As filed with the Securities and Exchange Commission on January 31, 2017
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 811-22842
FORUM FUNDS II
Three Canal Plaza, Suite 600
Portland, Maine 04101
Jessica Chase, Principal Executive Officer
Three Canal Plaza, Suite 600
Portland, Maine 04101
207-347-2000
Date of fiscal year end: November 30
Date of reporting period: December 1, 2015 – November 30, 2016
ITEM 1. REPORT TO STOCKHOLDERS.
| CVR DYNAMIC ALLOCATION FUND |
Annual Report
November 30, 2016
The views in this report were those of CVR Dynamic Allocation Fund's (the "Fund") adviser as of November 30, 2016, and may not reflect their views on the date this report is first published or any time thereafter. These views are intended to assist shareholders in understanding their investment in the Fund and do not constitute investment advice. None of the information presented should be construed as an offer to sell or recommendation of any security mentioned herein.
All investing involves risk including the possible loss of principal. There can be no assurance the Fund will achieve its investment objective. In addition to the general risks of investing, the Fund is subject to additional risks including commodities risk, derivatives risks, ETF risk, risks of foreign investing and model and data risks. Exposure to the commodities markets may subject the Fund to greater volatility than investments in traditional securities. Derivatives, such as options, futures and swaps, can be volatile, and a small investment in a derivative can have a large impact on the performance of the Fund as derivatives can result in losses in excess of the amount invested. Shares of an ETF may trade at a premium or discount to the net asset value of its portfolio securities. Foreign investments may be subject to additional risks, which include international trade, currency, political, regulatory and diplomatic risks, which may affect their value. Given the complexity of the investments and strategies of the Fund, the Adviser relies heavily on quantitative models and data supplied by third parties. Models and data may prove to be incorrect or incomplete and expose the Fund to potential risks.
CVR DYNAMIC ALLOCATION FUND A MESSAGE TO OUR SHAREHOLDERS (Unaudited) NOVEMBER 30, 2016 |
CVR Portfolio Funds is pleased to review the performance of the CVR Dynamic Allocation Fund (the "Fund") from December 1, 2015 through November 30, 2016. During this period, the Fund returned 3.71% vs. 8.06% for the S&P 500 Index (the "S&P 500") and -1.18% for the HFRX Equity Hedge Index (the "HFRX EH").
The CVR Dynamic Allocation Fund is a hedged equity alternative that seeks to:
| · | Deliver better upside capture than hedged equity |
| · | Take less risk than the market (lower volatility & beta) |
| · | Manage the downside |
The Fund invests in three principal investment strategies, each of which is rule-based, leading to an investment process that is unemotional and repeatable. The three strategies are Focused Equity, Defensive Equity and Absolute Return. We believe that each of the three strategies is subject to different, and in some cases contrary risks such that the value of the Fund's investments in the aggregate will be subject to less risk, over the long term, than the risk associated with any one of the investment strategies taken by itself.
The Fund, which typically has 80-90% of its assets exposed to U.S. equity markets through its Focused and Defensive Equity strategies, seeks to capture most, if not all, of equity market performance in risk-on environments and to protect against significant drawdowns when markets decline. The Focused Equity strategy will always stay invested, but both the Defensive Equity and Absolute Return strategies have the potential to protect capital in declining markets. The Defensive Equity strategy utilizes a quantitative model that raises cash in response to rising equity volatility and the Absolute Return strategy is designed to be negatively correlated to declining equity markets.
The Year in Review
The U.S. Equity markets got off to a rocky start in 2016 in response to concerns about the global growth outlook. Each of the major averages declined more than 10% before bottoming in early February. Global monetary easing and strength in the U.S. economy restored calm to the markets in the months that followed. Equity volatility returned in June as markets were surprised by the United Kingdom's decision to withdraw from the European Union with the historic Brexit vote. Despite a sharp multi-day decline, the U.S. averages rallied back strongly to end the second quarter.
Steady improvement in the economy and a modest uptick in domestic and global inflation set the stage for broad equity gains during the third quarter. The beginning of a sector rotation within equities was also evident with investors selling defensive sectors in favor of sectors more sensitive to an improving economy. The impending U.S. presidential election kept markets range-bound to begin the fourth quarter. However, after a surprising victory by President-elect Trump, equity markets quickly determined that his pro-business stance would be supportive of the global growth outlook. Equity markets have subsequently been on an upward trajectory and appear poised to reach new highs.
The Fund's return of 3.71% during the period can be attributed as follows: Focused Equity +10.25%, Defensive Equity +1.60% and Absolute Return -1.73%. Underperformance vs the S&P 500 can be largely attributed to the Defensive Equity strategy, which responded to rising equity volatility during the first quarter by raising cash. The resulting cash drag negatively impacted Fund performance when the broad equity markets rallied.
The Fund outperformed the HFRX EH Index return of -1.18% for the period. The Fund's outperformance is attributable to two factors. First, with the exception of the broad equity selloff to begin the year, the Fund maintained a risk-on stance, supporting upside capture. Second, the Focused Equity strategy, which has a midcap value orientation, benefitted from a rotation out of growth stocks in favor of value stocks. After a multi-year period during which growth has outperformed value, we anticipate the current rotation into value stocks to continue.
The top performing holdings for the period were: Cirrus Logic (CRUS), Thor Industries (THO) and Crane Co. (CR). The largest detractors from performance during the period were Cal-Maine Foods Inc. (CALM), Tribune Publishing Co. (TPUB) and Discovery Communications (DISCA). The Fund benefited from increased M&A activity as two Focused Equity strategy holdings became acquisition targets during 2016; Valspar Corp. (VAL) and Chemtura (CHMT). These positions helped the Fund's return over the period. The Focused Equity strategy purchases equities that we believe are undervalued relative to the overall U.S. equity market. These equities may become even more undervalued as they go through management transitions, new product launches, a change in industry dynamics, etc. and can remain undervalued for extended periods of time.
| 1 |
CVR DYNAMIC ALLOCATION FUND A MESSAGE TO OUR SHAREHOLDERS (Unaudited) NOVEMBER 30, 2016 |
The Absolute Return strategy had a strong start to the year and made a positive contribution to performance during the first quarter when equity markets struggled. Despite a modest negative contribution for the year, the Absolute Return strategy continues to contribute to the Fund's overall performance as intended.
The Fund will reach its three-year anniversary at the end of December, a milestone that we could not achieve without the support of our shareholders. As we reflect back on that period, we are pleased with how the Fund has responded to risk and protected capital in a variety of volatile and challenging equity markets. After trading sideways for much of the past couple of years, the broad equity markets appear to have moved out of this trading range following the U.S. Presidential election. The Fund maintained a risk-on stance through Brexit and U.S. election, allowing for significant participation in the recent equity rally. We expect to continue to capture upside as investor demand for profitable and attractively valued equities continues.
We believe that our risk managed approach to investing the Fund's assets will provide better investment outcomes over the long term. We are grateful for your support and look forward to the year ahead.
Respectfully submitted,
Pete Higgins & Bill Monaghan
| 2 |
CVR DYNAMIC ALLOCATION FUND PERFORMANCE CHART AND ANALYSIS (Unaudited) NOVEMBER 30, 2016 |
The following chart reflects the change in the value of a hypothetical $100,000 investment in Institutional Shares, including reinvested dividends and distributions, in the CVR Dynamic Allocation Fund (the "Fund") compared with the performance of the S&P 500 Index (the "S&P 500") and the HFRX Equity Hedge Index ("HFRX Equity"), since inception. The S&P 500 is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks. HFRX Equity tracks strategies that maintain positions both long and short in primarily equity and equity derivative securities. The total returns of both the S&P 500 and HFRX Equity include the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total returns of the S&P 500 and HFRX Equity do not include expenses. The Fund is professionally managed, while the S&P 500 and HFRX Equity are unmanaged and are not available for investment.
Comparison of Change in Value of a $100,000 Investment
CVR Dynamic Allocation Fund - Institutional Shares vs. S&P 500 Index and HFRX Equity Hedge Index
| Average Annual Total Returns | Since Inception | |||||
| Periods Ended November 30, 2016 | One Year | December 30, 2013 | ||||
| CVR Dynamic Allocation Fund — Institutional Shares | 3.71 | % | 1.72 | % | ||
| S&P 500 Index | 8.06 | % | 8.55 | % | ||
| HFRX Equity Hedge Index | -1.18 | % | -0.27 | % | ||
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. For the most recent month-end performance, please call (855) 328-7691. As stated in the Fund's prospectus, the annual operating expense ratio (gross) for Institutional Shares is 2.39%. However, the Fund's Adviser has agreed to contractually waive its fees and/or reimburse Fund expenses to limit total annual Fund operating expenses (excluding all taxes, interest, portfolio transaction expenses, proxy expenses and extraordinary expenses) of Institutional Shares to 1.65%, through March 31, 2017. The Fund may repay the Adviser for fees waived and expenses reimbursed pursuant to the expense cap if such payment is made within three years of the fee waiver or expense reimbursement, is approved by the Fund's Board of Trustees, and the reimbursement does not cause the Fund's net annual operating expenses of that class to exceed the lesser of (i) the current expense cap, or (ii) the expense cap in place at the time the fees were waived. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized.
| 3 |
CVR DYNAMIC ALLOCATION FUND SCHEDULE OF INVESTMENTS NOVEMBER 30, 2016 |
 | Shares | Security Description | Value |
| Common Stock - 88.8% | |||||||
| Aerospace & Defense - 5.9% | |||||||
| 698 | Curtiss-Wright Corp. | $ | 70,163 | ||||
| 355 | General Dynamics Corp. | 62,249 | |||||
| 7,518 | HEICO Corp. | 590,163 | |||||
| 433 | L-3 Communications Holdings, Inc. | 68,314 | |||||
| 225 | Lockheed Martin Corp. | 59,681 | |||||
| 629 | Orbital ATK, Inc. | 53,673 | |||||
| 559 | Rockwell Collins, Inc. | 51,831 | |||||
| 586 | Teledyne Technologies, Inc. (a) | 73,174 | |||||
| 407 | The Boeing Co. | 61,278 | |||||
| 231 | TransDigm Group, Inc. (a) | 58,080 | |||||
| 1,148,606 | |||||||
| Agricultural Operations - 0.4% | |||||||
| 825 | Monsanto Co. | 84,736 | |||||
| Airlines - 4.7% | ||||||
| 8,173 | Delta Air Lines, Inc. | 393,775 | ||||
| 9,123 | Spirit Airlines, Inc. (a) | 507,239 | ||||
| 901,014 | ||||||
| Apparel, Shoes, etc. - 2.3% | ||||||
| 7,767 | Michael Kors Holdings, Ltd. (a) | 361,088 | ||||
| 801 | NIKE, Inc., Class B | 40,106 | ||||
| 641 | The TJX Cos., Inc. | 50,216 | ||||
| 451,410 | ||||||
| Auto - 4.3% | ||||||
| 10,763 | BorgWarner, Inc. | 383,163 | ||||
| 3,648 | Ford Motor Co. | 43,630 | ||||
| 5,084 | Visteon Corp. (a) | 399,958 | ||||
| 826,751 | ||||||
| Banks - 3.3% | ||||||
| 1,267 | Associated Banc-Corp. | 28,951 | ||||
| 581 | Chemical Financial Corp. | 30,142 | ||||
| 941 | Citizens Financial Group, Inc. | 31,533 | ||||
| 534 | Commerce Bancshares, Inc. | 29,293 | ||||
| 547 | Community Bank System, Inc. | 31,015 | ||||
| 512 | Eagle Bancorp, Inc. (a) | 30,080 | ||||
| 1,267 | First Midwest Bancorp, Inc. | 30,763 | ||||
| 1,969 | FNB Corp. | 30,086 | ||||
| 1,657 | Fulton Financial Corp. | 29,412 | ||||
| 460 | Independent Bank Corp. | 29,946 | ||||
| 209 | M&T Bank Corp. | 30,084 | ||||
| 693 | MB Financial, Inc. | 29,986 | ||||
| 1,740 | Old National Bancorp | 29,667 | ||||
| 264 | Park National Corp. | 29,462 | ||||
| 604 | PrivateBancorp, Inc. | 28,255 | ||||
| 205 | Signature Bank (a) | 30,732 | ||||
| 1,805 | TCF Financial Corp. | 31,317 | ||||
| 396 | UMB Financial Corp. | 30,104 | ||||
| 2,601 | Valley National Bancorp | 29,495 | ||||
| 618 | Webster Financial Corp. | 30,659 | ||||
| 462 | Wintrust Financial Corp. | 30,418 | ||||
| 631,400 | ||||||
| Biotechnology - 2.2% | |||||||
| 1,452 | Advaxis, Inc. (a) | 12,066 | |||||
| 412 | Aerie Pharmaceuticals, Inc. (a) | 15,306 | |||||
| 460 | Alder Biopharmaceuticals, Inc. (a) | 10,833 | |||||
| 189 | Alexion Pharmaceuticals, Inc. (a) | 23,170 | |||||
| 315 | Alkermes PLC (a) | 17,901 | |||||
| 1,182 | ARIAD Pharmaceuticals, Inc. (a) | 15,933 | |||||
| 370 | Avexis, Inc. (a) | 21,874 | |||||
| 1,099 | Axovant Sciences, Ltd. (a) | 14,869 | |||||
| 167 | BioMarin Pharmaceutical, Inc. (a) | 14,300 | |||||
| 294 | Celgene Corp. (a) | 34,842 | |||||
| 425 | DBV Technologies SA, ADR (a) | 15,521 | |||||
| 297 | Five Prime Therapeutics, Inc. (a) | 17,083 | |||||
| 398 | Gilead Sciences, Inc. | 29,333 | |||||
| 181 | Incyte Corp. (a) | 18,515 | |||||
| 284 | Kite Pharma, Inc. (a) | 14,464 | |||||
| 296 | Neurocrine Biosciences, Inc. (a) | 13,749 | |||||
| 429 | Pacira Pharmaceuticals, Inc. (a) | 13,664 | |||||
| 230 | Puma Biotechnology, Inc. (a) | 9,902 | |||||
| 79 | Regeneron Pharmaceuticals, Inc. (a) | 29,960 | |||||
| 611 | Supernus Pharmaceuticals, Inc. (a) | 13,167 | |||||
| 389 | The Medicines Co. (a) | 13,654 | |||||
| 217 | Ultragenyx Pharmaceutical, Inc. (a) | 16,989 | |||||
| 319 | United Therapeutics Corp. (a) | 40,070 | |||||
| 427,165 | |||||||
| Building - Mobile Home/RV - 3.3% | |||||||
| 6,382 | Thor Industries, Inc. | 641,838 | |||||
| Chemicals - Agricultural - 0.5% | ||||||
| 1,638 | CF Industries Holdings, Inc. | 47,404 | ||||
| 1,790 | The Mosaic Co. | 50,836 | ||||
| 98,240 | ||||||
| Chemicals - Basic - 4.4% | ||||||
| 142 | AdvanSix, Inc. (a) | 2,656 | ||||
| 9,556 | Innospec, Inc. | 627,829 | ||||
| 1,182 | LyondellBasell Industries NV, Class A | 106,758 | ||||
| 1,922 | The Dow Chemical Co. | 107,094 | ||||
| 844,337 | ||||||
| Chemicals - Paint - 0.9% | ||||||
| 918 | PPG Industries, Inc. | 88,064 | ||||
| 351 | The Sherwin-Williams Co. | 94,303 | ||||
| 182,367 | ||||||
| Chemicals - Specialty - 1.1% | ||||||
| 686 | Air Products & Chemicals, Inc. | 99,099 | ||||
| 871 | Praxair, Inc. | 104,781 | ||||
| 343 | Versum Materials, Inc. (a) | 8,390 | ||||
| 212,270 | ||||||
| Cleaning and Prep - 0.5% | ||||||
| 879 | Ecolab, Inc. | 102,606 | ||||
See Notes to Financial Statements. | 4 |
CVR DYNAMIC ALLOCATION FUND SCHEDULE OF INVESTMENTS NOVEMBER 30, 2016 |
| Shares | Security Description | Value |
| Commercial Services - 0.4% | |||||||
| 312 | Leidos Holdings, Inc. | $ | 15,974 | ||||
| 610 | Omnicom Group, Inc. | 53,034 | |||||
| 69,008 | |||||||
| Computer Software - 0.2% | |||||||
| 941 | Activision Blizzard, Inc. | 34,450 | |||||
| Computers - Networking - 2.2% | ||||||
| 15,632 | Juniper Networks, Inc. | 430,505 | ||||
| Diversified Operations - 4.9% | ||||||
| 7,434 | Crane Co. | 546,325 | ||||
| 3,560 | Honeywell International, Inc. | 405,626 | ||||
| 951,951 | ||||||
| Electronics - 3.1% | ||||||
| 959 | Cognex Corp. | 57,262 | ||||
| 4,457 | IPG Photonics Corp. (a) | 427,516 | ||||
| 877 | Itron, Inc. (a) | 56,303 | ||||
| 1,767 | Sanmina Corp. (a) | 58,046 | ||||
| 599,127 | ||||||
| Financials - 0.5% | ||||||
| 305 | Mastercard, Inc., Class A | 31,171 | ||||
| 905 | PayPal Holdings, Inc. (a) | 35,548 | ||||
| 386 | Visa, Inc., Class A | 29,846 | ||||
| 96,565 | ||||||
| Household - Appliance/Wares - 0.3% | ||||||
| 406 | The Middleby Corp. (a) | 55,614 | ||||
| Industrial Distribution - 2.5% | ||||||
| 5,458 | MSC Industrial Direct Co., Inc. | 487,618 | ||||
| Insurance - Accidental & Health - 0.2% | ||||||
| 430 | Aflac, Inc. | 30,693 | ||||
| Insurance - Brokers - 0.4% | ||||||
| 282 | Aon PLC | 32,176 | ||||
| 836 | Brown & Brown, Inc. | 36,241 | ||||
| 68,417 | ||||||
| Insurance - Property/Casualty/Title - 1.7% | ||||||
| 406 | American Financial Group, Inc. | 33,385 | ||||
| 536 | AMERISAFE, Inc. | 34,063 | ||||
| 252 | Chubb, Ltd. | 32,256 | ||||
| 445 | Cincinnati Financial Corp. | 34,149 | ||||
| 152 | Everest Re Group, Ltd. | 32,004 | ||||
| 37 | Markel Corp. (a) | 33,239 | ||||
| 250 | RenaissanceRe Holdings, Ltd. | 32,640 | ||||
| 819 | Selective Insurance Group, Inc. | 33,661 | ||||
| 293 | The Travelers Cos., Inc. | 33,211 | ||||
| 552 | WR Berkley Corp. | 34,108 | ||||
| 332,716 | ||||||
| Internet - 3.4% | |||||||
| 68 | Alphabet, Inc., Class A (a) | 52,760 | |||||
| 258 | Amazon.com, Inc. (a) | 193,647 | |||||
| 111 | Equinix, Inc. REIT | 37,602 | |||||
| 298 | Expedia, Inc. | 36,967 | |||||
| 442 | Facebook, Inc., Class A (a) | 52,342 | |||||
| 954 | Netflix, Inc. (a) | 111,618 | |||||
| 72 | The Priceline Group, Inc. (a) | 108,265 | |||||
| 704 | TripAdvisor, Inc. (a) | 33,989 | |||||
| 453 | VeriSign, Inc. (a) | 35,719 | |||||
| 662,909 | |||||||
| Machinery - 9.2% | |||||||
| 2,295 | Badger Meter, Inc. | 83,194 | |||||
| 1,304 | EnPro Industries, Inc. | 79,283 | |||||
| 1,630 | Flowserve Corp. | 77,344 | |||||
| 2,171 | Graco, Inc. | 176,350 | |||||
| 902 | IDEX Corp. | 84,436 | |||||
| 4,047 | Illinois Tool Works, Inc. | 506,603 | |||||
| 1,213 | Ingersoll-Rand PLC | 90,417 | |||||
| 2,017 | ITT, Inc. | 81,426 | |||||
| 1,348 | John Bean Technologies Corp. | 121,590 | |||||
| 668 | Parker-Hannifin Corp. | 92,805 | |||||
| 2,238 | Sun Hydraulics Corp. | 88,938 | |||||
| 1,446 | Tennant Co. | 108,595 | |||||
| 2,906 | The Gorman-Rupp Co. | 87,035 | |||||
| 1,410 | Woodward, Inc. | 95,499 | |||||
| 1,773,515 | |||||||
| Media - 9.7% | |||||||
| 15,637 | Discovery Communications, Inc., Class C (a) | 413,442 | |||||
| 7,046 | Scripps Networks Interactive, Inc., Class A | 488,006 | |||||
| 17,733 | TEGNA, Inc. | 397,751 | |||||
| 508 | The Walt Disney Co. | 50,353 | |||||
| 694 | Time Warner, Inc. | 63,723 | |||||
| 25,770 | Time, Inc. | 417,474 | |||||
| 1,768 | Twenty-First Century Fox, Inc., Class A | 49,699 | |||||
| 1,880,448 | |||||||
| Medical - 2.1% | |||||||
| 233 | Aetna, Inc. | 30,486 | |||||
| 284 | Align Technology, Inc. (a) | 26,426 | |||||
| 326 | AmerisourceBergen Corp. | 25,425 | |||||
| 416 | Amsurg Corp. (a) | 28,338 | |||||
| 396 | Centene Corp. (a) | 22,822 | |||||
| 119 | CR Bard, Inc. | 25,056 | |||||
| 458 | DENTSPLY SIRONA, Inc. | 26,646 | |||||
| 225 | Edwards Lifesciences Corp. (a) | 18,641 | |||||
| 164 | Henry Schein, Inc. (a) | 24,429 | |||||
| 241 | IDEXX Laboratories, Inc. (a) | 28,354 | |||||
| 178 | Illumina, Inc. (a) | 23,699 | |||||
| 38 | Intuitive Surgical, Inc. (a) | 24,462 | |||||
See Notes to Financial Statements. | 5 |
CVR DYNAMIC ALLOCATION FUND SCHEDULE OF INVESTMENTS NOVEMBER 30, 2016 |
| Shares | Security Description | Value |
| Medical - (continued) | |||||||
| 173 | Thermo Fisher Scientific, Inc. | $ | 24,239 | ||||
| 221 | Universal Health Services, Inc., Class B | 27,187 | |||||
| 277 | Varian Medical Systems, Inc. (a) | 24,883 | |||||
| 390 | VCA, Inc. (a) | 24,414 | |||||
| 405,507 | |||||||
| Metal Processing & Fabrication - 0.3% | |||||||
| 397 | Valmont Industries, Inc. | 59,113 | |||||
| Paper & Paper Products - 0.3% | ||||||
| 1,161 | International Paper Co. | 56,564 | ||||
| Pharmaceutical - 0.4% | ||||||
| 112 | Allergan PLC (a) | 21,762 | ||||
| 484 | Bristol-Myers Squibb Co. | 27,317 | ||||
| 281 | Perrigo Co. PLC | 24,261 | ||||
| 73,340 | ||||||
| Retail - Drug Stores - 0.1% | ||||||
| 302 | CVS Health Corp. | 23,221 | ||||
| Retail - Internet - 0.2% | ||||||
| 1,215 | Liberty Ventures, Class A (a) | 47,409 | ||||
| Retail - Restaurant - 0.6% | ||||||
| 648 | McDonald's Corp. | 77,287 | ||||
| 836 | Starbucks Corp. | 48,463 | ||||
| 125,750 | ||||||
| Retail - Wholesale/Building - 0.7% | ||||||
| 658 | Lowe's Cos., Inc. | 46,422 | ||||
| 617 | The Home Depot, Inc. | 79,840 | ||||
| 126,262 | ||||||
| Semiconductor - 4.4% | ||||||
| 11,346 | Cirrus Logic, Inc. (a) | 624,030 | ||||
| 1,110 | Microsemi Corp. (a) | 60,772 | ||||
| 837 | Power Integrations, Inc. | 56,330 | ||||
| 846 | Silicon Laboratories, Inc. (a) | 56,132 | ||||
| 1,363 | Tessera Technologies, Inc. | 53,975 | ||||
| 851,239 | ||||||
| Software - 1.0% | |||||||
| 479 | Electronic Arts, Inc. (a) | 37,956 | |||||
| 271 | MicroStrategy, Inc. (a) | 52,582 | |||||
| 1,585 | Pegasystems, Inc. | 57,218 | |||||
| 1,124 | PTC, Inc. (a) | 54,750 | |||||
| 202,506 | |||||||
| Telecommunications - Cable - 0.8% | |||||||
| 203 | Charter Communications, Inc., Class A (a) | 55,888 | |||||
| 1,507 | Comcast Corp., Class A | 104,751 | |||||
| 160,639 | |||||||
| Transportation - Freight - 0.3% | |||||||
| 492 | United Parcel Service, Inc., Class B | 57,033 | |||||
| Transportation - Logistics - 3.2% | ||||||
| 7,428 | CH Robinson Worldwide, Inc. | 555,986 | ||||
| 1,067 | Expeditors International of Washington, Inc. | 56,273 | ||||
| 612,259 | ||||||
| Transportation - Rails - 1.0% | ||||||
| 673 | Kansas City Southern | 59,702 | ||||
| 1,258 | Union Pacific Corp. | 127,473 | ||||
| 187,175 | ||||||
| Transportation - Trucking - 0.9% | ||||||
| 641 | JB Hunt Transport Services, Inc. | 61,132 | ||||
| 725 | Landstar System, Inc. | 59,051 | ||||
| 682 | Old Dominion Freight Line, Inc. (a) | 59,539 | ||||
| 179,722 | ||||||
Total Common Stock (Cost $14,806,173) | 17,194,015 |
Total Investments - 88.8% (Cost $14,806,173)* | $ | 17,194,015 | ||
| Other Assets & Liabilities, Net – 11.2% | 2,167,033 | |||
| Net Assets – 100.0% | $ | 19,361,048 | ||
See Notes to Financial Statements. | 6 |
CVR DYNAMIC ALLOCATION FUND NOTES TO SCHEDULE OF INVESTMENTS NOVEMBER 30, 2016 |
| ADR | American Depositary Receipt |
| PLC | Public Limited Company |
| REIT | Real Estate Investment Trust |
| (a) | Non-income producing security. |
* Cost for federal income tax purposes is $14,819,781 and net unrealized appreciation consists of:
| Gross Unrealized Appreciation | $ | 2,580,549 | ||
| Gross Unrealized Depreciation | (206,315 | ) | ||
| Net Unrealized Appreciation | $ | 2,374,234 |
As of November 30, 2016, the Fund had the following forward currency contracts outstanding for which the Fund will receive/pay United States Dollars:
| Counterparty | Contracts to Purchase/(Sell) | Settlement Date | Settlement Value | Net Unrealized Appreciation (Depreciation) |
| Jefferies & Co., Inc. | (1,324,000 | ) | Australian Dollar | 12/02/16 | $ | 994,355 | $ | 16,648 | |||||||
| 1,324,000 | Australian Dollar | 12/02/16 | (1,004,277 | ) | (26,570 | ) | |||||||||
| (180,000 | ) | Australian Dollar | 03/02/17 | 134,125 | 1,497 | ||||||||||
| 90,000 | Australian Dollar | 03/02/17 | (66,865 | ) | (551 | ) | |||||||||
| (2,000,000 | ) | Brazilian Real | 12/02/16 | 613,805 | 22,448 | ||||||||||
| (1,830,000 | ) | Brazilian Real | 12/02/16 | 530,321 | (10,771 | ) | |||||||||
| 528,000 | Brazilian Real | 12/02/16 | (155,236 | ) | 882 | ||||||||||
| 3,302,000 | Brazilian Real | 12/02/16 | (1,005,245 | ) | (28,915 | ) | |||||||||
| (180,000 | ) | Brazilian Real | 03/02/17 | 51,446 | (420 | ) | |||||||||
| (2,332,000 | ) | Canadian Dollars | 12/02/16 | 1,765,993 | 29,970 | ||||||||||
| 1,088,000 | Canadian Dollars | 12/02/16 | (805,791 | ) | 4,153 | ||||||||||
| 1,244,000 | Canadian Dollars | 12/02/16 | (945,801 | ) | (19,725 | ) | |||||||||
| 396,000 | Canadian Dollars | 03/02/17 | (295,241 | ) | (115 | ) | |||||||||
| (254,000,000 | ) | Chilean Peso | 12/02/16 | 380,875 | 5,131 | ||||||||||
| (120,000,000 | ) | Chilean Peso | 12/02/16 | 176,252 | (1,264 | ) | |||||||||
| 32,000,000 | Chilean Peso | 12/02/16 | (47,250 | ) | 88 | ||||||||||
| 342,000,000 | Chilean Peso | 12/02/16 | (519,983 | ) | (14,064 | ) | |||||||||
| (596,000,000 | ) | Colombian Peso | 12/02/16 | 193,114 | (729 | ) | |||||||||
| (450,000,000 | ) | Colombian Peso | 12/02/16 | 151,997 | 5,639 | ||||||||||
| 128,000,000 | Colombian Peso | 12/02/16 | (40,777 | ) | 853 | ||||||||||
| 918,000,000 | Colombian Peso | 12/02/16 | (309,312 | ) | (10,741 | ) | |||||||||
| (144,000,000 | ) | Colombian Peso | 03/02/17 | 45,191 | (912 | ) | |||||||||
| (1,422,000 | ) | European Union Euro | 12/02/16 | 1,568,278 | 61,169 | ||||||||||
| 64,000 | European Union Euro | 12/02/16 | (67,764 | ) | 67 | ||||||||||
| 1,358,000 | European Union Euro | 12/02/16 | (1,501,521 | ) | (62,244 | ) | |||||||||
| (72,000 | ) | European Union Euro | 03/02/17 | 76,581 | (86 | ) | |||||||||
| (186,800,000 | ) | Hungarian Forint | 12/02/16 | 656,622 | 23,774 | ||||||||||
| 186,800,000 | Hungarian Forint | 12/02/16 | (677,577 | ) | (44,729 | ) | |||||||||
| (28,800,000 | ) | Hungarian Forint | 03/02/17 | 98,310 | 498 | ||||||||||
| 14,400,000 | Hungarian Forint | 03/02/17 | (49,129 | ) | (223 | ) | |||||||||
| (67,800,000 | ) | Indian Rupee | 12/02/16 | 1,002,990 | 12,471 | ||||||||||
| (9,600,000 | ) | Indian Rupee | 12/02/16 | 139,719 | (531 | ) | |||||||||
| 25,600,000 | Indian Rupee | 12/02/16 | (372,960 | ) | 1,041 | ||||||||||
| 51,800,000 | Indian Rupee | 12/02/16 | (765,724 | ) | (8,957 | ) | |||||||||
| (30,600,000 | ) | Indian Rupee | 03/02/17 | 440,829 | (1,008 | ) | |||||||||
| (6,880,000,000 | ) | Indonesian Rupiah | 12/02/16 | 499,929 | (7,727 | ) | |||||||||
| (3,580,000,000 | ) | Indonesian Rupiah | 12/02/16 | 270,901 | 6,743 | ||||||||||
| 10,460,000,000 | Indonesian Rupiah | 12/02/16 | (779,118 | ) | (7,305 | ) | |||||||||
| (2,080,000,000 | ) | Indonesian Rupiah | 12/19/16 | 151,659 | (1,259 | ) | |||||||||
| (1,120,000,000 | ) | Indonesian Rupiah | 12/19/16 | 82,383 | 43 |
See Notes to Financial Statements. | 7 |
CVR DYNAMIC ALLOCATION FUND NOTES TO SCHEDULE OF INVESTMENTS NOVEMBER 30, 2016 |
| Counterparty | Contracts to Purchase/(Sell) | Settlement Date | Settlement Value | Net Unrealized Appreciation (Depreciation) |
| Jefferies & Co., Inc. - (continued) | 3,200,000,000 | Indonesian Rupiah | 12/19/16 | $ | (235,641 | ) | $ | (383 | ) | ||||||
| (7,200,000,000 | ) | Indonesian Rupiah | 03/02/17 | 517,910 | (2,239 | ) | |||||||||
| (78,000,000 | ) | Japanese Yen | 12/02/16 | 748,071 | 66,285 | ||||||||||
| 78,000,000 | Japanese Yen | 12/02/16 | (761,927 | ) | (80,137 | ) | |||||||||
| (14,400,000 | ) | Japanese Yen | 03/02/17 | 128,328 | 1,870 | ||||||||||
| (14,060,000 | ) | Mexican Peso | 12/02/16 | 728,444 | 45,124 | ||||||||||
| (1,680,000 | ) | Mexican Peso | 12/02/16 | 80,875 | (775 | ) | |||||||||
| 15,740,000 | Mexican Peso | 12/02/16 | (824,635 | ) | (59,666 | ) | |||||||||
| (1,440,000 | ) | Mexican Peso | 03/02/17 | 69,292 | 98 | ||||||||||
| (1,864,000 | ) | New Romanian Lei | 12/02/16 | 457,571 | 19,117 | ||||||||||
| (240,000 | ) | New Romanian Lei | 12/02/16 | 56,436 | (17 | ) | |||||||||
| 688,000 | New Romanian Lei | 12/02/16 | (161,449 | ) | 384 | ||||||||||
| 1,416,000 | New Romanian Lei | 12/02/16 | (349,199 | ) | (16,124 | ) | |||||||||
| (774,000 | ) | New Romanian Lei | 03/02/17 | 181,923 | (498 | ) | |||||||||
| (40,920,000 | ) | New Taiwan Dollar | 12/02/16 | 1,295,264 | 11,421 | ||||||||||
| 16,320,000 | New Taiwan Dollar | 12/02/16 | (510,847 | ) | 1,186 | ||||||||||
| 24,600,000 | New Taiwan Dollar | 12/02/16 | (781,396 | ) | (9,584 | ) | |||||||||
| 15,300,000 | New Taiwan Dollar | 03/02/17 | (482,068 | ) | (3,039 | ) | |||||||||
| (958,000 | ) | New Zealand Dollar | 12/02/16 | 694,007 | 15,550 | ||||||||||
| (374,000 | ) | New Zealand Dollar | 12/02/16 | 263,773 | (1,095 | ) | |||||||||
| 1,332,000 | New Zealand Dollar | 12/02/16 | (963,666 | ) | (20,340 | ) | |||||||||
| 144,000 | New Zealand Dollar | 03/02/17 | (101,397 | ) | 284 | ||||||||||
| (5,500,000 | ) | Norwegian Krone | 12/02/16 | 670,728 | 24,711 | ||||||||||
| (1,440,000 | ) | Norwegian Krone | 12/02/16 | 168,564 | (574 | ) | |||||||||
| 1,280,000 | Norwegian Krone | 12/02/16 | (149,475 | ) | 871 | ||||||||||
| 5,660,000 | Norwegian Krone | 12/02/16 | (689,013 | ) | (24,202 | ) | |||||||||
| (2,160,000 | ) | Norwegian Krone | 03/02/17 | 252,180 | (1,652 | ) | |||||||||
| (360,000 | ) | Norwegian Krone | 03/02/17 | 42,519 | 214 | ||||||||||
| (756,000 | ) | Peruvian Inti | 12/02/16 | 220,302 | (1,203 | ) | |||||||||
| 14,000 | Peruvian Inti | 12/02/16 | (4,137 | ) | (35 | ) | |||||||||
| 742,000 | Peruvian Inti | 12/02/16 | (217,330 | ) | 73 | ||||||||||
| (112,000 | ) | Peruvian Inti | 03/02/17 | 32,431 | (5 | ) | |||||||||
| (14,000 | ) | Peruvian Inti | 03/02/17 | 4,056 | 2 | ||||||||||
| (45,300,000 | ) | Philippines Peso | 12/02/16 | 938,493 | 27,573 | ||||||||||
| (13,120,000 | ) | Philippines Peso | 12/02/16 | 262,976 | (847 | ) | |||||||||
| 26,560,000 | Philippines Peso | 12/02/16 | (533,333 | ) | 751 | ||||||||||
| 31,860,000 | Philippines Peso | 12/02/16 | (667,513 | ) | (26,856 | ) | |||||||||
| (29,880,000 | ) | Philippines Peso | 03/02/17 | 593,472 | 874 | ||||||||||
| (4,428,000 | ) | Polish Zloty | 12/02/16 | 1,104,704 | 51,146 | ||||||||||
| 4,428,000 | Polish Zloty | 12/02/16 | (1,139,498 | ) | (85,939 | ) | |||||||||
| (204,000 | ) | Polish Zloty | 03/02/17 | 48,721 | 239 | ||||||||||
| 40,000 | Polish Zloty | 03/02/17 | (9,557 | ) | (51 | ) | |||||||||
| (516,000 | ) | Pounds Sterling | 12/02/16 | 639,624 | (5,994 | ) | |||||||||
| (216,000 | ) | Pounds Sterling | 12/02/16 | 282,135 | 11,877 | ||||||||||
| 360,000 | Pounds Sterling | 12/02/16 | (445,701 | ) | 4,733 | ||||||||||
| 372,000 | Pounds Sterling | 12/02/16 | (489,928 | ) | (24,481 | ) | |||||||||
| 450,000 | Pounds Sterling | 03/02/17 | (559,831 | ) | 4,519 | ||||||||||
| (19,800,000 | ) | Russian Rouble | 12/02/16 | 301,112 | (7,660 | ) | |||||||||
| (19,000,000 | ) | Russian Rouble | 12/02/16 | 297,968 | 1,672 | ||||||||||
| 8,800,000 | Russian Rouble | 12/02/16 | (137,633 | ) | (400 | ) | |||||||||
| 30,000,000 | Russian Rouble | 12/02/16 | (460,839 | ) | 6,998 | ||||||||||
| (16,200,000 | ) | Russian Rouble | 03/02/17 | 245,348 | (2,433 | ) |
Investments.
Security Transactions, Investment Income and Realized Gain and Loss – Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as possible after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence. Income and capital gains on some foreign securities may be subject to foreign withholding taxes, which are accrued as applicable. Interest income is recorded on an accrual basis. Premium is amortized and discount is accreted using the effective interest method. Identified cost of investments sold is used to determine the gain and loss for both financial statement and federal income tax purposes.
Foreign Currency Translations – Foreign currency amounts are translated into U.S. dollars as follows: (1) assets and liabilities at the rate of exchange at the end of the respective period; and (2) purchases and sales of securities and income and expenses at the rate of exchange prevailing on the dates of such transactions. The portion of the results of operations arising from changes in the exchange rates and the portion due to fluctuations arising from changes in the market prices of securities are not isolated. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Foreign Currency Transactions – The Fund may enter into transactions to purchase or sell foreign currency contracts and options on foreign currency. Forward currency contracts are agreements to exchange one currency for another at a future date and at a specified price. A fund may use forward currency contracts to facilitate transactions in foreign securities, to manage a fund's foreign currency exposure and to protect the U.S. dollar value of its underlying portfolio securities against the effect of possible adverse movements in foreign exchange rates. These contracts are intrinsically valued daily based on forward rates, and a fund's net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is recorded as a component of NAV. These instruments involve market risk, credit risk, or both kinds of risks, in excess of the amount recognized in the Statement of Assets and Liabilities. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movement in currency and securities values and interest rates. Due to the risks associated with these transactions, a fund could incur losses up to the entire contract amount, which may exceed the net unrealized value included in its NAV.
The values of each individual forward currency contract outstanding as of November 30, 2016, are disclosed in the Fund's Notes to Schedule of Investments.
Futures Contracts – The Fund may purchase futures contracts to gain exposure to market changes, which may be more efficient or cost effective than actually buying the securities. A futures contract is an agreement between parties to buy or sell a security at a set price on a future date. Upon entering into such a contract, a fund is required to pledge to the broker an amount of cash, U.S. Government obligations or other high-quality debt securities equal to the minimum "initial margin" requirements of the exchange on which the futures contract is traded. Pursuant to the contract, the fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as "variation margin" and are recorded by the fund as unrealized gains or losses. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and value at the time it was closed. Risks of entering into futures contracts include the possibility that there may be an illiquid market and that a change in the value of the contract may not correlate with changes in the value of the underlying securities.
Notional amounts of each individual futures contract outstanding as of November 30, 2016, for the Fund, are disclosed in the Notes to Schedule of Investments.
Distributions to Shareholders – Distributions to shareholders of net investment income, if any, are declared and paid annually. Distributions to shareholders of net capital gains and net foregin currency gains, if any, are declared and paid at least annually. Distributions to shareholders are recorded on the ex-dividend date. Distributions are based on amounts calculated in accordance with applicable federal income tax regulations, which may differ from GAAP. These differences are due primarily to differing treatments of income and gain on various investment securities held by the Fund, timing differences and differing characterizations of distributions made by the Fund.
Federal Taxes – The Fund intends to continue to qualify each year as a regulated investment company under Subchapter M of Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as amended ("Code"), and to distribute all of its taxable income to shareholders. In addition, by distributing in each calendar year substantially all of its net investment income and capital gains, if any, the Fund will not be subject to a federal excise tax. Therefore, no federal income or excise tax provision is required. The Fund files a U.S. federal income and excise tax return as required. The Fund's federal income tax returns are subject to examination by the Internal Revenue Service for a period of three fiscal years after they are filed. As of November 30, 2016, there are no uncertain
| 18 |
CVR DYNAMIC ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 2016 |
tax positions that would require financial statement recognition, de-recognition or disclosure.
Income and Expense Allocation – The Trust accounts separately for the assets, liabilities and operations of each of its investment portfolios. Expenses that are directly attributable to more than one investment portfolio are allocated among the respective investment portfolios in an equitable manner.
Commitments and Contingencies – In the normal course of business, the Fund enters into contracts that provide general indemnifications by the Fund to the counterparty to the contract. The Fund's maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote.
Note 3. Cash – Concentration in Uninsured Account
For cash management purposes the Fund may concentrate cash with the Fund's custodian. This typically results in cash balances exceeding the Federal Deposit Insurance Corporation ("FDIC") insurance limits. As of November 30, 2016, the Fund held $1,793,466 as cash reserves at MUFG Union Bank, N.A. that exceeded the FDIC insurance limit.
Note 4. Fees and Expenses
Investment Adviser – CVR Portfolio Funds LLC (the "Adviser") is the investment adviser to the Fund. Pursuant to an investment advisory agreement, the Adviser receives an advisory fee, payable monthly, from the Fund at an annual rate of 1.10% of the Fund's average daily net assets.
The Adviser has employed a sub-adviser to manage a portion of the Fund's assets. The sub-advisory fee, calculated as a percentage of the Fund's average daily net assets managed by the sub-adviser, is paid by the Adviser.
Distribution – Foreside Fund Services, LLC serves as the Fund's distributor (the "Distributor"). The Fund has adopted a Distribution Plan (the "Plan") in accordance with Rule 12b-1 of the Act. Under the Plan, the Fund may pay the Distributor and/or any other entity as authorized by the Board a fee of up to 0.25% of the Fund's average daily net assets of Investor Shares for providing distribution and/or shareholder services to the Fund. The Distributor is not affiliated with the Adviser or Atlantic Fund Administration, LLC (d/b/a Atlantic Fund Services) ("Atlantic") or their affiliates.
Other Service Providers – Atlantic provides fund accounting, fund administration, compliance and transfer agency services to the Fund. Atlantic also provides certain shareholder report production and EDGAR conversion and filing services. Pursuant to an Atlantic services agreement, the Fund pays Atlantic customary fees for its services. Atlantic provides a Principal Executive Officer, a Principal Financial Officer, a Chief Compliance Officer and an Anti-Money Laundering Officer to the Fund, as well as certain additional compliance support functions.
Trustees and Officers – The Trust pays each Independent Trustee an annual fee of $16,000 ($21,000 for the Chairman). The Independent Trustees and Chairman may receive additional fees for special Board meetings. The Independent Trustees are also reimbursed for all reasonable out-of-pocket expenses incurred in connection with their duties as Trustees, including travel and related expenses incurred in attending Board meetings. The amount of Independent Trustees' fees attributable to the Fund is disclosed in the Statement of Operations. Certain officers of the Trust are also officers or employees of the above named service providers, and during their terms of office received no compensation from the Fund.
Note 5. Expenses Reimbursed and Fees Waived
The Adviser has contractually agreed to waive its fee and/or reimburse certain expenses to limit total annual operating expenses (excluding all taxes, interest, portfolio transaction expenses, proxy expenses and extraordinary expenses) to 1.65% for Institutional Shares through March 31, 2017. Other fund service providers have voluntarily agreed to waive and reimburse a portion of their fees. The contractual waivers may be changed or eliminated at any time with the consent of the Board and voluntary fee waivers and expense reimbursements may be reduced or eliminated at any time. For the year ended November 30, 2016, fees waived and expenses reimbursed were as follows:
| Investment Adviser Fees Waived | Acquired Fund Fees and Expenses Reimbursed by Adviser | Other Waivers | Total Fees Waived and Expenses Reimbursed | |||||||
| $ | 91,424 | $ | 3,476 | $ | 36,000 | $ | 130,900 | |||
| 19 |
CVR DYNAMIC ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 2016 |
The Fund may repay the Adviser for fees waived and expenses reimbursed pursuant to the expense cap if such payment is made within three years of the fee waiver or expense reimbursement, is approved by the Fund's Board of Trustees and does not cause the net annual fund operating expenses of a class to exceed the expense cap in place at the time the fees were waived. As of November 30, 2016, the following amounts are subject to recapture by the Adviser:
| Amount of Fees Waived and/or Expenses Reimbursed | Expiration Date to Recoup Fees Waived and/or Expenses Reimbursed | Fees Recouped | ||||||
| November 30, 2014 | $ | 160,247 | November 30, 2017 | $ | - | |||
| November 30, 2015 | $ | 126,333 | November 30, 2018 | $ | - | |||
| November 30, 2016 | $ | 94,900 | November 30, 2019 | $ | - | |||
Note 6. Security Transactions
The cost of purchases and proceeds from sales of investment securities (including maturities), other than short-term investments during the year ended November 30, 2016, were $16,716,906 and $19,949,424, respectively.
Note 7. Summary of Derivative Activity
The volume of open derivative positions may vary on a daily basis as the Fund transacts derivative contracts in order to achieve the exposure desired by the Adviser. The notional value of activity for the year ended November 30, 2016, for any derivative type that was held during the year is as follows:
| Forward Currency Contracts | $ | 198,195,603 | ||
| Futures Contracts | $ | 38,070,599 |
The Fund's use of derivatives during the year ended November 30, 2016, was limited to forward currency contracts and futures contracts.
Following is a summary of the effect of derivatives on the Statement of Assets and Liabilities as of November 30, 2016:
| Location: | Interest Risk | Commodity Risk | Currency Risk | Equity Risk | Total | |||||||||||||||
| Asset derivatives: | ||||||||||||||||||||
| Unrealized gain on forward currency contracts | $ | - | $ | - | $ | 648,139 | $ | - | $ | 648,139 | ||||||||||
| Receivable - variation margin | 6,433 | 2,975 | - | 6,193 | 15,601 | |||||||||||||||
| Liability derivatives: | ||||||||||||||||||||
| Unrealized loss on forward currency contracts | $ | - | $ | - | $ | (752,074 | ) | $ | - | $ | (752,074 | ) | ||||||||
Realized and unrealized gains and losses on derivatives contracts during the year ended November 30, 2016, by the Fund are recorded in the following locations on the Statement of Operations:
| Location: | Interest Risk | Commodity Risk | Currency Risk | Equity Risk | Total | |||||||||||||||
| Net realized gain (loss) on: | ||||||||||||||||||||
| Foreign currency transactions | $ | - | $ | - | $ | 37,114 | $ | - | $ | 37,114 | ||||||||||
| Futures | (1,658 | ) | (52,932 | ) | - | 3,570 | (51,020 | ) | ||||||||||||
| Total net realized gain (loss) | $ | (1,658 | ) | $ | (52,932 | ) | $ | 37,114 | $ | 3,570 | $ | (13,906 | ) | |||||||
| Net change in unrealized appreciation (depreciation) on: | ||||||||||||||||||||
| Foreign currency translations | $ | - | $ | - | $ | 650 | $ | - | $ | 650 | ||||||||||
| Futures | 5,680 | 2,822 | - | (12,420 | ) | (3,918 | ) | |||||||||||||
| Total net change in unrealized appreciation (depreciation) | $ | 5,680 | $ | 2,822 | $ | 650 | $ | (12,420 | ) | $ | (3,268 | ) | ||||||||
| 20 |
CVR DYNAMIC ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 2016 |
Asset (Liability) amounts shown in the table below represent amounts for derivative related investments at November 30, 2016. These amounts may be collateralized by cash or financial instruments.
| Gross Asset (Liability) as Presented in the Statement of Assets and Liabilities | Financial Instruments (Received) Pledged** | Cash Collateral (Received) Pledged** | Net Amount | |||||||||||||
| Assets: | ||||||||||||||||
| Over-the-counter derivatives* | $ | 663,740 | $ | - | $ | - | $ | 663,740 | ||||||||
| Liabilities: | ||||||||||||||||
| Over-the-counter derivatives* | $ | (752,074 | ) | $ | 667,712 | $ | 84,362 | $ | - | |||||||
* Over-the-counter derivatives consists of forward currency contracts and futures contracts. The amounts disclosed above represent the exposure to one or more counterparties. For further detail on individual derivative contracts and the corresponding unrealized appreciation (depreciation), see the Notes to Schedule of Investments.
** The actual financial instruments and cash collateral (received) pledged may be in excess of the amounts shown in the table. The table only reflects collateral amounts up to the amount of the financial instrument disclosed on the Statement of Assets and Liabilities.
Note 8. Federal Income Tax
Distributions paid during the fiscal years ended as noted were characterized for tax purposes as follows:
| 2016 | 2015 | |||||
| Ordinary Income | $ | - | $ | 62,110 | ||
| Long-Term Capital Gain | 7,352 | 60,034 | ||||
| $ | 7,352 | $ | 122,144 | |||
As of November 30, 2016, distributable earnings (accumulated loss) on a tax basis were as follows:
| Capital and Other Losses | $ | (2,273,127 | ) | |
| Unrealized Appreciation | 2,371,902 | |||
| Total | $ | 98,775 |
The difference between components of distributable earnings on a tax basis and the amounts reflected in the Statement of Assets and Liabilities are primarily due to wash sales and mark to market on section 988 currency contracts and section 1256 futures contracts.
For tax purposes, the current year deferred late year ordinary loss was $123,829 (realized during the period January 1, 2016 through November 30, 2016). This loss will be recognized for tax purposes on the first business day of the Fund's next fiscal year, December 1, 2016.
As of November 30, 2016, the Fund had $1,867,531 of available short-term capital loss carryforwards and $281,767 of available long-term capital loss carryforwards that have no expiration date.
On the Statement of Assets and Liabilities, as a result of permanent book to tax differences, certain amounts have been reclassified for the year ended November 30, 2016. The following reclassification was the result of currency gain/loss, futures and net operating loss, and has no impact on the net assets of the Fund.
| Accumulated Net Investment Loss | $ | 20,676 | ||
| Accumulated Net Realized Loss | (16,484 | ) | ||
| Paid-in-Capital | (4,192 | ) |
Note 9. Recent Accounting Pronouncements
In October 2016, the U.S. Securities and Exchange Commission ("SEC") issued a new rule, Investment Company Reporting Modernization, which, among other provisions, amends Regulation S-X to require standardized, enhanced disclosures, particularly related to derivatives, in investment company financial statements. Another new rule, Investment Company Liquidity Risk Management Programs, will also require registered open-end funds to establish a liquidity risk management program that addresses multiple elements, including classification of the liquidity of portfolio investments and a highly liquid investment minimum. Compliance with the amendments to Regulation S-X is required for financial statements filed with the SEC on or after August 1, 2017. The soonest upcoming compliance deadline for the new liquidity risk management program requirements is June 1, 2017. Management is currently evaluating the impact that the amendments will have on the Fund's financial statements and related disclosures.
| 21 |
CVR DYNAMIC ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 2016 |
Note 10. Subsequent Events
Subsequent events occurring after the date of this report through the date these financial statements were issued have been evaluated for potential impact, and the Fund has had no such events.
| 22 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
To the Board of Trustees of Forum Funds II
and the Shareholders of CVR Dynamic Allocation Fund
We have audited the accompanying statement of assets and liabilities of CVR Dynamic Allocation Fund, a series of shares of beneficial interest in Forum Funds II, (the "Fund") including the schedule of investments, as of November 30, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the two-year period then ended and for the period from December 30, 2013 (commencement of operations) to November 30, 2014. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of November 30, 2016 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of CVR Dynamic Allocation Fund as of November 30, 2016, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and its financial highlights for each of the years in the two-year period then ended and for the period from December 30, 2013 to November 30, 2014, in conformity with accounting principles generally accepted in the United States of America.
BBD, LLP
Philadelphia, Pennsylvania
January 27, 2017
| 23 |
CVR DYNAMIC ALLOCATION FUND ADDITIONAL INFORMATION (Unaudited) NOVEMBER 30, 2016 |
Proxy Voting Information
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling (855) 328-7691 and on the SEC's website at www.sec.gov. The Fund's proxy voting record for the most recent twelve-month period ended June 30 is available, without charge and upon request, by calling (855) 328-7691 and on the SEC's website at www.sec.gov.
Availability of Quarterly Portfolio Schedules
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These filings are available, without charge and upon request on the SEC's website at www.sec.gov or may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.
Shareholder Expense Example
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution and/or service (12b-1) fees (for Investor Shares only), and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the 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 June 1, 2016, through November 30, 2016.
Actual Expenses – The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes – The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| Beginning | Ending | Expenses | Annualized | ||||||||
| Account Value | Account Value | Paid During | Expense | ||||||||
| June 1, 2016 | November 30, 2016 | Period* | Ratio* | ||||||||
| Institutional Shares | |||||||||||
| Actual | $ | 1,000.00 | $ | 1,096.64 | $ | 8.65 | 1.65 | % | |||
| Hypothetical (5% return before taxes) | $ | 1,000.00 | $ | 1,016.75 | $ | 8.32 | 1.65 | % | |||
| * | Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (183) divided by 366 to reflect the half-year period. |
Trustees and Officers of the Trust
The Board is responsible for oversight of the management of the Trust's business affairs and of the exercise of all the Trust's powers except those reserved for the shareholders. The following table provides information about each Trustee and certain officers of the Trust. Each Trustee and officer holds office until the person resigns, is removed, or is replaced. Unless otherwise noted, the persons have held their principal occupations for more than five years. The address for all Trustees and officers is Three Canal Plaza, Suite 600, Portland, Maine 04101. Mr. Keffer and Mr. Hong are considered Interested Trustees due to their affiliation with Atlantic. The Fund's Statement of Additional Information includes additional information about the Trustees and is available, without charge and upon request, by calling (855) 328-7691.
ITEM 2. CODE OF ETHICS.
| (a) | As of the end of the period covered by this report, Forum Funds II (the "Registrant") has adopted a code of ethics, which applies to its Principal Executive Officer and Principal Financial Officer (the "Code of Ethics"). |
| (c) | There have been no amendments to the Registrant's Code of Ethics during the period covered by this report. |
(d) There have been no waivers to the Registrant's Code of Ethics during the period covered by this report.
(e) Not applicable.
(f) (1) A copy of the Code of Ethics is being filed under Item 12(a) hereto.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that Mr. Mark Moyer is an "audit committee financial expert" as that term is defined under applicable regulatory guidelines. Mr. Moyer is a non- "interested" Trustee (as defined in Section 2(a)(19) under the Investment Company Act of 1940, as amended (the "Act")), and serves as Chairman of the Audit Committee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees - The aggregate fees billed for each of the last two fiscal years (the "Reporting Periods") for professional services rendered by the Registrant's principal accountant for the audit of the Registrant's annual financial statements, or services that are normally provided by the principal accountant in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $12,900 in 2015 and $12,900 in 2016.
(b) Audit-Related Fees – The aggregate fees billed in the Reporting Periods for assurance and related services rendered by the principal accountant that were reasonably related to the performance of the audit of the Registrant's financial statements and are not reported under paragraph (a) of this Item 4 were $0 in 2015 and $0 in 2016.
(c) Tax Fees - The aggregate fees billed in the Reporting Periods for professional services rendered by the principal accountant to the Registrant for tax compliance, tax advice and tax planning were $3,000 in 2015 and $3,000 in 2016. These services consisted of review or preparation of U.S. federal, state, local and excise tax returns.
(d) All Other Fees - The aggregate fees billed in the Reporting Periods for products and services provided by the principal accountant to the Registrant, other than the services reported in paragraphs (a) through (c) of this Item, were $0 in 2015 and $0 in 2016.
(e) (1) The Audit Committee reviews and approves in advance all audit and "permissible non-audit services" (as that term is defined by the rules and regulations of the Securities and Exchange Commission) to be rendered to a series of the Registrant (each, a "Series"). In addition, the Audit Committee reviews and approves in advance all "permissible non-audit services" to be provided to an investment adviser (not including any sub-adviser) of a Series, or an affiliate of such investment adviser, that is controlling, controlled by or under common control with the investment adviser and provides on-going services to the Registrant ("Affiliate"), by the Series' principal accountant if the engagement relates directly to the operations and financial reporting of the Series. The Audit Committee considers whether fees paid by a Series' investment adviser or an Affiliate to the Series' principal accountant for audit and permissible non-audit services are consistent with the principal accountant's independence.
(e) (2) No services included in (b) - (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable
(g) The aggregate non-audit fees billed by the principal accountant for services rendered to the Registrant for the Reporting Periods were $0 in 2015 and $0 in 2016. There were no fees billed in either of the Reporting Periods for non-audit services rendered by the principal accountant to the Registrant's investment adviser or any Affiliate.
(h) During the Reporting Period, the Registrant's principal accountant provided no non-audit services to the investment advisers or any entity controlling, controlled by or under common control with the investment advisers to the series of the Registrant to which this report relates.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable
ITEM 6. INVESTMENTS.
| (a) | Included as part of report to shareholders under Item 1. |
| (b) | Not applicable. |
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant does not accept nominees to the board of trustees from shareholders.
ITEM 11. CONTROLS AND PROCEDURES
(a) The Registrant's Principal Executive Officer and Principal Financial Officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act are effective, based on their evaluation of the controls and procedures required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as of a date within 90 days of the filing date of this report.
(b) There were no changes in the Registrant's internal control over financial reporting (as defined in
Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of 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. EXHIBITS.
(a)(1) Code of Ethics (Exhibit filed herewith).
(a)(2) Certifications pursuant to Rule 30a-2(a) of the Act, and Section 302 of the Sarbanes-Oxley Act of 2002. (Exhibits filed herewith)
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) of the Act, and Section 906 of the Sarbanes-Oxley Act of 2002. (Exhibit filed herewith)
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 Forum Funds II
| By | /s/ Jessica Chase | |
| Jessica Chase, Principal Executive Officer | ||
| Date | January 19, 2017 |
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.
| /s/ Jessica Chase | ||
| Jessica Chase, Principal Executive Officer | ||
| Date | January 19, 2017 |
| By | /s/ Karen Shaw | |
| Karen Shaw, Principal Financial Officer | ||
| Date | January 19, 2017 |