UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: | 811-22172 |
Exact name of registrant as specified in charter: | World Funds Trust |
Address of principal executive offices: | 8730 Stony Point Parkway, Suite 205 Richmond, VA 23235 |
Name and address of agent for service | The Corporation Trust Co., Corporation Trust Center, 1209 Orange St., Wilmington, DE 19801
With Copy to:
John H. Lively Practus LLP 11300 Tomahawk Creek Parkway, Ste. 310 Leawood, KS 66211 |
Registrant's telephone number, including area code: | (804) 267-7400 |
Date of fiscal year end: | April 30 |
Date of reporting period: | April 30, 2022 |
Item #1. Reports to Stockholders. | |
INDEX | Applied Finance Core Fund, Applied Finance Explorer Fund and Applied Finance Select Fund (the Applied Finance Funds) |
ANNUAL REPORT
For the year ended April 30, 2022
APPLIED FINANCE FUNDS
Applied Finance Core Fund
Applied Finance Explorer Fund
Applied Finance Select Fund
1
ANNUAL REPORT
Applied Finance Core Fund
Management’s Discussion of Fund Performance
From May 1, 2021, to the fiscal year end of April 30, 2022, the Investor Class (AFALX) and Institutional Class (AFAZX) shares of the Applied Finance Core Fund (the “Fund”) returned 1.80% and 2.05%, respectively. For the same period, the Morningstar® US Large-Mid Value Index returned 5.44%.
The Fund emphasizes the following core concepts in constructing the Fund’s portfolio:
1.Buying companies trading below our estimates of their intrinsic values,
2.Avoiding wealth destroying management teams,
3.Investing across a broad range of economic sectors, and
4.Investing in companies that have a history of paying dividends.
For the fiscal year, the Fund’s underperformance relative to the Morningstar® US Large-Mid Value Index was largely driven by sector allocation, which was only partially offset by positive stock selection. Negative impact from sector allocation was notable in the following:
1.Overweight in Consumer Discretionary and InfoTech
2.Underweight in Energy and Consumer Staples
Conversely, the Fund enjoyed positive stock selections. Stock selection was particularly positive in Communication Services and Consumer Discretionary, while particularly negative in Consumer Staples and REITs. The following positions had significant impact on the Fund:
Good Performers
1.The Travelers Companies (TRV)
2.Kohl’s Corp (KSS)
3.Prudential Financial (PRU)
4.Raytheon Technologies Corp (RTX)
5.Sempra Energy (SRE)
2
ANNUAL REPORT
Applied Finance Core Fund
Management’s Discussion of Fund Performance - continued
Poor Performers
1.Omega Healthcare Investors (OHI)
2.Walgreens Boots Alliance (WBA)
3.Unilever PLC ADR (UL)
4.UGI Corp (UGI)
5.Abbott Laboratories (ABT)
During the Fund’s fiscal year ending April 30, 2022, investors’ full attention has returned to risk and uncertainty. During this time period, we have witnessed a surge in inflation, the start of a war between Russia and Ukraine, and the deflating of the 2020 COVID Rally. The overriding themes entering the Fund’s next fiscal year center around: 1) the Russian/Ukrainian War and the balance of power in Europe; 2) high commodity prices and how long will they last; 3) supply chain shortages and how will China’s zero COVID tolerance stress the global system; 4) labor shortages in the US and the question of whether low unemployment will remain a plus for the economy; and 5) rising interest rates and how high will they go.
We cannot predict how these issues and events will unfold in the months ahead, nor do we believe anyone can with precise accuracy. In last year’s letter we wrote:
“The prospect of rising interest rates and lower growth prospects of the macro economy will only make the valuation even less appealing, should they become true. That said, if the currently higher inflation rate is indeed transitory, and laws regarding tax hikes fail to pass, the overall equity market could remain at elevated levels for a while. After all, the GDP growth will be quite robust in 2021 and likely in 2022, and companies’ recent earnings results have consistently surprised to the upside.”
The US GDP growth in 2021 was indeed robust. The overall US equity market did remain elevated through the end of calendar 2021 and only started to reflect various challenges in the past 4 to 5 months. While tax policies did not change, inflation has become clearly more than transitory, and the Fed will likely raise short term interest rates to levels higher than previously expected. Together those developments have generally put downward pressure on all markets.
Applied Finance Core Fund
Management’s Discussion of Fund Performance - continued
3
ANNUAL REPORT
As long only and long-term focused investors, we do our best to identify and own companies in the Fund that are capable of thriving amid disruptions, have sustainable competitive advantages in the fast-changing economy, enjoy a strong balance sheet, and command attractive valuations relative to their sector peers. This has served us well in the pandemic driven market dislocation and we expect they should serve us well in an economic environment with higher inflation. We believe most of the companies owned by the Fund have navigated unchartered waters better than their industry peers, have ample liquidity to survive an extremely depressing revenue environment, and have enhanced their business models to achieve sustainable, higher profitability and dividends. Our valuation conviction, aided by a deep understanding of companies’ businesses, helps us to buy what we believe are the better companies in our Fund's universe, and we believe should help the Fund outperform in the future.
We thank you for placing your investments and confidence in our fund.
Investments involve risk; principal loss is possible.
4
ANNUAL REPORT
Applied Finance Core Fund
| | Total |
| Average Annual Return | ||
Five Years |
| Ten Years | ||||
Applied Finance Core Fund - Investor | | 1.80% | | 11.10% | | 12.38% |
Applied Finance Core Fund - Institutional | | 2.05% | | 11.38% | | 12.66% |
Morningstar US Large-Mid Value Index: | | 5.44% | | 9.30% | | 10.95% |
Returns shown assume the reinvestment of all dividends and distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemptions of Fund shares.
(The comparative index is not adjusted to reflect expenses that the SEC requires to be reflected in the Fund’s performance.)
The Morningstar US Large-Mid Value Index provides a comprehensive depiction of the performance and fundamental characteristics of the Large-Mid Cap Value segment of US equity markets.
See “Supplemental Information” that accompanies the Annual Report for additional information.
The gross expense ratio from the prospectus dated August 31, 2021 is 1.88% for the Investor Share Class and 1.52% for the Institutional Share Class.
See Notes to Financial Statements
5
ANNUAL REPORT
Holdings by Sector/Asset Class |
| Percentage of | |
Common Stocks: | | | |
Financials | | 17.92% | |
Health Care | | 17.70% | |
Consumer Discretionary | | 13.72% | |
Information Technology | | 9.89% | |
Utilities | | 8.88% | |
Industrial | | 8.23% | |
Consumer Staples | | 7.01% | |
Materials | | 6.00% | |
Energy | | 3.23% | |
Real Estate | | 2.66% | |
Telecommunications | | 2.58% | |
Exchange Traded Funds: | | | |
Large Cap | | 1.82% | |
Money Market Fund | | 0.10% | |
Total Investments | | 99.74% | |
Applied Finance Core Fund
Portfolio Compositionas of April 30, 2022 (unaudited)
See Notes to Financial Statements
6
ANNUAL REPORT
Applied Finance Core Fund
Schedule of InvestmentsApril 30, 2022
| | | | Shares |
| Fair Value | |
97.82% | | COMMON STOCKS | | | | | |
| | | | | | | |
13.72% | | CONSUMER DISCRETIONARY | | | | | |
| | Darden Restaurants, Inc. | | 7,223 | | $951,486 | |
| | Hasbro, Inc. | | 10,354 | | 911,773 | |
| | Kohl’s Corp. | | 16,588 | | 960,113 | |
| | Target Corp. | | 4,500 | | 1,028,925 | |
| | Whirlpool Corp. | | 4,566 | | 828,820 | |
| | | | | | 4,681,117 | |
| | | | | | | |
7.01% | | CONSUMER STAPLES | | | | | |
| | Unilever, N.V. | | 11,396 | | 527,179 | |
| | Walgreens Boots Alliance, Inc. | | 20,283 | | 859,999 | |
| | Walmart, Inc. | | 6,557 | | 1,003,155 | |
| | | | | | 2,390,333 | |
| | | | | | | |
3.23% | | ENERGY | | | | | |
| | Chevron Corp. | | 7,048 | | 1,104,210 | |
| | | | | | | |
17.92% | | FINANCIALS | | | | | |
| | Ameriprise Financial, Inc. | | 3,477 | | 923,109 | |
| | Huntington Bancshares, Inc. | | 67,657 | | 889,689 | |
| | JPMorgan Chase & Co. | | 6,588 | | 786,344 | |
| | The PNC Financial Services Group, Inc. | | 5,187 | | 861,561 | |
| | Prudential Financial, Inc. | | 8,906 | | 966,390 | |
| | State Street Corp. | | 11,139 | | 745,979 | |
| | The Travelers Companies, Inc. | | 5,498 | | 940,488 | |
| | | | | | 6,113,560 | |
| | | | | | | |
17.70% | | HEALTH CARE | | | | | |
| | Abbott Laboratories | | 7,719 | | 876,106 | |
| | Eli Lilly and Co. | | 3,636 | | 1,062,185 | |
| | Johnson & Johnson | | 6,002 | | 1,083,121 | |
| | Merck & Co., Inc. | | 12,398 | | 1,099,579 | |
| | Novartis AG | | 11,782 | | 1,037,169 | |
| | Pfizer Inc. | | 18,000 | | 883,260 | |
| | | | | | 6,041,420 | |
| | | | | | | |
8.23% | | INDUSTRIAL | | | | | |
| | Eaton Corp. PLC | | 6,293 | | 912,611 | |
| | Norfolk Southern Corp. | | 3,600 | | 928,368 | |
| | Raytheon Co. | | 10,203 | | 968,367 | |
| | | | | | 2,809,346 | |
Applied Finance Core Fund
Schedule of Investments - continuedApril 30, 2022
See Notes to Financial Statements
7
ANNUAL REPORT
| | | | Shares |
| Fair Value | |
| | | | | | | |
9.89% | | INFORMATION TECHNOLOGY | | | | | |
| | Accenture PLC | | 2,588 | | $777,332 | |
| | Cisco Systems, Inc. | | 16,933 | | 829,378 | |
| | Intel Corp. | | 20,264 | | 883,308 | |
| | Microsoft Corp. | | 3,192 | | 885,844 | |
| | | | | | 3,375,862 | |
| | | | | | | |
6.00% | | MATERIALS | | | | | |
| | LyondellBasell Industries N.V. | | 10,220 | | 1,083,627 | |
| | Marathon Petroleum Corp. | | 11,000 | | 959,860 | |
| | | | | | 2,043,487 | |
| | | | | | | |
2.66% | | REAL ESTATE | | | | | |
| | Omega Healthcare Investors, Inc. | | 35,584 | | 906,680 | |
| | | | | | | |
2.58% | | TELECOMMUNICATIONS | | | | | |
| | Verizon Communications, Inc. | | 19,054 | | 882,200 | |
| | | | | | | |
8.88% | | UTILITIES | | | | | |
| | Public Services Enterprise Group, Inc. | | 15,924 | | 1,109,266 | |
| | Sempra Energy | | 6,971 | | 1,124,841 | |
| | UGI Corp. | | 23,210 | | 796,103 | |
| | | | | | 3,030,210 | |
| | | | | | | |
97.82% | | TOTAL COMMON STOCKS | | 33,378,425 | | ||
| | (Cost: $33,875,245) | | | | | |
| | | | | | | |
1.82% | | EXCHANGE TRADED FUNDS | | | | | |
| | | | | | | |
1.82% | | LARGE CAP | | | | | |
| | Applied Finance Valuation Large Cap ETF* | | 24,600 | | 619,706 | |
| | | | | | | |
1.82% | | TOTAL EXCHANGE TRADED FUNDS | | | | | |
| | (Cost: $612,324) | | 619,706 | | ||
| | | | | | | |
0.10% | | MONEY MARKET FUND | | | | | |
| | Federated Treasury Obligations Fund - Institutional Class 0.22%** | | 33,036 | | 33,036 | |
| | | | | | | |
0.10% | | TOTAL MONEY MARKET FUND | | | | | |
| | (Cost: $33,036) | | 33,036 | | ||
| | | | | | | |
See Notes to Financial Statements
8
ANNUAL REPORT
Applied Finance Core Fund
Schedule of Investments - continuedApril 30, 2022
| | | | Shares |
| Fair Value | |
99.74% | | TOTAL INVESTMENTS | | | | | |
| | (Cost: $34,520,605) | | $34,031,167 | | ||
0.26% | | Other assets, net of liabilities | | 89,394 | | ||
100.00% | | NET ASSETS | | $34,120,561 | |
*Non-income producing
**Effective 7 day yield as of April 30, 2022
9
ANNUAL REPORT
Applied Finance Explorer Fund
Management’s Discussion of Fund Performance
From May 1, 2021, to the fiscal year end of April 30, 2022, the Investor Class (AFDVX) and Institutional Class (AFDZX) shares of the Applied Finance Explorer Fund (the “Fund”) returned 4.40% and 4.50%, respectively. For the same period, the Morningstar® US Small Cap Index returned -14.22%.
The Fund utilizes a systematic investment process that emphasizes the following core concepts in constructing the Fund’s portfolio:
1.Buying companies trading below our estimates of their intrinsic values,
2.Avoiding wealth destroying management teams, and
3.Investing across a broad range of economic sectors.
For the fiscal year, the Fund’s outperformance mostly benefited from broad based stock selection, particularly in the following sectors:
1.Healthcare
2.Industrials
3.Communication Services
4.Energy
Conversely, the Fund had set backs in stock selection from REITs and Consumer Discretionary.
From an allocation perspective, the Fund benefited positively from sector allocations and in particular, from its moderate overweight in Energy, Financials, and underweight in Healthcare and InfoTech.
As the Fund invests its holdings in an approximately equal weighted basis within each selected sector, the weighting differences are relatively moderate across the Fund’s positions. However, we do have some stocks that have performed very well, as well as ones that have performed poorly, both of which had impacts on the Fund’s performance. Those names are:
10
ANNUAL REPORT
Applied Finance Explorer Fund
Management’s Discussion of Fund Performance - continued
Good Performers
1.Avis Budget Group Inc (CAR)
2.Meredith Corp (MDP)
3.Antero Resources Corp (AR)
4.Veritiv Corp (VRTV)
5.Vonage Holdings Corp (VG)
Poor Performers
1.Realogy Holdings Corp (RLGY)
2.Avaya Holdings (AVYA)
3.American Woodmark Corp (AMWD)
4.Cowen Inc Class A (COWN)
5.Big Lots Inc (BIG)
During the Fund’s fiscal year ending April 30, 2022, investors’ full attention has returned to risk and uncertainty. During this time period, we have witnessed a surge in inflation, the start of a war between Russia and Ukraine, and the deflating of the 2020 COVID Rally. The overriding themes entering the Fund’s next fiscal year center around: 1) the Russian/Ukrainian War and the balance of power in Europe; 2) high commodity prices and how long will they last; 3) supply chain shortages and how will China’s zero COVID tolerance stress the global system; 4) labor shortages in the US and the question of whether low unemployment will remain a plus for the economy; and 5) rising interest rates and how high will they go.
We cannot predict how these issues and events will unfold in the months ahead, nor do we believe anyone can with precise accuracy. In last year’s letter we wrote:
“The prospect of rising interest rates and lower growth prospects of the macro economy will only make the valuation even less appealing, should they become true. That said, if the currently higher inflation rate is indeed transitory, and laws regarding tax hikes fail to pass, the overall equity market could remain at elevated levels for a while. After all, the GDP growth will be quite robust in 2021 and likely in 2022, and companies’ recent earnings results have consistently surprised to the upside.”
Applied Finance Explorer Fund
Management’s Discussion of Fund Performance - continued
11
ANNUAL REPORT
The US GDP growth in 2021 was indeed robust. The overall US equity market did remain elevated through the end of calendar 2021 and only started to reflect various challenges in the past 4 to 5 months. While tax policies did not change, inflation has become clearly more than transitory, and the Fed will likely raise short term interest rates to levels higher than previously expected. Together those developments have generally put downward pressure on all markets.
We are delighted with the Fund’s performance in the last fiscal year and in the more turbulent period of the past 4 months. We remain firm in our resolve to be selective when investing, and purchase companies we believe have valuation appeal, a solid operational track record, positive momentum indicator, and attractive quality traits. We believe that the continued application of these principles over time will lead to strong and sustainable returns.
We thank you for placing your investments and confidence in our Fund.
Investing involves risk, principal loss is possible. Investments in small- and mid-cap companies involve additional risks including greater volatility than large-cap companies.
12
ANNUAL REPORT
Applied Finance Explorer Fund
| | Total | | Average Annual Return | ||||
| Five Years |
| Since |
| Since | |||
Applied Finance Explorer | | 4.50% | | 13.98% | | 11.07% | | N/A |
Applied Finance Explorer | | 4.40% | | 13.72% | | N/A | | 11.08% |
Morningstar US Small Cap Index | | (14.22%) | | 7.29% | | 7.09% | | 7.42% |
Returns shown assume the reinvestment of all dividends and distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemptions of Fund shares.
(The comparative index is not adjusted to reflect expenses that the SEC requires to be reflected in the Fund's performance.)
The Morningstar US Small Cap Index measures the performance of US small-cap stocks. These stocks fall between the 90th and 97th percentile in market capitalization of the investable universe. In aggregate, the Small Cap Index represents 7 percent of the investable universe.
See “Supplemental Information” that accompanies the Annual Report for additional information.
The gross expense ratio from the prospectus dated August 31, 2021 is 1.93% for the Investor Share Class and 1.58% for the Institutional Share Class.
13
ANNUAL REPORT
Applied Finance Explorer Fund
Portfolio Compositionas of April 30, 2022 (unaudited)
Holdings by Sector/Asset Class |
| Percentage of | |
Common Stocks: | | | |
Financials | | 18.06% | |
Industrial | | 13.59% | |
Health Care | | 10.12% | |
Energy | | 9.68% | |
Consumer Discretionary | | 9.06% | |
Real Estate | | 7.88% | |
Information Technology | | 7.86% | |
Materials | | 5.71% | |
Communication Services | | 4.20% | |
Consumer Staples | | 4.12% | |
Utilities | | 3.98% | |
Exchange Traded Funds: | | | |
Small Cap | | 0.11% | |
Money Market Fund | | 6.03% | |
Total Investments | | 100.40% | |
See Notes to Financial Statements
14
ANNUAL REPORT
Applied Finance Explorer Fund
Schedule of InvestmentsApril 30, 2022
| | | | Shares |
| Fair Value | |
94.26% | | COMMON STOCKS | | | | | |
| | | | | | | |
4.20% | | COMMUNICATION SERVICES | | | | | |
| | AMC Networks, Inc., Class A* | | 62,472 | | $2,038,461 | |
| | Ameris Bancorp. | | 39,919 | | 1,664,622 | |
| | Cars.com, Inc.* | | 165,299 | | 1,838,125 | |
| | Sinclair Broadcast Group, Inc., Class A | | 73,777 | | 1,640,800 | |
| | Tegna, Inc. | | 87,485 | | 1,929,044 | |
| | Ziff Davis, Inc.* | | 17,984 | | 1,589,066 | |
| | | | | | 10,700,118 | |
| | | | | | | |
9.06% | | CONSUMER DISCRETIONARY | | | | | |
| | Academy Sports and Outdoors, Inc. | | 49,673 | | 1,855,783 | |
| | Asbury Automotive Group, Inc.* | | 10,335 | | 1,898,643 | |
| | Caleres, Inc. | | 81,296 | | 1,864,117 | |
| | Everi Holdings, Inc.* | | 91,191 | | 1,583,076 | |
| | Golden Entertainment, Inc.* | | 33,603 | | 1,611,600 | |
| | Group I Automotive, Inc. | | 11,514 | | 2,005,048 | |
| | Installed Building Products, Inc. | | 17,612 | | 1,417,238 | |
| | Malibu Boats, Inc. Class A* | | 27,884 | | 1,402,286 | |
| | MarineMax, Inc.* | | 44,847 | | 1,835,139 | |
| | Meritage Home Corp.* | | 16,639 | | 1,373,549 | |
| | Patrick Industries, Inc. | | 25,225 | | 1,570,256 | |
| | Rent-A-Center, Inc. | | 53,549 | | 1,291,602 | |
| | Scientific Games Corp.* | | 31,285 | | 1,753,837 | |
| | Taylor Morrison Home Corp.* | | 60,437 | | 1,582,845 | |
| | | | | | 23,045,019 | |
| | | | | | | |
4.12% | | CONSUMER STAPLES | | | | | |
| | Bellrings Brands, Inc.* | | 71,480 | | 1,531,816 | |
| | Performance Food Group Co. | | 38,618 | | 1,901,937 | |
| | SpartanNash Co. | | 77,554 | | 2,658,551 | |
| | Sprouts Farmers Market, Inc.* | | 72,273 | | 2,153,735 | |
| | United Natural Foods, Inc.* | | 52,329 | | 2,246,484 | |
| | | | | | 10,492,523 | |
| | | | | | | |
9.68% | | ENERGY | | | | | |
| | Antero Resources Corp.* | | 115,113 | | 4,051,978 | |
| | Civitas Resources, Inc. | | 35,355 | | 2,072,510 | |
| | CNX Resources Corporation.* | | 122,097 | | 2,509,093 | |
| | Comstock Resources, Inc.* | | 202,822 | | 3,454,059 | |
| | EQT Corp. | | 82,910 | | 3,295,673 | |
Applied Finance Explorer Fund
Schedule of Investments - continuedApril 30, 2022
See Notes to Financial Statements
15
ANNUAL REPORT
| | | | Shares |
| Fair Value | |
| | Northern Oil and Gas, Inc. | | 77,757 | | $1,942,370 | |
| | PDC Energy, Inc. | | 31,848 | | 2,221,080 | |
| | SM Energy Co. | | 73,149 | | 2,598,984 | |
| | Whiting Petroleum Corp. | | 33,932 | | 2,478,733 | |
| | | | | | 24,624,480 | |
| | | | | | | |
18.06% | | FINANCIALS | | | | | |
| | Arbor Realty Trust, Inc. | | 120,835 | | 2,066,278 | |
| | Cowen, Inc. | | 63,174 | | 1,443,526 | |
| | Curo Group Holdings, Corp. | | 70,161 | | 823,690 | |
| | Customers Bancorp, Inc.* | | 40,142 | | 1,688,774 | |
| | Donnelly Financial Solutions, Inc.* | | 70,936 | | 2,076,297 | |
| | Encore Capital Group, Inc.* | | 41,611 | | 2,405,532 | |
| | Enova International, Inc.* | | 61,031 | | 2,282,559 | |
| | Flagstar Bancorp, Inc. | | 53,550 | | 1,890,315 | |
| | Hancock Whitney Corp. | | 49,654 | | 2,322,318 | |
| | Merchants Bancorp | | 60,492 | | 1,422,772 | |
| | Navient Corp. | | 121,189 | | 1,925,693 | |
| | New Residential Investment Corp. | | 217,118 | | 2,258,027 | |
| | Open Lending Corp. Class A* | | 120,033 | | 1,637,250 | |
| | PennyMac Financial Services, Inc. | | 43,278 | | 2,101,580 | |
| | Piper Sandler Cos. | | 14,862 | | 1,708,833 | |
| | PJT Partners, Inc. | | 32,213 | | 2,125,736 | |
| | Preferred Bank Los Angeles | | 32,236 | | 2,163,680 | |
| | Premier Financial Corp. | | 67,531 | | 1,792,273 | |
| | QCR Holdings, Inc. | | 31,417 | | 1,705,629 | |
| | Redwood Trust Inc. | | 176,945 | | 1,716,366 | |
| | SLM Corp. | | 115,353 | | 1,929,856 | |
| | Steward Information Services Corp. | | 27,865 | | 1,437,834 | |
| | Victory Capital Holdings, Inc. | | 66,462 | | 1,793,809 | |
| | Virtus Investment Partners, Inc. | | 8,301 | | 1,470,605 | |
| | WSFS Financial, Corp. | | 44,186 | | 1,770,533 | |
| | | | | | 45,959,765 | |
| | | | | | | |
10.12% | | HEALTH CARE | | | | �� | |
| | Allscripts Healthcare Solutons, Inc.* | | 94,691 | | 1,956,316 | |
| | AMN Healthcare Services, Inc.* | | 16,862 | | 1,648,261 | |
| | Collegium Pharmaceutical, Inc.* | | 82,032 | | 1,320,715 | |
| | The Ensign Group, Inc. | | 17,883 | | 1,436,541 | |
| | Fulgent Genetics, Inc.* | | 16,876 | | 926,155 | |
| | Innoviva, Inc.* | | 103,485 | | 1,765,454 | |
| | Ironwood Pharmaceuticals, Inc.* | | 144,995 | | 1,739,940 | |
See Notes to Financial Statements
16
ANNUAL REPORT
Applied Finance Explorer Fund
Schedule of Investments - continuedApril 30, 2022
| | | | Shares |
| Fair Value | |
| | Medpace Holdings, Inc.* | | 10,575 | | $1,412,503 | |
| | Owens & Minor, Inc. | | 41,919 | | 1,487,705 | |
| | Patterson Companies, Inc. | | 44,158 | | 1,358,742 | |
| | Premier, Inc. Class A | | 38,311 | | 1,387,241 | |
| | Prestige Consumer Healthcare, Inc.* | | 29,256 | | 1,599,133 | |
| | Supernus Pharmaceuticals, Inc.* | | 53,285 | | 1,486,652 | |
| | Tenet Healthcare Corp.* | | 22,211 | | 1,610,520 | |
| | Tivity Health, Inc.* | | 70,794 | | 2,274,611 | |
| | United Therapeutics Corp.* | | 8,471 | | 1,504,111 | |
| | Vanda Pharmaceuticals, Inc.* | | 84,784 | | 841,057 | |
| | | | | | 25,755,657 | |
| | | | | | | |
13.59% | | INDUSTRIAL | | | | | |
| | Atlas Air Worldwide Holdings* | | 20,980 | | 1,446,361 | |
| | Avis Budget Group, Inc.* | | 7,416 | | 1,985,041 | |
| | Beacon Roofing Supply, Inc.* | | 35,667 | | 2,126,823 | |
| | Builders FirstSource, Inc.* | | 32,554 | | 2,004,350 | |
| | Cornerstone Building Brands, Inc.* | | 88,525 | | 2,159,125 | |
| | EMCOR Group, Inc. | | 12,840 | | 1,367,203 | |
| | GMS, Inc.* | | 36,925 | | 1,770,554 | |
| | GENCO Shipping | | 100,180 | | 2,206,965 | |
| | GrafTech International Ltd. | | 181,476 | | 1,647,802 | |
| | Herc Holdings, Inc. | | 14,927 | | 1,907,969 | |
| | Hillenbrand, Inc. | | 33,679 | | 1,374,777 | |
| | Marten Transport, Ltd. | | 89,113 | | 1,548,784 | |
| | Matson, Inc. | | 19,737 | | 1,697,777 | |
| | NV5 Global, Inc.* | | 16,308 | | 1,953,698 | |
| | REV Group, Inc. | | 113,865 | | 1,357,271 | |
| | Schneider National, Inc. | | 64,825 | | 1,531,815 | |
| | UFP Industries, Inc. | | 21,639 | | 1,674,209 | |
| | Veritiv Corp.* | | 22,410 | | 3,149,501 | |
| | Werner Enterprises, Inc. | | 41,953 | | 1,662,597 | |
| | | | | | 34,572,622 | |
| | | | | | | |
7.86% | | INFORMATION TECHNOLOGY | | | | | |
| | Avaya Holdings Corp.* | | 104,970 | | 970,973 | |
| | Consensus Cloud Solutions* | | 29,089 | | 1,533,572 | |
| | CSG Systems International, Inc. | | 24,701 | | 1,518,370 | |
| | Diodes, Inc.* | | 21,003 | | 1,533,849 | |
| | ePlus Inc.* | | 8,639 | | 487,931 | |
| | Ichor Holdings, Ltd.* | | 52,096 | | 1,516,515 | |
| | Insight Enterprises, Inc.* | | 13,767 | | 1,368,027 | |
Applied Finance Explorer Fund
Schedule of Investments - continuedApril 30, 2022
See Notes to Financial Statements
17
ANNUAL REPORT
| | | | Shares |
| Fair Value | |
| | MaxLinear, Inc.* | | 25,000 | | $1,196,750 | |
| | NetGear Inc.* | | 50,000 | | 1,085,000 | |
| | Progress Software Corp. | | 33,830 | | 1,623,163 | |
| | Rambus, Inc.* | | 56,682 | | 1,411,949 | |
| | ScanSource, Inc.* | | 51,787 | | 1,773,187 | |
| | SMART Global Holdings, Inc. | | 57,650 | | 1,306,349 | |
| | Synaptics, Inc.* | | 9,614 | | 1,427,102 | |
| | Ultra Clean Holdings, Inc.* | | 40,273 | | 1,255,309 | |
| | | | | | 20,008,046 | |
| | | | | | | |
5.71% | | MATERIALS | | | | | |
| | AdvanSix, Inc. | | 32,566 | | 1,450,490 | |
| | Alamos Gold, Inc. | | 164,773 | | 1,278,638 | |
| | Boise Cascade Co. | | 25,739 | | 1,945,354 | |
| | Cleanwater Paper Corp.* | | 41,932 | | 1,388,369 | |
| | Commercial Metals Co. | | 42,500 | | 1,742,500 | |
| | Element Solutions, Inc. | | 75,237 | | 1,551,387 | |
| | Ryerson Holding Corp. | | 49,956 | | 1,838,880 | |
| | Tronox Holdings PLC | | 75,000 | | 1,290,000 | |
| | Warrior Met Coal Inc. | | 60,000 | | 2,044,200 | |
| | | | | | 14,529,818 | |
| | | | | | | |
7.88% | | REAL ESTATE | | | | | |
| | Brandywine Realty Trust | | 136,458 | | 1,592,465 | |
| | CoreCivic, Inc. | | 149,100 | | 1,853,313 | |
| | Kite Realy Group Trust | | 111,195 | | 2,479,649 | |
| | National Storage Affliates | | 38,782 | | 2,195,061 | |
| | Newmark Group Inc, Class A | | 170,978 | | 2,077,383 | |
| | Office Properties Income Trust | | 86,143 | | 1,862,412 | |
| | Paramount Group, Inc. | | 170,531 | | 1,621,750 | |
| | Piedmont Office Realty | | 146,680 | | 2,361,548 | |
| | Realogy Holdings Corp.* | | 166,556 | | 1,825,454 | |
| | The Macerich Co. | | 173,828 | | 2,181,541 | |
| | | | | | 20,050,576 | |
| | | | | | | |
3.98% | | UTILITIES | | | | | |
| | Brookfield Infrastructure Corp. | | 46,649 | | 3,308,347 | |
| | New Jersey Resources Corp. | | 88,249 | | 3,808,827 | |
| | Otter Tail Corp. | | 51,724 | | 2,997,923 | |
| | | | | | 10,115,097 | |
| | | | | | | |
94.26% | | TOTAL COMMON STOCKS | | | | ||
| | (Cost: $226,882,448) | | 239,853,721 | | ||
| | | | | | | |
See Notes to Financial Statements
18
ANNUAL REPORT
Applied Finance Explorer Fund
Schedule of Investments - continuedApril 30, 2022
| | | | Shares |
| Fair Value | |
0.11% | | EXCHANGE TRADED FUNDS | | | | | |
| | | | | | | |
0.11% | | SMALL CAP | | | | | |
| | iShares Russell 2000 ETF | | 900 | | $166,455 | |
| | iShares Russell 2000 Growth ETF | | 500 | | 112,295 | |
| | | | | | 278,750 | |
| | | | | | | |
0.11% | | TOTAL EXCHANGE TRADED FUNDS | | | | ||
| | (Cost: $212,820) | | 278,750 | | ||
| | | | | | | |
6.03% | | MONEY MARKET FUND | | | | | |
| | Federated Treasury Obligations Fund - Institutional 0.22%** | | 15,349,436 | | 15,349,436 | |
| | | | | | | |
| | TOTAL MONEY MARKET FUND | | | | ||
| | (Cost: $15,349,436) | | 15,349,436 | | ||
| | | | | | | |
100.40% | | TOTAL INVESTMENTS | | | | | |
| | (Cost: $242,444,704) | | 255,481,907 | | ||
-0.40% | | Liabilities, in excess of other assets | | (1,017,702 | ) | ||
100.00% | | NET ASSETS | | $254,464,205 | |
*Non-income producing
**Effective 7 day yield as of April 30, 2022
19
ANNUAL REPORT
Applied Finance Select Fund
Management’s Discussion of Fund Performance
From May 1, 2021, to the fiscal year end of April 30, 2022, the Investor Class (AFVLX) and Institutional Class (AFVZX) shares of the Applied Finance Select Fund (the “Fund”) returned 1.55% and 1.82%, respectively. For the same period, the Morningstar® US Large-Mid Value Index returned 5.44%.
The Fund emphasizes the following core concepts in constructing the Fund’s portfolio:
1.Identify companies trading at a discount to our estimates of their intrinsic values;
2.Identify companies trading at a discount to sector peers;
3.Identify companies exhibiting superior quality traits as defined by our research team, such as good wealth creation track record, strong competitive advantage, low correlation with other Fund holdings;
4.Remaining sector neutral and is rebalancing holdings every quarter; and
5.Targeting discretionary annual turnover below 20%.
For the fiscal year, the Fund’s underperformance relative to the Morningstar® US Large-Mid Value Index was entirely driven by sector allocation, which was only partially offset by very positive stock selection. Negative impact from sector allocation was notable in the following:
1.Overweight in InfoTech, Communication Services, and Consumer Discretionary
2.Underweight in Energy, Consumer Staples, and Healthcare
Conversely, the Fund enjoyed strong stock selections as 8 of the 11 sectors’ returns benefited from positive stock selection, with the exception of Communication Services, Consumer Staples and Industrials. Stock selection was particularly strong in InfoTech, Consumer Discretionary, and Healthcare. The following positions had a particularly big impact on the Fund:
20
ANNUAL REPORT
Applied Finance Select Fund
Management’s Discussion of Fund Performance - continued
Good Performers
1.CF Industries Holdings (CF)
2.McKesson Corp (MCK)
3.Apple Inc (AAPL)
4.Target Corp (TGT)
5.Quanta Services (PWR)
Poor Performers
1.Stanley Black & Decker Inc (SWK)
2.Walgreens Boots Alliance (WBA)
3.The Walt Disney (DIS)
4.Ecolab (ECL)
5.Meta Platform Inc Class A (FB)
The Fund in the fiscal year made three significant changes: 1) Replacing Alexion Pharmaceuticals (ALXN) with Regeneron Pharmaceuticals (REGN) in August 2021; 2) Replacing Unum Group (UNM) with Metlife Inc (MET) in October 2021; 3) Replacing Ecolab Inc (ECL) with Celanese (CE) in February 2022.
During the Fund’s fiscal year ending April 30, 2022, investors’ full attention has returned to risk and uncertainty. During this time period, we have witnessed a surge in inflation, the start of a war between Russia and Ukraine, and the deflating of the 2020 COVID Rally. The overriding themes entering the Fund’s next fiscal year center around: 1) the Russian/Ukrainian War and the balance of power in Europe; 2) high commodity prices and how long will they last; 3) supply chain shortages and how will China’s zero COVID tolerance stress the global system; 4) labor shortages in the US and the question of whether low unemployment will remain a plus for the economy; and 5) rising interest rates and how high will they go.
We cannot predict how these issues and events will unfold in the months ahead, nor do we believe anyone can with precise accuracy. In last year’s letter we wrote:
Applied Finance Select Fund
Management’s Discussion of Fund Performance - continued
21
ANNUAL REPORT
“The prospect of rising interest rates and lower growth prospects of the macro economy will only make the valuation even less appealing, should they become true. That said, if the currently higher inflation rate is indeed transitory, and laws regarding tax hikes fail to pass, the overall equity market could remain at elevated levels for a while. After all, the GDP growth will be quite robust in 2021 and likely in 2022, and companies’ recent earnings results have consistently surprised to the upside.”
The US GDP growth in 2021 was indeed robust. The overall US equity market did remain elevated through the end of calendar 2021 and only started to reflect various challenges in the past 4 to 5 months. While tax policies did not change, inflation has become clearly more than transitory, and the Fed will likely raise short term interest rates to levels higher than previously expected. Together those developments have generally put downward pressure on all markets.
As long only and long-term focused investors, we do our best to identify and own companies in the Fund that are capable of thriving amid disruptions, have sustainable competitive advantages in the fast-changing economy, enjoy a strong balance sheet, and command attractive valuations relative to their sector peers. This has served us well in the pandemic driven market dislocation and we expect they should serve us well in an economic environment with higher inflation. We believe most of the companies owned by the Fund have navigated unchartered waters better than their industry peers, have ample liquidity to survive an extremely depressing revenue environment, and have enhanced their business models to achieve sustainable, higher profitability. Our valuation conviction, aided by a deep understanding of companies’ businesses, helps us to buy what we believe are the better companies in our Fund's universe, and we believe should help the Fund outperform in the future.
We thank you for placing your investments and confidence in our Fund.
Investments involve risk; principal loss is possible.
22
ANNUAL REPORT
Applied Finance Select Fund
| | Total |
| Average Annual Return | ||||
Five Years |
| Since |
| Since | ||||
Applied Finance Select Fund - Investor | | 1.55% | | 13.98% | | 13.93% | | N/A |
Applied Finance Select Fund - Institutional | | 1.82% | | 14.25% | | N/A | | 14.16% |
Morningstar Large-Mid Value Index | | 5.44% | | 9.30% | | 9.16% | | 8.92% |
Returns shown assume the reinvestment of dividends and distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
(The comparative index is not adjusted to reflect expenses that the SEC requires to be reflected in the Fund’s performance.)
The Morningstar US Large-Mid Value Index provides a comprehensive depiction of the performance and fundamental characteristics of the Large-Mid Cap Value segment of US equity markets.
See “Supplemental Information” that accompanies the Annual Report for additional information.
The gross expense ratio from the prospectus dated August 31, 2021 is 1.57% for the Investor Share Class and 1.23% for the Institutional Share Class.
23
ANNUAL REPORT
Holdings by Sector/Asset Class |
| Percentage of |
Common Stocks: | | |
Information Technology | | 27.12% |
Consumer Discretionary | | 12.98% |
Financials | | 12.01% |
Health Care | | 11.92% |
Consumer Staples | | 8.12% |
Industrial | | 7.78% |
Energy | | 5.25% |
Materials | | 3.01% |
Real Estate | | 2.79% |
Utilities | | 2.65% |
Telecommunication Services | | 2.13% |
Money Market Fund | | 4.13% |
Total Investments | | 99.89% |
Applied Finance Select Fund
Portfolio Compositionas of April 30, 2022 (unaudited)
See Notes to Financial Statements
24
ANNUAL REPORT
Applied Finance Select Fund
Schedule of InvestmentsApril 30, 2022
| | | | Shares |
| Fair Value | |
95.76% | | COMMON STOCKS | | | | | |
| | | | | | | |
12.98% | | CONSUMER DISCRETIONARY | | | | | |
| | Aptiv PLC* | | 61,974 | | $6,594,034 | |
| | Darden Restaurants, Inc. | | 59,111 | | 7,786,692 | |
| | LKQ Corp. | | 156,725 | | 7,778,262 | |
| | Lowe’s Cos., Inc. | | 35,090 | | 6,938,346 | |
| | Target Corp. | | 39,715 | | 9,080,835 | |
| | The Walt Disney Co.* | | 55,026 | | 6,142,552 | |
| | | | | | 44,320,721 | |
| | | | | | | |
8.12% | | CONSUMER STAPLES | | | | | |
| | Constellation Brands, Inc. - Class A | | 23,447 | | 5,770,072 | |
| | CVS Health Corp. | | 57,633 | | 5,540,260 | |
| | Tyson Foods, Inc. - Class A | | 62,844 | | 5,854,547 | |
| | Walgreens Boots Alliance, Inc. | | 110,023 | | 4,664,975 | |
| | Walmart, Inc. | | 38,628 | | 5,909,698 | |
| | | | | | 27,739,552 | |
| | | | | | | |
5.25% | | ENERGY | | | | | |
| | Chevron Corp. | | 36,745 | | 5,756,839 | |
| | ConocoPhillips | | 58,103 | | 5,549,999 | |
| | Valero Energy Corp. | | 59,408 | | 6,622,804 | |
| | | | | | 17,929,642 | |
| | | | | | | |
12.01% | | FINANCIALS | | | | | |
| | The Allstate Corp. | | 52,452 | | 6,637,276 | |
| | Ameriprise Financial, Inc. | | 20,514 | | 5,446,262 | |
| | Bank of America Corp. | | 142,306 | | 5,077,478 | |
| | Capital One Financial Corp. | | 46,889 | | 5,843,307 | |
| | JPMorgan Chase & Co. | | 43,919 | | 5,242,172 | |
| | MetLife, Inc. | | 93,000 | | 6,108,240 | |
| | The Travelers Cos., Inc. | | 39,039 | | 6,678,011 | |
| | | | | | 41,032,746 | |
| | | | | | | |
11.92% | | HEALTH CARE | | | | | |
| | Danaher Corp. | | 20,603 | | 5,174,031 | |
| | McKesson Corp. | | 22,573 | | 6,988,827 | |
| | Merck & Co., Inc. | | 72,352 | | 6,416,899 | |
| | Pfizer, Inc. | | 104,109 | | 5,108,629 | |
| | Regeneron Pharmaceuticals, Inc.* | | 8,900 | | 5,866,079 | |
| | Stryker Corp. | | 23,104 | | 5,574,071 | |
| | Thermo Fisher Scientific, Inc. | | 10,085 | | 5,576,198 | |
| | | | | | 40,704,734 | |
| | | | | | | |
Applied Finance Select Fund
Schedule of Investments - continuedApril 30, 2022
See Notes to Financial Statements
25
ANNUAL REPORT
| | | | Shares |
| Fair Value | |
7.78% | | INDUSTRIAL | | | | | |
| | Alaska Air Group, Inc.* | | 63,976 | | $3,479,655 | |
| | Cummins, Inc. | | 23,588 | | 4,462,614 | |
| | Quanta Services, Inc. | | 45,248 | | 5,247,863 | |
| | Roper Technologies, Inc. | | 11,403 | | 5,358,498 | |
| | Stanley Black & Decker, Inc. | | 26,518 | | 3,186,138 | |
| | Union Pacific Corp. | | 20,728 | | 4,856,363 | |
| | | | | | 26,591,131 | |
| | | | | | | |
27.12% | | INFORMATION TECHNOLOGY | | | | | |
| | Alphabet, Inc. - Class A* | | 3,071 | | 7,008,605 | |
| | Apple, Inc. | | 65,909 | | 10,390,554 | |
| | Cisco Systems, Inc. | | 182,133 | | 8,920,874 | |
| | Fiserv, Inc.* | | 103,093 | | 10,094,867 | |
| | HP, Inc. | | 294,645 | | 10,792,846 | |
| | Intel Corp. | | 199,807 | | 8,709,587 | |
| | International Business Machines Corp. | | 78,776 | | 10,414,975 | |
| | KLA Corp. | | 28,108 | | 8,973,760 | |
| | Mastercard, Inc. - Class A | | 30,447 | | 11,063,831 | |
| | Meta Platforms, Inc.* | | 31,345 | | 6,283,732 | |
| | | | | | 92,653,631 | |
| | | | | | | |
3.01% | | MATERIALS | | | | | |
| | Celanese Corp. - Class A | | 30,500 | | 4,481,670 | |
| | CF Industries Holdings, Inc. | | 59,970 | | 5,806,895 | |
| | | | | | 10,288,565 | |
| | | | | | | |
2.79% | | REAL ESTATE | | | | | |
| | Host Hotels & Resorts, Inc. | | 468,113 | | 9,526,099 | |
| | | | | | | |
2.13% | | TELECOMMUNICATION SERVICES | | | | | |
| | Verizon Communications, Inc. | | 157,410 | | 7,288,083 | |
| | | | | | | |
2.65% | | UTILITIES | | | | | |
| | DTE Energy Co. | | 35,702 | | 4,678,390 | |
| | Public Service Enterprise Group, Inc. | | 62,753 | | 4,371,374 | |
| | | | | | 9,049,764 | |
| | | | | | | |
95.76% | | TOTAL COMMON STOCKS | | | | ||
| | (Cost: $254,146,842) | | 327,124,668 | | ||
| | | | | | | |
See Notes to Financial Statements
26
ANNUAL REPORT
Applied Finance Select Fund
Schedule of Investments - continuedApril 30, 2022
| | | | Shares |
| Fair Value | |
4.13% | | MONEY MARKET FUND | | | | | |
| | Federated Treasury Obligations Fund - Institutional Class 0.22%** | | 14,124,652 | | $14,124,652 | |
| | (Cost: $14,124,652) | | | | | |
| | | | | | | |
99.89% | | TOTAL INVESTMENTS | | | | | |
| | (Cost: $268,271,494) | | 341,249,320 | | ||
0.11% | | Liabilities, in excess of other assets | | 376,420 | | ||
100.00% | | NET ASSETS | | $341,625,740 | |
*Non-income producing
**Effective 7 day yield as of April 30, 2022
27
ANNUAL REPORT
[This page intentionally left blank]
See Notes to Financial Statements
29
ANNUAL REPORT
See Notes to Financial Statements
28
ANNUAL REPORT
APPLIED FINANCE FUNDS
Statements of Assets and Liabilities
| | Applied Finance |
| Applied Finance |
| Applied Finance |
ASSETS | | | | | | |
Investments at fair value* | | $34,031,167 |
| $255,481,907 |
| $341,249,320 |
Cash and cash equivalents | | 19,054 |
| — |
| — |
Receivable for capital stock sold | | 1,109 |
| 244,962 |
| 234,947 |
Dividends and interest receivable | | 71,762 |
| 83,500 |
| 307,743 |
Tax reclaims receivable | | 32,152 |
| — |
| — |
Prepaid expenses | | 26,479 |
| 50,853 |
| 59,275 |
TOTAL ASSETS | | 34,181,723 |
| 255,861,222 |
| 341,851,285 |
| ||||||
LIABILITIES | |
|
|
|
|
|
Payable for securities purchased | | — |
| 1,205,710 |
| — |
Payable for capital stock redeemed | | 5,554 |
| 34,355 |
| 48,120 |
Accrued investment advisory fees | | 22,539 |
| 106,970 |
| 142,053 |
Accrued 12b-1 fees | | 3,998 |
| 24,039 |
| 6,160 |
Accrued administrative, accounting and transfer agent fees | | 5,449 |
| 19,800 |
| 22,746 |
Accrued professional fees | | 20,533 |
| — |
| — |
Other accrued expenses | | 3,089 |
| 6,143 |
| 6,466 |
TOTAL LIABILITIES | | 61,162 |
| 1,397,017 |
| 225,545 |
| ||||||
NET ASSETS | | $34,120,561 |
| $254,464,205 |
| $341,625,740 |
Net Assets Consist of: | |
|
|
|
|
|
Paid-in-capital | | $30,674,886 |
| $235,935,064 |
| $264,345,307 |
Distributable earnings | | 3,445,675 |
| 18,529,141 |
| 77,280,433 |
Net Assets | | $34,120,561 |
| $254,464,205 |
| $341,625,740 |
| ||||||
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE | |
|
|
|
|
|
Net Assets | |
|
|
|
|
|
Institutional Class | | $24,172,688 |
| $161,651,656 |
| $312,611,898 |
Investor Class | | 9,947,873 |
| 92,812,549 |
| 29,013,842 |
Total | | $34,120,561 |
| $254,464,205 |
| $341,625,740 |
Shares Outstanding (unlimited number of shares of beneficial interest authorized without par value) | |
|
|
|
|
|
Institutional Class | | 2,102,581 |
| 9,018,220 |
| 16,896,950 |
Investor Class | | 879,499 |
| 5,207,528 |
| 1,574,908 |
Total | | 2,982,080 |
| 14,225,748 |
| 18,471,858 |
Net Asset Value Per Share | |
|
|
|
|
|
Institutional Class | | $11.50 |
| $17.93 |
| $18.50 |
Investor Class | | 11.31 |
| 17.82 |
| 18.42 |
Short-Term Redemption Fee Price Per Share(A) | |
|
|
|
|
|
Institutional Class | | $11.27 |
| $17.57 |
| $18.13 |
Investor Class | | 11.08 |
| 17.46 |
| 18.05 |
| ||||||
*Identified cost of | | $34,520,605 |
| $242,444,704 |
| $268,271,494 |
(A)Applied Finance Funds will impose a 2% redemption fee on shares redeemed within 60 days of purchase.
APPLIED FINANCE FUNDS
April 30, 2022
See Notes to Financial Statements
31
ANNUAL REPORT
See Notes to Financial Statements
30
ANNUAL REPORT
APPLIED FINANCE FUNDS
Statements of Operations
APPLIED FINANCE FUNDS
For the year ended April 30, 2022
| | Applied Finance |
| Applied Finance |
| Applied Finance | |
INVESTMENT INCOME | | | | | | | |
Dividends (net of foreign taxes withheld of $13,912, $10,039, $-, respectively) | | $1,021,217 |
| $2,353,647 |
| $5,261,307 | |
Interest | | 44 |
| 3,170 |
| 3,098 | |
Income from tax reclaims | | 32,873 |
| — |
| — | |
Total investment income | | 1,054,134 |
| 2,356,817 |
| 5,264,405 | |
| |||||||
EXPENSES | |
|
|
|
|
| |
Investment advisory fees (Note 2) | | 411,485 |
| 2,104,597 |
| 2,794,306 | |
Rule 12b-1 and servicing fees (Note 2) | |
|
|
|
|
| |
Investor Class | | 29,448 |
| 182,863 |
| 65,010 | |
Recordkeeping and fund administrative services (Note 2) | | 25,537 |
| 86,504 |
| 142,798 | |
Accounting fees (Note 2) | | 13,179 |
| 54,983 |
| 92,831 | |
Custody fees | | 9,535 |
| 21,239 |
| 25,405 | |
Transfer agent fees (Note 2) | | 37,664 |
| 60,874 |
| 56,377 | |
Professional fees | | 26,385 |
| 39,630 |
| 57,412 | |
Filing and registration fees | | 54,872 |
| 79,500 |
| 73,000 | |
Trustees fees | | 2,888 |
| 9,222 |
| 17,157 | |
Compliance fees | | 4,840 |
| 7,569 |
| 10,395 | |
Shareholder services and reports | | 13,500 |
| 34,978 |
| 55,148 | |
Shareholder servicing (Note 2) | |
|
|
|
|
| |
Institutional Class | | 18,954 |
| 84,039 |
| 227,098 | |
Investor Class | | 22,416 |
| 103,059 |
| 37,375 | |
Insurance | | 4,247 |
| 5,091 |
| 9,286 | |
Interest expense** | | 1,502 |
| — |
| 442 | |
Other | | 14,471 |
| 32,073 |
| 32,098 | |
Total expenses | | 690,923 |
| 2,906,221 |
| 3,696,138 | |
Management fee waivers (Note 2) | | (225,628 | ) | (1,191,063 | ) | (1,302,098 | ) |
Net expenses | | 465,295 |
| 1,715,158 |
| 2,394,040 | |
Net investment income | | 588,839 |
| 641,659 |
| 2,870,365 | |
| |||||||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | |
|
|
|
|
| |
Net realized gain (loss) on investments | | 21,802,432 |
| 6,205,040 |
| 5,488,665 | |
Net increase (decrease) in unrealized appreciation | | (20,693,185 | ) | (8,556,955 | ) | (6,075,262 | ) |
Net realized and unrealized gain (loss) on investments | | 1,109,247 |
| (2,351,915 | ) | (586,597 | ) |
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | | $1,698,086 |
| $(1,710,256 | ) | $2,283,768 | |
**Includes overdraft fees charged by custodian
See Notes to Financial Statements
33
ANNUAL REPORT
See Notes to Financial Statements
32
ANNUAL REPORT
APPLIED FINANCE FUNDS
Statements of Changes in Net Assets
| | Applied Finance Core Fund | | Applied Finance Explorer Fund | | Applied Finance Select Fund | | ||||||
| | Years ended April 30, | | Years ended April 30, | | Years ended April 30, | | ||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | |
Increase (decrease) in Net Assets | | | | | | | | | | | | | |
OPERATIONS | | | | | | | | | | | | | |
Net investment income | | $588,839 |
| $283,970 |
| $641,659 |
| $30,384 |
| $2,870,365 |
| $1,847,609 |
|
Net realized gain (loss) on investments and foreign currency transactions | | 21,802,432 |
| (1,340,043 | ) | 6,205,040 |
| 4,472,161 |
| 5,488,665 |
| 5,260,399 |
|
Net increase (decrease) in unrealized appreciation | | (20,693,185 | ) | 20,258,867 |
| (8,556,955 | ) | 19,853,409 |
| (6,075,262 | ) | 80,149,323 |
|
Increase (decrease) in net assets from operations | | 1,698,086 |
| 19,202,794 |
| (1,710,256 | ) | 24,355,954 |
| 2,283,768 |
| 87,257,331 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
DISTRIBUTIONS TO SHAREHOLDERS | |
|
|
|
|
|
|
|
|
|
|
|
|
Distributions | |
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Class | | (13,097,413 | ) | (3,212,491 | ) | (911,065 | ) | (99,768 | ) | (6,881,730 | ) | (2,509,832 | ) |
Investor Class | | (4,253,954 | ) | (1,137,061 | ) | (567,205 | ) | (17,112 | ) | (583,529 | ) | (166,352 | ) |
Decrease in net assets from distributions | | (17,351,367 | ) | (4,349,552 | ) | (1,478,270 | ) | (116,880 | ) | (7,465,259 | ) | (2,676,184 | ) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL STOCK TRANSACTIONS (Note 5) | |
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold | |
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Class | | 3,053,342 |
| 3,709,938 |
| 98,949,891 |
| 54,437,292 |
| 102,419,181 |
| 89,580,418 |
|
Investor Class | | 525,263 |
| 597,676 |
| 91,653,048 |
| 35,072,778 |
| 13,970,011 |
| 8,510,087 |
|
Shares received from merger | |
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Class | | — |
| 3,029,609 |
| — |
| — |
| — |
| — |
|
Investor Class | | — |
| 2,879,176 |
| — |
| — |
| — |
| — |
|
Distributions reinvested | |
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Class | | 12,576,029 |
| 3,043,768 |
| 587,657 |
| 64,823 |
| 4,057,487 |
| 1,419,126 |
|
Investor Class | | 4,124,895 |
| 1,104,146 |
| 523,330 |
| 15,094 |
| 467,103 |
| 116,775 |
|
Shares redeemed | |
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Class | | (19,277,878 | )(A) | (9,547,542 | )(A) | (15,890,782 | )(A) | (5,472,410 | )(A) | (41,780,553 | )(A) | (43,496,986 | )(A) |
Investor Class | | (3,513,475 | )(B) | (4,766,990 | )(B) | (37,931,464 | )(B) | (5,447,083 | )(B) | (6,075,744 | )(B) | (2,507,441 | )(B) |
Increase (decrease) in net assets from capital stock transactions | | (2,511,824 | ) | 49,781 |
| 137,891,680 |
| 78,670,494 |
| 73,057,485 |
| 53,621,979 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS | |
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) during year | | (18,165,105 | ) | 14,903,023 |
| 134,703,154 |
| 102,909,568 |
| 67,875,994 |
| 138,203,126 |
|
Beginning of year | | 52,285,666 |
| 37,382,643 |
| 119,761,051 |
| 16,851,483 |
| 273,749,746 |
| 135,546,620 |
|
End of year | | $34,120,561 |
| $52,285,666 |
| $254,464,205 |
| $119,761,051 |
| $341,625,740 |
| $273,749,746 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(A)Includes redemption fees of: | | $6,672 |
| $836 |
| $17,201 |
| $6,557 |
| $16,561 |
| $27,735 |
|
(B)Includes redemption fees of: | | $823 |
| $5 |
| $151,657 |
| $15,177 |
| $7,053 |
| $2,424 |
|
APPLIED FINANCE FUNDS
April 30, 2022
APPLIED FINANCE CORE FUND
Selected Per Share Data Throughout Each Year
See Notes to Financial Statements
35
ANNUAL REPORT
See Notes to Financial Statements
34
ANNUAL REPORT
APPLIED FINANCE CORE FUND
Financial Highlights
| | Institutional Class Shares | | ||||||||
| | Years ended April 30, | | ||||||||
| | 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 | |
Net asset value, beginning of year | | $16.79 |
| $11.99 |
| $14.22 |
| $17.77 |
| $15.64 | |
Investment activities | | | | | | | | | | | |
Net investment income (loss)(1) | | 0.19 | | 0.10 | | 0.15 | | 0.10 | | 0.08 | |
Net realized and unrealized gain (loss) on investments and options contracts purchased | | 0.36 |
| 6.11 |
| (1.62 | ) | 0.22 |
| 2.60 | |
Total from investment activities | | 0.55 |
| 6.21 |
| (1.47 | ) | 0.32 |
| 2.68 | |
Distributions | | | | | | | | | | | |
Net investment income | | (0.08 | ) | (0.13 | ) | (0.02 | ) | (0.09 | ) | (0.08 | ) |
Net realized gain | | (5.76 | ) | (1.28 | ) | (0.74 | ) | (3.78 | ) | (0.47 | ) |
Total distributions | | (5.84 | ) | (1.41 | ) | (0.76 | ) | (3.87 | ) | (0.55 | ) |
Paid-in capital from redemption fees | | — | (A) | — | (A) | — | (A) | — | (A) | — | |
Net asset value, end of year | | $11.50 |
| $16.79 |
| $11.99 |
| $14.22 |
| $17.77 | |
Total Return | | 2.05 | % | 53.94 | % | (11.38 | %) | 5.15 | % | 17.10 | % |
Ratios/Supplemental Data | | | | | | | | | | | |
Ratios to average net assets | | | | | | | | | | | |
Expenses, gross | | 1.41 | %(B) | 1.52 | %(B) | 1.44 | %(B) | 1.30 | %(B) | 1.29 | %(B) |
Expenses, net of management fee waivers and reimbursements | | 0.95 | % | 0.95 | % | 0.96 | %(C) | 0.97 | %(C) | 0.97 | %(C) |
Net investment income (loss) | | 1.34 | % | 0.70 | % | 1.07 | % | 0.61 | % | 0.49 | % |
Portfolio turnover rate | | 81.95 | % | 14.95 | % | 29.91 | % | 50.69 | % | 75.46 | % |
Net assets, end of year (000’s) | | $24,173 | | $39,543 | | $28,082 | | $69,710 | | $76,749 | |
(1)Per share amounts calculated using the average number of shares outstanding throughout each year.
(A) Less than $0.01 per share.
(B)Ratio of total expenses before management fee waivers and reimbursements, excluding proxy costs and interest expense, would have been 1.41% 1.52%, 1.43%, 1.28% and 1.27%, for the years ended April 30, 2022 through April 30, 2018, respectively.
(C)Ratio of total expenses net of management fee waivers and reimbursements, excluding proxy costs and interest expense, would have been 0.95% for the years ended April 30, 2020 through April 30, 2018, respectively.
APPLIED FINANCE CORE FUND
Selected Per Share Data Throughout Each Year
See Notes to Financial Statements
37
ANNUAL REPORT
See Notes to Financial Statements
36
ANNUAL REPORT
APPLIED FINANCE CORE FUND
Financial Highlights
| | Investor Class Shares | | ||||||||
| | Years ended April 30, | | ||||||||
| | 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 | |
Net asset value, beginning of year | | $16.61 |
| $11.94 |
| $14.17 |
| $17.74 |
| $15.63 |
|
Investment activities | |
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)(1) | | 0.16 |
| 0.06 |
| 0.12 |
| 0.06 |
| 0.04 |
|
Net realized and unrealized gain (loss) on investments and options contracts purchased | | 0.35 |
| 6.06 |
| (1.61 | ) | 0.21 |
| 2.59 |
|
Total from investment activities | | 0.51 |
| 6.12 |
| (1.49 | ) | 0.27 |
| 2.63 |
|
Distributions | |
|
|
|
|
|
|
|
|
|
|
Net investment income | | (0.05 | ) | (0.17 | ) | — |
| (0.07 | ) | (0.05 | ) |
Net realized gain | | (5.76 | ) | (1.28 | ) | (0.74 | ) | (3.78 | ) | (0.47 | ) |
Total distributions | | (5.81 | ) | (1.45 | ) | (0.74 | ) | (3.85 | ) | (0.52 | ) |
Paid-in capital from redemption fees | | — | (A) | — | (A) | — | (A) | 0.01 |
| — |
|
Net asset value, end of year | | 11.31 |
| $16.61 |
| $11.94 |
| $14.17 |
| $17.74 |
|
Total Return | | 1.80 | % | 53.41 | % | (11.54 | %) | 4.89 | % | 16.79 | % |
Ratios/Supplemental Data | |
|
|
|
|
|
|
|
|
|
|
Ratios to average net assets | |
|
|
|
|
|
|
|
|
|
|
Expenses, gross | | 1.80 | %(B) | 1.88 | %(B) | 1.79 | %(B) | 1.63 | %(B) | 1.55 | %(B) |
Expenses, net of management fee waivers and reimbursements | | 1.20 | % | 1.20 | % | 1.21 | %(C) | 1.21 | %(C) | 1.22 | %(C) |
Net investment income (loss) | | 1.13 | % | 0.45 | % | 0.85 | % | 0.27 | % | 0.24 | % |
Portfolio turnover rate | | 81.95 | % | 14.95 | % | 29.91 | % | 42.66 | % | 75.46 | % |
Net assets, end of year (000’s) | | $9,948 |
| $12,742 |
| $9,301 |
| $15,488 |
| $99,497 |
|
(1)Per share amounts calculated using the average number of shares outstanding throughout each year.
(A)Less than $0.01 per share.
(B)Ratio of total expenses before management fee waivers and reimbursements, excluding proxy costs and interest expense, would have been 1.80%, 1.88%, 1.78%, 1.61% and 1.53%, for the years ended April 30, 2022 through April 30, 2018, respectively.
(C)Ratio of total expenses net of management fee waivers and reimbursements, excluding proxy costs and interest expense, would have been 1.20% for the years ended April 30, 2020 through April 30, 2018, respectively.
APPLIED FINANCE EXPLORER FUND
Selected Per Share Data Throughout Each Year
See Notes to Financial Statements
39
ANNUAL REPORT
See Notes to Financial Statements
38
ANNUAL REPORT
APPLIED FINANCE EXPLORER FUND
Financial Highlights
| | Institutional Class Shares | | ||||||||
| | Years ended April 30, | | ||||||||
| | 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 | |
Net asset value, beginning of year | | $17.31 |
| $9.09 |
| $10.89 |
| $11.94 |
| $10.71 |
|
Investment activities | |
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)(1) | | 0.08 |
| 0.02 |
| 0.09 |
| 0.06 |
| — | (2) |
Net realized and unrealized gain (loss) on investments | | 0.70 |
| 8.26 |
| (1.81 | ) | (0.11 | ) | 1.46 |
|
Total from investment activities | | 0.78 |
| 8.28 |
| (1.72 | ) | (0.05 | ) | 1.46 |
|
Distributions | |
|
|
|
|
|
|
|
|
|
|
Net investment income | | (0.04 | ) | (0.06 | ) | (0.09 | ) | (0.02 | ) | — |
|
Net realized gain | | (0.12 | ) | — |
| — |
| (0.98 | ) | (0.23 | ) |
Total distributions | | (0.16 | ) | (0.06 | ) | (0.09 | ) | (1.00 | ) | (0.23 | ) |
Paid-in capital from redemption fees | | — | (2) | — | (2) | 0.01 |
| — | (2) | — |
|
Net asset value, end of year | | $17.93 |
| $17.31 |
| $9.09 |
| $10.89 |
| $11.94 |
|
Total Return | | 4.50 | % | 91.26 | % | (15.88 | %) | 0.68 | % | 13.67 | % |
Ratios/Supplemental Data | |
|
|
|
|
|
|
|
|
|
|
Ratios to average net assets | |
|
|
|
|
|
|
|
|
|
|
Expenses, gross | | 1.45 | %(A) | 1.61 | %(A) | 1.90 | %(A) | 1.82 | %(A) | 1.97 | %(A) |
Expenses, net of management fee waivers and reimbursements | | 0.83 | %(B) | 0.86 | %(B) | 0.83 | %(B) | 0.83 | %(B) | 0.94 | %(B) |
Net investment income (loss) | | 0.45 | % | 0.15 | % | 0.82 | % | 0.51 | % | 0.04 | % |
Portfolio turnover rate | | 31.62 | % | 42.02 | % | 228.89 | % | 107.77 | % | 82.63 | % |
Net assets, end of year (000’s) | | $161,652 |
| $79,647 |
| $13,360 |
| $18,151 |
| $13,883 |
|
(1)Per share amounts calculated using the average number of shares outstanding throughout each year.
(2)Less than $0.01 per share.
(A)Ratio of total expenses before management fee waivers and reimbursements, excluding proxy costs and interest expense, would have been 1.45%, 1.90%, 1.82% and 1.97%, for the years ended April 30, 2021 through April 30, 2018, respectively.
(B)Ratio of total expenses net of management fee waivers and reimbursements, excluding proxy costs and interest expense, would have been 0.83%, 0.82%, 0.83% and 0.94%, for the years ended April 30, 2021 through April 30, 2018, respectively.
APPLIED FINANCE EXPLORER FUND
Selected Per Share Data Throughout Each Year
See Notes to Financial Statements
41
ANNUAL REPORT
See Notes to Financial Statements
40
ANNUAL REPORT
APPLIED FINANCE EXPLORER FUND
Financial Highlights
| | Investor Class Shares | | ||||||||
| | Years ended April 30, | | ||||||||
| | | |||||||||
| | 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 | |
Net asset value, beginning of year | | $17.19 |
| $9.02 |
| $10.80 |
| $11.86 |
| $10.67 |
|
Investment activities | |
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)(1) | | 0.04 |
| (0.02 | ) | 0.07 |
| 0.03 |
| (0.03 | ) |
Net realized and unrealized gain (loss) on investments | | 0.68 |
| 8.19 |
| (1.80 | ) | (0.11 | ) | 1.45 |
|
Total from investment activities | | 0.72 |
| 8.17 |
| (1.73 | ) | (0.08 | ) | 1.42 |
|
Distributions | |
|
|
|
|
|
|
|
|
|
|
Net investment income | | (0.01 | ) | (0.02 | ) | — |
| — |
| — |
|
Net realized gain | | (0.12 | ) | — |
| (0.05 | ) | (0.98 | ) | (0.23 | ) |
Total distributions | | (0.13 | ) | (0.02 | ) | (0.05 | ) | (0.98 | ) | (0.23 | ) |
Paid-in capital from redemption fees | | 0.04 |
| 0.02 |
| — | (C) | — | (C) | — |
|
Net asset value, end of year | | $17.82 |
| $17.19 |
| $9.02 |
| $10.80 |
| $11.86 |
|
Total Return | | 4.40 | % | 90.87 | % | (16.10 | %) | 0.38 | % | 13.34 | % |
Ratios/Supplemental Data | |
|
|
|
|
|
|
|
|
|
|
Ratios to average net assets | |
|
|
|
|
|
|
|
|
|
|
Expenses, gross | | 1.76 | %(A) | 1.96 | %(A) | 2.34 | %(A) | 2.23 | %(A) | 2.42 | %(A) |
Expenses, net of management fee waivers and reimbursements | | 1.08 | %(B) | 1.11 | %(B) | 1.08 | %(B) | 1.08 | %(B) | 1.22 | %(B) |
Net investment income (loss) | | 0.20 | % | (0.13 | %) | 0.64 | % | 0.24 | % | (0.24 | %) |
Portfolio turnover rate | | 31.62 | % | 42.02 | % | 228.89 | % | 107.77 | % | 82.63 | % |
Net assets, end of year (000’s) | | $92,813 |
| $40,114 |
| $3,491 |
| $2,682 |
| $2,314 |
|
(1)Per share amounts calculated using the average number of shares outstanding throughout each year.
(A)Ratio of total expenses before management fee waivers and reimbursements, excluding proxy costs and interest expense, would have been 1.76%, 1.93%, 2.34%, 2.23% and 2.42%, for the years ended April 30, 2022 through April 30, 2018, respectively.
(B)Ratio of total expenses net of management fee waivers and reimbursements, excluding proxy costs and interest expense, would have been 1.08%, 1.08%, 1.08%, 1.08% and 1.22% for the years ended April 30, 2022 through April 30, 2018, respectively.
(C)Less than $0.01 per share.
APPLIED FINANCE SELECT FUND
Selected Per Share Data Throughout Each Year
See Notes to Financial Statements
43
ANNUAL REPORT
See Notes to Financial Statements
42
ANNUAL REPORT
APPLIED FINANCE SELECT FUND
Financial Highlights
| | Institutional Class Shares | | ||||||||
| | Years ended April 30, | | ||||||||
| | 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 | |
Net asset value, beginning of year | | $18.62 |
| $12.11 |
| $12.77 |
| $11.76 |
| $10.30 |
|
Investment activities | |
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)(1) | | 0.18 |
| 0.15 |
| 0.16 |
| 0.14 |
| 0.10 |
|
Net realized and unrealized gain (loss) on investments | | 0.17 |
| 6.56 |
| (0.70 | ) | 1.01 |
| 1.62 |
|
Total from investment activities | | 0.35 |
| 6.71 |
| (0.54 | ) | 1.15 |
| 1.72 |
|
Distributions | |
|
|
|
|
|
|
|
|
|
|
Net investment income | | (0.16 | ) | (0.14 | ) | (0.12 | ) | (0.06 | ) | (0.07 | ) |
Net realized gain | | (0.31 | ) | (0.06 | ) | — | (A) | (0.08 | ) | (0.19 | ) |
Total distributions | | (0.47 | ) | (0.20 | ) | (0.12 | ) | (0.14 | ) | (0.26 | ) |
Paid-in capital from redemption fees | | — | (A) | — | (A) | — | (A) | — | (A) | — |
|
Net asset value, end of year | | $18.50 |
| $18.62 |
| $12.11 |
| $12.77 |
| $11.76 |
|
Total Return | | 1.82 | % | 55.70 | % | (4.34 | %) | 10.02 | % | 16.66 | % |
Ratios/Supplemental Data | |
|
|
|
|
|
|
|
|
|
|
Ratios to average net assets | |
|
|
|
|
|
|
|
|
|
|
Expenses, gross | | 1.16 | % | 1.23 | % | 1.27 | % | 1.31 | % | 1.67 | % |
Expenses, net of management fee waivers and reimbursements | | 0.75 | % | 0.75 | % | 0.75 | % | 0.75 | % | 0.76 | % |
Net investment income (loss) | | 0.95 | % | 0.97 | % | 1.27 | % | 1.14 | % | 0.82 | % |
Portfolio turnover rate | | 8.26 | % | 13.89 | % | 9.66 | % | 42.05 | % | 211.64 | % |
Net assets, end of year (000’s) | | $312,612 |
| $252,690 |
| $126,669 |
| $73,018 |
| $30,752 |
|
(1)Per share amounts calculated using the average number of shares outstanding throughout each year.
(A)Less than $0.01 per share.
APPLIED FINANCE SELECT FUND
Selected Per Share Data Throughout Each Year
See Notes to Financial Statements
45
ANNUAL REPORT
See Notes to Financial Statements
44
ANNUAL REPORT
APPLIED FINANCE SELECT FUND
Financial Highlights
| | Investor Class Shares | | ||||||||
| | Years ended April 30, | | ||||||||
| | 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 | |
Net asset value, beginning of year | | $18.54 |
| $12.07 |
| $12.73 |
| $11.75 |
| $10.30 |
|
Investment activities | |
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)(1) | | 0.13 |
| 0.11 |
| 0.13 |
| 0.10 |
| 0.08 |
|
Net realized and unrealized gain (loss) on investments | | 0.16 |
| 6.53 |
| (0.70 | ) | 1.01 |
| 1.60 |
|
Total from investment activities | | 0.29 |
| 6.64 |
| (0.57 | ) | 1.11 |
| 1.68 |
|
Distributions | |
|
|
|
|
|
|
|
|
|
|
Net investment income | | (0.11 | ) | (0.11 | ) | (0.09 | ) | (0.06 | ) | (0.04 | ) |
Net realized gain | | (0.31 | ) | (0.06 | ) | — | (A) | (0.08 | ) | (0.19 | ) |
Total distributions | | (0.42 | ) | (0.17 | ) | (0.09 | ) | (0.14 | ) | (0.23 | ) |
Paid-in capital from redemption fees | | 0.01 |
| — | (A) | — | (A) | 0.01 |
| — |
|
Net asset value, end of year | | $18.42 |
| $18.54 |
| $12.07 |
| $12.73 |
| $11.75 |
|
Total Return | | 1.55 | % | 55.30 | % | (4.54 | %) | 9.80 | % | 16.36 | % |
Ratios/Supplemental Data | |
|
|
|
|
|
|
|
|
|
|
Ratios to average net assets | |
|
|
|
|
|
|
|
|
|
|
Expenses, gross | | 1.48 | % | 1.57 | % | 1.66 | % | 1.72 | % | 2.30 | % |
Expenses, net of management fee waivers and reimbursements | | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.07 | % |
Net investment income (loss) | | 0.69 | % | 0.71 | % | 1.03 | % | 0.86 | % | 0.71 | % |
Portfolio turnover rate | | 8.26 | % | 13.89 | % | 9.66 | % | 42.05 | % | 211.64 | % |
Net assets, end of year (000’s) | | $29,014 |
| $21,060 |
| $8,877 |
| $6,030 |
| $4,302 |
|
(1)Per share amounts calculated using the average number of shares outstanding throughout each year.
(A)Less than $0.01 per share.
46
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial StatementsApril 30, 2022
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
The Applied Finance Core Fund, the Applied Finance Explorer Fund, and the Applied Finance Select Fund (each a “Fund” and collectively, the “Funds”) are diversified series of the World Funds Trust (the “Trust”) which was organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management company. The Applied Finance Core Fund was established in December 2005 as a series of Unified Series Trust (“UST”). On May 8, 2015, the Applied Finance Core Fund (“Core Fund”) was reorganized from UST into the Trust. On September 15, 2017, the Retail Class shares of the Core Fund was reorganized into Investor Class shares. The Applied Finance Explorer Fund (“Explorer Fund”) commenced operations for Institutional shares on June 11, 2015 and on June 30, 2015 for Investor shares. The Applied Finance Select Fund (“Select Fund”) commenced operations for Institutional shares on February 3, 2017 and February 1, 2017 for Investor shares.
The investment objective of the Core, Explorer and Select Funds is to seek long-term capital appreciation.
The following is a summary of significant accounting policies consistently followed by the Funds. The policies are in conformity with generally accepted accounting principles in the United States of America (“GAAP”). The Funds follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services – Investment Companies”.
Recent Accounting Pronouncements and Regulatory updates
In October 2020, the Securities and Exchange Commission (“SEC”) adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). Rule 18f-4 imposes limits on the amount of derivatives a fund can enter into, eliminates the asset segregation framework currently used by funds to comply with section 18 of the 1940 Act, and requires funds whose use of derivatives is greater than a limited specified amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. Funds are required to comply with Rule 18f-4 by August 19, 2022. The impact, if any, that Rule 18f-4 will have on the availability, liquidity, and performance of derivatives is unclear. Management is currently evaluating the potential impact of Rule 18f-4 on the Fund. When fully implemented, Rule 18f-4 may require changes in how the Fund uses derivatives, adversely affect the Fund’s performance, and increase costs related to the Fund’s use of derivatives.
47
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
In December 2020, the SEC adopted a new rule providing a framework for fund valuation practices (“Rule 2a-5”). Rule 2a-5 establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits fund boards to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must fair value a security. In connection with Rule 2a-5, the SEC also adopted related recordkeeping requirements and is rescinding previously issued guidance, including with respect to the role of a board in determining fair value and the accounting and auditing of fund investments. Funds must comply with the rules by September 8, 2022. Management is currently assessing the potential impact of the new rules on the Fund’s financial statements.
Security Valuation
The Funds’ securities are valued at current market prices. Investments in securities traded on a principal exchange (U.S. or foreign) are valued at the last reported sales price on the exchange on which the securities are traded as of the close of business on the last day of the period or, lacking any sales, at the average of the bid and ask price on the valuation date. Investments in securities included in the NASDAQ National Market System are valued at the NASDAQ Official Closing Price. In cases where securities are traded on more than one exchange, the securities are valued on the exchange designated by or under the authority of the Funds Board of Trustees. Short-term debt securities (less than 60 days to maturity) are valued at their fair market value using amortized cost. Securities traded in the over-the-counter market are valued at the last available sale price in the over-the-counter market prior to time of valuation. Securities for which market quotations are not readily available are valued on a consistent basis at fair value as determined in good faith by or under the direction of the Funds’ officers in a manner specifically authorized by the Board of Trustees of the Funds. Depositary Receipts will be valued at the closing price of the instrument last determined prior to time of valuation unless the Funds are aware of a material change in value. Securities for which such a value cannot be readily determined will be valued at the closing price of the underlying security adjusted for the exchange rate. Temporary investments in U.S. dollar denominated short-term investments are valued at amortized cost, which approximates market value. Other assets for which market prices are not readily available are valued at their fair value as determined in good faith by the administrator, in consultation with the Adviser, under procedures set by the Board.
48
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
Generally, trading in corporate bonds, U.S. government securities and money market instruments is substantially completed each day at various times before the scheduled close of the New York Stock Exchange (“NYSE”). The value of these securities used in computing the net asset value (“NAV”) is determined as of such times.
The Trust has a policy that contemplates the use of fair value pricing to determine the NAV per share of the Funds when market prices are unavailable as well as under special circumstances, such as: (i) if the primary market for a portfolio security suspends or limits trading or price movements of the security; and (ii) when an event occurs after the close of the exchange on which a portfolio security is principally traded that is likely to have changed the value of the security.
When the Trust uses fair value pricing to determine the NAV per share of each Fund, securities will not be priced on the basis of quotations from the primary market in which they are traded, but rather may be priced by another method that the Board believes accurately reflects fair value. Any method used will be approved by the Board and results will be monitored to evaluate accuracy. The Trust’s policy is intended to result in a calculation of the Fund’s NAV that fairly reflects security values as of the time of pricing. However, fair values determined pursuant to the Trust’s procedures may not accurately reflect the price that a Fund could obtain for a security if it were to dispose of that security as of the time of pricing.
The Funds have adopted fair valuation accounting standards that establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs used to develop the measurements of fair value. These inputs are summarized in the three broad levels listed below.
Various inputs are used in determining the value of a Fund’s investments. GAAP established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Funds’ own assumptions in determining fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
49
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
The following is a summary of the level of inputs used to value the Funds’ investments as of April 30, 2022:
| | Level 1 |
| Level 2 |
| Level 3 |
|
| |
Core Fund | | | | | | | | | |
Common Stocks | | $33,378,425 |
| $— |
| $— |
| $33,378,425 |
|
Exchange Traded Funds | | 619,706 |
| — |
| — |
| 619,706 |
|
Money Market Fund | | 33,036 |
| — |
| — |
| 33,036 |
|
| | $34,031,167 |
| $— |
| $— |
| $34,031,167 |
|
| |
|
|
|
|
|
|
|
|
Explorer Fund | |
|
|
|
|
|
|
|
|
Common Stocks | | $239,853,721 |
| $— |
| $— |
| $239,853,721 |
|
Exchange Traded Funds | | 278,750 |
| — |
| — |
| 278,750 |
|
Money Market Fund | | 15,349,436 |
| — |
| — |
| 15,349,436 |
|
| | $255,481,907 |
| $— |
| $— |
| $255,481,907 |
|
| |
|
|
|
|
|
|
|
|
Select Fund | |
|
|
|
|
|
|
|
|
Common Stocks | | $327,124,668 |
| $— |
| $— |
| $327,124,668 |
|
Money Market Fund | | 14,124,652 |
| — |
| — |
| 14,124,652 |
|
| | $341,249,320 |
| $— |
| $— |
| $341,249,320 |
|
Refer to the Funds’ Schedules of Investments for a listing of the securities by type and sector.
There were no transfers into or out of any levels during the year ended April 30, 2022. The Funds recognize transfers between fair value hierarchy levels at the end of the reporting period. The Funds held no Level 3 securities at any time during the year ended April 30, 2022.
Security Transactions and Income
Security transactions are accounted for on the trade date. The cost of securities sold is determined generally on specific identification basis. Realized gains and losses from security transactions are determined on the basis of identified cost for book and tax purposes. Dividends are recorded on the ex-dividend date. Interest income is recorded on an accrual basis.
50
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
Cash and Cash Equivalents
Cash and cash equivalents consist of overnight deposits with the custodian bank which earn interest at the current market rate.
Accounting Estimates
In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Federal Income Taxes
The Funds have complied and intend to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. The Funds also intend to distribute sufficient net investment income and net capital gains, if any, so that it will not be subject to excise tax on undistributed income and gains. Therefore, no federal income tax or excise provision is required.
Management has reviewed the Funds’ tax positions for each of the open tax years (2019-2021) for Core Fund and Explorer Fund, and since inception for Select Fund, and the Funds’ tax positions expected to be taken in the Funds’ 2022 tax returns and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken in the Funds’ tax returns. The Funds have no examinations in progress and management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change.
Reclassification of Capital Accounts
GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. For the year ended April 30, 2022, such reclassifications were as follows:
| | Core Fund | |
Distributable earnings | | $(99 | ) |
Paid-in capital | | 99 | |
51
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
Class Net Asset Values and Expenses
All income and expenses not attributable to a particular class and realized and unrealized gains or losses on investments are allocated to each class based upon its relative net assets on a daily basis for purposes of determining the net asset value of each class. Certain shareholder servicing plans, administrative services plans, and distribution fees are allocated to the particular class to which they are attributable.
The Funds currently offer two classes of shares: Institutional Class and Investor Class shares. Each class of shares has equal rights as to assets of the Funds, and the classes are identical except for differences in their sales charge structures, ongoing distribution and service fees, and shareholder servicing. Income, expenses (other than distribution and service fees, and shareholder servicing fees), and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. All classes have equal voting privileges, except where otherwise required by law or when the Trustees determine that the matter to be voted on affects only the interests of the shareholders of a particular class. The Funds’ share classes include a redemption fee of 2% on the proceeds of shares redeemed within 60 days of purchase.
Derivatives
The Core Fund utilizes derivatives to achieve its investment strategies. These are financial instruments that derive their performance from the performance of an underlying asset or index. Derivatives can be volatile and involve various types and degrees of risks, depending upon the characteristics of a particular derivative. Derivatives may entail investment exposures that are greater than their cost would suggest, meaning that a small investment in a derivative could have a large potential impact on the performance of the Core Fund. The Core Fund could experience a loss if derivatives do not perform as anticipated, or are not correlated with the performance of other investments which are used to hedge or if the Fund is unable to liquidate a position because of an illiquid secondary market. The market for many derivatives is, or suddenly can become, illiquid. Changes in liquidity may result in significant, rapid and unpredictable changes in the prices for derivatives. Options are subject to equity price risk that arises from the possibility that equity security prices will fluctuate affecting the value of the options. The Core Fund held no derivatives during the year ended April 30, 2022.
52
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
Options
Call options give the owner the right to buy a stock at a specific price (also called the strike price) over a given period of time. Put options give the owner the right, but not the obligation, to sell a stock at a specific price over a given period of time. A purchaser (holder) of an option pays a non-refundable premium to the seller (writer) of an option to obtain the right to buy/sell a specified amount of a security at a fixed price (the exercise price) during a specified period (exercise period). Conversely, the seller (writer) of an option, upon payment by the holder of the premium, has the obligation to sell/buy the security from the holder of the option at the exercise price during the exercise period. When an option is exercised, the premium originally received decreases the cost basis of the underlying security (or increases the proceeds on the security sold short) and the Fund realizes a gain or loss from the sale of the security (or closing of the short sale). Options are not treated as hedging instruments under GAAP.
Purchased option contracts – When the Fund purchases a call or put option, an amount equal to the total premium (the premium plus commission) paid by the Fund is recorded as an asset in the Fund’s Statement of Assets and Liabilities and is subsequently marked-to-market daily. Premiums paid in the purchase of options that expire are treated as realized losses. Premiums paid in the purchase of call options that are exercised will increase the cost of the underlying security purchased. Premiums paid in the purchase of put options that are exercised will decrease the proceeds used to calculate the realized capital gain or loss on the sale of the underlying security.
Written option contracts – When the Fund writes a call or put option, an amount equal to the net premium (the premium less the commission) received by the Fund is recorded in the Fund’s Statement of Assets and Liabilities and is subsequently marked-to-market daily. Premiums received from writing call and put options that expire are treated as realized capital gains. Premiums received from writing call options that are exercised will increase the proceeds used to calculate the realized capital gain or loss on the sale of the underlying security. Premiums received from writing put options that are exercised will decrease the basis of the underlying security purchased.
53
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
If a closing purchase or sale transaction is used to terminate a Fund’s obligation on an option, a capital gain or loss will be realized, depending upon whether the price of the closing transaction is more or less than the premium previously paid on the option purchased or received on the option written.
NOTE 2 – | INVESTMENT ADVISORY AND DISTRIBUTION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES |
Pursuant to Investment Advisory Agreements, the Funds’ investment advisor, Applied Finance Advisors, LLC (the “Advisor”), provides investment services for an annual fee on the average daily net assets of the Funds.
The Advisor earned and waived fees, and reimbursed expenses for the year ended April 30, 2022 for the Funds as follows:
Fund |
| Fee |
| Management Fee Earned |
| Management Fee Waived |
| Expenses Reimbursed | |
Core | | 0.90% | | $411,485 |
| $225,628 |
| $— |
|
Explorer | | 1.14% | | 2,104,597 |
| 1,191,063 |
| — |
|
Select | | 0.90% | | 2,794,306 |
| 1,302,098 |
| — |
|
The Advisor has entered into a written expense limitation agreement under which it has agreed to limit the total expenses for each Fund (exclusive of interest, expenses incurred under a plan or distribution adopted pursuant to the Rule 12b-1 under the 1940 Act, taxes, acquired fund fees and expenses, brokerage commissions, dividend expenses on short sales, and other extraordinary expenses not incurred in the ordinary course of business) to an annual rate of 0.95%, 0.83%, and 0.75% of the average daily net assets of the Core Fund, Explorer Fund and Select Fund, respectively. Each waiver and/or reimbursement of an expense by the Advisor is subject to repayment by the respective fund within three years following the date such waiver and/or reimbursement was made, provided that the respective Fund is able to make the repayment without exceeding the expense limitation in place at the time of the waiver or reimbursement and at the time the waiver or reimbursement is recouped. This expense cap may not be terminated prior to August 31, 2022 unless mutually agreed to in writing by the parties.
54
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
The total amounts of recoverable reimbursements for the Funds as of April 30, 2022, and expiration dates are as follows:
Recoverable Reimbursements and Expiration Dates | | ||||||||
Fund |
| 2023 |
| 2024 |
| 2025 |
| Total | |
Core | | $308,634 | | $265,422 | | $225,628 | | $799,684 | |
Explorer | | 208,540 | | 333,261 | | 1,191,063 | | 1,732,864 | |
Select | | 607,307 | | 951,652 | | 1,302,098 | | 2,861,057 | |
The Funds have adopted a Distribution Plan with respect to Investor Class shares in accordance with Rule 12b-1 under the 1940 Act. Pursuant to the Distribution Plan, the Funds compensate the Funds’ principal underwriter for services rendered and expenses borne in connection with activities primarily intended to result in the sale of each Fund’s shares (this compensation is commonly referred to as “12b-1 fees”). The Distribution Plan provides that the Funds will pay the annual rate of up to 0.25% of the average daily net assets of each Fund’s Investor Class shares for activities primarily intended to result in the sale of those shares. These activities include reimbursement to entities for providing distribution and shareholder servicing with respect to each Fund’s shares. Because the 12b-1 fees are paid out of the Funds’ assets on an on-going basis, these fees, over time, will increase the cost of your investment and may cost you more than paying other types of sales charges. The Institutional Class shares are sold without the imposition of 12b-1 fees.
Each of the Funds has adopted a shareholder services plan with respect to its Investor and Institutional Class shares. Under a shareholder services plan, each of the Funds may pay an authorized firm up to 0.25% on an annualized basis of average daily net assets attributable to its customers who are shareholders. For this fee, the authorized firms may provide a variety of services, including but not limited to: (i) arranging for bank wires; (ii) responding to inquiries from shareholder concerning their investment in the Funds; (iii) assisting shareholders in changing dividend options, account designations and addresses; (iv) providing information periodically to shareholders showing their position in shares; (v) forwarding shareholder communications from the Funds such as proxies, shareholder reports, annual reports, and dividend distribution and tax notices to shareholders; (vi) processing purchase, exchange and redemption requests from shareholder and placing orders with the Funds or their service providers; (vii) providing sub-accounting with respect to shares beneficially owned by shareholders; and (viii) processing dividend payments from the Funds on behalf of shareholders.
55
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
For the year ended April 30, 2022, the following expenses were incurred:
Fund |
| Class |
| Type of Plan |
| Fees Incurred | |
Core | | Investor Investor Institutional | | 12b-1 Shareholder Service Shareholder Service | | $29,448 22,416 18,954 | |
Explorer | | Investor Investor Institutional | | 12b-1 Shareholder Service Shareholder Service | | 182,863 103,059 84,039 | |
Select | | Investor Investor Institutional | | 12b-1 Shareholder Service Shareholder Service | | 65,010 37,375 227,098 | |
Commonwealth Fund Services, Inc. (“CFS”) acts as the Funds’ administrator, transfer and dividend disbursing agent, and accounting agent. As administrator, CFS provides shareholder, recordkeeping, administrative and blue-sky filing services. Fees to CFS are computed daily and paid monthly. For the year ended April 30, 2022, the following fees were paid by the Funds to CFS:
Fund |
| Administration |
| Transfer Agent |
| Accounting | |
Core | | $24,029 | | $33,770 | | $11,774 | |
Explorer | | 80,596 | | 49,979 | | 49,964 | |
Select | | 132,817 | | 35,688 | | 83,845 | |
Certain officers of the Trust are also officers and/or directors of CFS. Additionally, Practus LLP, serves as legal counsel to the Trust. John H. Lively, Secretary of the Trust, is Managing Partner of Practus LLP. Tina H. Bloom, Assistant Secretary of the Trust, is a Partner of Practus LLP. Neither the officers and/or directors of CFS, Mr. Lively or Ms. Bloom receive any special compensation from the Trust or the Funds for serving as officers of the Trust.
NOTE 3 – INVESTMENTS
The cost of purchases and the proceeds from sales of securities other than short-term notes for the year ended April 30, 2022 were as follows:
Fund |
| Purchases |
| Sales | |
Core | | $36,595,624 | | $55,503,839 | |
Explorer | | 180,634,940 | | 56,890,786 | |
Select | | 82,039,932 | | 25,138,359 | |
56
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
NOTE 4 – | DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL |
Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
The tax character of distributions paid during the year ended April 30, 2022 and for the year ended April 30, 2021 were as follows:
Core Fund | | ||||
| |
|
|
| |
Distributions paid from: | |
|
|
|
|
Ordinary income | | $284,280 |
| $427,880 |
|
Accumulated net realized gain on investments | | 17,067,087 |
| 3,921,672 |
|
| | $17,351,367 |
| $4,349,552 |
|
Explorer Fund | | ||||
| |
|
|
| |
Distributions paid from: | | | | | |
Ordinary income | | $363,762 |
| $116,880 |
|
Accumulated net realized gain on investments | | 1,114,508 |
| — |
|
| | $1,478,270 |
| $116,880 |
|
Select Fund | | ||||
| |
|
|
| |
Distributions paid from: | | | | | |
Ordinary income | | $4,162,943 | | $1,800,255 | |
Accumulated net realized gain on investments | | 3,302,316 |
| 875,929 | |
| | $7,465,259 |
| $2,676,184 | |
57
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
As of April 30, 2022, the components of distributable earnings on a tax basis were as follows:
| | Core Fund |
| Explorer Fund |
| Select Fund | |
Accumulated net investment income (loss) | | $1,334,428 | | $2,193,931 | | $1,251,883 | |
Accumulated net realized gain (loss) on investments | | 2,609,765 | | 3,325,187 | | 3,134,108 | |
Net unrealized appreciation (depreciation) of investments | | (498,518 | ) | 13,010,023 |
| 72,894,442 | |
| | $3,445,675 |
| $18,529,141 |
| $77,280,433 | |
Cost of securities for Federal Income tax purpose and the related tax-based net unrealized appreciation (depreciation) consists of:
Fund |
| Cost |
| Gross |
| Gross |
| Total | |
Core | | $34,529,685 |
| $2,365,424 |
| $(2,863,942 | ) | $(498,518 | ) |
Explorer | | 242,471,884 |
| 35,867,532 |
| (22,857,509 | ) | 13,010,023 |
|
Select | | 268,354,878 |
| 83,850,879 |
| (10,956,437 | ) | 72,894,442 |
|
The difference between book basis and tax basis distributable earnings is attributable primarily to the deferral of wash sale losses.
NOTE 5 – CAPITAL STOCK TRANSACTIONS
Shares of beneficial interest transactions for the Funds were:
Core Fund | | ||||
| | Year ended April 30, 2022 | | ||
| | Institutional Class Shares |
| Investor Class Shares | |
Shares sold | | 210,513 |
| 39,235 |
|
Shares reinvested | | 1,048,510 |
| 349,955 |
|
Shares redeemed | | (1,512,242 | ) | (276,848 | ) |
Net increase (decrease) | | (253,219 | ) | 112,342 |
|
|
58
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
Core Fund | | ||||
| | Year ended April 30, 2021 | | ||
| | Institutional Class Shares |
| Investor Class Shares | |
Shares sold | | 254,509 |
| 42,933 |
|
Shares received from merger | | 217,644 |
| 208,033 |
|
Shares reinvested | | 213,748 |
| 78,308 |
|
Shares redeemed | | (671,643 | ) | (341,330 | ) |
Net increase (decrease) | | 14,258 |
| (12,056 | ) |
| |||||
Explorer Fund | | ||||
| | Year ended April 30, 2022 | | ||
| | Institutional Class Shares |
| Investor Class Shares | |
Shares sold | | 5,239,523 |
| 4,925,793 |
|
Shares reinvested | | 31,375 |
| 28,091 |
|
Shares redeemed | | (852,951 | ) | (2,079,723 | ) |
Net increase (decrease) | | 4,417,947 |
| 2,874,161 |
|
| |||||
Explorer Fund | | ||||
| | Year ended April 30, 2021 | | ||
| | Institutional Class Shares |
| Investor Class Shares | |
Shares sold | | 3,544,206 |
| 2,292,498 |
|
Shares reinvested | | 4,637 |
| 1,087 |
|
Shares redeemed | | (418,103 | ) | (347,242 | ) |
Net increase (decrease) | | 3,130,740 |
| 1,946,343 |
|
| |||||
Select Fund | | ||||
| | Year ended April 30, 2022 | | ||
| | Institutional Class Shares |
| Investor Class Shares | |
Shares sold | | 5,287,909 |
| 729,737 | |
Shares reinvested | | 212,656 |
| 24,558 | |
Shares redeemed | | (2,171,588 | ) | (315,474 | ) |
Net increase (decrease) | | 3,328,977 |
| 438,821 | |
| | | | | |
59
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
Select Fund | | ||||
| | Year ended April 30, 2021 | | ||
| | Institutional Class Shares |
| Investor Class Shares | |
Shares sold | | 5,817,748 |
| 554,880 |
|
Shares reinvested | | 89,705 |
| 7,410 |
|
Shares redeemed | | (2,797,763 | ) | (161,928 | ) |
Net increase (decrease) | | 3,109,690 |
| 400,362 |
|
NOTE 6 – SECTOR RISK
If a Fund has significant investments in the securities of issuers in industries within a particular sector, any development affecting that sector will have a greater impact on the value of the net assets of that Fund than would be the case if the Fund did not have significant investments in that sector. In addition, this may increase the risk of loss of an investment in the Funds and increase the volatility of the Funds’ NAV per share. From time to time, circumstances may affect a particular sector and the companies within such sector. For instance, economic or market factors, regulation or deregulation, and technological or other developments may negatively impact all companies in a particular sector and therefore the value of a Fund’s portfolio will be adversely affected. As of April 30, 2022, 17.92%, and 17.70% of the value of the net assets of the Core Fund were invested in securities within the Financials and Health Care sectors, respectively; 18.06% of the value of the net assets of the Explorer Fund were invested in securities within the Financials sector; and 27.12% of the value of the net assets of the Select Fund were invested in securities within the Information Technology sector.
NOTE 7 – FUND REORGANIZATION
As of close of business on August 14, 2020 pursuant to an Agreement and Plan of Reorganization previously approved by the Trust’s Board of Trustees, all of the assets and liabilities of Applied Finance Dividend Fund were transferred to the Applied Finance Core Fund (the “Acquiring Fund”) in exchange for shares of the Acquiring Fund (the “Reorganization”). The Reorganization was a tax-free Reorganization for federal income tax purposes. For financial reporting purposes, the Acquiring Fund was deemed to be the accounting survivor and as a result, the financial statements and financial highlights do not reflect the
60
ANNUAL REPORT
APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
operations of the Target Fund. Information with respect to the net assets and other relevant operating data for the Target Fund on the Reorganization date is included below:
Target Fund: |
| Institutional |
| Investor | |
Net Assets | | $3,030,628 | | $2,878,638 | |
Shares Outstanding | | 208,364 | | 207,733 | |
Net Asset Value | | $14.54 | | $13.86 | |
Exchange rate for shares issued | | 1.04 | | 1.00 | |
Unrealized appreciation/depreciation | | $(422,875 | ) | $(296,616 | ) |
Acquiring Fund |
| Institutional |
| Investor | |
Net Assets immediately prior to Reorganization | | $30,410,131 | | $9,593,910 | |
Net Assets immediately after to Reorganization | | $33,439,740 | | $12,473,086 | |
Fund Shares Issued in exchange for acquired fund | | 217,644 | | 208,033 | |
Assuming the Reorganization had been completed on April 1, 2020, the beginning of the annual reporting period of the Funds, the Acquiring Fund’s pro forma results of operations for the year ended April 30, 2021, are as follows:
| | Applied | |
Net investment income | | $326,671 | |
Net realized loss on investments | | (1,222,280 | ) |
Change in net unrealized appreciation/depreciation on investments | | 20,813,908 | |
Total decrease in net assets resulting from operations | | 19,918,299 | |
NOTE 8 – RECENT MARKET EVENTS
Market Disruption and Geopolitical Events. Geopolitical and other events, such as war, terrorist attacks, natural disasters, epidemics or pandemics could result in unplanned or significant securities market closures, volatility or declines. Russia’s recent military invasion of Ukraine and the resulting broad-ranging economic sanctions imposed by the United States and other countries, as well as the ongoing COVID-19 pandemic, may continue to disrupt securities markets and adversely affect global economies and companies, thereby decreasing the value of the Funds’ investments. Additionally, sudden or significant changes in the supply or prices of commodities or other economic inputs may have material and unexpected effects on both global securities markets and individual countries, regions, industries, or companies, which could reduce the value of the Funds’ investments.
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APPLIED FINANCE FUNDS
Notes to Financial Statements - continuedApril 30, 2022
Cyber Security Risk. Failures or breaches of the electronic systems of the Advisor and the Funds’ other service providers, market makers, or the issuers of securities in which the Funds invest have the ability to cause disruptions and negatively impact the Funds’ business operations, potentially resulting in financial losses to the Funds and their shareholders. While the Funds have established business continuity plans and risk management systems seeking to address system breaches or failures, there are inherent limitations in such plans and systems. Furthermore, the Funds cannot control the cyber security plans and systems of the Funds’ service providers, market makers, or issuers of securities in which the Funds invest.
NOTE 9 – SUBSEQUENT EVENTS
Subsequent to the date of the financial statements, the Advisor has recommended, and the Trust’s Board of Trustees (the “Board”) has approved, modifications to the principal investment strategies of the Applied Finance Core Fund (the “Fund”) to emphasize the Advisor’s focus on constructing a portfolio of the securities of high- quality issuers with a history of paying dividends. While consistent payment of dividends has been a factor in constructing the Fund’s portfolio, the Advisor has indicated that changing the Fund’s name and its principal investment strategies to emphasize this aspect of the Advisor’s approach to managing the Fund will better convey that concept. Accordingly, effective August 31, 2022, the Fund’s new name will be the “Applied Finance Dividend Fund” (the Fund may also be referred to in the revised disclosure set forth as the “Dividend Fund”). The Board has also approved a modification to the Fund’s principal investment strategies that allows the Advisor to invest the Fund’s assets in foreign securities.
Management has evaluated all transactions and events subsequent to the date of the statement of assets and liabilities through the date on which these financial statements were issued. Except as already included in the notes to these financial statements, no additional items require disclosure.
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ANNUAL REPORT
taitweller.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of the
Applied Finance Funds and the
Board of Trustees of The World Funds Trust
Opinion on the Financial Statements
We have audited the accompanying statements of assets and liabilities of the Applied Finance Core Fund, Applied Finance Explorer and Applied Finance Select Fund (the “Funds”), each a series of The World Funds Trust (the “Trust”), including the schedules of investments, as of April 30, 2022, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, and the related notes (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 April 30, 2022, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the auditor of one or more of the funds in the Trust since 1995.
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 the Funds’ internal control over financial reporting. As part of our audits we are required to obtain an
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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 risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our 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. Our procedures included confirmation of securities owned as of April 30, 2022 by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
June 28, 2022
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ANNUAL REPORT
World Funds Trust (the “Trust”)
Supplemental Information (unaudited)
Information pertaining to the trustees and officers of the Trust is set forth below. The names, addresses and ages of the trustees and officers of the Trust, together with information as to their principal occupations during the past five years, are listed below. The Statement of Additional Information (the “SAI”) includes additional information about the trustees and is available without charge upon request by calling, toll-free, (800) 673-0550.
The mailing address of each Trustee and officer is 8730 Stony Point Parkway, Suite 205, Richmond, VA 23235, unless otherwise indicated.
NON-INTERESTED TRUSTEES
NAME, AGE | TERM OF | PRINCIPAL | NUMBER | OTHER | |
David J. Urban (67) Trustee | | Indefinite, Since June 2010 | Dean, Jones College of Business, Middle Tennessee State University since July 2013. | 20 | ETF Opportunities Trust for the twelve series of that Trust (registered investment company) |
Mary Lou H. Ivey (64) Trustee | | Indefinite, Since June 2010 | Senior Vice President, Episcopal Church Building Fund (national nonprofit organization), since January 2022. Accountant, Harris, Hardy & Johnstone, P.C., (accounting firm), 2008-2021. | 20 | ETF Opportunities Trust for the twelve series of that Trust (registered investment company) |
Theo H. Pitt, Jr. (86) Trustee | | Indefinite, Since August 2013 | Senior Partner, Community Financial Institutions Consulting (bank consulting) since 1997 to present. | 20 | Independent Trustee of Chesapeake Investment Trust for the one series of that trust; Leeward Investment Trust for the one series of that trust; Hillman Capital Management Investment Trust for the one series of that trust; Starboard Investment Trust for the 14 series of that trust; and ETF Opportunities Trust for the twelve series of that Trust (all registered investment companies) |
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ANNUAL REPORT
World Funds Trust (the “Trust”)
Supplemental Information (unaudited) - continued
OFFICERS WHO ARE NOT TRUSTEES
NAME, AGE | TERM OF OFFICE AND LENGTH OF TIME SERVED | PRINCIPAL OCCUPATION(S) | ||
David A. Bogaert (58) President | | Indefinite, Since August 2017 | | Managing Director of Business Development, Commonwealth Fund Services, Inc. (fund administration and transfer agency). |
Karen M. Shupe (58) Treasurer and Principal Executive Officer | | Indefinite, Since June 2008 | | Managing Director of Fund Operations, Commonwealth Fund Services, Inc., 2003 to present. |
Ann T. MacDonald (67) Assistant Treasurer and Principal Financial Officer | | Indefinite, Since November 2015 | | Managing Director, Fund Accounting and Administration, Commonwealth Fund Services, Inc., 2003 to present. |
John H. Lively (53) Secretary | | Indefinite, Since November 2013 | | Attorney, Practus LLP, (law firm), May 2018 to present; Attorney, The Law Offices of John H. Lively & Associates, Inc. (law firm), March 2010 to May 2018. |
Tina H. Bloom (53) Assistant Secretary | | Indefinite, Since November 2018 | | Attorney, Practus LLP, May 2018 to present; Attorney, The Law Offices of John H. Lively & Associates, Inc., November 2017 to May 2018; Director of Fund Administration of Ultimus Fund Solutions, LLC (fund administration and transfer agency) from 2011-2017. |
Holly B. Giangiulio (60) Assistant Secretary | | Indefinite, Since November 2015 | | Managing Director, Corporate Operations, Commonwealth Fund Services, Inc., January 2015 to present, Corporate Accounting and HR Manager from 2010 to 2015. |
Julian G. Winters (53) Chief Compliance Officer | | Indefinite, Since August 2013 | | Managing Member of Watermark Solutions, LLC (investment compliance and consulting) since March 2007. |
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World Funds Trust (the “Trust”)
Supplemental Information (unaudited) - continued
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Funds use to determine how to vote proxies relating to securities held in the Funds’ portfolio is available, without charge and upon request, by calling 1-800-673-0550 or on the SEC’s website at www.sec.gov. Information regarding how the Funds voted proxies relating to portfolio securities during the most recent twelve months ended June 30 is available on or through the SEC’s website at www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS
The Funds file with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on “Form N-PORT”. These filings are available, without charge and upon request, by calling 1-800-673-0550 or on the SEC’s website at www.sec.gov.
ADVISORY CONTRACT RENEWAL
At a meeting held on February 23, 2022 (the “Meeting, the Board of Trustees of the World Funds rust (the “Trust”) considered the renewal of the Investment Advisory Agreement (the “AF Advisory Agreement”) between Applied Finance Advisors, LLC (“Applied Finance”) and the Trust with respect to the Applied Finance Core Fund, the Applied Finance Explorer Fund and the Applied Finance Select Fund (collectively, the “Applied Finance Funds”). Counsel to the Trust (“Counsel”) reviewed with the Board the memorandum from Counsel addressed to the Trustees that summarized, among other things, the fiduciary duties and responsibilities of the Board in reviewing and approving the continuation of the AF Advisory Agreement. A copy of this memorandum was circulated to the Trustees in advance of the Meeting. Counsel discussed with the Trustees the types of information and factors that should be considered by the Board in order to make an informed decision regarding the approval of the continuation of the AF Advisory Agreement, including the following material factors: (i) the nature, extent, and quality of the services provided by Applied Finance; (ii) the investment performance of the Applied Finance Funds; (iii) the costs of the services provided and profits realized by Applied Finance from its relationship with the Applied Finance Funds; (iv) the extent to which economies of scale would be realized if the Applied Finance Funds grow and whether advisory fee levels reflect those economies of scale for the benefit of the Applied Finance Funds’ investors; and (v) Applied Finance’s practices regarding possible conflicts of interest.
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World Funds Trust (the “Trust”)
Supplemental Information (unaudited) - continued
In assessing these factors and reaching its decisions, the Board took into consideration information specifically prepared and/or presented in connection with the approval process with respect to the Applied Finance Funds, including information presented to the Board in Applied Finance’s presentation earlier in the Meeting, as well as prior presentations by Applied Finance’s staff and Trust management at other meetings of the Board, including information regarding expense limitation arrangements and the manner in which the Applied Finance Funds are managed. The Board requested and was provided with information and reports relevant to the approval of the continuation of the AF Advisory Agreement, including: (i) reports regarding the services and support provided to the Applied Finance Funds and their shareholders by Applied Finance; (ii) quarterly assessments of the investment performance of the Applied Finance Funds from Applied Finance; (iii) periodic commentary on the reasons for the performance; (iv) presentations by Applied Finance’s management addressing the investment philosophy, investment strategy, personnel and operations utilized in managing the Applied Finance Funds; (v) compliance and audit reports concerning the Applied Finance Funds and Applied Finance; (vi) disclosure information contained in the Applied Finance Funds’ registration statement and the Form ADV of Applied Finance; and (vii) the memorandum from Trust Counsel that summarized the fiduciary duties and responsibilities of the Board in reviewing and approving the AF Advisory Agreement, including the material factors set forth above and the types of information included in each factor that should be considered by the Board in order to make an informed decision.
The Board also requested and received various informational materials including, without limitation: (i) documents containing information about Applied Finance, including financial information, a description of personnel and the services provided to the Applied Finance Funds, information on investment advice, performance, summaries of the Applied Finance Funds’ expenses, its compliance program, current legal matters, and other general information; (ii) comparative expense and performance information for other mutual funds with strategies similar to the Applied Finance Funds; (iii) the anticipated effect of size on the Applied Finance Funds’ performance and expenses; and (iv) benefits realized by Applied Finance from its relationship with the Applied Finance Funds. It was noted that Applied Finance is a privately held company and typically does not provide its financial information, although it made such information available to the Board for purposes of its consideration of whether to approve the AF Advisory Agreement. The Board did not identify any particular information that was most relevant to its consideration of whether to approve the continuation of
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World Funds Trust (the “Trust”)
Supplemental Information (unaudited) - continued
the AF Advisory Agreement and each Trustee may have afforded different weight to the various factors. In deciding whether to approve the continuation of the AF Advisory Agreement, the Trustees considered numerous factors, including:
(1)The nature, extent, and quality of the services provided by Applied Finance.
In this regard, the Board considered the responsibilities Applied Finance has under the AF Advisory Agreement for each Applied Finance Fund. The Board reviewed the services provided by Applied Finance to the Applied Finance Funds including, without limitation: Applied Finance’s procedures for formulating investment recommendations and assuring compliance with the Applied Finance Funds’ investment objectives and limitations; its coordination of services for the Applied Finance Funds among the Applied Finance Funds’ service providers; and its efforts to promote the Applied Finance Funds, grow assets, and assist in the distribution of Applied Finance Funds’ shares. The Board considered: Applied Finance’s staffing, personnel, and methods of operating; the education and experience of Applied Finance’s personnel; and Applied Finance’s compliance program, policies, and procedures. After reviewing the foregoing and further information from Applied Finance, the Board concluded that the nature, extent, and quality of the services provided by Applied Finance were satisfactory for the Applied Finance Funds.
(2)Investment performance of the Applied Finance Funds and Applied Finance.
In this regard, the Board noted that Applied Finance does not have any clients other than the Applied Finance Funds and a newly formed exchange-traded fund (the “Applied Finance ETF”), and has no present plans to expand its business beyond advising investment companies. As such, no performance as to separate accounts comparable to the Applied Finance Funds existed. The Trustees acknowledged Applied Finance’s representation that, although the Applied Finance Funds and the Applied Finance ETF have the same investment objective, they employ very different investment strategies to achieve that objective and that the performance of the Applied Finance ETF therefore was not, in the view of Applied Finance, relevant. For the Applied Finance Core Fund, the Board noted that peers were selected by Broadridge from the Morningstar Large Value Category and included funds with average net assets between $25 to $250 million. The Board noted that the Applied Finance Core Fund underperformed its category and peer group median, but outperformed its benchmark index for the one-year period ended December 31, 2021, and outperformed its category median, peer group median and benchmark index for the three-year period so ended. The Board also noted that the Applied Finance Core Fund’s five-year and ten-year returns ranked in the top quartile of its peer
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World Funds Trust (the “Trust”)
Supplemental Information (unaudited) - continued
group and category and its three-year returns ranked in the second quartile for its peer group and the top quartile for its category, each for periods ended December 31, 2021. For the Applied Finance Explorer Fund, the Board noted that its peers were selected from the Morningstar Small Value Category and included funds having average net assets below $400 million. The Board considered that for the one-, three- and five-year periods ended December 31, 2021, the Applied Finance Explorer Fund outperformed its peer group median, category median and its benchmark index. The Board also noted that the Applied Finance Explorer Fund’s one-, three- and five-year returns ranked in the top quartile of its peer group and category for periods ended December 31, 2021. For the Applied Finance Select Fund, the Board noted that the peers were selected from the Morningstar Large Value Category and included funds that generally have a more concentrated portfolio (fewer than 100 holdings) and average net assets between $50 million and $450 million. The Board noted that that for the one-year and three-year periods ended December 31, 2021, the Applied Finance Select Fund outperformed its peer group median, category median and benchmark index. The Board also noted that the Applied Finance Select Fund’s one-year return ranked in the top quartile of its peer group and in the second quartile of its category, and for the three-year return it ranked in the top quartile of its peer group and category, each for periods ended December 31, 2021. Based on the foregoing, the Board concluded that the investment performance information presented for the Applied Finance Funds was satisfactory.
(3)The costs of the services provided and profits realized by Applied Finance from the relationship with the Applied Finance Funds.
In this regard, the Board considered Applied Finance’s staffing, personnel, and methods of operating; the financial condition of Applied Finance and the level of commitment to the Applied Finance Funds by Applied Finance and its principals; the current and expected asset levels of the Applied Finance Funds; the overall expenses of the Applied Finance Funds; and the nature and frequency of advisory fee payments. The Board noted that information was provided demonstrating that the Applied Finance Funds are profitable to Applied Finance. The Board considered the fees and expenses of each of the Applied Finance Funds (including the management fee) relative to each Applied Finance Fund’s peer group. The Board noted that while the Applied Finance Core Fund’s net expenses and gross management fee are higher than its peer group and category medians, the Fund’s management fee net of contractual fee waivers by Applied Finance is less than the medians of both its peer group and category. The Trustees considered that for the Applied Finance Explorer Fund, net expenses are lower than its peer group and category medians, but that
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World Funds Trust (the “Trust”)
Supplemental Information (unaudited) - continued
the Fund’s gross management fee is higher than its peer group and category medians. With regard to the Applied Finance Select Fund, the Board noted that the Fund’s net expenses are lower than its peer group median and slightly higher than its category median, and that the Fund’s gross management fee is higher than both its category and peer group medians. The Board noted that for each Applied Finance Fund, Applied Finance has entered into an expense limitation agreement. The Trustees also considered the overall quality of services provided to the Applied Finance Funds considering the fees and their relative comparisons and determined that those fees could have been negotiated at arms-length in light of the surroundings circumstances.
The Trustees noted the representations of Applied Finance that the investment objective of the Applied Finance Core Fund and the Applied Finance ETF are similar but noted Applied Finance’s representations that the investment advisory fees charged to each fund are different for numerous reasons. It was noted that the basic nature and management of the Applied Finance ETF and the Applied Finance Core Fund are completely different in that the Applied Finance ETF publishes a portfolio basket of securities that are then accumulated by authorized participants and exchanged for shares of the Applied Finance ETF, and that this portfolio basket is rebalanced by Applied Finance on a semi-annual basis. It was also noted that the Applied Finance ETF consisted of over three hundred securities whereas the Applied Finance was more concentrated with fewer holdings. Whereas the portfolio of the Applied Finance Core Fund is actively managed, with daily cash flows, requiring Applied Finance to make daily trading and portfolio structure decisions. Further, the Trustees considered that the Applied Finance Core Fund and the Applied Finance ETF have different portfolio compositions, both in substance and the number of securities. Accordingly, the Trustees considered that the advisory fees payable by the Applied Finance Core Fund and the Applied Finance ETF differ because of the fundamental differences in Applied Finance’s responsibilities to each. The Trustees concluded that the costs of services to be provided and the profits to be realized were acceptable.
(4)The extent to which economies of scale would be realized as the Applied Finance Funds grow and whether advisory fee levels reflect these economies of scale for the benefit of the Applied Finance Funds’ investors.
In this regard, the Board considered the Applied Finance Funds’ fee arrangements with Applied Finance, including the expense limitation arrangements in place. The Board determined that although the management fee would stay the same as asset levels increased, the shareholders of the Applied Finance Funds would benefit from the expense limitation arrangement for each of the Applied Finance
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Supplemental Information (unaudited) - continued
Funds. The Trustees also noted that the Applied Finance Funds would benefit from economies of scale under their agreements with service providers other than Applied Finance. Following further discussion of the Applied Finance Funds’ current asset levels, expectations for growth, and levels of fees, the Board determined that the Applied Finance Funds’ fee arrangements, in light of all the facts and circumstances, were fair and reasonable and that the expense limitation arrangement provided potential savings or protection for the benefit of the Applied Finance Funds’ shareholders.
(5)Possible conflicts of interest and benefits derived by Applied Finance.
In this regard, the Board evaluated the potential for conflicts of interest and considered such matters as the experience and ability of the advisory and compliance personnel assigned to the Applied Finance Funds; the fact that Applied Finance does not utilize soft dollars; the basis of decisions to buy or sell securities for the Applied Finance Funds; and the substance and administration of Applied Finance’s code of ethics. The Board also considered the affiliations of Applied Finance, including its affiliate that produces and sells investment research, and that it began managing the Applied Finance ETF in 2021. The Board considered and acknowledged Applied Finance’s representations that investments by the Applied Finance Funds in the Applied Finance ETF were not duplicative of the services rendered to the Applied Finance Funds. The Board considered Applied Finance’s management of conflicts of interest that could arise in light of the activities of those affiliates and Applied Finance’s assertion that it does not expect benefits other than receipt of advisory fees or any detriments to managing the Applied Finance Funds. Based on the foregoing, the Board determined that Applied Finance’s standards and practices relating to the identification and mitigation of possible conflicts of interest were satisfactory.
After additional consideration of the factors delineated in the memorandum provided by Counsel and further discussion and careful review by the Board, the Board determined that the compensation payable under the AF Advisory Agreement was fair, reasonable and within a range of what could have been negotiated at arms-length in light of all the surrounding circumstances, and the AF Advisory Agreement was approved for a one-year term.
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Supplemental Information (unaudited) - continued
FUNDS’ LIQUIDITY RISK MANAGEMENT PROGRAM
The Funds have adopted and implemented a written liquidity risk management program as required by Rule 22e-4 under the 1940 Act. The program is reasonably designed to assess and manage the Funds. liquidity risk, taking into consideration the Funds’ investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its short and long-term cash flow projections; and its cash holdings. The Funds’ Board of Trustees approved the appointment of the Advisor as the Funds’ Liquidity Risk Management Administrator. The Advisor has appointed representatives from their compliance, trading, and portfolio management departments to assist in the program’s administration and oversight and for reporting to the Board on at least an annual basis regarding the program’s operation and effectiveness. The Liquidity Risk Management Administrator performed an assessment of the Funds’ liquidity risk profile, considering information gathered and its actual experience in administering the program and presented a written report to the Board of Trustees for consideration during the period covered by this annual report. The report concluded that (i) the Funds did not experience significant liquidity challenges during the covered period; (ii) the Funds’ investment strategies remain appropriate for an open-end fund; and (iii) the Funds’ liquidity risk management program is reasonably designed to assess and manage its liquidity risk.
MORNINGSTAR US SMALL CAP AND US LARGE-MID VALUE INDEXES
The Funds are not sponsored, endorsed, sold or promoted by Morningstar, Inc. or any of its affiliates (all such entities, collectively, “Morningstar Entities”). The Morningstar Entities make no representation or warranty, express or implied, to the owners of the Funds or any member of the public regarding the advisability of investing in equities generally or in the Funds in particular or the ability of the Morningstar Indexes to track general equity market performance.
THE MORNINGSTAR ENTITIES DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE MORNINGSTAR INDEXES OR ANY DATA INCLUDED THEREIN AND MORNINGSTAR ENTITIES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN.
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APPLIED FINANCE FUNDS
Fund Expenses (unaudited)
Fund Expenses Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, redemption fees on certain redemptions made within 60 days of purchase of Institutional Class and Investor Class shares for Core Fund, Explorer Fund, and Select Fund; and (2) ongoing costs, including management fees, administrative services fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Applied Finance 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, November 1, 2021 and held for the six months ended April 30, 2022.
Actual Expenses Example
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 the Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as redemption fees. 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. In addition, if these transactional costs were included, your costs would have been higher.
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APPLIED FINANCE FUNDS
Fund Expenses (unaudited) - continued
| | Beginning | | Ending | | Annualized | | Expenses | |
Core Fund | | | | | | | | | |
Institutional Class Actual | | $1,000.00 | | $990.21 | | 0.95% | | $4.69 | |
Institutional Class Hypothetical** | | $1,000.00 | | $1,020.08 | | 0.95% | | $4.76 | |
Investor Class Actual | | $1,000.00 | | $989.34 | | 1.20% | | $5.92 | |
Investor Class Hypothetical** | | $1,000.00 | | $1,018.84 | | 1.20% | | $6.01 | |
Explorer Fund | | | | | | | | | |
Institutional Class Actual | | $1,000.00 | | $979.20 | | 0.83% | | $4.07 | |
Institutional Class Hypothetical** | | $1,000.00 | | $1020.68 | | 0.83% | | $4.16 | |
Investor Class Actual | | $1,000.00 | | $978.75 | | 1.08% | | $5.30 | |
Investor Class Hypothetical** | | $1,000.00 | | $1,019.44 | | 1.08% | | $5.41 | |
Select Fund | | | | | | | | | |
Institutional Class Actual | | $1,000.00 | | $984.04 | | 0.75% | | $3.69 | |
Institutional Class Hypothetical** | | $1,000.00 | | $1,021.08 | | 0.75% | | $3.76 | |
Investor Class Actual | | $1,000.00 | | $983.38 | | 1.00% | | $4.92 | |
Investor Class Hypothetical** | | $1,000.00 | | $1,019.84 | | 1.00% | | $5.01 | |
*Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value for the period, multiplied by 181 days in the most recent fiscal half year divided by 365 days in the current year.
**5% return before expenses.
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ANNUAL REPORT
World Funds Trust (the “Trust”)
Privacy Notice
The following is a description of the Funds’ policies regarding disclosure of nonpublic personal information that you provide to the Funds or that the Funds collect from other sources. In the event that you hold shares of the Funds through a broker-dealer or other financial intermediary, the privacy policy of your financial intermediary would govern how your nonpublic personal information would be shared with unaffiliated third parties.
Categories of Information the Funds Collect. The Funds collect the following nonpublic personal information about you:
•Information the Funds receive from you on or in applications or other forms, correspondence, or conversations (such as your name, address, phone number, social security number, assets, income and date of birth); and
•Information about your transactions with the Funds, its affiliates, or others (such as your account number and balance, payment history, parties to transactions, cost basis information, and other financial information).
Categories of Information the Funds Disclose. The Funds do not disclose any non-public personal information about their current or former shareholders to unaffiliated third parties, except as required or permitted by law. The Funds are permitted by law to disclose all of the information it collects, as described above, to their service providers (such as the Funds’ custodian, administrator and transfer agent) to process your transactions and otherwise provide services to you.
Confidentiality and Security. The Funds restrict access to your nonpublic personal information to those persons who require such information to provide products or services to you. The Funds maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
The Funds’ Privacy Notice is not part of its annual report.
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APPLIED FINANCE FUNDS
Important Disclosure Statements
The prospectuses of the Applied Finance Core Fund, the Applied Finance Explorer Fund and the Applied Finance Select Fund (the “Funds”) contain important information about the Funds’ investment objectives, potential risks, management fees, charges and expenses, and other information and should be read and considered carefully before investing. To obtain the Funds’ prospectus containing this and other important information, please call 800-673-0550. Please read the prospectus carefully before you invest. Foreside Fund Services, LLC is the distributor and Applied Finance Advisors, LLC (the “Advisor”) is the investment advisor for the Funds.
The performance data quoted represents past performance and is not a guarantee of future results. Current performance of the Funds may be lower or higher than the performance data quoted. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Information provided with respect to the Funds’ Performance Data, Portfolio Holdings, Sector Weightings, Number of Holdings and Expense Ratios are as of April 30, 2022 and are subject to change at any time. For most recent information, please call 800-673-0550.
The Advisor waived or reimbursed part of the Funds’ total expenses. Had the Advisor not waived or reimbursed expenses of the Fund, the Funds’ performance would have been lower.
Investment Advisor:
Applied Finance Advisors, LLC
17806 IH 10, Suite 300
San Antonio, Texas 78257
Distributor:
Foreside Fund Services, LLC
Three Canal Plaza, Suite 100
Portland, Maine 04101
Fund Administrator, Transfer Agent and Fund Accountant:
Commonwealth Fund Services, Inc.
8730 Stony Point Parkway, Suite 205
Richmond, Virginia 23235
Custodian:
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Legal Counsel:
Practus LLP
11300 Tomahawk Creek Parkway, Suite 310
Leawood, Kansas 66211
Independent Registered Public Accounting Firm:
Tait, Weller and Baker LLP
Two Liberty Place
50 S 16th St, Suite 2900
Philadelphia, Pennsylvania 19102-2529
ITEM 2. | CODE OF ETHICS. |
(a) The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party.
(b) There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description.
(c) The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item's instructions.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
(a)(1) The registrant does not have an audit committee financial expert serving on its audit committee.
(a)(2) Not applicable.
(a)(3) At this time, the registrant believes that the collective experience provided by the members of the audit committee together offer the registrant adequate oversight for the registrant's level of financial complexity.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
(a) The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $51,750 for 2022 and $51,000 for 2021.
(b) The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item are $0 for 2022 and $0 for 2021.
(c) The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $7,500 for 2022 and $7,500 for 2021. The nature of the services comprising these fees include preparation of excise filings and income tax returns and assistance with calculation of required income, capital gain and excise distributions.
(d) The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are and $0 for 2022 and $0 for 2021.
(e)(1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter, the registrant's Audit Committee must pre-approve all audit and non-audit services to be provided to the registrant. The Audit Committee also pre-approves any non-audit services provided by the registrant's principal accountant to the Applied Finance Funds.
(e)(2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows:
(b) NA
(c) 0%
(d) NA
(f) The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was zero percent (0%).
(g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was $0 for 2022 and $0 for 2021.
(h) Not applicable. The Audit Committee pre-approved all non-audit services rendered to the registrant's investment adviser and any control affiliates that provide ongoing services to the registrant.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
Schedule filed under Item 1 of the Form.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-ENDMANAGEMENT INVESTMENT COMPANY AND AFFILIATEDPURCHASERS. |
Not applicable.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Not applicable.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a- 15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d- 15(b)).
(b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
ITEM 12. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 13. | EXHIBITS. |
(a)(1) Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable. There were no solicitations to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by this report by or on behalf of the registrant.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: World Funds Trust
By (Signature and Title)*: | /s/ Karen Shupe |
Karen Shupe Principal Executive Officer | |
Date: July 5, 2022 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)*: | /s/ Karen Shupe |
Karen Shupe Principal Executive Officer
| |
Date: July 5, 2022 | |
By (Signature and Title)*: | /s/ Ann MacDonald |
Ann MacDonald Principal Financial Officer | |
Date: July 5, 2022 |
* Print the name and title of each signing officer under his or her signature.