ABR Funds
ABR Dynamic Blend Equity & Volatility Fund
ABR Dynamic Short Volatility Fund
Annual Report
July 31, 2019
ABR DYNAMIC BLEND EQUITY & VOLATILITY FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
JULY 31, 2019
Dear Shareholder,
ABR Dynamic Funds, LLC is pleased to review the performance of the ABR Dynamic Blend Equity & Volatility Fund (“ABRVX” or the “Fund”) from August 1, 2018 through July 31, 2019. During this period, the Institutional Shares of the Fund returned -0.31%.
The investment objective of the Fund is to seek investment results that correspond generally to the performance, before the Fund’s fees and expenses, of a benchmark index that measures the investment returns of a dynamic ratio of large-capitalization stocks and the volatility of large-capitalization stocks. The underlying index is the ABR Dynamic Blend Equity & Volatility Index Powered by Wilshire (“ABRVXX Index” or the “Index”).
Under normal circumstances, the Fund will invest at least 80% of the value of its net assets (plus borrowing for investment purposes) in securities and instruments, including derivatives, that provide exposure to the constituents of the Index. For purposes of this policy, the notional value of the Fund’s investments in derivative instruments that provide exposure to the constituents of the Index may be counted toward satisfaction of the 80% policy. The Fund uses equities (via instruments that track the S&P 500® Total Return Index), equity volatility (via instruments that track the S&P 500® VIX Short-Term Futures Total Return Index – “SPVXSTR” Index), and cash (via cash instruments).
The Fund employs a rules-based strategy to determine an allocation among equities, equity volatility, and cash. The approach is designed to approximately match the allocations of the ABRVXX Index. The strategy’s exposure to volatility tends to increase in periods of relatively high volatility and decrease in periods of relatively low volatility. Although not guaranteed, these tendencies are designed to capture favorable volatility movements in turbulent markets while preserving positive performance during extended rising markets. If successful in this design, the strategy may serve as a useful source of diversification to equity markets over multiple market cycles.
During the past fiscal year, ABRVX returned -0.31%. Despite excessive media attention around Q4 2018, the past fiscal year brought only modest ups and downs in equity markets, in line with (or even lower than) long-term historical volatility. The repeated volatility trend reversals during the fiscal year were somewhat difficult for the Fund’s trend-following strategy to navigate. However, ABRVX did outperform the S&P 500 in the 3 down months for the S&P 500 (October, December, and May), losing an average of 3.63% per month compared to the S&P 500’s average loss of 7.41% per month. As previously noted, following each of these three months, during which the Fund’s strategy prepared for a more significant increase in volatility, there were reversals higher in equity markets and lower in volatility.
Overall, the Fund’s underlying strategy prepared for a crisis 3 times during the fiscal year, and, despite no crisis actually materializing, ABRVX was approximately even for the fiscal year.
For more information on ABR Dynamic Funds, LLC, please visit our website: www.abrfunds.com.
The return on and value of an investment in the mutual fund will fluctuate in response to market movements. Investments are subject to market risks, such as rapid increase or decrease in an investment value or liquidity, fluctuations in price due to economic conditions and other factors beyond the control of the Adviser. As with any mutual fund, there are risks involved with investing in the Fund, including the possible loss of principal. Other risks specific to the Fund are detailed in the prospectus. The Fund may be non-diversified, and fluctuations in individual holdings will have a greater impact on the Fund’s performance. The Fund may also invest in derivative instruments, and a small investment could have a large potential impact on the performance of the Fund. Future contracts have risks associated with index correlation, liquidity, default and margin. The Fund is not “actively” managed; passive management will not otherwise take defensive positions in declining markets unless such positions are reflected in the Index.
ABR DYNAMIC SHORT VOLATILITY FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
JULY 31, 2019
Dear Shareholder,
ABR Dynamic Funds, LLC is pleased to review the performance of the ABR Dynamic Short Volatility Fund (“ABRSX” or the “Fund”) from August 1, 2018 through July 31, 2019. During this period, the Institutional Shares of the Fund returned +9.46%.
The investment objective of the Fund is to seek long-term capital appreciation.
The Fund seeks to capitalize on the long-term historical downward trend of the price of CBOE Volatility Index (“VIX” Index) futures*, while mitigating the effect of sudden price appreciation in VIX futures. The Fund will invest primarily in securities and derivative instruments for the purpose of gaining short exposure to VIX futures, long exposure to long-term U.S. Treasury bonds, and cash.
The Fund relies principally on a model to determine its allocations among short VIX futures, long U.S. treasuries, and cash. The model is measured by the ABR Enhanced Short Volatility Index Powered by Wilshire (“ABRXIV”). However, the Fund is not an index fund and may consider factors outside of the model when making investments decisions. In low volatility environments, the model typically targets a larger allocation to U.S. treasuries and a smaller allocation to short VIX futures. In medium volatility environments, the model typically targets a smaller allocation to U.S. treasuries and a larger allocation to short VIX futures. In high volatility environments, the model typically targets a smaller allocation to both, with a larger cash allocation. These targets are designed to facilitate the Fund’s intended capitalization on the long-term historical downward trend of VIX futures*, while striving to mitigate the loss from sudden spikes in VIX futures.
ABRSX drew down in Q4 2018, as any short volatility strategy may be expected to do. However, the ABRSX strategy significantly mitigated the risk of a static short allocation to VIX futures. In Q4 2018, ABRSX lost 30.03% while a static short allocation to VIX futures (measured by SPVXSPI Index) lost 50.51%. Following the drawdown, ABRSX was able to capitalize on the resumption of the long-term historical downward trend of VIX futures. In January – July, ABRSX made 54.53% while SPVXSPI made 66.78%.
Overall, the Fund’s model succeeded in mitigating the risk of rapidly appreciating VIX futures and then participating in the gains from the long-term historical downward trend of VIX futures. For the fiscal year, ABRSX returned +9.46% while a static short allocation to VIX futures was unable to recover fully from its Q4 2018 drawdown and returned -6.56%.
For more information on ABR Dynamic Funds, LLC, please visit our website: www.abrfunds.com.
*From 2006 to July 31, 2019, VIX futures declined by 99.96%, as measured by the SPVXSTR Index.
The return on and value of an investment in the mutual fund will fluctuate in response to market movements. Investments are subject to market risks, such as rapid increase or decrease in an investment value or liquidity, fluctuations in price due to economic conditions and other factors beyond the control of the Adviser. As with any mutual fund, there are risks involved with investing in the Fund, including the possible loss of principal. Other risks specific to the Fund are detailed in the prospectus. The Fund may be non-diversified, and fluctuations in individual holdings will have a greater impact on the Fund’s performance. The Fund may also invest in derivative instruments, and a small investment could have a large potential impact on the performance of the Fund. Future contracts have risks associated with index correlation, liquidity, default and margin. The Fund may take temporary defensive positions under extraordinary market, political, or macroeconomic conditions.
ABR DYNAMIC BLEND EQUITY & VOLATILITY FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)
JULY 31, 2019
The following chart reflects the change in the value of a hypothetical $100,000 investment in Institutional Shares, including reinvested dividends and distributions, in the ABR Dynamic Blend Equity & Volatility Fund (the “Fund”) compared with the performance of the benchmark, S&P 500 Index (the "S&P 500"), since inception. The S&P 500 is a broad-based measurement of the U.S. stock market based on the performance of 500 widely held large capitalization common stocks. The total return of the index includes the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the index does not include expenses. The Fund is professionally managed, while the index is unmanaged and is not available for investment.
Comparison of Change in Value of a $100,000 Investment
ABR Dynamic Blend Equity & Volatility Fund - Institutional Shares vs. S&P 500 Index
Average Annual Total Returns | ||||
Periods Ended July 31, 2019 | One Year | Since Inception(1) | ||
ABR Dynamic Blend Equity & Volatility Fund - Institutional Shares | -0.31% | 2.80% | ||
ABR Dynamic Blend Equity & Volatility Fund - Investor Shares | -0.61% | 2.47% | ||
S&P 500 Index | 7.99% | 11.46% |
(1) | Institutional Shares commenced operations on August 3, 2015 and Investor Shares commenced operations on August 14, 2015. The returns shown for the S&P 500 Index is as of August 3, 2015. |
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. As stated in the Fund’s prospectus, the annual operating expense ratios (gross) for Institutional Shares and Investor Shares are 2.65% and 6.38%, respectively. However, the Fund’s adviser has contractually agreed to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (excluding all taxes, interest, portfolio transaction expenses, proxy expenses and extraordinary expenses) to 2.00% for Institutional Shares and 2.25% for Investor Shares, through at least November 30, 2019 (the “Expense Cap”). The Expense Cap may be raised or eliminated only with the consent of the Board of Trustees. The adviser may be reimbursed by the Fund for fees waived and expenses reimbursed by the adviser pursuant to the Expense Cap if such payment is approved by the Board, made within three years of the fee waiver or expense reimbursement and does not cause the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement to exceed the lesser of (i) the then-current Expense Cap and (ii) the Expense Cap in place at the time the fees/expenses were waived/reimbursed. Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement will increase if exclusions from the Expense Cap apply. During the period, certain fees were waived and/or expenses reimbursed; otherwise, returns would have been lower. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized. For the most recent month-end performance and current Fund prices, please call (855) 422-4518.
ABR DYNAMIC SHORT VOLATILITY FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)
JULY 31, 2019
The following chart reflects the change in the value of a hypothetical $100,000 investment in Institutional Shares, including reinvested dividends and distributions, in the ABR Dynamic Short Volatility Fund (the “Fund”) compared with the performance of the benchmark, FTSE 3-Month U.S. T-Bill Index, since inception. The FTSE 3-Month U.S. T-Bill Index measures return equivalents of yield averages that are not marked to market and consists of the last three three-month Treasury bill month-end rates. The total return of the index includes the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the index does not include expenses. The Fund is professionally managed, while the index is unmanaged and is not available for investment.
Comparison of Change in Value of a $100,000 Investment
ABR Dynamic Short Volatility Fund - Institutional Shares vs. FTSE 3-Month U.S. T-Bill Index
Average Annual Total Returns | ||||
Periods Ended July 31, 2019 | One Year | Since Inception(1) | ||
ABR Dynamic Short Volatility Fund - Institutional Shares | 9.46% | -7.80% | ||
ABR Dynamic Short Volatility Fund - Investor Shares | 9.07% | -8.45% | ||
FTSE 3-Month U.S. T-Bill Index | 2.33% | 1.95% |
(1) | Institutional Shares commenced operations on October 2, 2017 and Investor Shares commenced operations on October 11, 2017. The return shown for the FTSE 3-Month U.S. T-Bill Index is as of October 2, 2017. |
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. As stated in the Fund’s prospectus, the annual operating expense ratios (gross) for Institutional Shares and Investor Shares are 10.19% and 9.45%, respectively. However, the Fund’s adviser has contractually agreed to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (excluding all taxes, interest, portfolio transaction expenses, proxy expenses and extraordinary expenses) to 2.50% for Institutional Shares and 2.75% for Investor Shares, through at least November 30, 2019 (the “Expense Cap”). The Expense Cap may be raised or eliminated only with the consent of the Board of Trustees. The adviser may be reimbursed by the Fund for fees waived and expenses reimbursed by the adviser pursuant to the Expense Cap if such payment is approved by the Board, made within three years of the fee waiver or expense reimbursement and does not cause the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement to exceed the lesser of (i) the then-current Expense Cap and (ii) the Expense Cap in place at the time the fees/expenses were waived/reimbursed. Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement will increase if exclusions from the Expense Cap apply. During the period, certain fees were waived and/or expenses reimbursed; otherwise, returns would have been lower. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized. For the most recent month-end performance and current Fund prices, please call (855) 422-4518.
ABR DYNAMIC BLEND EQUITY & VOLATILITY FUND
SCHEDULE OF INVESTMENTS
JULY 31, 2019
Principal | Security Description | Rate | Maturity | Value | ||||||||||
U.S. Government & Agency Obligations - 65.5% | ||||||||||||||
U.S. Treasury Securities - 65.5% | ||||||||||||||
$ | 27,000,000 | U.S. Treasury Bill (a) (Cost $26,556,915) |
1.83 -1.90 | % | 06/18/20 | $ | 26,529,759 | |||||||
Investments, at value - 65.5% (Cost $26,556,915) | $ | 26,529,759 | ||||||||||||
Other Assets & Liabilities, Net - 34.5% | 13,959,923 | |||||||||||||
Net Assets - 100.0% | $ | 40,489,682 |
(a) | Zero coupon bond. Interest rate presented is yield to maturity. |
At July 31, 2019, the Fund held the following exchange traded futures contracts:
Contracts | Description |
Expiration Date |
Notional Contract Value |
Value |
Net Unrealized Appreciation |
|||||||||||||
72 | CBOE VIX Future | 08/21/19 | $ | 1,083,162 | $ | 1,157,400 | $ | 74,238 | ||||||||||
52 | CBOE VIX Future | 09/18/19 | 851,117 | 893,100 | 41,983 | |||||||||||||
255 | S&P 500 E-mini Future | 09/20/19 | 37,299,260 | 38,024,325 | 725,065 | |||||||||||||
$ | 39,233,539 | $ | 40,074,825 | $ | 841,286 |
The following is a summary of the inputs used to value the Fund's investments as of July 31, 2019.
The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.
Valuation Inputs |
Investments in Securities |
Other Financial Instruments* | ||||||
Level 1 - Quoted Prices | $ | – | $ | 841,286 | ||||
Level 2 - Other Significant Observable Inputs | 26,529,759 | – | ||||||
Level 3 - Significant Unobservable Inputs | – | – | ||||||
Total | $ | 26,529,759 | $ | 841,286 |
* | Other Financial Instruments are derivatives not reflected in the Schedule of Investments, such as futures, which are valued at the unrealized appreciation (depreciation) at year end. |
The Level 1 value displayed in this table includes futures. The Level 2 value displayed in this table is U.S. Treasury Securities.
PORTFOLIO HOLDINGS (Unaudited) | |
% of Total Net Assets | |
U.S. Government & Agency Obligations | 65.5% |
Other Assets & Liabilities, Net | 34.5% |
100.0% |
See Notes to Financial Statements.
ABR DYNAMIC SHORT VOLATILITY FUND
SCHEDULE OF INVESTMENTS
JULY 31, 2019
Principal | Security Description | Rate | Maturity | Value | ||||||||||
U.S. Government & Agency Obligations - 77.3% | ||||||||||||||
U.S. Treasury Securities - 77.3% | ||||||||||||||
$ | 407,000 | U.S. Treasury Bond | 3.13 | % | 08/15/44 | $ | 453,821 | |||||||
419,000 | U.S. Treasury Bond | 3.00 | 11/15/44 | 457,373 | ||||||||||
457,000 | U.S. Treasury Bond | 2.50 | 02/15/45 | 455,170 | ||||||||||
419,000 | U.S. Treasury Bond | 3.00 | 05/15/45 | 457,848 | ||||||||||
425,000 | U.S. Treasury Bond | 2.88 | 08/15/45 | 453,945 | ||||||||||
418,000 | U.S. Treasury Bond | 3.00 | 11/15/45 | 457,155 | ||||||||||
2,735,312 | ||||||||||||||
Total U.S. Government & Agency Obligations (Cost $2,622,838) | 2,735,312 | |||||||||||||
Investments, at value - 77.3% (Cost $2,622,838) | $ | 2,735,312 | ||||||||||||
Other Assets & Liabilities, Net - 22.7% | 803,410 | |||||||||||||
Net Assets - 100.0% | $ | 3,538,722 |
At July 31, 2019, the Fund held the following exchange traded futures contracts:
Contracts | Description |
Expiration Date |
Notional Contract Value |
Value |
Net Unrealized Appreciation (Depreciation) |
|||||||||||||
(24 | ) | CBOE VIX Future | 08/21/19 | $ | (404,246 | ) | $ | (385,800 | ) | $ | 18,446 | |||||||
(18 | ) | CBOE VIX Future | 09/18/19 | (292,060 | ) | (309,150 | ) | (17,090 | ) | |||||||||
$ | (696,306 | ) | $ | (694,950 | ) | $ | 1,356 |
The following is a summary of the inputs used to value the Fund's investments as of July 31, 2019.
The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.
Valuation Inputs | Investments in Securities |
Other Financial Instruments* | ||||||
Level 1 - Quoted Prices | $ | – | $ | 1,356 | ||||
Level 2 - Other Significant Observable Inputs | 2,735,312 | – | ||||||
Level 3 - Significant Unobservable Inputs | – | – | ||||||
Total | $ | 2,735,312 | $ | 1,356 |
* | Other Financial Instruments are derivatives not reflected in the Schedule of Investments, such as futures, which are valued at the unrealized appreciation (depreciation) at year end. |
The Level 1 value displayed in this table includes futures. The Level 2 value displayed in this table is U.S. Treasury Securities.
PORTFOLIO HOLDINGS (Unaudited) | |
% of Total Net Assets | |
U.S. Government & Agency Obligations | 77.3% |
Other Assets & Liabilities, Net | 22.7% |
100.0% |
See Notes to Financial Statements.
ABR FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 2019
ABR Dynamic Blend Equity & Volatility Fund |
ABR Dynamic Short Volatility Fund |
|||||||
ASSETS | ||||||||
Investments, at value (Cost $26,556,915 and $2,622,838, respectively) | $ | 26,529,759 | $ | 2,735,312 | ||||
Cash | 8,637,941 | 39,549 | ||||||
Deposits with broker | 4,722,023 | 629,527 | ||||||
Receivables: | ||||||||
Fund shares sold | 657,682 | 81,601 | ||||||
Investment securities sold | – | 31,450 | ||||||
Interest | 9,653 | 24,815 | ||||||
From investment adviser | – | 14,099 | ||||||
Prepaid expenses | 30,627 | 10,999 | ||||||
Total Assets | 40,587,685 | 3,567,352 | ||||||
LIABILITIES | ||||||||
Payables: | ||||||||
Fund shares redeemed | 11,683 | – | ||||||
Accrued Liabilities: | ||||||||
Investment adviser fees | 47,495 | – | ||||||
Fund services fees | 8,154 | 6,211 | ||||||
Other expenses | 30,671 | 22,419 | ||||||
Total Liabilities | 98,003 | 28,630 | ||||||
NET ASSETS | $ | 40,489,682 | $ | 3,538,722 | ||||
COMPONENTS OF NET ASSETS | ||||||||
Paid-in capital | $ | 40,428,639 | $ | 3,437,709 | ||||
Distributable earnings | 61,043 | 101,013 | ||||||
NET ASSETS | $ | 40,489,682 | $ | 3,538,722 | ||||
SHARES OF BENEFICIAL INTEREST AT NO PAR VALUE (UNLIMITED SHARES AUTHORIZED) | ||||||||
Institutional Shares | 3,660,337 | 367,757 | ||||||
Investor Shares | 314,106 | 93,537 | ||||||
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE | ||||||||
Institutional Shares (based on net assets of $37,331,374 and $2,823,752, respectively) | $ | 10.20 | $ | 7.68 | ||||
Investor Shares (based on net assets of $3,158,308 and $714,970, respectively) | $ | 10.05 | $ | 7.64 |
See Notes to Financial Statements.
ABR FUNDS
STATEMENTS OF OPERATIONS
YEAR ENDED JULY 31, 2019
ABR Dynamic Blend Equity & Volatility Fund |
ABR Dynamic Short Volatility Fund |
|||||||
INVESTMENT INCOME | ||||||||
Interest income | $ | 245,552 | $ | 73,400 | ||||
Total Investment Income | 245,552 | 73,400 | ||||||
EXPENSES | ||||||||
Investment adviser fees | 621,276 | 104,395 | ||||||
Fund services fees | 83,747 | 59,653 | ||||||
Transfer agent fees: | ||||||||
Institutional Shares | 21,470 | 21,470 | ||||||
Investor Shares | 21,470 | 21,470 | ||||||
Distribution fees: | ||||||||
Investor Shares | 8,450 | 3,419 | ||||||
Custodian fees | 5,004 | 5,384 | ||||||
Registration fees: | ||||||||
Institutional Shares | 18,550 | 12,016 | ||||||
Investor Shares | 17,210 | 12,013 | ||||||
Professional fees | 27,702 | 26,386 | ||||||
Trustees' fees and expenses | 4,830 | 2,274 | ||||||
Offering costs | – | 3,233 | ||||||
Brokerage fees | 6,516 | 5,916 | ||||||
Other expenses | 67,872 | 22,211 | ||||||
Total Expenses | 904,097 | 299,840 | ||||||
Fees waived and expenses reimbursed | (185,614 | ) | (192,026 | ) | ||||
Net Expenses | 718,483 | 107,814 | ||||||
NET INVESTMENT LOSS | (472,931 | ) | (34,414 | ) | ||||
NET REALIZED AND UNREALIZED GAIN (LOSS) | ||||||||
Net realized gain (loss) on: | ||||||||
Investments | – | (58,929 | ) | |||||
Futures | (29,054 | ) | 192,438 | |||||
Net realized gain (loss) | (29,054 | ) | 133,509 | |||||
Net change in unrealized appreciation (depreciation) on: | ||||||||
Investments | (27,156 | ) | 114,030 | |||||
Futures | 590,199 | (92,955 | ) | |||||
Net change in unrealized appreciation (depreciation) | 563,043 | 21,075 | ||||||
NET REALIZED AND UNREALIZED GAIN | 533,989 | 154,584 | ||||||
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 61,058 | $ | 120,170 |
See Notes to Financial Statements.
ABR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
ABR Dynamic Blend Equity & Volatility Fund |
ABR Dynamic Short Volatility Fund |
|||||||||||||||
For the Years Ended July 31, | For the Year | October 2, 2017* | ||||||||||||||
2019 | 2018 | Ended July 31, 2019 |
through July 31, 2018 |
|||||||||||||
OPERATIONS | ||||||||||||||||
Net investment loss | $ | (472,931 | ) | $ | (339,055 | ) | $ | (34,414 | ) | $ | (17,472 | ) | ||||
Net realized gain (loss) | (29,054 | ) | 1,648,851 | 133,509 | 353,374 | |||||||||||
Net change in unrealized appreciation (depreciation) | 563,043 | 183,022 | 21,075 | 92,755 | ||||||||||||
Increase in Net Assets Resulting from Operations | 61,058 | 1,492,818 | 120,170 | 428,657 | ||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||||||||||
Institutional Shares | (1,166,701 | ) | (614,001 | ) | (313,280 | ) | (3,686 | ) | ||||||||
Investor Shares | (139,157 | ) | (13,718 | ) | (151,806 | ) | (154 | ) | ||||||||
Total Distributions Paid | (1,305,858 | ) | (627,719 | )** | (465,086 | ) | (3,840 | )** | ||||||||
CAPITAL SHARE TRANSACTIONS | ||||||||||||||||
Sale of shares: | ||||||||||||||||
Institutional Shares | 26,732,916 | 13,258,596 | 1,870,260 | 2,938,401 | ||||||||||||
Investor Shares | 3,775,779 | 1,516,531 | 997,665 | 1,648,762 | ||||||||||||
Reinvestment of distributions: | ||||||||||||||||
Institutional Shares | 1,062,270 | 544,359 | 243,751 | 3,686 | ||||||||||||
Investor Shares | 139,157 | 13,718 | 151,806 | 154 | ||||||||||||
Redemption of shares: | ||||||||||||||||
Institutional Shares | (13,259,134 | ) | (6,212,030 | ) | (2,037,468 | ) | (239,841 | ) | ||||||||
Investor Shares | (1,989,725 | ) | (1,356,243 | ) | (2,009,491 | ) | (108,864 | ) | ||||||||
Increase (Decrease) in Net Assets from Capital Share Transactions | 16,461,263 | 7,764,931 | (783,477 | ) | 4,242,298 | |||||||||||
Increase (Decrease) in Net Assets | 15,216,463 | 8,630,030 | (1,128,393 | ) | 4,667,115 | |||||||||||
NET ASSETS | ||||||||||||||||
Beginning of Period | 25,273,219 | 16,643,189 | 4,667,115 | – | ||||||||||||
End of Period | $ | 40,489,682 | $ | 25,273,219 | $ | 3,538,722 | $ | 4,667,115 | ||||||||
SHARE TRANSACTIONS | ||||||||||||||||
Sale of shares: | ||||||||||||||||
Institutional Shares | 2,645,296 | 1,251,061 | 264,762 | 397,754 | ||||||||||||
Investor Shares | 362,151 | 140,404 | 139,729 | 240,688 | ||||||||||||
Reinvestment of distributions: | ||||||||||||||||
Institutional Shares | 110,194 | 53,108 | 42,539 | 345 | ||||||||||||
Investor Shares | 14,617 | 1,346 | 26,586 | 14 | ||||||||||||
Redemption of shares: | ||||||||||||||||
Institutional Shares | (1,333,224 | ) | (580,788 | ) | (312,390 | ) | (25,253 | ) | ||||||||
Investor Shares | (204,499 | ) | (129,746 | ) | (298,542 | ) | (14,938 | ) | ||||||||
Increase (Decrease) in Shares | 1,594,535 | 735,385 | (137,316 | ) | 598,610 |
* Commencement of operations.
** Distribution for July 31, 2018 was the result of net realized gains.
See Notes to Financial Statements.
ABR DYNAMIC BLEND EQUITY & VOLATILITY FUND
FINANCIAL HIGHLIGHTS
These financial highlights reflect selected data for a share outstanding throughout each period.
For the Years Ended July 31, | August 3, 2015 (a) | |||||||||||||||
2019 | 2018 | 2017 | Through July 31, 2016 |
|||||||||||||
INSTITUTIONAL SHARES | ||||||||||||||||
NET ASSET VALUE, Beginning of Period | $ | 10.63 | $ | 10.12 | $ | 9.67 | $ | 10.00 | ||||||||
INVESTMENT OPERATIONS | ||||||||||||||||
Net investment loss (b) | (0.13 | ) | (0.16 | ) | (0.02 | ) | (0.00 | )(c) | ||||||||
Net realized and unrealized gain (loss) | 0.08 | 1.00 | 0.59 | (0.26 | )(d) | |||||||||||
Total from Investment Operations | (0.05 | ) | 0.84 | 0.57 | (0.26 | ) | ||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM | ||||||||||||||||
Net investment income | – | – | – | (0.02 | ) | |||||||||||
Net realized gain | (0.38 | ) | (0.33 | ) | (0.12 | ) | (0.05 | ) | ||||||||
Total Distributions to Shareholders | (0.38 | ) | (0.33 | ) | (0.12 | ) | (0.07 | ) | ||||||||
NET ASSET VALUE, End of Period | $ | 10.20 | $ | 10.63 | $ | 10.12 | $ | 9.67 | ||||||||
TOTAL RETURN | (0.31 | )% | 8.45 | % | 5.99 | % | (2.56 | )%(e) | ||||||||
RATIOS/SUPPLEMENTARY DATA | ||||||||||||||||
Net Assets at End of Period (000s omitted) | $ | 37,331 | $ | 23,783 | $ | 15,335 | $ | 1,410 | ||||||||
Ratios to Average Net Assets: | ||||||||||||||||
Net investment loss | (1.31 | )% | (1.54 | )% | (0.21 | )%(f) | (0.03 | )%(f)(g) | ||||||||
Net expenses | 2.00 | % | 2.03 | % | 2.00 | %(f) | 2.00 | %(f)(g) | ||||||||
Brokerage fees | 0.02 | % | 0.03 | % | – | %(f) | – | %(f)(g) | ||||||||
Net expenses without brokerage fees | 1.98 | % | 2.00 | % | 2.00 | %(f) | 2.00 | %(f)(g) | ||||||||
Gross expenses (h) | 2.41 | % | 2.68 | % | 4.63 | %(f) | 21.68 | %(f)(g) | ||||||||
PORTFOLIO TURNOVER RATE | 0 | % | 0 | % | 467 | % | 739 | %(e) |
(a) | Commencement of operations. |
(b) | Calculated based on average shares outstanding during each period. |
(c) | Less than $0.01 per share. |
(d) | Per share amount does not accord with the amount reported in the Statement of Operations for the period ended July 31, 2016 due to the timing of Fund share sales and the amount per share of realized and unrealized gains and losses at such time. |
(e) | Not annualized. |
(f) | The ratios of expenses and net investment loss to average net assets do not reflect the Fund’s proportionate share of income and expenses of underlying investment companies in which the Fund invests. |
(g) | Annualized. |
(h) | Reflects the expense ratio excluding any waivers and/or reimbursements. |
See Notes to Financial Statements.
ABR DYNAMIC BLEND EQUITY & VOLATILITY FUND
FINANCIAL HIGHLIGHTS
These financial highlights reflect selected data for a share outstanding throughout each period.
For the Years Ended July 31, | August 14, 2015 (a) | |||||||||||||||
2019 | 2018 | 2017 | Through July 31, 2016 |
|||||||||||||
INVESTOR SHARES | ||||||||||||||||
NET ASSET VALUE, Beginning of Period | $ | 10.51 | $ | 10.08 | $ | 9.65 | $ | 9.99 | ||||||||
INVESTMENT OPERATIONS | ||||||||||||||||
Net investment loss (b) | (0.16 | ) | (0.19 | ) | (0.03 | ) | (0.01 | ) | ||||||||
Net realized and unrealized gain (loss) | 0.08 | 0.95 | 0.58 | (0.26 | )(c) | |||||||||||
Total from Investment Operations | (0.08 | ) | 0.76 | 0.55 | (0.27 | ) | ||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM | ||||||||||||||||
Net investment income | – | – | – | (0.02 | ) | |||||||||||
Net realized gain | (0.38 | ) | (0.33 | ) | (0.12 | ) | (0.05 | ) | ||||||||
Total Distributions to Shareholders | (0.38 | ) | (0.33 | ) | (0.12 | ) | (0.07 | ) | ||||||||
NET ASSET VALUE, End of Period | $ | 10.05 | $ | 10.51 | $ | 10.08 | $ | 9.65 | ||||||||
TOTAL RETURN | (0.61 | )% | 7.67 | % | 5.79 | % | (2.70 | )%(d) | ||||||||
RATIOS/SUPPLEMENTARY DATA | ||||||||||||||||
Net Assets at End of Period (000s omitted) | $ | 3,158 | $ | 1,491 | $ | 1,308 | $ | 260 | ||||||||
Ratios to Average Net Assets: | ||||||||||||||||
Net investment loss | (1.58 | )% | (1.80 | )% | (0.29 | )%(e) | (0.14 | )%(e)(f) | ||||||||
Net expenses | 2.25 | % | 2.28 | % | 2.25 | %(e) | 2.25 | %(e)(f) | ||||||||
Brokerage fees | 0.02 | % | 0.03 | % | – | %(e) | – | %(e)(f) | ||||||||
Net expenses without brokerage fees | 2.23 | % | 2.25 | % | 2.25 | %(e) | 2.25 | %(e)(f) | ||||||||
Gross expenses (g) | 3.81 | % | 6.41 | % | 13.83 | %(e) | 41.59 | %(e)(f) | ||||||||
PORTFOLIO TURNOVER RATE | 0 | % | 0 | % | 467 | % | 739 | %(d) |
(a) | Commencement of operations. |
(b) | Calculated based on average shares outstanding during each period. |
(c) | Per share amount does not accord with the amount reported in the Statement of Operations for the period ended July 31, 2016 due to the timing of Fund share sales and the amount per share of realized and unrealized gains and losses at such time. |
(d) | Not annualized. |
(e) | The ratios of expenses and net investment loss to average net assets do not reflect the Fund’s proportionate share of income and expenses of underlying investment companies in which the Fund invests. |
(f) | Annualized. |
(g) | Reflects the expense ratio excluding any waivers and/or reimbursements. |
See Notes to Financial Statements.
ABR DYNAMIC SHORT VOLATILITY FUND
FINANCIAL HIGHLIGHTS
These financial highlights reflect selected data for a share outstanding throughout each period.
For the Year Ended July 31, 2019 |
October 2, 2017 (a) Through July 31, 2018 |
|||||||
INSTITUTIONAL SHARES | ||||||||
NET ASSET VALUE, Beginning of Period | $ | 7.80 | $ | 10.00 | ||||
INVESTMENT OPERATIONS | ||||||||
Net investment loss (b) | (0.05 | ) | (0.05 | ) | ||||
Net realized and unrealized gain (loss) | 0.57 | (2.05 | )(c) | |||||
Total from Investment Operations | 0.52 | (2.10 | ) | |||||
DISTRIBUTIONS TO SHAREHOLDERS FROM | ||||||||
Net realized gain | (0.64 | ) | (0.10 | ) | ||||
Total Distributions to Shareholders | (0.64 | ) | (0.10 | ) | ||||
NET ASSET VALUE, End of Period | $ | 7.68 | $ | 7.80 | ||||
TOTAL RETURN | 9.46 | % | (21.24 | )%(d) | ||||
RATIOS/SUPPLEMENTARY DATA | ||||||||
Net Assets at End of Period (000s omitted) | $ | 2,824 | $ | 2,909 | ||||
Ratios to Average Net Assets: | ||||||||
Net investment loss | (0.74 | )% | (0.73 | )%(e) | ||||
Net expenses | 2.50 | % | 2.66 | %(e) | ||||
Brokerage fees | 0.14 | % | 0.16 | %(e) | ||||
Net expenses without brokerage fees | 2.36 | % | 2.50 | %(e) | ||||
Gross expenses (f) | 6.66 | % | 10.28 | %(e) | ||||
PORTFOLIO TURNOVER RATE | 963 | % | 748 | %(d) |
(a) | Commencement of operations. |
(b) | Calculated based on average shares outstanding during each period. |
(c) | Per share amount does not accord with the amount reported in the Statement of Operations for the period ended July 31, 2018 due to the timing of Fund share sales and the amount per share of realized and unrealized gains and losses at such time. |
(d) | Not annualized. |
(e) | Annualized. |
(f) | Reflects the expense ratio excluding any waivers and/or reimbursements. |
See Notes to Financial Statements.
ABR DYNAMIC SHORT VOLATILITY FUND
FINANCIAL HIGHLIGHTS
These financial highlights reflect selected data for a share outstanding throughout each period.
For the Year Ended July 31, 2019 |
October 11, 2017 (a) Through July 31, 2018 |
|||||||
INVESTOR SHARES | ||||||||
NET ASSET VALUE, Beginning of Period | $ | 7.79 | $ | 10.06 | ||||
INVESTMENT OPERATIONS | ||||||||
Net investment loss (b) | (0.07 | ) | (0.06 | ) | ||||
Net realized and unrealized gain (loss) | 0.56 | (2.11 | )(c) | |||||
Total from Investment Operations | 0.49 | (2.17 | ) | |||||
DISTRIBUTIONS TO SHAREHOLDERS FROM | ||||||||
Net realized gain | (0.64 | ) | (0.10 | ) | ||||
Total Distributions to Shareholders | (0.64 | ) | (0.10 | ) | ||||
NET ASSET VALUE, End of Period | $ | 7.64 | $ | 7.79 | ||||
TOTAL RETURN | 9.07 | % | (21.81 | )%(d) | ||||
RATIOS/SUPPLEMENTARY DATA | ||||||||
Net Assets at End of Period (000s omitted) | $ | 715 | $ | 1,758 | ||||
Ratios to Average Net Assets: | ||||||||
Net investment loss | (0.99 | )% | (0.95 | )%(e) | ||||
Net expenses | 2.75 | % | 2.91 | %(e) | ||||
Brokerage fees | 0.14 | % | 0.16 | %(e) | ||||
Net expenses without brokerage fees | 2.61 | % | 2.75 | %(e) | ||||
Gross expenses (f) | 8.24 | % | 9.55 | %(e) | ||||
PORTFOLIO TURNOVER RATE | 963 | % | 748 | %(d) |
(a) | Commencement of operations. |
(b) | Calculated based on average shares outstanding during each period. |
(c) | Per share amount does not accord with the amount reported in the Statement of Operations for the period ended July 31, 2018 due to the timing of Fund share sales and the amount per share of realized and unrealized gains and losses at such time. |
(d) | Not annualized. |
(e) | Annualized. |
(f) | Reflects the expense ratio excluding any waivers and/or reimbursements. |
See Notes to Financial Statements.
ABR FUNDS
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2019
Note 1. Organization
ABR Dynamic Blend Equity & Volatility Fund and ABR Dynamic Short Volatility Fund (individually, a “Fund” and collectively, the “Funds”) are non-diversified portfolios of Forum Funds II (the “Trust”). The Trust is a Delaware statutory trust that is registered as an open-end, management investment company under the Investment Company Act of 1940, as amended (the “Act”). Under its Trust Instrument, the Trust is authorized to issue an unlimited number of each Fund’s shares of beneficial interest without par value. Each Fund currently offers two classes of shares: Institutional Shares and Investor Shares. Institutional Shares and Investor Shares commenced operations on August 3, 2015, and August 14, 2015, respectively, for the ABR Dynamic Blend Equity & Volatility Fund, and October 2, 2017 and October 11, 2017, respectively, for the ABR Dynamic Short Volatility Fund. The ABR Dynamic Blend Equity & Volatility Fund’s investment objective is to seek investment results that correspond generally to the performance, before the Fund’s fees and expenses, of a benchmark index that measures the investment returns of a dynamic ratio of large-capitalization stocks and the volatility of large-capitalization stocks. The ABR Dynamic Short Volatility Fund’s investment objective is to seek long-term capital appreciation.
Note 2. Summary of Significant Accounting Policies
The Funds are investment companies and follows accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services – Investment Companies.” These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of increases and decreases in net assets from operations during the fiscal year. Actual amounts could differ from those estimates. The following summarizes the significant accounting policies of each Fund:
Security Valuation – Securities are valued at market prices using the last quoted trade or official closing price from the principal exchange where the security is traded, as provided by independent pricing services on each Fund business day. In the absence of a last trade, securities are valued at the mean of the last bid and ask price provided by the pricing service. Debt securities may be valued at prices supplied by a fund’s pricing agent based on broker or dealer supplied valuations or matrix pricing, a method of valuing securities by reference to the value of other securities with similar characteristics such as rating, interest rate and maturity. Futures contracts are valued at the day’s settlement price on the exchange where the contract is traded. Shares of non-exchange traded open-end mutual funds are valued at net asset value (“NAV”). Short-term investments that mature in sixty days or less may be valued at amortized cost.
Each Fund values its investments at fair value pursuant to procedures adopted by the Trust’s Board of Trustees (the “Board”) if (1) market quotations are not readily available or (2) the Adviser, as defined in Note 4, believes that the values available are unreliable. The Trust’s Valuation Committee, as defined in each Fund’s registration statement, performs certain functions as they relate to the administration and oversight of each Fund’s valuation procedures. Under these procedures, the Valuation Committee convenes on a regular and ad hoc basis to review such investments and considers a number of factors, including valuation methodologies and significant unobservable inputs, when arriving at fair value.
The Valuation Committee may work with the Adviser to provide valuation inputs. In determining fair valuations, inputs may include market-based analytics that may consider related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant investment information. Adviser inputs may include an income-based approach in which the anticipated future cash flows of the investment are discounted in determining fair value. Discounts may also be applied based on the nature or duration of any restrictions on the disposition of the investments. The Valuation Committee performs regular reviews of valuation methodologies, key inputs and assumptions, disposition analysis and market activity.
Fair valuation is based on subjective factors and, as a result, the fair value price of an investment may differ from the security’s market price and may not be the price at which the asset may be sold. Fair valuation could result in a different NAV than a NAV determined by using market quotes.
GAAP has a three-tier fair value hierarchy. The basis of the tiers is dependent upon the various “inputs” used to determine the value of each Fund’s investments. These inputs are summarized in the three broad levels listed below:
Level 1 - Quoted prices in active markets for identical assets and liabilities.
ABR FUNDS
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2019
Level 2 - Prices determined using significant other observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Short-term securities with maturities of sixty days or less are valued at amortized cost, which approximates market value, and are categorized as Level 2 in the hierarchy. Municipal securities, long-term U.S. government obligations and corporate debt securities are valued in accordance with the evaluated price supplied by a pricing service and generally categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, warrants that do not trade on an exchange, securities valued at the mean between the last reported bid and ask quotation and international equity securities valued by an independent third party with adjustments for changes in value between the time of the securities’ respective local market closes and the close of the U.S. market.
Level 3 - Significant unobservable inputs (including each Fund’s own assumptions in determining the fair value of investments).
The aggregate value by input level, as of July 31, 2019, for each Fund’s investments is included in each Fund’s Schedule of Investments.
Security Transactions, Investment Income and Realized Gain and Loss – Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as possible after determining the existence of a dividend declaration after exercising reasonable due diligence. Income and capital gains on some foreign securities may be subject to foreign withholding taxes, which are accrued as applicable. Interest income is recorded on an accrual basis. Premium is amortized and discount is accreted using the effective interest method. Identified cost of investments sold is used to determine the gain and loss for both financial statement and federal income tax purposes.
Futures Contracts – Each Fund may purchase futures contracts to gain exposure to market changes, which may be more efficient or cost effective than actually buying the securities. A futures contract is an agreement between parties to buy or sell a security at a set price on a future date. Upon entering into such a contract, a fund is required to pledge to the broker an amount of cash, U.S. Government obligations or other high-quality debt securities equal to the minimum “initial margin” requirements of the exchange on which the futures contract is traded. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin” and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and value at the time it was closed. Risks of entering into futures contracts include the possibility that there may be an illiquid market and that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Notional amounts of each individual futures contract outstanding as of July 31, 2019, for each Fund, are disclosed in the Schedules of Investments.
Distributions to Shareholders – Each Fund declares any dividends from net investment income and pays them annually. Any net capital gains realized by the Funds are distributed at least annually. Distributions to shareholders are recorded on the ex-dividend date. Distributions are based on amounts calculated in accordance with applicable federal income tax regulations, which may differ from GAAP. These differences are due primarily to differing treatments of income and gain on various investment securities held by each Fund, timing differences and differing characterizations of distributions made by each Fund.
Federal Taxes – Each Fund intends to continue to qualify each year as a regulated investment company under Subchapter M of Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as amended (“Code”), and to distribute all of their taxable income to shareholders. In addition, by distributing in each calendar year substantially all of their net investment income and capital gains, if any, the Funds will not be subject to a federal excise tax. Therefore, no federal income or excise tax provision is required. Each Fund will file a U.S. federal income and excise tax return as required. Each Fund’s federal income tax returns are subject to examination by the Internal Revenue Service for a period of three fiscal years after they are filed. As of July 31, 2019, there are no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure.
Income and Expense Allocation – The Trust accounts separately for the assets, liabilities and operations of each of its investment portfolios. Expenses that are directly attributable to more than one investment portfolio are allocated among the respective investment portfolios in an equitable manner.
The Funds' class-specific expenses are charged to the operations of that class of shares. Income and expenses (other than expenses attributable to a specific class) and realized and unrealized gains or losses on investments are allocated to each class of shares based on the class’ respective net assets to the total net assets of each Fund.
ABR FUNDS
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2019
Commitments and Contingencies – In the normal course of business, each Fund enters into contracts that provide general indemnifications by each Fund to the counterparty to the contract. Each Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against each Fund and, therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote. Each Fund has determined that none of these arrangements requires disclosure on each Fund’s balance sheet.
Offering Costs – Offering costs for the ABR Dynamic Short Volatility Fund of $19,401 consisted of fees related to the mailing and printing of the initial prospectus, certain startup legal costs, and initial registration filings. Such costs are amortized over a twelve-month period beginning with the commencement of operations of the ABR Dynamic Short Volatility Fund.
Note 3. Cash – Concentration in Uninsured Account
For cash management purposes, each Fund may concentrate cash with each Fund’s custodian. This typically results in cash balances exceeding the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of July 31, 2019, the ABR Dynamic Blend Equity & Volatility Fund Fund had $8,387,941 at MUFG Union Bank, N.A. that exceeded the FDIC insurance limit.
Note 4. Fees and Expenses
Investment Adviser – ABR Dynamic Funds, LLC (the “Adviser”) is the investment adviser to the Funds. Pursuant to an investment advisory agreement, the Adviser receives an advisory fee, payable monthly, at an annual rate of 1.75% and 2.50% of the average daily net assets of the ABR Dynamic Blend Equity & Volatility Fund and ABR Dynamic Short Volatility Fund, respectively.
Distribution – Foreside Fund Services, LLC serves as each Fund’s distributor (the “Distributor”). The Funds have adopted a Distribution Plan (the “Plan”) in accordance with Rule 12b-1 of the Act. Under the Plan, each Fund may pay the Distributor and/or any other entity as authorized by the Board a fee of up to 0.25% of each Fund’s average daily net assets of Investor Shares for providing distribution and/ or shareholder services to the Funds. The Distributor is not affiliated with the Adviser or Atlantic Fund Administration, LLC, a wholly owned subsidiary of Apex US Holdings, LLC (d/b/a Apex Fund Services) (“Apex”) or their affiliates.
Other Service Providers – Apex provides fund accounting, fund administration, compliance and transfer agency services to each Fund. The fees related to these services are included in Fund services fees and Transfer agent fees within the Statements of Operations. Apex also provides certain shareholder report production and EDGAR conversion and filing services. Pursuant to an Apex services agreement, each Fund pays Apex customary fees for its services. Apex provides a Principal Executive Officer, a Principal Financial Officer, a Chief Compliance Officer and an Anti-Money Laundering Officer to each Fund, as well as certain additional compliance support functions.
Trustees and Officers – The Trust pays each Independent Trustee an annual fee of $16,000 ($21,000 for the Chairman) for service to the Trust. The Independent Trustees and Chairman may receive additional fees for special Board meetings. The Independent Trustees are also reimbursed for all reasonable out-of-pocket expenses incurred in connection with their duties as Trustees, including travel and related expenses incurred in attending Board meetings. The amount of Independent Trustees’ fees attributable to each Fund is disclosed in the Statements of Operations. Certain officers of the Trust are also officers or employees of the above named service providers, and during their terms of office received no compensation from each Fund.
Note 5. Expenses Reimbursed and Fees Waived
The Adviser has contractually agreed to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (excluding all taxes, interest, portfolio transaction expenses, proxy expenses and extraordinary expenses) to 2.00% for Institutional Shares and 2.25% for Investor Shares of the ABR Dynamic Blend Equity & Volatility Fund and 2.50% for Institutional Shares and 2.75% for Investor Shares of the ABR Dynamic Short Volatility Fund, through at least at least November 30, 2019. Other Fund service providers have voluntarily agreed to waive and reimburse a portion of their fees. These voluntary fee waivers and reimbursements may be reduced or eliminated at any time. For the year ended July 31, 2019, fees waived and expenses reimbursed were as follows:
Investment Adviser Fees Waived |
Investment Adviser Expenses Reimbursed |
Other Waivers | Total Fees Waived and Expenses Reimbursed |
|||||||||||||
ABR Dynamic Blend Equity & Volatility Fund | $ | 153,233 | $ | – | $ | 32,381 | $ | 185,614 | ||||||||
ABR Dynamic Short Volatility Fund | 104,395 | 60,069 | 27,562 | 192,026 |
ABR FUNDS
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2019
The Adviser may be reimbursed by each Fund for fees waived and expenses reimbursed by the Adviser pursuant to the Expense Cap if such payment is approved by the Board, made within three years of the fee waiver or expense reimbursement, and does not cause the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement to exceed the lesser of (i) the then-current expense cap, or (ii) the expense cap in place at the time the fees/expenses were waived/reimbursed. As of July 31, 2019, $476,544 and $298,145 is subject to recapture by the Adviser for the ABR Dynamic Blend Equity & Volatility Fund and ABR Dynamic Short Volatility Fund, respectively. Other Waivers are not eligible for recoupment.
Note 6. Security Transactions
The cost of purchases and proceeds from sales of investment securities (including maturities), other than short-term investments, during the year ended July 31, 2019, were as follows:
U.S. Government Obligations | ||||||||
Purchases | Sales | |||||||
ABR Dynamic Blend Equity & Volatility Fund | $ | – | $ | – | ||||
ABR Dynamic Short Volatility Fund | 20,455,210 | 21,422,717 |
Note 7. Summary of Derivative Activity
The volume of open derivative positions may vary on a daily basis as each Fund transacts derivative contracts in order to achieve the exposure desired by the Adviser. The total value of transactions for the year ended July 31, 2019, for any derivative type that was held is as follows:
ABR Dynamic Blend Equity & Volatility Fund |
ABR Dynamic Short Volatility Fund |
|||||||
Futures Contracts | $ | 448,733,807 | $ | 29,355,664 |
Each Fund’s use of derivatives during the year ended July 31, 2019, was limited to futures contracts.
Realized and unrealized gains and losses on derivatives contracts during the year ended July 31, 2019, by each Fund are recorded in the following locations on the Statement of Operations:
ABR Dynamic Blend Equity & Volatility Fund
Location: |
Equity Contracts |
|||
Net realized gain (loss) on: | ||||
Futures | $ | (29,054 | ) | |
Total net realized gain (loss) | $ | (29,054 | ) | |
Net change in unrealized appreciation (depreciation) on: | ||||
Futures | $ | 590,199 | ||
Total net change in unrealized appreciation (depreciation) | $ | 590,199 |
ABR Dynamic Short Volatility Fund
Location: | Equity Contracts |
|||
Net realized gain (loss) on: | ||||
Futures | $ | 192,438 | ||
Total net realized gain (loss) | $ | 192,438 | ||
Net change in unrealized appreciation (depreciation) on: | ||||
Futures | $ | (92,955 | ) | |
Total net change in unrealized appreciation (depreciation) | $ | (92,955 | ) |
ABR FUNDS
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2019
Note 8. Federal Income Tax
As of July 31, 2019, the cost of investments and components of net unrealized appreciation (depreciation) were as follows:
Tax Cost of Investments | Gross Unrealized Appreciation |
Gross Unrealized Depreciation |
Net Unrealized Appreciation (Depreciation) |
|||||||||||||
ABR Dynamic Blend Equity & Volatility Fund | $ | 26,556,915 | $ | – | $ | (27,156 | ) | $ | (27,156 | ) | ||||||
ABR Dynamic Short Volatility Fund | 2,630,841 | 104,691 | (220 | ) | 104,471 |
Distributions paid during the fiscal periods ended as noted were characterized for tax purposes as follows:
Ordinary Income | Long-Term Capital Gain | Total | ||||||||||
ABR Dynamic Blend Equity & Volatility Fund | ||||||||||||
2019 | $ | 373,673 | $ | 932,185 | $ | 1,305,858 | ||||||
2018 | 234,658 | 393,061 | 627,719 | |||||||||
ABR Dynamic Short Volatility Fund | ||||||||||||
2019 | 193,531 | 271,555 | 465,086 | |||||||||
2018 | 687 | 3,153 | 3,840 |
As of July 31, 2019, distributable earnings (accumulated loss) on a tax basis for the Funds were as follows:
Undistributed Long-Term Gain |
Capital and Other Losses |
Unrealized Appreciation (Depreciation) |
Total | |||||||||||||
ABR Dynamic Blend Equity & Volatility Fund | $ | 336,672 | $ | (248,473 | ) | $ | (27,156 | ) | $ | 61,043 | ||||||
ABR Dynamic Short Volatility Fund | 9,846 | (13,304 | ) | 104,471 | 101,013 |
The difference between components of distributable earnings on a tax basis and the amounts reflected in the Statements of Assets and Liabilities are primarily due to wash sales and futures mark-to-market.
For tax purposes, the current year late-year ordinary losses were $248,473 and $13,304 for the ABR Dynamic Blend Equity & Volatility Fund and ABR Dynamic Short Volatility Fund, respectively (realized during the period January 1, 2019 through July 31, 2019). These losses will be recognized for tax purposes on the first business day of each Fund’s next fiscal year, August 1, 2019.
On the Statements of Assets and Liabilities, as a result of permanent book to tax differences, certain amounts have been reclassified for the year ended July 31, 2019. The following reclassifications were the result of unused net operating losses and have no impact on the net assets of the Fund.
Distributable Earnings |
Paid-in-Capital | |||||||
ABR Dynamic Short Volatility Fund | $ | 21,112 | $ | (21,112 | ) |
Note 9. Subsequent Events
Subsequent events occurring after the date of this report through the date these financial statements were issued have been evaluated for potential impact, and each Fund has had no such events.
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
To the Board of Trustees of Forum Funds II and the Shareholders of
ABR Dynamic Blend Equity & Volatility Fund and ABR Dynamic Short Volatility Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of ABR Dynamic Blend Equity & Volatility Fund, a series of shares of beneficial interest in Forum Funds II, including the schedule of investments, as of July 31, 2019, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights as noted in the table below, and the related notes. We have also audited the accompanying statement of assets and liabilities of ABR Dynamic Short Volatility Fund, a series of shares of beneficial interest in Forum Funds II (collectively, the “Funds”), including the schedule of investments, as of July 31, 2019, and the related statement of operations for the year then ended, the statements of changes in net assets for the year then ended and for the period October 2, 2017 (commencement of operations) through July 31, 2018, and the financial highlights as noted in the table below, and the related notes. (All of these statements and notes referred to in the previous sentences are collectively referred to as the “financial statements”.) In our opinion, the financial statements present fairly, in all material respects, the financial position of the Funds as of July 31, 2019, and the results of their operations for the year then ended, the changes in their net assets for each of the years or periods in the two-year period then ended and their financial highlights as noted in the table below, in conformity with accounting principles generally accepted in the United States of America.
ABR Dynamic Blend Equity & Volatility Fund |
Institutional Shares: Financial highlights for each of the years in the three-year period ended July 31, 2019 and for the period from August 3, 2015 (commencement of operations) through July 31, 2016 Investor Shares: Financial highlights for each of the years in the three-year period ended July 31, 2019 and for the period from August 14, 2015 (commencement of operations) through July 31, 2016 |
|
ABR Dynamic Short Volatility Fund |
Institutional Shares: Financial highlights for the year ended July 31, 2019 and for the period from October 2, 2017 (commencement of operations) through July 31, 2018 Investor Shares: Financial highlights for the year ended July 31, 2019 and for the period from October 11, 2017 (commencement of operations) through July 31, 2018 |
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 law 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risk 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 July 31, 2019 by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. 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.
BBD, LLP
We have served as the auditor of one or more of the Funds in the Forum Funds II since 2013.
Philadelphia, Pennsylvania
September 27, 2019
ABR FUNDS
ADDITIONAL INFORMATION (Unaudited)
JULY 31, 2019
Investment Advisory Agreement Approval
At the June 14, 2019 Board meeting (the “June meeting”), the Board, including the Independent Trustees, met in person and considered the approval of the continuance of the investment advisory agreement between the Adviser and the Trust pertaining to the Funds (the “Advisory Agreement”). In preparation for the June meeting, the Board was presented with a range of information to assist in its deliberations. The Board requested and reviewed written responses from the Adviser to a letter circulated on the Board's behalf concerning the Adviser’s personnel, operations, financial condition, performance, compensation and services provided to the Fund by the Adviser. During its deliberations, the Board received an oral presentation from the Adviser and discussed the materials with the Adviser, independent legal counsel to the Independent Trustees (“Independent Legal Counsel”), and, as necessary, with the Trust's administrator, Apex Fund Services. The Independent Trustees also met in executive session with Independent Legal Counsel while deliberating.
At the June meeting, the Board reviewed, among other matters, the topics discussed below.
Nature, Extent & Quality of Services
Based on written materials received and the presentation from senior representatives of the Adviser regarding the personnel, operations, and financial condition of the Adviser, the Board considered the quality of services provided by the Adviser under the Advisory Agreement. In this regard, the Board considered information regarding the experience, qualifications and professional background of the portfolio managers and other personnel at the Adviser with principal responsibility for the Fund, as well as the investment philosophy and decision-making process of those professionals and the capability and integrity of the Adviser’s senior management and staff.
The Board considered also the adequacy of the Adviser’s resources and noted the Adviser’s representations that the firm is financially stable and has the operational capability and the necessary staffing and experience to continue providing quality investment advisory services to the Funds. Based on the presentation and the materials provided by the Adviser in connection with the Board’s consideration of the approval of the Advisory Agreement, and other relevant considerations, the Board concluded that, overall, it was satisfied with the nature, extent and quality of services provided to the Funds under the Advisory Agreement.
Performance
In connection with a presentation by the Adviser regarding its approach to managing the Funds, including the investment objective and strategy of each Fund, the Board reviewed the performance of the each Fund compared to their respective benchmarks and compared to independent peer groups of funds identified by Broadridge Financial Solutions, Inc. (“Broadridge”) believed to have characteristics similar to those of the Funds.
The Board observed that the ABR Dynamic Blend Equity & Volatility Fund underperformed the S&P 500 Index, the ABR Dynamic Blend Equity & Volatility Fund’s primary benchmark index, for the one- and three-year periods ended March 31, 2019, and for the period since the ABR Dynamic Blend Equity & Volatility Fund’s inception on August 3, 2015. The Board noted the Adviser’s representation that the primary benchmark index is a broad-based securities market index that is not believed to provide the most representative comparison of the ABR Dynamic Blend Equity & Volatility Fund’s performance due to the unique nature of the ABR Dynamic Blend Equity & Volatility Fund’s investment strategy. At the Adviser’s request, the Board considered the ABR Dynamic Blend Equity & Volatility Fund’s performance against that of the CBOE Eurekahedge Long Volatility Hedge Fund Index (the “Comparable Index”), which was believed by the Adviser to serve as a more representative comparative benchmark for the ABR Dynamic Blend Equity & Volatility Fund because the constituents of the Comparable Index employ investment strategies that take a net long view on implied volatility with a goal of positive absolute return, similar to the ABR Dynamic Blend Equity & Volatility Fund. The Board observed that the ABR Dynamic Blend Equity & Volatility Fund outperformed the Comparable Index for the one- and three-year periods ended March 31, 2019.
The Board also observed that the ABR Dynamic Blend Equity & Volatility Fund underperformed the median of its Broadridge peers for the one- and three-year periods ended March 31, 2019. The Board noted the Adviser’s representation that the unique nature of the ABR Dynamic Blend Equity & Volatility Fund’s investment strategy resulted in a limited universe of peer funds and that the peer funds identified by Broadridge were not believed to provide the most representative comparison due to the peer funds’ low correlation to the holdings in the ABR Dynamic Blend Equity & Volatility Fund’s portfolio and the differences in the peer funds’ approaches to managing volatility in the investment strategies employed. At the request of the Adviser, the Board compared the performance of the ABR Dynamic Blend Equity & Volatility Fund to a group of funds identified by the Adviser as having characteristics more closely aligned to those of the ABR Dynamic Blend Equity & Volatility Fund (the “Long Volatility Comparable Peers”). The Board observed that the ABR Dynamic Blend Equity & Volatility Fund underperformed the Long Volatility Comparable Peers for the one- and three-
ABR FUNDS
ADDITIONAL INFORMATION (Unaudited)
JULY 31, 2019
year periods ended March 31, 2019, but that the performance of the ABR Dynamic Blend Equity & Volatility Fund more closely aligned with the performance of the Long Volatility Comparable Peers than the performance of the Broadridge peers. The Board also noted the Adviser’s representation that the ABR Dynamic Blend Equity & Volatility Fund performed in line with the Adviser’s expectations during the periods of heightened market volatility in the first quarter of 2018, which demonstrated the effectiveness of the ABR Dynamic Blend Equity & Volatility Fund’s investment strategy during market volatility.
The Board observed that the ABR Dynamic Short Volatility Fund outperformed the Citigroup 3-Month U.S. T-Bill Index, the ABR Dynamic Short Volatility Fund’s primary benchmark index, for the one-year period ended March 31, 2019, and underperformed the primary benchmark for the period since the ABR Dynamic Short Volatility Fund’s inception on October 2, 2017. The Board noted the Adviser’s representation that the ABR Dynamic Short Volatility Fund’s underperformance over the period since the ABR Dynamic Short Volatility Fund’s inception was largely a result of the historic market volatility during the first quarter of 2018, which had a disproportionately negative impact on the ABR Dynamic Short Volatility Fund’s performance over longer periods. The Board further noted the Adviser’s representation that the primary benchmark index was not believed to provide the most representative comparison of the ABR Dynamic Short Volatility Fund’s performance due to the unique nature of the ABR Dynamic Short Volatility Fund’s investment strategy. At the Adviser’s request, the Board considered the ABR Dynamic Short Volatility Fund’s performance against that of the CBOE Eurekahedge Short Volatility Index (the “Comparable Index”), which was believed by the Adviser to serve as a more representative comparative benchmark for the ABR Dynamic Short Volatility Fund because the constituents of the Comparable Index employ investment strategies that take a net short view on implied volatility with a goal of positive absolute return, similar to the ABR Dynamic Short Volatility Fund. The Board observed that the ABR Dynamic Short Volatility Fund outperformed the Comparable Index for the one-year period ended March 31, 2019.
The Board also observed that the ABR Dynamic Short Volatility Fund outperformed the median of its Broadridge peers for the one-year period ended March 31, 2019; however, the Board noted that the unique nature of the investment strategy employed for the ABR Dynamic Short Volatility Fund resulted in a very limited universe of peer funds such that the Broadridge peers did not provide a particularly meaningful comparison. At the request of the Adviser, the Board compared the performance of the ABR Dynamic Short Volatility Fund to a group of funds identified by the Adviser as having characteristics more closely aligned to those of the ABR Dynamic Short Volatility Fund (the “Short Volatility Comparable Peers”). The Board observed that the ABR Dynamic Short Volatility Fund performed favorably relative to the Short Volatility Comparable Peers, noting that most of the Short Volatility Comparable Peers had recently been liquidated due to large losses stemming from the February 2018 market volatility, which the ABR Dynamic Short Volatility Fund was able to mitigate, in part, due to the dynamic rebalancing component in the ABR Dynamic Short Volatility Fund’s investment strategy. The Board also noted the Adviser’s representation that the ABR Dynamic Short Volatility Fund performed in line with the Adviser’s expectations during the periods of heightened market volatility in the first quarter of 2018, which demonstrated the effectiveness of the ABR Dynamic Short Volatility Fund’s investment strategy during market volatility.
Based on the foregoing and other relevant considerations, the Board concluded that the Adviser’s management of the Funds could benefit the Funds and their shareholders.
Compensation
The Board evaluated the Adviser’s compensation for providing advisory services to the Funds and analyzed comparative information on actual advisory fee rates and actual total expense ratios of the Funds’ respective Broadridge peer groups and Comparable Peers. The Board noted that the actual advisory fee rate and total expense ratio for the ABR Dynamic Blend Equity & Volatility Fund were each higher than the median of its Broadridge peer group and were less than the median of the Long Volatility Comparable Peers. The Board noted that the actual advisory fee rate for the ABR Dynamic Short Volatility Fund was less than the median of its Broadridge peers and the total expense ratio for the ABR Dynamic Short Volatility Fund was higher than the median of its Broadridge peers. The Board noted that the actual advisory fee rate and total expense ratio for the ABR Dynamic Short Volatility Fund were each higher than the average of the Short Volatility Comparable Peers. The Board noted also the Adviser’s representation that the contractual and actual advisory fee rates and total expense ratios of the Funds were believed to be within a reasonable range of the Funds’ Comparable Peers in light of the Adviser’s anticipated profit margin and services provided by the Adviser. Finally, the Board noted that the Adviser had imposed contractual expense caps, which required the Adviser to waive its advisory fees as necessary to ensure that each Fund’s expenses did not exceed the contractual cap, and that the Adviser was currently waiving all or a portion of its advisory fees for each Fund. Based on the foregoing, and other relevant considerations, the Board concluded that the Adviser’s advisory fee rate charged to each Fund was reasonable.
ABR FUNDS
ADDITIONAL INFORMATION (Unaudited)
JULY 31, 2019
Cost of Services and Profitability
The Board considered information provided by the Adviser regarding the costs of services and its profitability with respect to the Funds. In this regard, the Board considered the Adviser’s resources devoted to the Funds in the aggregate, as well as the Adviser’s discussion of the aggregate costs and profitability of its mutual fund activities. The Board noted the Adviser’s representation that it continued to waive its advisory fee as necessary to ensure each Fund’s expenses did not exceed the contractual expense cap. Based on these and other applicable considerations, the Board concluded that the Adviser’s profits attributable to management of the Funds did not appear unreasonably high in light of the nature, extent and quality of the services provided by the Adviser.
Economies of Scale
The Board considered whether the Funds would benefit from any economies of scale. In this respect, the Board noted that the Adviser did not have breakpoints in its advisory fee, and the Board further noted the Adviser’s discussions in this regard. Based on the foregoing information and other applicable considerations, the Board concluded that economies of scale were not a material factor in approving the Advisory Agreement with respect to the Funds.
Other Benefits
The Board noted the Adviser’s representation that, aside from its contractual advisory fees, it does not benefit in a material way from its relationship with the Funds. Based on the foregoing representation and other applicable considerations, the Board concluded that other benefits received by the Adviser from its relationship with the Funds were not a material factor in approving the continuation of the Advisory Agreement.
Conclusion
The Board did not identify any single factor as being of paramount importance, and different Trustees may have given different weight to different factors. The Board reviewed a memorandum from Fund/Trustee Counsel discussing the legal standards applicable to its consideration of the Advisory Agreement. Based on its review, including consideration of each of the factors referenced above, the Board determined, in the exercise of its reasonable business judgment, that the advisory arrangement, as outlined in the Advisory Agreement, was fair and reasonable in light of the services performed or to be performed, expenses incurred or to be incurred and such other matters as the Board considered relevant.
Proxy Voting Information
A description of the policies and procedures that each Fund uses to determine how to vote proxies relating to securities held in each Fund’s portfolio is available, without charge and upon request, by calling (855) 422-4518 and on the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. Each Fund’s proxy voting record for the most recent twelve-month period ended June 30 is available, without charge and upon request, by calling (855) 422-4518 and on the SEC’s website at www.sec.gov.
Availability of Quarterly Portfolio Schedules
Each Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These filings are available, without charge and upon request on the SEC’s website at www.sec.gov or may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.
Shareholder Expense Example
As a shareholder of the Funds, you incur ongoing costs, including management fees, distribution and/or service (12b-1) fees (for Investor Shares only) and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2019 through July 31, 2019.
ABR FUNDS
ADDITIONAL INFORMATION (Unaudited)
JULY 31, 2019
Actual Expenses – The first line of 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 entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes – The second line of the table below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in each Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
Beginning Account Value February 1, 2019 |
Ending Account Value July 31, 2019 |
Expenses Paid During Period* |
Annualized Expense Ratio* |
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ABR Dynamic Blend Equity & Volatility Fund | ||||||||||||||||
Institutional Shares | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,069.18 | $ | 10.26 | 2.00 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,014.88 | $ | 9.99 | 2.00 | % | ||||||||
Investor Shares | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,068.01 | $ | 11.54 | 2.25 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,013.64 | $ | 11.23 | 2.25 | % | ||||||||
ABR Dynamic Short Volatility Fund | ||||||||||||||||
Institutional Shares | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,280.00 | $ | 14.13 | 2.50 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,012.40 | $ | 12.47 | 2.50 | % | ||||||||
Investor Shares | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,277.59 | $ | 15.53 | 2.75 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,011.16 | $ | 13.71 | 2.75 | % |
* | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (181) divided by 365 to reflect the half-year period. |
Federal Tax Status of Dividends Declared during the Fiscal Year
For federal income tax purposes, dividends from short-term capital gains are classified as ordinary income. The Funds designate 100.00% of the income dividends as short-term capital gain dividends exempt from U.S. tax for foreign shareholders (QSD).
Pursuant to Section 852(b)(3) of the Internal Revenue Code, ABR Dynamic Blend Equity & Volatility Fund and ABR Dynamic Short Volatility Fund designated $932,185 and $271,555, as long-term capital gain dividends, respectively.
Trustees and Officers of the Trust
The Board is responsible for oversight of the management of the Trust’s business affairs and of the exercise of all the Trust’s powers except those reserved for the shareholders. The following table provides information about each Trustee and certain officers of the Trust. Each Trustee and officer holds office until the person resigns, is removed, or is replaced. Unless otherwise noted, the persons have held their principal occupations for more than five years. The address for all Trustees and officers is Three Canal Plaza, Suite 600, Portland, Maine 04101. Each Fund’s Statement of Additional Information includes additional information about the Trustees and is available, without charge and upon request, by calling (855) 422-4518.
ABR FUNDS
ADDITIONAL INFORMATION (Unaudited)
JULY 31, 2019
Name and Year of Birth |
Position with the Trust |
Length of Time Served |
Principal Occupation(s) During Past Five Years |
Number of Series in Fund Complex Overseen By Trustee |
Other Directorships Held By Trustee During Past Five Years |
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Independent Trustees | ||||||||||
David Tucker Born: 1958 |
Chairman of the Board; Trustee; Chairman, Nominating Committee and Qualified Legal Compliance Committee | Since 2013 | Director, Blue Sky Experience (a charitable endeavor), since 2008; Senior Vice President & General Counsel, American Century Companies (an investment management firm), 1998-2008. | 2 | Trustee, Forum Funds; Trustee, U.S. Global Investors Funds. | |||||
Mark D. Moyer Born: 1959 |
Trustee; Chairman Audit Committee | Since 2013 | Chief Financial Officer, Freedom House (a NGO advocating political freedom and democracy), since 2017; independent consultant providing interim CFO services, principally to non-profit organizations, 2011-2017; Chief Financial Officer, Institute of International Education (a NGO administering international educational exchange programs), 2008-2011; Chief Financial Officer and Chief Restructuring Officer, Ziff Davis Media Inc. (an integrated media company), 2005-2008; Adjunct Professor of Accounting, Fairfield University from 2009-2012. | 2 | Trustee, Forum Funds; Trustee, U.S. Global Investors Funds. | |||||
Jennifer Brown-Strabley Born: 1964 |
Trustee | Since 2013 | Principal, Portland Global Advisors (a registered investment adviser), 1996-2010. | 2 | Trustee, Forum Funds; Trustee, U.S. Global Investors Funds. | |||||
Interested Trustees(1) | ||||||||||
Stacey E. Hong Born: 1966 |
Trustee | Since 2013 | Director, Apex Fund Services since 2019; President, Atlantic Fund Services 2008-2019. | 2 | Trustee, Forum Funds, Trustee, U.S. Global Investors Funds. | |||||
Jessica Chase Born: 1970 |
Trustee | Since 2019 | Director, Apex Fund Services since 2019; Senior Vice President, Atlantic Fund Services 2008-2019. | 2 | Trustee, Forum Funds, Trustee, U.S. Global Investors Funds. |
(1) | Stacey E. Hong and Jessica Chase are currently treated as interested persons of the Trust, as defined in the 1940 Act, due to their affiliation with Apex Fund Services. Apex Fund Services is a wholly owned subsidiary of Apex US Holdings LLC. Jessica Chase is also currently an interested person of the Trust, as defined in the 1940 Act, due to her role as President of the Trust. |
ABR FUNDS
ADDITIONAL INFORMATION (Unaudited)
JULY 31, 2019
Name and Year of Birth |
Position with the Trust |
Length of Time Served |
Principal Occupation(s) During Past 5 Years |
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Officers | ||||||
Jessica Chase Born: 1970 |
President; Principal Executive Officer | Since 2015 | Director, Apex Fund Services since 2019; Senior Vice President, Atlantic Fund Services 2008-2019. | |||
Karen Shaw Born: 1972 |
Treasurer; Principal Financial Officer | Since 2013 | Senior Vice President, Apex Fund Services since 2019; Senior Vice President, Atlantic Fund Services 2008-2019. | |||
Zachary Tackett Born: 1988 |
Vice President; Secretary and Anti- Money Laundering Compliance Officer | Since 2014 | Counsel, Apex Fund Services since 2019; Counsel, Atlantic Fund Services 2014-2019. | |||
Timothy Bowden Born: 1969 |
Vice President | Since 2013 | Manager, Apex Fund Services since 2019; Manager, Atlantic Fund Services 2008-2019. | |||
Michael J. McKeen Born: 1971 |
Vice President | Since 2013 | Senior Vice President, Apex Fund Services since 2019; Senior Vice President, Atlantic Fund Services 2008-2019. | |||
Geoffrey Ney Born: 1975 |
Vice President | Since 2013 | Manager, Apex Fund Services since 2019; Manager, Atlantic Fund Services 2013-2019. | |||
Todd Proulx Born: 1978 |
Vice President | Since 2013 | Manager, Apex Fund Services since 2019; Manager, Atlantic Fund Services 2013-2019. | |||
Carlyn Edgar Born: 1963 |
Chief Compliance Officer | Since 2013 | Senior Vice President, Apex Fund Services since 2019; Senior Vice President, Atlantic Fund Services 2008-2019. |
ABR FUNDS
FOR MORE INFORMATION:
P.O. Box 588
Portland, ME 04112
(855) 422-4518 (toll free)
INVESTMENT ADVISER
ABR Dynamic Funds, LLC
48 Wall Street
New York, NY 10005
TRANSFER AGENT
Apex Fund Services
P.O. Box 588
Portland, ME 04112
www.apexfundservices.com
DISTRIBUTOR
Foreside Fund Services, LLC
Three Canal Plaza, Suite 100
Portland, Maine 04101
www.foreside.com
This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus, which includes information regarding the Funds’ risks, objectives, fees and expenses, experience of its management, and other information. For the most recent month-end performance and current fund prices, please call (855) 422-4518.
227-ANR-0719
(a)
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As of the end of the period covered by this report, Forum Funds II (the “Registrant”) has adopted a code of ethics, which applies to its Principal Executive Officer and Principal
Financial Officer (the “Code of Ethics”).
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(c)
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There have been no amendments to the Registrant's Code of Ethics during the period covered by this report.
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(a)
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Included as part of report to shareholders under Item 1.
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(b)
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Not applicable.
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By:
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/s/ Jessica Chase
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Jessica Chase, Principal Executive Officer
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Date:
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September 25, 2019
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By:
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/s/ Jessica Chase
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Jessica Chase, Principal Executive Officer
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||
Date:
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September 25, 2019
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By:
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/s/ Karen Shaw
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Karen Shaw, Principal Financial Officer
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Date:
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September 25, 2019
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(1)
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Each Trustee and Officer;
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(2)
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(i) Any officer, director or general partner of the Adviser; and (ii) any officer, director or general partner of the
Distributor, where the Distributor in the ordinary course of business either (a) makes, participates in or obtains information regarding the Fund’s purchase or sale of Covered Investments or (b) fills a function related to the making of any
recommendation regarding the Fund’s purchase or sale of Covered Investments;
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(3)
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Any employee of the Fund or Adviser, or of any company in a control relationship with the Fund or Adviser, whose regular
functions (i) relate to the making of any recommendation regarding the Fund’s purchase or sale of Covered Investments or (ii) include making, participating in or obtaining information regarding the purchase or sale of Covered Investments by
a Fund; and
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(4)
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Any natural person in a control relationship with a Fund or Adviser who obtains information concerning recommendations made to
a Fund about the purchase or sale of a Covered Investment.
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(1)
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Direct obligations of the United States Government;
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(2)
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Bankers’ acceptances and bank certificates of deposit;
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(3)
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Commercial paper and debt instruments with a maturity at issuance of less than 366 days and that are rated in one of the two
highest rating categories by a nationally recognized statistical rating organization;
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(4)
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Repurchase agreements covering any of the foregoing; and
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(5)
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Shares of registered open-end investment companies other than Funds.
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(1)
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Any Covered Investment which, within the most recent 15 days (a) is or has been held by the Trust or (b) is being or has been
considered by the Trust or an Adviser for purchase by a Fund; and
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(2)
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Any option to purchase or sell, and any investment convertible into or exchangeable for, a Covered Investment.
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(1)
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Employ any device, scheme or artifice to defraud a Fund;
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(2)
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Make to a Fund or to the Adviser or Distributor any untrue statement of a material fact or omit to state to any of the
foregoing a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;
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(3)
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Engage in any act, practice, or course of business that operates or would operate as a fraud or deceit upon a Fund; or
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(4)
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Engage in any manipulative practice with respect to a Fund.
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(1)
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Inducing or causing a Fund to take action, or to fail to take action, for the benefit of a person either in addition to or
other than the Fund;
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(2)
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Accepting anything other than of de minimus value or any other preferential treatment from any entity with which a Fund does
business;
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(3)
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Using knowledge of the operating activities or portfolio transactions of a Fund for their benefit or the benefit of any
person other than the Fund;
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(4)
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Violating the anti-fraud provisions of the securities laws; or
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(5)
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Except for the Independent Trustees, serving on the boards of directors of publicly traded companies, absent prior
authorization based upon a determination by the Review Officer that the board service would be consistent with the interests of the Fund and its shareholders.
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(1)
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The Access Person’s direct or indirect beneficial ownership of any securities of the subject issuer or in the investment;
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(2)
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Any position with such issuer or its Affiliated Persons; and
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(3)
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Any present or proposed business relationship between such issuer or its Affiliated Persons, on the one hand, and such person
or any party in which such person has a significant interest, on the other hand.
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(1)
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Provide full access to the Trust to any and all records and documents which the Trust considers relevant to any investment
transactions or other matters subject to the Code;
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(2)
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Cooperate with the Trust in investigating any investment transactions or other matter subject to the Code;
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(3)
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Provide the Trust with an explanation (in writing if requested) of the facts and circumstances surrounding any investment
transaction or other matter subject to the Code; and
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(4)
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Notify the Review Officer in writing, from time to time, of any incident of noncompliance with the Code by any Access Person.
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(1)
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That during the 15-day period immediately preceding or immediately following the transaction in a Covered Investment by the
Independent Trustee, the Covered Investment is or was purchased or sold or was being considered for purchase or sale by a Fund or that Fund’s Adviser, or
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(2)
|
The Independent Trustee possessed material non-public information about the operating activities of a Fund or the Trust
preceding a transaction in Shares of the Fund.
|
(1)
|
The title, number of shares and principal amount of each Covered Investment in which the Access Person had any direct or
indirect beneficial ownership when the person became an Access Person;
|
(2)
|
The name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for
the direct or indirect benefit of the Access Person as of the date the person became an Access Person; and
|
(3)
|
The date that the report is submitted by the Access Person.
|
(1)
|
With respect to any transaction during the quarter in a Covered Investment in which the Access Person had, or by reason of
such transaction acquired, any direct or indirect beneficial ownership:
|
(a)
|
The date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the
principal amount of each Covered Investment involved;
|
(b)
|
The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);
|
(c)
|
The price of the Covered Investment at which the transaction was effected; the name of the broker, dealer or bank with or
through which the transaction was effected; and
|
(d)
|
The date that the report is submitted by the Access Person.
|
(2)
|
With respect to any account established by the Access Person in which any investment were held during the quarter for the
direct or indirect benefit of the Access Person:
|
(a)
|
The name of the broker, dealer or bank with whom the Access Person established the account;
|
(b)
|
The date the account was established; and
|
(c)
|
The date that the report is submitted by the Access Person.
|
(1)
|
The title, number of shares and principal amount of each Covered Investment in which the Access Person had any direct or
indirect beneficial ownership;
|
(2)
|
The name of any broker, dealer or bank with whom the Access Person maintains an account in which any securities are held for
the direct or indirect benefit of the Access Person; and
|
(3)
|
The date that the report is submitted by the Access Person.
|
(1)
|
Service on the board of directors or governing board of a publicly traded entity;
|
(2)
|
The receipt of any non-nominal gifts from persons or entities who have or are seeking business relationships with the Trust or
a Fund;
|
(3)
|
The receipt of any entertainment from any company with which the Trust has current or prospective business dealings unless
such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety;
|
(4)
|
Any ownership interest (material to the officer) in, or any consulting or employment relationship with, any entities doing
business with the Trust, other than its service providers and their respective Affiliated Persons; and
|
(5)
|
Any direct or indirect financial interest in commissions, transaction charges or spreads paid by the Trust for effecting
portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer’s employment with the Trust’s service providers or their respective Affiliated Persons.
|
(1)
|
Become familiar with the disclosure requirements generally applicable to the Trust;
|
(2)
|
Not knowingly misrepresent, or cause others to misrepresent, facts about the Trust to others;
|
(3)
|
To the extent appropriate, consult with other Officers and employees of the Trust and its service providers;
|
(4)
|
Promote compliance with the standards and restrictions imposed by applicable laws; and
|
(5)
|
Not retaliate against any other Covered Officer or any employee of the Fund or its Service Providers for reporting potential
violations of by the Fund, its Service Providers, or another Covered Officer that are made in good faith.
|
(1)
|
Review all investment transaction and holdings reports or shall maintain the names of persons responsible for reviewing these
reports;
|
(2)
|
Identify all Access Persons who are required to make these reports, maintain and periodically update a list of such Access
Persons, and promptly inform each Access Person of the requirements of this Code;
|
(3)
|
Compare, on a quarterly basis, all Access Persons’ transactions in Covered Investments with each Fund’s completed portfolio
transactions and in the case of transactions in Shares, with operating activities of the Fund, to determine whether a Code violation may have occurred;
|
(4)
|
Maintain a signed acknowledgment by each person who is then an Access Person;
|
(5)
|
Identify persons who are Investment Personnel, maintain and periodically update a list of such Investment Personnel, and
inform those persons of their requirements to obtain prior written approval from the Review Officer prior to directly or indirectly acquiring ownership of a security in any private placement or initial public offering; and
|
(6)
|
Annually prepare a written report to the Trustees that
|
(a)
|
Describes any issues under this Code since the last report to the Trustees, including information about material violations of
the Code and sanctions imposed in response to the material violations; and
|
(b)
|
Confirm that the Trust has adopted procedures reasonably necessary to prevent Access Persons from violating this Code.
|
(1)
|
A copy of this and any other code of ethics adopted by the Trust, Adviser or Affiliated Distributor, which has been in effect
at any time during the previous five (5) years, in an easily accessible place;
|
(2)
|
A record of any violation of this Code, and of any action taken as a result of such violation, in an easily accessible place
for at least five (5) years after the end of the fiscal year in which the violation occurs;
|
(3)
|
A copy of each report made by an Access Person as required by this Code for at least five (5) years after the end of the
fiscal year in which the report is made, the first two (2) years in an easily accessible place;
|
(4)
|
A list of all persons who are, or at any time within the past five years have been, required to make reports or who were
responsible for reviewing these reports pursuant to any code of ethics, in an easily accessible place;
|
(5)
|
A copy of each written report and certification required pursuant to Section 7(E) of this Code for at least five (5) years
after the end of the fiscal year in which it is made, the first two (2) years in an easily accessible place; and
|
(6)
|
A record of any decision, and the reasons supporting the decision, approving the acquisition by Investment Personnel of
securities under Section 6(B)(5) of this Code, for at least five (5) years after the end of the fiscal year in which the approval is granted.
|
Date:
|
September 25, 2019
|
/s/ Jessica Chase
|
||
Jessica Chase
|
||||
Principal Executive Officer
|
Date:
|
September 25, 2019
|
/s/ Karen Shaw
|
||
Karen Shaw
|
||||
Principal Financial Officer
|
1.
|
The Report containing the financial statements fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust as
of, and for, the periods presented in the Report.
|
Dated:
|
September 25, 2019
|
|
/s/ Jessica Chase
|
||
Jessica Chase
|
||
Principal Executive Officer
|
||
Dated:
|
September 25, 2019
|
|
/s/ Karen Shaw
|
||
Karen Shaw
|
||
Principal Financial Officer
|
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