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 811-22756
Advisors Preferred Trust
(Exact name of registrant as specified in charter)
1445 Research Blvd, Suite 530, Rockville, MD 20850
(Address of principal executive offices) (Zip code)
The Corporation Trust Company
1209 Orange Street Wilmington, DE 19801
(Name and address of agent for service)
Registrant's telephone number, including area code: 631-470-2600
Date of fiscal year end: 12/31
Date of reporting period: 6/30/23
Item 1. Reports to Stockholders.
![]() |
Semi-Annual Report |
June 30, 2023 |
Investor Class Shares (QGLDX) |
Advisor Class Shares (QGLCX) |
1-855-650-QGLD (7453) |
www.advisorspreferred.com |
June 30, 2023
Dear Shareholders,
This Semi-Annual Report for The Gold Bullion Strategy Fund (“Fund”) covers the period from January 1, 2023 to June 30, 2023. Flexible Plan Investments, Ltd. serves as the sub-advisor to The Gold Bullion Strategy Fund. During the period, the Fund returned 3.75%, compared with a return of 5.38% in the S&P GSCI Gold Index, while the S&P 500 TR Index returned 16.89%. The sub-index of the S&P GSCI provides investors with a reliable and publicly available benchmark tracking the COMEX gold future.
Gold’s positive performance during the period was largely driven by demand from global central banks and its traditional use as a hedge by investors. As a means to stabilize balance sheets, central banks accumulated the asset at elevated levels early in the period. Additionally, events like the banking crisis in March prompted investors to add gold to their portfolios as a risk hedge.
The U.S. Dollar and inflation can also play a factor in the direction of the asset. While the dollar was relatively stable during the period and inflation showed signs of slowing, neither of these influences seemed strong enough to outweigh the aforementioned increased demand. Historically, gold generally has moved inversely versus the dollar and has been seen as an attractive asset during times of rising inflation.
The Gold Bullion Strategy Fund seeks returns that reflect the daily performance of the price of gold bullion and, as such, is a vehicle for investors to capture potential returns resulting from those movements. To meet its goal, the Fund utilizes gold bullion-related futures contracts and exchange-traded funds (ETFs). Additionally, in an effort to reflect the daily performance of the price of gold bullion net of fees, the Fund invests in investment-grade fixed income corporate notes and bonds, with an objective of generating interest income to partially offset those fees. The Fund’s underperformance versus the S&P GSCI Gold Total Return Index for the period can largely be attributed to unfavorable effects from rising interest rates and fund expenses.
The Fund continues to endeavor to execute its strategy consistently, regardless of the market environment or perceived outlook for gold. As always, the advisor and sub-advisor reiterate the value of gold in portfolios as a diversifier given its historically low correlation to most other asset classes.
We encourage our investors to maintain a long-term perspective as the market reacts to inevitable challenges and opportunities. As an asset class, gold historically has been uncorrelated with other asset classes and tended to provide a valuable hedge to investor portfolios in times of market volatility or economic and geopolitical uncertainty. We thank you for your confidence in The Gold Bullion Strategy Fund and its potential to help you achieve your financial goals.
Best regards, | |
Jerry Wagner | Catherine Ayers-Rigsby |
Flexible Plan Investments, Ltd. | Advisors Preferred |
1
The Gold Bullion Strategy Fund |
Portfolio Review (Unaudited) |
June 30, 2023 |
The Fund’s performance figures* for the year ended June 30, 2023, as compared to its benchmarks:
Annualized | ||||||
Since Inception | Since Inception | |||||
Six Months | One Year | Three Years | Five Years | April 19, 2016 | July 9, 2013 | |
The Gold Bullion Strategy Fund - Investor Class | 3.75% | 3.31% | (1.17)% | 5.62% | N/A | 1.96% |
The Gold Bullion Strategy Fund - Advisor Class | 3.47% | 2.67% | (1.76)% | 4.98% | 2.50% | N/A |
S&P 500 Total Return Index ** | 16.89% | 19.59% | 14.60% | 12.31% | 13.05% | 12.65% |
S&P GSCI Gold Index*** | 5.38% | 6.22% | 1.12% | 7.80% | 5.07% | 3.60% |
* | The performance data quoted is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemptions of Fund shares. The Fund’s Investor and Advisor Class total fund operating expense ratio including acquired fund fees and expenses (AFFE), as provided in the Fund’s prospectus dated May 1, 2023, was 1.39% and 1.99%, respectively. For performance information current to the most recent month-end, please call 1-855-650-7453. Investors should consider the investment objective, risks, and charges and expenses of the Fund carefully before investing. The Fund’s prospectus contains these as well as other information about the Fund and should be read carefully before investing. A prospectus or summary prospectus may be obtained free of charge by calling toll-free 1-855-375-3060. |
** | The S&P 500 Total Return Index is an unmanaged composite of 500 large capitalization companies and includes the reinvestment of dividends. This index is widely used by professional investors as a performance benchmark for large-cap stocks. Investors cannot invest directly in an index. |
*** | The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold future. The index is designed to be tradable, readily accessible to market participants, and cost efficient to implement. Investors cannot directly invest in an index. |
+ | Inception date is July 9, 2013 |
As of June 30, 2023, the Fund’s holdings by types of investments are as follows:
Holdings by Type of Investment ǂ: | % of Net Assets | |||
Exchange Traded Funds: | ||||
Fixed Income Funds | 6.7 | % | ||
Commodity Fund | 0.9 | % | ||
Certificate of Deposit | 12.2 | % | ||
Corporate Bonds | 21.3 | % | ||
U.S. Government & Agencies | 3.4 | % | ||
Short-Term Investments | 30.2 | % | ||
Collateral for Securities Loaned | 6.8 | % | ||
Other Assets In Excess of Liabilities | 18.5 | % | ||
100.0 | % | |||
ǂ | The Holdings by Type of Investment detailed do not include derivative exposure. |
Please refer to the Consolidated Portfolio of Investments in this semi-annual report for a detailed listing of the Fund’s holdings.
2
THE GOLD BULLION STRATEGY FUND |
CONSOLIDATED SCHEDULE OF INVESTMENTS (Unaudited) |
June 30, 2023 |
Shares | Fair Value | |||||||
EXCHANGE-TRADED FUNDS — 7.6% | ||||||||
COMMODITY - 0.9% | ||||||||
5,963 | SPDR Gold Shares(a),(b) | $ | 1,063,203 | |||||
FIXED INCOME - 6.7% | ||||||||
80,000 | iShares 0-3 Month Treasury Bond ETF(f) | 8,050,400 | ||||||
TOTAL EXCHANGE-TRADED FUNDS (Cost $9,083,944) | 9,113,603 |
Principal | Coupon Rate | |||||||||||
Amount ($) | (%) | Maturity | ||||||||||
CORPORATE BONDS — 21.3% | ||||||||||||
AUTOMOTIVE — 0.8% | ||||||||||||
1,000,000 | Toyota Motor Credit Corporation | 0.5000 | 06/18/24 | 953,148 | ||||||||
BANKING — 2.5% | ||||||||||||
1,000,000 | Canadian Imperial Bank of Commerce | 3.1000 | 04/02/24 | 977,695 | ||||||||
1,000,000 | Mitsubishi UFJ Financial Group, Inc. | 3.4070 | 03/07/24 | 984,136 | ||||||||
1,000,000 | PNC Financial Services Group, Inc. | 3.9000 | 04/29/24 | 982,068 | ||||||||
2,943,899 | ||||||||||||
DIVERSIFIED INDUSTRIALS — 0.8% | ||||||||||||
1,000,000 | General Electric Company | 3.4500 | 05/15/24 | 976,367 | ||||||||
ELECTRIC UTILITIES — 1.6% | ||||||||||||
1,000,000 | Enel Generacion Chile S.A. | 4.2500 | 04/15/24 | 980,299 | ||||||||
1,000,000 | WEC Energy Group, Inc. | 0.8000 | 03/15/24 | 965,167 | ||||||||
1,945,466 | ||||||||||||
ENTERTAINMENT CONTENT — 0.9% | ||||||||||||
1,000,000 | Walt Disney Company | 7.7500 | 01/20/24 | 1,011,106 | ||||||||
GAS & WATER UTILITIES — 0.8% | ||||||||||||
1,000,000 | Thomson Reuters Corporation | 3.8500 | 09/29/24 | 970,187 | ||||||||
INSTITUTIONAL FINANCIAL SERVICES — 2.5% | ||||||||||||
1,000,000 | Bank of New York Mellon Corporation | 0.5000 | 04/26/24 | 959,093 | ||||||||
1,000,000 | Brookfield Finance, Inc. | 4.0000 | 04/01/24 | 986,284 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
THE GOLD BULLION STRATEGY FUND |
CONSOLIDATED SCHEDULE OF INVESTMENTS (Unaudited) (Continued) |
June 30, 2023 |
Principal | Coupon Rate | |||||||||||
Amount ($) | (%) | Maturity | Fair Value | |||||||||
CORPORATE BONDS — 21.3% (Continued) | ||||||||||||
INSTITUTIONAL FINANCIAL SERVICES — 2.5% (Continued) | ||||||||||||
1,000,000 | Goldman Sachs Group, Inc. | 0.8000 | 03/25/24 | $ | 963,597 | |||||||
2,908,974 | ||||||||||||
MACHINERY — 0.8% | ||||||||||||
1,000,000 | Parker-Hannifin Corporation | 2.7000 | 06/14/24 | 971,444 | ||||||||
MEDICAL EQUIPMENT & DEVICES — 0.8% | ||||||||||||
1,000,000 | Becton Dickinson and Company | 3.3630 | 06/06/24 | 978,739 | ||||||||
OIL & GAS SERVICES & EQUIPMENT — 0.8% | ||||||||||||
1,000,000 | Schlumberger Holdings Corporation(c) | 3.7500 | 05/01/24 | 984,205 | ||||||||
REAL ESTATE INVESTMENT TRUSTS — 0.8% | ||||||||||||
1,000,000 | Welltower, Inc. | 3.6250 | 03/15/24 | 983,489 | ||||||||
RETAIL - CONSUMER STAPLES — 0.8% | ||||||||||||
1,000,000 | 7-Eleven, Inc.(c) | 0.8000 | 02/10/24 | 969,388 | ||||||||
SPECIALTY FINANCE — 2.5% | ||||||||||||
1,000,000 | Capital One Financial Corp | 3.9000 | 01/29/24 | 987,830 | ||||||||
2,000,000 | Federal National Mortgage Association | 5.2500 | 02/17/26 | 1,979,676 | ||||||||
2,967,506 | ||||||||||||
TECHNOLOGY HARDWARE — 1.6% | ||||||||||||
1,000,000 | Apple, Inc. | 3.0000 | 02/09/24 | 986,201 | ||||||||
1,000,000 | Hewlett Packard Enterprise Company | 1.4500 | 04/01/24 | 968,156 | ||||||||
1,954,357 | ||||||||||||
TECHNOLOGY SERVICES — 0.8% | ||||||||||||
1,000,000 | International Business Machines Corporation | 3.0000 | 05/15/24 | 977,579 | ||||||||
TELECOMMUNICATIONS — 0.8% | ||||||||||||
1,000,000 | Verizon Communications, Inc. | 0.7500 | 03/22/24 | 965,328 | ||||||||
TRANSPORTATION & LOGISTICS — 1.7% | ||||||||||||
1,000,000 | Ryder System, Inc. | 3.6500 | 03/18/24 | 983,557 | ||||||||
1,000,000 | Union Pacific Corporation | 3.6460 | 02/15/24 | 988,174 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
THE GOLD BULLION STRATEGY FUND |
CONSOLIDATED SCHEDULE OF INVESTMENTS (Unaudited) (Continued) |
June 30, 2023 |
Principal | Coupon Rate | |||||||||||
Amount ($) | (%) | Maturity | Fair Value | |||||||||
CORPORATE BONDS — 21.3% (Continued) | ||||||||||||
TRANSPORTATION & LOGISTICS — 1.7% (Continued) | ||||||||||||
$ | 1,971,731 | |||||||||||
TOTAL CORPORATE BONDS (Cost $26,346,535) | 25,432,913 | |||||||||||
U.S. GOVERNMENT & AGENCIES — 3.4% | ||||||||||||
GOVERNMENT OWNED, NO GUARANTEE — 1.7% | ||||||||||||
2,000,000 | Federal Home Loan Mortgage Corporation | 5.6250 | 03/13/26 | 1,987,600 | ||||||||
GOVERNMENT SPONSORED — 1.7% | ||||||||||||
2,000,000 | Federal Home Loan Banks | 5.3000 | 08/15/25 | 1,983,736 | ||||||||
TOTAL U.S. GOVERNMENT & AGENCIES (Cost $4,000,000) | 3,971,336 | |||||||||||
CERTIFICATE OF DEPOSIT — 12.2% | ||||||||||||
AUTOMOTIVE - 0.8% | ||||||||||||
1,000,000 | BMW Bank of North America | 0.5500 | 07/30/24 | 948,990 | ||||||||
BANKING - 11.4% | ||||||||||||
1,000,000 | Bellco Credit Union | 5.1500 | 02/24/25 | 995,638 | ||||||||
1,000,000 | Burke & Herbert Bank & Trust Company | 4.6000 | 02/06/26 | 978,541 | ||||||||
1,000,000 | Charles Schwab Bank SSB | 4.7500 | 02/02/24 | 996,150 | ||||||||
1,000,000 | Connexus Credit Union | 5.5000 | 06/28/24 | 1,000,336 | ||||||||
1,000,000 | Greenstate Credit Union | 0.5000 | 07/19/24 | 949,320 | ||||||||
1,000,000 | Local Government Federal Credit Union | 4.9000 | 02/12/24 | 997,510 | ||||||||
1,000,000 | Oregon Community Credit Union | 5.4500 | 06/20/24 | 999,959 | ||||||||
1,000,000 | State Bank of India | 0.6000 | 08/30/24 | 945,300 | ||||||||
1,000,000 | Synchrony Bank | 0.6500 | 09/17/24 | 944,042 | ||||||||
1,000,000 | Texas Exchange Bank SSB | 0.5000 | 07/09/24 | 950,605 | ||||||||
1,000,000 | Toyota Financial Savings Bank | 0.5500 | 08/05/24 | 948,238 | ||||||||
1,000,000 | UBS Bank USA | 0.5500 | 08/12/24 | 946,920 | ||||||||
1,000,000 | Valley Strong Credit Union | 5.1000 | 02/10/25 | 994,990 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
THE GOLD BULLION STRATEGY FUND |
CONSOLIDATED SCHEDULE OF INVESTMENTS (Unaudited) (Continued) |
June 30, 2023 |
Principal | Coupon Rate | |||||||||||
Amount ($) | (%) | Maturity | Fair Value | |||||||||
CERTIFICATE OF DEPOSIT — 12.2% (Continued) | ||||||||||||
BANKING - 11.4% (Continued) | ||||||||||||
1,000,000 | Wells Fargo Bank NA | 4.7500 | 02/06/24 | $ | 996,084 | |||||||
13,643,633 | ||||||||||||
TOTAL CERTIFICATE OF DEPOSIT (Cost $14,998,864) | 14,592,623 |
Shares | ||||||||
SHORT-TERM INVESTMENTS — 29.7% | ||||||||
MONEY MARKET FUNDS — 29.7% | ||||||||
29,144,853 | Fidelity Government Portfolio, Class I, 4.98%(d) | 29,144,853 | ||||||
6,322,095 | First American Government Obligations Fund, Class Z, 4.97%(d) | 6,322,095 | ||||||
TOTAL MONEY MARKET FUNDS (Cost $35,466,948) | 35,466,948 | |||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $35,466,948) | 35,466,948 | |||||||
Units | ||||||||
COLLATERAL FOR SECURITIES LOANED — 6.8% | ||||||||
8,133,910 | Mount Vernon Liquid Assets Portfolio, LLC, 5.28%(d),(e) | 8,133,910 | ||||||
TOTAL COLLATERAL FOR SECURITIES LOANED (Cost $8,133,910) | ||||||||
TOTAL INVESTMENTS — 81.0% (Cost $98,030,201) | $ | 96,711,333 | ||||||
OTHER ASSETS IN EXCESS OF LIABILITIES- 19.0% | 22,661,309 | |||||||
NET ASSETS - 100.0% | $ | 119,372,642 |
OPEN FUTURES CONTRACTS | ||||||||||||||
Number of Contracts | Open Long Futures Contracts | Expiration | Notional Amount | Unrealized (Depreciation) | ||||||||||
619 | COMEX Gold 100 Troy Ounces Futures(b) | 08/29/2023 | $ | 119,330,820 | $ | (2,093,983 | ) | |||||||
TOTAL FUTURES CONTRACTS |
ETF | - Exchange-Traded Fund |
SPDR | - Standard & Poor’s Depositary Receipt |
(a) | Non-income producing security. |
(b) | All or a portion of this investment is a holding of the GBSF Fund Ltd. |
(c) | Security exempt from registration under Rule 144A or Section 4(2) of the Securities Act of 1933. The security may be resold in transactions exempt from registration, normally to qualified institutional buyers. As of June 30, 2023 the total market value of 144A securities is $1,953,593 or 1.6% of net assets. |
(d) | Rate disclosed is the seven-day effective yield as of June 30, 2023. |
(e) | Security purchased with cash proceeds of securities lending collateral. |
(f) | All or a portion of the security is on loan. Total loaned securities had a value of $7,946,751 at June 30, 2023. |
The accompanying notes are an integral part of these consolidated financial statements.
6
The Gold Bullion Strategy Fund |
Consolidated Statement of Assets and Liabilities (Unaudited) |
June 30, 2023 |
ASSETS | ||||
Investment securities: | ||||
At cost | $ | 98,030,201 | ||
At value (a) | $ | 96,711,333 | ||
Cash | 25,775,807 | |||
Deposit with broker for futures contracts | 8,428,548 | |||
Dividends and interest receivable | 543,002 | |||
Receivable for Fund shares sold | 80,586 | |||
Receivable for securities sold | 38,056 | |||
Prepaid expenses and other assets | 40,728 | |||
TOTAL ASSETS | 131,618,060 | |||
LIABILITIES | ||||
Collateral on securities loaned (See note 10) | 8,133,910 | |||
Unrealized depreciation on futures contracts | 2,093,983 | |||
Payable for Fund shares repurchased | 1,694,336 | |||
Payable for investments purchased | 134,451 | |||
Investment advisory fees payable | 81,590 | |||
Payable to related parties | 63,359 | |||
Distribution (12b-1) fees payable | 27,540 | |||
Shareholder service fees payable | 16,249 | |||
TOTAL LIABILITIES | 12,245,418 | |||
NET ASSETS | $ | 119,372,642 | ||
Composition of Net Assets: | ||||
Paid in capital | $ | 120,441,555 | ||
Accumulated deficit | (1,068,913 | ) | ||
NET ASSETS | $ | 119,372,642 | ||
Net Asset Value Per Share: | ||||
Investor Class Shares: | ||||
Net Assets | $ | 118,819,136 | ||
Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized) | 5,452,125 | |||
Net asset value (Net Assets ÷ Shares Outstanding), offering price and redemption price per share | $ | 21.79 | ||
Advisor Class Shares: | ||||
Net Assets | $ | 553,506 | ||
Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized) | 25,945 | |||
Net asset value (Net Assets ÷ Shares Outstanding), offering price and redemption price per share | $ | 21.33 | ||
(a) | Includes loaned securities with a value of $7,946,751. |
The accompanying notes are an integral part of these consolidated financial statements.
7
The Gold Bullion Strategy Fund |
Consolidated Statement of Operations (Unaudited) |
For the Six Months Ended June 30, 2023 |
INVESTMENT INCOME | ||||
Interest | $ | 2,132,670 | ||
Dividends | 148,581 | |||
Securities lending | 27,142 | |||
TOTAL INVESTMENT INCOME | 2,308,393 | |||
EXPENSES | ||||
Investment advisory fees | 519,998 | |||
Distribution (12b-1) fees - Investor Class Shares | 172,620 | |||
Distribution (12b-1) fees - Advisor Class Shares | 2,768 | |||
Administrative service fees | 123,571 | |||
Shareholder service fees - Investor Class Shares | 103,572 | |||
Miscellaneous expenses | 4,500 | |||
TOTAL EXPENSES | 927,029 | |||
NET INVESTMENT INCOME | 1,381,364 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS | ||||
Net realized gain from: | ||||
Investments | 91,961 | |||
Futures contracts | 8,141,949 | |||
Net Realized Gain on Investments and Futures Contracts | 8,233,910 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 352,598 | |||
Futures contracts | (6,108,340 | ) | ||
Net Change in Unrealized Depreciation on Investments and Futures Contracts | (5,755,742 | ) | ||
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FUTURES CONTRACTS | 2,478,168 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 3,859,532 | ||
The accompanying notes are an integral part of these consolidated financial statements.
8
The Gold Bullion Strategy Fund |
Consolidated Statements of Changes in Net Assets |
For the | For the | |||||||
Six Months Ended | Year Ended | |||||||
June 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | ||||||||
Net investment income (loss) | $ | 1,381,364 | $ | (162,644 | ) | |||
Net realized gain (loss) on investments and futures contracts | 8,233,910 | (10,260,884 | ) | |||||
Net change in unrealized depreciation on investments and futures contracts | (5,755,742 | ) | (38,017 | ) | ||||
Net increase (decrease) in net assets resulting from operations | 3,859,532 | (10,461,545 | ) | |||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income: | ||||||||
Investor Class | (1,092,161 | ) | — | |||||
Advisor Class | (3,068 | ) | — | |||||
Total distributions to shareholders | (1,095,229 | ) | — | |||||
SHARES OF BENEFICIAL INTEREST | ||||||||
Proceeds from shares sold: | ||||||||
Investor Class | 165,719,148 | 339,717,662 | ||||||
Advisor Class | 283,731 | 297,280 | ||||||
Reinvestment of dividends and distributions | ||||||||
Investor Class | 1,067,759 | — | ||||||
Advisor Class | 2,902 | — | ||||||
Payments for shares redeemed | ||||||||
Investor Class | (179,369,562 | ) | (329,728,013 | ) | ||||
Advisor Class | (324,439 | ) | (400,794 | ) | ||||
Net increase (decrease) from shares of beneficial interest transactions | (12,620,461 | ) | 9,886,135 | |||||
NET DECREASE IN NET ASSETS | (9,856,158 | ) | (575,410 | ) | ||||
NET ASSETS | ||||||||
Beginning of period | 129,228,800 | 129,804,210 | ||||||
End of period | $ | 119,372,642 | $ | 129,228,800 | ||||
SHARE ACTIVITY | ||||||||
Investor Class: | ||||||||
Shares Sold | 7,392,014 | 15,748,075 | ||||||
Shares Reinvested | 48,441 | — | ||||||
Shares Redeemed | (8,060,769 | ) | (15,486,939 | ) | ||||
Net increase (decrease) in shares of beneficial interest outstanding | (620,314 | ) | 261,136 | |||||
Advisor Class: | ||||||||
Shares Sold | 12,701 | 13,470 | ||||||
Shares Reinvested | 135 | — | ||||||
Shares Redeemed | (14,624 | ) | (19,530 | ) | ||||
Net decrease in shares of beneficial interest outstanding | (1,788 | ) | (6,060 | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
9
The Gold Bullion Strategy Fund |
Consolidated Financial Highlights |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Year/Period |
Investor Class | ||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||
Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||
2023 | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of year/period | $ | 21.19 | $ | 22.21 | $ | 23.69 | $ | 21.86 | $ | 21.43 | $ | 22.62 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income (loss) (a) | 0.22 | (0.02 | ) | (0.15 | ) | (0.04 | ) | 0.18 | 0.09 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.58 | (1.00 | ) | (1.33 | ) | 4.22 | 3.38 | (1.02 | ) | |||||||||||||||
Total income (loss) from investment operations | 0.80 | (1.02 | ) | (1.48 | ) | 4.18 | 3.56 | (0.93 | ) | |||||||||||||||
Less distributions: | ||||||||||||||||||||||||
Distributions from net investment income | (0.20 | ) | — | — | (2.35 | ) | (3.13 | ) | (0.26 | ) | ||||||||||||||
Total distributions | (0.20 | ) | — | — | (2.35 | ) | (3.13 | ) | (0.26 | ) | ||||||||||||||
Net asset value, end of year/period | $ | 21.79 | $ | 21.19 | $ | 22.21 | $ | 23.69 | $ | 21.86 | $ | 21.43 | ||||||||||||
Total return (b) | 3.75 | % (e)(f) | (4.59 | )% (e) | (6.25 | )% | 19.28 | % | 16.95 | % | (4.08 | )% | ||||||||||||
Net assets, end of year/period (in 000s) | $ | 118,819 | $ | 128,654 | $ | 129,065 | $ | 123,107 | $ | 81,048 | $ | 42,274 | ||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||||||
Ratio of net expenses to average net assets (c) | 1.33 | % (g) | 1.31 | % | 1.35 | % | 1.43 | % | 1.42 | % | 1.41 | % | ||||||||||||
Ratios of net investment income (loss) to average net assets (c,d) | 1.99 | % (g) | (0.11 | )% | (0.67 | )% | (0.17 | )% | 0.79 | % | 0.41 | % | ||||||||||||
Portfolio turnover rate | 11 | % (f) | 143 | % | 162 | % | 229 | % | 190 | % | 167 | % | ||||||||||||
(a) | Per share amounts calculated using the average shares method, which more appropriately presents the per share data for the period. |
(b) | Total return assumes reinvestment of all distributions. |
(c) | The ratios of expenses to average net assets and net investment income (loss) to average net assets do not reflect the expenses of the underlying investment companies in which the Fund invests. |
(d) | Recognition of net investment income (loss) by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(e) | Includes adjustments in accordance with accounting principles generally accepted in the United States and, consequently, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset values and returns for shareholder transactions. |
(f) | Not annualized. |
(g) | Annualized. |
The accompanying notes are an integral part of these consolidated financial statements.
10
The Gold Bullion Strategy Fund |
Consolidated Financial Highlights |
Per Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Year/Period |
Advisor Class | ||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||
Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||
2023 | 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of year/period | $ | 20.73 | $ | 21.86 | $ | 23.46 | $ | 21.68 | $ | 21.28 | $ | 22.51 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income (loss) (a) | 0.15 | (0.16 | ) | (0.28 | ) | (0.19 | ) | 0.05 | (0.05 | ) | ||||||||||||||
Net realized and unrealized gain (loss) | 0.57 | (0.97 | ) | (1.32 | ) | 4.18 | 3.36 | (1.00 | ) | |||||||||||||||
Total income (loss) from investment operations | 0.72 | (1.13 | ) | (1.60 | ) | 3.99 | 3.41 | (1.05 | ) | |||||||||||||||
Less distributions: | ||||||||||||||||||||||||
Distributions from net investment income | (0.12 | ) | — | — | (2.21 | ) | (3.01 | ) | (0.18 | ) | ||||||||||||||
Total distributions | (0.12 | ) | — | — | (2.21 | ) | (3.01 | ) | (0.18 | ) | ||||||||||||||
Net asset value, end of year/period | $ | 21.33 | $ | 20.73 | $ | 21.86 | $ | 23.46 | $ | 21.68 | $ | 21.28 | ||||||||||||
Total return (b) | 3.47 | % (e)(f) | (5.17 | )% (e) | (6.82 | )% | 18.55 | % (e) | 16.32 | % (e) | (4.68 | )% | ||||||||||||
Net assets, end of year/period (in 000s) | $ | 554 | $ | 575 | $ | 739 | $ | 359 | $ | 290 | $ | 978 | ||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||||||
Ratio of net expenses to average net assets (c) | 1.94 | % (g) | 1.91 | % | 1.94 | % | 2.03 | % | 2.01 | % | 2.01 | % | ||||||||||||
Ratios of net investment income (loss) to average net assets (c,d) | 1.36 | % (g) | (0.77 | )% | (1.26 | )% | (0.76 | )% | 0.20 | % | (0.24 | )% | ||||||||||||
Portfolio turnover rate | 11 | % (f) | 143 | % | 162 | % | 229 | % | 190 | % | 167 | % | ||||||||||||
(a) | Per share amounts calculated using the average shares method, which more appropriately presents the per share data for the year. |
(b) | Total return assumes reinvestment of all distributions. |
(c) | The ratios of expenses to average net assets and net investment income (loss) to average net assets do not reflect the expenses of the underlying investment companies in which the Fund invests. |
(d) | Recognition of net investment income (loss) by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests. |
(e) | Includes adjustments in accordance with accounting principles generally accepted in the United States and, consequently, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset values and returns for shareholder transactions. |
(f) | Not annualized. |
(g) | Annualized. |
The accompanying notes are an integral part of these consolidated financial statements.
11
The Gold Bullion Strategy Fund |
Notes to Consolidated Financial Statements (Unaudited) |
June 30, 2023 |
1. | ORGANIZATION |
The Gold Bullion Strategy Fund (the “Fund”) is a diversified series of Advisors Preferred Trust (the “Trust”), a statutory trust organized under the laws of the State of Delaware on August 15, 2012 and registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Fund seeks returns that reflect the performance of the price of gold bullion.
The Fund currently offers two classes of shares, Investor and Advisor classes of shares each of which are offered at Net Asset Value (“NAV”). The Fund’s Investor class commenced operations on July 9, 2013 and the Advisor class commenced operations on April 19, 2016. The Fund may issue an unlimited number of shares of beneficial interest in one or more share classes. Generally, all shares of the Fund have equal rights and privileges, except for class-specific features, rights and expenses. All classes of shares have equal voting privileges except that each class has exclusive voting rights with respect to its service and/or distribution plans. The Fund’s income, expenses (other than class-specific distribution and service fees) and realized and unrealized gains and losses are allocated proportionately each day based upon the relative net assets of each class.
2. | SIGNIFICANT ACCOUNTING POLICIES |
The following is a summary of significant accounting policies followed by the Fund in preparation of its consolidated financial statements. These policies are in conformity with U.S. generally accepted accounting principles (“GAAP”). The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services – Investment Companies.
Securities Valuation – The Fund calculates its daily NAV per share at the close of regular trading on the New York Stock Exchange (“NYSE”) (normally 4:00 p.m., Eastern time) (the “NYSE Close”) on each day that the NYSE is open. Fund securities are valued each day at the last quoted sales price on each security’s primary exchange, and securities traded or dealt in upon one or more securities exchanges (whether domestic or foreign) for which market quotations were readily available and not subject to restrictions against resale will be valued at the last quoted sales price on the primary exchange or, in the absence of a sale on the primary exchange, at the mean of the current bid and ask on the primary exchange. Securities primarily traded in the National Association of Securities Dealers’ Automated Quotation System (“NASDAQ”) National Market System for which market quotations are readily available shall be valued using the NASDAQ price. Futures are valued at 4:00 p.m. Eastern Time or, in the absence of a settled price, at the last bid price on the day of valuation. Debt securities (other than short-term obligations) are valued each day by an independent pricing service approved by the Trust’s Board of Trustees (the “Board”) based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type, indications as to values from dealers, and general market conditions or market quotations from a major market maker in the securities. The independent pricing service does not distinguish between smaller-sized bond positions known as “odd lots” and larger institutional-sized bond positions known as “round lots”. The Fund may fair value a particular bond if the advisor does not believe that the round lot value provided by the independent pricing service reflects fair value of the Fund’s holding. Investments in open-end investment companies are valued at net asset value. Short-term debt obligations having 60 days or less remaining until maturity, at time of purchase, may be valued at amortized cost.
GBSF Fund Limited (“GBSF Ltd.”) is a wholly-owned and controlled foreign subsidiary of the Fund that can invest in gold-bullion related exchange-traded funds (“ETFs”), exchange traded notes (“ETNs”), physical gold bullion and derivatives. See “Consolidation of Subsidiary” for additional information.
The Fund may hold securities, such as private investments, interests in commodity pools, other non-traded securities or temporarily illiquid securities, for which market quotations are not readily available or are determined to be unreliable. These securities will be valued at their fair value as determined using the “fair value” procedures approved by the Trust’s Board. The Board has delegated execution of these procedures to a fair value committee
12
The Gold Bullion Strategy Fund |
Notes to Consolidated Financial Statements (Unaudited)(Continued) |
June 30, 2023 |
composed of one or more representatives from each of the (i) Trust, (ii) administrator, and (iii) advisor and/or sub-advisor. The committee may also enlist third party consultants such as a valuation specialist at a public accounting firm, valuation consultant or financial officer of a security issuer on an as-needed basis to assist in determining a security-specific fair value. The Board reviews and ratifies the execution of this process and the resultant fair value prices at least quarterly to assure the process produces reliable results.
Fair Valuation Process – As noted above, the fair value committee is composed of one or more representatives from each of the (i) Trust, (ii) administrator, and (iii) advisor and/or sub-advisor. The applicable investments are valued collectively via inputs from each of these groups. For example, fair value determinations are required for the following securities: (i) securities for which market quotations are insufficient or not readily available on a particular business day (including securities for which there is a short and temporary lapse in the provision of a price by the regular pricing source), (ii) securities for which, in the judgment of the advisor, the prices or values available do not represent the fair value of the instrument. Factors which may cause the advisor to make such a judgment include, but are not limited to, the following: only a bid price or an asked price is available; the spread between bid and asked prices is substantial; the frequency of sales; the thinness of the market; the size of reported trades; and actions of the securities markets, such as the suspension or limitation of trading; (iii) securities determined to be illiquid; (iv) securities with respect to which an event that will affect the value thereof has occurred (a “significant event”) since the closing prices were established on the principal exchange on which they are traded, but prior to the Fund’s calculation of its net asset value. Specifically, interests in commodity pools or managed futures pools are valued on a daily basis by reference to the closing market prices of each futures contract or other asset held by a pool, as adjusted for pool expenses. Restricted or illiquid securities, such as private investments or non-traded securities are valued via inputs from the advisor based upon the current bid for the security from two or more independent dealers or other parties reasonably familiar with the facts and circumstances of the security (who should take into consideration all relevant factors as may be appropriate under the circumstances). If the advisor is unable to obtain a current bid from such independent dealers or other independent parties, the fair value committee shall determine the fair value of such security using the following factors: (i) the type of security; (ii) the cost at date of purchase; (iii) the size and nature of the Fund’s holdings; (iv) the discount from market value of unrestricted securities of the same class at the time of purchase and subsequent thereto; (v) information as to any transactions or offers with respect to the security; (vi) the nature and duration of restrictions on disposition of the security and the existence of any registration rights; (vii) how the yield of the security compares to similar securities of companies of similar or equal creditworthiness; (viii) the level of recent trades of similar or comparable securities; (ix) the liquidity characteristics of the security; (x) current market conditions; and (xi) the market value of any securities into which the security is convertible or exchangeable.
Valuation of Investment Companies – The Fund may invest in portfolios of open-end or closed-end investment companies (the “Underlying Funds”). The Underlying Funds value securities in their portfolios for which market quotations are readily available at their market values (generally the last reported sale price) and all other securities and assets at their fair value to the methods established by the board of directors/trustees of the Underlying Funds.
Open-ended investment companies are valued at their respective net asset values as reported by such investment companies. The shares of many closed-end investment companies, after their initial public offering, frequently trade at a price per share, which is different than the net asset value per share. The difference represents a market premium or market discount of such shares. There can be no assurances that the market discount or market premium on shares of any closed-end investment company purchased by the Fund will not change.
Units of Mount Vernon Liquid Assets Portfolio, LLC are not traded on or exchange and are valued at the investment company’s NAV per unit as provided by the Underlying Fund’s administrator.
The Fund utilizes various methods to measure the fair value of all of its investments on a recurring basis. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of input are:
Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities that the Fund has the ability to access.
Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or
13
The Gold Bullion Strategy Fund |
Notes to Consolidated Financial Statements (Unaudited)(Continued) |
June 30, 2023 |
liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
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 in its entirety.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following table summarizes the inputs used as of June 30, 2023 for the Fund’s investments measured at fair value:
Assets* | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Investments: | ||||||||||||||||
Corporate Bonds | $ | — | $ | 25,432,913 | $ | — | $ | 25,432,913 | ||||||||
Certificate of Deposit | — | 14,592,623 | — | 14,592,623 | ||||||||||||
Exchange-Traded Funds | 9,113,603 | — | — | 9,113,603 | ||||||||||||
Money Market Funds | 35,466,948 | — | — | 35,466,948 | ||||||||||||
U.S. Government & Agencies | — | 3,971,336 | — | 3,971,336 | ||||||||||||
Collateral for Securities Loaned | 8,133,910 | — | — | 8,133,910 | ||||||||||||
Total Investments | $ | 52,714,461 | $ | 43,996,872 | $ | — | $ | 96,711,333 | ||||||||
Liabilities* | ||||||||||||||||
Derivative: | ||||||||||||||||
Futures Contracts | $ | (2,093,983 | ) | $ | — | $ | — | $ | (2,093,983 | ) | ||||||
Total Liabilities: | $ | (2,093,983 | ) | $ | — | $ | — | $ | (2,093,983 | ) |
* | Refer to the Consolidated Portfolio of Investments for industry classifications. |
The Fund did not hold any Level 3 securities during the current period.
Consolidation of Subsidiary – The consolidated financial statements of the Fund include the accounts of GBSF Ltd., a wholly-owned subsidiary. All inter-company accounts and transactions have been eliminated in consolidation. The Fund may invest up to 25% of its total assets in GBSF Ltd., which acts as an investment vehicle in order to affect certain investments consistent with the Fund’s investment objectives and policies. The subsidiary commenced operations on July 9, 2013 and is an exempted Cayman Islands company with limited liability.
A summary of the Fund’s investment in GBSF Ltd. is as follows:
Inception Date of GBSF Ltd. | GBSF Ltd. Net Assets at June 30, 2023 | % of Net Assets at June 30, 2023 | |
GBSF Ltd. | 7/09/2013 | $13,658,931 | 11.44% |
14
The Gold Bullion Strategy Fund |
Notes to Consolidated Financial Statements (Unaudited)(Continued) |
June 30, 2023 |
Security Transactions and Related Income – Security transactions are accounted for on trade date. Interest income is recognized on an accrual basis. Discounts are accreted and premiums are amortized on securities purchased over the lives of the respective securities using the effective yield method. Dividend income is recorded on the ex-dividend date. 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.
Dividends and distributions to shareholders – Dividends from net investment income, if any, are declared and paid quarterly. Distributable net realized capital gains, if any, are declared and distributed annually in December. Dividends from net investment income and distributions from net realized gains are recorded on ex-dividend date and are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are considered either temporary (i.e., deferred losses, capital loss carry forwards) or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the composition of net assets based on their federal tax basis treatment; temporary differences do not require reclassification. These reclassifications have no effect on net assets, results from operations or net asset value per share of the Fund.
Federal Income Tax – It is the Fund’s policy to continue to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code that are applicable to regulated investment companies and to distribute substantially all of its taxable income and net realized gains to shareholders. Therefore, no federal income tax provision is required.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken on returns filed. The Fund identifies its major tax jurisdictions as U.S. Federal and foreign jurisdictions where the Fund makes significant investments; however, the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Consolidated Statement of Operations. During the period, the Fund did not incur any interest or penalties.
For tax purposes, GBSF Ltd. is an exempted Cayman Islands investment company. GBSF Ltd. has received an undertaking from the Government of the Cayman Islands exempting it from all local income, profits and capital gains taxes. No such taxes are levied in the Cayman Islands at the present time. For U.S. income tax purposes, GBSF Ltd. is a Controlled Foreign Corporation and as such is not subject to U.S. income tax. However, a portion of GBSF Ltd.’s net income and capital gain, to the extent of its earnings and profits, will be included each year in the Fund’s investment company taxable income.
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, taking into consideration the nature and type of expense and the relative sizes of the funds in the Trust.
Indemnification – The Trust indemnifies its officers and Trustees for certain liabilities that may arise from the performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties and which provide general indemnities. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the risk of loss due to these warranties and indemnities appears to be remote.
3. | RISKS |
Principal Investment Risk – As with all mutual funds, there is the risk that you could lose money through your investment in the Fund. The Fund is not intended to be a complete investment program. Many factors affect the
15
The Gold Bullion Strategy Fund |
Notes to Consolidated Financial Statements (Unaudited)(Continued) |
June 30, 2023 |
Fund’s net asset value and performance. The following risks apply to the Fund through its direct investments as well as indirectly through investments in Underlying Funds and the subsidiary (GBSF Ltd.).
General Market Risk – The risk that the value of the Fund’s shares will fluctuate based on the performance of the Fund’s investments and other factors affecting the commodities and/or securities market generally.
Unexpected local, regional or global events, such as war; acts of terrorism; financial, political or social disruptions; natural, environmental or man-made disasters; the spread of infectious illnesses or other public health issues; and recessions and depressions could have a significant impact on the Fund and its investments and may impair market liquidity. Such events can cause investor fear, which can adversely affect the economies of nations, regions and the market in general, in ways that cannot necessarily be foreseen. An outbreak of infectious respiratory illness known as COVID-19, which is caused by a novel coronavirus (SARS-CoV-2), was first detected in China in December 2019 and subsequently spread globally. This coronavirus has resulted in, among other things, travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, significant disruptions to business operations, market closures, cancellations and restrictions, supply chain disruptions, lower consumer demand, and significant volatility and declines in global financial markets, as well as general concern and uncertainty. The impact of COVID-19 has adversely affected, and other infectious illness outbreaks that may arise in the future could adversely affect, the economies of many nations and the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.
Cash Accounts – At times, the Fund may invest cash in a short-term deposit sweep vehicle program. Such deposits are in amounts at any such depositary institution not in excess of the Federal Deposit Insurance Corporation (“FDIC”) or National Credit Union Share Insurance Fund standard maximum deposit insurance amount such that funds are insured across the various banks or credit unions at which such funds are deposited. StoneCastle Cash Management, LLC (“StoneCastle”) provides ministerial deposit placement assistance to the Fund with respect to the Fund’s short-term deposit sweep vehicle program. These deposits are not custodied by StoneCastle. These amounts are included as Cash on the Consolidated Statement of Assets and Liabilities to the extent they are held by the Fund as of June 30, 2023.
Exchange-Traded Funds – The Fund may invest in ETFs. ETFs are a type of index fund bought and sold on a securities exchange. An ETF trades like common stock and typically represents a fixed portfolio of securities designed to track the performance and dividend yield of a particular domestic or foreign market index. The Fund may purchase an ETF to temporarily gain exposure to a portion of the U.S. or a foreign market while awaiting purchase of underlying securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities they are designed to track, although the lack of liquidity on an ETF could result in it being more volatile. Additionally, ETFs have fees and expenses that reduce their value.
Mutual Fund and ETN Risk – Mutual funds and ETNs are subject to investment advisory or management and other expenses, which will be indirectly paid by the Fund. Each is subject to specific risks, depending on investment strategy. Also, each may be subject to leverage risk, which will magnify losses. ETNs are subject to default risks.
Futures Contracts – The Fund is subject to commodity risk in the normal course of pursuing its investment objective. The Fund may purchase or sell futures contracts to gain exposure to, or hedge against, changes in the value of commodities, equities and interest rates. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral for the account of the broker (the Fund’s agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by “marking to market” on a daily basis to reflect the value of the contracts at the end of each day’s trading. Variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. If the Fund was unable to liquidate a futures contract and/or
16
The Gold Bullion Strategy Fund |
Notes to Consolidated Financial Statements (Unaudited)(Continued) |
June 30, 2023 |
enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. The Fund segregates cash having a value at least equal to the amount of the current obligation under any open futures contract. Risks may exceed amounts recognized in the Consolidated Statement of Assets and Liabilities. With futures, there is minimal counterparty credit risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default.
Derivatives Risk – Futures are subject to inherent leverage that may magnify Fund losses. These derivatives may not provide an effective substitute for gold bullion because changes in derivative prices may not track those of the underlying gold bullion. Also, over-the-counter forwards are subject to counterparty default risk.
Gold Risk – The price of Gold may be volatile and gold bullion-related ETFs, ETNs and derivatives may be highly sensitive to the price of Gold. The price of gold bullion can be significantly affected by international monetary and political developments such as currency devaluation or revaluation, central bank movements, economic and social conditions within a country, transactional or trade imbalances, or trade or currency restrictions between countries.
4. | INVESTMENT TRANSACTIONS |
For the six months ended June 30, 2023, cost of purchases and proceeds from sales of portfolio securities, other than short-term investments, amounted to $19,070,801 and $5,108,796, respectively.
5. | OFFSETTING OF FINANCIAL ASSETS AND DERIVATIVE ASSETS |
The Fund’s policy is to recognize a gross asset or liability equal to the unrealized appreciation/(depreciation) on futures contracts. During the six month ended June 30, 2023, the Fund was subject to a master netting arrangement. The following table shows additional information regarding the offsetting of assets and liabilities at June 30, 2023:
Gross Amounts Not Offset in the | ||||||||||||||||||||||||
Consolidated Statement of Assets | ||||||||||||||||||||||||
Assets: (A) | & Liabilities | |||||||||||||||||||||||
Liabilities: (L) | ||||||||||||||||||||||||
Gross Amounts | Gross Amounts | Net Amount of Asset | ||||||||||||||||||||||
Presented in the | Offset in the | or Liabilities | ||||||||||||||||||||||
Consolidated | Consolidated | Presented in the | Financial | Cash Collateral | ||||||||||||||||||||
Statement of | Statement of Assets | Statement of Assets | Instruments | (Received) or | ||||||||||||||||||||
Description | Assets & Liabilities | & Liabilities | & Liabilities | Pledged | Pledged (1) | Net Amount | ||||||||||||||||||
Futures Contracts (L) | $ | 2,093,983 | $ | — | $ | 2,093,983 | $ | — | $ | (2,093,983 | ) | $ | — | |||||||||||
Securities lending (L) | 7,946,751 | — | 7,946,751 | — | (3,274,578 | ) | — | |||||||||||||||||
Total | $ | 10,040,734 | $ | — | $ | 10,040,734 | $ | — | $ | (5,368,561 | ) | $ | — | |||||||||||
(1) | Detailed collateral amounts are presented in the Consolidated Statement of Assets and Liabilities. |
Impact of Derivatives on the Consolidated Statement of Assets and Liabilities and Consolidated Statement of Operations
The following is a summary of the location of derivative investments on the Fund’s Consolidated Statement of Assets and Liabilities as of June 30, 2023:
Derivative Investment Type | Location on the Consolidated Statement of Assets and Liabilities | |
Futures Contracts | Unrealized depreciation on futures contracts | |
At June 30, 2023, the fair value of the derivative instruments was as follows:
Liability Derivatives | ||||||||
Derivative Investment Type | Commodity Risk | Total | ||||||
Futures Contracts | $ | 2,093,983 | $ | 2,093,983 |
17
The Gold Bullion Strategy Fund |
Notes to Consolidated Financial Statements (Unaudited)(Continued) |
June 30, 2023 |
The following is a summary of the location of derivative investments on the Fund’s Consolidated Statement of Operations for the six months ended June 30, 2023:
Derivative Investment Type | Location on the Consolidated Statement of Operations |
Futures Contracts | Net realized gain from futures contracts |
Net change in unrealized depreciation on futures contracts |
The following is a summary of the Fund’s realized gain (loss) and unrealized appreciation (depreciation) on derivative investments recognized in the Consolidated Statement of Operations categorized by primary risk exposure for the six months ended June 30, 2023:
Realized gain on derivatives recognized in the Consolidated Statement of Operations | ||||||||
Derivative Investment Type | Commodity Risk | Total | ||||||
Futures Contracts | $ | 8,141,949 | $ | 8,141,949 | ||||
Change in unrealized depreciation on derivatives recognized in the Consolidated Statement of Operations | ||||||||
Derivative Investment Type | Commodity Risk | Total | ||||||
Futures Contracts | $ | (6,108,340 | ) | $ | (6,108,340 | ) | ||
The derivative instruments outstanding as of June 30, 2023 as disclosed in the Consolidated Schedule of Investments and in the Notes to Consolidated Financial Statements and the amounts of realized and changes in unrealized gains and losses on derivative instruments during the period as disclosed in the Consolidated Statement of Operations serve as indicators of the volume of derivative activity for the Fund.
The Fund uses derivative instruments as part of its principal investment strategy to achieve its investment objective. For additional discussion on the risks associated with the derivative instruments, see Note 3.
6. | INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH RELATED PARTIES |
Advisors Preferred LLC (“Advisor”), serves as investment adviser to the Fund. The Advisor has engaged Flexible Plan Investments, Ltd. (the “Sub-Advisor”) to serve as the sub-advisor to the Fund. Sub-Advisor expenses are the responsibility of the Advisor.
Pursuant to an advisory agreement with the Fund, the Advisor, under the oversight of the Board, directs the daily operations of the Fund and supervises the performance of administrative and professional services provided by others. As compensation for its services and the related expenses borne by the Advisor, the Fund pays the Advisor a fee, computed and accrued daily and paid monthly, at an annual rate of 0.75% of the Fund’s average daily net assets. Pursuant to the advisory agreement, the Advisor earned $519,998 in advisory fees for the six months ended June 30, 2023.
Pursuant to a liquidity program administrator agreement with the Fund, the Advisor, provides a liquidity program administrator who, directs the operations of the Fund’s liquidity risk management program. As compensation for its services and the related expenses borne by the Advisor, the Fund pays the Advisor out of pocket expenses and an annual fee of $9,000. The liquidity program administrator agreement became effective June 1, 2021. Pursuant to the liquidity program administrator agreement, the Advisor earned $4,500 in fees for the six months ended June 30, 2023.
Ultimus Fund Solutions, LLC (“UFS”), provides administration, fund accounting, and transfer agent services to the Trust. Pursuant to separate servicing agreements with UFS, the Fund pays UFS customary fees for providing administration, fund accounting and transfer agent services to the Fund as shown in the consolidated Statement of Operations under Administrative services fees. Under the terms of the Fund’s agreement with UFS, UFS pays for certain operating expenses of the Fund. Certain officers of the Trust are also officers of UFS, and are not paid any fees directly by the Fund for serving in such capacities.
18
The Gold Bullion Strategy Fund |
Notes to Consolidated Financial Statements (Unaudited)(Continued) |
June 30, 2023 |
In addition, certain affiliates of UFS provide services to the Fund as follows:
Blu Giant, LLC (“Blu Giant”), an affiliate of UFS, provides EDGAR conversion and filing services as well as print management services for the Fund on an ad-hoc basis. For the provision of these services, Blu Giant receives customary fees from the Fund. These expenses are the responsibility of UFS.
The Board has adopted a Distribution Plan and Agreement (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan provides that a monthly service and/or distribution fee is calculated by the Investor and Advisor class at an annual rate of up to 0.25% and 1.00%, respectively, of their average daily net assets and is paid to Ceros Financial Services, Inc. (the “Distributor” or “Ceros”), a registered broker/dealer and an affiliate of the Advisor, and principal underwriter of the Fund, to provide compensation for ongoing shareholder servicing or services and-or maintenance of accounts, not otherwise required to be provided by the Advisor. The Plan is a compensation plan, which means that compensation is provided regardless of 12b-1 expenses incurred. For the six months ended June 30, 2023, pursuant to the Plan, Investor and Advisor Class shares paid $172,620 and $2,768, respectively.
The Board has adopted a Shareholder Servicing Plan (the “Servicing Plan”) on the Investor class. The Servicing Plan provides that a monthly service fee is calculated by the Fund at an annual rate of up to 0.15% (currently set at 0.15%), of its average daily net assets of the Investor class and is paid to Ceros to provide compensation for ongoing shareholder servicing or service and/or maintenance accounts, not otherwise required to be provided by the Advisor. For the six months ended June 30, 2023, Investor Class shares paid $103,572.
Each Trustee who is not an “interested person” of the Trust or Advisor is compensated at a rate of $72,000 per year plus $2,500 minimum per meeting for certain special meetings, which varies based on the matters submitted, as well as for reimbursement for any reasonable expenses incurred attending the meetings, paid quarterly. The “interested persons” who serve as Trustees of the Trust receive no compensation for their services as Trustees. None of the executive officers receive compensation from the Trust. Interested trustees of the Trust are also officers or employees of the Advisor and its affiliates. The Advisor pays Trustee fees.
During the six months ended June 30, 2023, Ceros executed trades on behalf of the Fund and received $425 in trade commissions.
7. | AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION – TAX BASIS |
The identified cost of investments in securities owned by the Fund for federal income tax purposes excluding futures, and its respective gross unrealized appreciation and depreciation at June 30, 2023, were as follows:
Gross Unrealized | Gross Unrealized | Net Unrealized | ||||||||||||
Tax Cost | Appreciation | (Depreciation) | Depreciation | |||||||||||
$ | 98,032,860 | $ | 43,896 | $ | (1,365,423 | ) | $ | (1,321,527 | ) | |||||
8. | DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL |
There were no distributions paid during the fiscal years ended December 31, 2022, and December 31, 2021.
As of December 31, 2022, the components of distributable earnings/(accumulated deficit) on a tax basis were as follows:
Undistributed | Undistributed | Post October Loss | Capital Loss | Other | Unrealized | Total | ||||||||||||||||||||
Ordinary | Long-Term | and | Carry | Book/Tax | Appreciation/ | Distributable Earnings/ | ||||||||||||||||||||
Income | Gains | Late Year Loss | Forwards | Differences | (Depreciation) | (Accumulated Deficit) | ||||||||||||||||||||
$ | — | $ | — | $ | — | $ | (4,919,572 | ) | $ | (1,253,876 | ) | $ | 2,340,232 | $ | (3,833,216 | ) |
19
The Gold Bullion Strategy Fund |
Notes to Consolidated Financial Statements (Unaudited)(Continued) |
June 30, 2023 |
The difference between book basis and tax basis undistributed net investment income, unrealized appreciation and accumulated realized losses is primarily attributable to the tax deferral of losses on wash sales and tax adjustments for the Fund’s holding in GBSF Ltd.
At December 31, 2022, the Fund had capital loss carryforwards for federal income tax purposes available to offset future capital gains as follows:
Non-Expiring | Non-Expiring | |||||||||||||
Short-Term | Long-Term | Total | CLCF Utilized | |||||||||||
$ | 2,066,997 | $ | 2,852,575 | $ | 4,919,572 | $ | — | |||||||
Permanent book and tax differences, primarily attributable to tax adjustments for net operating losses and the Fund’s holding in GBSF Ltd., resulted in reclassifications for the period ended December 31, 2022, as follows:
Paid | ||||||
In | Distributable Earnings/ | |||||
Capital | (Accumulated Deficit) | |||||
$ | (6,479,183 | ) | $ | 6,479,183 | ||
9. | CONTROL OWNERSHIP |
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumption of control of the fund pursuant to Section 2(a)(9) of the 1940 Act. As of June 30, 2023, Axos Clearing LLC held approximately 51% of the Fund, for the benefit of its customers.
10. | SECURITIES LENDING |
The Fund has entered into a securities lending arrangement (the “Agreement”) with U.S. Bank (the “Lending Agent”). Under the terms of the Agreement, the Fund is authorized to loan securities to the Lending Agent. In exchange, the Fund receives cash and “non-cash” or “securities” collateral in the amount of at least 105% of the value of any loaned securities that are foreign securities or 102% of the value of any other loaned securities marked-to-market daily. Loans shall be marked to market daily and the margin restored in the event collateralization is below 100% of the value of securities loaned. The value of securities loaned is disclosed in a footnote on the Consolidated Statement of Assets and Liabilities and on the Consolidated Schedule of Investments. Securities lending income is disclosed in the Fund’s Consolidated Statement of Operations. Although risk is mitigated by the collateral, the Fund could experience a delay in recovering its securities and possible loss of income or value if the Lending Agent fails to return the securities on loan. The Fund’s cash collateral received in securities lending transactions is invested in the Mount Vernon Liquid Assets Portfolio, LLC, a privately offered liquidity fund, as presented below. The investment objective is to seek to maximize current income to the extent consistent with the preservation of capital and liquidity and maintain a stable NAV of $1.00 per unit.
As of June 30, 2023, the Fund loaned securities which were collateralized by short-term investment securities or cash and equivalent. The value of securities on loan and the value of the related overnight and continuous collateral were $7,946,751 and $8,133,910, respectively.
20
The Gold Bullion Strategy Fund |
Notes to Consolidated Financial Statements (Unaudited)(Continued) |
June 30, 2023 |
11. | SUBSEQUENT EVENTS |
Subsequent events after the date of the Consolidated Statement of Assets and Liabilities have been evaluated through the date the financial statements were issued. Management has determined that no events or transactions occurred requiring adjustment or disclosure in the financial statements.
21
The Gold Bullion Strategy Fund |
Expense Example (Unaudited) |
June 30, 2023 |
As a shareholder of The Gold Bullion Strategy Fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in The Gold Bullion Strategy Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2023, through June 30, 2023.
Table 1. Actual Expenses
The “Actual Expenses” line in the table below provides information about actual account values and actual expenses. You may use the information below; 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 table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Table 2. Hypothetical Example for Comparison Purposes
The “Hypothetical” line in the table below provides information about hypothetical account values and hypothetical expenses based on The Gold Bullion Strategy 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 balances or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or redemption fees. Therefore, 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.
Table 1 | ||||
Actual Expenses | Annualized Expense Ratio | Beginning Account Value 1/1/2023 | Ending Account Value 6/30/2023 | Expenses Paid During Period * 1/1/2023-6/30/2023 |
Investor Class | 1.33% | $1,000.00 | $1,037.50 | $6.74 |
Advisor Class | 1.94% | $1,000.00 | $1,034.70 | $9.77 |
Table 2 | ||||
Hypothetical (5% return before expenses) | Annualized Expense Ratio | Beginning Account Value 1/1/2023 | Ending Account Value 6/30/2023 | Expenses Paid During Period * 1/1/2023-6/30/2023 |
Investor Class | 1.33% | $1,000.00 | $1,018.18 | $6.68 |
Advisor Class | 1.94% | $1,000.00 | $1,015.19 | $9.67 |
* | Expenses are equal to the Fund’s annualized expense ratio multiplied by the number of days in the period (181) divided by the number of days in the fiscal year (365). |
22
The Gold Bullion Strategy Fund |
Supplemental Information (Unaudited) |
June 30, 2023 |
Approval of the Renewal of the Investment Advisory and Sub-Advisory Agreements for The Gold Bullion Strategy Fund (and its subsidiary)
At an in-person Board meeting held on May 23, 2023 (the “Meeting”), the Board of Trustees (the “Board”) of Advisors Preferred Trust (the “Trust”), including a majority of Trustees who are not “interested persons” (the “Independent Trustees”), as such term is defined under Section 2(a)(19) of the 1940 Act, considered the renewal of the investment advisory agreement (the “Advisory Agreement”) between Advisors Preferred, LLC (the “Adviser”) and the Trust, on behalf of The Gold Bullion Strategy Fund (and its subsidiary) (“Gold Fund” and “GBSF Fund Limited”, respectively); and the renewal of each sub-advisory agreement (the “Sub-Advisory Agreements”) between the Adviser and Flexible Plan Investments, Ltd. (the “Sub-Adviser” or “Flexible Plan”). The Directors of the GBSF Fund Limited, a wholly owned foreign subsidiary of Gold Fund, approved an investment advisory agreement between GBSF Fund Limited and the Adviser (the “Subsidiary Advisory Agreement”) as well as a sub-advisory agreement (the “Subsidiary Sub-Advisory Agreements”) between the Adviser and Flexible Plan with respect to the GBSF Fund Limited. The Fund level agreements and subsidiary agreements are referred to collectively for convenience and references to the Fund include the subsidiary as the context indicates. The Trustees’ and Directors’ deliberations are presented as collective deliberations as they were conducted concurrently and references to the Board also include the Directors.
In connection with the Board’s consideration, deliberation and approval of the renewal of the Advisory Agreements and Sub-Advisory Agreements, (together the “Advisory Agreements”) the Adviser and Sub-Adviser provided the Board in advance of the Meeting with written materials, which included information regarding: (a) a description of the investment management personnel of the Adviser and Sub-Adviser; (b) the Adviser’s and Sub-Adviser’s operations and the Adviser’s financial condition; (c) the Adviser’s proposed brokerage practices (including any soft dollar arrangements); (d) the level of the advisory fees proposed to be charged compared with the fees charged to comparable mutual funds or accounts; (e) the Gold Fund anticipated level of profitability to the Adviser and Sub-Adviser from related operations; (f) the Adviser’s and Sub-Adviser’s compliance policies and procedures; and (g) information regarding the performance of Gold Fund as compared to their respective benchmarks and Morningstar categories. The Trustees reviewed the quality of work and abilities of the Adviser and its relationship with the Sub-Adviser and the performance of Gold Fund. The Trustees conducted some of their deliberations on a joint Adviser and Sub-Adviser basis given the close working relationship of the Adviser and Sub-Adviser. The Board’s review of the materials and deliberations are presented contemporaneously given the overlapping considerations, paralleled issues and conclusions drawn by the Board. The Board conducted some of its deliberations on a joint basis for the Adviser and Flexible Plan given the close working relationship of the Adviser and Sub-Adviser and conducted their deliberations on a consolidated basis for Gold Fund and its subsidiary.
Nature, Extent and Quality of Services: With respect to the nature, extent and quality of services provided, the Board reviewed the Adviser’s Form ADV, and the Sub-Adviser’s Form ADV, a description of the manner in which investment decisions, including asset allocation, sector selection, trade execution and compliance, will be made for the Fund by the Sub-Adviser, a description of the services provided by the Adviser and those services provided by the Sub-Adviser and those executed by the Adviser. The Board reviewed the experience of professional personnel from both the Adviser and the Sub-Adviser performing services for the Fund, including the team of individuals that primarily monitor and execute the investment and administration process, and the respective portfolio managers. Further the Board reviewed a certification from each of the Adviser and the Sub-Adviser certifying that each has adopted a Code of Ethics containing provisions reasonably necessary to prevent Access Persons, as that term is defined in Rule 17j-1 under the 1940 Act,
23
The Gold Bullion Strategy Fund |
Supplemental Information (Unaudited)(Continued) |
June 30, 2023 |
from engaging in conduct prohibited by Rule 17j-1(b) and noted that each of the Adviser and Sub-Adviser have adopted procedures reasonably necessary to prevent Access Persons from violating such Code of Ethics.
Advisors Preferred:
The Board reviewed the balance sheet of the Adviser as of March 31, 2023, and considered the change in net income for the month of March as compared to January through March 2023 period. The Board also reviewed the audited financials of the Adviser as of December 31, 2022. The Adviser reported $1.7 billion in total assets under management in active mutual funds and Ms. Ayers-Rigsby noted the commitment from Advisors Preferred to grow the mutual fund business.
The Board discussed the Adviser’s compliance program with the CCO of the Trust. The Board considered that the CCO of the Trust also serves as CCO of the Adviser and were confident in her abilities with respect to both positions. The Trustees were comfortable that if a conflict of interest were to arise, counsel would be called upon for a solution. The Board noted that the Adviser continues to have in place procedures which are currently working to prevent violations of applicable securities laws. The CCO confirmed that she has the support and resources to ensure the compliance procedures of the Trust are updated in accordance with current SEC rules. The Board considered that the cybersecurity risk of the Adviser is managed by Sikich LLP with no data breached reported. The Board discussed the overall technology of the Adviser with the CCO. The Adviser confirmed adequate Professional Liability Insurance is in place, including $2 million for the Independent Directors. Legal counsel noted the Board had previously reviewed the business continuity plan for Advisors Preferred Trust. The Board concluded that the Adviser has qualified professionals, resources, and compliance policies essential to performing its duties under the Advisory Agreements.
Flexible Plan: The Board reviewed the balance sheet and income state of the Sub-Adviser as of December 31, 2022 and confirmed there were no changes in its financial conditions since then. The Board noted there were no liabilities other than current trade accounts payable. The Board recalled the presentation by the sub-adviser and earlier discussions concerning reverse fee splits, and the financial stability of Flexible Plan. The Board noted that over 60% of the assets managed by the Sub-Adviser are directed into purchases of the Gold Fund, Gold Portfolio and Quantified Funds. The Board saw that the Sub-Adviser remains dedicated to growing the Fund as an investment vehicles under the various strategies for their clients, and determined Flexible Plan is financially equipped to continue to serve the Gold Portfolio as sub-adviser.
The Board confirmed with the CCO that she works well with the CCO of the Sub-Adviser, and she had reviewed the policies and procedures manual of Flexible Plan, including their latest revisions and business continuity plans. The Board confirmed that cybersecurity risk management is the responsibility of the Chief Information Office/Chief Insurance Security Officer of Flexible Plan and that there were no reported breaches. They also noted that the Sub-Adviser has Directors & Officers Liability insurance.
The Board determined that Flexible Plan has a compliance program in place that is reasonably designed to prevents violation of the applicable federal securities laws. The Board noted they are familiar with the portfolio managers of Flexible Plan and their qualifications in managing the Gold Fund.
Performance. The Board considered that the Adviser delegates day-to-day investment decisions to the Sub-Adviser and, therefore, does not directly control the performance of the Fund. The Board considered the Adviser’s other responsibilities under the Advisory Agreements, including with respect to trade
24
The Gold Bullion Strategy Fund |
Supplemental Information (Unaudited)(Continued) |
June 30, 2023 |
oversight, reviewing daily positions and balance reports for the Fund, obtaining derivative agreements for the Fund and reporting to the Board. The Trustees concluded that the Adviser appears to be properly and reasonably monitoring the Sub-Adviser’s adherence to the Fund’s investment objectives and appears to be carrying out its functions appropriately.
With respect to the performance, the Board reviewed the Sub-Adviser’s daily management and investment strategies and considered the updated performance of the Fund through March 31, 2023, compared to their primary benchmark and Morningstar category for various periods provided by the Adviser. The Board recalled the earlier presentations by Flexible Plan, with respect to strategy and the Fund’s performance for various periods with explanations for over/under performance.
The Board considered that the Fund (as measured by Investor Class shares) underperformed the benchmark S&P GSCI Gold Index for the one- three-, five year periods ended March 31, 2023, and since inception periods ended March 31, 2023. This underperformance is expected as the Fund bears expenses while the gold price index does not. The Board noted the Fund beat out the S&P 500 Index for the one-year period but lagged the S&P 500 Index for the three, five, and since inception periods. With respect to the Morningstar Commodities Broad Basket, the Board noted that the Fund outperformed for the one-year period, while the Fund lagged by double digits for the three-year period and lagged slightly for the five-year period. The Trustees noted that the S&P 500 and commodities indices are provided primarily for market performance reference points but do not serve as direct comparisons because they are outside the investment mandate of the Fund. The Board found the performance of the Fund was delivering on its gold price tracking mandate and was satisfactory.
Fees and Expenses: As to the costs of the services provided to the Fund by the Adviser and Sub-Adviser, respectively, the Board reviewed and discussed the advisory fee and total operating expenses of the Fund compared to its peer group and Morningstar category as presented in the Meeting Materials. The Board acknowledged that the Adviser pays the sub-adviser directly consistent with agreements and any breakpoints in effect.
The Board noted the advisory fee of 0.75% for Gold Fund was close to the average for the Morningstar Commodity Broad Basket category, and well below the maximum management fee. The Board discussed and found the net expenses of 1.39% for Gold Fund A Class and Investor Class shares was slightly above the average, within range, and well below the maximum fee for the Morningstar Commodity A Class category. With regards to Gold Fund Adviser Class shares, the Board noted the net expense ratio of 1.99% was below the average and well below the maximum net expenses for the Morningstar Commodity C Class category.
Profitability of Adviser. The Board reviewed the levels of profits to the Adviser for the fiscal year ended December 31, 2022 from the Fund with respect to advisory fees and from the total relationship with the Fund. They considered whether profits from the Fund were reasonable in light of services provided, including the assets levels and payments to the respective sub-adviser, and any breakpoints in fee structures for the Fund. The Board referred to the reverse breakpoint split fees applicable to the Gold Fund. The Board, in consultation with counsel noted that current court rulings with respect to profitability suggest up to or even over a 50% profit margin for any adviser or sub-adviser could be acceptable and not considered excessive.
During their review, the Board noted that, taking into account the fees paid to the Sub-Adviser, with respect to Gold Fund, the Adviser operated at a loss. The Board concluded that based on the assets levels and services provided, the Adviser having excess profits is not a concern.
25
The Gold Bullion Strategy Fund |
Supplemental Information (Unaudited)(Continued) |
June 30, 2023 |
Profitability of Sub-Adviser: The Board reviewed the levels of profits to Flexible Plan for the year ended December 31, 2022 with respect to Gold Fund. They noted the situation for the Fund with respect to sub-advisory fees and from the total relationship with Gold Fund. With regards to Gold Fund, the Board noted that the Sub-Adviser usually charges higher fees for separately managed accounts with similar investment strategies, if any. The Board, in consultation with counsel noted that current court rulings with respect to profitability suggest up to or even over a 50% profit margin for any adviser or sub-adviser could be acceptable and not considered excessive.
With respect to the profitability review, the Board noted the Sub-Adviser operated Gold Fund at a loss from sub-advisory fees only. The Board found that when taking into account the total relationship with the Fund, the Sub-Adviser continues to operate at a loss. The Board concluded that based on the assets levels and services provided, the Sub-Adviser having excess profits from Gold Fund is not of current concern.
Economies of Scale. As to the extent to which the Fund will realize economies of scale, the Adviser reported an estimate of $500 million to be the minimum asset level required to reach such economies of scale and that the Fund may not achieve economies of scale as it may face capacity issues under certain investment strategies. The Board discussed the Adviser’s expectations for the growth in net assets of the Fund and concluded that any material economies of scale were not a concern at present assets levels. The Trustees noted economies of scale is an advisory agreement concern and is not a consideration for approval of any sub-advisory agreements. The Board agreed to revisit economies of scale as assets of the Fund continue to grow.
Conclusion. Legal counsel assisted the Board throughout the Advisory Agreements and Subsidiary Advisory Agreements review process. The Board members relied upon the advice of counsel, and their own business judgment, in determining the material factors to be considered in evaluating each of the Advisory Agreements and Subsidiary Advisory Agreements where appropriate. In considering the approval, the Board noted that each Trustee may have afforded different weight to the various factors in reaching his or her conclusions with respect to the Advisory Agreements, Subsidiary Advisory Agreements; and the Sub-Advisory Agreements and Subsidiary Subadvisory Agreements.
Accordingly, having requested and received such information from the Adviser and Sub-Adviser as the Board believed to be reasonably necessary to evaluate the terms of each of the Advisory Agreements as appropriate; the Board, including a majority of the Independent Trustees, determined that, with respect to each of the Advisory Agreements, separately that (a) the terms of the Advisory Agreement and Sub-Advisory Agreement are reasonable; (b) the advisory fee for Gold Fund was not unreasonable; and (c) each Advisory Agreement, Subsidiary Advisory Agreement, Sub-Advisory Agreement and Subsidiary Subadvisory Agreement is in the best interests of Gold Fund and its shareholders.
26
The Gold Bullion Strategy Fund |
SUPPLEMENTAL INFORMATION (Unaudited) (Continued) |
June 30, 2023 |
LIQUIDITY RISK MANAGEMENT PROGRAM
The Fund has adopted and implemented a written liquidity risk management program as required by Rule 22e-4 (the “Liquidity Rule”) under the Investment Company Act. The program is reasonably designed to assess and manage the Fund’s liquidity risk, taking into consideration, among other factors, the Fund’s investment strategies and the liquidity of Fund investments during normal and reasonably foreseeable stressed conditions; short and long-term cash flow projections; and cash holdings and access to other funding sources.
During the six months ended June 30, 2023, the Trust’s Liquidity Program Administrator (“LPA”) and the Board reviewed the Fund’s investments and they determined that, generally, the Fund held adequate levels of cash and highly liquid investments to meet shareholder redemption activities in accordance with applicable requirements. Accordingly, the Board and the LPA concluded that (i) the Fund’s liquidity risk management program is reasonably designed to prevent violations of the Liquidity Rule and (ii) the Fund’s liquidity risk management program has been effectively implemented.
27
PRIVACY NOTICE
Rev. May 2014
FACTS | WHAT DOES ADVISORS PREFERRED TRUST DO WITH YOUR PERSONAL INFORMATION? | |||
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. | |||
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: | |||
■ | Social Security number | ■ | Purchase History | |
■ | Assets | ■ | Account Balances | |
■ | Retirement Assets | ■ | Account Transactions | |
■ | Transaction History | ■ | Wire Transfer Instructions | |
■ | Checking Account Information | |||
When you are no longer our customer, we continue to share your information as described in this notice. | ||||
How? | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons Advisors Preferred Trust chooses to share; and whether you can limit this sharing. |
Reasons we can share your personal information | Does Advisors Preferred Trust share? | Can you limit this sharing? |
For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus | Yes | No |
For our marketing purposes – to offer our products and services to you | No | We don’t share |
For joint marketing with other financial companies | No | We don’t share |
For our affiliates’ everyday business purposes – information about your transactions and experiences | No | We don’t share |
For our affiliates’ everyday business purposes – information about your creditworthiness | No | We don’t share |
For nonaffiliates to market to you | No | We don’t share |
Questions? | Call 1-866-862-9686 |
28
Who we are | |||||
Who is providing this notice?
| Advisors Preferred Trust | ||||
What we do | |||||
How does Advisors Preferred Trust protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.
Our service providers are held accountable for adhering to strict policies and procedures to prevent any misuse of your nonpublic personal information. | ||||
How does Advisors Preferred Trust collect my personal information? | We collect your personal information, for example, when you
■ Open an account
■ Provide account information
■ Give us your contact information
■ Make deposits or withdrawals from your account
■ Make a wire transfer
■ Tell us where to send the money
■ Tells us who receives the money
■ Show your government-issued ID
■ Show your driver’s license
We also collect your personal information from other companies. | ||||
Why can’t I limit all sharing? | Federal law gives you the right to limit only ■ Sharing for affiliates’ everyday business purposes – information about your creditworthiness ■ Affiliates from using your information to market to you
■ Sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit sharing. | ||||
Definitions | |||||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
■ Advisors Preferred Trust does not share with our affiliates. | ||||
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. ■ Advisors Preferred Trust does not share with nonaffiliates so they can market to you. | ||||
Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
■ Advisors Preferred Trust doesn’t jointly market. | ||||
29
PROXY VOTING POLICY
Information regarding how the Fund voted proxies relating to portfolio securities for the most recent twelve month period ended June 30 as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies is available without charge, upon request, by calling 1-855-650-QGLD(7453) or by referring to the Security and Exchange Commission’s (“SEC”) website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT, within sixty days after the end of the period. Form N-PORT reports are available on the SEC’s website at http://www.sec.gov. The information on Form N-PORT is available without charge, upon request, by calling 1-855-650-7453.
INVESTMENT ADVISOR |
Advisors Preferred LLC |
1445 Research Blvd., Suite 530 |
Rockville, MD 20850 |
SUB-ADVISOR |
Flexible Plan Investments, Ltd. |
3883 Telegraph Road, Suite 100 |
Bloomfield Hills, MI 48302 |
ADMINISTRATOR |
Ultimus Fund Solutions, LLC |
225 Pictoria Drive, Suite 450 |
Cincinnati, OH 45246 |
GOLD-SAR23 |
(b) Not applicable.
Item 2. Code of Ethics. Not applicable.
Item 3. Audit Committee Financial Expert. Not applicable.
Item 4. Principal Accountant Fees and Services. Not applicable.
Item 5. Audit Committee of Listed Companies. Not applicable to open-end investment companies.
Item 6. Schedule of Investments. Schedule of investments in securities of unaffiliated issuers is included under Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Funds. Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed-End Funds. Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders. None
Item 11. Controls and Procedures.
(a) Based on an evaluation of the Registrant’s disclosure controls and procedures as of a date within 90 days of filing date of this Form N-CSR, the principal executive officer and principal financial officer of the Registrant have concluded that the disclosure controls and procedures of the Registrant are reasonably designed to ensure that the information required in filings on Form N-CSR is recorded, processed, summarized, and reported by the filing date, including that information required to be disclosed is accumulated and communicated to the Registrant’s management, including the Registrant’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no significant changes in the Registrant’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are 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) Not applicable.
(a)(3) Not applicable for open-end investment companies.
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) Advisors Preferred Trust
By (Signature and Title)
/s/ Catherine Ayers-Rigsby
Catherine Ayer-Rigsby, President/Principal Executive Officer
Date 8/29/23
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/Catherine Ayers-Rigsby
Catherine Ayers-Rigsby, President/Principal Executive Officer
Date 8/29/23
By (Signature and Title)
/s/ Christine Casares
Christine Casares, Treasurer/Principal Financial Officer
Date 8/29/23