Table of Contents
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Table of Contents, contd.
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Letter from the Portfolio Management Team
Dear Shareholders:
In our semi-annual update, we can report the eight-year bull market in U.S. large-cap equities remains strong. Recent performance added to those positive returns, and markets around the world also participated in gains.
Over the six-month period that ended October 31, 2016, the overall U.S. market, as defined by the Russell 3000 (an index composed of the 3,000 largest U.S. stocks), gained 4.18%. The S&P 500 (an index of 500 large-capitalization companies widely used as a benchmark for larger companies) gained 4.06%, and the Russell 2000 (an index comprised of the 2,000 smallest companies on the Russell 3000 and used as a benchmark for smaller companies) gained 6.13%.
Overseas, equity markets were mixed. While the MSCI EAFE (an index of developed markets) had a slight loss of 0.16%, the MSCI EM (an index for emerging markets) was up more than 9.41%.
The Bloomberg Barclays U.S. Aggregate Bond Index (a proxy for U.S. investment-grade bond market) was up 1.51%.
All in all, it was a good six months for globally diversified portfolios.
Unlike last year at this time, the current environment plays into our style of investing. At CLS Investments (CLS), we strongly believe that Risk-Budgeted, global, balanced portfolios help investors succeed over time. We believe this basic approach makes sense for many investors.
The CLS Approach
Lets break down our beliefs into a bit more detail as they inform our approach to portfolio management of the CLS AdvisorOne Funds.
We believe Risk-Budgeted, global, balanced portfolios, along with clear and transparent communication, help investors achieve success. If portfolios behave as expected, investors are more likely to stay the course with their investment plans.
We believe diversification across domestic and international markets should provide smoother returns and ultimately higher risk-adjusted performance than domestic-only portfolios over time.
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We believe multi-asset allocations — and managing the proper balance between assets depending on a portfolios mandate — works for investors. Again, smoother returns should translate into better investor experiences and results.
We also believe in the power of teamwork and discipline. All CLS-managed Funds are team-managed using disciplined processes that we believe are key to long-term success.
Investment Outlook
As active, multi-asset allocators, we build our various portfolios around the CLS Investment Themes. These Themes are approved by the CLS Investment Committee and guide our approach to managing Funds:
We expect lower U.S. stock market returns in the year(s) ahead and will therefore emphasize factor-based ETFs, otherwise known as smart beta ETFs. These ETFs have a rules-based approach to building a portfolio, which emphasizes a factor, such as value, growth, or high quality.
Factor-based ETFs capture the essence of active management but at a fraction of the cost. We believe this emphasis will enhance returns in the year(s) ahead. CLS is an industry leading user of smart beta ETFs, and this emphasis will continue.
In addition, we expect market volatility will increase in the year(s) ahead. Market volatility has been at historically low levels in recent years, and this usually sets the stage for increased volatility. We believe utilizing factor-based analysis will give us another tool to help manage risk.
Though we have seen a resurgence in emerging market equity returns in 2016, international markets have still significantly underperformed the U.S. stock market in recent years. Now, however, they have considerably better valuations, which in turn suggest better returns moving forward. As investors, those are the returns we need to build portfolios around.
In addition to valuations, yields, monetary policies, and reforms play greater roles in a low-growth world, and international markets are more likely to benefit from these factors than U.S. markets going forward.
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Given the low level of interest rates, we seek to be creative in how we diversify our equity-dominated portfolios. We can do this in two ways. First, we can be active in our fixed-income exposures. For instance, we can actively manage duration (interest-rate sensitivity), credit, and sector exposures. Currently, our portfolios are less interest-rate sensitive than the overall bond market, and our overall credit quality is higher than in years past. Second, we can use alternative asset class segments and strategies, which can include managed futures, hedge Fund strategies, and currencies. This could also mean increased exposure to commodities, which have been beaten down over the last several years (as a result, many commodities are at multi-year price lows).
In addition to these three established Investment Themes, the AdvisorOne Funds also share another theme: Global Value. In short, as global investors, we will tilt portfolios toward sectors and regions that appear to be relatively attractive compared to historical norms. Current examples include financial and natural resource stocks.
Thank you for your trust and confidence in managing your Funds.
Sincerely,
Portfolio Management Team
The AdvisorOne Funds are each a fund of funds, meaning they invest in underlying mutual funds and exchange traded funds (Underlying Funds). In some instances, it may be less expensive for an investor to invest in the Underlying Funds directly. There is also a risk that the investment advisors of those Underlying Funds may make investment decisions detrimental to the performance of the Funds or the Underlying Funds that may be more volatile than investments in other mutual funds. The Funds invest in Underlying Funds as well as equity, bond or derivative securities.
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Portfolio Commentary
CLS Global Aggressive Equity gained 5.22% over the six-month period ended October 31, 2016. The Fund has a Risk Budget of 110 (over time, it assumes 110% of the risk of a diversified equity portfolio).
The Fund outperformed its benchmark during this time frame. Strong performance from technology companies, specifically semiconductors and dividend-paying technology stocks, contributed to the outperformance. Positions in European equities, meanwhile, generally detracted from performance.
The largest portfolio tilts remain in technology and materials. Allocations in health care have been reduced in favor of financial services companies. Regionally, Europe and Australia remain overweight. Emerging Asian countries, such as China and India, also remain overweight.
Turnover for the Fund over the past six months was 14%.
You cannot invest directly in an index or benchmark.
Portfolio Composition*
*Percentages based on Net Assets
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CLS Global Aggressive Equity Fund - Performance Update
Annualized Total Returns as of October 31, 2016
Growth of a $10,000 Investment
This chart illustrates a comparison of a hypothetical investment of $10,000 in the CLS Global Aggressive Equity Fund (assuming reinvestment of all dividends and distributions) versus the Funds benchmark index.
The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Past performance is no guarantee of future results. The returns shown do not reflect taxes that a shareholder would pay on Fund distributions or redemptions of Fund shares. The Funds total annual operating expenses, including underlying fund expenses, for the CLS Global Aggressive Equity Fund per the most recent prospectus was 1.93%. Performance results reflect a contractual fee waiver by the investment advisor as described in the prospectus of the Fund. The Funds performance over the periods shown above would have been lower had the advisor not waived fees and/or reimbursed expenses. For performance information current to the most recent month-end, please call toll-free 1-866-811-0225.
The Russell 3000® Index is a market-capitalization-weighted index that measures 98% of the investable U.S. equity market.
Performance of the risk budget benchmark shows how the Funds performance compares to an index with similar investment strategies and underlying holdings as the Fund. The risk budget benchmark consists of (i) 110% of a blended benchmark consisting of 60% of the Russell 3000® Index and 40% of the MSCI ACWI (ex-US). The MSCI ACWI (ex-US) is an index that provides a broad measure of stock performance throughout the world, with the exception of U.S.-based equities. The index includes both developed and emerging markets.
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CLS Global Diversified Equity Fund - Portfolio Summary
CLS Global Diversified Equity returned 3.84% for the six-month period ended October 31, 2016. The Fund has a Risk Budget of 100 (over time, it is approximately as risk as a diversified equity portfolio).
The Fund outperformed its benchmark during this time frame. Exposure to the domestic technology and financial sectors as well as exposure to emerging markets contributed to the outperformance. Exposure to European equities detracted from performance during the period.
Regarding our equity positioning among sectors, the largest sector tilt remains technology. Within regional positioning, the largest tilt remains Asia, both developed and emerging. Technology and Asian equities still continue to look attractive on a number of relative valuation, momentum, and Fundamental characteristics.
Turnover for the Fund over the last six months was 24%.
Top Ten Portfolio Holdings*
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CLS Global Diversified Equity Fund - Performance Update
This chart illustrates a comparison of a hypothetical investment of $10,000 in the CLS Global Diversified Equity Fund (assuming reinvestment of all dividends and distributions) versus the Funds benchmark index.
The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Past performance is no guarantee of future results. The returns shown do not reflect taxes that a shareholder would pay on Fund distributions or redemptions of Fund shares. The Funds total annual operating expenses, including underlying fund expenses, for the CLS Global Diversified Equity Fund per the most recent prospectus was 1.45%. Performance results reflect a contractual fee waiver by the investment advisor as described in the prospectus of the Fund. The Funds performance would be lower had the advisor not waived fees and/or reimbursed expenses. For performance information current to the most recent month-end, please call toll-free 1-866-811-0225.
Performance of the risk budget benchmark shows how the Funds performance compares to an index with similar investment strategies and underlying holdings as the Fund. The blended benchmark consists of 60% of the Russell 3000® Index and 40% of the MSCI ACWI (ex-US). The MSCI ACWI (ex-US) is an index that provides a broad measure of stock performance throughout the world, with the exception of U.S.-based equities. The index includes both developed and emerging markets.
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CLS Global Growth returned 3.24% for the six-month period ended October 31, 2016. The Fund has a Risk Budget of 80 (over time, it is approximately 80% as risky as a diversified equity portfolio).
The Fund outperformed its benchmark during this time frame. Exposure to the technology and financial sectors as well as exposure to emerging markets contributed to the out performance. Meanwhile, exposure to European equities detracted from performance.
The largest sector tilts are technology and financials. Within regional positioning, the largest tilt remains emerging Asia and Latin America. Technology, financials, emerging Asia, and Latin America continue to look attractive on a number of relative valuation, momentum, and Fundamental characteristics.
Turnover for the Fund over the last six months was 4%.
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This chart illustrates a comparison of a hypothetical investment of $10,000 in the CLS Global Growth Fund (assuming reinvestment of all dividends and distributions) versus the Funds benchmark index.
The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Past performance is no guarantee of future results. The returns shown do not reflect taxes that a shareholder would pay on Fund distributions or redemptions of Fund shares. The Funds total annual operating expenses, including underlying fund expenses, for the CLS Global Growth Fund per the most recent prospectus was 1.55%. Performance results reflect a contractual fee waiver by the investment advisor as described in the prospectus of the Fund. The Funds performance as shown above would have been lower had the advisor not waived fees and/or reimbursed expenses. For performance information current to the most recent month-end, please call toll-free 1-866-811-0225.
Performance of the risk budget benchmark shows how the Funds performance compares to an index with similar investment strategies and underlying holdings as the Fund. The risk budget benchmark consists of (i) 80% of a blended benchmark consisting of 60% of the Russell 3000® Index and 40% of the MSCI ACWI (ex-US), and (ii) 20% of the 1-3 month Treasury Bill index. The MSCI ACWI (ex-US) is an index that provides a broad measure of stock performance throughout the world, with the exception of U.S.-based equities. The index includes both developed and emerging markets. The 1-3 Month Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value.
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CLS Growth and Income returned 2.84% for the six-month period ended October, 31, 2016. The Fund has a Risk Budget of 55 (over time, it is approximately 55% as risky as a diversified equity portfolio).
The Fund outperformed its benchmark during this time frame. Exposure to the technology sector and emerging markets contributed to the outperformance, while exposure to European equities detracted.
The largest sector tilt remains technology and energy. Within regional positioning, the largest tilt remains Asia, both developed and emerging, and Japan. Technology and Asian equities still continue to look attractive on a number of relative valuation, momentum, and fundamental characteristics.
The Funds interest-rate sensitivity was approximately equivalent to the overall bond market. The Fund is positioned to outperform if high-yield and emerging-market fixed income perform well, which was beneficial to performance for the six-month period.
Turnover for the Fund over the last six months was 8%.
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This chart illustrates a comparison of a hypothetical investment of $10,000 in the CLS Growth and Income Fund (assuming reinvestment of all dividends and distributions) versus the Funds benchmark index.
The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Past performance is no guarantee of future results. The returns shown do not reflect taxes that a shareholder would pay on Fund distributions or redemptions of Fund shares. The Funds total annual operating expenses, including underlying fund expenses, for the CLS Growth and Income Fund per the most recent prospectus was 1.56%. Performance results reflect a contractual fee waiver by the investment advisor as described in the prospectus of the Fund. The Funds performance as shown above would have been lower had the advisor not waived fees and/or reimbursed expenses. For performance information current to the most recent month-end, please call toll-free 1-866-811-0225.
Performance of the risk budget benchmark shows how the Funds performance compares to an index with similar investment strategies and underlying holdings as the Fund. The risk budget benchmark consists of (i) 55% of a blended benchmark consisting of 60% of the Russell 3000® Index and 40% of the MSCI ACWI (ex-US), and (ii) 45% of the 1-3 month Treasury Bill index. The weightings against this benchmark are consistent with the risk level of the Fund and these indexes are utilized to reflect the Funds broad exposure to the global equity market. The MSCI ACWI (ex-US) is an index that provides a broad measure of stock performance throughout the world, with the exception of U.S.-based equities. The index includes both developed and emerging markets. The 1-3 Month Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value.
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CLS Flexible Income returned 2.21% for the six-month period ended October 31, 2016. The Fund has a Risk Budget of 20 (over time, it is approximately 20% as risky as a diversified equity portfolio).
The Fund outperformed its benchmark during the time frame, with high-yield bonds, emerging market bonds, and global equities helping performance. Treasury bonds and
commodities detracted from performance during the period.
The Fund has increased exposure to senior floating-rate loans and value-oriented equities and reduced exposure to short-term municipal bonds, high-yield bonds, and low-volatility stocks.
In terms of sector positioning, the largest overweight remains to corporate bonds, both investment-grade and high-yield. The Fund also has notable overweights to municipal bonds, mortgage-backed bonds, and international bonds. The Fund is underweight to Treasury bonds. We expect short-term interest rates to continue to grind higher, and there are signs inflation is on the rise. This expectation has led to a modestly below-benchmark duration position for the Fund.
Turnover for the Fund over the last six months was 2%.
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This chart illustrates a comparison of a hypothetical investment of $10,000 in the CLS Flexible Income Fund (assuming reinvestment of all dividends and distributions) versus the Funds benchmark index.
The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Past performance is no guarantee of future results. The returns shown do not reflect taxes that a shareholder would pay on Fund distributions or redemptions of Fund shares. The Funds total annual operating expenses, including underlying fund expenses, for the CLS Flexible Income Fund per the most recent prospectus was 1.24%. Performance results reflect a contractual fee waiver by the investment advisor as described in the prospectus of the Fund. The Funds performance as shown above would have been lower had the advisor not waived fees and/or reimbursed expenses. For performance information current to the most recent month-end, please call toll-free 1-866-811-0225.
The Barclays Aggregate Bond Index is a market-capitalization-weighted index that covers the USD-denominated, investment-grade (rated Baa3 or above by Moodys), fixed-rate, and taxable areas of the bond market. Prior to August 24, 2016, the index was known as Barclays Aggregate Bond Index.
Performance of the risk budget benchmark shows how the Funds performance compares to an index with similar investment strategies and underlying holdings as the Fund. The risk budget benchmark consists of (i) 20% of a blended benchmark consisting of 60% of the Russell 3000® Index and 40% of the MSCI ACWI (ex-US), and (ii) 80% of the 1-3 month Treasury Bill index. The MSCI ACWI (ex-US) is an index that provides a broad measure of stock performance throughout the world, with the exception of U.S.-based equities. The index includes both developed and emerging markets. The 1-3 Month Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value.
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CLS International Equity generated a return 1.67% for the six-month period ended October 31, 2016. The Fund consists of primarily international equities and is not Risk Budgeted although it is managed with risk considerations and a focus on delivering higher incremental-income relative to its benchmark. The portfolio management methodology is quantitatively driven through the use of fundamental risk factors.
The Fund trailed its benchmark during this time frame, primarily due to an overweight to frontier market stocks and exposure to the minimum volatility factor. Individual country allocations, primarily within Asia, and value factor exposures helped performance.
At the end of October, the Fund continues to be overweight to emerging markets, both traditional and frontier markets. The Fund is notably underweight to developed Europe. The factor allocation has shifted from minimum volatility to value.
Turnover for the Fund over the last six months was approximately 85%.
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This chart illustrates a comparison of a hypothetical investment of $10,000 in the CLS International Equity Fund (assuming reinvestment of all dividends and distributions) versus the Funds benchmark index.
The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Past performance is no guarantee of future results. The returns shown do not reflect taxes that a shareholder would pay on Fund distributions or redemptions of Fund shares. The Funds total annual operating expenses, including underlying fund expenses, for the CLS International Equity Fund per the most recent prospectus was 2.66%. Performance results reflect a contractual fee waiver by the investment advisor as described in the prospectus of the Fund. The Funds performance as shown above would have been lower had the advisor not waived fees and/or reimbursed expenses. For performance information current to the most recent month-end, please call toll-free 1-866-811-0225.
The MSCI ACWI (ex-US) is a market-capitalization weighted index that provides a broad measure of stock performance throughout the world, with the exception of U.S.-based equities. The index includes both developed and emerging markets.
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CLS Shelter returned 3.52% for the six-month period ended October 31, 2016. The Fund has a risk-based benchmark (75 percent of a blended benchmark consisting of 80 percent of the Russell 3000 Index (composed of the 3,000 largest U.S. stocks) and 20 percent of the MSCI ACWI (ex-US) (a benchmark for international stocks), and 25 percent of the 1-3 month Treasury Bill index (an index of very short-term government debt securities)).
During this time frame, upward-trending markets kept the Fund invested mostly in a diversified portfolio of stocks. The protected portion of the allocation peaked at 35% and was frequently below that level. Market declines were relatively modest, so there were no moves to Treasury bills.
The Fund began the period with 25% invested in reduced volatility and 75% in diversified stocks. It stayed at those levels until a downturn in late June pushed the protection allocation to 35%. Markets rallied from that point and the Fund moved to fully invested status in early August. This marked the first time in nearly one year that the Fund had no allocation to protection assets. A slight dip in early September pushed the Fund into 5% protection allocation, where it generally remained for the next six weeks.
The protection allocation being lower than normal helped performance. Value stocks were particularly beneficial to the portfolio, and emerging market stocks also contributed to performance. Diversified stocks rose and reduced-volatility stocks lagged the benchmark.
Turnover for the Fund over the last six months was 127%.
Top Portfolio Holdings*
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This chart illustrates a comparison of a hypothetical investment of $10,000 in the CLS Shelter Fund (assuming reinvestment of all dividends and distributions) versus the Funds benchmark index.
The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Past performance is no guarantee of future results. The returns shown do not reflect taxes that a shareholder would pay on Fund distributions or redemptions of Fund shares. The Funds total annual operating expenses, including underlying fund expenses, for the CLS Shelter Fund per the most recent prospectus was 1.42%. Performance results reflect a contractual fee waiver by the investment advisor as described in the prospectus of the Fund. The Funds performance shown above would have been lower had the advisor not waived fees and/or reimbursed expenses. For performance information current to the most recent month-end, please call toll-free 1-866-811-0225.
Performance of the risk based benchmark shows how the Funds performance compares to an index with similar investment strategies and underlying holdings as the Fund. The risk based benchmark consists of (i) 75% of a blended benchmark consisting of 80% of the Russell 3000® Index and 20% of the MSCI ACWI (ex-US), and (ii) 25% of the 1-3 month Treasury Bill index. The MSCI ACWI (ex-US) is an index that provides a broad measure of stock performance throughout the world, with the exception of U.S.-based equities. The index includes both developed and emerging markets. The 1-3 Month Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value.
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During the past six months, the Milestone Treasury Obligations Fund focused on its conservative investment philosophy and management discipline. We are proud to provide this semi-annual report which highlights the results of our conservative, compliance-driven investment philosophy.
As we enter 2017, we remain committed to our mission and values. We look forward to continuing to work in partnership with you all to address your liquidity objectives and cash management priorities. We will continue to explore new cash management capabilities in direct response to requests from both current and prospective investors.
All data is as of April 30, 2016. The Portfolio breakdown is expressed as a percentage of total investments and may vary over time.
Please refer to the Portfolio of Investments for a detailed analysis of the Funds holdings.
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AdvisorOne Funds Semi-Annual Report
Schedule of Investments - CLS Global Aggressive Equity Fund (Unaudited)
October 31, 2016
Schedule of Investments - CLS Global Aggressive Equity Fund (Unaudited) (Continued)
ETF - Exchange Traded Fund
IPO - Initial Public Stock Offering
MSCI - Morgan Stanley Capital International
PHLX - Philadelphia Stock Exchange
SPDR - Standard & Poors Depositary Receipts
Schedule of Investments - CLS Global Diversified Equity Fund (Unaudited)
Schedule of Investments - CLS Global Diversified Equity Fund (Unaudited) (Continued)
DB - Deutsche Bank
FTSE - Financial Times Stock Exchange
Schedule of Investments - CLS Global Growth Fund (Unaudited)
Schedule of Investments - CLS Global Growth Fund (Unaudited) (Continued)
EAFE - Europe, Australasia, Far East
Schedule of Investments - CLS Growth and Income Fund (Unaudited)
Schedule of Investments - CLS Growth and Income Fund (Unaudited) (Continued)
CEF - Closed-End Fund
RAFI - Research Affiliates
TIPS - Treasury Inflation-Protected Securities
Schedule of Investments - CLS Flexible Income Fund (Unaudited)
Schedule of Investments - CLS Flexible Income Fund (Unaudited) (Continued)
MLP - Master Limited Partnership
TIPS - Treasury Inflation-Protected Security
Schedule of Investments - CLS International Equity Fund (Unaudited)
Schedule of Investments - CLS Shelter Fund (Unaudited)
ACWI - All Country World Index
Schedule of Investments - Milestone Treasury Obligations Fund (Unaudited)
Repurchase Agreements - 64.76%
BNP Paribas Securities Corp., dated 10/31/2016, repurchase price $75,000,000 (Collateralized by: U.S. Treasury Inflationary Note: $24,613,200, 0.125%, 04/15/2018; aggregate market value plus accrued interest $25,899,845; U.S. Treasury Notes: $49,622,400, 0.875% - 3.500%, 01/31/2017 - 05/31/2022; aggregate market value plus accrued interest $50,600,233)
Credit Agricole, dated 10/31/2016, repurchase price $102,425,000 (Collateralized by: U.S. Treasury Inflationary Note: $104,917,800, 1.125%, 02/28/2021; aggregate market value plus accrued interest $104,473,548)
Credit Suisse Securities (USA) LLC, dated 10/31/2016, repurchase price $84,500,000 (Collateralized by: U.S. Treasury Notes: $86,001,100, 0.625% - 1.375%, 12/15/2016 - 11/30/2019; aggregate market value plus accrued interest $86,190,143)
Societe Generale, dated 10/31/2016, repurchase price $50,000,000 (Collateralized by: U.S. Treasury Bond: $48,812,300, 2.750%, 11/15/2042; aggregate market value plus accrued interest $51,000,022)
Statements of Assets and Liabilities (Unaudited)
Statements of Assets and Liabilities (Unaudited) (Continued)
* Includes Securities Loaned $18,973,269; $48,489,469; $32,779,873; $21,119,494.
Statements of Operations (Unaudited)
For the Six Months Ended October 31, 2016
Statements of Operations (Unaudited) (Continued)
Statements of Changes in Net Assets
Notes to Financial Statements (Unaudited)
AdvisorOne Funds (the Trust or the Funds) was organized as a Delaware Business Trust in December 1996 and is registered under the Investment Company Act of 1940 (the 1940 Act), as amended, as an open-end management investment company. The CLS Global Aggressive Equity Fund, CLS Global Diversified Equity Fund, CLS Global Growth Fund, CLS Growth and Income Fund, CLS Flexible Income Fund, CLS International Equity Fund, CLS Shelter Fund and Milestone Treasury Obligations Fund, collectively the Funds and each individually a Fund are each a diversified series of the Trust. The Milestone Treasury Obligations Fund, formerly known as the Treasury Obligations Portfolio (Predecessor Fund), was reorganized into the AdvisorOne Funds (the Trust) on January 23, 2012. The Predecessor Fund was a series of the Milestone Funds, a Delaware business trust formed on July 14, 1994. The Funds each offer an unlimited number of shares of beneficial interest without par value. The Funds follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 Financial Services—Investment Companies.
The Funds offer the following classes of shares:
CLS Diversified Equity Funds Class C shares were closed on August 29, 2016.
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Notes to Financial Statements (Unaudited) (Continued)
The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements 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 financial statements and the reported amounts of income and expenses for the year. Actual results could differ from those estimates. The Funds follow the specialized accounting and reporting requirements under GAAP that are applicable to investment companies.
Security Valuation – Securities listed on an exchange are valued at the last reported sale price at the close of the regular trading session of the exchange on the business day the value is being determined, or in the case of securities listed on NASDAQ at the NASDAQ Official Closing Price (NOCP). In the absence of a sale such securities shall be valued at the mean between the current bid and ask prices on the primary exchange on the day of valuation. Exchange traded options, futures and options on futures are valued at the settlement price determined by the exchange. Short-term investments that mature in 60 days or less may be valued at amortized cost, provided such valuations represent fair value. Under the amortized cost method, a portfolio instrument is valued at cost and any premium or discount is amortized to maturity. Amortization of premium and accretion of market discount are charged to income. Debt securities (other than short-term obligations) are valued each day by an independent pricing service approved by the Trusts 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 Funds 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 using the fair value procedures approved by the Board. The Board has delegated execution of these procedures to a fair value team composed of one or more representatives from each of the (i) Trust, (ii) administrator, and (iii) advisor. The team 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.
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Fair Valuation Process – As noted above, the fair value team is composed of one or more representatives from each of the (i) Trust, (ii) Administrator, and (iii) 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 ask price is available; the spread between bid and ask 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 a Funds 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 placements 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 team 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 a Funds 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 Fund of Funds – The Funds 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 of the Underlying Funds.
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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 their Funds will not change.
The Funds utilize 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 a 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 liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument in 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 a Funds 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 October 31, 2016 for the Funds investments measured at fair value:
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CLS Global Aggressive Equity Fund
CLS Global Diversified Equity Fund
CLS Global Growth Fund
CLS Growth and Income Fund
CLS Flexible Income Fund
CLS International Equity Fund
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CLS Shelter Fund
Milestone Treasury Obligations Fund
The Funds did not hold any Level 3 securities during the period. There were no transfers into or out of any level during the period. It is the Funds policy to recognize transfers between Level 1 & Level 2 at the end of the reporting period.
Refer to the Schedules of Investments for security classifications.
Repurchase Agreements
The Milestone Treasury Obligations Fund may purchase securities from financial institutions subject to the sellers agreement to repurchase and the Funds agreement to resell the securities at par. The advisor only enters into repurchase agreements with financial institutions that are primary dealers and deemed to be creditworthy by the investment adviser in accordance with procedures adopted by the Board. Securities purchased subject to repurchase agreements are maintained with a custodian of the Fund and must have, at all times, an aggregate market value plus accrued interest greater than or equal to the repurchase price. If the market value of the underlying securities falls below 102% of the value of the repurchase price, the Fund will require the seller to deposit additional collateral by the next business day. In the event that the seller under the agreement defaults on its repurchase obligation or fails to deposit sufficient collateral, the Fund has the contractual right, subject to the requirements of applicable bankruptcy and insolvency laws, to sell the underlying securities and may claim any resulting loss from the seller.
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Offsetting of Financial Assets and Derivative Liabilities – The following table presents the Funds liability derivatives available for offset, net of collateral pledged as of October 31, 2016:
Foreign Currency Translations
The accounting records of the Funds are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency, and income receipts and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Purchases and sales of securities are translated into U.S. dollars at the contractual currency rates established at the approximate time of the trade.
Net realized gains and losses on foreign currency transactions represent net gains and losses from currency realized between the trade and settlement dates on securities transactions and the difference between income accrued versus income received. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities.
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Exchange Traded Funds
The Funds may invest in exchange traded funds (ETFs). ETFs are a type of index fund bought and sold on a securities exchange. An ETF trades like common stock and represents a fixed portfolio of securities designed to track the performance and dividend yield of a particular domestic or foreign market index. A 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.
Exchange Traded Notes
The Funds may invest in exchange traded notes (ETNs). ETNs are a type of debt security that is linked to the performance of underlying securities. The risks of owning ETNs generally reflect the risks of owning the underlying securities they are designed to track. In addition, ETNs are subject to credit risk generally to the same extent as debt securities.
The Funds are subject to equity price risk in the normal course of pursuing their investment objectives and may purchase or sell options to help hedge against this risk.
The Funds may write call options only if they (i) own an offsetting position in the underlying security or (ii) have an absolute or immediate right to acquire that security without additional cash consideration or exchange of other securities held in its portfolio.
When a Fund writes a call option, an amount equal to the premium received is included in the statement of assets and liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option. If an option expires on its stipulated expiration date or if a Fund enters into a closing purchase transaction, a gain or loss is realized. If a written call option is exercised, a gain or loss is realized for the sale of the underlying security and the proceeds from the sale are increased by the premium originally received. As writer of an option, a Fund has no control over whether the option will be exercised and, as a result, retains the market risk of an unfavorable change in the price of the security underlying the written option.
The Funds may purchase put and call options. Put options are purchased to hedge against a decline in the value of securities held in a Funds portfolio. If such a decline occurs, the put options will permit the Funds to sell the securities underlying such options at the exercise price, or to close out the options at a profit. The premium paid for a put or call option plus any transaction costs will reduce the benefit, if any, realized by the Funds upon exercise of the option, and, unless the price of the underlying security rises or declines sufficiently, the option may expire worthless to the Funds.
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In addition, in the event that the price of the security in connection with which an option was purchased moves in a direction favorable to the Funds, the benefits realized by the Funds as a result of such favorable movement will be reduced by the amount of the premium paid for the option and related transaction costs. Written and purchased options are non-income producing securities. With purchased options, there is minimal counterparty credit risk to the Funds since these options are exchange traded and the exchanges clearinghouse, as counterparty to all exchange traded options, guarantees against a possible default.
Income Taxes
It is each Funds policy to comply with all sections of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and gains to its shareholders and therefore, no provision for federal income tax has been made. Each Fund is treated as a separate taxpayer for federal income tax purposes.
The Funds recognize 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 Funds tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2014-2016), or expected to be taken in the Funds 2017 tax returns. The Funds identified their major tax jurisdictions as U.S. Federal, Nebraska and foreign jurisdictions where the Funds make significant investments; however, the Funds are 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.
Security Transactions and Related Income
Investment security transactions are accounted for on a trade date basis. Cost is determined and gains and losses are based upon the specific identification method for both financial statement and Federal income tax purposes. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Purchase discounts and premiums on securities are accreted and amortized over the life of the respective securities.
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. Each Funds income, expenses (other than the class specific distribution and shareholder service fees) and realized and unrealized gains and losses are allocated proportionally each day between the classes based upon the relative net assets of each class.
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Distributions to Shareholders
Income will normally be declared and distributed at least annually for all Funds with exception of Milestone Treasury Obligations Fund. Income will normally be declared daily and distributed monthly for the Milestone Treasury Obligations Fund. The Funds declare and pay net realized capital gains, if any, annually. The character of income and gains to be distributed is determined in accordance with income tax regulations which may differ from GAAP. These differences are primarily due to the treatment of wash sale losses, grantor trust and partnership income.
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 Funds enter into contracts that contain a variety of representations and warranties and which provide general indemnities. A Funds maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Trust expects the risk of loss due to these warranties and indemnities to be remote.
Advisory Fees
The Trust has entered into an Investment Advisory Agreement with CLS Investments, LLC (the Advisor, formerly Clarke Lanzen Skalla Investment Firm, LLC), a subsidiary of NorthStar Financial Services Group, LLC. As compensation for the services rendered, facilities furnished, and expenses borne by the Advisor, the Funds will pay the Advisor a fee accrued daily and paid monthly, at the annualized rate of 0.75% of net assets for CLS Global Aggressive Equity Fund, CLS Global Diversified Equity Fund, CLS Global Growth Fund, CLS Growth and Income Fund, CLS International Equity Fund, and CLS Shelter Fund; CLS Flexible Income at the annualized rate of 0.40%; and Milestone Treasury Obligations Fund at the annualized rate of 0.10%.
The Trustees have adopted a Shareholder Servicing Plan with respect to the Class N Shares of the Funds (Class N Plan). The Class N Plan allows each of the Funds to use part of its assets for the payment of certain shareholder servicing expenses, including administrative or other shareholder support services. For these services under the Class N Plan, the Funds pay CLS an amount equal to 0.25% of average net assets attributable to Class N Shares, as applicable, of the respective Funds on an annualized basis. CLS shall use monies to compensate other parties that have entered into shareholder servicing agreements with CLS with respect to the servicing of Fund shares. In addition, the Milestone Treasury Obligations Fund accrues Shareholder Servicing Fees at an amount equal to 0.25% for Investor Shares, and 0.10% for Institutional Shares.
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The Advisor has contractually agreed to waive or limit its management fees and to reimburse expenses, other than expenses relating to dividends on short sales, interest expense, indirect fees and expenses of underlying funds, and extraordinary or non-recurring expenses, through December 31, 2017, so that the annual operating expenses of the Funds do not exceed the percentage of the average daily net assets as indicated below:
The waivers and reimbursements, if any, of the Advisors fees for the six months ended October 31, 2016, were as follows:
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Fees waived or expenses reimbursed may be recouped by the Advisor from a Fund for a period up to three years from the date the fee or expense was waived or reimbursed. However, no recoupment payment will be made by a Fund if it would result in the Fund exceeding the contractual expense limitation described above. Except as noted below, during the six months ended October 31, 2016, the Advisor recaptured no fees for prior period expense waivers/reimbursements from the Funds. The table below contains the amounts of fee waivers and expense reimbursements subject to recapture by the Advisor through April 30 of the years indicated:
During the six months ended October 31, 2016, the Advisor recaptured no fees for prior period expense waivers/reimbursements from the Funds. The table below contains the amounts of fee waivers and expense reimbursements subject to recapture by the Advisor for Milestone Treasury Obligations Fund through:
The Advisor has voluntarily agreed to waive additional fees for Milestone Treasury Obligations Fund in order to maintain a positive yield. This agreement may be terminated at any time.
For the six months ended October 31, 2016, the Milestone Treasury Obligations Fund incurred shareholder service fees in the amount of $210,323. The Fund waived shareholder service fees as follows:
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Distributor
The distributor of the Funds is Northern Lights Distributors, LLC (the Distributor), an affiliate of the advisor. The Trust, with respect to the Funds, has adopted a Distribution Plan pursuant to Rule 12b-1 under the 1940 Act (the Plan). The Plan provides for the payment of a distribution fee to the Distributor at an annualized rate of 1.00% of the average daily net assets attributable to Class C shares. During the six months ended October 31, 2016, the Global Diversified Equity Fund Class C shares incurred $7,480 pursuant to the Plan. Class N shares do not pay any 12b-1 distribution fees, but pay the Advisor 0.25% for payments to third parties for shareholder services.
Administration, Fund Accounting, Transfer Agent, Custody Administration Fees
Gemini Fund Services, LLC (GFS), an affiliate of the distributor and advisor, provides administration, fund accounting, and transfer agent services to the Trust. Pursuant to a separate servicing agreement with GFS, the Funds pay GFS customary fees for providing administration, fund accounting, and transfer agency services to the Funds. Certain officers of the Trust are also officers of GFS, and are not paid any fees directly by the Funds for serving in such capacities.
In addition, certain affiliates of the distributor provide ancillary services to the Funds as follows:
Blu Giant, LLC (Blu Giant), an affiliate of GFS, the distributor and the advisor, provides EDGAR conversion and filing services as well as print management services for the Funds on an ad-hoc basis. For the provision of these services, Blu Giant receives customary fees from the Funds.
Chief Compliance Officer
Northern Lights Compliance Services, LLC (NLCS), an affiliate of GFS, the distributor and the advisor, provides a Chief Compliance Officer to the Trust, as well as related compliance services, pursuant to a consulting agreement between NLCS and the Trust. Under the terms of such agreement, NLCS receives customary fees from the Funds.
Trustees Fees
The Trust pays each Trustee of the Trust who was not an interested person a flat fee of $24,000 per year plus $6,000 for an in-person quarterly meeting or $1,000 per quarter if participating in the meeting by telephone. In every instance, the cost of the fees are to be allocated among the participating Funds in accordance with a formula that takes into account the overall asset size of each affected Fund. The Trust also reimburses the Trustees for travel and other expenses incurred in attending meetings of the Board. Officers of the Trust and Trustees who are interested persons of the Trust do not receive any direct compensation from the Trust.
Certain officers of the Trust are officers of GFS, NLCS, the advisor and/or the distributor.
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The identified cost of investments in securities (including written options and short sales) owned by each Fund for federal income tax purposes, and their respective gross unrealized appreciation and depreciation at October 31, 2016, were as follows:
The cost of purchases and the proceeds from sales of investments, other than short-term securities, for the six months October 31, 2016, were as follows:
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Notes to Financial Statements (Unaudited) (Continued) October 31, 2016
An affiliated company is a company in which a Fund has ownership of at least 5% of the voting securities. Companies that are affiliates at October 31, 2016 are noted in the Funds Portfolio of Investments. Transactions during the period with companies that are affiliates or were affiliates at the beginning of the period are as follows:
CLS Global Aggressive Equity
CLS Global Diversified Equity
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CLS Global Growth
CLS Growth and Income
CLS Flexible Income
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CLS International Equity
CLS Shelter
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As of October 31, 2016, the Funds had an unlimited number of shares authorized. Following is a summary of shareholder transactions for each Fund:
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The CLS Global Aggressive Equity Fund, CLS Global Diversified Equity Fund, CLS Global Growth Fund, CLS Growth and Income Fund, CLS Flexible Income Fund, CLS International Equity Fund, and CLS Shelter Fund have entered into a securities lending arrangement with The Bank of New York Mellon (the Lending Agent). Under the terms of the agreement, the Funds are authorized to loan securities through the Lending Agent to approved third-party borrowers. In exchange, the Funds receive cash collateral in the amount of at least 102% of the value of the securities loaned. The value of securities loaned is disclosed in a footnote on the statement of Assets & Liabilities and on the Schedule of Investments. Securities lending income is disclosed in the Funds Statements of Operations. Although risk is mitigated by the collateral, the Funds could experience a delay in recovering their securities and possible loss of income or value if the Borrower fails to return them.
The Lending Agent may invest the cash collateral received in connection with securities lending transactions in the Milestone Treasury Obligations Fund. The Milestone Treasury Obligations Fund is deemed an affiliate of the Trust and is managed by CLS Investments, LLC. The Milestone Treasury Obligations Fund is registered under the 1940 Act as an open end investment company, is subject to Rule 2a-7 under the 190 Act, which CLS may receive an investment advisory fee of up to 0.10% on an annualized basis of the average daily net assets of the Milestone Treasury Obligations Fund.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (ASU No. 2014-11), Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of October 31, 2016.
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Securities Lending income is a portion of total investment income and may not continue in the future due to market conditions.
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The beneficial ownership, either directly or indirectly, of more than 25% of voting securities of a fund creates a presumption of control of the Fund, under Section 2(a)(9) of the 1940 Act. As of October 31, 2016, Nationwide Trust Company held the following voting securities for the sole benefit of customers and may be deemed to control the Funds:
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The tax character of distributions for the following periods were as follows:
For the year ended April 30, 2016:
For the year ended April 30, 2015:
For the year ended November 30, 2015:
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As of April 30, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:
The difference between book basis and tax basis undistributed net investment income, accumulated net realized gain/(loss), and unrealized appreciation/(depreciation) from investments is primarily attributable to the tax deferral of losses on wash sales, adjustments for partnerships and C-Corporation return of capital distributions. In addition, the amount listed under other book/tax differences is primarily attributable to dividends payable.
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Capital losses incurred after October 31 within the fiscal year are deemed to arise on the first business day of the following fiscal year for tax purposes. The Funds incurred and elected to defer such capital losses as follows:
At April 30, 2016, the Funds had capital loss carry forwards for federal income tax purposes available to offset future capital gains as follows:
Permanent book and tax differences, primarily attributable to the reclassification of Fund distributions, and adjustments for paydowns, partnerships and non-deductible expenses, resulted in reclassifications for the year ended April 30, 2016 as follows:
Subsequent events after the date of the Statement of Assets and Liabilities have been evaluated through the date the financial statements were issued. Management has concluded that there are no other material items requiring adjustment or disclosure in the financial statements.
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Shareholder Expense Example (Unaudited)
As a shareholder of the Funds you may incur two types of costs: (1) transaction costs, including contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution and/or service (12b-1 fees) fees; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in each Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses: The first section of the table 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 applicable number under the heading entitled Expenses Paid During the Period to estimate the expenses you paid on your account during the period.
Hypothetical Examples for Comparison Purposes: The second section of the table below provides information about hypothetical account values and hypothetical expenses based on each Funds actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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Shareholder Expense Example (Unaudited)(Continued)
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Proxy Voting Policy
Information regarding how the Funds 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 Funds use to determine how to vote proxies is available without charge, upon request, by calling 1-866-811-0225 or by referring to the Securities and Exchange Commissions (SEC) website at http://www.sec.gov.
Portfolio Holdings
The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Form N-Q is available on the SECs website at http://www.sec.gov and may be reviewed and copied at the SECs Public Reference Room in Washington, DC (1-800-SEC-0330). The information on Form N-Q is available without charge, upon request, by calling 1-866-811-0225.
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ABOUT CLS
CLS Investments (CLS) is a third party investment manager, ETF strategist, and long-time trusted partner in the financial industry. CLSs extensive risk management experience, active asset allocation approach, and customizable strategy offerings have led clients to entrust their portfolios to CLS since 1989.
Through CLSs partnership structure, your financial advisor maintains a direct relationship with you, while CLSs portfolio management and analytics teams take on the day-to-day research, trading, and operations required to manage your account. Together, you and your advisor use the tools CLS provides to determine the investing strategy, investment types, and risk tolerance level most appropriate for you. Your advisor provides this information to CLS so we can accordingly make timely active asset allocation decisions within your portfolio. Through this mutually beneficial connection, CLS enhances your advisors service to you.