Background
Three Peaks Capital Management, LLC ("Three Peaks" or the “Firm”) has been in business since July
2003, when it became registered as an investment adviser with the U.S. Securities and Exchange
Commission. The Firm is 100% owned by Sandy Rufenacht.
Services
Three Peaks focuses its activities on asset management for clients, including, among others, high net worth
individuals, charitable institutions, foundations, endowments, trust accounts, pension plans, corporations
and investment companies. Three Peaks organizes its business on its expertise of the high yield market to
invest in fixed income and equity securities.
Separate Account Clients
For individuals and institutions (“separate account clients”), we provide investment advisory services for
the assets placed under our supervision. Investment advice is typically furnished on a discretionary basis,
where the client authorizes us to make all investment decisions for the account. At your request, we may
also provide advisory services on a non-discretionary basis, where we make recommendations to you, but
all investment decisions are made by you. You can impose restrictions on investing in certain securities,
limits or types of securities. At our discretion, exceptions can be made to the minimum account size. Our
advisory services are tailored to meet your individual needs.
Sub-Advisory Services
In addition to the separate account services described above, we offer advisory and sub-advisory services to
mutual funds. Information concerning these funds, including a description of the services to be provided
and advisory fees payable to us would be contained in each fund's prospectus.
Advisory Agreements
All advisory services are provided under the terms of a written advisory agreement between our Firm and
the client. The advisory agreement generally permits either the client or Three Peaks to terminate the
agreement upon written notice to the other party. In certain cases, specified advance notice of termination
may be required pursuant to the advisory agreement.
We do not participate in wrap fee programs.
Client Assets
As of December 31, 2019, Three Peaks had discretionary authority to manage accounts with assets totaling
approximately $717 million. Three Peaks has no non-discretionary accounts.
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The fees for accounts are based on an annual percentage of assets under management and are applied to the
account asset value on a pro-rated basis, billed quarterly in arrears. The first quarterly fee will be based
upon the date the account is accepted for management by execution of the advisory agreement by Three
Peaks or when the assets are transferred through the last day of the previous calendar quarter. Fees are not
assessed on cash in an account for the first sixty days from account opening. Thereafter, the fee will be
based on the average assets value calculated on each Friday in the quarter and at month end. During the
liquidation of an account, (i.e., the time period between notice of termination of the advisory agreement and
the termination of the advisory agreement), fees are not assessed on the cash in an account.
Fees charged will range depending on the complexity and nature of your portfolio. Our annual advisory fee
rates range from 0.35% to 0.75%, calculated as a percentage of your assets under management regardless of
whether services are provided on a discretionary or non-discretionary basis. Advisory fees are negotiated
with you, however, and may therefore vary with other clients. Our advisory fee rate is set forth in your
advisory agreement.
For comparable services, other investment advisers may charge higher or lower fees than those charged by
us.
Quarterly, you will receive an invoice of management fees. You are expected to pay your quarterly
management fee to us within 30 days of the invoice. Investment advisory contracts provide termination
provisions with or without cause within given stipulated time periods. Upon termination, you are
responsible for monitoring the securities in your account, and we, as investment adviser, will have no
further obligation to act or advice with respect to those assets.
Administrative Services Provided by Orion Adviser Services, LLC
We have contracted with Orion Adviser Services, LLC to utilize its technology platforms to support data
reconciliation, performance reporting, fee calculation, client database maintenance, quarterly
performance evaluations, and other functions related to the administrative tasks of managing client
accounts. Due to this arrangement, Orion Adviser Services, LLC will have access to client accounts, but
Orion Adviser Services, LLC will not serve as an investment adviser to our clients. Three Peaks and
Orion Adviser Services, LLC are non-affiliated companies. Orion Adviser Services, LLC charges our
Firm an annual fee for each account administered by Orion Adviser Services, LLC. Please note that the
fee charged to the client will not increase due to the annual fee Three Peaks pays to Orion Adviser
Services, LLC, the annual fee is paid from the portion of the management fee retained by Three Peaks.
Additional Fees and Expenses:
In addition to the advisory fees paid to our Firm, clients also incur certain charges imposed by other third
parties, such as broker-dealers, custodians, trust companies, banks and other financial institutions
(collectively “Financial Institutions”). These additional charges typically can include securities, transaction
fees, custodial fees, fees charged by the Independent Managers, charges imposed directly by a mutual fund
or ETF in a client’s account, as disclosed in the fund’s prospectus (e.g., fund management fees and other
fund expenses), deferred sales charges, odd-lot differentials, transfer taxes, wire transfer and electronic
fund fees, and other fees and taxes on brokerage accounts and securities transactions. Three Peaks’
brokerage practices are described at length in Item 12, below. Neither our Firm nor its supervised persons
accept compensation for the sale of securities or other investment products. Further, our firm does not share
in any of these additional fees and expenses outlined above.
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We offer advice to, high net worth individuals, trusts, charitable organizations, foundations, endowments,
investment companies, pension plans and corporations. Although we do not require a specific minimum
account size to open or maintain an account, sufficient assets are required to utilize certain of our
investment strategies. As necessary, we will determine with the client a minimum amount depending on
the client’s proposed investment strategy.
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OF LOSS Three Peaks’ methods of analysis include fundamental, technical and cyclical.
Our investment strategy primarily includes long term purchases (securities held at least a year), short term
purchases (securities sold within a year), trading (securities sold within 30 days) and new issues. However,
due to the nature of the securities markets and relevant market information, we may only hold securities for
a very limited period of time, which include the purchase and sale of a security within the same business
day. Frequent trading of securities can affect investment performance, particularly through increased
brokerage and other transaction costs and taxes.
Investment Philosophy
Our investment philosophy is derived from years of experience operating in the high-yield asset class. By
closely monitoring characteristics and trends within companies that not only faced bankruptcy and/or
actually defaulted on creditors but also those that used the high-yield market to propel growth and financial
strength such that it eventually led to credit rating upgrades to investment-grade status, the investment
philosophy has been established. Our goal is to never own a company facing bankruptcy.
Strategy Overview
Three Peaks’ business is designed to leverage our expertise in high yield fixed-income securities in order to
provide you with investment choices. Our investment strategies work off our fundamental belief in,
understanding of, and passion for the high yield asset category.
Our High Yield Strategy emphasizes maximum total return while preserving capital. Following a multi-
faceted approach, our investment team strives to add value through intensive fundamental research into
individual issuers of debt, active trading, and the ability to capitalize on changes within the market and/or
economy. We believe our high-yield strategy is generally perceived as conservative within the high-yield
market. As such, we place a heavy emphasis on stability and consistency within the investment process
which we believe will provide reasonably stable and less volatile performance throughout various
economic and market cycles. We place an extreme importance on the downside protection.
Our Opportunity Growth Strategy emphasizes long-term capital appreciation. Bred out of our High
Yield Strategy and associated research, we believe our credit-oriented focus is different within the equity
market. We attempt to identify anomalies related to a company’s fundamentals or ability to become
shareholder-friendly that may be overlooked by the equity market. Similar to our High Yield Strategy, we
believe prudent use of a company’s balance sheet, accelerating free cash flow generation, and debt-
repayment are often beneficial for the equity valuation of a given company. We believe the dual focus
(fixed income and traditional equity analytics) actually strengthens and provides balance to our investment
process as the fixed-income market and equity market may factor in different variables related to a specific
company or industry. There is typically a high over-lap between the names owned in our high yield strategy
and equity strategy. At times, we can use electronically traded funds (ETFs) to gain market exposure, as
well as actively evaluate the overall equity market in an attempt to find equity opportunities that fit our
investment criteria.
Our Diversified Strategy includes a component of our High Yield Strategy and Opportunity Growth
Strategy, in addition to further diversification through the use of US Treasury securities, investment grade
bonds, and other equity or equity-like securities, including ETFs. The goal of this strategy is to provide
additional diversification across various asset classes at different times throughout the economic/business
cycle. The Diversified Strategy utilizes a broader macro view to determine allocations and weightings to
various asset classes and individual securities. It is not intended to be as rigid or asset class specific as our
High Yield Strategy or Opportunity Growth Strategy, as it takes a more holistic approach to the investment
landscape depending on what we believe is occurring in the economy and across the capital markets.
In order to analyze different securities, Three Peaks uses a variety of information including but not limited
to, company communications, earnings reviews, models and prospectus reviews. We continue to utilize not
only our detailed understanding of balance sheet improvements and bond covenants, but also yield and
spread data. Our research and analysis typically include a visit to the companies in the portfolio, and the
development of an internal financial model derived from the income statement, balance sheet and cash flow
analysis. We focus our research on liquidity, maturity schedules, high yield covenants and de-leveraging.
Risks
Investing in securities involves risk of loss which clients should be prepared to bear. Our past performance
is not a guarantee of future results. Certain market and economic risks exist that may adversely affect an
account’s performance that could result in capital losses in that client’s account.
Because of the inherent risk of loss associated with investing, there are certain additional risks associated
when investing in securities through Three Peaks. The following is a description of the principal risks of
the portfolios, which may adversely affect its total return. There are other circumstances (including
additional risks that are not described here) which could prevent your portfolio from achieving its
investment objective.
You should be aware that your account is subject to the following risks:
• Stock Market Risk – The value of equity securities and bonds in the portfolios will fluctuate
and, as a result, the value of the portfolios may decline suddenly or over a period of time.
• Managed Portfolio Risk – The manager’s investment strategies or choice of specific securities
may be unsuccessful and may cause the portfolios to incur losses.
• Capitalization Risk - Small-cap and mid-cap companies may be hindered as a result of limited
resources or less diverse products or services Their stocks have historically been more volatile
than the stocks of larger, more established companies.
• Industry Risk –Investments could be concentrated within one industry or group of industries.
Any factors detrimental to the performance of such industries will disproportionately impact
performance. Investments focused in a particular industry are subject to greater risk and are
more greatly impacted by market volatility than less concentrated investments.
• Interest Rate Risk. The value of fixed-income securities rises or falls based on the underlying
interest rate environment. If rates rise, the value of most fixed-income securities could go
down.
• Credit Risk. Most fixed-income instruments are dependent on the underlying credit of the
issuer. If we are wrong about the underlying financial strength of an issuer, we may purchase
securities where the issuer is unable to meet its obligations. If this happens, your portfolio
could sustain an unrealized or realized loss.
• Inflation Risk. Most fixed-income instruments will sustain losses if inflation increases or the
market anticipates increases in inflation. If we enter a period of moderate or heavy inflation,
the value of your fixed-income securities could go down.
• Issuer-Specific Risk. The value of an individual security or particular type of security can be
more volatile than the market as a whole and can perform differently from the value of the
market as a whole. Lower-quality debt securities (those of less than investment-grade quality)
and certain types of other securities involve greater risk of default or price changes due to
changes in the credit quality of the issuer. The value of lower-quality debt securities and
certain types of other securities can be more volatile due to increased sensitivity to adverse
issuer, political, regulatory, market, or economic developments.
• Exchange-Traded Funds — ETFs face market-trading risks, including the potential lack of an
active market for shares, losses from trading in the secondary markets and disruption in the
creation/redemption process of the ETF. Any of these factors may lead to the fund’s shares
trading at either a premium or a discount to its “net asset value.”
• Liquidity Risk - Liquidity risk exists when particular investments would be difficult to
purchase or sell, possibly preventing clients from selling such securities at an advantageous
time or price.
• Prepayment Risk - Issuers may choose to pay off debt earlier than the stated maturity date on
a bond. For example, if interest rates fall, a bond issuer may decide to “retire” its debt and
issue new bonds that pay a lower rate. When this happens, proceeds from the sale of
individual bonds or a bond fund may not be able to be reinvested in an investment with as
high a return or yield.
• Cybersecurity Risk. In addition to the Material Risks listed above, investing involves various
operational and “cybersecurity” risks. These risks include both intentional and unintentional
events at Three Peaks or one of its third-party counterparties or service providers, that may
result in a loss or corruption of data, result in the unauthorized release or other misuse of
confidential information, and generally compromise our Firm’s ability to conduct its business.
A cybersecurity breach may also result in a third-party obtaining unauthorized access to our
clients’ information, including social security numbers, home addresses, account numbers,
account balances, and account holdings. Our Firm has established business continuity plans
and risk management systems designed to reduce the risks associated with cybersecurity
breaches. However, there are inherent limitations in these plans and systems, including that
certain risks may not have been identified, in large part because different or unknown threats
may emerge in the future. As such, there is no guarantee that such efforts will succeed,
especially because our Firm does not directly control the cybersecurity systems of our third-
party service providers. There is also a risk that cybersecurity breaches may not be detected.
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TRANSACTIONS AND PERSONAL TRADING Personal Securities Transactions / Code of Ethics
We have adopted a Code of Ethics and Insider Trading Policy Statement (the “Code”) governing, among
other areas, personal trading activities of all members, officers and employees of the Firm (together
“Supervised Persons”). Under the Code, Supervised Persons, are prohibited from effecting transactions in
reportable securities as defined by the Code with the exception of the Aquila Three Peaks High Income
Fund or the Aquila Three Peaks Opportunity Growth Fund, without written pre-clearance from the Firm’s
Chief Compliance Officer or another individual designated by the Chief Compliance Officer. It is the
general policy of Three Peaks to deny pre-clearance and prohibit trading activity in reportable securities by
Supervised Persons.
It is our general policy to prohibit trading activity in any reportable security by all Supervised Persons of
the Firm except in unusual or compelling circumstances. We permit trading activity in the shares of mutual
funds for which we serve as an adviser or sub-adviser without obtaining pre-clearance authorization.
However, these fund shares are treated as a Reportable Security. Supervised Persons should expect that
pre-clearance for their proposed personal securities transactions will ordinarily be denied. The Chief
Compliance Officer can deny or revoke pre-clearance for any reason. In no event will pre-clearance be
granted for any transaction if we have a buy or sell order pending for that same security or a closely related
security (such as an option relating to that security, or a related convertible or exchangeable security).
Furthermore, in no event will pre-clearance be granted for any transaction if the purchase or sale of such
security is inconsistent with the purposes of the Code of Ethics, the Investment Company Act of 1940 or
the Investment Advisers Act of 1940.
Supervised Persons are prohibited from investing in an initial public offering and private placements.
Supervised Persons and all Portfolio Managers are required to report to the Firm’s Chief Compliance
Officer initial and annual holdings and quarterly transactions in reportable securities, including the Aquila
Three Peaks High Income Fund and the Aquila Three Peaks Opportunity Growth Fund, as defined in the
Code, and the Chief Compliance Officer is responsible for reviewing such reports. The Code also sets forth
general standards of conduct and practices to be followed by all personnel to minimize conflicts of interest,
including restrictions on gifts to or from brokers, clients and others, restrictions on service on the boards of
other companies, restrictions on participation in investment clubs and policies designed to prevent personal
trading conflicts. In addition, the Code (including the Firm’s Insider Trading Policy Statement) includes
provisions designed to prevent and enforce the Firm’s strict policy against the misuse of material non-
public information by all personnel. The Firm’s Chief Compliance Officer is responsible for the oversight
and administration of the Code.
You may request a complete copy of our Code by contacting us at the address, telephone or email on the
cover page of this Brochure; attn.: Chief Compliance Officer.
Investment Allocation Policies
We make decisions to recommend, purchase, sell or hold securities for all of our client accounts, including
sub-advised accounts, based on the specific investment objectives, guidelines and restrictions of each
account. Certain accounts advised by us may have similar investment objectives, guidelines and
restrictions, and we may determine to buy or sell securities on behalf of a number of accounts at or about
the same time. We may make recommendations and take action with respect to your account that are the
same as or different from the recommendations made or the timing or nature of action taken with respect to
other client accounts. We have adopted policies regarding the allocation of securities recommendations
and other investment opportunities among various client accounts with a view toward making such
allocations on a fair and equitable basis over time.
Whether and to what extent an advisory account participates in an allocation is based on a number of
considerations, including, among others, the account’s investment objective, policies and restrictions, its
availability of cash balances, tax considerations, the limited quantity of an investment opportunity (
e.g.,
public offerings or private placements) and whether the account already has sufficient holdings of similar
securities. Furthermore, participation in an allocation also depends on the eligibility of the client. All
clients may not participate in certain types of investments. For example, a client that is a “qualified
institutional buyer” (“QIB”) as that term is defined under Rule 144A of the Securities Act may participate
in Rule 144A securities transactions, while a client that is not a QIB may not. Based on these
considerations, each advisory account is generally given the opportunity to participate in potential
investments which fall within its investment objective, policies and restrictions on a pro-rata basis, based
on the relative asset size of the account. However, each of Three Peaks’ advisory accounts is managed on
an independent basis and the composition of advisory accounts with similar investment objectives and
policies, and the purchase and sale transactions entered into on their behalf, are not identical in most
circumstances.
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When Three Peaks Selects Broker-Dealers
Generally
When we have full discretion in the selection of brokers or dealers, we seek to obtain quality execution for
security transactions through brokers and dealers who in our opinion are financially responsible. Fixed-
income securities are generally purchased from the issuer or a primary market maker acting as principal on
a net basis with no brokerage commission paid by the client. Fixed-income securities, as well as equity
securities, may also be purchased from underwriters at prices which include underwriting fees.
In the event that our advisory client accounts engage in transactions in unlisted equity securities (including
Nasdaq securities), such transactions may be executed through a primary market maker or executed on an
Electronic Communication Network (ECN), Alternative Trading System (ATS) or other execution system.
For those clients who grant us discretion to select brokers or dealers, we typically aggregate (or “bunch”)
multiple account orders into larger blocks for execution. Accounts which participate in such block trades
receive the average price of any partial execution of such block trades.
Factors in Selection
In selecting a broker or dealer, we take into account relevant factors with respect to liquidity and execution
of the order, as well as the amount of the capital commitment by the broker or dealer. Other relevant
factors include, without limitation: (a) the execution capabilities of the brokers and/or dealers, (b) the size
of the transaction, (c) the difficulty of execution, (d) the operations facilities of the brokers and/or dealers
involved, and (e) the risk in positioning a block of securities. Under no circumstances will we consider, in
selecting brokers or dealers to execute transactions for client accounts, a broker or dealer’s promotion or
sale of shares issued by any fund client.
Three Peaks as a matter of policy and practice, does not receive soft-dollar benefits or pay for research,
research-related products and other services obtained from broker-dealers, or third parties, on a soft dollar
commission basis. However, we can be invited to participate in and attend seminars and/or meetings
sponsored by broker-dealers which execute trades for the Firm. If we accept the invitation, it is our
practice and policy to pay for our own travel, lodging and meals. This is consistent with our policy and
procedure so as to not create any expectations of or quid pro quo with the sponsor.
Directed Brokerage
We do not routinely recommend, request or require that you direct us to execute transaction through a
specified broker dealer. Additionally, we typically do not permit you to direct brokerage. We place trades
for your account subject to our duty to seek best execution and other fiduciary duties.
Recommending Brokers
Generally, we do not recommend brokers or dealers to you (apart from choosing the broker dealer where
we have discretion to do so, as described above). However, when requested by you, we can recommend or
suggest one or more brokers or dealers to you. Any such recommendation will be based on the factors
identified above.
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Each account is reviewed on a periodic basis. Reviews include, but are not limited to, current market
activity, macro or micro economic outlook, review and analysis of individual issuers, portfolio
composition, trading activity and performance comparisons. All of the accounts are assigned for review to
a Co-Portfolio Manager. Triggering factors for additional reviews include but are not limited to a
significant change in the assets, an increase or decrease in the cash balance or a request by the client.
Reviews are made by Chief Investment Officer/Co-Portfolio Manager, Sandy Rufenacht; Co-Portfolio
Manager/Fixed-income, David Battilega and Co-Portfolio Manager/Equities, Zachary Miller.
Statements and Reports
Three Peaks delivers a monthly report that normally includes information regarding the performance of the
account over the previous month and a listing of month-end portfolio holdings. The custodian for the
individual client’s account will provide clients with an account statement at least quarterly. You will also
receive a quarterly management fee invoice and a fee calculation from Three Peaks. You may request and
receive more detailed reports in accordance with individual requirements.
.
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We have entered into written referral agreements with third parties by which the third party will, from time
to time, refer clients that establish accounts and enter into advisory relationships with us. In such
circumstances, we agree to pay the third party a referral fee equal to a percentage of fees received by us
from the referred client. The referral fee is split between third parties who have jointly participated in
referring a client to Three Peaks. The fee to be paid by Three Peaks will be borne entirely by us and there
will be no additional fee, cost or expense to the referred client resulting from the referral agreement. Three
Peaks makes disclosure of such referral arrangement, if any, to the client before entering into an advisory
agreement. All referral agreements are governed by Rule 206(4)-3 under the Investment Advisers Act of
1940.
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All client account assets are held by a qualified custodian. Three Peaks, however, is not responsible for the
actions of a client’s custodian. Clients should carefully review account statements received directly from
the qualified custodian. We also urge you to compare the account statement you receive from your
qualified custodian with the statements provided by us.
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Generally, our clients give us investment discretion over assets placed under our supervision.
Prior to engaging Three Peaks to provide investment advisory services, clients enter into a written
Agreement with Three Peaks granting the Firm the authority to supervise and direct on an on-going basis
investment in accordance with the client’s guidelines. Clients will also execute any and all documents
required by the Custodian so as to authorize and enable Three Peaks, in its sole discretion, without prior
consultation with or ratification by you, to purchase, sell or exchange securities in and for your account.
We are authorized, in our discretion and without prior consultation with you to: (1) buy, sell, exchange and
trade securities for your account and (2) determine the amount of securities to be bought or sold and (3)
place orders with the broker/dealers. Any limitations to such authority will be communicated by you to us
in writing.
The limitations on investment and brokerage discretion held by Three Peaks for you are:
1. For discretionary clients, we require that it be provided with authority to determine which
securities and the amounts of securities to be bought or sold, as well as the broker-dealer to be
used and the commission rates to be paid.
2. Any limitations on this discretionary authority shall be included in this written authority statement.
You can change/amend these limitations as required. Such amendments shall be submitted in
writing.
Research products and services received by us from broker dealers will be used to provide services to all
our clients.
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Three Peaks accepts authority to vote proxies with respect to securities owned by clients.
We have adopted proxy voting policies and procedures with respect to securities owned by our clients for
which we have been specifically delegated voting authority and discretion, in accordance with its fiduciary
duties and Securities and Exchange Commission Rule 206(4)-6 under the Investment Advisers Act of 1940,
which are reasonably designed to ensure that proxies are voted in the best interest of clients.
To facilitate our proxy responsibilities (assuming the client has designated that to Three Peaks), we have
contracted with Institutional Shareholder Services, Inc. (ISS) to vote all proxies on our behalf. Prior to any
proxy vote, such recommendations are reviewed by one of our Portfolio Managers, with the reasons for any
votes that are contrary to ISS recommendations being documented.
The guiding principle by which we review voting on all matters submitted to security holders is the
maximization of the ultimate economic value of your holdings. We do not permit voting decisions to be
influenced in any matter that is contrary to, or dilutive of, this guiding principle. It is the policy to avoid
situations where there is any material conflict of interest or perceived conflict of interest affecting the
voting decisions. Any perceived conflict of interest is reviewed by the Chief Compliance Officer and the
proxy voting committee.
It is the general policy that we vote on all matters presented to security holders in any Proxy, and these
policies and procedures have been designed with that in mind. However, we reserve the right to abstain on
any particular vote or otherwise withhold its vote on any matter if in the judgment of Three Peaks, the costs
associated with voting such Proxy outweigh the benefits you, or if the circumstances make such an
abstention or withholding otherwise advisable and in the best interests of you, in our judgment.
Clients delegate to Three Peaks the discretionary power to vote the securities held in their account pursuant
to written agreement. Three Peaks does not generally accept any subsequent directions on matters
presented to shareholders for a vote, regardless of whether such subsequent directions are from the client
itself or a third party. We view the delegation of discretionary voting authority as an “all-or-nothing”
choice for our clients.
Upon request, we will provide separately to each client (i) a copy of Three Peak’s proxy voting policies and
procedures and (ii) details as to how the Firm has voted securities in your account.
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We do not require or solicit prepayment of more than $1,200 in fees per client, six months or more in
advance. Therefore, we are not required to include a balance sheet for our most recent fiscal year. We are
not subject to a financial condition that is reasonably likely to impair our ability to meet contractual
commitments to clients. Finally, we have not been the subject of a bankruptcy petition at any time.
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