See accompanying notes to financial statements.
ALPHAMARK INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
AlphaMark Large Cap Growth Fund and AlphaMark Small Cap Growth Fund (individually, a “Fund” and collectively, the “Funds”) are no-load series of AlphaMark Investment Trust (the “Trust”), an open-end management investment company established as an Ohio business trust under a Declaration of Trust dated June 24, 2008. The public offering of shares of the Funds commenced on October 31, 2008.
The investment objective of each Fund is long-term growth of capital. AlphaMark Large Cap Growth Fund is a diversified fund and AlphaMark Small Cap Fund is a non-diversified fund.
Securities valuation - The Funds’ portfolio securities are valued as of the close of business of the regular session of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern time). Securities which are traded on stock exchanges are valued on the basis of their last sales prices on the exchanges on which they are primarily traded, or, if not traded on a particular day, at the closing bid price. Securities quoted by NASDAQ are valued at the NASDAQ Official Closing Price or, if not traded on a particular day, at the last bid price as reported by NASDAQ. Securities traded in the over-the-counter market are valued at the last sale price, if available, otherwise, at the mean of the closing bid and ask prices. Securities and other assets for which market quotations are not readily available or are considered to be unreliable due to significant market or other events are valued at their fair value as determined in good faith in accordance with consistently applied procedures established by and under the general supervision of the Board of Trustees and will be classified as Level 2 or 3 within the fair value hierarchy, depending on the inputs used. The fair value of securities with remaining maturities of 60 days or less has been determined in good faith by the Board of Trustees to be represented by amortized cost value, absent unusual circumstances.
Accounting principles generally accepted in the United States (“GAAP”) establish a single authoritative definition of fair value, set out a framework for measuring fair value and require additional disclosures about fair value measurements.
Various inputs are used in determining the value of each Fund’s investments. These inputs are summarized in the three broad levels listed below:
Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs
Level 3 – significant unobservable inputs
The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement.
ALPHAMARK INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
The following is a summary of the inputs used to value the Funds’ investments by security type, as of August 31, 2011:
| AlphaMark Large Cap Growth Fund | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Common Stocks | | $ | 15,623,514 | | | $ | - | | | $ | - | | | $ | 15,623,514 | |
| Money Market Funds | | | 215,853 | | | | - | | | | - | | | | 215,853 | |
| Total | | $ | 15,839,367 | | | $ | - | | | $ | - | | | $ | 15,839,367 | |
| | | | | | | | | | | | | | | | | |
| AlphaMark Small Cap Growth Fund | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Common Stocks | | $ | 15,216,150 | | | $ | - | | | $ | - | | | $ | 15,216,150 | |
| Money Market Funds | | | 577,165 | | | | - | | | | - | | | | 577,165 | |
| Total | | $ | 15,793,315 | | | $ | - | | | $ | - | | | $ | 15,793,315 | |
See each Fund’s Schedule of Investments for a listing of the common stocks valued using Level 1 inputs by industry type.
During the year ended August 31, 2011, the Funds did not have any significant transfers in and out of any Level. The Funds did not hold any derivative instruments or assets or liabilities that were measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of or during the year ended August 31, 2011. It is the Funds’ policy to recognize transfers into and out of any Level at the end of the reporting period.
Share valuation - The net asset value per share of each Fund is calculated daily by dividing the total value of each Fund’s assets, less liabilities, by the number of shares outstanding. The offering price and redemption price per share of each Fund is equal to the net asset value per share, except that effective December 27, 2010, shares of the Funds are subject to a redemption fee of 1.5%, payable to the applicable Fund, if redeemed within sixty days of the date of purchase. During the year ended August 31, 2011, proceeds from redemption fees totaled $697 and $1,267 for AlphaMark Large Cap Growth Fund and AlphaMark Small Cap Growth Fund, respectively.
Security transactions and investment income – Security transactions are accounted for on trade date. Gains and losses on securities sold are determined on a specific identification basis. Realized gains or losses from sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds. Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date. Withholding taxes on foreign dividends have been provided for in accordance with the Funds’ understanding of the applicable country’s tax rules and rates.
Expenses – Expenses of the Trust that are directly identifiable to a specific Fund are charged to that Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such a manner as deemed equitable.
Distributions to shareholders - Dividends arising from net investment income and distributions of net realized capital gains, if any, are declared and paid annually in December. The amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from GAAP. Dividends and distributions to shareholders are recorded on the ex-dividend date.
ALPHAMARK INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
The tax character of distributions paid to shareholders of the Funds during the years ended August 31, 2011 and August 31, 2010 was as follows:
| | Years | | Ordinary | | | Long-Term | | | Total | |
| | Ended | | Income | | | Capital Gains | | | Distributions | |
| AlphaMark Large Cap Growth Fund | 8/31/11 | | $ | - | | | $ | 468,270 | | | $ | 468,270 | |
| | 8/31/10 | | $ | 114,852 | | | $ | - | | | $ | 114,852 | |
| AlphaMark Small Cap Growth Fund | 8/31/11 | | $ | - | | | $ | 504,063 | | | $ | 504,063 | |
| | 8/31/10 | | $ | - | | | $ | - | | | $ | - | |
Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Federal income tax – It is each Fund’s policy to comply with the special provisions of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. As provided therein, in any fiscal year in which a Fund so qualifies and distributes at least 90% of its taxable net income, the Fund (but not the shareholders) will be relieved of federal income tax on the income distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated investment companies, it is also each Fund's intention to declare as dividends in each calendar year at least 98% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts from prior years.
The following is computed on a tax basis for each item as of August 31, 2011:
| | | AlphaMark | | | AlphaMark | |
| | | Large Cap | | | Small Cap | |
| | | Growth Fund | | | Growth Fund | |
| Tax cost of portfolio investments | | $ | 12,586,902 | | | $ | 13,485,471 | |
| Gross unrealized appreciation | | $ | 3,734,705 | | | $ | 3,288,640 | |
| Gross unrealized depreciation | | | (482,240 | ) | | | (980,796 | ) |
| Net unrealized appreciation | | | 3,252,465 | | | | 2,307,844 | |
| Undistributed ordinary income | | | - | | | | 247,822 | |
| Undistributed long-term gains | | | 528,652 | | | | 1,006,672 | |
| Total distributable earnings | | $ | 3,781,117 | | | $ | 3,562,338 | |
ALPHAMARK INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
The difference between the federal income tax cost of portfolio investments and the financial statement cost for the AlphaMark Large Cap Growth Fund is due to timing differences in the recognition of capital gains or losses under income tax regulations and GAAP. These “book/tax” differences are temporary in nature and are due to the tax deferral of losses on wash sales.
For the year ended August 31, 2011, AlphaMark Large Cap Growth Fund reclassified $55,086 of net investment loss against paid-in capital on the Statements of Assets and Liabilities. In addition, AlphaMark Small Cap Growth Fund reclassified $133,021 of net investment loss against undistributed net realized gains from security transactions on the Statements of Assets and Liabilities. Such reclassifications, the result of permanent differences between financial statement and income tax reporting requirements, had no effect on the Funds’ net assets or net asset value per share.
The Funds recognize the tax benefits or expenses of uncertain tax positions only when the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has reviewed the Funds’ tax positions and concluded that no provision for unrecognized tax benefits or expenses should be recorded related to uncertain tax positions taken in the Funds’ tax returns for all open tax years. During the year ended August 31, 2011, the Funds did not incur any interest or penalties. Generally, tax authorities can examine tax returns filed during the last three years. Each Fund identifies its major tax jurisdiction as U.S. Federal.
2. Investment Transactions
During the year ended August 31, 2011, cost of purchases and proceeds from sales of investment securities, other than short-term investments and U.S. government securities, were as follows:
| | | AlphaMark | | | AlphaMark | |
| | | Large Cap | | | Small Cap | |
| | | Growth Fund | | | Growth Fund | |
| Cost of purchases of investment securities | | $ | 9,069,503 | | | $ | 18,664,479 | |
| | | | | | | | | |
| Proceeds from sales of investment securities | | $ | 7,266,417 | | | $ | 16,925,508 | |
3. Transactions with Affiliates
The President of AlphaMark Advisors, LLC (the “Advisor”), the investment advisor to the Funds, is also the President and a Trustee of the Trust. Certain other officers of the Trust are also officers of the Advisor, or of Ultimus Fund Solutions, LLC (“Ultimus”), the Funds’ administrator, transfer agent, and fund accounting agent, and Ultimus Fund Distributors, LLC (“UFD”), the Funds’ principal underwriter.
The Chief Compliance Officer (the “CCO”) of the Trust is an employee of the Advisor. Each Fund reimburses the Advisor $6,000 annually for the services provided by the CCO to the Trust.
INVESTMENT ADVISORY AGREEMENT
Under the terms of Investment Advisory Agreements between the Trust and the Advisor, the Advisor serves as the investment advisor to the Funds. Each Fund pays the Advisor an investment advisory fee computed at the annual rate of 1.00% of its average daily net assets.
ALPHAMARK INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
The Advisor has contractually agreed, until at least December 31, 2011, to reduce its investment advisory fees and to reimburse other Fund operating expenses to the extent necessary to limit each Fund’s annual ordinary operating expenses (excluding brokerage costs, taxes, interest, organization costs and extraordinary expenses) to 1.50% of its average daily net assets. Any such fee reductions or expense reimbursements by the Advisor are subject to repayment by the Funds, provided that the repayment does not cause a Fund’s ordinary operating expenses to exceed the expense limit, and provided further that the fees and expenses which are the subject of the repayment were incurred within three years of the repayment. As of August 31, 2011, the Advisor may in the future recover fee reductions and expense reimbursements totaling $271,226 and $279,039 from AlphaMark Large Cap Growth Fund and AlphaMark Small Cap Growth Fund, respectively. The Advisor may recover these amounts no later than the dates stated below:
| | | AlphaMark Large Cap Growth Fund | | | AlphaMark Small Cap Growth Fund | |
| August 31, 2012 | | $ | 77,740 | | | $ | 77,567 | |
| August 31, 2013 | | | 100,971 | | | | 103,227 | |
| August 31, 2014 | | | 92,515 | | | | 98,245 | |
| | | $ | 271,226 | | | $ | 279,039 | |
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement with the Trust, Ultimus provides executive and administrative services and internal regulatory compliance services for the Funds. Ultimus supervises the preparation of tax returns, reports to shareholders of the Funds, reports to and filings with the Securities and Exchange Commission (“SEC”) and state securities commissions and prepares materials for meetings of the Board of Trustees. For these services, each Fund pays to Ultimus a monthly fee at an annual rate of 0.15% of its average daily net assets up to $50 million; 0.125% of such assets between $50 million and $100 million; 0.10% of such assets between $100 million and $250 million; 0.075% of such assets between $250 million and $500 million; and 0.05% of such assets in excess of $500 million, subject to a minimum monthly fee of $2,000. The foregoing fee is being discounted by 15% until December 31, 2011 or until such time as the net assets of a Fund reach $20 million.
FUND ACCOUNTING AGREEMENT
Under the terms of a Fund Accounting Agreement with the Trust, Ultimus calculates each Fund’s daily net asset value per share and maintains the financial books and records of the Funds. For these services, each Fund pays to Ultimus a base fee of $2,500 per month, plus an asset-based fee at the annual rate of 0.01% of the first $500 million of its average daily net assets and 0.005% of such assets in excess of $500 million. The base fee and asset-based fee are being discounted by 15% until December 31, 2011.
ALPHAMARK INVESTMENT TRUSTNOTES TO FINANCIAL STATEMENTS (Continued)
TRANSFER AGENT AND SHAREHOLDER SERVICES AGREEMENT
Under the terms of a Transfer Agent and Shareholder Services Agreement with the Trust, Ultimus maintains the records of each shareholder's account, answers shareholders' inquiries concerning their accounts, processes purchases and redemptions of each Fund’s shares, acts as dividend and distribution disbursing agent and performs other shareholder service functions. For these services, Ultimus receives from each Fund a fee, payable monthly, at an annual rate of $20 per shareholder account, provided, however, that the minimum fee with respect to each Fund is $1,000 per month if a Fund has 25 shareholder accounts or less, $1,250 if a Fund has more than 25 but less than 100 shareholder accounts, and $1,500 per month if a Fund has 100 or more shareholder accounts. In addition, each Fund reimburses Ultimus for out-of-pocket expenses including, but not limited to, postage and supplies.
DISTRIBUTION AGREEMENT
Pursuant to the terms of a Distribution Agreement with the Trust, UFD provides distribution services and serves as principal underwriter for the Funds. The Distributor is a wholly-owned subsidiary of Ultimus. The Distributor receives compensation of $6,000 annually for its services to the Trust.
DISTRIBUTION PLAN
The Trust has adopted a plan of distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the “Plan”) which allows the Funds to incur expenses related to the distribution of the Funds’ shares. The annual fees payable under the Plan may not exceed an amount equal to 0.25% of each Fund’s average daily net assets.
PRINCIPAL HOLDERS OF FUND SHARES
As of August 31, 2011, Charles Schwab & Co., Inc., for the benefit of its customers, owned of record 99% and 97% of the outstanding shares of AlphaMark Large Cap Fund and AlphaMark Small Cap Fund, respectively.
4. Contingencies and Commitments
The Funds indemnify the Trust's officers and Trustees for certain liabilities that might arise from their performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. Each Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Trust expects the risk of loss to be remote.
5. New Accounting Pronouncement
In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 amends FASB ASC Topic 820, Fair Value Measurements and Disclosures, to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and International Financial Reporting Standards. ASU No. 2011-04 is effective for fiscal years beginning after December 15, 2011 and for interim periods within those fiscal years. Management is currently evaluating the impact ASU No. 2011-04 may have on financial statement disclosures.
ALPHAMARK INVESTMENT TRUSTNOTES TO FINANCIAL STATEMENTS (Continued)
6. Subsequent Events
The Funds are required to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed as of the date of the Statements of Assets and Liabilities. For non-recognized subsequent events that must be disclosed to keep the financial statements from being misleading, the Funds are required to disclose the nature of the event as well as an estimate of its financial effect, or a statement that such an estimate cannot be made. Management has evaluated subsequent events through the issuance of these financial statements and has noted no such events.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AlphaMark Investment Trust
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of the AlphaMark Investment Trust (the “Funds”), comprising AlphaMark Large Cap Growth Fund and AlphaMark Small Cap Growth Fund as of August 31, 2011, and 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 three periods in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2011 by correspondence with the Funds’ custodian and broker. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds constituting the AlphaMark Investment Trust, as of August 31, 2011, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the three periods in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
COHEN FUND AUDIT SERVICES, LTD.
Westlake, Ohio
October 20, 2011
ALPHAMARK INVESTMENT TRUST
ABOUT YOUR FUNDS’ EXPENSES (Unaudited)
We believe it is important for you to understand the impact of costs on your investment. All mutual funds have operating expenses. As a shareholder of the Funds, you incur ongoing costs, including management fees, distribution (12b-1) fees and other operating expenses. These ongoing costs, which are deducted from each Fund’s gross income, directly reduce the investment return of the Funds.
A mutual fund’s ongoing costs are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds. The examples below are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period (March 1, 2011 – August 31, 2011).
The table below illustrates each Fund’s ongoing costs in two ways:
Actual fund return – This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from each Fund’s actual return, and the third column shows the dollar amount of operating expenses that would have been paid by an investor who started with $1,000 in the Funds. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, 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 given for the Funds under the heading “Expenses Paid During Period.”
Hypothetical 5% return – This section is intended to help you compare the Funds’ ongoing costs with those of other mutual funds. It assumes that each Fund had an annual return of 5% before expenses during the period shown, but that the expense ratio is unchanged. In this case, because the return used is not the Funds’ actual return, the results do not apply to your investment. The example is useful in making comparisons because the SEC requires all mutual funds to calculate expenses based on a 5% return. You can assess each Fund’s ongoing costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that expenses shown in the table are meant to highlight and help you compare ongoing costs only. The Funds do not impose any sales loads. However, effective December 27, 2010, a redemption fee of 1.5% is applied on the sale of shares redeemed within sixty days of the date of purchase. The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
More information about the Funds’ expenses, including annualized expense ratios, can be found in this report. For additional information on operating expenses and other shareholder costs, please refer to the Funds’ prospectus.
ALPHAMARK INVESTMENT TRUST
ABOUT YOUR FUNDS’ EXPENSES (Unaudited) (Continued)
AlphaMark Large Cap Growth Fund
| | | Beginning Account Value March 1, 2011 | | | Ending Account Value August 31, 2011 | | | Expenses Paid During Period* | |
| Based on Actual Fund Return | | $ | 1,000.00 | | | $ | 910.40 | | | $ | 7.22 | |
| Based on Hypothetical 5% Return | | $ | 1,000.00 | | | $ | 1,017.64 | | | $ | 7.63 | |
| * | Expenses are equal to AlphaMark Large Cap Growth Fund's annualized expense ratio of 1.50% for the period, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
AlphaMark Small Cap Growth Fund
| | | Beginning Account Value March 1, 2011 | | | Ending Account Value August 31, 2011 | | | Expenses Paid During Period* | |
| Based on Actual Fund Return | | $ | 1,000.00 | | | $ | 864.60 | | | $ | 7.05 | |
| Based on Hypothetical 5% Return | | $ | 1,000.00 | | | $ | 1,017.64 | | | $ | 7.63 | |
| * | Expenses are equal to AlphaMark Small Cap Growth Fund's annualized expense ratio of 1.50% for the period, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
OTHER INFORMATION (Unaudited)
A description of the policies and procedures that the Funds use to vote proxies relating to portfolio securities is available without charge upon request by calling toll-free 1-866-420-3350, or on the SEC’s website at http://www.sec.gov. Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is also available without charge upon request by calling toll-free 1-866-420-3350, or on the SEC’s website at http://www.sec.gov.
The Trust files a complete listing of portfolio holdings for the Funds with the SEC for the first and third quarters of each fiscal year on Form N-Q. These filings are available upon request by calling 1-866-420-3350. Furthermore, you may obtain a copy of these filings on the SEC's website at http://www.sec.gov. The Trust's Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
ALPHAMARK INVESTMENT TRUST
BOARD OF TRUSTEES AND EXECUTIVE OFFICERS (Unaudited)
The Board of Trustees has overall responsibility for management of the Trust's affairs. The Trustees serve during the lifetime of the Trust and until its termination, or until death, resignation, retirement or removal. The Trustees, in turn, elect the officers of the Trust to actively supervise its day-to-day operations. The officers have been elected for an annual term. The following are the Trustees and executive officers of the Trust:
| Interested Trustee |
Name, Age & Address | Position(s) Held with the Trust | Term of Office & Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Funds Overseen by Trustee | Directorships of Public Companies Held by Trustee |
Michael L. Simon* 250 Grandview Drive Fort Mitchell, KY 41017 Age: 44 | President and Trustee | Since July, 2008 | Founder, President and Chief Investment Officer of the Advisor. | 2 | None |
| Independent Trustees |
John W. Hopper, Jr. 250 Grandview Drive Fort Mitchell, KY 41017 Age: 51 | Chairman and Trustee | Since September, 2008 | Founder and partner of Silverstone Advisors, LLC (a boutique investment banking and consulting firm); prior to February, 2008, Chief Executive Officer of Conexio Technology Solutions, LLC. | 2 | None |
C. Christopher Muth 250 Grandview Drive Fort Mitchell, KY 41017 Age: 56 | Trustee | Since September, 2008 | Partner of Dinsmore & Shohl LLP (law firm); prior to April, 2010, member of Greenebaum Doll & McDonald PLLC (law firm). | 2 | None |
T. Brian Brockhoff 250 Grandview Drive Fort Mitchell, KY 41017 Age: 47 | Trustee | Since September, 2008 | Principal of Bailey Capital Partners, Inc. (mortgage bankers). | 2 | None |
| * | Mr. Simon, as an affiliated person of the Advisor, is considered an “interested person” of the Trust within the meaning of Section 2(a)(19) of the Investment Company Act of 1940. |
ALPHAMARK INVESTMENT TRUST
BOARD OF TRUSTEES AND EXECUTIVE OFFICERS (Unaudited) (Continued)
| Executive Officers |
| Name, Age & Address | Position(s) Held with the Trust | Length of Time Served | Principal Occupation(s) During Past 5 Years |
Christian A. Lucas 250 Grandview Drive Fort Mitchell, KY 41017 Age: 39 | Vice President | Since July, 2008 | Member/Owner of the Advisor. |
Anne M. Haggerty 250 Grandview Drive Fort Mitchell, KY 41017 Age: 50 | Chief Compliance Officer | Since March, 2009 | Director of Operations and Chief Compliance Officer of the Advisor; prior to December, 2007, Manager of Trading Operations of Fifth Third Asset Management, Inc. (investment advisory firm). |
Robert G. Dorsey 225 Pictoria Drive, Suite 450 Cincinnati, OH 45246 Age: 54 | Vice President | Since July, 2008 | Managing Director of Ultimus and UFD. |
Mark J. Seger 225 Pictoria Drive, Suite 450 Cincinnati, OH 45246 Age: 49 | Treasurer | Since July, 2008 | Managing Director of Ultimus and UFD. |
Wade R. Bridge 225 Pictoria Drive, Suite 450 Cincinnati, OH 45246 Age: 42 | Secretary | Since July, 2011 | Director of Fund Administration of Ultimus and Vice President of UFD. |
Additional information about members of the Board of Trustees and executive officers is available in the Statement of Additional Information (“SAI”). To obtain a free copy of the SAI, please call 1-866-420-3350.
ALPHAMARK INVESTMENT TRUST
APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
(Unaudited) (Continued)
The Board of Trustees, including the Independent Trustees voting separately, have reviewed and approved the continuance of the Investment Advisory Agreements with the Advisor for the AlphaMark Large Cap Growth Fund and the AlphaMark Small Cap Growth Fund. These approvals took place at an in-person meeting held on July 21, 2011, at which a majority of the Independent Trustees were present.
The Trustees were advised by independent counsel of their fiduciary obligations in approving the Investment Advisory Agreements and the Trustees requested such information from the Advisor as they deemed reasonably necessary to evaluate the terms of such Agreements and whether such Agreements continue to be in the best interests of the Funds and their shareholders. The Trustees reviewed the factors which are considered pertinent in reaching an informed business judgment concerning the continuance of the Investment Advisory Agreements, including: (i) the nature, quantity and quality of the services provided under the Investment Advisory Agreements; (ii) the investment performance of the Funds and the Advisor; (iii) the cost of services provided and the profits realized by the Advisor and any affiliates from their relationships with the Funds and the financial strength of the Advisor; (iv) the extent to which the Advisor realizes economies of scale as a Fund grows larger; (v) whether fee levels reflect such economies of scale for the benefit of shareholders; (vi) whether and how the Board relied on comparisons of services to be rendered to and fees to be paid by the Funds with the services provided by and the fees paid to other investment advisers or the services provided to and the fees paid by other clients of the Advisor; and (vii) any ancillary benefits derived or to be derived by the Advisor from its relationship with the Funds, such as soft dollar arrangements. The Trustees reviewed the background, qualifications, education and experience of the Advisor’s investment and operational personnel. The Trustees also considered the quality of administrative and other services provided to the Trust, the Advisor’s compliance program, and the Advisor’s role in coordinating such services and programs. The Independent Trustees were advised by experienced independent counsel throughout the process. The Independent Trustees reviewed the Investment Advisory Agreements with management and also met in a private session with counsel at which no representatives of the Advisor were present.
Below is a summary of the discussions and findings of the Trustees in regard to their approval of the continuance of the Investment Advisory Agreements.
| (i) | The nature, extent, and quality of the services provided by the Advisor. In this regard, the Independent Trustees reviewed the services being provided to the Funds by the Advisor. They discussed the responsibilities of the Advisor under the Advisory Agreements and the Advisor’s compensation under the Advisory Agreements. The Independent Trustees reviewed the background and experience of the Advisor’s key investment and operating personnel. They noted that the Advisor has not had significant turnover and continues to provide experienced professionals to manage the operations at the Advisor. After reviewing the foregoing information, the Independent Trustees concluded that the quality, extent and nature of the services provided by the Advisor to each Fund were satisfactory. |
ALPHAMARK INVESTMENT TRUST
APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
(Unaudited) (Continued)
| (ii) | The investment performance of the Funds and Advisor. In this regard, the Independent Trustees compared the performance of the Large Cap Fund with the performance of the S&P 500 Index, the Fund’s primary benchmark, over various periods ended May 31, 2011. It was noted by the Independent Trustees that the Large Cap Fund underperformed the S&P 500 Index for the three months, year-to-date, one year and since inception periods ended May 31, 2011. They considered the Fund’s overall performance record, noting that the Fund, though trailing the benchmark over each of the comparative periods, has only slightly trailed the benchmark over these periods. The Independent Trustees then considered the Large Cap Fund’s periods of outperformance and underperformance over the life of the Fund. They were also provided with comparative performance statistics of the universe of funds categorized by Morningstar as “large cap growth” funds with under $50 million in assets, which is the category to which the Large Cap Fund has been assigned. The Independent Trustees noted that for the year-to-date period ended June 30, 2011, the Large Cap Fund’s total return (5.90%) exceeded the total returns of the average fund in the Morningstar large cap growth category (5.35%). The Independent Trustees further noted that for the one year period ended June 30, 2011, the Large Cap Fund’s total return (28.19%) trailed the return of the average fund in the large cap growth category (31.52%). The Independent Trustees reviewed performance information with respect to the Advisor’s other managed accounts with similar investment objectives, which indicated that the Large Cap Fund underperformed such other accounts for the periods ended May 31, 2011. They considered that, based on representations by the Advisor, those performance differences can be attributed mainly to the Large Cap Fund being subject to a number of expenses not applicable to such other accounts. The Independent Trustees also considered the consistency of the Advisor’s management of the Large Cap Fund with the Fund’s investment objective and policies. The Independent Trustees concluded that the investment performance of the Large Cap Fund has been satisfactory. |
| | The Independent Trustees next reviewed the performance of the Small Cap Fund, which was compared to the performance of the Russell 2000 Growth Index, the Fund’s primary benchmark, over various periods ended May 31, 2011. It was noted by the Independent Trustees that the Small Cap Fund underperformed the Russell 2000 Growth Index over the three months, year-to-date and since inception periods ended May 31, 2011. They further noted that for the one year period ended May 31, 2011 the Small Cap Fund (40.74%) outperformed the Russell 2000 Growth Index (36.79%). The Independent Trustees were also provided with comparative performance statistics of the universe of funds categorized by Morningstar as “small cap growth” funds with under $50 million in assets, which is the category to which the Small Cap Fund has been assigned. The Independent Trustees noted that for the year-to-date period ended June 30, 2011, the Small Cap Fund’s 7.80% return trailed the performance of the average fund in the Morningstar small cap growth category (8.70%) over the same period. They also noted that for the one year period ended June 30, 2011, the Small Cap Fund’s 45.10% return was better than the performance of the average fund in the small cap growth category (41.35%) over the same period. The Independent |
ALPHAMARK INVESTMENT TRUST
APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
| | Trustees reviewed performance information with respect to the Advisor’s other managed accounts with similar investment objectives, which indicated that the Small Cap Fund underperformed such other accounts for the periods ended May 31, 2011. They considered that, based on representations by the Advisor, those performance differences can be attributed mainly to the Small Cap Fund being subject to a number of expenses not applicable to such other accounts. The Independent Trustees considered the consistency of the Advisor’s management of the Small Cap Fund with the Fund’s investment objective and policies. The Independent Trustees concluded that the investment performance of the Small Cap Fund has been satisfactory. |
| (iii) | The costs of the services to be provided and profits to be realized by the Advisor from its relationship with the Funds. In this regard, the Independent Trustees considered the Advisor’s staffing, personnel and operations; the financial condition of the Advisor and the level of commitment to the Funds by the principals of the Advisor; the asset levels of each Fund; the overall expenses of each Fund; and the distribution arrangements for each Fund. The Independent Trustees reviewed the rate of the advisory fees paid by the Funds under the Advisory Agreements and compared them to average advisory fee ratios of similar mutual funds compiled from statistics reported by Morningstar. They also compared the total operating expense ratios of the Funds with average expense ratios of representative funds in their respective Morningstar categories. It was noted by the Independent Trustees that, although, the Large Cap Fund’s advisory fee of 1.00% was higher than the average advisory fee (0.78%), the Large Cap Fund’s net expense ratio (1.50%) was lower than the average expense ratio (1.53%) for Morningstar’s large cap growth fund category with under $50 million in assets. The Independent Trustees also discussed the Advisor’s commitment to cap the Large Cap Fund’s ordinary operating expenses at 1.50% per annum. The Independent Trustees performed a similar comparison for the Small Cap Fund, finding that the Small Cap Fund’s advisory fee of 1.00% was slightly higher than the average advisory fee (0.92%) and the Fund’s net expense ratio of 1.50% was considerably lower than the average expense ratio (1.74%) for Morningstar’s small cap growth fund category with under $50 million in assets. The Independent Trustees also discussed the Advisor’s commitment to cap the Small Cap Fund’s ordinary operating expenses at 1.50% per annum. |
| | The Independent Trustees considered the Advisor’s analysis of its revenues and expenses with respect to its services provided to each Fund for periods ended May 31, 2011. The Independent Trustees took into account that the Advisor has received only a portion of its advisory fees with respect to its services to the Funds in order to maintain each Fund’s 1.50% per annum expense cap. It was noted by the Independent Trustees that the Advisor has yet to realize any profits for its services to each Fund. |
| | The Independent Trustees reviewed the balance sheet of the Advisor as of December 31, 2010 and concluded that the Advisor has adequate financial resources to serve as the Funds’ investment adviser. The Independent Trustees |
ALPHAMARK INVESTMENT TRUST
APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
(Unaudited) (Continued)
| | considered the “fallout benefits” to the Advisor, including the additional exposure the Advisor has received as a result of managing the Funds. The Independent Trustees concluded that the fees paid by each Fund to the Advisor are reasonable in light of the quality of the services received. |
| (iv) | The extent to which economies of scale would be realized as the Funds grow and whether advisory fee levels reflect these economies of scale for the benefit of the Funds’ investors. The Independent Trustees considered the current net assets for each Fund and discussed the expense cap arrangements between the Trust and the Advisor. The Independent Trustees noted that each Fund has grown its assets to the point where the Advisor is currently collecting a portion of its advisory fee. They also noted that the Funds will need to grow their assets significantly before the Advisor will begin collecting its full advisory fees from the Funds. The Independent Trustees concluded that, at the Funds’ current asset levels, it would not be relevant to consider the extent to which economies of scale are being realized and that it is not necessary or appropriate at this time to consider adding fee breakpoints to the advisory fee schedules for the Funds. |
In conclusion, the Trustees did not identify any single factor as all-important or controlling in their determination to approve the Investment Advisory Agreements. The Trustees, including all of the Independent Trustees, concluded that the terms of each Investment Advisory Agreement were fair and reasonable, that the Advisor's fees were reasonable in light of the services provided to the Funds and the benefits received by the Advisor, and that continuance of the Investment Advisory Agreements is in the best interests of each Fund and its shareholders.
