 

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.

 

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 fiscal year ended September 30, 2020, 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, 2020, no provision for income tax is required in the Funds’ financial statements related to these tax positions.

 

 

Annual Report | September 30, 202025

 

 

Beacon Funds TrustNotes to Financial Statements

 

September 30, 2020

 

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. 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.

 

COVID-19 Risk: A recent outbreak of respiratory disease caused by a novel coronavirus was first detected in December 2019 and has spread internationally. This coronavirus has resulted in closing borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general concern and uncertainty. The impact of this coronavirus, and other epidemics and pandemics that may arise in the future, could affect the economies of many nations, individual companies, their securities (including equity and debt), and the market in general in ways that cannot necessarily be foreseen at the present time. In addition, the impact of infectious diseases in developing or emerging market countries may be greater due to less established health care systems. Health crises caused by the recent coronavirus outbreak may exacerbate other pre-existing political, social and economic risks in certain countries. The impact of the outbreak may be short term or may last for an extended period of time.

 

3. DERIVATIVE INSTRUMENTS

 

 

Each Fund's principal investment strategy permits it 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.

 

 

26www.beacontrust.com

 

 

Beacon Funds TrustNotes to Financial Statements

 

September 30, 2020

 

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.

 

 

Annual Report | September 30, 202027

 

 

Beacon Funds TrustNotes to Financial Statements

 

September 30, 2020

 

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.

 

 

28www.beacontrust.com

 

 

Beacon Funds TrustNotes to Financial Statements

 

September 30, 2020

 

The average option contract notional amount during the fiscal year ended September 30, 2020, 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  $220,558,746 
Written Option Contracts Notional value of contracts outstanding  $220,558,746 

 

Derivative Type Unit of Measurement  Monthly Average 
Beacon Planned Return Strategy Fund       
Purchased Option Contracts Notional value of contracts outstanding  $1,023,705,571 
Written Option Contracts Notional value of contracts outstanding  $1,023,705,751 

 

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, 2020:

 

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 $127,833,671  Written Options, at value $14,826,767 
    $127,833,671    $14,826,767 
             
Beacon Planned Return Strategy Fund          
Equity Contracts (Purchased Options/ Written Options) Investments, at value $379,501,612  Written Options, at value $69,394,589 
    $379,501,612    $69,394,589 

 

 

Annual Report | September 30, 202029

 

 

Beacon Funds TrustNotes to Financial Statements

 

September 30, 2020

 

The effect of derivative instruments on the Statements of Operations for the fiscal year ended September 30, 2020:

 

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 $16,513,852  $7,637,023 
Equity Contracts
(Written Options)
 Net realized gain/(loss) on written option contracts/Net change in unrealized appreciation/ (depreciation) on written option contracts  (4,965,103)  (6,369,302)
Total   $11,548,749  $1,267,721 
Beacon Planned Return Strategy Fund
Equity Contracts
(Purchased Options)
 Net realized gain/(loss) on investments/Net change in unrealized appreciation/ (depreciation) on investments $37,056,323  $13,632,953 
Equity Contracts
(Written Options)
 Net realized gain/(loss) on written option contracts/Net change in unrealized appreciation/ (depreciation) on written option contracts  (14,391,596)  (12,330,137)
Total   $22,664,727  $1,302,816 

 

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.

 

 
30www.beacontrust.com

 

 

Beacon Funds TrustNotes to Financial Statements

 

September 30, 2020

 

The tax character of distributions paid during the fiscal year ended September 30, 2020, were as follows:

 

  

Ordinary

Income

  

Long-Term

Capital Gains

 
Beacon Accelerated Return Strategy Fund $1,155,236  $3,866,468 
Beacon Planned Return Strategy Fund  5,690,489   13,822,974 

 

The tax character of distributions paid during the fiscal year ended September 30, 2019, were as follows:

 

  

Ordinary

Income

  

Long-Term

Capital Gains

 
Beacon Accelerated Return Strategy Fund $6,405,718  $11,577,832 
Beacon Planned Return Strategy Fund  7,760,438   16,645,890 

 

Reclassifications: As of September 30, 2020, there were no permanent reclassifications.

 

Unrealized Appreciation and Depreciation on Investments and Derivative Instruments: As of September 30, 2020, 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 $  $ 
Cost of investments for income tax purposes $130,984,605  $385,133,644 

  

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

 

 
Annual Report | September 30, 202031

 

 

Beacon Funds TrustNotes to Financial Statements

 

September 30, 2020

 

Components of Distributable Earnings: At September 30, 2020, components of distributable earnings were as follows:

 

  

Beacon

Accelerated

Return

Strategy Fund

  

Beacon

Planned

Return

Strategy Fund

 
Undistributed ordinary income $2,817,768  $4,302,534 
Accumulated capital gains  6,280,785   11,786,600 
Total $9,098,553  $16,089,134 

  

5. SECURITIES TRANSACTIONS

 

 

Purchases and sales of securities, excluding short-term securities, during the fiscal year ended September 30, 2020 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 fiscal year ended September 30, 2020, the redemption fees charged by the Funds, if any, are presented in the Statements of Changes in Net Assets.

 

 
32www.beacontrust.com

 

 

Beacon Funds TrustNotes to Financial Statements

 

September 30, 2020

 

Transactions in common shares were as follows:

 

  

For the

Year Ended

September 30,

2020

  

For the

Year Ended

September 30,

2019

 
Beacon Accelerated Return Strategy Fund        
Class A(a)        
Shares sold      
Shares issued in reinvestment of distributions to shareholders     158 
Shares redeemed     (1,085)
Net decrease in shares outstanding     (927)
Institutional Class        
Shares sold  225,873   2,080,398 
Shares issued in reinvestment of distributions to shareholders  478,331   2,098,463 
Shares redeemed  (1,624,133)  (6,123,424)
Net decrease in shares outstanding  (919,929)  (1,944,563)
         
Beacon Planned Return Strategy Fund        
Class A(a)        
Shares sold      
Shares issued in reinvestment of distributions to shareholders     83 
Shares redeemed     (1,040)
Net decrease in shares outstanding     (957)
Institutional Class        
Shares sold  2,760,515   2,426,904 
Shares issued in reinvestment of distributions to shareholders  1,680,023   2,368,365 
Shares redeemed  (3,738,778)  (8,191,159)
Net increase/(decrease) in shares outstanding  701,760   (3,395,890)

  

(a) Effective as of September 26, 2019, the Fund has suspended the offering of its Class A shares.

 

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 98% of the outstanding shares of the Beacon Accelerated Return Strategy 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.

 

 
Annual Report | September 30, 202033

 

 

Beacon Funds TrustNotes to Financial Statements

 

September 30, 2020

 

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.

 

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% based on average daily net assets 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 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 the Institutional Class shares and 1.40% of the Beacon Planned Return Strategy Fund’s average daily net assets for the Institutional Class shares. The Fee Waiver Agreement is in effect through January 31, 2021, and will thereafter continue in effect for successive twelve-month periods provided that such continuance is specifically approved at least annually by the Board and the Adviser does not provide at least 30 days written notice of non-continuance prior to the end of the then effective term. The Adviser may not terminate the Fee Waiver Agreement without the approval of the 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 fiscal year ended September 30, 2020.

 

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 of the Trust are employees of ALPS. Administration fees paid by the Funds for the fiscal year ended September 30, 2020 are disclosed in the Statements of Operations. ALPS is reimbursed by the Funds for certain out-of-pocket expenses.

 

 

34www.beacontrust.com

 

Beacon Funds TrustNotes to Financial Statements

 

September 30, 2020

 

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 Chief Compliance Officer services to each Fund 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.

 

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 shareholder services plan (“Shareholder Services Plan”) for its 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 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. Shareholder Services Plan fees paid by the Funds are disclosed in the Statements of Operations.

 

8. TRUSTEES

 

  

As of September 30, 2020, there were four Trustees, three of whom are not “interested persons” (as defined in the 1940 Act) of the Trust (the “Independent Trustees”). The Independent Trustees of the Trust and interested Trustees who are not currently employed by the Adviser, ALPS or other service providers will receive a quarterly retainer of $11,000, 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 the Independent Chair receives a quarterly retainer of $2,500. The Independent Trustees and interested Trustees who are not currently employed by the Adviser, ALPS or other service providers are also reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings. Officers of the Trust receive no salary or fees from the Trust. As discussed in Note 7, the Fund pays ALPS an annual fee for compliance services.

 

 

Annual Report | September 30, 202035

 

Beacon Funds TrustNotes to Financial Statements

 

September 30, 2020

 

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. Management has determined that there were no subsequent events to report through the issuance of these financial statements.

 

 

36www.beacontrust.com

 

 Report of Independent Registered
Beacon Funds TrustPublic Accounting Firm

 

 

To the 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, 2020, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, including the related notes, and the financial highlights for each of the three periods in the period then ended (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, 2020, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the three periods in the period then ended, 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 audits. 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 audits 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 audits 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, 2020, by correspondence with the custodian and brokers. Our audits 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 audits provide a reasonable basis for our opinion.

 

We have served as the Funds’ auditor since 2018.

 

  (image)

 

COHEN & COMPANY, LTD. 

Cleveland, Ohio

November 25, 2020

 

 

Annual Report | September 30, 202037

 

 Disclosure Regarding Renewal and
Beacon Funds TrustApproval of Fund Advisory Agreement

 

September 30, 2020 (Unaudited)

 

On August 17, 2020, the Board of Trustees (the “Board”) of ALPS Series Trust (the “Trust”) met via electronic means to discuss, among other things, the renewal and approval of the Investment Advisory Agreement (the “Beacon Agreement”) between the Trust and Beacon Investment Advisory Services, Inc. (“Beacon”) with respect to the Beacon Accelerated Return Strategy Fund (“BARS Fund”) and the Beacon Planned Return Strategy Fund (“BPRS Fund”) (the BARS Fund and BPRS Fund, collectively the “Beacon Funds”), in accordance with Section 15(c) of the 1940 Act. The Independent Trustees met with independent legal counsel during executive session and discussed the Beacon Agreement and other related materials.

 

In anticipation of and as part of the process to consider renewal of the Beacon Agreement, legal counsel to the Trust requested certain information from Beacon. In response to these requests, the Trustees received reports from Beacon that addressed specific factors to be considered by the Board. The Board also received from independent legal counsel memoranda regarding the Board’s responsibilities pertaining to the approval of advisory contracts. Further, the Board met with representatives of Beacon and discussed the services of the firm provided pursuant to the Beacon Agreement, as well as the information provided by Beacon. In evaluating Beacon and the fees charged under the Beacon Agreement, 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 renew the Beacon Agreement. Further, the Independent Trustees were advised by independent legal counsel throughout the process. The following summary does not identify all the matters considered by the Board, but provides a summary of the principal matters the Board considered.

 

Nature Extent and Quality of the Services: The Trustees received and considered information regarding the nature, extent and quality of services provided to the Beacon Funds under the Beacon Agreement. The Trustees reviewed certain background materials supplied by Beacon in its presentation, including its Form ADV and ownership structure as a subsidiary of a larger organization.

 

The Trustees reviewed and considered Beacon’s investment advisory personnel, its history as an asset manager and its performance. They commented favorably on Beacon’s disciplined, systematic approach to allocations while applying some level of downside protection. The Trustees also reviewed the research and decision-making processes utilized by the Beacon, including the methods adopted to seek to achieve compliance with the investment objectives, policies and restrictions of the Beacon Funds. They considered the Trust’s experience with Beacon over the last year, including the firm’s strong responsiveness to the officers of the Trust and excellent compliance record.

 

The Trustees considered the background and experience of Beacon’s team, including reviewing the qualifications, background and responsibilities of the portfolio manager primarily responsible for the day-to-day portfolio management of the Beacon Funds and the extent of the resources devoted to research and analysis of actual and potential investments, and execution of the strategy. The Trustees also reviewed, among other things, Beacon’s Code of Ethics. The Trustees also considered Beacon’s reputation generally and its risk management controls and decision-making processes. The Board agreed that the nature, extent and quality of services rendered by Beacon under the Beacon Agreement were satisfactory.

 

 

38www.beacontrust.com

 

 Disclosure Regarding Renewal and
Beacon Funds TrustApproval of Fund Advisory Agreement

 

September 30, 2020 (Unaudited)

 

Investment Advisory Fee Rate: The Trustees reviewed and considered the contractual annual advisory fee paid by the Beacon Funds to Beacon of 1.00% of each Beacon Fund’s daily average net assets, considering the nature, extent and quality of the advisory services provided by Beacon to the Beacon Funds. The Board considered the information they received comparing each Beacon Fund’s contractual annual advisory fees and overall expenses with those of funds in the expense group and universe of funds provided by FUSE, an independent provider of investment company data.

 

The Trustees noted that the BARS Fund’s contractual advisory fee of 1.00% was slightly above the peer group median, but within the range of the peer group. The Board also noted that the BARS Fund’s net expense ratio was at the peer group median level. With respect to the BPRS Fund, its contractual advisory fee of 1.00% was slightly above the peer group median, but within the range of the peer group. The Board also noted that the BPRS Fund’s net expense ratio was also above the peer group median, but within the range of the peer group. The Board acknowledged Beacon’s representations regarding the differences in strategies of the peer funds compared to the Beacon Funds, noting that the Funds’ strategy may require more resources to execute than certain peer funds. After further consideration, the Trustees determined that the contractual annual advisory fees, taking into consideration the total net expenses for each Beacon Fund, were not unreasonable for the quality of services provided.

 

Performance: The Board reviewed performance information provided for the Beacon Funds for the quarter ended June 30, 2020 compared to each Beacon Fund’s benchmark index, and for the 3-month, one-year and since inception periods ended May 31, 2020 against a peer group selected by FUSE. The Trustees observed that the returns for each Beacon Fund’s second quarter 2020 significantly outperformed the benchmark index. In addition, for each of the 3-month, one year and since inception periods ended May 31, 2020, the Beacon Funds each significantly outperformed their respective peer group median performance, ranking among the top funds within the peer group. The Board noted their satisfaction with each Beacon Fund’s performance, giving credit to Beacon’s disciplined execution of its strategy.

 

Profitability: The Trustees received and considered a profitability analysis prepared by Beacon based on the fees paid under the Beacon Agreement. The Trustees noted that Beacon’s work with the Beacon Funds was profitable, but that the amount of profit was not unreasonable in absolute terms or as a percentage of income. They considered the benefit to Beacon of the soft dollar arrangements and reviewed and discussed the financial statements of Beacon’s parent company, recognizing that Beacon’s parent was well capitalized. Further, in consideration of the fact that Beacon’s work with the Beacon Funds was profitable, the Board did not have concerns regarding the firm’s continued viability.

 

Economies of Scale: The Trustees considered whether Beacon was benefiting from economies of scale in the provision of services to each Beacon Fund and whether such economies should be shared with the Beacon Funds’ shareholders under the Beacon Agreement. The Board noted Beacon’s belief that, because the firm was part of a large organization, it was able achieve certain internal economies through resource sharing with its parent company and thus was able to charge the Beacon Funds a lower advisory fee at current asset levels than it otherwise would be able to if Beacon was a smaller organization. The Board reviewed the size of Beacon Funds and their prospects for growth and agreed that neither Beacon Fund had yet achieved meaningful economies that would necessitate the establishment of breakpoints, but agreed to continue to monitor and revisit the issue at the appropriate time.

 

 

Annual Report | September 30, 202039

 

 Disclosure Regarding Renewal and
Beacon Funds TrustApproval of Fund Advisory Agreement

 

September 30, 2020 (Unaudited)

 

Other Benefits to the Adviser: The Trustees reviewed and considered any other incidental benefits derived or to be derived by Beacon from its relationship with each Beacon Fund, including research and other support services, noting nothing of concern.

 

Having requested and reviewed such information from Beacon as the Board believed to be reasonably necessary to evaluate the terms of the Beacon Agreement, the Trustees, including all the Independent Trustees, concluded that renewal of the Beacon Agreement was in the best interests of each Beacon Fund and its respective shareholders.

 

Based on the Trustees’ deliberations and their evaluation of the information described above, the Trustees, including all the Independent Trustees, concluded that renewal of the Beacon Agreement with Beacon was in the best interests of the Beacon Funds and its shareholders.

 

 

40www.beacontrust.com

 

Beacon Funds TrustAdditional Information

 

September 30, 2020 (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’ portfolio holdings are made available semi-annually in shareholder reports within 60 days after the close of the period for which the report is being made, as required by federal securities laws. Each Fund files its complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Funds’ Form N-PORT reports are available on the SEC’s website at www.sec.gov. The Funds’ portfolio holdings are also available upon request, without charge, by calling (toll-free) 1-866-377-8090 or by writing to Beacon Trust at 163 Madison Avenue, Suite 600, Morristown, New Jersey 07960.

 

3. TAX DESIGNATIONS

 

  

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

 

Beacon Accelerated Return Strategy Fund: $3,866,468

Beacon Planned Return Strategy Fund: $13,822,974

 

The Funds designate the percentages listed below of the income dividends distributed in 2019 as qualified dividend income (QDI) as defined in Section 1(h)(11) of the Internal Revenue Code:

 

Beacon Accelerated Return Strategy Fund: 0.00%

Beacon Planned Return Strategy Fund: 0.00%

 

The Funds designate the percentages listed below of the income dividends distributed in 2019 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 Fund: 0.00%

Beacon Planned Return Strategy Fund: 0.00%

 

 

Annual Report | September 30, 202041

 

Beacon Funds TrustLiquidity Risk Management Program

 

September 30, 2020 (Unaudited)

 

The Trust has adopted and implemented a liquidity risk management program (the “Program”), as consistent with Rule 22e-4 to govern the Trust’s approach to managing liquidity risk for each Fund. The Program is overseen by the Liquidity Committee (the “Committee”), which is comprised of representatives of the Trust and ALPS. The Board has approved the designation of the Committee to oversee the Program.

 

The Program’s principal objectives include supporting each Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that a Fund will be unable to meet its redemption obligations in a timely manner. The Program also includes a number of elements that support the management and assessment of liquidity risk, including an annual assessment of factors that influence a Fund’s liquidity and the periodic classification and re-classification of the Fund’s investments into groupings that reflect the Committee’s assessment of their relative liquidity under current market conditions.

 

At a meeting of the Board held on May 21, 2020, the Committee provided a report (the “Report”) to the Board addressing the operation, adequacy, and effectiveness the Program, including any material changes to the Program for the period from April 1, 2019 through March 31, 2020 (“Reporting Period”). The Report concluded that the Trust’s Program was reasonably designed to assess and manage each Fund’s liquidity risk and was adequately and effectively implemented during the Reporting Period. There were no material changes to the Program during the Reporting Period. The Report further concluded that each Fund’s investment strategy continues to be appropriate given each Fund’s status as an open-end fund.

 

There can be no assurance that the Program will achieve its objectives in the future. Additional information regarding risks of investing in each Fund, including liquidity risks presented by the Trust’s investment portfolios, is found in the Trust’s Prospectus and Statement of Additional Information.

 

 

42www.beacontrust.com

 

Beacon Funds TrustPrivacy Policy

 

September 30, 2020 (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.

 

 
Annual Report | September 30, 202043

 

 

Beacon Funds TrustPrivacy Policy
 

September 30, 2020 (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.

 

 
44www.beacontrust.com

 

 

Beacon Funds TrustPrivacy Policy
 

September 30, 2020 (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.

 

 
Annual Report | September 30, 202045

 

 

Beacon Funds TrustTrustees and Officers

 

 September 30, 2020 (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.Mr. Armstrong is currently retired. From February 2010 to July 2015, he was Co-Founder and Managing Partner of NorthRock Partners, a private wealth advisory firm providing comprehensive wealth management and family office services to the high net-worth marketplace. Previously, he was Senior Vice President, Ameriprise Financial (September 2005 to May 2007); Chairman of Ameriprise Trust Company (2005 – 2007) and President, American Express Institutional Asset Management (1984 – 2002). He has also served on several investment related Boards including Kenwood Capital Management, RiverSource Investments, American Express Asset Management International and was Chair of the Ordway Theatre Endowment Committee.9Mr. Armstrong is a Director of the Heartland Group, Inc. (3 funds).

 

*All communications to Trustees and Officers may be directed to ALPS Series Trust c/o 1290 Broadway, Suite 1000, 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 9 series of the Trust.

 

 

46www.beacontrust.com

 

Beacon Funds TrustTrustees and Officers

 

 September 30, 2020 (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 2000 to January 2020, he served as Trustee of the Denver Museum of Nature and Science and from May 2012 to February 2020, he was a Trustee of Children's Hospital Colorado. 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 Director of AMG National Trust Bank (June 2012 to present). Prior to these positions, Mr. Hutchens spent 29 years in the banking industry, retiring as Chairman of Chase Bank Colorado.9Mr. Hutchens is a Director of RiverNorth Opportunities Fund, Inc. (2013 to present), RiverNorth Opportunistic Municipal Income Fund, Inc. (2018 to present), RiverNorth/Doubleline Strategic Opportunity Fund, Inc. (2018 to present), RiverNorth Specialty Finance Corporation (2018 to present), RiverNorth Managed Duration Municipal Income Fund, Inc. (2019 to present), RiverNorth Flexible Municipal Income Fund, Inc. (2020 to present). He is an Advisory Board member of RiverNorth Funds (3 funds) (2020 to present).

 

*All communications to Trustees and Officers may be directed to ALPS Series Trust c/o 1290 Broadway, Suite 1000, 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 9 series of the Trust.

 

 

Annual Report | September 30, 202047

 

Beacon Funds TrustTrustees and Officers

 

 September 30, 2020 (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***
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 1994.9Mr. 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 1000, 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 9 series of the Trust.

 

 

48www.beacontrust.com

 

Beacon Funds TrustTrustees and Officers

 

 September 30, 2020 (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

TrusteeMr. May was elected Trustee on October 30, 2012. Mr. May was President from October 30, 2012 to May 23, 2019. Mr. May was Chairman from October 30, 2012 to August 24, 2017.Mr. May previously served as 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., working at ALPS from June 1995 until June 2019. 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.9Mr. May is Trustee of the Reaves Utility Income Fund (1 fund).

 

*All communications to Trustees and Officers may be directed to ALPS Series Trust c/o 1290 Broadway, Suite 1000, 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 9 series of the Trust.

 

 

Annual Report | September 30, 202049

 

Beacon Funds TrustTrustees and Officers

 

 September 30, 2020 (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***

Bradley Swenson

Birth year: 1972

PresidentSince May 2019Mr. Swenson joined ALPS Fund Services, Inc. (“ALPS”) in 2004 and has served as its President since June 2019. In this role, he serves as an officer to certain other closed-end and open-end investment companies. He previously served as the Chief Operating Officer of ALPS (2015-2019). Mr. Swenson also previously served as Chief Compliance Officer to ALPS, its affiliated entities, and to certain ETF, closed-end and open-end investment companies (2004-2015).

Erich Rettinger

Birth year: 1985

TreasurerSince August 2020Mr. Rettinger joined ALPS in 2007 and is currently Vice President and Fund Controller of ALPS. He has served as Fund Controller, ALPS Fund Services, Inc. (since 2013) and Fund Accounting, ALPS Fund Services, Inc. (2013-2017). Mr. Rettinger is also Assistant Treasurer of the Stone Harbor Investment Funds, the Stone Harbor Emerging Markets Income Fund and the Stone Harbor Emerging Markets Total Income Fund.

Vilma DeVooght

Birth year: 1977

SecretarySince May 2020Ms. DeVooght has served as Senior Counsel of ALPS since 2014 and previously served as Associate Counsel of First Data Corporation from 2012 to 2014 and Legal Counsel of Invesco 2009 to 2011. Ms. DeVooght also serves as Assistant Secretary of the Stone Harbor Investment Funds, the Stone Harbor Emerging Markets Income Fund and the Stone Harbor Emerging Markets Total Income Fund (since 2015).

 

*All communications to Trustees and Officers may be directed to ALPS Series Trust c/o 1290 Broadway, Suite 1000, 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 9 series of the Trust.

 

 

50www.beacontrust.com

 

Beacon Funds TrustTrustees and Officers

 

 September 30, 2020 (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***

Anne M. Berg

Birth year: 1973

Assistant SecretarySince August 2018Ms. Berg joined ALPS as Senior Investment Company Act Paralegal in February 2017. Prior to joining ALPS, she was a Senior Legal Manager at Janus Capital Management LLC (2000-2017).

Lucas D. Foss

Birth year: 1977

Chief Compliance OfficerSince January 2018Mr. Foss rejoined 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 (2015-2017) and Deputy Chief Compliance Officer at ALPS (2012-2015). Mr. Foss is also CCO of X-Square Balanced Fund, Goehring & Rozencwajg Investment Funds, Broadstone Real Estate Access Fund, Inc., Clough Global Funds; Clough Funds Trust; SPDR® S&P 500® ETF Trust, SPDR® Dow Jones® Industrial Average ETF Trust, SPDR® S&P MIDCAP 400® ETF Trust and 1WS Credit Income Fund.

 

*All communications to Trustees and Officers may be directed to ALPS Series Trust c/o 1290 Broadway, Suite 1000, 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 9 series of the Trust.

 

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 Funds (toll-free) at 1-844-894-9222.

 

 

Annual Report | September 30, 202051

 

(image) 

 

This material must be preceded by a prospectus.

The Beacon Funds are distributed by ALPS Distributors, Inc.

 

 

 

 

 

 

 

Table of Contents

 

 

Shareholder Letter1
Portfolio Update3
Disclosure of Fund Expenses5
Portfolio of Investments6
Statement of Assets and Liabilities12
Statement of Operations13
Statements of Changes in Net Assets14
Financial Highlights15
Notes to Financial Statements17
Report of Independent Registered Public Accounting Firm23
Additional Information24
Liquidity Risk Management Program Disclosure25
Privacy Policy26
Trustees & Officers28

 

Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website at www.carret.com, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

 

You may, notwithstanding the availability of shareholder reports online, elect to receive all future shareholder reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Fund, you can call 1-833-287-7933 to let the Fund know you wish to continue receiving paper copies of your shareholder reports.

 

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by enrolling at www.carret.com.

 
 
Carret Kansas Tax-Exempt Bond FundShareholder Letter

 

September 30, 2020 (Unaudited)

 

By the time the 2020 fiscal year wound to a close, the tone of the municipal bond market was dramatically more subdued than in previous months, exhibiting essentially none of the volatility that plagued the market from earlier in the year. Overall, municipal bond investors continued to experience positive returns as interest rates steadily drifted lower – and prices moved slightly higher – through the end of September.

 

As most investors recall, municipal yields rose dramatically in mid-March when the municipal bond market experienced a rapid sell-off due to Covid-19 fears and growing concerns about its effects on municipal credit. Once the Federal Reserve announced its commitment to “backstop” the credit markets, and Congress agreed upon the $2.2 trillion CARES stimulus plan aimed at helping the struggling U.S. economy and its workers, municipal bond yields began to trend lower and “normalized” to a degree.

 

Initially, Kansas and its various municipalities were less affected by the Coronavirus than most of the coastal states and cities; however, since the state’s economy is primarily based on agriculture and manufacturing, Kansas could not avoid the fallout from the pandemic. That put quite a bit of pressure on local economies, and by the end of May, the unemployment rate for Kansas stood at 10% and reached even higher levels in some metro areas (Wichita peaked at 17.7%).

 

From May through June, the U.S. economy continued to face difficult challenges, and discussions began at the federal level about fiscal aid to states and local municipalities to help mitigate the economic impacts of Covid-19 and help limit long-term budgetary impacts. While the Federal Reserve abided by its commitment to support the credit markets, Congress was unable to agree on a “CARES 2.0” stimulus plan during 3Q20 to boost the economy and assist those in need. Even though many market professionals were expecting some stimulus in the form of meaningful state and local government aid, the municipal market seemed to shrug off that lack of federal assistance.

 

New issue supply returned by May, and steadily increased weekly, remaining elevated through the rest of the year. Fittingly, solid demand for municipal bonds persisted throughout, and grew at an even greater pace in most states, including Kansas. From April to June, the 10Y AAA municipal bond yield fell from 1.83% to 0.86% by the end of the quarter, and from July to September, the 10Y yield stayed steady, ending September at 0.84%. Crossover buyers continued to favor municipals and realized attractive Taxable Equivalent Yields (TEYs) on a relative basis, compared with U.S. Treasury Bonds and IG Corporate Bonds.

 

Economically speaking, Kansas did experience sizable Covid-19-driven challenges to employment, growth, and revenues. As local investors may recall, manufacturing had seen steady growth coming into the year, with the aerospace and aviation industries leading the way which had led to many new ancillary businesses coming to the state. Despite the effects of the pandemic, unemployment dropped pointedly since peaking in the spring and many business sectors such as manufacturing, transportation and utilities appeared to be on the road to recovery, and in many cases trended higher.

 

Additionally, according to an article in the Salina Journal, state tax collections were better than expected from July to September; Kansas was over $100MM ahead of estimated projections, which was almost a 30% increase in revenue compared to the same three-month period in 2019. Whereas that was certainly welcome news, some of that increase was due to the income tax filing deadline pushed back because of the pandemic. Ultimately, while many economists predict that it could be a few years before economic activity at the state level returns to pre-pandemic readings, we believe that Kansas should benefit from its diverse business sectors, as well as its historical resiliency.

 

Throughout the majority of 2020, Kansas municipal bonds remained fairly valued in the context of the overall municipal marketplace. For the Carret Kansas Tax-Exempt Bond Fund, the overall market value closed the fiscal year 2020 at $183MM. The rating agencies (S&P and Moody’s) both rate the state and many of its local issuers, at a high level. The structure of the Fund stayed relatively constant throughout the year and the only notable liquidity challenges (albeit quite manageable) came during the overall market volatility back in March. The Fund has an average Credit Rating of AA-, an Average Coupon of 4.15%, a Yield to Maturity of 2.26%, a subsidized 30-day Yield of 0.64%, and an unsubsidized 30-day yield of 0.54%. The Fund remains 100% Kansas municipal bonds without any exposure to bonds subject to Alternative Minimum Tax (AMT).

 

The Carret 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 category. The Fund’s largest holdings include Kansas Department of Transportation Revenue, Butler County KS School District, Seward County KS School District, Wichita KS Water & Sewer Authority, and Topeka Utility Revenue. The Fund’s largest sector allocations are to School Districts (42%), General Obligations (16%), Utility Revenues (13%), Transportation (11%), and General Revenue (10%).

 

 

Annual Report | September 30, 20201

 
 

Carret Kansas Tax-Exempt Bond FundShareholder Letter

 

September 30, 2020 (Unaudited)

 

The Fund’s average maturity is 11.1 years, which is in-line with its recent duration trend. We may look to alter the Fund’s duration over the next several quarters should value-added opportunities arise. The Fund holds 187 different bond issues with over 65% of those rated AA or better. The Institutional Share Class (I shares) returned 4.2% over the past 12 months ended September 30, 2020. Over this same period, the Barclays 7 Year U.S. Municipal Bond Index returned 4.8% while the Lipper Other State Intermediate Municipal Bond Index returned 3.1%. The Fund is Kansas-specific in nature, while the Indexes are non-state specific (General Market or Other State Focus). Given several factors, including the credit uncertainty and longer-duration yield curve steepness, the Fund is presently taking on a lesser degree of credit risk while seeking to maintain a 10.0+ year average maturity. Over a 3-year time horizon, the Institutional shares returned an average of 3.6% (annualized), compared to the Barclays Index at 4.0% (annualized) and the Lipper Index at 3.1% (annualized).

 

The Fund did not employ any derivative investments during the fiscal year ended September 30, 2020.

 

Carret Asset Management, LLC

 

Glossary of Terms

 

Coupon is the rate of interest, payable annually.

 

Yield to Maturity is calculated by assuming that interest payments will be made until the final maturity date, at which point the principal will be repaid by the issuer. Yield to maturity is essentially the discount rate at which the present value of future payments (investment income and return of principal) equals the price of the security.

 

Call features exists when/if a bond is subject to payment of the principal amount (and accrued interest) prior to the stated maturity date, with or without payment of a call premium. Bonds can be callable under several different circumstances, including at the option of the issuer, or on a mandatory or extraordinary basis.

 

Average Maturity is the weighted average of the effective maturity dates of the fixed-income securities in the Fund's holdings. A bond's effective maturity takes into account the possibility that it may be called by the issuer before its stated maturity date. In this case, the bond trades as though it had a shorter maturity than its stated maturity.

 

Duration is a measure of the responsiveness of a bond’s price to interest rate changes for bonds with an embedded option.

 

SEC 30-day Yield represents the yield that must be earned on a fully taxable investment to equal the yield of the Fund on an after-tax basis at a specified tax rate. If the comparison were instead to investments that generate qualified dividend income, which is taxable at a rate lower than an individual's ordinary graduated tax rate, the Fund's Taxable-Equivalent yield would be lower. The Taxable-equivalent yield is computed under an SEC standardized formula and is based on the maximum offer price per share.

 

Taxable-Equivalent Yield is the pretax yield that a taxable bond needs for its yield to equal that of a tax-free municipal bond. The Taxable Equivalent Yield is calculated using a 46.50% Combined Federal, Kansas State, and Medicare Surcharge Tax Rate. Investors should consider their own tax rate when investing in municipal bonds.

 

Bond Rating Disclosure

 

Ratings shown are the highest rating given by one of the following national rating agencies: S&P, Moody's or Fitch. Additional information about ratings can be found, respectively, at www.standardandpoors.com, www.moodys.com and www.fitchratings.com. Credit ratings are subject to change. AAA, AA, A, and BBB are investment grade ratings categories used by S&P and Fitch; BB, B, CCC/CC/C and D are below investment grade ratings categories used by S&P and Fitch. Aaa, Aa, A and Baa are investment grade ratings categories used by Moody's; Ba, B, Caa/Ca and C are below investment grade ratings categories used by Moody's. Bonds backed by U.S. Government or agency securities are given an implied rating equal to the rating of such securities. Holdings designated Not Publicly Rated are not rated by these national rating agencies.

 

 

2

 
 

Carret Kansas Tax-Exempt Bond FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

Average Annual Total Returns (as of September 30, 2020)

 1 Year5 Year10 YearSince Inception*
Carret Kansas Tax-Exempt Bond Fund - Institutional Class4.17%2.95%3.22%4.57%
Carret Kansas Tax-Exempt Bond Fund – Class A (NAV)3.91%2.61%2.86%4.23%
Carret Kansas Tax-Exempt Bond Fund – Class A (MOP)-0.53%1.73%2.42%4.08%
Bloomberg Barclays US Municipal Bond: 7 Year (6-8) Index(a)4.80%3.47%3.59%2.69%

 

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.

 

*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 was the Fund’s investment adviser from September 24, 2018 through September 13, 2019, with Carret Asset Management, LLC serving as sub-adviser. Effective September 13, 2019, Manifold Partners, LLC ceased providing investment advisory services to the Fund and Carret Asset Management, LLC became the Fund's investment adviser. Fund performance prior to September 24, 2018 is reflective of the past performance of the Predecessor Fund. The Institutional Class of the Predecessor Fund commenced operations on December 10, 1990. Class A of the Predecessor Fund commenced operations on August 6, 2002.

(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.

 

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.

 

Maximum Offering Price (MOP) for Class A shares includes the Fund’s maximum sales charge of 4.25%. Performance shown at NAV does not include these sales charges and would have been lower had it been taken into account.

 

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 January 28, 2020 Prospectus) are 0.55% and 0.48% and 0.88% and 0.73%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2021.

 

 

Annual Report | September 30, 20203

 
 

Carret Kansas Tax-Exempt Bond FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

Performance of $3,000,000 Initial Investment (as of September 30, 2020)

 

 

 

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.

 

Portfolio Diversification (% of Net Assets as of September 30, 2020)

 

 

 

 

4

 
 

Carret Kansas Tax-Exempt Bond FundDisclosure of Fund Expenses

 

September 30, 2020 (Unaudited)

 

Examples. As a shareholder of the Carret Kansas Tax-Exempt Bond Fund, you incur two types of costs: (1) transaction costs, (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, 2020 and held through September 30, 2020.

 

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, 2020 – September 30, 2020” 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 the 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 the 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, 2020Ending Account Value September 30, 2020Expense Ratio(a)Expenses Paid During Period April 1, 2020 -September 30, 2020(b)
Carret Kansas Tax-Exempt Bond Fund
Institutional Class
    
Actual$1,000.00$1,028.900.48%$2.43
Hypothetical (5% return before expenses)$1,000.00$1,022.600.48%$2.43
Class A    
Actual$1,000.00$1,027.600.73%$3.70
Hypothetical (5% return before expenses)$1,000.00$1,021.350.73%$3.69

 

(a)The Fund’s expense ratios have been annualized based on the Fund's most recent fiscal half-year expenses after any applicable waivers and reimbursements.
(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 366.

 

 

Annual Report | September 30, 20205

 

 

Carret Kansas Tax-Exempt Bond FundPortfolio of Investments

 

September 30, 2020

 

  Principal Amount  Value
(Note 2)
 
MUNICIPAL BONDS (96.79%)        
Education (43.79%)(a)        
Allen County Unified School District No. 257, General Obligation Unlimited Bonds        
3.000%, 09/01/2043 $2,415,000  $2,576,636 
Barton Community College, Certificate Participation Bonds        
4.000%, 12/01/2032  555,000   627,982 
4.000%, 12/01/2034  250,000   279,770 
Bourbon County Unified School District No. 234-Fort Scott, General Obligation Unlimited Bonds        
5.000%, 09/01/2025  355,000   415,613 
Butler County Unified School District No. 206 Remington, General Obligation Unlimited Bonds        
3.000%, 09/01/2034  1,000,000   1,057,840 
3.000%, 09/01/2035  510,000   537,851 
Butler County Unified School District No. 385 Andover, General Obligation Unlimited Bonds        
4.000%, 09/01/2030  690,000   825,785 
4.000%, 09/01/2031  500,000   588,955 
5.000%, 09/01/2032  2,750,000   3,456,943 
5.000%, 09/01/2034  2,000,000   2,489,900 
Butler County Unified School District No. 490 El Dorado, General Obligation Unlimited Bonds        
4.000%, 09/01/2034  1,000,000   1,171,490 
4.000%, 09/01/2036  500,000   581,230 
Douglas County Unified School District No. 497 Lawrence, General Obligation Unlimited Bonds        
4.000%, 09/01/2031  1,500,000   1,782,150 
4.000%, 09/01/2033  500,000   555,050 
Finney County Unified School District No. 457 Garden City, General Obligation Unlimited Bonds        
4.000%, 09/01/2031  1,500,000   1,737,450 
5.000%, 09/01/2027  800,000   999,752 
Ford County Unified School District No. 443 Dodge City, General Obligation Unlimited Bonds        
4.000%, 03/01/2030  1,150,000   1,345,925 
4.000%, 03/01/2034  1,000,000   1,144,570 
Franklin County Unified School District No. 290 Ottawa, General Obligation Unlimited Bonds        
4.000%, 09/01/2040  250,000   293,483 
5.000%, 09/01/2031  1,715,000   2,096,605 
5.000%, 09/01/2032  150,000   183,376 
5.000%, 09/01/2033  1,000,000   1,222,510 
Geary County Unified School District No. 475, General Obligation Unlimited Bonds        
4.000%, 09/01/2038  2,000,000   2,215,000 
4.000%, 09/01/2043  1,000,000   1,098,150 
Hutchinson Community College & Area Vocational School, Certificate Participation Bonds        
4.000%, 10/01/2037  1,700,000   1,764,328 
Johnson & Miami Counties Unified School District No. 230 Spring Hills, General Obligation Unlimited Bonds        
4.000%, 09/01/2031  400,000   471,456 
4.000%, 09/01/2033  1,000,000   1,155,240 
4.000%, 09/01/2035  1,000,000   1,149,350 
5.000%, 09/01/2030  1,970,000   2,431,275 
5.250%, 09/01/2029  1,500,000   1,568,130 
Johnson County Unified School District No. 232 De Soto, General Obligation Unlimited Bonds        
4.000%, 09/01/2031  1,165,000   1,406,574 
4.000%, 09/01/2032  1,745,000   2,091,714 
Johnson County Unified School District No. 233 Olathe, General Obligation Unlimited Bonds        
4.000%, 09/01/2031  1,000,000   1,165,540 
4.000%, 09/01/2033  905,000   1,030,820 
4.000%, 09/01/2035  790,000   895,133 
4.000%, 09/01/2036  480,000   542,952 
Johnson County Unified School District No. 512 Shawnee Mission, General Obligation Unlimited Bonds        
5.000%, 10/01/2032  1,000,000   1,204,110 
Kansas Development Finance Authority, Revenue Bonds        
2.000%, 06/01/2032  1,000,000   1,010,590 

 

See Notes to Financial Statements.

 

6

 

 

Carret Kansas Tax-Exempt Bond FundPortfolio of Investments

 

September 30, 2020

 

  Principal Amount  Value
(Note 2)
 
Education (continued)        
3.000%, 05/01/2030 $450,000  $465,885 
4.000%, 03/01/2028  610,000   673,916 
4.000%, 05/01/2034  1,000,000   1,044,120 
Leavenworth County Unified School District No. 453, General Obligation Unlimited Bonds        
4.000%, 09/01/2036  1,000,000   1,130,060 
Leavenworth County Unified School District No. 458, General Obligation Unlimited Bonds        
5.000%, 09/01/2037  1,165,000   1,443,330 
5.000%, 09/01/2038  1,000,000   1,234,240 
Leavenworth County Unified School District No. 464, General Obligation Unlimited Bonds        
4.000%, 09/01/2034  675,000   790,951 
4.000%, 09/01/2036  465,000   540,730 
Leavenworth County Unified School District No. 469, General Obligation Unlimited Bonds        
4.000%, 09/01/2030  900,000   961,533 
Lyon County Unified School District No. 253 Emporia, General Obligation Unlimited Bonds        
3.000%, 09/01/2044  1,000,000   1,060,120 
4.000%, 09/01/2030  325,000   388,238 
Montgomery County Unified School District No. 446 Independence, General Obligation Unlimited Bonds        
5.000%, 09/01/2030  1,715,000   2,106,586 
Riley County Unified School District No. 378 Riley, General Obligation Unlimited Bonds        
3.000%, 09/01/2039  925,000   980,130 
Riley County Unified School District No. 383 Manhattan-Ogden, General Obligation Unlimited Bonds        
5.000%, 09/01/2028  1,220,000   1,527,159 
Saline County Unified School District No. 305 Salina, General Obligation Unlimited Bonds        
4.000%, 09/01/2034  440,000   514,004 
Scott County Unified School District No. 466 Scott City, General Obligation Unlimited Bonds        
4.000%, 09/01/2037  1,000,000   1,100,200 
Sedgwick County Unified School District No. 260 Derby, General Obligation Unlimited Bonds        
3.500%, 10/01/2036  845,000   930,100 
5.000%, 10/01/2029  340,000   372,728 
Sedgwick County Unified School District No. 261 Haysville, General Obligation Unlimited Bonds        
2.500%, 11/01/2030  500,000   500,405 
5.000%, 11/01/2023  5,000   5,020 
Sedgwick County Unified School District No. 262 Valley Center, General Obligation Unlimited Bonds        
4.000%, 09/01/2030  500,000   556,160 
5.000%, 09/01/2033  750,000   886,732 
Sedgwick County Unified School District No. 264 Clearwater, General Obligation Unlimited Bonds        
4.000%, 09/01/2029  530,000   617,567 
Sedgwick County Unified School District No. 265 Goddard, General Obligation Unlimited Bonds        
5.000%, 10/01/2024  370,000   439,127 
Sedgwick County Unified School District No. 266 Maize, General Obligation Unlimited Bonds        
4.000%, 09/01/2032  750,000   889,755 
Sedgwick County Unified School District No. 267 Renwick, General Obligation Unlimited Bonds        
4.000%, 11/01/2033  350,000   413,574 
4.000%, 11/01/2034  425,000   501,632 
4.000%, 11/01/2035  635,000   747,681 
Sedgwick County Unified School District No. 268 Cheney, General Obligation Unlimited Bonds        
3.000%, 09/01/2029  615,000   648,487 
Seward County Unified School District No. 480 Liberal, General Obligation Unlimited Bonds        
4.000%, 09/01/2028  1,000,000   1,189,400 
4.000%, 09/01/2032  500,000   580,555 
5.000%, 09/01/2029  2,390,000   2,868,120 
Sumner County Unified School District No. 353 Wellington, General Obligation Unlimited Bonds        
5.000%, 09/01/2026  230,000   259,051 
Washburn University/Topeka, Revenue Bonds        
4.000%, 07/01/2041  330,000   354,968 
5.000%, 07/01/2035  500,000   566,800 

 

See Notes to Financial Statements.

 

Annual Report | September 30, 20207

 

 

Carret Kansas Tax-Exempt Bond FundPortfolio of Investments

 

September 30, 2020

 

  Principal Amount  Value
(Note 2)
 
Education (continued)        
Wyandotte County Unified School District No. 202 Turner, General Obligation Unlimited Bonds        
4.000%, 09/01/2038 $1,225,000  $1,393,511 
4.000%, 09/01/2039  400,000   453,616 
Wyandotte County Unified School District No. 203 Piper, General Obligation Unlimited Bonds        
5.000%, 09/01/2038  1,000,000   1,254,340 
Wyandotte County Unified School District No. 500 Kansas City, General Obligation Unlimited Bonds        
5.000%, 09/01/2030  500,000   613,845 
Total Education      80,175,604 
         
General Obligation (24.31%)        
Abilene Public Building Commission, Revenue Bonds        
4.000%, 12/01/2029  325,000   389,558 
4.000%, 12/01/2031  445,000   522,497 
Ashland Public Building Commission, Revenue Bonds        
5.000%, 09/01/2035  720,000   771,682 
City of Arkansas City, General Obligation Unlimited Bonds        
2.000%, 08/01/2035  1,000,000   1,022,040 
City of Concordia, General Obligation Unlimited Bonds        
2.000%, 11/01/2038  350,000   363,678 
2.000%, 11/01/2039  355,000   366,449 
2.000%, 11/01/2040  365,000   374,315 
City of Dodge City, Revenue Bonds        
4.000%, 06/01/2024  230,000   258,872 
City of Haysville, Certificate Participation Bonds        
4.125%, 11/01/2032  460,000   441,968 
City of Lawrence, General Obligation Unlimited Bonds        
4.000%, 09/01/2030  470,000   554,544 
4.000%, 09/01/2031  445,000   520,890 
City of Manhattan, General Obligation Unlimited Bonds        
4.000%, 11/01/2031  400,000   493,168 
5.000%, 11/01/2025  570,000   701,134 
5.000%, 11/01/2029  800,000   1,077,048 
City of Merriam, General Obligation Unlimited Bonds        
5.000%, 10/01/2027  1,670,000   2,178,999 
City of Olathe, General Obligation Unlimited Bonds        
4.000%, 10/01/2028  1,315,000   1,568,256 
City of Park City, General Obligation Unlimited Bonds        
5.375%, 12/01/2025  5,000   5,014 
City of Phillipsburg, Revenue Bonds        
4.500%, 10/01/2028  545,000   545,000 
City of Salina, General Obligation Unlimited Bonds        
3.000%, 10/01/2033  620,000   667,138 
3.000%, 10/01/2036  680,000   724,792 
City of Shawnee, General Obligation Unlimited Bonds        
4.000%, 12/01/2027  425,000   485,180 
City of Spring Hill, General Obligation Unlimited Bonds        
4.000%, 09/01/2029  810,000   975,175 
City of Topeka, General Obligation Unlimited Bonds        
2.000%, 08/15/2026  1,000,000   1,012,090 
City of Wichita, General Obligation Unlimited Bonds        
2.000%, 06/01/2035  400,000   408,064 
3.000%, 06/01/2029  515,000   590,653 
3.000%, 10/01/2030  720,000   805,212 
4.000%, 12/01/2029  250,000   253,970 
4.000%, 06/01/2030  820,000   979,318 
5.000%, 12/01/2025  500,000   619,175 

 

See Notes to Financial Statements.

 

8

 

 

Carret Kansas Tax-Exempt Bond FundPortfolio of Investments

 

September 30, 2020

 

  Principal Amount  Value
(Note 2)
 
General Obligation (continued)        
County of Clay, General Obligation Unlimited Bonds        
4.000%, 10/01/2036 $750,000  $818,363 
County of Geary, General Obligation Unlimited Bonds        
4.000%, 09/01/2030  415,000   482,629 
County of Johnson, General Obligation Unlimited Bonds        
3.000%, 09/01/2030  400,000   415,496 
4.000%, 09/01/2028  1,125,000   1,310,355 
County of Linn, General Obligation Unlimited Bonds        
4.000%, 07/01/2032  505,000   616,034 
Johnson County Public Building Commission, Revenue Bonds        
4.000%, 09/01/2029  650,000   763,087 
4.000%, 09/01/2030  500,000   583,660 
4.000%, 09/01/2031  1,500,000   1,734,360 
Kansas Development Finance Authority, Revenue Bonds        
2.000%, 11/01/2033  950,000   958,807 
2.000%, 11/01/2034  975,000   980,538 
4.000%, 10/01/2020  250,000   250,000 
4.000%, 11/01/2030  800,000   950,656 
4.000%, 11/01/2031  1,100,000   1,297,395 
5.000%, 04/01/2026  1,485,000   1,647,741 
5.000%, 09/01/2026  630,000   787,122 
5.000%, 04/01/2030  655,000   718,836 
5.000%, 04/01/2031  1,000,000   1,096,890 
5.000%, 04/01/2034  2,000,000   2,191,060 
Overland Park Transportation Development District, Revenue Bonds        
5.900%, 04/01/2032  800,000   800,024 
Unified Government of Greeley County, General Obligation Unlimited Bonds        
4.000%, 12/01/2029  250,000   288,500 
4.000%, 12/01/2032  100,000   112,300 
Wyandotte County-Kansas City Unified Government, General Obligation Unlimited Bonds        
2.000%, 08/01/2033  1,000,000   1,030,730 
4.000%, 08/01/2029  685,000   818,917 
4.000%, 08/01/2030  1,060,000   1,250,630 
4.000%, 08/01/2031  930,000   981,792 
5.000%, 08/01/2025  815,000   996,134 
Wyandotte County-Kansas City Unified Government, Revenue Bonds        
4.875%, 10/01/2028  350,000   316,851 
5.000%, 12/01/2023  570,000   637,682 
Total General Obligation      44,512,468 
         
Health Care (4.28%)        
City of Manhattan, Revenue Bonds        
5.000%, 11/15/2029  680,000   730,871 
City of Olathe, Revenue Bonds        
4.000%, 09/01/2030  450,000   461,796 
City of Wichita, Revenue Bonds        
5.000%, 11/15/2029  1,570,000   1,652,394 
Kansas Development Finance Authority, Revenue Bonds        
5.000%, 11/15/2032  1,500,000   1,596,840 
5.000%, 11/15/2034  350,000   371,983 
Lyon County Public Building Commission, Revenue Bonds        
5.000%, 12/01/2035  1,335,000   1,570,614 
Pawnee County Public Building Commission, Revenue Bonds        
4.000%, 02/15/2031  145,000   149,137 
University of Kansas Hospital Authority, Revenue Bonds        
5.000%, 09/01/2028  250,000   297,792 
5.000%, 09/01/2030  350,000   413,602 

 

See Notes to Financial Statements.

 

Annual Report | September 30, 20209

 

 

Carret Kansas Tax-Exempt Bond FundPortfolio of Investments

 

September 30, 2020

 

  Principal Amount  Value
(Note 2)
 
Health Care (continued)        
5.000%, 09/01/2031 $500,000  $588,805 
Total Health Care      7,833,834 
         
Housing (0.36%)        
Pratt County Public Building Commission, Revenue Bonds        
3.250%, 12/01/2032  655,000   655,858 
         
Public Services (0.99%)        
Johnson County Park & Recreation District, Certificate Participation Bonds        
3.000%, 09/01/2028  1,165,000   1,245,102 
3.000%, 09/01/2029  535,000   561,044 
Total Public Services      1,806,146 
         
Transportation (10.29%)        
Kansas Turnpike Authority, Revenue Bonds        
5.000%, 09/01/2031  630,000   844,975 
5.000%, 09/01/2032  500,000   665,395 
5.000%, 09/01/2036  1,000,000   1,304,550 
5.000%, 09/01/2037  1,000,000   1,299,070 
5.000%, 09/01/2038  1,150,000   1,488,019 
State of Kansas Department of Transportation, Revenue Bonds        
5.000%, 09/01/2028  1,500,000   1,911,000 
5.000%, 09/01/2029  1,000,000   1,205,940 
5.000%, 09/01/2031  3,020,000   3,788,137 
5.000%, 09/01/2032  500,000   623,635 
5.000%, 09/01/2033  1,445,000   1,727,064 
5.000%, 09/01/2034  3,260,000   3,980,649 
Total Transportation      18,838,434 
         
Utilities (12.77%)        
City of Lawrence Water & Sewage System, Revenue Bonds        
4.000%, 11/01/2038  1,000,000   1,110,630 
City of Olathe Water & Sewer System, Revenue Bonds        
2.000%, 07/01/2034  540,000   550,924 
2.000%, 07/01/2035  550,000   558,201 
3.000%, 07/01/2030  675,000   755,932 
3.000%, 07/01/2031  555,000   618,115 
3.000%, 07/01/2032  745,000   820,022 
3.000%, 07/01/2033  755,000   826,121 
4.000%, 07/01/2024  250,000   280,212 
City of Topeka Combined Utility, Revenue Bonds        
2.000%, 08/01/2043  1,070,000   1,017,581 
4.000%, 08/01/2026  2,600,000   2,675,790 
City of Wichita Water & Sewer Utility, Revenue Bonds        
3.000%, 10/01/2029  1,180,000   1,308,077 
3.250%, 10/01/2031  1,070,000   1,071,198 
3.375%, 10/01/2039  1,000,000   1,083,000 
4.000%, 10/01/2029  1,000,000   1,000,000 
5.000%, 10/01/2025  1,000,000   1,045,740 
5.000%, 10/01/2028  2,650,000   2,771,211 
Kansas Power Pool, Revenue Bonds        
5.000%, 12/01/2023  200,000   217,956 
5.000%, 12/01/2028  700,000   835,170 
Wyandotte County-Kansas City Unified Government Utility System, Revenue Bonds        
3.000%, 09/01/2035  250,000   273,967 
3.000%, 09/01/2040  250,000   267,518 

 

See Notes to Financial Statements.

 

10

 

 

Carret Kansas Tax-Exempt Bond FundPortfolio of Investments

 

September 30, 2020

 

 Principal AmountValue (Note 2)
Utilities (continued)      
5.000%, 09/01/2027$1,300,000 $1,357,070 
5.000%, 09/01/2031 1,350,000  1,621,538 
5.000%, 09/01/2032 1,090,000  1,189,670 
5.000%, 09/01/2033 100,000  117,938 
Total Utilities    23,373,581 
       
TOTAL MUNICIPAL BONDS      
(Cost $167,601,643)    177,195,925 

 

 SharesValue (Note 2)
SHORT TERM INVESTMENTS (4.29%)      
Money Market Fund (3.47%)      
Federated Treasury Obligations Fund (0.010%, 7-Day Yield) 6,354,770 $6,354,770 
Total Money Market Fund    6,354,770 
       
  Principal Amount    
U.S. Treasury Bills (0.82%)      
U.S. Treasury Bills      
0.000%, 12/03/2020(b) 1,500,000  1,499,764 
Total U.S. Treasury Bills    1,499,764 
       
TOTAL SHORT TERM INVESTMENTS (Cost $7,854,518)    7,854,534 
       
TOTAL INVESTMENTS (101.08%) (Cost $175,456,161)   $185,050,459 
       
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.08%)    (1,970,275)
       
NET ASSETS (100.00%)   $183,080,184 

 

(a)To the extent the Fund invests more heavily in particular sectors of the economy, its performance will be especially sensitive to developments that significantly affect those sectors. When sector categorization is broken down by industry, no industry exceeds the 25% maximum specified in the Statement of Additional Information.
(b)Zero coupon bond.

 

See Notes to Financial Statements.

 

Annual Report | September 30, 202011

 

 

Carret Kansas Tax-Exempt Bond FundStatement of Assets and Liabilities

 

September 30, 2020

 

ASSETS: 
Investments, at value (Cost $175,456,161)$185,050,459 
Receivable for investments sold 972 
Receivable for shares sold 214,827 
Dividends and interest receivable 1,419,492 
Other assets 6,895 
Total Assets 186,692,645 
    
LIABILITIES:   
Distributions payable 287,831 
Payable for administration and transfer agent fees 67,931 
Payable for investments purchased 3,121,427 
Payable for shares redeemed 46,876 
Payable to adviser 30,167 
Payable for distribution fees 875 
Payable for printing fees 1,131 
Payable for professional fees 21,602 
Payable for trustees’ fees and expenses 15,787 
Payable to Chief Compliance Officer fees 5,938 
Accrued expenses and other liabilities 12,896 
Total Liabilities 3,612,461 
NET ASSETS$183,080,184 
    
NET ASSETS CONSIST OF:   
Paid-in capital (Note 5)$173,399,494 
Total distributable earnings/(deficit) 9,680,690 
NET ASSETS$183,080,184 
    
PRICING OF SHARES   
Institutional Class:   
Net Asset Value, offering and redemption price per share$11.16 
Net Assets$178,827,332 
Shares of beneficial interest outstanding 16,027,998 
Class A :   
Net Asset Value, offering and redemption price per share$11.16 
Net Assets$4,252,852 
Shares of beneficial interest outstanding 381,135 
Maximum offering price per share(a)$11.65 

 

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

 

See Notes to Financial Statements.

 

12

 

 

Carret Kansas Tax-Exempt Bond FundStatement of Operations

 

For the Year Ended September 30, 2020

 

INVESTMENT INCOME: 
Dividends$15,450 
Interest 4,786,176 
Total Investment Income 4,801,626 
    
EXPENSES:   
Investment advisory fees (Note 6) 544,142 
Administration fees 260,522 
Distribution fees   
Class A 10,753 
Custody fees 19,781 
Legal fees 36,971 
Audit and tax fees 17,291 
Transfer agent fees 49,814 
Trustees’ fees and expenses 20,790 
Registration and filing fees 36,630 
Printing fees 4,880 
Chief Compliance Officer fees 29,719 
Insurance fees 7,706 
Other expenses 11,004 
Total Expenses 1,050,003 
Less fees waived/reimbursed by investment adviser (Note 6)   
Institutional Class (162,771)
Class A (5,702)
Total fees waived/reimbursed by investment adviser (168,473)
Net Expenses 881,530 
NET INVESTMENT INCOME 3,920,096 
    
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:   
Net realized gain/(loss) on:   
Investments 14,257 
Net realized gain 14,257 
Change in unrealized appreciation/(depreciation) on:   
Investments 3,225,657 
Net change 3,225,657 
    
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 3,239,914 
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS$7,160,010 

 

See Notes to Financial Statements.

 

Annual Report | September 30, 202013

 

 

Carret Kansas Tax-Exempt Bond FundStatements of Changes in Net Assets

 

 

 For the Year Ended September 30, 2020For the Year Ended September 30, 2019
OPERATIONS:  
Net investment income$3,920,096 $4,051,887 
Net realized gain on investments 14,257  509,100 
Net change in unrealized appreciation on investments 3,225,657  5,558,630 
Net increase in net assets resulting from operations 7,160,010  10,119,617 
DISTRIBUTIONS TO SHAREHOLDERS      
Institutional Class (4,208,978) (4,455,855)
Class A (91,196) (115,546)
Total distributions (4,300,174) (4,571,401)
       
BENEFICIAL SHARE TRANSACTIONS (Note 5):      
Institutional Class      
Shares sold 28,276,279  61,548,180 
Dividends reinvested 428,853  556,903 
Shares redeemed (32,071,924) (21,338,286)
Net increase/(decrease) from beneficial share transactions (3,366,792) 40,766,797 
Class A      
Shares sold 288,378  19,887 
Dividends reinvested 72,657  90,632 
Shares redeemed (328,033) (854,924)
Net increase/(decrease) from beneficial share transactions 33,002  (744,405)
Net increase/(decrease) in net assets (473,954) 45,570,608 
       
NET ASSETS:      
Beginning of year 183,554,138  137,983,530 
End of year$183,080,184 $183,554,138 

 

See Notes to Financial Statements.

 

14

 

 

Carret Kansas Tax-Exempt Bond FundFinancial Highlights

 

Institutional ClassFor a Share Outstanding Throughout the Periods Presented

 

 For the Year Ended September 30, 2020For the Year Ended September 30, 2019For 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
NET ASSET VALUE, BEGINNING OF PERIOD$10.97 $10.59 $10.88 $11.09 $11.11 $11.16 
                   
INCOME/(LOSS) FROM OPERATIONS:                  
Net investment income(b) 0.24  0.28  0.27  0.32  0.33  0.35 
Net realized and unrealized gain/(loss) on investments 0.21  0.42  (0.29) (0.21) (0.02) (0.05)
Total from investment operations 0.45  0.70  (0.02) 0.11  0.31  0.30 
                   
LESS DISTRIBUTIONS:                  
From net investment income (0.24) (0.28) (0.27) (0.32) (0.33) (0.35)
From net realized gains on investments (0.02) (0.04)        
Total Distributions (0.26) (0.32) (0.27) (0.32) (0.33) (0.35)
NET INCREASE/(DECREASE) IN NET ASSET VALUE 0.19  0.38  (0.29) (0.21) (0.02) (0.05)
NET ASSET VALUE, END OF PERIOD$11.16 $10.97 $10.59 $10.88 $11.09 $11.11 
                   
TOTAL RETURN(c) 4.17%  6.77%  (0.15%) 1.04%  2.80%  2.70% 
                   
SUPPLEMENTAL DATA:                  
Net assets, end of period (in 000s)$178,827 $179,409 $133,235 $167,374 $190,780 $181,983 
                   
RATIOS TO AVERAGE NET ASSETS                  
Operating expenses excluding reimbursement/waiver 0.57%  0.55%  0.75%(d) 0.61%  0.60%  0.60% 
Operating expenses including reimbursement/waiver 0.48%  0.48%  0.56%(d) 0.48%  0.48%  0.48% 
Net investment income including reimbursement/waiver 2.17%  2.62%  2.80%(d) 2.95%  2.94%  3.12% 
                   
PORTFOLIO TURNOVER RATE(e) 16%  12%  14%  9%  10%  13% 

 

(a)Effective September 24, 2018, the Carret Kansas Tax-Exempt Bond Fund merged with and into a clone series of ALPS Series Trust. 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)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.
(d)Annualized.
(e)Portfolio turnover rate for periods less than one full year have not been annualized.

 

See Notes to Financial Statements.

 

Annual Report | September 30, 202015

 

 

Carret Kansas Tax-Exempt Bond FundFinancial Highlights

 

Class AFor a Share Outstanding Throughout the Periods Presented

 

 For the Year Ended September 30, 2020For the Year Ended September 30, 2019For 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
NET ASSET VALUE, BEGINNING OF PERIOD$10.97 $10.59 $10.88 $11.09 $11.11 $11.16 
                   
INCOME/(LOSS) FROM OPERATIONS:                  
Net investment income(c) 0.21  0.26  0.24  0.28  0.29  0.31 
Net realized and unrealized gain/(loss) on investments 0.21  0.42  (0.29) (0.21) (0.02) (0.05)
Total from investment operations 0.42  0.68  (0.05) 0.07  0.27  0.26 
                   
LESS DISTRIBUTIONS:                  
From net investment income (0.21) (0.26) (0.24) (0.28) (0.29) (0.31)
From net realized gains on investments (0.02) (0.04)        
Total Distributions (0.23) (0.30) (0.24) (0.28) (0.29) (0.31)
NET INCREASE/(DECREASE) IN NET ASSET VALUE 0.19  0.38  (0.29) (0.21) (0.02) (0.05)
NET ASSET VALUE, END OF PERIOD$11.16 $10.97 $10.59 $10.88 $11.09 $11.11 
                   
TOTAL RETURN(d) 3.91%  6.50%  (0.51%) 0.65%  2.41%  2.34% 
                   
SUPPLEMENTAL DATA:                  
Net assets, end of period (in 000s)$4,253 $4,145 $4,748 $11,462 $11,509 $10,620 
                   
RATIOS TO AVERAGE NET ASSETS                  
Operating expenses excluding reimbursement/waiver 0.86%  0.88%  1.25%(e) 1.11%  1.10%  1.03% 
Operating expenses including reimbursement/waiver 0.73%  0.73%  0.94%(e) 0.87%  0.87%  0.83% 
Net investment income including reimbursement/waiver 1.92%  2.40%  2.43%(e) 2.56%  2.55%  2.76% 
                   
PORTFOLIO TURNOVER RATE(f) 16%  12%  14%  9%  10%  13% 

 

(a)Effective September 24, 2018, the Carret Kansas Tax-Exempt Bond Fund merged with and into a clone series of ALPS Series Trust. 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 to the merger.
(c)Per share amounts are based upon average shares outstanding, unless otherwise noted.
(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.

 

16

 

 

Carret Kansas Tax-Exempt Bond FundNotes to Financial Statements

 

September 30, 2020

 

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 Carret Kansas Tax-Exempt Bond Fund (the “Fund” or “Kansas Tax-Exempt Bond Fund”) formally known as the American Independence Kansas Tax-Exempt Bond Fund. On September 13, 2019, Carret Asset Management, LLC (the “Adviser” or “Carret") became the adviser to the Kansas Tax-Exempt Bond Fund, changing the Fund’s name from American Independence to Carret. The Fund’s 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 Fund is considered non-diversified and may invest a greater portion of assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single investment could cause greater fluctuations in share price than would occur in a diversified fund. The Fund currently offers 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 (the “Board”) may establish additional funds and classes of shares at any time in the future without shareholder approval.

 

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 Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies in the Financial Accounting Standards Board (“FASB”) 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 increases and decreases in net assets from operations during the period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in preparation of its financial statements.

 

Investment Valuation: The Fund generally values its 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.

 

Redeemable securities issued by open-end registered investment companies are valued at the investment company’s applicable net asset value (“NAV”). Money market funds, representing short-term investments, are valued at their NAV.

 

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 Fund discloses the classification of its 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, 202017

 

 

Carret Kansas Tax-Exempt Bond FundNotes to Financial Statements

 

September 30, 2020

 

Various inputs are used in determining the value of the Fund’s 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 1Unadjusted 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 Fund’s investments as of September 30, 2020:

 

Investments in Securities at Value*Level 1 - Quoted and Unadjusted PricesLevel 2 - Other Significant Observable InputsLevel 3 - Significant Unobservable InputsTotal
Municipal Bonds$ $177,195,925 $ $177,195,925 
Short Term Investments            
Money Market Fund 6,354,770      6,354,770 
U.S. Treasury Bills   1,499,764    1,499,764 
Total$6,354,770 $178,695,689 $ $185,050,459 

 

*For a detailed Sector breakdown, see the accompanying Portfolio of Investments.

 

There were no Level 3 securities held in the Fund at September 30, 2020.

 

Securities Purchased on a When-Issued Basis: The 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 the 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 Fund considers its 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 Fund maintains cash balances, which, at times may exceed federally insured limits. The Fund maintains 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 Fund does not believe that such deposits are subject to any unusual risk associated with investment activities.

 

The 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 the Fund and are apportioned among the classes based on average net assets of each class.

 

 

18

 

 

Carret Kansas Tax-Exempt Bond FundNotes to Financial Statements

 

September 30, 2020

 

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 Fund complies with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and intends to distribute substantially all of its 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 Fund is not subject to income taxes to the extent such distributions are made.

 

As of and during the fiscal year ended September 30, 2020, the Fund did not have a liability for any unrecognized tax benefits in the accompanying financial statements. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. The Fund files U.S. federal, state and local income tax returns as required. The Fund’s 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 Fund’s administrator has analyzed the Fund’s tax positions taken on federal and state income tax returns for all open tax years and has concluded that as of September 30, 2020, no provision for income tax is required in the Fund’s 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 is 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 Fund are declared daily and paid monthly. Distributions from net realized capital gains, if any, are distributed at least annually. Income dividend distributions are derived from interest and other income the Fund receives from its investments, including short-term capital gains. Long-term capital gain distributions are derived from gains realized when the 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 investment adviser has determined that 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.

 

COVID-19 Risk: A recent outbreak of respiratory disease caused by a novel coronavirus was first detected in December 2019 and has now spread internationally. This coronavirus has resulted in closing borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general concern and uncertainty. The impact of this coronavirus, and other epidemics and pandemics that may arise in the future, could affect the economies of many nations, individual companies, their securities (including equity and debt), and the market in general in ways that cannot necessarily be foreseen at the present time. In addition, the impact of infectious diseases in developing or emerging market countries may be greater due to less established health care systems. Health crises caused by the recent coronavirus outbreak may exacerbate other pre-existing political, social and economic risks in certain countries. The impact of the outbreak may be short term or may last for an extended period of time.

 

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 Fund. 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.

 

 

Annual Report | September 30, 202019

 

 

Carret Kansas Tax-Exempt Bond FundNotes to Financial Statements

 

September 30, 2020

 

The tax character of distributions paid by the Fund for the fiscal years ended September 30, 2020 and September 30, 2019, respectively, was as follows:

 

  

 

Ordinary

Income

  

 

Tax-Exempt

Income

  

 

Long-Term

Capital Gains

 
Kansas Tax-Exempt Bond Fund $47,931  $3,871,299  $380,944 

 

   

Ordinary

Income

   

Tax-Exempt

Income

   

Long-Term

Capital Gains

 
Kansas Tax-Exempt Bond Fund $137,415  $3,914,477  $519,509 

 

Unrealized Appreciation and Depreciation on Investments: As of September 30, 2020, the aggregate cost of investments, gross unrealized appreciation/(depreciation) and net unrealized appreciation for Federal tax purposes were as follows:

 

  

Kansas

Tax-Exempt

Bond Fund

 
Gross unrealized appreciation (excess of value over tax cost) $9,738,988 
Gross unrealized depreciation (excess of tax cost over value)  (144,690)
Net unrealized appreciation $9,594,298 
Cost of investments for income tax purposes $175,456,161 

 

Reclassifications: As of September 30, 2020, there were no permanent reclassifications.

 

Components of Distributable Earnings: At September 30, 2020, components of distributable earnings were as follows:

 

  

Kansas

Tax-Exempt

Bond Fund

 
Undistributed ordinary income $4,506 
Undistributed tax-exempt income  363,922 
Accumulated capital gains  5,795 
Net unrealized appreciation  9,594,298 
Other cumulative effect of timing differences(a)  (287,831)
Total $9,680,690 

 

(a) Related to distributions payable at year end.

 

4. SECURITIES TRANSACTIONS

 

 

Purchases and sales of securities, excluding short-term securities, during the fiscal year ended September 30, 2020 were as follows:

 

  

Purchases of

Securities

  

Proceeds

from Sales of

Securities

 
Kansas Tax-Exempt Bond Fund $27,865,814  $31,170,185 

 

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 Fund 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 Fund nor any of their creditors have the right to require shareholders to pay any additional amounts solely because the shareholder owns the shares.

 

 

20

 

 

Carret Kansas Tax-Exempt Bond FundNotes to Financial Statements

 

September 30, 2020

 

Transactions in common shares were as follows:

 

  

For the

Year Ended

September 30,

2020

  

For the

Year Ended

September 30,

2019

 
Carret Kansas Tax-Exempt Bond Fund        
Institutional Class        
Shares sold  2,553,184   5,710,019 
Shares issued in reinvestment of distributions to shareholders  39,093   52,366 
Shares redeemed  (2,923,375)  (1,988,206)
Net increase/(decrease) in shares outstanding  (331,098)  3,774,179 
Class A        
Shares sold  26,220   1,842 
Shares issued in reinvestment of distributions to shareholders  6,578   8,441 
Shares redeemed  (29,595)  (80,824)
Net increase/(decrease) in shares outstanding  3,203   (70,541)

 

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 95% of the shares outstanding of the Fund are owned by one omnibus account.

 

6. MANAGEMENT AND RELATED PARTY TRANSACTIONS

 

 

Investment Advisory: Carret Asset Management, LLC, serves as the investment adviser to the Fund. The Adviser, subject to the authority of the Board, is responsible for the overall management and administration of the Fund’s business affairs. The Adviser manages the investments of the Fund in accordance with the Fund’s investment objective, policies and limitations, and investment guidelines established jointly by the Adviser and the Board.

 

Pursuant to the Investment Advisory Agreement (“Advisory Agreement”) with the Adviser, the Fund pays the Adviser an annual management fee of 0.30% based on the Fund’s average daily net assets. The management fee is 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 Fund may terminate the Advisory Agreement upon 60 days’ prior written notice. The Adviser may terminate the Advisory Agreement upon 120 days’ prior written notice.

 

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 fees, and extraordinary expenses, such as litigation and other expenses not incurred in the ordinary course of business to 0.48% of the 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 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 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 Board.

 

As of September 30, 2020, the balances of recoupable expenses for the Fund were as follows:

 

Kansas Tax-Exempt Bond Fund Expiring in 2022  Expiring in 2023  Total 
Institutional Class $8,850  $162,771  $171,621 
Class A  440   5,702   6,142 

 

Previously waived fees by Manifold amounting to $105,073 are not subject to recoupment by Carret.

 

Administrator: ALPS Fund Services, Inc. (“ALPS”) (an affiliate of ALPS Distributors, Inc.) serves as administrator to the Fund. The Fund has 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 Fund including, but not limited to, fund accounting and fund administration, and will generally assist in the Fund’s operations. The Fund’s administration fee is accrued on a daily basis and paid monthly. The officers of the Trust are employees of ALPS. Administration fees paid by the Fund for the fiscal year ended September 30, 2020, are disclosed in the Statement of Operations. ALPS is reimbursed by the Fund for certain out of pocket expenses.

 

 
Annual Report | September 30, 202021

 

 

Carret Kansas Tax-Exempt Bond FundNotes to Financial Statements

 

September 30, 2020

 

Transfer Agent: ALPS serves as transfer agent for the 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 Fund plus fees for open accounts and is reimbursed for certain out-of-pocket expenses.

 

Compliance Services: ALPS provides Chief Compliance Officer services to the Fund to monitor and test the policies and procedures of the 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 Fund and is reimbursed for certain out-of-pocket expenses.

 

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

 

The Fund has adopted a shareholder services plan (“Shareholder Services Plan”) for its Class A Shares. Under the Shareholder Services Plan the 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 assets of the 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. Starting as of September 24, 2018, the Board authorized 0.00% to be paid on shareholder servicing fees.

 

The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the “Plan”) that allows its Class A 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. The Fund was permitted to pay distribution and service fees at an annual rate of up to 0.50% of its Class A share assets. These fees consisted of up to 0.25% for shareholder services of the Class A share assets (which is currently not being charged) and up to 0.25% for distribution expenses, as defined by FINRA, of Class A share assets. Distribution fees paid by the Fund for the fiscal year ended September 30, 2020, are disclosed in the Statement of Operations.

 

7. TRUSTEES

 

 

As of September 30, 2020, there were four Trustees, three of whom are not “interested persons” (as defined in the 1940 Act) of the Trust (the “Independent Trustees”). The Independent Trustees of the Trust and interested Trustees who are not currently employed by the Adviser, ALPS or other service providers will receive a quarterly retainer of $11,000, 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 the Independent Chair receives a quarterly retainer of $2,500. The Independent Trustees and interested Trustees who are not currently employed by the Adviser, ALPS or other service providers are also reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings. Officers of the Trust receive no salary or fees from the Trust. As discussed in Note 6, the Fund pays ALPS an annual fee for compliance services.

 

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 Statement of Assets and Liabilities have been evaluated through the date the financial statements were issued. Management has determined that there were no subsequent events to report through the issuance of these financial statements.

 

 

22

 

 

 Report of Independent Registered
Carret Kansas Tax-Exempt Bond FundPublic Accounting Firm
 

 

To the Shareholders of Carret Kansas Tax-Exempt Bond Fund and

Board of Trustees of ALPS Series Trust

 

Opinion on the Financial Statements

 

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Carret Kansas Tax-Exempt Bond Fund (the “Fund”), a series of ALPS Series Trust, as of September 30, 2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, including the related notes, and the financial highlights for each of the three periods in the period then ended (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of September 30, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three periods in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

 

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

 

Basis for Opinion

 

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. 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 Fund 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 audits 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 audits 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, 2020, by correspondence with the custodian and brokers. Our audits 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 audits provide a reasonable basis for our opinion.

 

We have served as the Fund’s auditor since 2018.

 

 

COHEN & COMPANY, LTD.

Cleveland, Ohio

November 25, 2020

 

 
Annual Report | September 30, 202023

 

 

Carret Kansas Tax-Exempt Bond FundAdditional Information
 

September 30, 2020 (Unaudited)

 

1. PROXY VOTING POLICIES AND VOTING RECORD

 

 

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

 

2. PORTFOLIO HOLDINGS

 

 

The Fund’s portfolio holdings are made available semi-annually in shareholder reports within 60 days after the close of the period for which the report is being made, as required by federal securities laws. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov. The Fund’s portfolio holdings are also available upon request, without charge, by calling (toll-free) 1-833-287-7933 or by writing to Carret Asset Management at 320 Park Avenue, 18th Floor, New York, New York 10022.

 

3. TAX DESIGNATIONS

 

 

For the year ended September 30, 2020, pursuant to Section 852(b)(3) of the Internal Revenue Code, Carret Kansas Tax-Exempt Bond Fund did not designate long-term capital gain dividends.

 

For the year ended September 30, 2020, 98.78% of the distributions from net investment income for Carret Kansas Tax-Exempt Bond Fund are exempt from federal income tax.

 

 

24

 

 

 Liquidity Risk Management
Carret Kansas Tax-Exempt Bond FundProgram Disclosure

 

September 30, 2020 (Unaudited)

 

The Trust has adopted and implemented a liquidity risk management program (the “Program”), as consistent with Rule 22e-4 to govern the Trust’s approach to managing liquidity risk for the Fund. The Program is overseen by the Liquidity Committee (the “Committee”), which is comprised of representatives of the Trust and ALPS. The Board has approved the designation of the Committee to oversee the Program.

 

The Program’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. The Program also includes a number of elements that support the management and assessment of liquidity risk, including an annual assessment of factors that influence the Fund’s liquidity and the periodic classification and re-classification of the Fund’s investments into groupings that reflect the Committee’s assessment of their relative liquidity under current market conditions.

 

At a meeting of the Board held on May 21, 2020, the Committee provided a report (the “Report”) to the Board addressing the operation, adequacy, and effectiveness the Program, including any material changes to the Program for the period from April 1, 2019 through March 31, 2020 (“Reporting Period”). The Report concluded that the Trust’s Program was reasonably designed to assess and manage the Fund’s liquidity risk and was adequately and effectively implemented during the Reporting Period. There were no material changes to the Program during the Reporting Period. The Report further concluded that the Fund’s investment strategy continues to be appropriate given the Fund’s status as an open-end fund.

 

There can be no assurance that the Program will achieve its objectives in the future. Additional information regarding risks of investing in the Fund, including liquidity risks presented by the Trust’s investment portfolios, is found in the Trust’s Prospectus and Statement of Additional Information.

 

 
Annual Report | September 30, 202025

 

 

Carret Kansas Tax-Exempt Bond FundPrivacy Policy

 

September 30, 2020 (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

DO 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 1-833-287-7933.

 

 

26

 

 

Carret Kansas Tax-Exempt Bond FundPrivacy Policy

 

September 30, 2020 (Unaudited)

 

WHO WE ARE
Who is providing this notice?Carret Kansas Tax-Exempt Bond Fund (the “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.

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, 202027

 

 

Carret Kansas Tax-Exempt Bond FundTrustees & Officers

 

September 30, 2020 (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.Mr. Armstrong is currently retired. From February 2010 to July 2015, he was Co-Founder and Managing Partner of NorthRock Partners, a private wealth advisory firm providing comprehensive wealth management and family office services to the high net-worth marketplace. Previously, he was Senior Vice President, Ameriprise Financial (September 2005 to May 2007); Chairman of Ameriprise Trust Company (2005 – 2007) and President, American Express Institutional Asset Management (1984 – 2002). He has also served on several investment related Boards including Kenwood Capital Management, RiverSource Investments, American Express Asset Management International and was Chair of the Ordway Theatre Endowment Committee.9Mr. Armstrong is a Director of the Heartland Group, Inc. (3 funds).

J. Wayne Hutchens,

Birth year: 1944

TrusteeMr. Hutchens was elected to the Board on October 30, 2012.Mr. Hutchens is currently retired. From 2000 to January 2020, he served as Trustee of the Denver Museum of Nature and Science and from May 2012 to February 2020, he was a Trustee of Children's Hospital Colorado. 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 Director of AMG National Trust Bank (June 2012 to present). Prior to these positions, Mr. Hutchens spent 29 years in the banking industry, retiring as Chairman of Chase Bank Colorado.9Mr. Hutchens is a Director of RiverNorth Opportunities Fund, Inc. (2013 to present), RiverNorth Opportunistic Municipal Income Fund, Inc. (2018 to present), RiverNorth/Doubleline Strategic Opportunity Fund, Inc. (2018 to present), RiverNorth Specialty Finance Corporation (2018 to present), RiverNorth Managed Duration Municipal Income Fund, Inc. (2019 to present), RiverNorth Flexible Municipal Income Fund, Inc. (2020 to present). He is an Advisory Board member of RiverNorth Funds (3 funds) (2020 to present).

 

 

28

 

 

Carret Kansas Tax-Exempt Bond FundTrustees & Officers
 

September 30, 2020 (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***

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 1994.9Mr. Seese is a Director of The Mile High Five Foundation (2013 to present) and SJ Panthers Foundation (2016 to present).

 

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

TrusteeMr. May was elected Trustee on October 30, 2012. Mr. May was President from October 30, 2012 to May 23, 2019. Mr. May was Chairman from October 30, 2012 to August 24, 2017.Mr. May previously served as 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., working at ALPS from June 1995 until June 2019. 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.9Mr. May is Trustee of the Reaves Utility Income Fund (1 fund).

 

 
Annual Report | September 30, 202029

 

 

Carret Kansas Tax-Exempt Bond FundTrustees & Officers

 

September 30, 2020 (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***

Bradley Swenson,

Birth year: 1972

PresidentSince May 2019Mr. Swenson joined ALPS Fund Services, Inc. (“ALPS”) in 2004 and has served as its President since June 2019. In this role, he serves as an officer to certain other closed-end and open-end investment companies. He previously served as the Chief Operating Officer of ALPS (2015-2019). Mr. Swenson also previously served as Chief Compliance Officer to ALPS, its affiliated entities, and to certain ETF, closed-end and open-end investment companies (2004-2015).

Erich Rettinger,

Birth year: 1985

TreasurerSince August 2020Mr. Rettinger joined ALPS in 2007 and is currently Vice President and Fund Controller of ALPS. He has served as Fund Controller, ALPS Fund Services, Inc. (since 2013) and Fund Accounting, ALPS Fund Services, Inc. (2013-2017). Mr. Rettinger is also Assistant Treasurer of the Stone Harbor Investment Funds, the Stone Harbor Emerging Markets Income Fund and the Stone Harbor Emerging Markets Total Income Fund.

Vilma DeVooght,

Birth year: 1977

SecretarySince May 2020Ms. DeVooght has served as Senior Counsel of ALPS since 2014 and previously served as Associate Counsel of First Data Corporation from 2012 to 2014 and Legal Counsel of Invesco 2009 to 2011. Ms. DeVooght also serves as Assistant Secretary of the Stone Harbor Investment Funds, the Stone Harbor Emerging Markets Income Fund and the Stone Harbor Emerging Markets Total Income Fund (since 2015).

Anne M. Berg,

Birth year: 1973

Assistant SecretarySince August 2018Ms. Berg joined ALPS as Senior Investment Company Act Paralegal in February 2017. Prior to joining ALPS, she was a Senior Legal Manager at Janus Capital Management LLC (2000-2017).

Lucas D. Foss,

Birth Year: 1977

Chief Compliance OfficerSince January 2018Mr. Foss rejoined 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 (2015-2017) and Deputy Chief Compliance Officer at ALPS (2012-2015). Mr. Foss is also CCO of X-Square Balanced Fund, Goehring & Rozencwajg Investment Funds, Broadstone Real Estate Access Fund, Inc., Clough Global Funds; Clough Funds Trust; SPDR® S&P 500® ETF Trust, SPDR® Dow Jones® Industrial Average ETF Trust, SPDR® S&P MIDCAP 400® ETF Trust; and 1WS Credit Income Fund.

 

*All communications to Trustees and Officers may be directed to ALPS Series Trust c/o 1290 Broadway, Suite 1000, 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 9 series of the Trust.

 

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 1-833-287-7933.

 

 

30

 

 

Intentionally Left Blank

 

 

This material must be preceded or accompanied by a prospectus.

 

The Carret Kansas Tax-Exempt Bond Fund is distributed by ALPS Distributors, Inc

 

 

 

 

 

 

 

 

Table of Contents

 

 

 

Shareholder Letter2
Portfolio Update 
Clarkston Partners Fund12
Clarkston Fund18
Clarkston Founders Fund23
Disclosure of Fund Expenses29
Portfolios of Investments 
Clarkston Partners Fund31
Clarkston Fund33
Clarkston Founders Fund35
Statements of Assets and Liabilities37
Statements of Operations38
Statements of Changes in Net Assets 
Clarkston Partners Fund39
Clarkston Fund40
Clarkston Founders Fund41
Financial Highlights42
Notes to Financial Statements55
Report of Independent Registered Public Accounting Firm67
Additional Information68
Liquidity Risk Management Program70
Privacy Policy71
Trustees and Officers74

 

Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Funds’ annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website at www.clarkstonfunds.com and you will be notified by mail each time a report is posted and provided with a website link to access the report.

 

You may, notwithstanding the availability of shareholder reports online, elect to receive all future shareholder reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with a Fund, you can call 1-844-680-6562 to let the Fund know you wish to continue receiving paper copies of your shareholder reports.

 

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from a Fund electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by enrolling at www.clarkstonfunds.com.

 

 

Clarkston FundsShareholder Letter

 

 September 30, 2020 (Unaudited)

 

Warm Wishes

The outbreak of COVID-19 caught everyone unprepared. Months of global confusion and uncertainty have weighed upon the world at large. Like far too many people, we at Clarkston Capital have had to mourn lost loved ones and isolate ourselves from friends and family. We thank you for your support over the past twelve months, especially given the challenges we have been facing together during this pandemic. Above all else, we hope that you and your families are staying safe and well.

 

In dire times such as these, it helps to look for the silver linings which shine against the pall cast by the pandemic, one being the vindication of our investment approach. We have long held a patient, calm demeanor as one of our fundamental tenets. We seek to buy what we consider to be high-quality businesses only at attractive, discounted prices, and build cash while we await such opportunities.

 

COVID-19 has proven beyond a doubt that we have little control over the market, and just as much over life. We can’t know exactly what we are going to buy when we finally get the opportunity, as price drops are dependent upon the market. We can control, however, what businesses the Clarkston Funds own and at what price transactions for the Funds are made. We spend our time turning over rocks and analyzing businesses that we would like the Funds to own according to our investment philosophy. Then, on rare occasion, market dislocation results in severe prices drops in these businesses. With all due deference and humility, we found the economic impact of COVID-19 to be the best investment opportunity we have had since the 2008 financial crisis. The onset of the pandemic, and the precipitous market drop that followed, afforded us the opportunity to deploy the significant amount of cash in the Clarkston Funds’ portfolios into high-quality businesses at what we found to be extremely attractive prices.

 

Clarkston’s Investment Process

We want to remind you about our process. In essence, we identify businesses that meet our definition of “quality” and wait for prices that we think are attractive. Clarkston Capital was founded on the notion that the best way to achieve long-term capital appreciation is by investing in what we believe to be extraordinary businesses over long time periods.

 

Our first responsibility, as stewards of Fund investors’ capital, is the mitigation of downside risk. We believe the best way to accomplish this goal is to identify a quality business and patiently wait for the company to go on sale.

 

Clarkston Capital’s investment process has evolved into one that assesses businesses through the lens of long-term business ownership. Our “Quality Value” investment process focuses on identifying sustainable, competitively-advantaged business models that have the potential to financially prosper from high returns on reinvested capital and can be purchased with a margin of safety against the unknowable. A margin of safety exists when we believe the company’s share price is trading at a significant discount to the company’s intrinsic value at the time of purchase.

 

Assessing and investing in “quality” businesses emerged as the cornerstone of our investment process because these companies are expected to preserve and compound their value over time. Our disciplined “value” approach is integral to mitigating downside risk and is designed to prevent us from paying excessive prices for the highest quality businesses.

 

We believe the best way to value the long-term nature of free cash flows generated by competitively-advantaged businesses is via a “cash-on-cash” returns model. Clarkston Capital’s model is derived from the Gordon Growth Model and separates value into two distinct components: free-cash-flow (“FCF”) yield and growth factor. The FCF yield – free cash flow divided by market value – captures the normalized cash generation power of the business. The second component, the growth factor, captures the organic growth in free cash flow. When added together, the FCF yield and growth factor deliver an estimated cash-on-cash return that an owner of the business can expect to earn over a long-term holding period.

 

 

2www.clarkstonfunds.com

 

 

Clarkston FundsShareholder Letter

 

 September 30, 2020 (Unaudited)

 

This model enables us to distinguish between what we believe to be more knowable “near-term” free cash flows and unknowable or inestimable “future” free cash flows. We tend to weight more heavily the FCF yield. A focus on attractive FCF yields and the use of conservative growth estimates helps facilitate a margin of safety.

 

Our disciplined adherence to our valuation methodology, which calls for a margin of safety, coupled with a market that offers little opportunity, results in periods when there is nothing to do but wait. During these periods, cash balances may rise.

 

What Happened Over the Last Twelve Months?

We would characterize 2017, 2018, and 2019 as years where there was little to do but wait. We spent a lot of time researching new businesses and re-researching existing holdings, but we spent almost no time buying and selling. We were spending our time preparing for an inevitable disruption. COVID-19 was a temporary disruption for the markets, but it did take them down.

 

Let’s look back into 2017 and 2018. For the majority of those years, FCF yields in the Clarkston Funds’ portfolios were in the 6-7% range. Roughly 50% of capital was invested in businesses with FCF yields above 7%, 25% with FCF yields under 7%, and more than 20% in cash. At 2019 valuations, the Funds’ portfolios grew slightly more attractive with average FCF yields in the 8-9% range, primarily due to the elimination and trimming of fairly valued businesses and redeployment of capital into more attractively valued businesses with FCF yields in the 10% range.

 

At the end of March 2020, COVID-19 fears fully made their way into the market and FCF yields reached multi-year highs in the 12-14% range. We deployed a record amount of Fund capital during March and April – more than we had since the inception of the Funds. At the end of February, we had ample cash in the Funds: Clarkston Partners Fund in the mid-teen percentages, Clarkston Founders Fund at about 20%, and Clarkston Fund at greater than 10% cash.

 

At the end of September, cash balances had built up – still much lower than in February, but some inflows remained in cash. FCF yields at the end of September were back in the 10-11% range, but around 90% of capital invested was in businesses with FCF yields above 10%. Cash levels in both the Clarkston Founders Fund and Clarkston Partners Fund were just over 10%, while the Clarkston Fund’s cash was in the mid-single digits.

 

Opportunities

The key to our Quality Value investment philosophy is identifying which businesses we expect to create value over time, the optimal path in which they have the potential to create that value, and at what price we believe justifies the risk of ownership. The easy part of executing the strategy is identifying quality businesses and valuing those businesses. The difficult part is remaining disciplined and exercising the patience and courage necessary to wait for attractive entry points, acting in a contrarian manner, and buying a business that the “herd” has incorrectly deemed to be permanently impaired. Being a contrarian is lonely and painful, and the pain can last longer than many can endure.

 

 

Annual Report | September 30, 20203

 

 

Clarkston FundsShareholder Letter

 

 September 30, 2020 (Unaudited)

 

In our quest to faithfully execute Clarkston Capital’s philosophy, we have been tasked with exercising much patience, and, at times, it has been quite painful. We are all taught from a young age, across many different disciplines, that we make our own opportunities. This is somewhat true, yes, but in the investment business, one does not create opportunities. They present themselves at their own leisure – infrequently, and often at inopportune times. Therefore, one must be ready.

 

Since the psychology of the marketplace determines the timing of investing, one has to be flexible in one’s decision making. This also means one has to be flexible in where one is finding opportunity, or at least ensure that one’s area of competence is broad enough to encompass various industries and segments of the economy. Often times, price drops occur across a focused group of companies or within similar industries. Since the inception of the Clarkston Funds in September 2015, there have been few market dislocations and, therefore, few broader opportunities to deploy capital: in 2016 due to drops in the oil industry and its related industrial companies, in December 2018 due to an underappreciated, hawkish tone by the Federal Reserve among elevated economic uncertainty, and in the Spring of 2020 due to the COVID-19 outbreak in the U.S. Each of these events opened the door for us to invest the Funds’ capital.

 

Approaching these businesses in this manner, versus focusing on particular industries, gives us a search efficiency because we can find businesses in multiple end markets. When a dislocation occurs, it usually occurs in a certain end market. COVID-19 has affected hospitality-related industries. These include air travel, restaurants (which affected both on-premises beer and food consumption), sporting and entertainment events (which affected advertising and media companies), medical-related facilities, fitness, movie theaters, and retailers (auto retailers, in our case). Also included as a second derivative are industrial companies and asset managers: the shutdown in the above industries led to decreased need for manufactured goods and fear surrounding asset managers’ billing capacity as the markets trended downward. Interestingly enough, some industries that we thought would have cratered, like home-related products and recreational vehicles, actually trended higher as vacationers opted for big ticket leisure items in lieu of expensive vacations.

 

Commonalities Among Businesses We Bought

The irony of buying quality businesses at a margin of safety is that most investors would argue that these businesses are no longer high quality. The share prices of these businesses have typically fallen, or at least stagnated, for long periods of time. These quality businesses have entered a period of short-term challenges: we believe these challenges are addressable, but they are challenges, nonetheless. Most investors lack the patience and long-term mindset to wait for a company to overcome such obstacles. But how else would an investor be able to buy a quality business at a discount? It’s far easier to stand with the crowd and brag about a well-performing business than it is to stand alone in the corner, arguing why a business is still dominant despite appearances to the contrary.

 

Ultimately, one still has to be correct in one’s argument. While business in the beer, food distribution, airline, transportation, education, and advertising industries are challenged, they do possess attractive characteristics that we believe still make them quality businesses.

 

COVID-19 has affected businesses in various distinct industries which, under most circumstances, are unrelated in regard to risk. The pandemic has been so punishing and arduous, however, that it has affected several different industries and business models, many of which we have researched over the years. Many investors tend to write off businesses that operate in these industries, often for the right reasons: such businesses may be permanently impaired, perhaps due to over-leveraging or even a business model which has been forever changed. But we found opportunities in some high-quality businesses that were – as we believe them to be – only temporarily affected by the pandemic. Because these businesses have competitively advantaged business models, strong balance sheets, and extremely capable management teams, we feel they will once again dominate their end markets. Here are some commonalities among the businesses that we bought in the Funds’ portfolios during the pandemic and why we feel they are excellent businesses.

 

 

4www.clarkstonfunds.com

 

 

Clarkston FundsShareholder Letter

 

 September 30, 2020 (Unaudited)

 

As always, all the companies meet the Clarkston Quality Principles:

High Cash Returns on Net Operating Assets (CRONOA) and strong balance sheets;

Competitively advantaged business models that are sustainable;

Operated by candid management teams who allocate capital for the benefit of shareholders.

These businesses boast long-term, resilient business models. This isn’t to say they were not impacted by COVID-19, but we believe they will ultimately prevail and emerge even stronger. There are secular trends that will continue when the pandemic is behind us, whether by comfort, biology, or innovation. People will travel, they will go out to eat or drink beer, etc. This might be a slow return, but it will inevitably return.

They occupy mature industries: The businesses in these industries are not novel or fleeting – they have been around for decades. This emboldens our confidence that they will not perish. History is often a strong indicator of longevity.

They function as oligopolies: They operate in industries dominated by a few large competitors, which provides the incumbents with scale advantages.

Smaller competitors will struggle to survive the longer the pandemic lasts, rendering them more vulnerable to larger incumbents. The scale advantages enable said incumbents to take market share from these strugglers.

They reacted quickly to the pandemic with flexible balance sheets, whether they raised capital or suspended dividends and cut unnecessary costs.

Their shares were trading in the double digits of normalized FCF yields, which provided a meaningful margin of safety in the event of a long recovery to pre-pandemic FCF levels. In some cases, the Funds purchased at prices at the point that FCF does not need to fully recover.

 

Where did Clarkston Deploy the Funds’ Capital?

 

Beer:

The COVID-19-related “stay-at-home” orders caused the on-premises channel (e.g., bars, restaurants, sporting events) for the beer industry to shut down beginning in March 2020 and continuing to present day. While some states in the U.S. have re-opened in recent months, the restaurants and bars that made it through the COVID-19 shutdown have re-opened at reduced capacity. Beer’s on-premises channel accounts for approximately 18% of industry sales, which negatively impacted the Clarkston Partners Fund’s, Clarkston Founders Fund’s and Clarkston Fund’s holdings in brewer Molson Coors (TAP) and the Clarkston Founders Fund’s and Clarkston Fund’s holdings in brewer AB InBev (BUD). On-premises sales generally carry higher margins than off-premises sales. On-premises sales account for over 20% of consolidated net sales in both holdings, which has weighed on profitability. Fortunately, some beer consumption shifted to the off-premises channel, but this wasn’t enough to offset the loss of on-premises sales. A positive trend from the shift to the off-premises channel (e.g., people drinking at home) is consumers gravitating towards established brands they know and trust. This has resulted in a spike in consumer demand for established beer brands such Coors Light (TAP), Miller Lite (TAP), and Bud Light (BUD). According to Nielsen, a market measurement firm, retail sales for established brands are up double digits over the past six months. Time will ultimately tell how much of this consumer demand sticks long-term, but we are cautiously optimistic.

 

 

Annual Report | September 30, 20205

 

 

Clarkston FundsShareholder Letter

 

 September 30, 2020 (Unaudited)

 

While the dramatic shift toward off-premises consumption has cushioned the blow to TAP and BUD, it has severely impacted smaller craft brewers. Many craft brewers’ sales skew more toward the on-premises channel as many rely on their taprooms and keg sales. As a result, many craft brewers are financially distressed and we anticipate they will be increasingly weakened the longer the COVID-19 shutdowns last. This could present a longer-term opportunity for TAP and BUD to win on-premises share and emerge stronger. We added to the Clarkston Partners Fund’s and Clarkston Founders Fund’s positions in TAP and the Clarkston Founders Fund’s and Clarkston Fund’s positions in BUD in late-February and during the height of COVID-19 throughout March and April. While the shares of both brewers are down over 30% calendar year-to-date, we are confident in their long-term prospects. We are attracted to the beer industry because it is a defensive business with a strong industry structure and attractive financial profile.

 

Food:

COVID-19 and its related shutdowns have brought on serious challenges for the foodservice distribution industry. In late March, U.S. restaurant customer transactions were down more than 40% from prior year levels, and less than 40% of restaurants in the U.S. were open for indoor dining by the end of May. The environment has improved steadily in subsequent months: by the middle of July, restaurant customer transactions were down around 12% from prior year levels, and more than 80% of restaurants nationwide were open for indoor dining by the end of September. The improving trends are due to a confluence of factors, including relaxed government restrictions, expanded outdoor seating, and increased adoption of takeout and delivery. Although the recovery from March and April lows has been encouraging, it is still uncertain when pre-pandemic level demand will return and much of the industry is still suffering. The bar and restaurant channel represents around 60% of foodservice distribution industry revenues and likely comprises a larger portion of industry profits.

 

During the tumultuous March period, share prices of Sysco Corporation (SYY) (“Sysco”) and US Foods Holding Corp. (USFD) (“US Foods”) tumbled. Sysco share prices were more than halved from their February levels, while US Foods shares declined more than 70% from where they were priced the prior month. This provided us an opportunity to initiate positions in what we consider to be two exceptional businesses at attractive valuations. We bought new positions in Sysco in the Clarkston Partners Fund and Clarkston Fund and US Foods in the Clarkston Partners Fund and Clarkston Founders Fund. Additionally, we added to the Clarkston Founders Fund’s position in Sysco during this period.

 

Since March, both Sysco and US Foods have taken steps to protect and strengthen their franchises, while helping their customers navigate a difficult business environment. Both distributors raised additional capital through the debt markets and took aggressive cost cutting measures. These actions were designed to ensure liquidity in the event of prolonged shutdowns. Other industry participants may have entered the crisis with less durable balance sheets and limited or no access to the capital markets. If less-resourced competitors falter or exit the market, Sysco and US Foods could be the beneficiaries. They have taken on more of a consultative role during this period to further solidify their value propositions. Both Sysco and US Foods have helped their customers navigate the CARES Act, implement takeout menus, increase social media engagement, and re-open restaurants safely. These actions are likely to create valuable and sustained customer goodwill that may help both businesses emerge stronger.

 

 

6www.clarkstonfunds.com

 

 

Clarkston FundsShareholder Letter

 

 September 30, 2020 (Unaudited)

 

As we enter late fall and the winter months, we may see a reversal of the opening trend, and states may force restaurants to shut down yet again. We feel that in the longer term, however, food consumed away from home, whether it be sitting in a restaurant or carrying food out, will continue to take share from food consumed at home. This bodes well for the larger food distributors that possess the scale to service these restaurants and assist them in navigating unknowable future environments.

 

Airlines:

Sabre Corp. (SABR) (“Sabre”), held in the Clarkston Partners Fund and Clarkston Founders Fund, connects travel suppliers with travel buyers by providing travel inventory from airlines, hotels, rental car companies, etc. to places where people buy travel, like travel management companies, online travel agents, and offline travel agents. In addition, they provide outsourced information technology services for airlines and hotels. Sabre’s revenue is 15% contractual and 85% transactional. As travel has remained significantly depressed worldwide due to COVID-19, Sabre has seen drastic reductions to its transactional revenue. To help offset the significant revenue headwinds, Sabre has taken steps to cut costs and conserve cash, both in the short term and long-term. For example, it cut pay, suspended the dividend, furloughed and laid off workers, among other moves, to reduce costs, and it issued debt, convertible debt, convertible equity, and common equity to bolster its cash position. Sabre currently has enough cash on hand to survive a zero-booking environment through about the summer of 2022. Currently, bookings are not zero but are very low compared to historical averages.

 

While the price of Sabre shares have dropped significantly this year, and remain down over 65%, we remain positive on Sabre’s competitive positioning, and the industry dynamics. The global distribution system (GDS) technology that Sabre pioneered is responsible for over 50% of airline bookings every year. This market is an oligopoly, with Sabre as one of the largest players. In addition, Sabre serves as the enterprise resource planning (ERP) technology for major airlines around the globe. It provides technology that does everything from booking, inventory management and boarding, to crew and cargo planning. Airlines and hotels are navigating through an unprecedented travel environment and we do believe it to be a temporary state. We believe Sabre has enough cost flexibility and liquidity to weather this storm and will come out the other side just as essential as it was before. Additionally, if start-ups, and weaker traditional players, fail to survive the current travel environment, that could provide an opportunity for Sabre to win additional market share. However, Sabre’s moves to strengthen its liquidity position have diluted common equity holders by about 40% on a fully diluted basis. We still feel that the shares are attractive at their current levels, but some of the upside has been taken away.

 

Transportation:

Transportation companies, such as FedEx Corporation (FDX) (“FedEx”), have played a crucial role during the pandemic as they delivered food, goods, medicine, and much more to businesses and consumers. FedEx is held in the Clarkston Founders Fund and Clarkston Fund. Its importance was further highlighted as air cargo capacity in commercial planes became globally constrained after airlines made the decision to dock their fleets. The global shutdown initially slowed much of FedEx’s Business-to-Business (B2B) volumes, negatively impacting its margin profile. In addition, FedEx incurred additional operational costs to ensure the health and safety of its workers. This decline was offset by the surge in e-commerce raising Business-to-Consumer (B2C) volumes. In April, e-commerce had accounted for about 27% of total U.S. retail sales in comparison to about 16% the prior year. FedEx has publicly stated that it now believes that the US domestic market will reach 100 million packages a day by 2023, originally not expected until 2026. Although we do not expect e-commerce to persist at peak levels forever, we remain optimistic that it will remain elevated in comparison to previous years. Prior to COVID-19, the market had discredited FedEx for multiple long-term initiatives the company was taking to position itself for the future – the first of which being the decision to cut ties with Amazon.com, Inc. (“Amazon”). Although the relationship was beneficial to FedEx’s volumes, the contract involved moving some of Amazon’s most expensive packages, which diminished margins. Secondly, FedEx has continued to operate at levels of elevated capital expenditures to build out needed capacity, ultimately hindering cash flows in the short term. As FedEx’s share prices fell and we calculated a FCF valuation of low- to mid-teens for the business, we continued to add to the Clarkston Founders Fund’s and Clarkston Fund’s positions in late February and throughout March.

 

 

Annual Report | September 30, 20207

 

 

Clarkston FundsShareholder Letter

 

 September 30, 2020 (Unaudited)

 

Throughout the pandemic, FedEx has been utilizing the excess capacity it had been building for multiple years. The large surge of B2C volumes allowed the company to increase route density, improve margins, and become more selective on revenue quality. As FedEx continues to execute on long-term initiatives, we have seen the shares appreciate 70% calendar year-to-date. Although FedEx’s valuation is no longer as attractive as it initially was in February and March, FedEx is poised to take advantage of continued volume growth, enhanced margin profiles, and increased pricing power in the future.

 

Education:

COVID-19 has forced remote learning to become common place from kindergarten through college. It has also placed an increased importance on trustworthy, peer-reviewed research and science. John Wiley (JW.A)(“Wiley”) is well positioned to capitalize on both of these long-term trends, even if the short term may be choppier. Wiley is held in the Clarkston Partners Fund. Wiley is a leader in the academic journal and online degree end markets and also participates in book publishing, test prep, and corporate learning end markets, among others. Wiley’s academic journals are among the most coveted for university libraries, government research institutions, and authors around the world. They are the third largest publisher and consistently rank among the top publishers when measured by Impact Factor. Publishing in prestigious academic journals is mission critical to a university professor’s path towards a tenured position. Wiley has recently become a leader in the open access publishing initiative through creative partnerships with groups of institutions around the world.

 

Wiley is very well positioned to continue publishing high-quality, mission-critical articles and journals around the world. Many of their university customers may be feeling financial pressure from short-term headwinds related to enrollment, tuition pressure, and remote learning. As a result, Wiley may need to acquiesce on price in the short term to maintain dominance in the end market. These short-term headwinds should be offset, in part, by increased open access publishing and high-single to low-double digit growth in article output. COVID-19 has accelerated the shift to remote learning, but it has also caused economic hardship in many countries around the world. Recessions typically see a declining enrollment of university students at the beginning, followed by an increase later on. Because Wiley shares in the tuition dollars of enrolled students in their online degree programs, they may see some short-term headwinds while being well positioned to capitalize on the long-term trends. In addition, Wiley enjoys a strong balance sheet that is under levered and it increased its dividend for the 27th straight year. We will be monitoring Wiley’s capital allocation activity with a focus on capital return versus the possibility of a merger or acquisition at the current share price.

 

 

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Clarkston FundsShareholder Letter

 

 September 30, 2020 (Unaudited)

 

Media:

The COVID-19 pandemic and lockdowns associated with it had varying impacts across the media landscape. On the consumption front, demand surged. In the absence of social gatherings, dining out, attending concerts, and traveling, people stayed home and consumed more media content. According to data from Nielsen Holdings plc (NLSN) (“Nielsen”), video streaming increased 74% in the second quarter of 2020, compared to the same quarter in 2019. Despite increased consumption, advertising spend softened as marketing budgets squeezed. Supplying fresh programming has been another area of difficulty. Sports – the bedrock of traditional television – were mostly shut down in the spring months. They have since returned, but uninterrupted seasons hinge on leagues’ abilities to control outbreaks among players and personnel. Production of scripted and unscripted content was halted at the beginning of the crisis in March and has returned with varying levels of success. Delivery of planned programming and advertisers’ willingness to spend are clearer now than at the outset of the crisis, but they are both still unknowns. Amid the market volatility in March, we were able to add to the Clarkston Partners Fund’s, Clarkston Founders Fund’s and Clarkston Fund’s positions in Nielsen.

 

We believe Nielsen possesses a resilient business model that is well equipped to weather challenging environments. Around 70% of the firm’s revenues are committed through long-term contracts and many of its non-subscription-based products and services are essential to its clients. Nielsen acted swiftly at the outset of the pandemic. In April, it removed around $200 million of temporary costs to increase liquidity. It also extended the duration of debt maturities to enhance flexibility in the coming months. In addition to these defensive moves, Nielsen used the crisis as an opportunity to go on offense – accelerating previously planned business optimization efforts. This is expected to permanently reduce the company’s cost structure by around $250 million through increased automation, workforce reduction, platform consolidation, and strategic business exits. We believe these measures position Nielsen well to navigate the current environment’s challenges while remaining opportunistic with an eye on the long-term.

 

In the Clarkston Founders Fund, we initiated a position in Fox Corporation (FOXA) (“Fox”) in early July. Fox shares were nearly halved in March from prior month levels. The share price recovered in ensuing months but remained materially lower than pre-pandemic levels.

 

Fox spun out of 21st Century Fox in the Spring of 2019, coincident with the merger between The Walt Disney Company and 21st Century Fox. Fox is an owner-operator with an extremely focused portfolio of media assets highly levered to the most defensible areas of pay-television: news and sports. Fox’s assets primarily consist of the Fox News, Fox Business, and FS1 cable networks, the Fox broadcast network, and 28 owned and operated television stations.

 

The pandemic’s effect on Fox has differed across its portfolio. Fox News reported its highest ratings ever this year and was the highest rated network across all television – the first time a cable network has surpassed all the broadcast networks over a three-month period. This boon in ratings is attributable to a strong and persistent news cycle. The ratings increases have enabled Fox News to grow advertising revenue year-to-date over prior year levels. Local advertising at its owned and operated stations has been softer, as local businesses cut advertising budgets to focus on more immediate needs. Programming on its network was shuffled around to accommodate unusual sports seasons and delays in production of entertainment programming.

 

Fox entered the crisis with modest leverage and ample cash on the balance sheet. It raised additional debt to pre-fund a 2021 debt maturity and to add to its liquidity position.

 

 

Annual Report | September 30, 20209

 

 

Clarkston FundsShareholder Letter

 

 September 30, 2020 (Unaudited)

 

Where We Are Now

It seems paradoxical that today’s market is one of the most expensive we have seen in many years, but the economy at large is in the worst shape it has been for just as long. Some of this market performance can be related to the proliferation of giant technology businesses like Apple Inc., Microsoft Corporation, Amazon, etc. Investors have only fallen more in love with these behemoths, and they likely aren’t going away anytime soon.

 

While these businesses continue to steal the limelight, Clarkston Capital is finding value in smaller micro-niche businesses with market capitalizations under $10 billion. There also seems to be a COVID-19 trade, similar to the growth/value trade over the past few years. Investors are selling businesses impacted by COVID-19 when the outlook is bleak and buying technology businesses. When there is news about a vaccine or a stimulus agreement, the opposite trade occurs. We believe that strong businesses with strong balance sheets, whether or not they operate in industries affected by COVID-19, will prosper in the long-term. It just so happens that these businesses trade at more attractive valuations according to our estimates.

 

Beyond that, we fervently believe that strong people with strong hearts will prosper in the long-term, despite the pandemic’s shadow looming over us as of late. These days are dark, but we must endure as best we can, looking for the silver linings to light the way, until the sky finally clears. Again, we hope you stay happy and safe.

 

Thank you,

 

Jeffrey A. Hakala, CFA, CPA Jerry W. Hakala, CFA 
    

 

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.

 

DISCLOSURES:

 

The Clarkston Funds invests in companies Clarkston Capital believes to be of high quality and believes to be undervalued relative to their expected long-term free cash flows. Clarkston Capital refers to this investment philosophy as “Quality Value”. Clarkston Capital defines high-quality companies as those that meet certain financial, business and management criteria, which may vary over time. These criteria include favorable profitability metrics, sustainable competitive advantages and capable management teams.

 

The Gordon Growth Model is used to determine the intrinsic value of a stock based on a future series of dividends that grow at a constant rate. The Model assumes the dividend grows at a constant rate in perpetuity and solves for the present value of the infinite series of future dividends.

 

 

10www.clarkstonfunds.com

 

 

Clarkston FundsShareholder Letter

 

 September 30, 2020 (Unaudited)

 

Enterprise Resource Planning refers to a type of software that organizations use to manage day-to-day business activities such as accounting, procurement, project management, risk management and compliance, and supply chain operations.

 

Open Access is a set of principles and a range of practices through which research is distributed online, free of cost or other access barriers.

 

Impact Factor is a measure of the frequency with which the average article in a journal has been cited in a particular year or period.

 

All references to portfolio holdings are as of September 30, 2020.

 

 

Annual Report | September 30, 202011

 

 

Clarkston Partners FundPortfolio Update

 

 September 30, 2020 (Unaudited)

 

Performance

If someone would have told us on October 1st, 2019 that during the next twelve months, a deadly pandemic would affect over 35 million people and kill over 1 million, we would have forecast a negative return for equities. Instead, equity markets continued the upward march with the Russell 3000® Index gaining 15.00% for the twelve months ended September 30, 2020. This remarkable performance was entirely driven by beloved technology businesses that were seemingly immune to COVID-19 while the performance of businesses in the travel, retail, and hospitality sectors were severely negative.

 

The Russell 3000® Growth Index grew 36.12% during the twelve months ended September 30, 2020 while its sister Russell 3000® Value Index fell 5.67%. Therefore, a portfolio without large-cap technology names, such as Facebook, Inc. (FB), Amazon.com, Inc. (AMZN), Apple Inc. (AAPL), Netflix, Inc. (NFLX), and Microsoft Corporation (MSFT), did not experience the same level of appreciation as those heavily exposed to these names. Consequently, smaller-cap businesses underperformed larger ones, with the Russell 2500TM Index gaining only 2.22%. The Clarkston Partners Fund – Institutional Class performed similarly, gaining 2.07%.

 

Top Contributors

Top contributors to the Fund included food distribution companies, Sysco Corporation (SYY) and US Foods Holding Corp. (USFD), which we added to the Fund at attractive prices in March of this year. During the pandemic, both companies have taken steps to protect and strengthen their franchises, while helping their customers navigate a difficult business environment. They raised additional capital through the debt markets and took aggressive cost cutting measures. These actions ensured liquidity in the event of prolonged shutdowns. The other 15,000 industry participants likely entered the crisis with less durable balance sheets and limited or no access to the capital markets. As these less resourced competitors falter, or exit, Sysco and US Foods are the most likely beneficiaries.

 

Legg Mason, Inc. (LM), another top contributor, was acquired by Franklin Resources, Inc. (BEN). While the investment in Legg was profitable for Fund shareholders, we believe Franklin bought Legg at a discount, which piqued our interest in Franklin’s shares. We initiated a position in BEN shortly after announcement of the acquisition. We believe BEN's fortress balance sheet and the Johnson family’s significant ownership make the combination compelling because BEN has the financial wherewithal and long-term time horizon to see this transaction through. Finally, we appreciate the Johnson family’s long-term management approach, which inherently increases the probability of success for the transaction especially in the ever-changing industry environment.

 

Change Healthcare, Inc. (CHNG) benefited as healthcare utilization improved dramatically. At the outset of the crisis, utilization was down around 40%, and by the end of Q2, utilization had improved; down only 8%. A resilient business model and strong balance sheet has allowed CHNG to remain opportunistic during this crisis, making three small tuck-in acquisitions in the areas of imaging and pharmacy. We believe valuation is still attractive at these levels.

 

Artisan Partners Asset Management, Inc. Class A (APAM) appreciated during the year due to higher average AUM driven by strong investment results, YTD net inflows, and higher equity markets. We are attracted to APAM’s talent-driven culture, where each investment team acts as its own boutique firm with the scale and resources of a fully integrated firm.

 

 

12www.clarkstonfunds.com

 

 

Clarkston Partners FundPortfolio Update

 

 September 30, 2020 (Unaudited)

 

Top Detractors

The largest detractor during the twelve months ended September 30, 2020 was Nielsen Holdings Plc (NLSN). Investors sold shares as the company experienced revenue softness in some short cycle analytics products, as clients reined in spending. However, the company’s recurring revenue stream, which accounts for about 70% of the revenue base, provides stability during volatile business environments. The Company increased the duration of debt maturities, positioning the balance sheet more favorably. Nielsen recently announced the sale of its Global Connect business for $2.7B to Advent International, in partnership with Jim Peck, the former TransUnion CEO. The transaction is expected to close in early Q2 2021. Proceeds will be used to de-leverage the business.

 

Molson Coors Beverage Company Class B (TAP) declined due to global shutdowns of on-premises establishments, including bars, restaurants, and entertainment venues. While some states in the U.S. have re-opened in recent months, the restaurants and bars that made it through the COVID-19 shutdown have re-opened at reduced capacity. Molson’s on-premises channel accounts for approximately 20% of revenues. Fortunately, some beer consumption shifted to the off-premises channel but was not enough to offset the loss of on-premises sales, which typically carry higher margins than off-premises sales. A positive trend from the shift in consumption to the off-premises channel (people drinking at home) is consumers gravitating towards established brands they know and trust. This has resulted in a spike in consumer trial for Molson which has re-introduced, and in some cases has introduced consumers for the first time to established beer brands such Coors Light and Miller Lite again.

 

Sabre Corp’s (SABR) revenues were affected by severe declines in corporate travel. As travel has remained significantly depressed worldwide, Sabre has seen drastic reductions to its transactional revenue. To help offset the significant revenue headwinds, Sabre has taken steps to cut costs and conserve cash, both in the short term and long term. For example, they cut pay, suspended the dividend, furloughed and laid off workers, among other moves, to reduce costs, and they issued debt, convertible debt, convertible equity, and common equity to bolster their cash position. While shares of Sabre have dropped significantly this year, we remain positive on Sabre’s competitive positioning, and the industry dynamics. The GDS technology that Sabre pioneered is responsible for over 50% of airline bookings every year and the market is an oligopoly with Sabre as one of the largest players.

 

Shares of Affiliated Managers Group, Inc. (AMG) were negatively impacted by performance related outflows from its quantitative and U.S. value affiliates which weighed on operating performance. Shares of AMG declined lower during the quarter as outflows in select quantitative and value strategies persisted. CEO Jay Horgen and CFO Tom Wojcik continue to think and act like owner-operators. The Company’s decision to cut the dividend and re-allocate capital to share repurchases was a bold action, and one that we believe will create long-term shareholder value.

 

Matthews International Corp. Class A (MATW) was also a top detractor during the last twelve months and has been a long-time underperformer in the Fund. We eliminated the position in Matthews because we believe management has failed to take significant actions to unlock value and de-lever the balance sheet.

 

 

Annual Report | September 30, 202013

 

 

Clarkston Partners FundPortfolio Update

 

 September 30, 2020 (Unaudited)

 

Initiations & Eliminations

During the last twelve months, we eliminated seven business from the portfolio primarily due to our decision to reallocate capital to new and existing holdings, which we felt provided demonstrably better valuation opportunities. Included in these six eliminations was Legg Mason, which we sold after the announcement that the company was selling to Franklin.

 

Newly added business during the year included Sysco, US Foods, US Ecology, Inc. (ECOL), and Franklin Resources, Inc. We also added significant capital to several existing positions over the past twelve months. As a result of these additions and eliminations, we believe the Clarkston Partners Fund is well positioned as world governments navigate their way through the pandemic.

 

 

14www.clarkstonfunds.com

 

 

Clarkston Partners FundPortfolio Update

 

 September 30, 2020 (Unaudited)

 

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

 

Change Healthcare, Inc.7.61%
Stericycle, Inc.7.37%
Nielsen Holdings PLC7.05%
CDK Global, Inc.6.30%
Molson Coors Beverage Co.5.44%
Hillenbrand, Inc.5.03%
LPL Financial Holdings, Inc.4.89%
Brown & Brown, Inc.4.41%
Willis Towers Watson PLC4.27%
The Western Union Co.4.18%
Top Ten Holdings56.55%

 

Sector Allocation (as a % of Net Assets)*

 

Financials24.38%
Industrials16.25%
Technology13.91%
Consumer Staples13.32%
Consumer Discretionary11.53%
Utilities8.42%
Cash, Cash Equivalents, & Other Net Assets12.19%
Total100.00%

 

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

 

 

Annual Report | September 30, 202015

 

 

Clarkston Partners FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

Performance of a Hypothetical $25,000 Initial Investment (at Inception* through September 30, 2020)

 

 

 

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, 2020)

 

 1 Year3 Year5 YearSince Inception*
Clarkston Partners Fund – Founders Class2.18%4.75%8.28%7.55%
Clarkston Partners Fund – Institutional Class2.07%4.64%8.14%7.42%
Russell 2500TM Index TR2.22%4.45%8.97%7.78%

 

The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Recent market volatility may have meaningfully impacted performance. There is no guarantee that any positive impact will be repeated. 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.

 

 

16www.clarkstonfunds.com

 

 

Clarkston Partners FundPortfolio Update

 

September 30, 2020 (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 28, 2020 Prospectus), are 0.92% and 0.85% and 1.07% and 1.00%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2021.

 

All references to portfolio holdings are as of September 30, 2020.

 

 

Annual Report | September 30, 202017

 

 

Clarkston FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

Performance

If someone would have told us on October 1st, 2019 that during the next twelve months, a deadly pandemic would affect over 35 million people and kill over 1 million, we would have forecast a negative return for equities. Instead, equity markets continued the upward march with the Russell 3000® Index gaining 15.00% for the twelve months ended September 30, 2020. This remarkable performance was entirely driven by beloved technology businesses that were seemingly immune to COVID-19 while the performance of businesses in the travel, retail, and hospitality sectors were severely negative.

 

The Russell 3000® Growth Index grew 36.12% during the twelve months ended September 30, 2020 while its sister Russell 3000® Value Index fell 5.67%. Therefore, a portfolio without large-cap technology names, such as Facebook, Inc. (FB), Amazon.com, Inc. (AMZN), Apple Inc. (AAPL), Netflix, Inc. (NFLX), and Microsoft Corporation (MSFT), did not experience the same level of appreciation as those heavily exposed to these names. The only business on this list owned in the Clarkston Fund was Microsoft, therefore relative performance trailed that of the Russell 1000® Index. The Clarkston Fund gained only 0.81% versus 16.01% for the Russell 1000® Index.

 

Top Contributors

Top contributors to the Fund included three transportation companies: FedEx Corporation (FDX), United Parcel Service, Inc. Class B (UPS), and C.H. Robinson Worldwide, Inc. The distribution infrastructure offered by these businesses grew increasingly valuable with higher demand for ecommerce shipments.

 

We added shares to the existing position in Sysco Corporation (SYY) at depressed prices during the height of the pandemic. Shares recovered during the summer placing Sysco as a top contributor during the year. Sysco has taken steps to protect and strengthen its franchise, while helping its customers navigate a difficult business environment. It raised additional capital through the debt markets and took aggressive cost cutting measures. These actions ensured liquidity in the event of prolonged shutdowns. The other 15,000 industry participants likely entered the crisis with less durable balance sheets and limited or no access to the capital markets. As these less resourced competitors falter, or exit, Sysco is a likely beneficiary.

 

Microsoft, another top contributor, is an excellent business with extremely high returns on capital, recurring revenue streams, and a fortress balance sheet; all of which are protected by sustainable competitive advantages in the form of switching costs.

 

Top Detractors

Four of the bottom five contributors saw at least temporary declines in revenues because of responses to COVID-19. Anheuser-Busch InBev SA/NV Sponsored ADR (BUD) and Molson Coors Beverage Company Class B (TAP) declined due to global shutdowns of on-premises establishments, including bars, restaurants, and entertainment venues. While some states in the U.S. have re-opened in recent months, the restaurants and bars that made it through the COVID-19 shutdown have re-opened at reduced capacity. Molson and BUD's on-premises channel accounts for approximately 20% of revenues. Fortunately, some beer consumption shifted to the off-premises channel but was not enough to offset the loss of on-premises sales, which typically carry higher margins than off-premises sales. A positive trend from the shift in consumption to the off-premises channel (people drinking at home) is consumers gravitating towards established brands they know and trust. This has resulted in a spike in consumer trial for Molson and BUD which have re-introduced, and in some cases has introduced consumers for the first time to established beer brands such Coors Light, Miller Lite, and Bud Light again.

 

 

18www.clarkstonfunds.com

 

 

Clarkston FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

Nielsen Holdings Plc (NLSN) was also a top detractor during the year. Investors sold shares as the company experienced revenue softness in some short cycle analytics products, as clients reigned in spending. However, the company’s recurring revenue stream, which accounts for a larger percentage of the revenue base, provides stability during volatile business environments. The Company increased the duration of its debt maturities, positioning the balance sheet more favorably. Nielsen recently announced the sale of its Global Connect business for $2.7B to Advent International, in partnership with Jim Peck, the former TransUnion CEO. The transaction is expected to close in early Q2 2021. Proceeds will be used to de-leverage the business.

 

General Electric Company (GE) continues to face headwinds across its most profitable businesses related to COVID-19, especially in its Aviation segment. Lack of visibility in many of GE’s businesses and the related uncertainty surrounding the recovery in commercial aviation will continue to weigh on GE Industrial’s operating performance.

 

Shares of Affiliated Managers Group, Inc. (AMG) were negatively impacted by performance-related outflows from its quantitative and U.S. value affiliates which weighed on operating performance. Shares of AMG declined lower during the quarter as outflows in select quantitative and value strategies persisted. CEO Jay Horgen and CFO Tom Wojcik continue to think and act like owner-operators. The company’s decision to cut the dividend and re-allocate capital to share repurchases was a bold action, and one that we believe will create long-term shareholder value.

 

Initiations & Eliminations

During the last twelve months, we eliminated six business from the portfolio, primarily due to our decision to reallocate capital to one new name – Franklin Resources, Inc. (BEN) – and several existing holdings, which we felt provided demonstrably better valuation opportunities. As a result of these actions, we believe the Clarkston Fund is well positioned as world governments navigate their way through the pandemic.

 

 

Annual Report | September 30, 202019

 

 

Clarkston FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

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

 

FedEx Corp.9.86%
Anheuser-Busch InBev SA/NV7.45%
Nielsen Holdings PLC6.43%
American Express Co.5.62%
General Electric Co.5.11%
Willis Towers Watson PLC4.87%
Sysco Corp.4.75%
The Western Union Co.4.55%
Franklin Resources, Inc.4.41%
Molson Coors Beverage Co.3.95%
Top Ten Holdings57.00%

 

Sector Allocation (as a % of Net Assets)*

 

Industrials38.11%
Consumer Staples27.08%
Financials17.54%
Consumer Discretionary7.33%
Technology3.47%
Cash, Cash Equivalents, & Other Net Assets6.47%
Total100.00%
  
*Holdings are subject to change, and may not reflect the current or future position of the portfolio.

 

 

20www.clarkstonfunds.com

 

 

Clarkston FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

Performance of a Hypothetical $10,000 Initial Investment (at Inception* through September 30, 2020)

 

 

 

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, 2020)

 

 6 Month1 Year3 YearSince Inception*
Clarkston Fund – Institutional Class24.87%0.81%5.83%7.30%
Russell 1000® Index TR33.36%16.01%12.38%13.73%

 

The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Recent market volatility may have meaningfully impacted performance. 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, 202021

 

 

Clarkston FundPortfolio Update

 

September 30, 2020 (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 28, 2020 Prospectus), are 0.96% and 0.70%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2021.

 

 

22www.clarkstonfunds.com

 

 

Clarkston Founders FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

Performance

If someone would have told us on October 1st, 2019 that during the next twelve months, a deadly pandemic would affect over 35 million people and kill over 1 million, we would have forecast a negative return for equities. Instead, equity markets continued the upward march with the Russell 3000® Index gaining 15.00% for the twelve months ended September 30, 2020. This remarkable performance was entirely driven by beloved technology businesses that were seemingly immune to COVID-19 while the performance of businesses in the travel, retail, and hospitality sectors were severely negative.

 

The Russell 3000® Growth Index grew 36.12% during the twelve months ended September 30, 2020 while its sister Russell 3000® Value Index fell 5.67%. Therefore, a portfolio without large-cap technology names, such as Facebook, Inc. (FB), Amazon.com, Inc. (AMZN), Apple Inc. (AAPL), Netflix, Inc. (NFLX), and Microsoft Corporation (MSFT), did not experience the same level of appreciation as those heavily exposed to these names. Consequently, mid-cap businesses underperformed larger ones, with the Russell Midcap® Index gaining only 4.55%. The Clarkston Founders Fund – Institutional Class handsomely outperformed the index and gained 9.34%.

 

Top Contributors

The top contributor, FedEx Corporation (FDX), drove much of the performance during the year. COVID-19 has greatly benefited parcel carriers, like FedEx, as they have seen a large inflow of volumes due to the rise in e-commerce. In addition, as commercial air cargo capacity remains constrained, the parcel carriers have been able to flex their pricing power, implementing surcharges. FedEx continues to benefit from its execution on long-term initiatives for the company. The expansion to 7-day delivery now reaches 95% of the US population and facilitates additional capacity to handle the surges of volume inflows during the pandemic. FedEx continues to improve its margin profile driven by the inflow of volumes, route density, pricing power, and the interoperability of their business segments.

 

Another top contributor, food distributor Sysco Corporation (SYY), took steps to protect and strengthen its franchise, while helping its customers navigate a difficult business environment during the pandemic. Sysco raised additional capital through the debt markets and took aggressive cost cutting measures. These actions ensured liquidity in the event of prolonged shutdowns. While the pandemic may temporarily depress Sysco’s earnings, there are 15,000 smaller industry participants that entered the crisis with less durable balance sheets and limited or no access to the capital markets. As these resourced-stretched competitors falter, or exit, Sysco is a likely beneficiary.

 

Anheuser-Busch InBev SA/NV Sponsored ADR (BUD), a new position in the Clarkston Founders Fund, struggled due to global shutdowns of on-premises establishments, including bars, restaurants, and entertainment venues, but because we initiated shares at depressed prices during the height of the pandemic, the position was a top contributor versus competitor Molson Coors Beverage Company Class B (TAP), which was a detractor. While some states in the U.S. have re-opened in recent months, the restaurants and bars that made it through the COVID-19 shutdown have re-opened at reduced capacity. BUD retired debt during the year as it looks to de-lever the balance sheet to its long-term net leverage target of 2.0x.

 

 

Annual Report | September 30, 202023

 

 

Clarkston Founders FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

Change Healthcare, Inc. (CHNG) benefited as healthcare utilization improved dramatically. At the outset of the crisis, utilization was down around 40%, and by the end of Q2, utilization improved and was down only 8%. A resilient business model and strong balance sheet has allowed CHNG to remain opportunistic during this crisis, making three small tuck-in acquisitions in the areas of imaging and pharmacy. Valuation is still attractive at these levels.

 

Organic net asset growth at LPL Financial Holdings, Inc. (LPLA) continued to accelerate due to investments made to enhance its capabilities to advisors.

 

Top Detractors

The largest detractor during the twelve months ended September 30, 2020 was Nielsen Holdings Plc (NLSN). Investors sold shares as the company experienced revenue softness in some short cycle analytics products, as clients reigned in spending. However, the company’s recurring revenue stream, which accounts for a larger percentage of the revenue base, provides stability during volatile business environments. The company increased the duration of its debt maturities, positioning the balance sheet more favorably. Nielsen recently announced the sale of its Global Connect business for $2.7B to Advent International, in partnership with Jim Peck, the former TransUnion CEO. The transaction is expected to close in early Q2 2021. Proceeds will be used to de-leverage the business.

 

Molson Coors declined due to global shutdowns of on-premises establishments, including bars, restaurants, and entertainment venues. Fortunately, some beer consumption shifted to the off-premises channel but wasn’t enough to offset the loss of on-premises sales, which typically carry higher margins than off-premises sales. A positive trend from the shift in consumption to the off-premises channel (people drinking at home) is consumers gravitating towards established brands they know and trust. This has resulted in a spike in consumer trial for Molson which has re-introduced, and in some cases has introduced consumers for the first time to established beer brands such Coors Light and Miller Lite again.

 

Sabre Corp’s (SABR) revenues were affected by severe declines in corporate travel. As travel has remained significantly depressed worldwide, Sabre has seen drastic reductions to its transactional revenue. To help offset the significant revenue headwinds, Sabre has taken steps to cut costs and conserve cash, both in the short term and long-term. For example, it cut pay, suspended the dividend, furloughed and laid off workers, among other moves, to reduce costs, and it issued debt, convertible debt, convertible equity, and common equity to bolster its cash position. While shares of Sabre have dropped significantly this year, we remain positive on Sabre’s competitive positioning, and the industry dynamics. The GDS technology that Sabre pioneered is responsible for over 50% of airline bookings every year and the market is an oligopoly with Sabre as one of the largest players.

 

Shares of Affiliated Managers Group, Inc. (AMG) were negatively impacted by performance-related outflows from its quantitative and U.S. value affiliates which weighed on operating performance. Shares of AMG declined lower during the quarter as outflows in select quantitative and value strategies persisted. CEO Jay Horgen and CFO Tom Wojcik continue to think and act like owner-operators. The company’s decision to cut the dividend and re-allocate capital to share repurchases was a bold action, and one that we believe will create long-term shareholder value. AMG is one of the cheapest names in our universe. Franklin Resources, Inc. (BEN), a new fund holding, was also a victim of outflows.

 

 

24www.clarkstonfunds.com

 

 

Clarkston Founders FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

Initiations & Eliminations

During the last twelve months, we eliminated eight business from the portfolio, primarily due to our decision to reallocate capital to new and existing holdings, which we felt provided demonstrably better valuation opportunities. Included in these eliminations was Legg Mason, which was acquired by Franklin Resources.

 

Newly added businesses during the year included FedEx, LPL, US Foods Holding Corp (USFD), Anheuser-Busch InBev, Fox Corporation Class A (FOXA) and Franklin Resources. We also added capital to several existing positions over the past twelve months. As a result of these additions and eliminations, we believe the Clarkston Founders Fund is well positioned as world governments navigate their way through the pandemic.

 

 

Annual Report | September 30, 202025

 

 

Clarkston Founders FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

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

 

FedEx Corp.8.59%
Nielsen Holdings PLC7.08%
Change Healthcare, Inc.6.96%
Stericycle, Inc.6.18%
Anheuser-Busch InBev SA/NV6.02%
CDK Global, Inc.5.90%
Sysco Corp.4.17%
Affiliated Managers Group, Inc.4.13%
Molson Coors Beverage Co.3.97%
Brown & Brown, Inc.3.87%
Top Ten Holdings56.87%

 

Sector Allocation (as a % of Net Assets)*

 

Financials21.28%
Consumer Staples18.51%
Industrials16.16%
Technology12.86%
Consumer Discretionary10.92%
Utilities6.18%
Cash, Cash Equivalents, & Other Net Assets14.09%
Total100.00%
  
*Holdings are subject to change, and may not reflect the current or future position of the portfolio.

 

 

26www.clarkstonfunds.com

 

 

Clarkston Founders FundPortfolio Update

 

September 30, 2020 (Unaudited)

 

Performance of a Hypothetical $10,000 Initial Investment (at Inception* through September 30, 2020)

 

 

 

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, 2020)

 

 6 Month1 Year3 YearSince Inception*
Clarkston Founders Fund – Institutional Class27.98%9.34%7.21%7.67%
Russell Midcap® Index TR33.90%4.55%7.13%8.35%

 

The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Recent market volatility may have meaningfully impacted performance. There is no guarantee that any positive impact will be repeated. 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, 202027

 

 

Clarkston Founders FundPortfolio Update

 

September 30, 2020 (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 28, 2020 Prospectus), are 1.19% and 0.95%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through January 31, 2021.

 

 

28www.clarkstonfunds.com

 

 

Clarkston FundsDisclosure of Fund Expenses

 

September 30, 2020 (Unaudited)

 

Example. As a shareholder of the Clarkston Partners Fund, Clarkston Fund, or Clarkston Founders Fund (the “Funds”), you incur one type of cost, 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, 2020 and held through September 30, 2020.

 

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, 2020 – September 30, 2020” 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, 202029

 

 

Clarkston FundsDisclosure of Fund Expenses

 

September 30, 2020 (Unaudited)

 

 Beginning
Account Value
April 1, 2020
Ending
Account Value
September 30,

2020
Expense
Ratio(a)
Expenses Paid
During Period
April 1, 2020 -
September 30,
2020(b)
Clarkston Partners Fund    
Founders Class    
Actual$1,000.00$1,220.700.85%$4.72
Hypothetical (5% return before expenses)$1,000.00$1,020.750.85%$4.29
Institutional Class    
Actual$1,000.00$1,219.600.95%$5.27
Hypothetical (5% return before expenses)$1,000.00$1,020.250.95%$4.80
Clarkston Fund    
Institutional Class    
Actual$1,000.00$1,248.700.67%$3.77
Hypothetical (5% return before expenses)$1,000.00$1,021.650.67%$3.39
Clarkston Founders Fund    
Institutional Class    
Actual$1,000.00$1,279.800.91%$5.19
Hypothetical (5% return before expenses)$1,000.00$1,020.450.91%$4.60

 

(a)Each Fund's expense ratios have been annualized based on the Fund's most recent fiscal half-year expenses after any applicable waivers and reimbursements.
(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 366.

 

 

30www.clarkstonfunds.com

 

 

Clarkston Partners FundPortfolio of Investments
 

September 30, 2020

 

  Shares  Value
(Note 2)
 
COMMON STOCK (87.81%)        
Consumer Discretionary (11.53%)        
John Wiley & Sons, Inc., Class A  875,000  $27,746,250 
Nielsen Holdings PLC  5,610,000   79,549,800 
Sabre Corp.  3,500,000   22,785,000 
Total Consumer Discretionary      130,081,050 
         
Consumer Staples (13.32%)        
Molson Coors Beverage Co., Class B  1,830,000   61,414,800 
Post Holdings, Inc.(a)  319,000   27,434,000 
Sysco Corp.  594,933   37,016,731 
US Foods Holding Corp.(a)  1,102,000   24,486,440 
Total Consumer Staples      150,351,971 
         
Financials (24.38%)        
Affiliated Managers Group, Inc.  617,000   42,190,460 
Artisan Partners Asset Management, Inc., Class A  1,066,876   41,597,495 
Brown & Brown, Inc.  1,100,000   49,797,000 
Franklin Resources, Inc.  1,875,000   38,156,250 
LPL Financial Holdings, Inc.  720,000   55,202,400 
Willis Towers Watson PLC  231,000   48,237,420 
Total Financials      275,181,025 
         
Industrials (16.25%)        
CH Robinson Worldwide, Inc.  289,616   29,595,859 
Enerpac Tool Group Corp., Class A  1,719,903   32,351,376 
Hillenbrand, Inc.  2,000,000   56,720,000 
Landstar System, Inc.  140,000   17,568,600 
The Western Union Co.  2,200,000   47,146,000 
Total Industrials      183,381,835 
         
Technology (13.91%)        
CDK Global, Inc.  1,630,000   71,051,700 
Change Healthcare, Inc.(a)  5,920,000   85,899,200 
Total Technology      156,950,900 
         
Utilities (8.42%)        
Stericycle, Inc.(a)  1,319,450   83,204,517 

 

See Notes to Financial Statements.

 
Annual Report | September 30, 202031

 

 

Clarkston Partners FundPortfolio of Investments
 

September 30, 2020

 

  Shares  Value
(Note 2)
 
Utilities (continued)        
US Ecology, Inc.  360,000  $11,761,200 
Total Utilities      94,965,717 
         
TOTAL COMMON STOCK        
(Cost $895,377,213)      990,912,498 
         
TOTAL INVESTMENTS (87.81%)        
(Cost $895,377,213)     $990,912,498 
         
OTHER ASSETS IN EXCESS OF LIABILITIES (12.19%)      137,555,224 
         
NET ASSETS (100.00%)     $1,128,467,722 

 

(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 FundPortfolio of Investments
 

September 30, 2020

 

  Shares  Value
(Note 2)
 
COMMON STOCK (93.53%)        
Consumer Discretionary (7.33%)        
Nielsen Holdings PLC  220,000  $3,119,600 
The Walt Disney Co.  3,500   434,280 
Total Consumer Discretionary      3,553,880 
         
Consumer Staples (27.08%)(a)        
Anheuser-Busch InBev SA/NV, Sponsored ADR  67,000   3,609,960 
Diageo PLC, Sponsored ADR  9,000   1,238,940 
Molson Coors Beverage Co., Class B  57,000   1,912,920 
Nestle SA, Sponsored, ADR  13,000   1,550,315 
PepsiCo, Inc.  11,000   1,524,600 
Sysco Corp.  37,000   2,302,140 
The Procter & Gamble Co.  7,100   986,829 
Total Consumer Staples      13,125,704 
         
Financials (17.54%)        
Affiliated Managers Group, Inc.  24,000   1,641,120 
Franklin Resources, Inc.  105,000   2,136,750 
The Charles Schwab Corp.  47,000   1,702,810 
US Bancorp  18,500   663,225 
Willis Towers Watson PLC  11,300   2,359,666 
Total Financials      8,503,571 
         
Industrials (38.11%)(a)        
American Express Co.  27,200   2,726,800 
Capital One Financial Corp.  26,000   1,868,360 
CH Robinson Worldwide, Inc.  11,927   1,218,820 
FedEx Corp.  19,000   4,778,880 
General Electric Co.  398,000   2,479,540 
Mastercard, Inc., Class A  3,500   1,183,595 
Paychex, Inc.  8,500   678,045 
The Western Union Co.  103,000   2,207,290 
United Parcel Service, Inc., Class B  8,000   1,333,040 
Total Industrials      18,474,370 
         
Technology (3.47%)        
Microsoft Corp.  8,000   1,682,640 
         
TOTAL COMMON STOCK        
(Cost $43,111,903)      45,340,165 

 

See Notes to Financial Statements.

 
Annual Report | September 30, 202033

 

 

Clarkston FundPortfolio of Investments
 

September 30, 2020

 

  Value
(Note 2)
 
TOTAL INVESTMENTS (93.53%)    
(Cost $43,111,903) $45,340,165 
     
OTHER ASSETS IN EXCESS OF LIABILITIES (6.47%)  3,138,556 
     
NET ASSETS (100.00%) $48,478,721 

 

(a)To the extent the Fund invests more heavily in particular sectors of the economy, its performance will be especially sensitive to developments that significantly affect those sectors. When sector categorization is broken down by industry, no industry exceeds the 25% maximum specified in the Statement of Additional Information.

 

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, 2020

 

  Shares  Value
(Note 2)
 
COMMON STOCK (85.91%)        
Consumer Discretionary (10.92%)        
Fox Corp., Class A  55,000  $1,530,650 
Nielsen Holdings PLC  380,000   5,388,400 
Sabre Corp.  214,000   1,393,140 
Total Consumer Discretionary      8,312,190 
         
Consumer Staples (18.51%)        
Anheuser-Busch InBev SA/NV, Sponsored ADR  85,000   4,579,800 
Molson Coors Beverage Co., Class B  90,000   3,020,400 
Post Holdings, Inc.(a)  21,500   1,849,000 
Sysco Corp.  51,000   3,173,220 
US Foods Holding Corp.(a)  66,000   1,466,520 
Total Consumer Staples      14,088,940 
         
Financials (21.28%)        
Affiliated Managers Group, Inc.  46,000   3,145,480 
Brown & Brown, Inc.  65,000   2,942,550 
Franklin Resources, Inc.  125,000   2,543,750 
LPL Financial Holdings, Inc.  33,587   2,575,116 
The Charles Schwab Corp.  63,000   2,282,490 
Willis Towers Watson PLC  12,988   2,712,154 
Total Financials      16,201,540 
         
Industrials (16.16%)        
CH Robinson Worldwide, Inc.  23,000   2,350,370 
FedEx Corp.  26,000   6,539,520 
Paychex, Inc.  11,000   877,470 
The Western Union Co.  118,000   2,528,740 
Total Industrials      12,296,100 
         
Technology (12.86%)        
CDK Global, Inc.  103,000   4,489,770 
Change Healthcare, Inc.(a)  365,000   5,296,150 
Total Technology      9,785,920 
         
Utilities (6.18%)        
Stericycle, Inc.(a)  74,557   4,701,564 
         
TOTAL COMMON STOCK        
(Cost $59,060,365)      65,386,254 

 

See Notes to Financial Statements.

 
Annual Report | September 30, 202035

 

 

Clarkston Founders FundPortfolio of Investments
 

September 30, 2020

 

  Value
(Note 2)
 
TOTAL INVESTMENTS (85.91%)    
(Cost $59,060,365) $65,386,254 
     
OTHER ASSETS IN EXCESS OF LIABILITIES (14.09%)  10,724,764 
     
NET ASSETS (100.00%) $76,111,018 

 

(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.

 
36www.clarkstonfunds.com

 

 

Clarkston FundsStatements of Assets and Liabilities
 

September 30, 2020

 

  Clarkston
Partners Fund
  Clarkston Fund  Clarkston
Founders Fund
 
ASSETS:            
Investments, at value (Cost $895,377,213, $43,111,903 and $59,060,365) $990,912,498  $45,340,165  $65,386,254 
Cash and Cash Equivalents  137,514,812   3,074,680   8,871,008 
Receivable for shares sold  2,590,129   17,352   1,855,960 
Dividends and interest receivable  681,163   128,977   81,660 
Other assets  35,445   6,983   4,717 
Total Assets  1,131,734,047   48,568,157   76,199,599 
             
LIABILITIES:            
Payable for administration and transfer agent fees  57,411   12,337   8,054 
Payable for investments purchased  2,032,254       
Payable for shares redeemed  163,415   25,020    
Payable to adviser  695,932   14,637   32,951 
Payable for shareholder service fees  171,345   14,334   20,178 
Payable for printing fees  8,628   410   416 
Payable for professional fees  62,976   17,562   18,458 
Payable for trustees' fees and expenses  34,072   915   2,598 
Payable for Chief Compliance Officer fees  3,175   139   196 
Accrued expenses and other liabilities  37,117   4,082   5,730 
Total Liabilities  3,266,325   89,436   88,581 
NET ASSETS $1,128,467,722  $48,478,721  $76,111,018 
             
NET ASSETS CONSIST OF:            
Paid-in capital (Note 5) $984,067,972  $43,043,541  $67,728,897 
Total distributable earnings  144,399,750   5,435,180   8,382,121 
NET ASSETS $1,128,467,722  $48,478,721  $76,111,018 
             
PRICING OF SHARES            
Founders Class:            
Net Asset Value, offering and redemption price per share $12.61   N/A   N/A 
Net Assets $553,691,091   N/A   N/A 
Shares of beneficial interest outstanding  43,915,796   N/A   N/A 
Institutional Class:            
Net Asset Value, offering and redemption price per share $12.55  $12.05  $12.35 
Net Assets $574,776,631  $48,478,721  $76,111,018 
Shares of beneficial interest outstanding  45,809,050   4,021,974   6,164,892 

 

See Notes to Financial Statements.

 
Annual Report | September 30, 202037

 

 

Clarkston FundsStatements of Operations
 

For the Year Ended September 30, 2020

 

  Clarkston
Partners
Fund
  Clarkston
Fund
  Clarkston
Founders
Fund
 
INVESTMENT INCOME:            
Dividends $16,390,332  $1,098,003  $914,663 
Foreign taxes withheld     (5,071)  (10,577)
Total Investment Income  16,390,332   1,092,932   904,086 
             
EXPENSES:            
Investment advisory fees (Note 6)  8,062,682   258,591   413,939 
Administration fees  572,002   41,317   42,568 
Shareholder service fees            
Institutional Class  520,618   42,136   59,871 
Custody fees  88,928   7,129   6,619 
Legal fees  81,975   3,864   4,693 
Audit and tax fees  15,509   15,496   15,509 
Transfer agent fees  67,308   27,595   27,449 
Trustees fees and expenses  128,144   5,966   7,531 
Registration and filing fees  70,918   25,247   24,800 
Printing fees  38,085   1,940   1,777 
Chief Compliance Officer fees  38,927   2,021   2,123 
Insurance fees  41,215   2,299   1,949 
Other expenses  14,519   8,752   3,726 
Total Expenses  9,740,830   442,353   612,554 
Less fees waived by investment adviser (Note 6)            
Founders Class  (312,179)  N/A   N/A 
Institutional Class  (333,794)  (110,696)  (110,059)
Total fees waived by investment adviser (Note 6)  (645,973)  (110,696)  (110,059)
Net Expenses  9,094,857   331,657   502,495 
NET INVESTMENT INCOME  7,295,475   761,275   401,591 
             
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:            
Net realized gain/(loss) on:            
Investments  49,059,100   2,625,815   1,754,833 
Net realized gain  49,059,100   2,625,815   1,754,833 
Change in unrealized appreciation/(depreciation) on:            
Investments  (20,848,049)  (3,577,427)  3,398,109 
Net change  (20,848,049)  (3,577,427)  3,398,109 
             
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS  28,211,051   (951,612)  5,152,942 
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $35,506,526  $(190,337) $5,554,533 

 

See Notes to Financial Statements.

 
38www.clarkstonfunds.com

 

 

Clarkston Partners FundStatements of Changes in Net Assets
 

 

  For the Year
Ended
September 30,
2020
  For the Year
Ended
September 30,
2019
 
OPERATIONS:        
Net investment income $7,295,475  $9,525,523 
Net realized gain on investments  49,059,100   29,592,638 
Net change in unrealized depreciation on investments  (20,848,049)  (11,852,769)
Net increase in net assets resulting from operations  35,506,526   27,265,392 
         
DISTRIBUTIONS TO SHAREHOLDERS        
Founders Class  (18,042,443)  (26,457,456)
Institutional Class  (19,314,644)  (24,254,843)
Total distributions  (37,357,087)  (50,712,299)
         
BENEFICIAL SHARE TRANSACTIONS (Note 5):        
Founders Class        
Shares sold  140,007,090   50,669,709 
Dividends reinvested  560,589   831,516 
Shares redeemed  (40,386,657)  (31,213,365)
Net increase from beneficial share transactions  100,181,022   20,287,860 
Institutional Class        
Shares sold  179,388,104   143,599,610 
Dividends reinvested  18,965,301   23,711,613 
Shares redeemed  (101,219,238)  (106,287,492)
Net increase from beneficial share transactions  97,134,167   61,023,731 
         
Net increase in net assets  195,464,628   57,864,684 
         
NET ASSETS:        
Beginning of year  933,003,094   875,138,410 
End of year $1,128,467,722  $933,003,094 

 

See Notes to Financial Statements.

 
Annual Report | September 30, 202039

 

 

Clarkston FundStatements of Changes in Net Assets
 

 

  For the Year
Ended
September 30,
2020
  For the Year
Ended
September 30,
2019
 
OPERATIONS:        
Net investment income $761,275  $782,476 
Net realized gain on investments  2,625,815   2,146,659 
Net change in unrealized appreciation/(depreciation) on investments  (3,577,427)  1,833,211 
Net increase/(decrease) in net assets resulting from operations  (190,337)  4,762,346 
         
DISTRIBUTIONS TO SHAREHOLDERS        
Institutional Class  (2,522,147)  (1,800,994)
Total distributions  (2,522,147)  (1,800,994)
         
BENEFICIAL SHARE TRANSACTIONS (Note 5):        
Institutional Class        
Shares sold  8,028,416   12,188,610 
Dividends reinvested  2,514,242   1,794,252 
Shares redeemed  (13,995,698)  (7,770,785)
Acquisition (Note 9)     13,797,848 
Net increase/(decrease) from beneficial share transactions  (3,453,040)  20,009,925 
         
Net increase/(decrease) in net assets  (6,165,524)  22,971,277 
         
NET ASSETS:        
Beginning of year  54,644,245   31,672,968 
End of year $48,478,721  $54,644,245 

 

See Notes to Financial Statements.

 
40www.clarkstonfunds.com

 

 

Clarkston Founders FundStatements of Changes in Net Assets
 

 

  For the Year
Ended
September 30,
2020
  For the Year
Ended
September 30,
2019
 
OPERATIONS:        
Net investment income $401,591  $396,448 
Net realized gain on investments  1,754,833   1,249,683 
Net change in unrealized appreciation on investments  3,398,109   471,650 
Net increase in net assets resulting from operations  5,554,533   2,117,781 
         
DISTRIBUTIONS TO SHAREHOLDERS        
Institutional Class  (1,647,285)  (685,991)
Total distributions  (1,647,285)  (685,991)
         
BENEFICIAL SHARE TRANSACTIONS (Note 5):        
Institutional Class        
Shares sold  34,571,388   12,105,072 
Dividends reinvested  1,647,285   685,991 
Shares redeemed  (8,425,457)  (4,012,879)
Net increase from beneficial share transactions  27,793,216   8,778,184 
         
Net increase in net assets  31,700,464   10,209,974 
         
NET ASSETS:        
Beginning of year  44,410,554   34,200,580 
End of year $76,111,018  $44,410,554 

 

See Notes to Financial Statements.

 
Annual Report | September 30, 202041

 

 

Clarkston Partners Fund – Founders ClassFinancial Highlights
 

For a Share Outstanding Throughout the Periods Presented

 

 
NET ASSET VALUE, BEGINNING OF PERIOD
 
INCOME/(LOSS) FROM OPERATIONS:
Net investment income(a)
Net realized and unrealized gain on investments
Total from investment operations
 
LESS DISTRIBUTIONS:
From net investment income
From net realized gains on investments
Total Distributions
NET INCREASE/(DECREASE) IN NET ASSET VALUE
NET ASSET VALUE, END OF PERIOD
 
TOTAL RETURN(b)
 
SUPPLEMENTAL DATA:
Net assets, end of period (in 000s)
 
RATIOS TO AVERAGE NET ASSETS
Operating expenses excluding reimbursement/waiver
Operating expenses including reimbursement/waiver
Net investment income including reimbursement/waiver
 
PORTFOLIO TURNOVER RATE(d)

 

See Notes to Financial Statements.

 
42www.clarkstonfunds.com

 

 

Clarkston Partners Fund – Founders ClassFinancial Highlights
 

For a Share Outstanding Throughout the Periods Presented

 

For the Year
Ended
September 30, 2020
  For the Year
Ended
September 30, 2019
  For the Year
Ended
September 30, 2018
  For the Year
Ended
September 30, 2017
  For the Year
Ended
September 30, 2016
 
$12.81  $13.29  $12.39  $11.11  $9.70 
                   
                   
 0.10   0.14   0.08   0.05   0.06 
 0.21   0.17   0.99   1.37   1.37 
 0.31   0.31   1.07   1.42   1.43 
                   
                   
 (0.13)  (0.09)  (0.04)  (0.06)  (0.02)
 (0.38)  (0.70)  (0.13)  (0.08)   
 (0.51)  (0.79)  (0.17)  (0.14)  (0.02)
 (0.20)  (0.48)  0.90   1.28   1.41 
$12.61  $12.81  $13.29  $12.39  $11.11 
                   
 2.18%  3.49%  8.70%  12.86%  14.73%(c)
                   
                   
$553,691  $451,294  $445,516  $397,474  $308,607 
                   
                   
 0.91%  0.92%  0.94%  0.96%  1.02%
 0.85%  0.85%  0.85%  0.85%  0.85%
 0.77%  1.16%  0.60%  0.40%  0.62%
                   
 25%  10%  23%  13%  16%

 

(a)Calculated using the average shares method.
(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 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.
(c)In 2016, the Fund's total return consists of a voluntary/unvoluntary reimbursement by the adviser for a realized investment loss. Excluding this item, total return would not change as the impact is less than 0.005%.

(d)Portfolio turnover rate for periods less than one full year have not been annualized.

 

See Notes to Financial Statements.

 
Annual Report | September 30, 202043

 

 

Clarkston Partners Fund – Institutional ClassFinancial Highlights
 

For a Share Outstanding Throughout the Periods Presented

 

 
NET ASSET VALUE, BEGINNING OF PERIOD
 
INCOME/(LOSS) FROM OPERATIONS:
Net investment income(a)
Net realized and unrealized gain on investments
Total from investment operations
 
LESS DISTRIBUTIONS:
From net investment income
From net realized gains on investments
Total Distributions
NET INCREASE/(DECREASE) IN NET ASSET VALUE
NET ASSET VALUE, END OF PERIOD
 
TOTAL RETURN(b)
 
SUPPLEMENTAL DATA:
Net assets, end of period (in 000s)
 
RATIOS TO AVERAGE NET ASSETS
Operating expenses excluding reimbursement/waiver
Operating expenses including reimbursement/waiver
Net investment income/(loss) including reimbursement/waiver
 
PORTFOLIO TURNOVER RATE(e)

 

See Notes to Financial Statements.

 
44www.clarkstonfunds.com

 

 

Clarkston Partners Fund – Institutional ClassFinancial Highlights
 

For a Share Outstanding Throughout the Periods Presented

 

For the Year
Ended
September 30, 2020
  For the Year
Ended
September 30, 2019
  For the Year
Ended
September 30, 2018
  For the Year
Ended
September 30, 2017
  For the Year
Ended
September 30, 2016
 
$12.76  $13.24  $12.36  $11.09  $9.70 
                   
                   
 0.08   0.13   0.06   0.03   0.05 
 0.21   0.18   0.99   1.37   1.35 
 0.29   0.31   1.05   1.40   1.40 
                   
                   
 (0.12)  (0.09)  (0.04)  (0.05)  (0.01)
 (0.38)  (0.70)  (0.13)  (0.08)   
 (0.50)  (0.79)  (0.17)  (0.13)  (0.01)
 (0.21)  (0.48)  0.88   1.27   1.39 
$12.55  $12.76  $13.24  $12.36  $11.09 
                   
 2.07%  3.45%  8.52%  12.75%  14.47%(c)
                   
                   
$574,777  $481,709  $429,622  $367,393  $242,295 
                   
                   
 1.01%  1.03%  1.08%  1.09%  1.16%
 0.95%(d)  0.96%(d)  0.98%(d)  0.98%(d)  1.00%
 0.68%  1.04%  0.47%  0.27%  0.46%
                   
 25%  10%  23%  13%  16%

 

(a)Calculated using the average shares method.
(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 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.
(c)In 2016, the Fund's total return consists of a voluntary/unvoluntary reimbursement by the adviser for a realized investment loss. Excluding this item, total return would not change as the impact is less than 0.005%.

 

See Notes to Financial Statements.

 
Annual Report | September 30, 202045

 

 

Clarkston Partners Fund – Institutional ClassFinancial Highlights
 

For a Share Outstanding Throughout the Periods Presented

 

(d)According to the Fund's shareholder services plan with respect to the Fund's Institutional 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 for the years ended September 30, 2020, September 30, 2019, September 30, 2018 and September 30, 2017, respectively, in the amount of 0.05%, 0.04%, 0.02% and 0.02% of average net assets of Institutional shares.
(e)Portfolio turnover rate for periods less than one full year have not been annualized.

 

See Notes to Financial Statements.

 
46www.clarkstonfunds.com

 

 

Page Intentionally Left Blank

 

 

Clarkston Fund – Institutional ClassFinancial Highlights
 

For a Share Outstanding Throughout the Periods Presented

 

 
NET ASSET VALUE, BEGINNING OF PERIOD
 
INCOME/(LOSS) FROM OPERATIONS:
Net investment income(b)
Net realized and unrealized gain/(loss) on investments
Total from investment operations
 
LESS DISTRIBUTIONS:
From net investment income
From net realized gains on investments
Total Distributions
NET INCREASE/(DECREASE) IN NET ASSET VALUE
NET ASSET VALUE, END OF PERIOD
 
TOTAL RETURN(d)
 
SUPPLEMENTAL DATA:
Net assets, end of period (in 000s)
 
RATIOS TO AVERAGE NET ASSETS
Operating expenses excluding reimbursement/waiver
Operating expenses including reimbursement/waiver
Net investment income including reimbursement/waiver
 
PORTFOLIO TURNOVER RATE(g)

 

See Notes to Financial Statements.

 
48www.clarkstonfunds.com

 

 

Clarkston Fund – Institutional ClassFinancial Highlights
 

For a Share Outstanding Throughout the Periods Presented

 

For the Year
Ended
September 30, 2020
  For the Year
Ended
September 30, 2019
  For the Year
Ended
September 30, 2018
  For the Year
Ended
September 30, 2017
  For the Period
Ended
September 30, 2016(a)
 
$12.50  $11.99  $11.46  $10.52  $10.00 
                   
                   
 0.17   0.22   0.19   0.16   0.08 
 (0.05)  0.94   0.49   0.90   0.44 
 0.12   1.16   0.68   1.06   0.52 
                   
                   
 (0.14)  (0.26)  (0.15)  (0.10)   
 (0.43)  (0.39)  (0.00)(c)  (0.02)   
 (0.57)  (0.65)  (0.15)  (0.12)   
 (0.45)  0.51   0.53   0.94   0.52 
$12.05  $12.50  $11.99  $11.46  $10.52 
                   
 0.81%  10.92%  5.99%  10.13%  5.20%
                   
                   
$48,479  $54,644  $31,673  $29,407  $20,173 
                   
                   
 0.86%  0.93%  0.93%  1.04%  1.48%(e)
 0.64%(f)  0.67%(f)  0.65%(f)  0.65%(f)  0.70%(e)
 1.47%  1.86%  1.60%  1.41%  1.36%(e)
                   
 31%  17%  11%  5%  0%

 

(a)Commenced operations on April 4, 2016.
(b)Calculated using the average shares method.
(c)Less than $0.005 per share.
(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.

 

See Notes to Financial Statements.

 
Annual Report | September 30, 202049

 

 

Clarkston Fund – Institutional ClassFinancial Highlights
 

For a Share Outstanding Throughout the Periods Presented

 

(f)According to the Fund's shareholder services plan with respect to the Fund's Institutional 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 for the years ended September 30, 2020, September 30, 2019, September 30, 2018 and September 30, 2017, respectively, in the amount of 0.06%, 0.03%, 0.05% and 0.05% of average net assets of Institutional shares.
(g)Portfolio turnover rate for periods less than one full year have not been annualized.

 

See Notes to Financial Statements.

 
50www.clarkstonfunds.com

 

 

Page Intentionally Left Blank

 

 

Clarkston Founders Fund – Institutional ClassFinancial Highlights
 

For a Share Outstanding Throughout the Periods Presented

 

 
NET ASSET VALUE, BEGINNING OF PERIOD
 
INCOME/(LOSS) FROM OPERATIONS:
Net investment income(b)
Net realized and unrealized gain on investments
Total from investment operations
 
LESS DISTRIBUTIONS:
From net investment income
From net realized gains on investments
Total Distributions
NET INCREASE IN NET ASSET VALUE
NET ASSET VALUE, END OF PERIOD
 
TOTAL RETURN(c)
 
SUPPLEMENTAL DATA:
Net assets, end of period (in 000s)
 
RATIOS TO AVERAGE NET ASSETS
Operating expenses excluding reimbursement/waiver
Operating expenses including reimbursement/waiver
Net investment income including reimbursement/waiver
 
PORTFOLIO TURNOVER RATE(f)

 

See Notes to Financial Statements.

 
52www.clarkstonfunds.com

 

 

Clarkston Founders Fund – Institutional ClassFinancial Highlights
 

For a Share Outstanding Throughout the Periods Presented

 

For the Year
Ended
September 30, 2020
  For the Year
Ended
September 30, 2019
  For the Year
Ended
September 30, 2018
  For the Period
Ended
September 30, 2017(a)
 
$11.67  $11.34  $10.64  $10.00 
               
               
 0.08   0.12   0.07   0.02 
 1.00   0.44   0.67   0.62 
 1.08   0.56   0.74   0.64 
               
               
 (0.10)  (0.08)  (0.04)   
 (0.30)  (0.15)      
 (0.40)  (0.23)  (0.04)   
 0.68   0.33   0.70   0.64 
$12.35  $11.67  $11.34  $10.64 
               
 9.34%  5.31%  7.01%  6.40%
               
               
$76,111  $44,411  $34,201  $24,147 
               
               
 1.11%  1.15%  1.22%  1.46%(d)
 0.91%(e)  0.91%(e)  0.91%(e)  0.92%(d)(e)
 0.73%  1.06%  0.59%  0.29%(d)
               
 22%  15%  9%  4%

 

(a)Commenced operations on February 1, 2017.
(b)Calculated using the average shares method.
(c)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.

 

See Notes to Financial Statements.

 
Annual Report | September 30, 202053

 

 

Clarkston Founders Fund – Institutional ClassFinancial Highlights
 

For a Share Outstanding Throughout the Periods Presented

 

(d)Annualized.
(e)According to the Fund's shareholder services plan with respect to the Fund's Institutional 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 for the years ended September 30, 2020, September 30, 2019, September 30, 2018, and September 30, 2017, respectively, in the amount of 0.04%, 0.04%, 0.04% and 0.03% of average net assets of Institutional shares.

(f)Portfolio turnover rate for periods less than one full year have not been annualized.

 

See Notes to Financial Statements.

 
54www.clarkstonfunds.com

 

 

Clarkston FundsNotes to Financial Statements

 

September 30, 2020

 

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 Clarkston Partners Fund, the Clarkston Fund and the Clarkston Founders Fund (each, a “Fund” and collectively, the “Funds”). The Funds are non-diversified and each Fund’s investment objective is to achieve long-term capital appreciation. The Clarkston Partners Fund currently offers Founders Class shares and Institutional Class shares, and the Clarkston Fund and the Clarkston Founders Fund currently offer Institutional Class shares. Each share class of the Clarkston Partners Fund 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.

 

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 (“FASB”) 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 increases and decreases in net assets from operations 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.

 

Securities traded on a registered U.S. securities exchange (including exchange-traded derivatives other than futures and futures options) are valued based on the last sale price of the security reported on the principal exchange on which it is traded, prior to the time when the Funds’ assets are valued. 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.

 

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 NAV.

 

 

Annual Report | September 30, 202055

 

 

Clarkston FundsNotes to Financial Statements

 

September 30, 2020

 

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.

 

The following is a summary of the inputs used to value the Funds’ investments as of September 30, 2020:

 

CLARKSTON PARTNERS FUND

 

Investments in Securities at Value Level 1 - Unadjusted Quoted Prices  Level 2 - Other Significant Observable Inputs  Level 3 - Significant Unobservable Inputs  Total 
Common Stock                
Consumer Discretionary $130,081,050  $  $  $130,081,050 
Consumer Staples  150,351,971         150,351,971 
Financials  275,181,025         275,181,025 
Industrials  183,381,835         183,381,835 
Technology  156,950,900         156,950,900 
Utilities  94,965,717         94,965,717 
Total $990,912,498  $  $  $990,912,498 

 

 
56www.clarkstonfunds.com

 

 

Clarkston FundsNotes to Financial Statements

 

September 30, 2020

 

CLARKSTON FUND

 

Investments in Securities at Value Level 1 - Unadjusted Quoted Prices  Level 2 - Other Significant Observable Inputs  Level 3 - Significant Unobservable Inputs  Total 
Common Stock                
Consumer Discretionary $3,553,880  $  $  $3,553,880 
Consumer Staples  13,125,704         13,125,704 
Financials  8,503,571         8,503,571 
Industrials  18,474,370         18,474,370 
Technology  1,682,640         1,682,640 
Total $45,340,165  $  $  $45,340,165 

 

CLARKSTON FOUNDERS FUND

 

Investments in Securities at Value Level 1 - Unadjusted Quoted Prices  Level 2 - Other Significant Observable Inputs  Level 3 - Significant Unobservable Inputs  Total 
Common Stock                
Consumer Discretionary $8,312,190  $  $  $8,312,190 
Consumer Staples  14,088,940         14,088,940 
Financials  16,201,540         16,201,540 
Industrials  12,296,100         12,296,100 
Technology  9,785,920         9,785,920 
Utilities  4,701,564         4,701,564 
Total $65,386,254  $  $  $65,386,254 

 

There were no Level 3 securities held during the year.

 

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

 

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.

 

 
Annual Report | September 30, 202057

 

 

Clarkston FundsNotes to Financial Statements