Mutual Fund Solutions Alternative Investment Solutions ETF Services Distinct Services SUMMER 2015 Sharing solutions on topics affecting our clients and their shareholders through innovative insights, sophisticated technology, and a solid tradition. Outperforming the Competition for 10 Consecutive Years U.S. Bancorp Fund Services Since 2001, Global Custodian has been surveying investment advisers through its Mutual Fund Administration Survey to better understand the support and requirements clients desire from a service provider. As we continuously strive to offer our clients outstanding service, U.S. Bancorp Fund Services analyzes the survey results and comments to seek opportunities to enhance and improve our service offerings. Survey respondents rate each fund administrator on a scale from 1 (very weak) to 7 (excellent). Thanks to the feedback we received from our clients, we scored above average in five of eight categories including Relationship Management and Client Service, Value Delivered, Fund Administration and Trustee, Distribution Support, and Operations and Custody. We were recognized in the survey for our consistent high performance. Indeed U.S. Bancorp [Fund Services] has managed an uninterrupted run of global outperformance spanning the entire period, and is the only provider to have achieved this. U.S. Bancorp [Fund Services] is set to maintain the strong performance of the last decade well into the future. - 2015 Global Custodian Mutual Fund Administration Survey We were also praised for our consistency in excellent scores for Fund Accounting, with a score of 6.22 this year, as well as our scores in Relationship Management and Client Service, which have been well above 6.0 for the last five years. Comments from this year s survey participants discussed the quality of our personnel and the effectiveness of our technology. We thank you, our clients, for your time and effort, and look forward to our continued partnership as we provide you with high-quality and customized services to support your business needs. For more information on our industry-leading services, contact your relationship manager. www.usbfs.com 1.800.300.3863
SUMMER 2015 Quasar Distributors Celebrates 15 Years Quasar Distributors Earlier this summer, Quasar Distributors, LLC, a whollyowned subsidiary of U.S. Bancorp and the largest third-party distributor, celebrated its 15th anniversary. When the brokerdealer opened its doors in July of 2000, there were just two employees supporting the division: Jim Schoenike, Quasar s president, and Teresa Cowan, Quasar s chief compliance officer. Other Quasar managers now include Michele Adyniec, Marketing, who joined in May of 2001; Susan LaFond, Ad Review, who joined in September of 2001; Cyndi Durfee, Registration, who Jim Schoenike, President, Quasar Distributors, LLC joined in December of 2002; and Andrew Strnad, Legal, who joined in March of 2004. We built Quasar from scratch, unlike any other brokerage firm. We have a fresh view of regulations, built specifically for mutual fund distribution. - Jim Schoenike President Quasar Distributors Continued Growth & Service Enhancements Throughout the last 15 years, Quasar developed into a team of 25 employees serving more than 175 clients with more than 700 funds and nearly $350 billion in assets. Along with the increase in employees and client base, Quasar continues to enhance the services they provide. Quasar s Ad Review team continues steady growth in the number of pieces reviewed each year. In 2004, the team reviewed 1,400 pieces while in 2014, they reviewed 4,500 pieces (34,000 pages) and filed 3,200 of those pieces with FINRA. QuasarACCESS, Quasar s proprietary webbased application for advertising review and approval, was introduced in 2012. This milestone streamlined the ad review process and increased efficiency for both Quasar and its clients. The Dealer Agreement department experienced similar growth during the past decade. In 2004, Quasar executed approximately 500 agreements per year. Now, Quasar executes between 900 and 1,200 agreements annually. Quasar s Marketing team continues to provide additional services as advertising mediums expand. The team provides website design and hosting to approximately 90 sites, development of mutual fund logo and brand guidelines, and HTML email campaign assistance, in addition to the standard fact sheet and investor guide materials. Quasar s marketing group produces more than 1,000 pieces a year. Quasar also provides extensive education to our clients, including compliance updates and outreach calls in addition to numerous guidelines and one-on-one discussions. While compliance updates through email began early on, Quasar started offering compliance outreach calls in May of 2009 as a means of reaching even more clients. Looking Forward Expanding its distribution services to exchange-traded funds (ETFs) was a natural progression for Quasar in 2013. Quasar expects to provide services for an increasing number of ETFs as the industry continues to grow. In addition, more clients are looking to Quasar to provide advice and guidance into the marketplace of distribution. Our ability to understand the marketplace and share our knowledge with our clients in an effort to empower our clients to implement their own plans for distribution is a key part of what we offer, said Vice President Andrew Strnad. To learn more about Quasar s comprehensive services, contact your relationship manager. 2
www.usbfs.com 1.800.300.3863 SEC Proposes New Reporting Requirements for RICs and RIAs Fund Administration The SEC is pushing for modernization, and that means new rules for the investment industry. Proof of this initiative can be seen in two new rules proposed by the SEC on May 20, 2015. One of the proposals is aimed at investment companies and the other at investment advisers. The proposed investment company rules will amend Regulation S-X, which dictates content of financial and registration statements, to expand disclosures for derivative investments and securities lending transactions. Also, as part of the modernization initiative, report delivery requirements could be fulfilled through website posting instead of mailing hard copies, as currently required. Other significant rule updates include retiring Form N-Q and N-SAR. Form N-Q would be replaced by Form N-PORT and Form N-SAR would be replaced by Form N-CEN. Form N-PORT would be a monthly holdings-based filing with a greater level of detail surrounding derivatives, portfolio risk, portfolio returns, fund flows, and controlled foreign corporations than currently required by Form N-Q. Form N-CEN would be an annual filing, requiring much of the same information as Form N-SAR, but with expanded reporting specific to different types of investment companies. The proposed rules relating to registered investment advisers focus entirely on amendments to Form ADV. The amended Form ADV would collect information about separately managed accounts, with distinct reporting requirements that vary based on assets under management. U.S. Bancorp Fund Services maintains a committee of professionals dedicated to monitoring industry news, accounting pronouncements, and regulatory developments. The committee provides guidance to our Fund Administration and Quality Assurance departments. We will continue to monitor the proposed Investment Company Reporting Modernization rules as they move forward. U.S. Bancorp Fund Services will leverage our working relationships with multiple audit firms and experience with money market funds Form N-MFP to ensure we are well positioned as the proposed rules develop. For more information on the Investment Company Reporting Modernization rules, please contact your relationship manager. AIS Workstation Provides a Comprehensive and Dynamic Portal Alternative Investment Solutions Our AIS Workstation portal provides clients with a transparent and interactive tool to view their investments. Check out our new video at http://www.usbfs.com/usbfs/ about-us/videos.aspx#watch-video for an interactive look into Workstation s comprehensive data warehouse, customizable dashboard, various reporting capabilities, and real-time reconciliation tool. Workstation s flexible features and advanced technology make it easy to manage funds in a single environment. Contact your primary administrator or business development officer to learn more about AIS Workstation. 3
SUMMER 2015 Enhance Potential Returns with Global Securities Lending U.S. Bank U.S. Bank recently added another way to help clients enhance potential returns on portfolios by lending international equities from developed markets.* Our securities lending program was initiated in 1990 and has committed, experienced staff. Currently, our program administers $72 billion in lendable assets for 149 legal entities and 35 approved borrowers. Certain parties, primarily brokers, need to borrow securities in order to cover short sales or establish a market in a particular issue. In return, lenders, such as mutual funds, receive income. Lenders have the ability to recall a loaned security at any time for any reason, such as to vote in an important proxy. Client 1. Authorize 2. Loan U.S. Bank 3. Cash 4. Earnings borrower default, there is an indemnification agreement and clients are compensated for a related loss. Collateral investment risk is minimized by an internal credit team and strict guidelines for liquidity, diversification, credit quality, and duration. Separately managed accounts are also available for client-directed risk parameters. With a stable and strong parent, our program provides scale, comprehensive compliance and risk management procedures, and customizable reporting. We can analyze your portfolio, discuss your potential income boost, and present details to your board that will assist in the approval of a securities lending program. Borrower To get started with U.S. Bank s Securities Lending program, contact your relationship manager. *Approved markets/depositories: We have several controls in place to protect against borrower insolvency. Our program includes initial and ongoing credit reviews and limits for counterparties. In addition, at inception of the loan, 102 percent collateral for domestic securities and 105 percent collateral for foreign securities is collected and marked-to-market daily. In the worst case scenario of a Australia Austria Belgium Canada Czech Republic Denmark Euroclear Finland France Germany Hungary Ireland Italy Japan Luxembourg Mexico Netherlands New Zealand Norway Portugal South Africa Sweden Switzerland United Kingdom NOT FDIC INSURED/NO BANK GUARANTEE/MAY LOSE VALUE. 4
www.usbfs.com 1.800.300.3863 Client Conference 2015: Engage. Create. Innovate U.S. Bancorp Fund Services We were honored to host valued clients, business partners, and friends at our 2015 Client Conference, held June 10-12, in Fontana, Wisconsin. Attendees from across the street and around the world joined U.S. Bancorp Fund Services for three days to Engage. Create. Innovate. together. The 28th annual conference kicked off with opening remarks from U.S. Bancorp Fund Services President Joe Redwine, Executive Vice President Joe Neuberger, and U.S. Bancorp Wealth Management & Securities Services Vice Chairman Terry Dolan. Several industry-focused general sessions followed, featuring a regulatory update, a collective investment trust (CIT) versus mutual fund discussion, a panel discussion focused on mutual fund audits, and a presentation on the current hot topic of cybersecurity. Additionally, this year we were honored to host our keynote speaker, Chairman, President, & CEO of U.S. Bancorp, Richard Davis, who captivated the audience during dinner on Thursday evening. Guests enjoying dinner on The Abbey Resort s harbor lawn. Andy Chica participating in the inaugural Mutual Fun Run. Along with innovative content and focused roundtable sessions, conference attendees spent Thursday afternoon engaging in an activity of their choice. From braving the elements on the cool waters of Lake Geneva or out on the golf course, to creating original painted artwork or enjoying a day in the spa, there was something for everyone. Clients and partners had the opportunity to unwind and have fun with colleagues while forming relationships with new friends. Jeff Rauman, Sam Zona, Erik Olstein, Michael Luper, and Sue Weber attending Wednesday night s outdoor dinner. Thank you to everyone who joined us at our 28th annual Client Conference and worked hard to make it a success. We look forward to seeing all of our clients and partners again in 2016. NEXT YEAR S CONFERENCE IS SCHEDULED FOR JUNE 8-10, 2016 Chairman, President & CEO of U.S. Bancorp, Richard Davis delivering his presentation. Tom Pandick, Joe Neuberger, Helge Lee, and Brad Adams braving the golf course. 5
SUMMER 2015 The Signature Guarantee Challenge Transfer Agent Signature guarantees have become a frequent topic of discussion for both investors and fund clients as a number of banks and financial institutions across the country are reconsidering if and when guarantees should be provided. Service providers rely on signature guarantees to authenticate shareholders and validate individuals who have the authority to provide instructions on which the guaranteed signatures are required. While signature guarantees are important in protecting shareholders from fraudulent activity on their accounts, this shift has created a challenge for the mutual fund industry. However, it is not surprising that some financial institutions no longer provide guarantees. Institutions do not typically generate any revenue from this service, but bear both the cost of managing the responsibility and the expense of any losses that could occur from another organization relying on the guarantee given by one of their associates. This is particularly true of institutions participating in the Securities Transfer Agents Medallion Program, Inc. (STAMP). Members of this program carry a surety limit, which is the threshold amount the institution will insure in the event of fraud. Institutions that are non-stamp members offer no such warranty or financial backing and will not have a surety limit. In the interest of providing shareholders with maximum flexibility, U.S. Bancorp Fund Services accepts signature guarantees from both STAMP and non-stamp members because of the additional security measures we take to authenticate shareholders and requests. These steps include reviewing account age, history, and other information. As financial institutions review signature guarantees, some have limited their availability to only offer STAMP signature guarantees from their central branch offices, and only in their larger city locations. Other financial institutions no longer offer STAMP signature guarantees. In 2008, the Securities Transfer Association, in conjunction with Kemark Financial Services, the administrator of STAMP, proposed the Signature Validation Program (SVP), allowing financial institutions to provide a stamp that verified their customer s signature, specifically for non-financial transactions. While this program has not received industry-wide acceptance, more than 150 companies are listed as participants and it has offered some alternatives for shareholders. Within the mutual fund industry, both in-house and third-party transfer agents have created their own solutions regarding signature guarantees. Some transfer agents eliminated the requirement of a signature guarantee on certain transactions and others, including U.S. Bancorp Fund Services, are accepting alternative forms of shareholder authentication including: Non-STAMP signature guarantees SVP stamps Financial notaries Non-financial notaries Lawyer signature guarantees or notaries Lawyer letterhead Financial institution letterhead (with call back if desired) U.S. Bancorp Fund Services is sensitive to the challenges associated with signature guarantees. Our goal is to protect shareholders, funds, and ourselves. We will work with you and your shareholders to ensure confidence in the authentication and validation processes we use to prevent any fraudulent activity. For more information on signature guarantees, please contact your relationship manager. 6
www.usbfs.com 1.800.300.3863 What the Heck is an ETF? Exchange Traded Funds At this year s Client Conference, held June 10-12 in Fontana, Wisconsin, attendees participated in several industry-focused general sessions including an overview on exchange-traded funds titled, What the Heck is an ETF? The session included information on the following: 1. Passive ETFs, Active ETFs, and ETMFs: ETFs can be structured in a number of ways, and our knowledgeable team has experience in servicing a wide variety of products. Passively-managed ETFs track an index. Similar to index mutual funds, passive ETFs track a specific index as detailed in its prospectus. Passive ETFs must rebalance their portfolio holdings relative to the specific holdings of that index at specified dates. Actively-managed ETFs do not track an index and, therefore, are not held to index holdings or a rebalance schedule. This provides the actively managed ETF portfolio manager the same flexibility as a non-indexed mutual fund manager and allows them to trade their portfolio at any time during the trading day. ETMFs or Exchange Traded Managed Funds are a new product offering from Navigate Fund Solutions that share some characteristics of ETFs and some of mutual funds. 2. Sponsor and service provider roles and responsibilities: From the ETF sponsor and service provider to the NSCC/DTCC and authorized participants, there are various parties responsible for the smooth operation of an ETF. The team at U.S. Bancorp Fund Services will provide guidance and transparency through the entire process. 3. Legal requirements for launch and beyond: The unique features of ETFs require advisers to obtain and comply with special exemptive relief from the SEC, adhere to rules of the applicable listing exchange (e.g., NASDAQ, NYSE Arca, BATS), and regularly disclose certain information on their websites, in If you would like to learn more about launching an ETF, contact Mike Castino or your relationship manager. Mike Castino Senior Vice President, Exchange Traded Funds P: 888.455.5553 E: michael.castino@usbank.com shareholder reports, and in registration statements. Our legal administration team has a dedicated ETF staff to walk you through these various legal requirements. 4. U.S. Bancorp Fund Services integrated service line technology: We use two proprietary systems, Genius and DASH, to link all core applications into one central database for a consolidated processing center and to provide users with flexible and comprehensive real-time reporting. 5. Key distribution aspects: Quasar Distributor s familiarity with FINRA and SEC rules allows them to offer compliant website design and hosting services for ETF clients. Additionally, Quasar has developed relationships with a number of the important Lead Market Makers (LMMs) and Authorized Participants (APs), which support the creation of an active market for an ETF. For more information about our ETF services, visit www.usbfs.com/usbfs/etf-services.aspx. 7
SUMMER 2015 See US This Fall at Industry Conferences and Events U.S. Bancorp Fund Services From coast to coast, our team of professionals will be on-site at industry-leading conferences to discuss your servicing needs. Visit US at the following conferences and events. SEPTEMBER S M T W TH F S 1 2 13 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 OCTOBER S M T W TH F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 September 21 Bloomberg Hedge Fund Start-Up Conference New York, NY September 24 U.S. Bancorp Fund Services AIS Partner Outing Wayne, NJ September 24-25 ETF Bootcamp New York, NY September 27-29 Alpha Hedge West San Francisco, CA September 27-30 ICI Tax & Accounting Conference Orlando, FL October 5-6 IIR Liquid Alternative Strategies East New York, NY October 22 HFMWeek Awards New York, NY October 25-28 RIA Forum Las Vegas, NV October 28-30 Alternative Asset Summit Las Vegas, NV October 29-30 NICSA GMM Boston, MA For more information about any of our upcoming events, please contact U.S. Bancorp Fund Services at usbfsinfo@usbank.com. BUILDING ON FOUR DECADES OF INVESTMENT EXPERIENCE With more than 45 years of service distinction, U.S. Bancorp Fund Services, LLC combines industry-leading technology with high-quality customer service to provide our clients with customized solutions. For more information about our comprehensive suite of mutual fund, alternative investment, and ETF products and services, call 800-300-3863 or visit www.usbfs.com. U.S. Bancorp Fund Services, LLC 777 East Wisconsin Avenue Milwaukee, WI 53202 Please send your comments and suggestions to usbfsinfo@usbank.com. Headquartered in Milwaukee since 1969, U.S. Bancorp Fund Services, LLC is a subsidiary of U.S. Bank, N.A., the fifth largest commercial bank in the United States and an affiliate of Quasar Distributors, LLC. Quasar Distributors, LLC, a wholly owned subsidiary of U.S. Bancorp, underwrites and distributes mutual funds and is a FINRA member firm. U.S. Bancorp is the parent company of U.S. Bank, N.A. U.S. Bank, N.A. is not responsible for the obligations of its affiliates. usbfs.com 1.800.300.3863 8 082015