Please note that this letter and other documents are in draft form, and in no way reflect the Trust’s or Fund management’s final intent with respect to the filing discussed herein.
U.S. BANCORP FUND SERVICES, LLC
615 East Michigan Street
Milwaukee, WI 53202
[…], 2016
VIA EDGAR TRANSMISSION
Ms. Elizabeth Bentzinger
United States Securities and Exchange Commission
Division of Investment Management
100 F Street, N.E.
Washington, D.C. 20549
RE: | TRUST FOR PROFESSIONAL MANAGERS (the “TRUST”) |
Securities Act Registration No: 333-62298
Investment Company Registration No: 811-10401
Snow Capital Focused Value Fund (S000053721)
Snow Capital Hedged Equity Fund (S000053722)
Snow Capital Market Plus Fund (S000053723)
Snow Capital Inflation Advantaged Equities Fund (S000053724)
Snow Capital Mid Cap Value Fund (S000053725)
Dear Ms. Bentzinger:
This amendment is being filed under Rule 485(b) under the Securities Act of 1933, as amended (the “1933 Act”), in response to your oral comments of March 29, 2016 regarding the Trust’s Post-Effective Amendment (“PEA”) No. 542 to its registration statement, filed on behalf of its series, Snow Capital Focused Value Fund, Snow Capital Hedged Equity Fund, Snow Capital Market Plus Fund, Snow Capital Inflation Advantaged Equities Fund and Snow Capital Mid Cap Value Fund (the “Funds”). PEA No. 542 was filed pursuant to Rule 485(a) under the 1933 Act on Form N‑1A on February 12, 2016, for the purpose of adding the Funds as new series of the Trust. The Trust is filing this PEA No. […] under Rule 485(b) with the revisions discussed herein in response to your comments, to make certain non-material changes as appropriate and to file exhibits to the registration statement.
For your convenience in reviewing the Trust’s response, your comment is included in bold typeface immediately followed by the Trust’s response.
In addition, in connection with this filing, the Trust hereby makes the following representations:
1. | The Trust acknowledges that in connection with the comments made by the Staff of the SEC, the Staff has not passed on the accuracy or adequacy of the disclosure made herein, and the Trust and its management are solely responsible for the content of such disclosure; |
2. | The Trust acknowledges that the Staff’s comments, and changes in disclosure in response to the Staff’s comments, do not foreclose the SEC or other regulatory body from the opportunity to seek enforcement or take other action with respect to the disclosure made herein; and |
3. | The Trust represents that neither it nor its management will assert the Staff’s comments or changes in disclosure in response to the Staff’s comments as an affirmative defense in any action or proceeding by the SEC or any person. |
* * * * * *
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The Trust’s responses to your comments are as follows:
General Comments (All Funds)
1. | Staff Comment: Please explain supplementally why the Trust is not submitting a N-14 filing. |
Response: Form N-14 provides for registration of securities under the Securities Act of 1933, as amended (the “Securities Act”), to be issued in: (i) a transaction of the type specified in Rule 145(a) under the Securities Act (“Rule 145(a) transaction”); (ii) a merger in which a vote or consent of the security holders of the company being acquired is not required under applicable state law; (iii) an exchange offer for securities of the issuer or another person; (iv) a public reoffering or resale of any securities acquired in an offering registered on Form N-14; or (v) two or more of the transactions listed in items (i) through (iv). The reorganization described in the registration statement (the “Reorganization”) will not be a transaction described in items (ii) through (iv). It is the Trust’s view that the Reorganization is not a Rule 145(a) transaction.
Rule 145 under the Securities Act generally requires the registration of securities issued in connection with certain reclassifications, mergers, consolidations and transfers of assets. However, the preliminary note to Rule 145 explains that these transactions are subject to the registration requirements of the Securities Act only when a plan or agreement is submitted to shareholders under which they must “elect, on the basis of what is in substance a new investment decision, whether to accept a new or different security in exchange for their existing security.”
In the Trust’s view, shareholders of the Predecessor Funds, each a series of 360 Funds, are not being asked to make a new investment decision in connection with their consideration of whether to approve the Reorganization. If the Reorganization is approved, continuity of shareholder investment expectations will be maintained because the investment objectives of each Predecessor Fund and each corresponding Fund, each a series of the Trust, are identical and the principal investment strategies and risks of the Predecessor Funds will be substantially similar to those of the Funds.
The portfolio managers currently providing investment advice to their respective Predecessor Funds will be responsible for providing investment advice to the Funds after the Reorganization is consummated. Further, the Reorganization does not involve the combination of existing funds with existing assets, shareholders and operating histories. Rather, prior to the Reorganization, the Funds will have had no assets or operating history and simply will serve as a shell into which the Predecessor Funds will be reorganized and all of their assets transferred. Upon consummation of the Reorganization, the Funds will assume the accounting and performance history of the Predecessor Funds. At the effective time of the Reorganization, the number of shares to be issued by the Funds in connection with the Reorganization will be the same as the number of shares owned by Predecessor Fund shareholders and the net asset value of each Fund’s shares will be the same as the net asset value of each corresponding Predecessor Fund’s shares. Thus, shares of each Fund will represent a continuation of the same investment and economic interests that are presently represented by shares of each corresponding Predecessor Fund.
A condition precedent to the Reorganization will be receipt by 360 Funds (of which the Predecessor Funds are a series) and the Trust (of which the Funds are series) of an opinion of counsel to the effect that the Reorganization will not result in the recognition of any gain or loss for federal income tax purposes to the Predecessor Funds, the Funds or the shareholders of the Predecessor Funds.
Even if the Reorganization were treated as a Rule 145(a) transaction, we believe the exception provided by Rule 145(a)(2) is available. Rule 145(a)(2) provides that a merger, consolidation or similar plan or acquisition solely involving a change in domicile is not subject to the registration requirements of the Securities Act. The “change in domicile” exception to the registration requirements of Rule 145 was carved out to preserve the “no-sale” theory previously embodied in Rule 133 for reorganizations effected to change an issuer’s domicile. Over the years, the scope of the “change in domicile” exception contained in Rule 145(a)(2) has grown significantly through liberal construction of the Rule by the SEC’s staff, recognizing that various changes in a fund’s management and policies might be made incident to a reorganization. These interpretations recognize that no sound policy reason dictates anything more than a proxy statement, in such reorganizations, as a means of informing shareholders and gaining their approval as required by applicable state or federal law. For example, the SEC staff has taken “no action” positions in a number
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of cases involving corporate reorganizations without any change in domicile.1 In some instances, these corporate reorganizations have been accompanied by unrelated changes in fund structure or manner of investment.2 The policies underlying Rule 145(a)(2) have been applied broadly by the SEC staff to exempt from registration transactions in which there is a change in domicile and it is accompanied by “incidental” changes in legal form, structure and voting arrangements.3 Rule 145(a)(2) has also been interpreted to permit changes in domicile with accompanying management and structural changes that go beyond those “incidental” to a change in domicile.4 Finally, the SEC staff’s interpretive release on Rule 145 indicates that the exemption contained in Rule 145(a)(2) would be applicable to a change in domicile effected by way of a merger in which the surviving corporation would have a broader corporate purpose provision, where a new class of preferred stock was to be authorized, and where preemptive and cumulative voting rights were to be eliminated by the merger.5
In the Trust’s view, the Reorganization is merely a combination of the types of changes addressed in the Release and in previous no-action requests. All material information necessary to make an informed judgment about the Reorganization will be contained in a written consent action to be furnished to shareholders of each Predecessor Fund in soliciting their approval. Such information will include, among other things, a description of the Trust, a discussion of the effect of the Reorganization on the investment strategies and fee structures of the Predecessor Funds and a description of Snow Capital Management L.P. (the “Adviser”) in its continued role as investment adviser to the Funds, post-Reorganization. With the exception of the Snow Capital Focused Value Fund, a series of 360 Funds, the Adviser is the sole shareholder of each of the Predecessor Funds and will approve the Reorganization via Written Consent. With respect to the Snow Capital Focused Value Fund, a series of 360 Funds, the Adviser owns a majority of the Fund’s outstanding voting securities and will approve the Reorganization via Written Consent; as a result, an information statement on Schedule 14C will be furnished to all Fund shareholders other than the Adviser in connection with the Reorganization. Finally, it is important to note that this post-effective amendment relating to the offering of the Funds’ shares has been filed with the SEC and the Reorganization will not be consummated before this registration statement is effective.
2. | Staff Comment: In compliance with Rule 313 of Regulation S-T, please update the series and class identifiers for the Trust in EDGAR to reflect the series and class identifiers and ticker symbols for each class of the Funds. |
Response: The Trust responds by noting that the series and class identifiers and ticker symbol for each class of the Funds have been added to EDGAR.
1 See, e.g., Lazard Freres Institutional Fund, Inc. (pub avail. Feb. 26, 1987) (reorganization of three Maryland corporations into newly-created shell series of two existing Maryland corporations); Massachusetts Financial Development Fund, Inc. (pub. avail. Jan. 10, 1985) (reorganization of five Massachusetts business corporations into Massachusetts business trusts).
2 See, e.g., Scudder Common Stock Fund, Inc. (pub. avail. Oct. 10, 1984) (reorganizations from two Massachusetts corporations to Massachusetts business trusts with proposed changes in investment objectives and fundamental investment restrictions).
3 See, e.g., Frank Russell Investment Company (pub. avail. Dec. 3, 1984) (reorganization of Maryland corporation into Massachusetts business trust); John Hancock Bond Fund, Inc. (pub. avail. Nov. 29, 1984) (reorganization of Maryland and Delaware corporations into Massachusetts business trusts); United Gold Shares, Inc. (pub. avail. Sept. 17, 1984) (reorganization of Texas corporation with one series of common shares and Maryland corporation with five series of common shares into Massachusetts business trust with eight series of shares, including two newly-created series of shares).
4 See, e.g., PEMCO (pub. avail. May 31, 1988) (reorganization of New York limited partnership into Maryland corporation where the directors of the successor corporation were different persons from the general partners of the predecessor partnership, new investment policies, restrictions and operations were introduced, and the custodian and independent certified accountants were changed); Aetna Variable Fund, Inc. (pub. avail. Jan 23, 1984) (reorganization of three Maryland corporations into Massachusetts business trusts where changes would be made to “standardize” the advisory, distribution, custodian and transfer agent agreements among the three new entities, and the new advisory agreements would effect changes requiring the payment of certain expenses by the new trusts rather than by the adviser, resulting in an 10 to 15 basis point increase in fund expenses).
5 See Illustration II(b) in Securities Act Release No. 5463 (Feb. 28, 1974).
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3. | Staff Comment: Please clarify all instances in which “Fund” pertains to a “Predecessor Fund” (for example, the discussion of each Fund’s portfolio turnover rate). |
Response: The Trust responds by making the requested revisions, where applicable, throughout the Prospectus and Statement of Additional Information (“SAI”).
Prospectus – Summary Section (All Funds)
4. | Staff Comment: Please revise the parenthetical following the caption “Maximum Deferred Sales Charge (Load)” to state “as a percentage of the lower of the original purchase price or the net asset value at redemption of purchases of $1,000,000 or more that are redeemed within 12 months of purchase.” |
Response: The Trust responds by making the requested revision.
5. | Staff Comment: Please revise the last sentence of Footnote 1 in the “Fees and Expenses of the Fund” table to confirm that the Adviser may only recoup management fee reductions and/or expense payments so long as such payments do not exceed the lesser of: (1) the expense cap in place at the time of the waiver; or (2) the expense cap in place at the time of recoupment. Please also confirm this limitation on recoupment is reflected in the Funds’ operating expense limitation agreement. |
Response: The Trust responds by revising the last sentence of Footnote 1 to read as follows (changes shown in underline):
“The Adviser may request recoupment of previously waived fees and paid expenses from the Fund for three years from the date such fees and expenses were waived or paid, subject to the operating expense limited agreement, if such reimbursements will not cause the Fund to exceed the lesser of: (1) the expense limitation in place at the time of the waiver; or (2) the expense limitation in place at the time of the recoupment.”
The Trust also supplementally confirms that under the terms of the Funds’ operating expense limitation agreement, in conjunction with the Funds’ investment advisory agreement, the Adviser is permitted to request reimbursement of management fee reductions and/or expense payments only to the extent such reimbursements will not exceed the lesser of: (1) the expense limitation in place at the time of the waiver; or (2) the expense limitation in place at the time of the recoupment.
6. | Staff Comment: The expense example presentation in the Summary Section for each Fund shows only an example where shares are redeemed at the end of each period. Please also include an expense example for instances where shares are not redeemed. |
Response: The Trust responds by explaining that the current example applies whether the shareholder holds or redeems his or her shares at the end of the specified periods. While shareholders who redeem Class A shares within 12 months of purchase may incur a 0.50% deferred sales charge, the deferred sales charge only applies to purchases of $1,000,000 or more. Because the example contemplates a $10,000 investment, the deferred sales charge was not a factor in the calculation of shareholders’ costs at the end of the specified periods. As a result, the Trust respectfully declines to include an expense example for instances where Class A shares are not redeemed.
7. | Staff Comment: With respect to fixed income securities, please disclose the criteria (e.g. maturity, duration, credit quality) each Fund may use to select such securities. If duration is discussed, please provide a definition for duration and example showing 1% effects on a Fund’s assets at a given duration. Please also disclose the lowest credit rating. Please also disclose if the Funds may invest in bonds in default as a principal strategy. |
Response: The Trust responds by revising the applicable disclosure for each Fund to clarify that each Fund may invest in fixed income securities of varying duration, maturity and credit quality, including debt securities that have been rated below investment grade by a nationally recognized statistical ratings organization (“NRSRO”), commonly referred to as “junk bonds” or “high yield bonds”. With respect to duration, the Trust responds by adding the following disclosure to each Fund’s principal investment strategies disclosure:
“Note on Duration. Duration is a measure of a fixed income security’s price sensitivity to changes in interest rates. Duration takes into account a security’s cash flows over time, including the possibility that a security might be prepaid by the issuer or redeemed by the holder prior to its stated maturity date. In contrast, maturity measures only the time until final payment is due. The duration of the Fund’s portfolio is expressed in years and measures the portfolio’s change in value in relation to changes in interest rates. For example, if interest rates decline by 1%, the market value of a portfolio with a duration of three years would rise by approximately 3%. Conversely, if interest rates increase by 1%, the market value of the portfolio would decline by approximately 3%. The Fund’s target duration with respect to each investment will vary from investment to investment and may change over time.”
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The Trust further responds by revising the applicable disclosure for each Fund that “the Fund will not purchase debt securities rated as in default by an NRSRO.”
8. | Staff Comment: With respect to each Fund’s investments in preferred stocks, please add risk disclosure to the Summary Section and Item 9 to indicate that preferred stocks are callable and not guaranteed. |
Response: The Trust responds by adding the following disclosure to each Summary Section:
· | Preferred Stock Risk. Preferred stock represents an interest in a company that generally entitles the holder to receive, in preference to the holders of common stock, dividends and a fixed share of the proceeds resulting from a liquidation of the company. Preferred stocks are generally subordinated in right of payment to all debt obligations and creditors of the issuer. Preferred stocks are subject to the risk that the dividend on the stock may be changed or discontinued by the issuer, and that participation in the growth of an issuer may be limited. Preferred stocks are also subject to the risk that the issuer may “call in,” or redeem, the stock at a specific price after a certain date, as reflected in its prospectus. |
and adding the following disclosure to Item 9:
Preferred Stock Risk. The Funds may invest in preferred stock. A preferred stock is a blend of the characteristics of a bond and common stock. It can offer the higher yield of a bond and has priority over common stock in equity ownership, but does not have the seniority of a bond and, unlike common stock, its participation in the issuer’s growth may be limited. Preferred stock has preference over common stock in the receipt of dividends and in any residual assets after payment to creditors should the issuer be dissolved. Although the dividend on a preferred stock may be set at a fixed annual rate, in some circumstances it can be changed or discontinued by the issuer.
9. | Staff Comment: The prospectus indicates the Funds may invest in convertible securities as a principal investment strategy. Please supplementally confirm whether the Funds currently invest in or intend to invest in contingent convertible bonds. If the Funds do or intend to invest in contingent convertible bonds, consider whether any additional disclosure is appropriate. The type of disclosure will depend on the type and extent of the investments and the characteristics and credit quality of the investments. |
Response: The Trust responds supplementally by indicating that the Funds do not currently invest in contingent convertible bonds as a principal investment strategy and do not intend to investment in contingent convertible bonds as a principal investment strategy. Accordingly, the Trust has not added any additional disclosure.
10. | Staff Comment: Please consider expanding the “Management Risk” disclosure to address that a Fund may not meet its investment objective based on the Adviser’s success or failure to implement its strategies. |
Response: The Trust responds by revising “Management Risk” disclosure for each Fund as follows (changes shown in underline):
· | Management Risk. The Fund relies on the Adviser’s ability to pursue the Fund’s investment objective, and may not meet its investment objective based on the Adviser’s success or failure to implement the Fund’s investment strategies. The Adviser’s investment strategies for the Fund may not result in an increase in the value of your investment or in overall performance equal to other investments. |
11. | Staff Comment: Please revise “Newer Fund Risk” to address the Funds’ reorganization and consider expanding the disclosure to state that a Fund may not meet its investment objective. |
Response: The Trust responds by revising “Newer Fund Risk” disclosure for each Fund as follows (changes shown in underline):
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· | Newer Fund Risk. The Predecessor Fund was formed in 2013 and reorganized into the Fund in 2016. Prior to 2013, the Adviser had not previously managed an investment company registered under the Investment Company Act of 1940 in the investment style of the Fund. Accordingly, investors in the Fund bear the risk that the Fund may not be successful in implementing its investment strategy or grow to and maintain an economically viable Fund asset size. |
12. | Staff Comment: Please clarify that each Portfolio Manager’s service with a Fund is as of the inception date of the applicable “Predecessor Fund”. |
Response: The Trust responds by making the requested revisions.
Prospectus – Summary Section – Snow Capital Inflation Advantaged Equities Fund and Snow Capital Mid Cap Value Fund – Principal Investment Strategies
13. | Staff Comment: With respect to each Fund’s policy of investing at least 80% of the Fund’s net assets in a manner suggested by the Fund’s name, please revise the disclosure to clarify the Fund’s 80% policy includes the amount of any borrowings for investment purposes. |
Response: The Trust responds by adding the parenthetical “(plus the amount of any borrowings for investment purposes)” to each Fund’s 80% investment policy.
Prospectus – Summary Section – Snow Capital Focused Value Fund – Principal Investment Strategies
14. | Staff Comment: The Fund includes “Junk Bonds Risk” as a principal risk, but does not discuss junk bonds as a principal investment strategy. Please either remove the “Junk Bonds Risk” or add disclosure to the discussion of the Fund’s Principal Investment Strategies. |
Response: As noted in the Trust’s response to Staff Comment 7, above, the Trust has included a discussion of junk bonds in the Fund’s principal investment strategies disclosure.
Prospectus – Summary Section – Snow Capital Focused Value Fund – Principal Risks
15. | Staff Comment: Please explain why “Management Style Risk” is not included in the Principal Risks for the Snow Capital Focused Value Fund, as the Fund intends to invest in value-oriented stocks. |
Response: The Trust responds by adding the following risk disclosure:
· | Management Style Risk. The Fund intends to invest in value-oriented stocks (stocks that the Adviser believes are undervalued), and the Fund’s performance may at times be better or worse than that of similar funds with other focuses or that have a broader investment style. |
Prospectus – Summary Section – Snow Capital Focused Value Fund – Performance
16. | Staff Comment: The Fund lists the Russell 1000® Value Total Return Index as its primary index. However, Form N-1A requires the Fund’s performance be measured against a “broad-based securities market index” that reflects the performance of the entire stock market. Please include a broad-based securities market index as the primary benchmark index. If the Fund intends to include the Russell 1000® Value Total Return Index as an additional index, please also include a description of the additional index in the narrative preceding the bar chart. |
Response: The Trust respectfully declines to use an alternative index to the Russell 1000® Value Total Return Index as its primary benchmark index, as the Trust believes the Russell 1000® Value Total Return Index meets the definition of an “appropriate broad-based securities market index” as defined in Instruction 5 to Item 27(b)(7)6 of Form N-1A.
6 Instruction 5 to Item 27(b)(7) defines an “appropriate broad-based securities market index” as “one that is administered by an organization that is not an affiliated person of the Fund, its investment adviser, or principal underwriter, unless the index is widely recognized and used.”
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Prospectus – Summary Section – Snow Capital Focused Value Fund, Snow Capital Hedged Equity Fund and Snow Capital Inflation Advantaged Equities Fund – Principal Risks
17. | Staff Comment: Please consider expanding “Credit Risk” disclosure to address the sensitivity of debt securities to default and changes in credit ratings. |
Response: The Trust responds by revising the disclosure as follows (changes shown in underline):
· | Credit Risk. An issuer of debt securities may not make timely payments of principal and interest and may default entirely in its obligations. A decrease in the issuer’s credit rating may lower the value of debt securities. |
Prospectus – Summary Section – Snow Capital Hedged Equity Fund and Snow Capital Inflation Advantaged Equities Fund – Fees and Expense of the Fund Table
18. | Staff Comment: Please confirm that dividends and interest expense on short positions will be included in the Fees and Expenses of the Fund table. |
Response: The Trust responds by confirming supplementally the “Fees and Expenses of the Fund” table will include dividends and interest expense on short positions, as applicable.
Prospectus – Summary Section – Snow Capital Hedged Equity Fund – Principal Investment Strategies
19. | Staff Comment: With respect to the Fund’s equity strategy, please revise the disclosure to briefly describe in Plain English the mechanics of a long/short equity strategy and how it will achieve the Fund’s investment objective. In addition, please clarify whether the Fund’s long/short equity strategy is the same as a “hedge” strategy. |
Response: The Trust responds by revising the applicable disclosure as follows:
“The Fund’s principal investment strategy is to invest at least 80% of long net assets in equity securities, including common and preferred stocks, convertible securities and shares of other investment companies and exchange-traded funds (“ETFs”) that invest in equity securities. The Fund will hold long (purchase) securities the Adviser believes will outperform the market, and will sell short securities expected to underperform the market. The Adviser also intends to use short equity positions on individual equity securities and ETFs to reduce the portfolio’s overall market exposure. The Fund may invest in equity and/or fixed income securities of companies of any size. The Adviser selects stocks for the Fund using a bottom-up approach that seeks to identify companies that the Adviser believes are undervalued and are likely to experience a rebound in earnings due to an event or series of events that creates a price to earnings expansion resulting in higher stock price valuations. The Fund’s portfolio typically consists of 30 to 50 equity securities that are weighted according to the Adviser’s projected return expectations. In addition to domestic securities, the Fund may also directly or indirectly invest in foreign equity, including investments in emerging markets.”
The Trust further responds by supplementally confirming the Adviser considers the Fund’s strategy to be a “hedge” strategy and not a purely long/short strategy.
20. | Staff Comment: Page 7 of the prospectus states “the Fund may invest up to 20% of its long net assets in debt securities of varying maturities and durations”. Please add a plain English definition of duration. |
Response: Please see the Trust’s response to Staff Comment 7 above.
Prospectus – Summary Section – Snow Capital Hedged Equity Fund – Principal Risks
21. | Staff Comment: The Fund includes “High Portfolio Turnover Risk” as a principal risk of the Fund. If the Fund engages in active and frequent trading, please add applicable disclosure to the discussion of the Fund’s principal investment strategies or remove the risk disclosure. |
Response: The Trust responds by adding the following disclosure to the discussion of the Fund’s principal investment strategies:
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“The Fund is actively managed and may sell a holding when it no longer meets the Adviser’s expectations, no longer offers compelling relative value, shows deteriorating fundamentals, or falls short of the Adviser’s expectations. Trading securities frequently may lead to high portfolio turnover. Tax consequences are not a primary consideration in the Fund’s investment decisions.”
Prospectus – Summary Section – Snow Capital Hedged Equity Fund – Performance
22. | Staff Comment: The Average Annual Total Returns table includes returns for the S&P 500® Total Return Index and the HFRX Equity Hedge Index. As required by Instruction 2(a) to Item 4(b)(2)(iv) of Form N-1A, please add disclosure to the narrative explanation accompanying the table describing the additional benchmark index. |
Response: The Trust responds by moving the disclosure in footnote 1 to the Average Annual Total Returns table, which describes the HFRX Equity Hedge Index, to the narrative explanation immediately preceding the table.
Prospectus – Summary Section – Snow Capital Market Plus Fund – Principal Investment Strategies
23. | Staff Comment: The Fund states it will “invest approximately 80% of its net assets in equity securities of companies that are among the top 300 securities by weighting in the Russell 3000® Value Index.” Please briefly state the types of companies that comprise the Russell 3000® Value Index, and provide the market capitalization range of the Index. |
Response: The Trust responds by supplementally confirming it has removed the Snow Capital Market Plus Fund from the registration statement.
Prospectus – Summary Section – Snow Capital Inflation Advantaged Equities Fund – Principal Investment Strategies
24. | Staff Comment: Please disclose how the Fund’s investment strategy of investing primarily in equity securities supports the objective of “protection of investment principal”. |
Response: The Trust responds by revising the applicable disclosure as follows (changes shown in underline):
“Principal Investment Strategies. The investment objective of the Fund is long-term growth of capital and protection of investment principal. The Fund’s principal investment strategy is to invest primarily in equity securities, including common and preferred stocks, convertible securities and shares of other investment companies and exchange-traded funds (“ETFs”) that invest in equity securities. With a focus on long-term pricing power, sustainable gross margins, or competitive advantage through high barriers to entry, market share, or product offering, the companies in the Fund’s portfolio are expected to generate above-average returns during periods of inflation. Additionally, while fundamental valuation will be a key aspect of stock selection, the Fund’s portfolio will have a bias toward industries that have inflation-linked characteristics, such as energy and materials.”
Prospectus – Summary Section – Snow Capital Inflation Advantaged Equities Fund – Principal Investment Strategies
25. | Staff Comment: Please consider revising the Fund’s principal investment strategy to explain short sales and short equity positions using plain English. |
Response: The Trust responds by revising the applicable disclosure as follows (changes shown in underline):
“An important component of the Adviser’s investment process is a focus on inflation. The Adviser will consider companies that may prosper from rising prices as evidenced by growing revenues, expanding margins, or other drivers of income. Inflation may be driven by macroeconomic factors, but it can also be company or sector specific, allowing for a broad range of investment candidates in any economic environment. The Adviser will utilize short equity positions in individual equity securities and ETFs to reduce the portfolio’s overall market exposure. Selling securities short involves selling securities the seller (e.g., the Fund) does not own (but has borrowed) in anticipation of a decline in the market price of such securities. The Fund will sell short securities the Adviser expects to underperform the market.”
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Prospectus – Summary Section – Snow Capital Mid Cap Value Fund – Principal Investment Strategies
26. | Staff Comment: The Fund notes it will invest in equity securities of companies within the market capitalizations range of the Russell Midcap® Value Total Return Index (“mid-cap securities”). Please disclose the market capitalizations ranges of such mid-cap companies. |
Response: The Trust responds by adding the following disclosure to the Fund’s principal investment strategies:
“As of May 31, 2016, the market capitalization range of companies in the Russell Midcap® Value Total Return Index was between $391 million and $31 billion.”
Prospectus – Summary Section – Snow Capital Mid Cap Value Fund – Principal Risks
27. | Staff Comment: Please remove “Management Style Risk” or add applicable disclosure to the discussion of the Fund’s principal investment strategies. |
Response: The Trust responds by adding the following disclosure to the Fund’s principal investment strategies discussion:
“The Adviser selects stocks for the Fund using a bottom-up approach that seeks to identify companies that the Adviser believes are undervalued and are likely to experience a rebound in earnings due to an event or series of events that creates a price to earnings expansion resulting in higher stock price valuations.”
28. | Staff Comment: Please remove “Large-Cap Company Risk” or add disclosure to the discussion of the Fund’s principal investment strategies. |
Response: The Trust responds by removing “Large-Cap Company Risk”.
Prospectus – Summary Section – Snow Capital Mid Cap Value Fund – Principal Risks
29. | Staff Comment: The Average Annual Total Returns table includes returns for the Russell Midcap Value Total Return Index and the Russell 2500® Value Total Return Index. As required by Instruction 2(a) to Item 4(b)(2)(iv) of Form N-1A, please add disclosure to the narrative explanation accompanying the table describing the additional benchmark index. |
Response: The Trust responds by moving the disclosure in footnote 1 to the Average Annual Total Returns table, which describes the Russell 2500® Value Total Return Index, to the narrative explanation immediately preceding the table.
Prospectus – Investment Strategies, Related Risks and Disclosure of Portfolio Holdings – Snow Capital Hedged Equity Fund
30. | Staff Comment: The investment objective of the Fund is different than that presented in the Summary Section. Revise the Fund’s investment objective to be consistent. |
Response: The Trust responds by revising the disclosure to confirm the investment objective for the Fund is long-term growth of capital and protection of investment principal with lower volatility than the U.S. equity market.
31. | Staff Comment: Please disclose that the Snow Capital Hedged Equity Fund may engage in active and frequent trading of portfolio securities to achieve its investment objective, and discuss the tax consequences that high portfolio turnover may have on the Fund, as required by Instruction 7 to Item 9(b) of Form N-1A. |
Response: The Trust responds by revising the principal investment strategies of the Fund as follows (changes shown in underline):
“The Adviser selects investments for the Fund using a bottom-up approach that seeks to identify companies that the Adviser believes are undervalued and are likely to experience a rebound in earnings due to an event or series of events that creates a price to earnings expansion that leads to higher stock price valuations. The Fund’s portfolio typically consists of 30 to 50 equity securities that are weighted according to the Adviser’s projected
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return expectations. In general, the Adviser may sell an investment when it reaches its target price, when the position grows too large, when the company’s financial position or outlook deteriorates, when an anticipated business catalyst for the investment does not materialize as expected, or to make room in the Fund for a more attractive investment. The Fund may engage in active and frequent trading of its portfolio securities to achieve its investment objective.”
The Trust further responds by directing the Staff to the Principal Risks of Investing in the Funds section, specifically “Turnover Risk,” which discusses the tax consequences a high portfolio turnover rate may have on the Hedged Equity Fund.
Prospectus – Investment Strategies, Related Risks and Disclosure of Portfolio Holdings – Snow Capital Market Plus Fund
32. | Staff Comment: The discussion of the Fund’s Principal Investment Strategies in the Summary Section states the Fund invests “approximately 80% of its net assets in equity securities,” whereas the Item 9 disclosure states the Fund will invest “at least 80% of its net assets in equity securities”. Please reconcile the disclosure. |
Response: The Trust responds by supplementally confirming it has removed the Snow Capital Market Plus Fund from the registration statement.
Prospectus – Investment Strategies, Related Risks and Disclosure of Portfolio Holdings – Snow Capital Inflation Advantaged Equities Fund
33. | Staff Comment: Please include in the Item 9 disclosure a discussion of the Fund’s strategy of using short equity positions, as referenced in the Summary Section. |
Response: The Trust responds by adding the following disclosure:
“The Adviser will utilize short equity positions in individual equity securities to reduce the portfolio’s overall market exposure. With a long position, the Fund purchases a security outright, while with a short position, a Fund sells a security that it has borrowed. When the Fund sells a security short, it borrows the security from a third party and sells it at the then-current market price. The Fund is then obligated to buy the security on a later date so that it can return the security to the lender. The Fund will either realize a profit or incur a loss from a short position, depending on whether the value of the underlying stock decreases or increases, respectively, between the time it is sold and when the Fund replaces the borrowed security.”
Prospectus – Investment Strategies, Related Risks and Disclosure of Portfolio Holdings – Snow Capital Mid Cap Value Fund
34. | Staff Comment: The disclosure states the Fund may invest up to 25% of its net assets in foreign equity securities, including investments in emerging markets. However, the Summary Section notes the Fund may invest up to 20% of its net assets in foreign equity securities. Please reconcile the disclosure to clarity whether the Fund may invest up to 20% or 25% of its net asset in foreign equity securities. |
Response: The Trust responds by revising the disclosure to clarify the Fund may invest up to 20% of its net assets directly or indirectly in foreign equity securities, including investments in emerging markets.
Prospectus – Principal Risks of Investing in the Funds
35. | Staff Comment: The “Interest Rate Risk” disclosure in each Fund’s Summary Section describes the effect of interest rates on stock prices. Please reconcile the Item 9 risk disclosure with the Summary Section. |
Response: The Trust responds by replacing the Item 9 risk disclosure with the following:
“Interest Rate Risk. Increases in interest rates typically lower the present value of a company’s future earnings stream. Accordingly, stock prices will generally decline when investors anticipate or experience rising interest rates.”
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36. | Staff Comment: The “Foreign Currency Risk” disclosure in each Fund’s Summary Section more broadly describes the risk associated with foreign currencies and is not limited to emerging market foreign currencies. Please reconcile the Item 9 risk disclosure with the Summary Section. |
Response: The Trust responds by revising the Item 9 risk disclosure as follows (changes shown in underline):
“Foreign Currency Risk. The value of an investment denominated in a foreign currency will decline in dollar terms if that currency weakens against the dollar. Additionally, certain countries may utilize formal or informal currency-exchange controls or “capital controls.” Such controls may also affect the value of the Fund’s holdings. Currencies of emerging markets countries are subject to significantly greater risks than currencies of developed countries, which may have an adverse effect on the value of securities of foreign companies traded on U.S. or foreign exchanges. For example, many emerging markets countries have experienced steady declines or sudden devaluations or increases of their currencies relative to the U.S. dollar, which may have adverse effects on companies’ cash flows, asset values and profits or losses, and may have adverse effects on the value of a Fund’s assets denominated in foreign currencies. Some emerging markets currencies may not be internationally traded or may be subject to strict controls by local governments, resulting in undervalued or overvalued currencies. Some governments have responded to such market fluctuation by restricting currency conversions, foreign investments or the repatriation of foreign investments. Future restrictive exchange controls could prevent or restrict the ability of an issuer in such market to make dividend or interest payments in the original currency of the obligation.”
37. | Staff Comment: The disclosure in Item 9 related to Options and Futures Risk indicates the risk factor is applicable to the Focused Value Fund and the Hedged Equity Fund. However, the Focused Value Fund does not discuss options as a principal strategy. Please revise the risk disclosure to clarify the Options and Futures Risk factor is applicable only to the Hedged Equity Fund or add disclosure to the discussion of the principal investment strategies of the Focused Value Fund. |
Response: The Trust responds by revising the Options and Futures Risk disclosure to clarify the risk factor is applicable to the Hedged Equity Fund only.
38. | Staff Comment: The disclosure in Item 9 related to Short Sales Risk indicates the risk factor is applicable to the Focused Value Fund and the Hedged Equity Fund. However, the Focused Value Fund does not discuss short sales as a principal strategy. Please revise the risk disclosure to clarify the Short Sales Risk factor is not applicable to the Focused Value Fund or add disclosure to the discussion of the principal investment strategies of the Focused Value Fund. Please also clarify that the Short Sales Risk factor is applicable to the Inflation Advantaged Equities Fund. |
Response: The Trust responds by revising the risk disclosure to clarify the Short Sales Risk factor is not applicable to the Focused Value Fund and is applicable to the Inflation Advantaged Equities Fund and Hedged Equity Fund.
39. | Staff Comment: The Staff notes the disclosure in the risk factor “Tax Risk” discusses potential tax consequences associated with call options, and the Prospectus indicates the risk factor is applicable to both the Hedged Equity Fund and the Focused Value Fund. However, the Focused Value Fund does not discuss options as a principal investment strategy. Please consider revising the disclosure to indicate the risk factor “Tax Risk” is applicable only to the Hedged Equity Fund or add applicable disclosure to the Focused Value Fund’s principal investment strategy. |
Response: The Trust responds by revising the risk disclosure to clarify the Tax Risk factor is not applicable to the Focused Value Fund and is applicable only to the Hedged Equities Fund.
40. | Staff Comment: The Staff notes the discussion of call option premiums at the end of the Principal Risks of Investing in the Funds section appears to apply to all of the Funds. Please consider clarifying the disclosure to indicate whether it applies all Funds and that the disclosure does not describe a principal risk of investing in the Funds. |
Response: The Trust responds by supplementally confirming the applicable disclosure is applicable to all Funds and does not describe a principal risk of investing in the Funds. Accordingly, and to avoid confusion, the relevant disclosure has been moved to the SAI.
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41. | Staff Comment: Please consider adding Management Style Risk disclosure to Item 9, as applicable. |
Response: The Trust responds by adding the following disclosure to Item 9:
“In addition to the Principal Risks noted above, the Hedged Equity Fund, the Focused Value Fund and the Mid Cap Value Fund are also subject to the following risk:
Management Style Risk. Each Fund intends to invest in value-oriented stocks (stocks that the Adviser believes are undervalued), and each Fund’s performance may at times be better or worse than that of similar funds with other focuses or that have a broader investment style. The ability of each Fund to meet its investment objective is directly related to the success of the Adviser’s investment process, and there is no guarantee that the Adviser’s judgments about the attractiveness, value and potential appreciation of a particular investment for the Funds will be correct or produce the desired results.”
Prospectus – Management of the Funds – The Adviser – Fund Expenses
42. | Staff Comment: Please consider revising the Fund Expenses disclosure to clarify that any recoupment by a Fund may not exceed the lesser of: (1) the expense cap in place at the time of the waiver; or (2) the expense cap in place at the time of recoupment. |
Response: The Trust responds by revising the applicable disclosure as follows (changes shown in underline):
“In addition, any such reimbursement from a Fund to the Adviser will be subject to the applicable limitation on Fund expenses, if such reimbursements will not cause the Fund to exceed the lesser of: (1) the expense limitation in place at the time of the waiver; or (2) the expense limitation in place at the time of the recoupment.”
Prospectus – Shareholder Information – Sales Charge Reductions and Waivers
43. | Staff Comment: With respect to the discussion of Contingent Deferred Sales Charge Waivers, the Prospectus notes “The sales charge is imposed on a lot by lot basis on the current NAV or initial purchase price, whichever is lower.” Please consider revising the disclosure to clarify what is meant “lot by lot basis”. |
Response: The Trust responds by revising the disclosure as follows (changes shown in underline):
“The sales charge is imposed on a lot by lot basis eligible shares using the current NAV or initial purchase price, whichever is lower.”
44. | Staff Comment: With respect to Contingent Deferred Sales Charge Waivers, please revise the bullet point list, as applicable, to disclose all circumstances in which the sales charge may be waived. |
Response: The Trust responds by revising the disclosure to clarify that the situations listed are the only circumstances under which deferred sales charges may be waived.
45. | Staff Comment: As required by Item 12(a)(5) of Form N-1A, please state whether the Funds make information related to deferred sales charges available free of charge on their website, and if not, disclose the reasons for not doing so. |
Response: The Trust responds by adding the following disclosure under the caption “Contingent Deferred Sales Charge Waivers:
“If you would like information about contingent deferred sales charge waivers, call your financial representative or contact the Funds at 877-SNOWFND (877-766-9363). Information about the Funds’ contingent deferred sales charges is available free of charge on the Funds’ website at www.snowfunds.com.”
Prospectus – Shareholder Information – How to Purchase Shares
46. | Staff Comment: Page 44 of the prospectus includes disclosure that “deposit in the mail or with such services, or receipt at the Transfer Agent’s post office box, of purchase orders or redemption requests does not constitute receipt by the Transfer Agent.” Please revise the disclosure to clarify what constitutes receipt by the Transfer Agent. |
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Response: The Trust responds by revising the applicable disclosure as follows (changes shown in underline):
“The Funds do not consider the U.S. Postal Service or other independent delivery services to be their agents. Therefore, deposit in the mail or with such services, or receipt at the Transfer Agent’s post office box, of purchase orders or redemption requests does not constitute receipt by the Transfer Agent. Receipt of purchase orders or redemption requests is based on when the order is received at the Transfer Agent’s offices.”
47. | Staff Comment: Please supplementally explain the legal basis for allowing financial intermediaries including Authorized Intermediaries, to set cut-off times for the receipt of orders that are earlier than the cut-off times established by the Funds. The current disclosure suggests that investors who place their orders with such intermediaries before 4:00 p.m. Eastern time may not receive that day’s NAV. Please refer to Rule 22c-1 under the 1940 Act. |
Response: The Trust supplementally explains that the Authorized Intermediaries, and not the Funds, may impose earlier cut-off times for redemption requests upon those shareholders who choose to redeem Fund shares through an Authorized Intermediary. Purchase requests received by financial intermediaries after their designated cut-off times, but before the cut-off times established by a Fund, will not have been received (as described in Rule 22c-1(a)) by a Fund until the next day.
The Trust further responds by revising the applicable disclosure as follows (changes shown in underline):
“Financial intermediaries, including Authorized Intermediaries, may set cut-off times for the receipt of orders that are earlier than the cut-off times established by the Funds. Purchase requests submitted to an Authorized Intermediary after the Authorized Intermediary’s imposed cut-off time may not be received by a Fund prior to the Fund’s cut-off time at the close of regular trading (generally 4:00 p.m., Eastern time) on that day. Such purchase requests will be processed at the NAV calculated at the close of regular trading on the next day that the NYSE is open for business. For more information about your financial intermediary’s rules and procedures, and whether your financial intermediary is an Authorized Intermediary, and whether your financial intermediary imposes cut-off times for the receipt of orders that are earlier than the cut-off times established by the Funds, you should contact your financial intermediary directly.”
Prospectus – Shareholder Information – How to Redeem Shares
48. | Staff Comment: Page 48 of the prospectus includes disclosure that “deposit in the mail or with such services, or receipt at the Transfer Agent’s post office box, of purchase orders or redemption requests does not constitute receipt by the Transfer Agent.” Please revise the disclosure to clarify what constitutes receipt by the Transfer Agent. |
Response: The Trust responds by revising the disclosure as follows (changes shown in underline):
“The Funds do not consider the U.S. Postal Service or other independent delivery services to be their agents. Therefore, deposit in the mail or with such services, or receipt at the Transfer Agent’s post office box, of purchase orders or redemption requests does not constitute receipt by the Transfer Agent. Receipt of purchase orders or redemption requests is based on when the order is received at the Transfer Agent’s offices.”
Prospectus – Other Fund Policies – Redemption in Kind
49. | Staff Comment: With respect to redemptions made in kind, please add disclosure to indicate shareholders will incur brokerage costs when converting securities paid in kind to cash. |
Response: The Trust responds by revising the disclosure as follows (changes shown in underline).
“Redemption in Kind. The Funds generally pay redemption proceeds in cash. However, the Trust has filed a notice of election under Rule 18f-1 under the 1940 Act with the SEC, under which the Trust has reserved the right to redeem in kind under certain circumstances, meaning that redemption proceeds are paid in liquid securities with a market value equal to the redemption price. If a Fund pays your redemption proceeds by a distribution of securities, you could incur brokerage or other charges when converting the securities to cash. These securities paid in kind remain subject to general market risks until sold. For federal income tax purposes, redemptions in kind are taxed in the same manner as redemptions paid in cash. In addition, sales of such in kind securities may generate taxable gains.”
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Prospectus – Distribution of Fund Shares – Distribution and Shareholder Servicing (Rule 12b-1) Plan
50. | Staff Comment: The Staff notes General Instruction C.3.(a) to Form N-1A requires that information required by Item 12 must be disclosed in one place in the prospectus. Please move the information under the caption “Distribution and Shareholder Servicing (Rule 12b-1) Plan” to a place in the Prospectus adjacent to the Item 12 information. |
Response: The Trust responds by making the requested revision.
Prospectus – Financial Highlights
51. | Staff Comment: As required by Item 19(h)(3) of Form N-1A, please identify the independent registered public accounting firm of the Predecessor Funds. Please also supplementally confirm the Registrant intends to obtain and file with the SEC the consent of the Predecessor Funds’ independent registered public accounting firm to use the audited financial statements of the Predecessor Funds. The Staff refers the Registrant to Section 7 under the 1933 Act. |
Response: The Trust responds by making the requested revisions to identify the Predecessor Funds’ independent registered public accounting firm. The Trust further responds by supplementally confirming the Trust will obtain and file with the SEC the consent of the Predecessor Funds’ independent registered public accounting firm to use the audited financial statements of the Predecessor Funds.
SAI – Front Cover
52. | Staff Comment: Please confirm the Predecessor Funds’ audited financial statements for the fiscal year ended February 29, 2016, incorporated by reference from the Predecessor Funds’ 2016 Annual Report to Shareholders, will be filed before the effective date of the Prospectus. |
Response: The Trust responds by supplementally confirming the Predecessor Funds’ 2016 Annual Report to Shareholders was filed with the SEC on May 6, 2016 (SEC Accession No. 0001398344-16-012984).
SAI – Investment Restrictions – Fundamental Investment Restrictions
53. | Staff Comment: Fundamental Investment Restriction No. 3 notes each Fund may not “[i]nvest 25% or more of its net assets, calculated at the time of purchase and taken at market value, in securities of issuers in any one industry (other than U.S. Government securities).” The Staff notes the Funds may not ignore the securities of underlying funds for purposes of compliance with this restriction. Please add the following disclosure to Fundamental Investment Restriction No. 3: “Each Fund will consider underlying fund securities when considering its own concentration policy”. |
Response: The Trust responds by adding the following clarifying footnote to Fundamental Investment Restriction No. 3.
“ (1) | For purposes of complying with this restriction, each Fund will look through to the securities of any underlying funds.” |
54. | Staff Comment: As required by Item 16(d), please add disclosure related to temporary defensive positions a Fund may make as described in the SAI. |
Response: The Trust responds by directing the Staff to the disclosure beginning on page 20 of the SAI under the caption “Cash or Similar Investments; Temporary Strategies,” which includes a description of the investments each Fund may make when taking a temporary defensive position.
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SAI – Management of the Funds – Board Committees
55. | Staff Comment: Please state the number of meetings held during the last fiscal year for each of the Trust’s committees, as required by Item 17(2)(b)(2)(iii) of Form N-1A. |
Response: The Trust responds by adding disclosure to clarify that during the past fiscal year, each committee did not meet with respect to the Funds.
SAI – Distribution and Servicing of Fund Shares
56. | Staff Comment: Please provide a table for the underwriting compensation as instructed by Item 25(b) of Form N-1A. |
Response: The Trust responds by replacing the narrative disclosure with the following table:
Name of Principal Underwriter | Net Underwriting Commissions and Discounts | Compensation on Redemptions and Repurchases | Brokerage Commissions | Other Compensation | ||
Matrix Capital Group, Inc.1 | $0 | $0 | $0 | $0 |
(1) The principal underwriter of the Predecessor Funds
SAI – Proxy Voting Procedures
57. | Staff Comment: Please more fully describe the Adviser’s proxy voting policy. The Staff refers the Registrant to Investment Company Release IC-25922. Alternatively, the Registrant may include the proxy voting policy as an appendix to the SAI. |
Response: The Trust responds by adding the following disclosure under the caption “The Adviser’s Proxy Voting Guidelines”:
“Routine proposals are those which do not change the structure, bylaws or operations of the corporation to the detriment of the shareholders. Given the routine nature of these proposals, proxies will nearly always be voted with management. Non-routine proposals are more likely to affect the structure and operations of the corporation and, therefore, will have a greater impact on the value of a shareholder‘s investment. The Adviser will review each non-routine proposal on a case-by-case basis, and voting decisions will be made on the economic interest of the account.
The Adviser will generally vote against any management proposal that clearly has the effect of restricting the ability of shareholders to realize the full potential value of their investment. Proposals submitted by shareholders for vote usually include issues of corporate governance and other non-routine matters. The Adviser will review each issue on a case-by-case basis in order to determine the position that best represents the financial interest of the account.
Conflicts of Interest
The Adviser is sensitive to conflicts of interest that may arise in the proxy decision-making process. If a material conflict is identified, proxies will be voted for that company in the following manner:
· | If the Adviser’s voting guidelines indicate a vote “For” or “Against” a specific issue, the Adviser will vote in accordance with such predetermined guidelines. |
· | If the guidelines do not cover an issue or indicate a “case-by-case” analysis, the Adviser will either seek the consent of clients or the written recommendation of an independent third party.” |
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If you have any additional questions or require further information, please contact Adam Smith at (414) 765-6115.
Sincerely,
John P. Buckel
President and Principal Executive Officer
Trust for Professional Managers
15754730.2
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