SCHEDULE 14C INFORMATION
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Morningstar Funds Trust
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MORNINGSTAR FUNDS TRUST
22 W. Washington Street
Chicago, IL 60602
Morningstar International Equity Fund (the “Fund”)
IMPORTANT NOTICE OF INTERNET AVAILABILITY OF INFORMATION STATEMENT
This communication presents only an overview of the more complete Information Statement that is available to you on the Internet relating to the Morningstar International Equity Fund, a series of Morningstar Funds Trust (the “Trust”). We encourage you to access and review all the important information contained in the Information Statement.
The Information Statement describes a recent change involving the investment management of the Fund.
Morningstar Investment Management LLC (“MIM”), as investment adviser to the Fund, has overall supervisory responsibility for the general management and investment of the Fund’s portfolio. The Fund is managed in a multimanager structure, whereby MIM allocates assets among one or more asset managers that serve as subadvisers for the Fund. Under an exemptive order from the U.S. Securities and Exchange Commission (the “SEC”), MIM is permitted to select new subadvisers, change the terms of agreements with existing subadvisers, or continue the employment of a subadviser after an event that would otherwise cause the automatic termination of services, in each case without obtaining approval from shareholders, provided that the Board of Trustees of the Trust (the “Board”) approves the arrangement.
On March 10, 2021, in connection with the Board’s annual consideration of the renewal of the Trust’s advisory and subadvisory agreements, the Board, after consideration and evaluation of various factors and information, approved the continuation of the existing subadvisory agreement among MIM, the Trust and T. Rowe Price Associates, Inc. (“T. Rowe”) on behalf of the Fund, as well as the existing sub-subadvisory agreement between T. Rowe and its affiliate T. Rowe Price International Ltd (“TRP International”) on behalf of the Fund. In addition, the Board, after consideration and evaluation of various factors and information, also approved the terms of a new sub-subadvisory agreement between T. Rowe and its affiliate T. Rowe Price Singapore Private Ltd (“TRP Singapore”) on behalf of the Fund (the “New Sub-Subadvisory Agreement”). TRP Singapore was hired on April 1, 2021 and now serves as a sub-subadviser to the Fund pursuant to the New Sub-Subadvisory Agreement.
TRP Singapore is a Singapore limited company organized and existing under the laws of Singapore. It holds a Capital Markets Service License in Fund Management with the Monetary Authority of Singapore and is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended. TRP Singapore is a wholly owned subsidiary of TRP International, which, in turn, is a wholly owned subsidiary of T. Rowe.
In addition to T. Rowe (along with its affiliates, TRP International and TRP Singapore), Harding Loevner LP, Harris Associates LP, and Lazard Asset Management LLC are and continue to serve as subadvisers to the Fund. A more detailed description of TRP Singapore and the New Sub-Subadvisory Agreement is included in the Information Statement.
This Notice of Internet Availability of the Information Statement is being mailed on or about June 24, 2021 to shareholders of record of the Fund as of June 22, 2021. Only one Notice of Internet Availability is being delivered to multiple security holders sharing an address unless the Trust has received contrary instructions from one or more of the security holders. The full Information Statement will be available for printing on the Fund’s website at http://connect.rightprospectus.com/Morningstar until September 24, 2021. A paper or email copy of the full Information Statement may be obtained, without charge, by contacting Morningstar Funds Trust, c/o Scott Schilling, Chief Compliance Officer, 22 W. Washington Street, Chicago, Illinois 60602, by emailing your request for the full Information Statement to Requests.MorningstarFund@morningstar.com or by calling (877) 626-3224. If you would like to receive a paper or email copy of the full Information Statement, you must request one.
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
MORNINGSTAR FUNDS TRUST
22 W. Washington Street
Chicago, IL 60602
June 24, 2021
Dear Shareholders of the Morningstar International Equity Fund:
We wish to notify you of a recent change involving the investment management of the Morningstar International Equity Fund (the “Fund”), a series of Morningstar Funds Trust (the “Trust”).
On March 10, 2021, in connection with the Board’s annual consideration of the renewal of the Trust’s advisory and subadvisory agreements, the Board, after consideration and evaluation of various factors and information, approved the continuation of the existing subadvisory agreement among MIM, the Trust and T. Rowe Price Associates, Inc. (“T. Rowe”) on behalf of the Fund, as well as the existing sub-subadvisory agreement between T. Rowe and its affiliate T. Rowe Price International Ltd (“TRP International”) on behalf of the Fund. In addition, the Board, after consideration and evaluation of various factors and information, also approved the terms of a new sub-subadvisory agreement between T. Rowe and its affiliate T. Rowe Price Singapore Private Ltd (“TRP Singapore”) on behalf of the Fund (the “New Sub-Subadvisory Agreement”). TRP Singapore was hired on April 1, 2021 and now serves as a sub-subadviser to the Fund pursuant to the New Sub-Subadvisory Agreement.
TRP Singapore is a Singapore limited company organized and existing under the laws of Singapore. It holds a Capital Markets Service License in Fund Management with the Monetary Authority of Singapore and is registered with the U.S. Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended. TRP Singapore is a wholly owned subsidiary of TRP International, which, in turn, is a wholly owned subsidiary of T. Rowe.
Morningstar Investment Management LLC (“MIM”), as investment adviser to the Fund, has overall supervisory responsibility for the general management and investment of the Fund’s portfolio. The Fund is managed in a multimanager structure, whereby MIM allocates assets among one or more asset managers that serve as subadvisers for the Fund. In addition to T. Rowe (along with its affiliates, TRP International and TRP Singapore), Harding Loevner LP, Harris Associates LP, and Lazard Asset Management LLC are and continue to serve as subadvisers to the Fund.
Under an exemptive order (the “Exemptive Order”) from the U.S. Securities and Exchange Commission (the “SEC”), MIM is permitted to select new subadvisers, change the terms of agreements with the subadvisers, or continue the employment of a subadviser after an event that would otherwise cause the automatic termination of services, in each case without obtaining approval from shareholders, provided that the Board approves the arrangement.
The attached Information Statement provides information required by the Exemptive Order and SEC rules regarding the addition of TRP Singapore as a sub-subadviser for the Fund. The Information Statement will be available on the Fund’s website at http://connect.rightprospectus.com/Morningstar until September 24, 2021.
A paper or email copy of the full Information Statement may be obtained, without charge, by contacting Morningstar Funds Trust, c/o Scott Schilling, Chief Compliance Officer, 22 W. Washington Street, Chicago, Illinois 60602, by emailing your request for the full Information Statement to Requests.MorningstarFund@morningstar.com or by calling (877) 626-3224.
I encourage you to read the attached Information Statement, which contains information about TRP Singapore and the New Sub-Subadvisory Agreement.
Sincerely,
/s/ Daniel E. Needham |
Daniel E. Needham |
Trustee and President, Morningstar Funds Trust |
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MORNINGSTAR FUNDS TRUST
22 W. Washington Street
Chicago, IL 60602
INFORMATION STATEMENT
This Information Statement is being furnished on behalf of Morningstar Funds Trust (the “Trust”) to inform shareholders about a recent change involving the investment management of the Morningstar International Equity Fund (the “Fund”).
On March 10, 2021, in connection with the Board of Trustees of the Trust’s (the “Board”) annual consideration of the renewal of the Trust’s advisory and subadvisory agreements, the Board, after consideration and evaluation of various factors and information, approved the continuation of the existing subadvisory agreement among MIM, the Trust and T. Rowe Price Associates, Inc. (“T. Rowe”) on behalf of the Fund, as well as the existing sub-subadvisory agreement between T. Rowe and its affiliate T. Rowe Price International Ltd (“TRP International”) on behalf of the Fund. In addition, the Board, after consideration and evaluation of various factors and information, also approved the terms of a new sub-subadvisory agreement between T. Rowe and its affiliate T. Rowe Price Singapore Private Ltd (“TRP Singapore”) on behalf of the Fund (the “New Sub-Subadvisory Agreement”). TRP Singapore was hired on April 1, 2021 and now serves as a sub-subadviser to the Fund pursuant to the New Sub-Subadvisory Agreement.
TRP Singapore is a Singapore limited company organized and existing under the laws of Singapore. It holds a Capital Markets Service License in Fund Management with the Monetary Authority of Singapore and is registered with the U.S. Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). TRP Singapore is a wholly owned subsidiary of TRP International, which, in turn, is a wholly owned subsidiary of T. Rowe.
In addition to T. Rowe (along with its affiliates, TRP International and TRP Singapore), Harding Loevner LP, Harris Associates LP, and Lazard Asset Management LLC are and continue to serve as subadvisers to the Fund.
The New Sub-Subadvisory Agreement was approved by the Board upon the recommendation of Morningstar Investment Management LLC (“MIM”), without shareholder approval, as is permitted by the exemptive order issued by the SEC on August 15, 2017 (the “Exemptive Order”).
A Notice of Internet Availability of this Information Statement is being mailed on or about June 24, 2021 to shareholders of record of the Fund as of June 22, 2021. Only one Notice of Internet Availability and one Information Statement is being delivered to multiple security holders sharing an address unless the Trust has received contrary instructions from one or more of the security holders. If multiple security holders sharing an address are receiving multiple Notices of Internet Availability and Information Statements, however, they may request that a single copy of each be mailed by contacting the Trust at the address, email address or phone number listed below.
This Information Statement will be available on the Fund’s website at http://connect.rightprospectus.com/Morningstar until September 24, 2021. A paper or email copy of the full Information Statement may be obtained, without charge, by contacting Morningstar Funds Trust, c/o Scott Schilling, Chief Compliance Officer, 22 W. Washington Street, Chicago, Illinois 60602, by emailing your request for the full Information Statement to Requests.MorningstarFund@morningstar.com or by calling (877) 626-3224.
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
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INTRODUCTION
MIM is the investment adviser for each series of the Trust, including the Fund. Section 15(a) of the Investment Company Act of 1940, as amended (the “1940 Act”), generally requires that the shareholders of a mutual fund approve an agreement pursuant to which a person serves as an investment adviser (including as a subadviser) of the mutual fund. The Trust and MIM have obtained the Exemptive Order from the SEC, which permits MIM, subject to certain conditions and approval by the Board, to select new subadvisers, change the terms of agreements with existing subadvisers, or continue the employment of a subadviser after an event that would otherwise cause the automatic termination of services, in each case without obtaining approval from shareholders. Under the Exemptive Order, MIM acts as a manager of managers for the Fund, responsible for allocating the Fund’s assets to one or more subadvisers, overseeing the provision of portfolio management services to the Fund by the subadvisers, and recommending hiring or changing subadvisers to the Board.
Consistent with the terms of the Exemptive Order, the Board, including a majority of the Trustees who are not “interested persons” (as that term is defined in the 1940 Act) of the Trust or MIM (the “Independent Trustees”), authorized MIM to appoint TRP Singapore as an additional sub-subadviser to the Fund and approved the New Sub-Subadvisory Agreement.
The Trust and MIM must comply with certain conditions when acting in reliance on the relief granted in the Exemptive Order. These conditions require, among other things, that within ninety (90) days of entering into a subadvisory agreement, the affected fund will notify its shareholders of the changes. This Information Statement provides such notice of the change and offers details regarding TRP Singapore and the New Sub-Subadvisory Agreement.
INVESTMENT ADVISORY ARRANGEMENTS
The Investment Adviser
MIM, located at 22 W. Washington Street, Chicago, IL 60602, serves as investment adviser to the Fund. MIM is registered as an investment adviser with the SEC under the Advisers Act.
MIM provides investment advisory services to the Fund pursuant to the Investment Advisory Agreement between the Trust and MIM dated April 30, 2018 (the “Advisory Agreement”). As the Fund’s investment adviser, MIM has overall supervisory responsibility for the general management and investment of the Fund’s securities portfolio, and, subject to review and approval by the Board, sets the Fund’s overall investment strategies. MIM is also responsible for the oversight and evaluation of the Fund’s subadvisers. MIM is responsible for hiring, terminating, and replacing subadvisers, subject to the Board’s approval. Before hiring a subadviser, MIM performs due diligence on the subadviser, including (but not limited to) quantitative and qualitative analysis of the subadviser’s investment process, risk management, and historical performance. MIM is responsible for establishing the target allocation of the Fund’s assets to each subadviser and may adjust the target allocations at its discretion. MIM is also responsible for periodically reallocating the portfolio among the subadvisers, the timing and degree of which will be determined by MIM. For providing these services to the Fund, the Trust pays MIM an advisory fee at the annual rate of 0.83% of the Fund’s average daily net assets.
MIM has contractually agreed, through at least August 31, 2021, to waive all or a portion of its advisory fees and, if necessary, to assume certain other expenses (to the extent permitted by the Internal Revenue Code of 1986, as amended (the “Code”)) to ensure that the Fund’s Total Annual Fund Operating Expenses (excluding taxes, interest, brokerage commissions, trading costs, acquired fund fees and expenses (“AFFE”), short sale dividend and interest expenses, litigation expenses, and extraordinary expenses) do not exceed 1.00% (the “Base Expense Limitation Agreement”). It is important to note that as a result of the exclusion of the above-listed expenses from the cap, the Fund’s Total Annual Fund Operating Expenses may in certain circumstances be higher than 1.00%. Notwithstanding the foregoing, it is the adviser’s intent to partially limit AFFE such that when AFFE is included
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in the expense ratio, the Fund’s Total Annual Fund Operating Expenses (excluding the above-listed expenses other than AFFE) do not exceed the amount set forth in the Fund’s original prospectus dated July 11, 2018, as revised August 15, 2018. Accordingly, in addition to the Base Expense Limitation Agreement, MIM has contractually agreed, through at least August 31, 2021, to waive all or a portion of its advisory fees and, if necessary, to assume certain other expenses (to the extent permitted by the Code) to ensure that the Fund’s Total Annual Fund Operating Expenses (excluding taxes, interest, brokerage commissions, trading costs, short sale dividend and interest expenses, litigation expenses, and extraordinary expenses) do not exceed 1.00% (the “Supplemental Expense Limitation Agreement,” and, collectively with the Base Expense Limitation Agreement, the “Expense Limitation Agreements”). Prior to August 31, 2021, the Base Expense Limitation Agreement and Supplemental Expense Limitation Agreement may be terminated only upon mutual agreement between the Trust (which would require the approval of the Board) and MIM, or automatically upon the termination of the Advisory Agreement.
For the fiscal period ended April 30, 2021, pursuant to the Expense Limitation Agreements described above, MIM waived a portion of its investment advisory fees and/or made payments to limit Fund expenses. After giving effect to the Expense Limitation Agreements, for the fiscal period ended April 30, 2021, the Fund paid MIM advisory fees equal to $5,982,757.
The following Trustee and officers of the Trust are also officers and/or employees of MIM or its affiliates:
• | Daniel E. Needham serves as Trustee and President and Principal Executive Officer of the Trust and as President of Morningstar, Inc.’s (“Morningstar”) investment management group, MIM and Morningstar Investment Services LLC; |
• | D. Scott Schilling serves as Chief Compliance Officer (“CCO”), Anti-Money Laundering (“AML”) Compliance Officer, and Secretary of the Trust and as Global CCO at Morningstar; and |
• | F. Allen Bliss serves as Assistant Secretary of the Trust and as Associate General Counsel and Assistant Corporate Secretary for Morningstar. |
The address of these individuals is 22 W. Washington Street, Chicago, Illinois 60602.
T. Rowe Price Singapore Private Ltd (“TRP Singapore”)
TRP Singapore is a Singapore limited company organized and existing under the laws of Singapore. It holds a Capital Markets Service License in Fund Management with the Monetary Authority of Singapore and is registered with the SEC as an investment adviser under the Advisers Act.
TRP Singapore is a wholly owned subsidiary of TRP International, which is located at 60 Queen Victoria Street, London, United Kingdom EC4N 4TZ. TRP International. is a wholly owned subsidiary of T. Rowe, which is located at 100 East Pratt Street, Baltimore, Maryland 21202. T. Rowe is, and continues to be, a subadviser to the Fund, while TRP International is, and continues to be, a sub-subadviser to the Fund.
TRP Singapore is not an affiliated person of MIM and will discharge its responsibilities subject to the
oversight of T. Rowe and MIM. TRP Singapore will be compensated out of the fees MIM receives from the Fund and pays to T. Rowe in accordance with a subadvisory agreement between the Trust, MIM and T. Rowe pursuant to which T. Rowe has served as a subadviser to the Fund since its inception in 2018 (the “T. Rowe Subadvisory Agreement”). There will be no increase in the advisory fees paid by the Fund to MIM because of the approval of the New Sub-Subadvisory Agreement.
The name and principal occupation of the principal executive officers and directors of TRP Singapore are listed below. The address of each principal executive officer, as it relates to the person’s position with TRP Singapore is either 501 Orchard Road, #10-02 Wheelock Place, Singapore 238880 or 100 East Pratt Street, Baltimore, Maryland, 21202.
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Name | Position(s) with TRP Singapore | |
Graeme De Moor | Director | |
Sridhar Nishtala | Director | |
Nicholas S. Trueman | Director/President | |
Sik Chao | CCO | |
David N. Oestreicher | Chief Legal Counsel |
No officer or Trustee of the Trust is an officer, employee, director, general partner, or shareholder of TRP Singapore. In addition, since the beginning of the Trust’s most recently completed fiscal year, no Trustee of the Trust has had, directly or indirectly, a material interest in any transaction or material proposed transaction to which TRP Singapore, its parent entity or subsidiaries or any subsidiaries of the parent of any such entities, was or is to be a party. Since the beginning of the Trust’s most recently completed fiscal year, none of the Trustees purchased or sold securities of TRP Singapore or its parents or subsidiaries.
Notwithstanding the addition of TRP Singapore as a subadviser to the Fund, the following T. Rowe portfolio managers will continue to be primarily responsible for the day-to-day management of T. Rowe’s allocated portion of the Fund’s portfolio:
Gonzalo Pángaro, CFA—Gonzalo Pángaro is a vice president and portfolio manager. He joined the firm in 1998 and his investment experience dates from 1991. He earned a master’s degree in finance from CEMA University (Centro de Estudios Macroeconomics de la Argentina), and a bachelor’s degree in business administration from the Argentine Catholic University. He is also fluent in Spanish, English and Portuguese. Pángaro has served as a portfolio manager for the Fund since its inception in November 2018.
Eric Moffett —Eric Moffett is a vice president and portfolio manager. He joined the firm in 2007 and his investment experience dates from 2000. Moffett earned an A.B., magna cum laude, in economics from Princeton University and an M.B.A. from Harvard Business School. Moffett has served as a portfolio manager for the fund since April 2021.
Malik Asif —Malik Asif is a vice president and portfolio manager. He joined the firm in 2012 and his investment experience dates from 2007. During the past five years, Asif served as an associate portfolio manager of the Emerging Markets strategy (beginning in 2018) and prior to that, as an analyst covering the financial sector in emerging markets with the firm. Asif earned a B.A., summa cum laude, in economics and international relations from Connecticut College and is a member of Phi Beta Kappa. He also has earned an M.B.A. from the University of Chicago, Booth School of Business, where he received the Chicago Booth Merit Fellowship. Asif has served as a portfolio manager for the fund since April 2021.
The New Sub-Subadvisory Agreement
The New Sub-Subadvisory Agreement was approved by the Board at its meeting on March 10, 2021, which was called for the purpose, among others, of approving the New Sub-Subadvisory Agreement. The New Sub-Subadvisory Agreement provides that it will terminate automatically in the event of its assignment (within the meaning of the 1940 Act) or upon the termination of the T. Rowe Subadvisory Agreement, except as otherwise provided by applicable law or the Exemptive Order.
Under the terms of the T. Rowe Subadvisory Agreement, T. Rowe makes investment decisions for the portion of the assets of the Fund allocated to it by MIM (the “T. Rowe Segment”). T. Rowe, subject to the oversight of MIM and the Board, is responsible for, among other things: (i) conducting a continuous program of investment, evaluation, and, if appropriate, sale and reinvestment of the T. Rowe Segment’s assets; (ii) making investment decisions; (iii) placing orders for the investment and reinvestment of the T Rowe Segment’s assets, subject to the stated investment policies and restrictions of the Fund as set forth in its prospectus and statement of additional information, as supplemented or amended from time to time, and subject to the directions of MIM and the Board, and (iv) in its discretion, utilizing the services of its affiliates TRP International and/or TRP Singapore pursuant to a separate agreement between those parties.
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The T. Rowe Subadvisory Agreement also provides that T. Rowe is responsible for expenses related to it and its affiliates’ activities, including those of TRP Singapore. Neither T. Rowe nor TRP Singapore is responsible for the expenses of the Trust, the Fund and MIM, including, but not limited to, the cost of securities, commodities and other investments (including brokerage commissions and other transaction charges, if any) purchased for the Fund and any losses incurred in connection therewith; expenses of holding or carrying the T. Rowe Segment’s assets, including, without limitation, expenses of dividends on stock borrowed to cover a short sale and interest, fees or other charges incurred in connection with leverage and related borrowings with respect to the T. Rowe Segment’s assets, organizational and offering expenses (which include, but are not limited to, out-of-pocket expenses, but not overhead or employee costs of T. Rowe or TRP Singapore); expenses for legal, accounting, and auditing services rendered to the Trust or the Fund; taxes and governmental fees; dues and expenses incurred in connection with membership in investment company organizations; costs of printing and distributing shareholder reports, proxy materials, prospectuses, stock certificates, and distribution dividends; charges of the Fund’s custodians and sub-custodians, administrators and sub-administrators, registrars, transfer agents, dividend disbursing agents, and dividend reinvestment plan agents; payment for portfolio pricing services to a pricing agent, if any; registration and filing fees of the SEC; expenses of registering or qualifying securities of the Fund for sale in the various states; freight and other changes in connection with the shipment of the Fund’s portfolio securities; fees and expenses of the Independent Trustees; salaries of shareholder relations personnel; costs of shareholders meetings; insurance; interest; brokerage costs; and litigation and other extraordinary or non-recurring expenses of the Trust or the Fund.
The New Sub-Subadvisory Agreement provides for TRP Singapore to be compensated from the fees that MIM receives from the Fund based on the average daily net assets of the Fund that are allocated to T. Rowe. The T. Rowe Subadvisory Agreement permits T. Rowe to delegate certain investment activities to TRP Singapore subject to T. Rowe’ oversight and direction. T. Rowe will pay all compensation earned by TRP Singapore.
The New Sub-Subadvisory Agreement may be terminated at any time, without the payment of any penalty, by vote of the Board or by a vote of a majority of the outstanding voting securities of the Fund on at least 60 days’ prior written notice to TRP Singapore. The New Sub-Subadvisory Agreement may also be terminated by the T. Rowe: (i) on at least 60 days’ prior written notice to TRP Singapore without the payment of penalty; (ii) upon material breach by TRP Singapore of any of the representations and warranties set forth in Paragraph 11 of the New Sub-Subadvisory Agreement, if such breach shall not have been cured within a 20-day period after notice of such breach; or (iii) if TRP Singapore becomes unable to discharge its duties and obligations under the New Sub-Subadvisory Agreement. TRP Singapore may terminate the New Sub-Subadvisory Agreement at any time, without the payment of penalty, on at least 60 days’ prior notice to T. Rowe and the Fund. The New Sub-Subadvisory Agreement shall terminate automatically in the event of its assignment or upon termination of the T. Rowe Subadvisory Agreement. Any termination shall be without prejudice to the rights and liabilities of either T. Rowe or TRP Singapore in respect of transactions already initiated. All outstanding transactions at the time of termination will be settled and delivery made. TRP Singapore will account to T. Rowe for such transactions. T. Rowe will not be required to make any additional payment to TRP Singapore on termination save for any periodic fee contractually due. TRP Singapore may also charge and receive payment from T. Rowe for any additional expenses which are necessarily incurred in terminating the New Sub-Subadvisory Agreement plus any losses necessarily realized in settling or concluding outstanding obligations.
MIM’s Recommendation and the Board’s Consideration
At its meeting on March 10, 2021, the Board considered the proposed New Sub-Subadvisory Agreement with TRP Singapore in connection with the Board’s annual consideration of the renewal of the Trust’s advisory and sub-advisory agreements, which included the continuation of the existing subadvisory agreement among MIM, the Trust and T. Rowe Price Associates, Inc. (“T. Rowe”) on behalf of the Fund, as well as the existing sub-subadvisory agreement between T. Rowe and its affiliate T. Rowe Price International Ltd (“TRP International”) on behalf of the Fund.
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MIM recommended that TRP Singapore be approved as a new sub-subadviser to the Fund as it believes TRP Singapore is suited to assist T. Rowe in managing its strategy for the Fund that will help the Fund meet its overall investment objective. Prior to approving the New Sub-Subadvisory Agreement, the Board considered materials related to the New Sub-Subadvisory Agreement. Among the topics addressed by these materials were:
• | The services TRP Singapore would provide to the Fund. |
• | The investment approach for the Fund and whether this investment approach was being followed by MIM and each subadviser to the Fund, including T. Rowe and its affiliates. |
• | The due diligence conducted on TRP Singapore by MIM, and MIM’s reasons for recommending the approval of TRP Singapore as a sub-subadviser and the New Sub-Subadvisory Agreement. |
• | The due diligence conducted by the Trust’s CCO with regard to compliance programs and capabilities of MIM and each subadviser to the Fund, including T. Rowe and its affiliates. |
• | The services that the custodian, fund administrator, transfer agent and distributor provided and would provide to the Fund. |
• | The fees paid and to be paid to service providers to the Fund, including MIM and each subadviser to the Fund, including T. Rowe. |
• | The expense ratio for the Fund, reflecting both the fees paid and to be paid to service providers and expenses incurred and to be incurred directly by the Fund. |
• | Expense limitation arrangements, to be achieved by fee waivers and expense reimbursements by MIM. |
Throughout the approval process, the Independent Trustees received assistance from independent counsel. The Independent Trustees met separately with independent counsel.
Factors Considered
In making their determination, the Board considered multiple factors. The Board did not quantify or assign relative weights to the factors. Each member of the Board may have assigned different weights to the factors.
The factors considered included:
• | The form of the proposed Sub-Subadvisory Agreement. |
• | The Fund’s investment performance and the performance of MIM and T. Rowe in achieving this performance. |
• | Whether the Fund had operated in accordance with its investment objective. |
• | The fairness of the compensation under the Fund’s investment advisory and subadvisory agreements. |
• | The expense ratio to be borne by shareholders, considering the combined effect of the pricing structure of the Fund and existing fee waivers and expense reimbursements. |
• | MIM’s investment principles. |
• | The nature, extent and quality of services that T. Rowe and its affiliates, including TRP Singapore, would be expected to provide to the Fund. |
• | The background, experience, personnel, operations, technology, policies, procedures and compliance functions of T. Rowe and its affiliates, including TRP Singapore, including their experience as managers of other funds and accounts, their investment management approaches and resources, their financial condition and their reputation in the industry. |
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• | The compatibility of the operations, policies, procedures and compliance functions of T. Rowe and its affiliates, including TRP Singapore, with those of MIM and other proposed service providers to the Fund. |
• | The CCO’s review of the compliance programs and capabilities of T. Rowe and its affiliates, including TRP Singapore, including the policies and procedures in place to address potential conflicts of interest. |
• | MIM’s risk management program, especially those aspects of the program related to selecting and overseeing the subadvisers to the Fund. |
• | The use of derivatives and other complex instruments to carry out the Fund’s investment goals. |
• | The risk management program of T. Rowe and its affiliates, including TRP Singapore. |
• | Profitability matters and economies of scale. |
The following discussion reviews some of the primary components of the Board’s decision to approve the New Sub-Subadvisory Agreement. This discussion is not intended to be exhaustive, but rather summarizes certain factors considered by the Board.
Services Provided
The Board took note of the responsibilities that T. Rowe has with respect to the portion of the Fund’s assets allocated by Morningstar to T. Rowe and its affiliates, including responsibilities that would be assigned to TRP Singapore. These responsibilities include implementing the investment strategies for that portion of the Fund’s assets and ensuring compliance with the investment policies and limitations. The Board reviewed the portfolio management team assigned to the Fund by T. Rowe and considered the team’s past performance and skills, along with overall staffing levels.
Based on their review, the Board was satisfied with the nature, extent and quality of services to be provided by T. Rowe and its affiliates, including TRP Singapore, to the Fund and its shareholders. The Board was confident in the abilities of TRP Singapore at the direction of T. Rowe to implement the Fund’s investment strategy and to provide quality services to the Fund and its shareholders.
Investment Performance
Fund performance was also very important to the Board. In evaluating performance, the Board looked at the Fund’s performance relative to other funds with the same investment objective, its performance relative to its index benchmark, and its risk-adjusted performance.
The Costs of the Services and Fund Expenses
The Board considered the cost of the services provided and to be provided and the profits or losses realized by MIM and each subadviser from a relationship with the Fund. The Board reviewed the New Sub-Subadvisory Agreement, which provides that T. Rowe is responsible for costs related to TRP Singapore and that TRP Singapore is compensated from the fees that MIM receives from the Fund based on the average daily net assets of the Fund that are allocated to T. Rowe. The Board noted that the subadvisory fees are paid to T. Rowe by MIM and are not additional fees borne by the Fund. These fees were the product of arms-length negotiations between MIM and each T. Rowe.
The Board determined that the fee structure was fair and reasonable given that TRP Singapore will be compensated from the fees T. Rowe receives from MIM, that these fees were the product of arms-length negotiations between MIM and T. Rowe, and that the Fund will not incur additional sub-advisory fees as a result of TRP Singapore’s services to the Fund. As a result, the costs of the services of TRP Singapore from its relationship with the Fund were not a material factor in the Board’s consideration of the New Sub-Subadvisory Agreement.
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The Board also considered other actual and potential benefits (often called “fall-out benefits”) that accrue to MIM and each of the subadvisers, including T. Rowe and its affiliates, from managing the Fund.
Economies of Scale
The Board considered economies of scale that may be realized by T. Rowe as the Fund grows larger and the extent to which these economies would be shared with the Fund’s shareholders. The Board noted that MIM had implemented an expense limitation arrangement which has been and will continue to be re-evaluated periodically. The Board concluded that economies of scale were not a significant factor with regard to the Fund’s management fee at this time given the limited operating history of the Fund and that the expense limitation is in effect.
Conclusion
After consideration of the foregoing factors, and such other matters as were deemed relevant, and with no single factor being determinative to their decision, the Board—including a majority of the Independent Trustees with the assistance of independent counsel— approved the continuation of the Fund’s existing advisory and subadvisory agreements as well as the New Sub-Subadvisory Agreement, and concluded that the Fund’s advisory and subadvisory fee structure was fair and reasonable.
GENERAL INFORMATION
Administrative and Accounting Services
The Northern Trust Company, located at 333 South Wabash Avenue, Chicago, IL 60604, serves as the Trust’s administrator and provides administrative and accounting services necessary for the operation of the Fund, including assistance in the preparation of financial reports to shareholders; reporting fund performance; support with respect to routine regulatory examinations of the Fund; assistance in preparing Fund expense projections and establishing accruals; arranging for the computation of data, including daily calculation of the Fund’s net asset value; preparation for signature by an officer of the Trust certain documents required to be filed for compliance by the Trust with applicable laws and regulations, including those of the SEC; preparation of tax returns; certain accounting, clerical and bookkeeping services; arranging for the maintenance of books and records of the Trust; and providing, at its own expense, office facilities, equipment, and personnel necessary to carry out its duties. The Administrator also maintains certain books and records of the Funds that are required by applicable federal regulations.
Principal Distribution Arrangements
Foreside Fund Services, LLC (“Foreside”), located at Three Canal Plaza, Suite 100, Portland, ME 04101, acts as principal underwriter in a continuous public offering of the Fund’s shares. Pursuant to a distribution agreement between Foreside and the Trust, on behalf of the Fund, Foreside acts as the Trust’s principal underwriter and distributor and provides certain administration services and promotes and arranges for the sale of the Fund’s shares. Foreside is a registered broker-dealer under the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority.
Payments to Affiliated Brokers
For the fiscal year ended April 30, 2021, the Fund did not pay any commissions to affiliated brokers.
Record of Beneficial Ownership
As of April 30, 2021, Morningstar International Fund had 84,447,766.690 outstanding shares, and net assets of $1,074,559,552. The owners of more than 5% of the outstanding shares of the Fund as of April 30, 2021 are listed below:
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Morningstar International Fund
Name and Address | Shares | % Ownership | Type of Ownership | |||||||||
National Financial Services LLC FBO Morningstar Funds Trust Shareholders 200 Seaport Blvd. Boston, MA 02210 | 30,775,147 | 36.44 | % | Record | ||||||||
Pershing LLC BNYM Investment Servicing Trust Company FBO Wrap Clients 760 Moore Road King of Prussia, PA 19406 | 20,816,874 | 24.65 | % | Record | ||||||||
Pershing LLC 1 Pershing Plaza Jersey City, NJ 07399-0002 | 9,585,795 | 11.35 | % | Record | ||||||||
TD Ameritrade FBO Our Clients P.O. Box 2226 Omaha, NE 68103-2226 | 9,359,987 | 11.08 | % | Record | ||||||||
Charles Schwab & Co. Inc. Special Custody Acct A/C FBO Customers 211 Main Street San Francisco, CA 94105 | 7,538,066 | 8.93 | % | Record | ||||||||
LPL Financial LLC FBO Customers Account P.O. Box 509046 San Diego, CA 92150 | 5,111,528 | �� | 6.05 | % | Record |
SHAREHOLDER REPORTS
Additional information about the Fund is available in the Trust’s annual report to shareholders for the period ended April 30, 2020, and updated information will soon be available in the Trust’s annual report to shareholders for the period ended April 30, 2021. In the Trust’s annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during its most recent fiscal year. Copies of the Trust’s most recent annual and semi-annual shareholder reports may be obtained, without charge, by writing to Morningstar Funds Trust, c/o Scott Schilling, Chief Compliance Officer, 22 W. Washington Street, Chicago, Illinois 60602, by emailing your request to Requests.MorningstarFund@morningstar.com, or by calling (877) 626-3224. Only one shareholder report will be delivered to multiple security holders sharing an address unless the Trust has received contrary instructions from one or more of the security holders. If multiple security holders sharing an address are receiving multiple shareholder reports, however, they may request that a single copy be mailed instead by contacting the Trust at the address, email address or phone number listed above.
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