FPA Queens Road Small Cap Value Fund's 4th-Quarter Commentary

Performance Update

The FPA Queens Road Small Cap Value Fund ( "Fund") ended 2020 with a total return of 13.62% vs. 4.63% for the Russell 2000 Value TR USD Index ("Index") and 3.79% for the Morningstar Small Value category. The Fund finished the year ranked in the top 10% of the Morningstar Small Value Category. In addition, the Fund has outpaced the Morningstar Small Value Category average over the past 3-, 5-, 10- and 15-year periods. Cumulative Fund performance since inception in 2002 is 434% vs. 333% for the Index.1

Fund Highlights

• Silver Quantitative Rating and Five Stars (3, 5, 10 year periods) from Morningstar (on a risk-adjusted return basis) as of December 31, 20202
• We added to certain existing holdings and added new names to the portfolio
• We believe the portfolio is well-positioned as we move into 2021
• FPA/Queens Road Funds reorganization gains approval

2020 Year-End Investment Commentary

The past ten months in the market have been quite a humbling experience. That the market could notch a positive return in 2020 seemed unthinkable back in March. That the S&P 500, which fell 33% from its high, could finish the year up over 18% is simply mind-blowing (see chart below). For us, 2020 was more humbling than both the tech crash of 2000-02 and the financial crisis of 2008-09. At a recent meeting of our Investment Committee, we discussed lessons learned in 2020. Our conclusion was that the two most important contributors to our good investment results in 2020 were humility and discipline.

Humility forced us to admit we did not know what the future held and therefore helped us avoid making investment decisions based on emotions or gut feelings. In 2020, the market did what no one predicted. It did the opposite of what most experts expected and certainly of what we thought it might do. Never have we felt a greater sense of simply not knowing what was going to happen next. Repeatedly during 2020, in reaction to being surprised by what the market did, we found ourselves asking, "What do we know?" Truly, what do we know? Did we mention that it has been humbling? Admitting that we can't see the future is more than half the battle in investing.

Discipline was the other contributor to our investment results this year. In the face of fear and uncertainty, we stayed true to our bottom-up investment process. Remaining humble and sticking to our discipline led us to follow the course we did, and hindsight demonstrates that this was the right thing to do. Following your emotions or gut feelings in 2020 turned out to be expensive for some investors. As someone on our investment committee put it, "The best thing we did in 2020 was stay the heck out of our own way. We ignored our emotions and followed the rule book." Thank goodness we did. Lesson learned.

Investment Process. There are several factors that allowed the Fund to generate returns in excess of its peers and benchmarks during this period. First and foremost is the disciplined four-step value process that we have implemented since inception in 2002. Our process looks at both quantitative and qualitative aspects of a company.

• On the quantitative side, we look for companies that have solid balance sheets, strong cash flow and serviceable levels of debt that aren't reliant on the capital markets. We then look at valuation by normalizing operating margins over a full market cycle to arrive at our estimate of intrinsic value. Instead of looking at just the most recent data, we look at operating margins over a full market cycle. We want to buy good companies with a margin of safety.3
• On the qualitative side, we study the management and the markets in which the companies compete. We want to see managements that can lay out a strategy and execute it. We look for companies with clear and honest communication, and managements that are willing to take measured risks but are also able to admit mistakes. Finally, we want to make sure the companies we own are growing and are competing in industries that have favorable economics and aren't overly competitive.

Shareholder Expectations. Generally, we expect to perform alongside, ahead or behind our peers in different types of markets.

• Market advancing, but volatility is prevalent: We expect the Fund will provide above-average to average performance compared with the Fund's benchmark and peer group.4
• Market declining: We expect to help protect capital better than the Fund's benchmark and peer group.
• Market advancing on speculation/momentum: We expect the Fund will likely trail its benchmark and peer group.
• Over a full market cycle: We expect the Fund to achieve greater returns than the Fund's benchmark and peer group while assuming less risk.

The past year provided a wild ride that included all three types of markets. The Fund performed as expected during each.

• During the massive declines of the first quarter, the Fund performed ahead of its peer group and benchmark, with returns in Q1 2020 of -21.84% vs. -35.66% for the Index, and -36.97% for the peer group.
• As the markets quickly recovered in the second quarter, the Fund lagged the Index by 5.29% and its peer group by 8.75%, followed by relatively even performance in the third quarter (i.e., 2.57% (Fund) vs 2.56% (Index) vs 2.92% (peer group).
• As markets raced ahead in the fourth quarter, the Fund rose 24.75% vs. 33.36% for the Index, and 30.85% for the peer group.

This pattern of relative underperformance and outperformance has been consistent since we started the Fund in 2002.

Portfolio Activity & Attribution.5 Due to elevated market valuations at the start of 2020, we had about 20% of the portfolio in cash as we went into the spring sell-off. We put about half of our cash to work buying some new positions and adding to several existing positions at more attractive prices. In hindsight, we should have put every nickel to work, but valuations during the sell-off did not fall to anywhere close to the bargain basement prices that we saw back in 2009.

During 2020, new positions added to the portfolio included G-III Apparel Group (GIII, Financial) (which owns or licenses brands DKNY, Cole Haan, Andrew Marc), and apparel company PVH (PVH, Financial) (which owns brands Tommy Hilfiger, Calvin Klein, IZOD). We also purchased infrastructure company MasTec (MTZ, Financial). We did some light trimming of a few holdings as prices soared in the fourth quarter and repositioned the cash into existing holdings at more attractive prices. At year-end, the Fund's cash allocation was back to around 20%.

Positions eliminated during 2020 included two of the Fund's long-time holdings that were acquired by other firms during 2020. We had owned wire and cable company Anixter International Inc. (AXE, Financial), since 2016. They merged with Wesco International, Inc, in June 2020. Technology distribution company Tech Data Corporation (TECD, Financial) was purchased by Apollo Global Management in June 2020

The Fund's holdings that contributed to performance during 2020 included Owens & Minor (OMI, Financial), Livent (LTHM, Financial), and Darling Ingredients (DAR, Financial). Owens & Minor is a distributor and manufacturer of medical products and has reaped the benefits of its 2018 acquisition of Halyward Health's infection prevention business in 2020. Strength in this segment in 2020 offset the relative flatness in the company's other business segments. We believe the infection prevention segment will continue its growth, and that the company's other segments will recover during 2021. Livent is a pure-play lithium producer. The lithium industry has been struggling with low prices for several years, causing some producers to cut back on planned production expansion. As the low-cost producer, Livent has continued its planned production increase (albeit at a slower rate). This market dynamic, as well as the expected higher demand for lithium for use in electric vehicles and energy storage, keeps us interested in maintaining a position in this name. Darling Ingredients manufactures and sells feed, food, and fuel from recycled animal products. The fuel segment has been the company's brightest spot through its Diamond Green Renewable Diesel partnership with Valero Energy Corporation, which produces low-emission sulfur from reclaimed animal fats. In addition, the partnership is continuing work on a new renewable diesel plant which will expand production from 250 million barrels per year to 650 million barrels per year.22

The Fund's holdings that detracted from performance in 2020 included South Jersey Industries (SJI, Financial), New Jersey Resources (NJR, Financial), and American National Group (ANAT, Financial). South Jersey Industries and New Jersey Resources are two of the Fund's long-term utilities holdings. While we believe the regulatory utility environment in New Jersey remains favorable, the recent negative shift in population growth in the state weighed on these two companies in a year when utilities overall were flat. The 110-year-old insurance company, American National Group, has a long track record of modest but consistent growth. The company is well capitalized and paying a healthy 3.4% dividend, so we remain confident given the current valuation.

With regards to sector weightings, the Fund's overweight versus the Index to technology stocks and an underweight to energy stocks contributed to performance. We wish we could say we saw the pandemic coming and predicted the work-from-home boom for tech and the bust for oil and gas, but we're just not that smart. Any overweighting or underweighting of sectors is purely based on our bottom-up approach and where we are finding value in individual companies. Technology companies are most often labeled as growth stocks, and certainly some are priced at astronomical valuations. However, we have found some attractive valuations in this sector and have had an overweight in technology for a number of years. We typically do not own energy stocks since their share prices are largely driven by the price of oil, regardless of how well or poorly the companies are managed. Our underweighted position in the healthcare sector and our overweighted position in utilities versus the Index detracted from overall portfolio performance.

Market Overview. The one-direction market we've enjoyed since September has created complacency on the part of some investors. The Index gained 31% in the fourth quarter. Interestingly, the Index recorded both its best and worst quarters in its history in 2020. Parts of the market have gotten so frothy that first-time investors are jumping in to chase stocks that have done well. We are reminded of the day traders of 1999. Benton Bragg's 20-year-old son asked him last week what he thought about Tesla and the digital currency, Bitcoin. This question, in and of itself, might be considered a "sell" signal. Benton suggested that there was only one reason he was asking the question—their prices have gone up a lot. No other reason. Had their prices not gone up so much, his son wouldn't have asked. He had to admit his father was right. And no, Benton's son won't be joining our Investment Committee any time soon. If you watch CNBC business news, you might have noticed that they are fanning the flames. In addition to displaying graphics for the S&P, the Dow and the Nasdaq, they recently added a graphic for the price of Bitcoin and GameStop. In our view, not a good sign.

Valuations. So yes, parts of the market appear to be getting a bit frothy. But is the overall market overvalued? The primary driver of today's seemingly high valuations is the low level of interest rates. The yield on a 10-year Treasury bond remains close to 1% and that drives the yields and valuations of all other earning assets or risk assets, including corporate bonds, municipal bonds, stocks, and real estate.23 There are several reasons low interest rates have such an impact on the economy, and therefore market prices. First, low rates stimulate the economy and therefore corporate earnings. It is cheaper to finance the purchase of everything from cars and homes to factories and fleets. Second, low rates increase the present value of future cash flows. You can see that this relationship results in investors accepting lower returns and therefore being willing to pay higher prices to purchase any asset. The Fed has indicated that rates will remain low for as long as it takes for the economy to return to full employment—and that could take several years.24 We have learned over time that it doesn't pay to "fight the Fed." We do, however, believe this remains a good point in the cycle to own small-cap value stocks. The valuation spread, which measures the top quintile compared to the average stock, is still 1.5 standard deviations above its average, even after the strong rebound since March 2020.

Furthermore, under somewhat similar conditions in the aftermath of the past three recessions (as shown in the chart above), small-cap value did well in absolute terms, beat large-cap value by double digits over the following 12 months, and outperformed the broader small-cap universe26.

How long can this go on? How long can the Fed support market prices? Common sense says there is a limit since interest rates are already very close to zero. And as we discussed in earlier letters, the Fed's actions of 2020 are distortive to a functioning market. When the Fed steps in to buy municipal bonds, corporate bonds and other risk assets, it bails out investors who took on too much risk, and it signals that the Fed will always be there as a backstop. This often encourages excessive risk-taking and increases leverage in the financial system. This is not sustainable in the long term, and we look forward to a healthier economy with lower levels of debt and less involvement by the Fed.

Focus on fundamentals. Looking back on our experience during this trying year, we can see that maintaining our discipline and staying the course was the right approach. In our minds, it's the only approach. We can't predict where markets are going. We can't predict elections or viruses or the next crisis that we'll face. But we can stick to what we know. We can stick to our time-tested value process of looking at companies one at a time, searching for undervalued opportunities.

This past year has worn us out. Aren't we all worn out from this virus mess? Hasn't this gone on long enough? Haven't we paid our dues in the loss of life, health, relationships and routines? Unfortunately, it isn't over yet, and tragically, the worst of the infections and resulting deaths are hitting us right now. With the vaccine slowly rolling out, it seems it's going to be darkest before dawn. We're just investment guys, but we do want to encourage you to hang in there for a little bit longer. Prepare yourself and your loved ones for several more months of living this way and for the distressing headlines to come.

We thank you for joining us as shareholders in the Fund. We are excited about working with our new partners at FPA.28 As a result of this relationship, the Fund is available through multiple share classes, including an institutional share class with materially lower expenses and an Advisor Class (QRSAX). The Fund's Institutional Class (QRSIX) expenses will be capped at 0.89% for three years. As announced in our February 1, 2021 press release, FPA Capital shareholders voted to approve the reorganization of FPA Capital Fund (Trades, Portfolio) into the FPA Queens Road Small Cap Value Fund. For more information about the reorganization please see the press release at www.fpa.com, or here.

Please contact us whenever you have questions about the portfolio. We look forward to brighter days ahead in the new year.

Steven H. Scruggs, CFA

Portfolio Manager

Benton S. Bragg, CFP, CFA

Analyst

Matt DeVries, CFA

Analyst

1. Inception date of the Fund was June 13, 2002.2 As of December 31, 2020. Please see the end of this Commentary for important information about Morningstar ratings and the Morningstar quantitative rating.
2. As of December 31, 2020. Please see the end of this Commentary for important information about Morningstar ratings and the Morningstar quantitative rating.
3. Margin of safety is when a security is purchased at a discount to the portfolio manager's estimate of its intrinsic value. Buying a security with a margin of safety is designed to seek to protect against permanent capital loss in the case of an unexpected event or analytical mistake. Determining a company's "true" worth or intrinsic value is highly subjective. There is no guarantee that the methods used to evaluate intrinsic value will be accurate or precise or that an investment made with a margin of safety will not decline in price.
4. The Fund's peer group is the Morningstar Small Value Category. The Fund's benchmark is the Russell 2000 Value TR USD Index.
5. References to individual securities or sectors in this section should not be construed as a recommendation by the Fund, the portfolio managers, the adviser, the sub-adviser, or the distributor to purchase or sell such securities or invest in such sectors, and any information provided is not a sufficient basis upon which to make an investment decision. The information provided does not reflect all positions purchased, sold or recommended by the adviser or sub-adviser during the quarter. It should not be assumed that an investment in the securities listed was or will be profitable. These securities/sectors may not be in the Fund at the time you receive this report. The information provided does not reflect all positions or sectors purchased, sold or recommended by FPA during the quarter. The portfolio holdings as of the most recent quarter-end may be obtained at www.fpa.com. The portfolio holdings and corresponding weights as of December 31, 2020 are provided at the end of this Commentary.
6. Past performance is no guarantee, nor is it indicative, of future results. 22 As of December 31, 2020. Source: Bloomberg, Factset
7. As of December 31, 2020. Source: Bloomberg, Factset.
8. 24 The Federal Reserve. January 27, 2021 meeting. https://www.bankrate.com/banking/federal-reserve/interest-rate-pause-biggestwinners/
9. 25 As of December 15, 2020. Source: Empirical Research Analysis, National Bureau of Economic Research. Top quintile refers to the highest valued 20% of stocks in an analysis of small-capitalization U.S. stocks. Standard Deviation is a measure of dispersion of a data set from its mean. Current Level refers to the valuation spread as of December 15, 2020 which is 1.5 standard deviations above the mean. For this analysis, small-capitalization U.S. stocks are those companies with market capitalization of between $1 billion and $5 billion.
10. Past results are no guarantee, nor are they indicative, of future results. Please refer to the end of the presentation for important disclosures, including definitions of key terms. 26 Empirical Research defines the broader small-cap universe as those U.S. public companies with market capitalization of between $1 billion and $5 billion.
11. Free Cash Flow (FCF) Yield is a financial solvency ratio that compares the free cash flow per share a company is expected to earn against its market value per share and is calculated at (Free Cash Flow per Share)/(Market Value per Share). A high FCF Yield means a company is generating enough cash to satisfy its debt and other obligations, including dividend payments.
12. Effective November 1, 2020, FPA acquired the Queens Road Funds, which included the Queens Road Value Fund and the Queens Road Small Cap Value Fund, and they were renamed the FPA Queens Road Value Fund and the FPA Queens Road Small

13. Cap Value Fund. FPA is the Adviser to the FPA Queens Road Funds and Bragg Financial Advisors ("BFA") is the Sub-Adviser. BFA has day-to-day responsibility for managing the FPA Queens Road Funds and the Investment Team are employees of BFA.

Important Disclosures

This presentation is confidential and may not be further disclosed, reproduced or distributed in any format to any other person without the prior written consent of First Pacific Advisors (Trades, Portfolio), LP ("FPA" or "Adviser"). This presentation is for informational and discussion purposes only and does not constitute, and should not be construed as, an offer or solicitation for the purchase or sale with respect to any securities, products or services discussed, and neither does it provide investment advice. Any such offer or solicitation shall only be made pursuant to the FPA Queens Road Small Cap Value Fund's ("Fund") Prospectus, which supersedes the information contained herein in its entirety. This presentation does not constitute an investment management agreement or offering circular.

Effective November 1, 2020, as approved by the shareholders of each series of Bragg Capital Trust ("Bragg Trust"), including the Fund: (i) FPA became the investment adviser to the Fund; and (ii) Bragg Financial Advisors, Inc. ("BFA" or "Sub-Adviser"), the former investment adviser to the Fund, transitioned to serving as the sub-adviser to the Fund pursuant to a subadvisory agreement by and among FPA, BFA and the Bragg Trust. BFA continues to be responsible for the day-to-day management of the Fund, subject to FPA's oversight; and (iii) each of the current Trustees of the Fund were elected by shareholders of the Bragg Trust to serve as the Board of Trustees of the Bragg Trust, replacing the previous Board of Trustees of the Bragg Trust in its entirety. No changes to the Fund's principal investment strategies were made in connection with these changes in management of the Fund, and Steve Scruggs, CFA, Director of Research and Senior Portfolio Manager for BFA, continues to serve as the portfolio manager for the Fund.

Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. There can be no assurance that the Fund will meet any of its objectives. Current month-end performance data, which may be lower or higher than the performance data quoted, may be obtained by calling toll-free, 1-888-353-0261.

You should consider the Fund's investment objectives, risks, and charges and expenses carefully before you invest. The Prospectus details the Fund's objective and policies and other matters of interest to a prospective investor. Please read the Prospectus carefully before investing. The Prospectus may be obtained by visiting the website at www.fpa.com, by calling toll-free, 1-800-982-4372, or by contacting the Fund in writing.

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