STATEMENT
OF ADDITIONAL INFORMATION
ABSOLUTE
SHARES TRUST
Millington
Securities, LLC
331
Newman Springs Road, Suite 143
Red
Bank, New Jersey 07701
Tel:
732-945-3816
Website:
www.wbietfs.com
October 31,
2023, as amended August 9, 2024
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Fund
Name |
Ticker
Symbol |
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WBI
BullBear Value 3000 ETF |
WBIF |
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WBI
BullBear Yield 3000 ETF |
WBIG |
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WBI
BullBear Quality 3000 ETF |
WBIL |
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WBI
Power Factor®
High Dividend ETF |
WBIY |
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WBI
BullBear Trend Switch US 1000 ETF |
WBIK |
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WBI
BullBear Trend Switch US 2000 ETF |
WBIM |
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WBI
BullBear Trend Switch US 1000 Total Return ETF |
WBIQ |
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WBI
BullBear Trend Switch US 2000 Total Return ETF |
WBIS |
Listed
on the NYSE Arca, Inc.
This
Statement of Additional Information (this “SAI”)
is not a prospectus. It should be read in conjunction with and is incorporated
by reference into the prospectus dated October 31, 2023, as amended August
9, 2024 (the “Prospectus”)
for the Absolute Shares Trust (“Trust”),
relating to the funds (each, a “Fund”
and, collectively, the “Funds”)
set forth in the table above, as it may be revised from time to time. A copy of
the Prospectus for the Trust, relating to the Funds, may be obtained without
charge by writing to the Trust, c/o Foreside Fund Services, LLC, 3 Canal Plaza,
Suite 100, Portland, Maine 04101, by calling (855) WBI-ETFS or (855) 924-3837,
or by visiting the Trust’s website at www.wbietfs.com.
Capitalized
terms used but not defined herein have the same meaning as in the Prospectus,
unless otherwise noted.
No
person has been authorized to give any information or to make any
representations other than those contained in this SAI and the Prospectus and,
if given or made, such information or representations may not be relied upon as
having been authorized by the Trust.
The
SAI does not constitute an offer to sell securities.
The
Funds’ audited financial statements for the most recent fiscal year are
incorporated in this SAI by reference to the Funds’ most recent Annual
Report
to
Shareholders
(File No. 811-22917). You may obtain a copy of each Fund’s Annual Report at no
charge by request to the Fund at the address or phone number, or website noted
above.
TABLE
OF CONTENTS
GENERAL
DESCRIPTION OF THE TRUST AND THE FUNDS
The
Trust was organized as a Delaware statutory trust on November 7, 2013 and is
authorized to have multiple segregated series or investment portfolios. The
Trust is an open-end management investment company registered under the
Investment Company Act of 1940 (“1940
Act”).
The Trust currently consists of eight separate investment
portfolios.
This
SAI addresses the following investment portfolios of the Trust (each, a
“Fund”
and
together, the “Funds”):
WBI BullBear Value 3000 ETF; WBI BullBear Yield 3000 ETF; WBI BullBear Quality
3000 ETF; WBI BullBear Trend Switch US 1000 ETF; WBI BullBear Trend Switch US
2000 ETF; WBI BullBear Trend Switch US 1000 Total Return ETF; and WBI BullBear
Trend Switch US 2000 Total Return ETF (collectively, the “Active
Funds”);
and WBI Power Factor® High Dividend ETF (the “Index
Fund”).
The
WBI BullBear Trend Switch US 1000 ETF, WBI BullBear Trend Switch US 2000 ETF,
WBI BullBear Trend Switch US 1000 Total Return ETF, and WBI BullBear Trend
Switch US 2000 Total Return ETF are referred to in this SAI as the “Trend
Switch Funds.”
The
WBI BullBear Trend Switch US 1000 ETF, WBI BullBear Trend Switch US 2000 ETF,
WBI BullBear Trend Switch US 1000 Total Return ETF, and WBI BullBear Trend
Switch US 2000 Total Return ETF (collectively, the “Future
Funds”)
had not yet commenced operations as of June 30, 2023.
Each
Fund is deemed to be diversified for the purposes of the 1940 Act.
Other
portfolios may be added to the Trust in the future. The shares of the Funds are
referred to herein as “Fund
Shares”
or “Shares.”
The offering of Shares is registered under the Securities Act of 1933, as
amended (“Securities
Act”).
The
Funds’ investment advisor, Millington Securities, LLC (“Advisor”),
has selected its affiliate WBI Investments, LLC (“Sub-Advisor”)
to act as investment sub-advisor. Both the Advisor and the Sub-Advisor are
registered as investment advisors with the Securities and Exchange Commission
(“SEC”).
The
Shares of the Funds trade on the NYSE Arca (the “Exchange”).
Shares will trade on the Exchange at market prices that may be below, at, or
above the net asset value (“NAV”)
of the Shares.
The
Funds offer and issue Shares at NAV only in aggregations of a specified number
of Shares (each, a “Creation
Unit”
or a “Creation
Unit Aggregation”),
generally in exchange for a basket of “in-kind” securities specified by the
Sub-Advisor (“Deposit
Securities”),
together with the deposit of a specified cash payment (“Cash
Component”).
Shares are redeemable only in Creation Unit Aggregations and, generally, in
exchange for Deposit Securities and a Cash Component. The Creation Unit
aggregations for each Fund are shown in the table below.
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Creation
Unit Aggregation |
| Fund |
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| WBI
BullBear Value 3000 ETF |
|
50,000 |
| WBI
BullBear Yield 3000 ETF |
|
50,000 |
| WBI
BullBear Quality 3000 ETF |
|
50,000 |
|
WBI
Power Factor® High Dividend ETF |
|
50,000 |
|
WBI
BullBear Trend Switch US 1000 ETF + |
|
50,000 |
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WBI
BullBear Trend Switch US 2000 ETF + |
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50,000 |
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WBI
BullBear Trend Switch US 1000 Total Return ETF + |
|
50,000 |
|
WBI
BullBear Trend Switch US 2000 Total Return ETF + |
|
50,000 |
+ The
Fund had not yet commenced operations as of June 30, 2023.
In
the event of the liquidation of a Fund, the Trust may lower the number of Shares
in a Creation Unit.
The
Funds presently create and redeem Shares “in-kind.” The Trust reserves the right
to offer a “cash” option for creations and redemptions of Shares. When, in the
sole discretion of the Trust, the Advisor, or the Sub-Advisor, cash purchases of
Creation Unit Aggregations of Shares as available or specified for a Fund, such
purchases shall be effected in essentially the same manner as in-kind purchases
thereof. In the case of a cash purchase, the Authorized Participant must pay the
cash equivalent of the Deposit Securities it would otherwise be required to
provide through an in-kind purchase, plus the same Cash Component required to be
paid by an in-kind purchaser. In addition, to offset brokerage and other costs
associated with using cash to purchase the requisite Deposit Securities, the
Authorized Participant must pay the Transaction Fees required by a Fund, as
applicable. Shares may be issued in advance of the receipt of Deposit Securities
subject to various conditions, including a requirement to maintain on deposit
with the Trust cash at least equal to 110% of the market value of the missing
Deposit Securities. In all cases, such fees will be limited in accordance with
the requirements of the SEC applicable to management investment companies
offering redeemable securities.
EXCHANGE
LISTING AND TRADING
There
can be no assurance that the requirements of the Exchange necessary for each
Fund to maintain the listing of its Shares will continue to be met. The Exchange
will consider the suspension of trading in, and will initiate delisting
proceedings of, Shares under any of the following circumstances: (i) if any of
the requirements set forth in the Exchange rules are not continuously
maintained; (ii) if the Exchange files separate proposals under Section 19(b) of
the 1940 Act and any of the statements regarding (a) the description of the
applicable Fund; (b) limitations on the applicable Fund’s portfolio holdings or
reference assets; (c) dissemination and availability of intraday indicative
values; or (d) the applicability of the Exchange listing rules specified in such
proposals are not continuously maintained; (iii) if following the initial
12-month period beginning at the commencement of trading of the applicable Fund,
there are fewer than 50 beneficial owners of the Shares of such Fund; or (iv)
such other event shall occur or condition shall exist that, in the opinion of
the Exchange, makes further dealings on such Exchange inadvisable. The Exchange
will remove the Shares of a Fund from listing and trading upon termination of
such Fund.
The
Funds’ continued listing on the Exchange or another stock exchange or market
system is a condition of the exemptive relief the Funds obtained from the SEC to
operate as exchange-traded funds (“ETFs”).
Any Fund’s failure to be so listed would result in the liquidation and closure
of the Fund.
As
in the case of other stocks traded on the Exchange, brokers’ commissions on
transactions will be based on negotiated commission rates at customary
levels.
The
Trust reserves the right to adjust the number of outstanding shares in order to
impact the market price range of the Shares to maintain convenient trading
ranges for investors. Any adjustments would be accomplished through stock splits
or reverse stock splits, which would have no effect on the net assets of each
Fund.
INVESTMENT
OBJECTIVES AND POLICIES
Investment
Objectives
Each
Fund has distinct investment objectives and policies. There can be no assurance
that a Fund’s objective will be achieved.
All
investment objectives and investment policies not specifically designated as
fundamental may be changed without shareholder approval. Additional information
about the Funds, their policies, and the investment instruments they may hold,
is provided below.
The
Funds’ share prices will fluctuate with market, economic and, to the extent
applicable, foreign exchange conditions. The Funds should not be relied upon as
a complete investment program.
Investment
Restrictions
The
investment restrictions set forth below have been adopted by the Board of
Trustees of the Trust (the “Board”)
as fundamental policies that cannot be changed with respect to a Fund without
the affirmative vote of the holders of a “majority of the outstanding voting
securities” (as defined in the 1940 Act) of the Fund. The investment objective
of each Fund and all other investment policies or practices of the Fund are
considered by the Trust not to be fundamental and accordingly may be changed
without shareholder approval. For purposes of the 1940 Act, a “majority of the
outstanding voting securities” means the lesser of the vote of (i) 67% or more
of the Shares of the Fund present at a meeting, if the holders of more than 50%
of the outstanding Shares of the Fund are present or represented by proxy, or
(ii) more than 50% of the Shares of the Fund.
For
purposes of the following limitations, any limitation which involves a maximum
percentage shall not be considered violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, a Fund. With respect to the Funds’
fundamental investment restriction on borrowings, asset coverage of at least
300% (as defined in the 1940 Act), inclusive of any amounts borrowed, must be
maintained at all times.
As
a matter of fundamental policy, the Active Funds may not:
1.With
respect to 75% of its total assets, invest more than 5% of its total assets in
securities of a single issuer or hold more than 10% of the voting securities of
such issuer. (This does not apply to investments in the securities of other
investment companies or securities of the U.S. Government, its agencies, or
instrumentalities.)
2.Borrow
money, except that (i) each Fund may borrow from banks for temporary or
emergency (not leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely disposition of securities,
and (ii) each Fund may, to the extent consistent with its investment policies,
enter into repurchase agreements, reverse repurchase agreements, and similar
investment strategies and techniques. To the extent that it engages in
transactions described in (i) and (ii), each Fund will be limited so that no
more than 33 1/3% of the value of its total assets (including the amount
borrowed) is derived from such transactions. Any borrowings which come to exceed
this amount will be reduced in accordance with applicable law.
3.Issue
senior securities, as defined in the 1940 Act and the rules, regulations and
orders thereunder, except as permitted under the 1940 Act and the rules,
regulations and orders thereunder.
4.Engage
in the business of underwriting securities, except to the extent that a Fund may
be considered an underwriter within the meaning of the Securities Act of 1933 in
the disposition of portfolio securities.
5.Invest
25% or more of the market value of its total assets either directly or
indirectly through its underlying ETFs, in the equity securities of companies
engaged in any one industry, as defined by the Standard Industrial
Classification Codes utilized by the Division of Corporation Finance of the SEC.
(This does not apply to investments in the securities of other investment
companies or securities of the U.S. Government, its agencies, or
instrumentalities.)
6.Purchase
or sell real estate, which term does not include securities of companies which
deal in real estate and/or mortgages or investments secured by real estate, or
interests therein, except that a Fund reserves freedom of action to hold and to
sell real estate acquired as a result of a Fund’s ownership of
securities.
7.Purchase
or sell physical commodities or contracts relating to physical commodities.
8.Make
loans to others. This restriction does not apply to: (i) the purchase of debt
obligations in which each Fund may invest consistent with its investment
objectives and policies; (ii) repurchase agreements and reverse repurchase
agreements; and (iii) loans of its portfolio securities, to the fullest extent
permitted under the 1940 Act.
Each
Active Fund observes the following policies, which are not deemed fundamental
and which may be changed without shareholder vote. Each Active Fund may
not:
1. Invest
in any issuer for purposes of exercising control or management.
2. Invest
in securities of other investment companies, except as permitted under the 1940
Act, the rules promulgated thereunder or pursuant to any applicable exemptive
order granted by the SEC.
3. Hold,
in the aggregate, more than 15% of its net assets in illiquid investments. An
illiquid investment is any investment that the applicable Fund reasonably
expects cannot be sold or disposed of in current market conditions in seven
calendar days or less without the sale or disposition significantly changing the
market value of the investment.
As
a matter of fundamental policy, the Index Fund may not:
1. With
respect to 75% of its total assets, invest more than 5% of its total assets in
securities of a single issuer or hold more than 10% of the voting securities of
such issuer. (This does not apply to investments in the securities of other
investment companies or securities of the U.S. Government, its agencies, or
instrumentalities.)
2. Borrow
money, except that (1) the Fund may borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting of redemption requests which
might otherwise require the untimely disposition of securities, and (2) the Fund
may, to the extent consistent with its investment policies, enter into
repurchase agreements, reverse repurchase agreements, and similar investment
strategies and techniques. To the extent that it engages in transactions
described in (1) and (2), the Fund will be limited so that no more than 33 1/3%
of the value of its total assets (including the amount borrowed) is derived from
such transactions. Any borrowings which come to exceed this amount will be
reduced in accordance with applicable law.
3. Issue
senior securities, as defined in the 1940 Act and the rules, regulations and
orders thereunder, except as permitted under the 1940 Act and the rules,
regulations and orders thereunder.
4. Engage
in the business of underwriting securities, except to the extent that the Fund
may be considered an underwriter within the meaning of the Securities Act of
1933 in the disposition of portfolio securities.
5. Purchase
or sell real estate, which term does not include securities of companies which
deal in real estate and/or mortgages or investments secured by real estate, or
interests therein, except that the Fund reserves freedom of action to hold and
to sell real estate acquired as a result of the Fund’s ownership of
securities.
6. Purchase
or sell physical commodities or contracts relating to physical commodities
except as permitted under applicable laws, rules and regulations, as such may be
interpreted or modified by regulatory authorities having jurisdiction, from time
to time.
7. Make
loans to others. This restriction does not apply to: (1) the purchase of debt
obligations in which the Fund may invest consistent with its investment
objectives and policies; (2) repurchase agreements and reverse repurchase
agreements; and (3) loans of its portfolio securities, to the fullest extent
permitted under the 1940 Act.
8. The
Fund may not invest 25% or more of its total assets in the securities of one or
more issuers conducting their principal business activities in the same
industry. This limitation does not apply to investments in securities issued or
guaranteed by the U.S. government, or any non-U.S. government, or their
respective
agencies or instrumentalities, or shares of investment companies. However, the
Fund may invest more than 25% of its total assets in securities of the same
industry to approximately the same extent that the Fund’s Underlying Index
concentrates in the securities of a particular industry. The Fund will not
invest 25% or more of its total assets in any investment company that so
concentrates.
With
respect to the Index Fund’s eighth fundamental policy regarding industry
concentration, the Index Fund will determine compliance with its policy on
concentration within any one industry without regard to holdings of investment
companies in which the Index Fund invests, except for:
1. Investment
companies with an announced policy regarding industry concentration, resulting
either from requirements under Rule 35d-1 under the 1940 Act or a stated
industry concentration policy, or
2. Investment
companies that are affiliates of the Fund.
The
Index Fund classifies industries based upon the Global Industry Classification
System’s (GICS) Industry Code level, published by Standard & Poor’s. The
Index Fund’s reliance on this classification is not a fundamental policy of the
Index Fund; and, therefore, it can be changed without shareholder approval. This
limitation also does not place a limit on investment in issuers domiciled in a
single jurisdiction or country. Therefore, investments made for the purpose of
obtaining geographic exposure are not part of an industry. Further, this policy
does not preclude the Index Fund from focusing its investments in issuers in any
sector.
The
Index Fund observes the following policies, which are not deemed fundamental and
which may be changed without shareholder vote. The Index Fund may
not:
1. Invest
in any issuer for purposes of exercising control or management.
2. Hold,
in the aggregate, more than 15% of its net assets in illiquid
securities.
INVESTMENT
STRATEGIES AND RISKS
A
discussion of the risks associated with an investment in each Fund is contained
in the Funds’ Prospectus under the headings “Principal Risk Factors,”
“Description of the Principal Risks of the Funds” and “Additional Risks.” The
discussion below supplements, and should be read in conjunction with, such
sections of the respective Fund’s Prospectus.
General
A
Fund may make direct investments in equity and fixed income securities and other
financial instruments, including but not limited to futures contracts, swap
agreements and forward contracts, master limited partnerships, real estate
investment trusts, reverse repurchase agreements, and options on securities,
indices, and futures contracts (collectively, “Financial
Instruments”).
In addition, a Fund, rather than investing directly in Financial Instruments,
may obtain exposure to financial assets by investing indirectly through
registered investment companies, including ETFs, exchange-traded vehicles
issuing equity securities (“ETVs”),
and exchange-traded notes (“ETNs”)
(such ETFs, ETVs, and ETNs are referred to collectively as “exchange-traded
products” or “ETPs”).
Investment in each Fund should be made with an understanding that the value of
the portfolio of securities held by such Fund may fluctuate in accordance with
changes in the financial condition of the issuers of the portfolio securities,
the value of common stocks generally and other factors.
Diversification
Each
Fund is diversified under applicable federal securities laws. This means that as
to 75% of its total assets (1) no more than 5% may be invested in the securities
of a single issuer, and (2) it may not hold more than 10% of the outstanding
voting securities of a single issuer. (This does not apply to investments in the
securities of other investment companies or securities of the U.S. Government,
its agencies, or instrumentalities.) However, the diversification of a Fund’s
holdings is measured at the time such Fund purchases a security; if a Fund
purchases a security and holds it for a period of time, the security may become
a larger percentage of such Fund’s total assets due to movements in the
financial markets. If the market affects several securities held by a Fund, such
Fund may have a greater percentage of its assets invested in securities of fewer
issuers. Accordingly, each Fund is subject to the risk that its performance may
be hurt disproportionately by the poor performance of relatively few securities
despite qualifying as a diversified fund.
Percentage
Limitations
Whenever
an investment policy or limitation states a maximum percentage of each Fund’s
assets that may be invested in any security or other asset, or sets forth a
policy regarding quality standards, such standard or percentage limitation will
be determined immediately after and as a result of the Fund’s acquisition or
sale of such security or other asset. Accordingly, except with respect to
borrowing, any subsequent change in values, net assets, or other circumstances
will not be considered in determining whether an investment complies with each
Fund’s investment policies and limitations. In addition, if a bankruptcy or
other extraordinary event occurs concerning a particular investment by a Fund,
the Fund may receive stock, real estate, or other investments that the Fund
would not or could not buy. If this happens, a Fund would sell such investments
as soon as practicable while trying to maximize the return to its
shareholders.
Although
the Fund is limited as to the percentage of its net assets that may be directly
invested in certain asset classes, the Fund may obtain investment exposure to
such asset classes in excess of such limits by investing indirectly in such
asset classes through other investment companies, including other ETFs with
exposure to such asset classes. Consequently, investments in such pooled
investment vehicles may result in aggregate direct and indirect investment
exposure to an asset class in excess of the limit up to which the applicable
Fund may invest directly in such assets.
Market
Risk
Market
risk arises mainly from uncertainty about future values of securities and other
financial instruments held by the Funds. The Funds could lose money if the value
of securities or other assets decline temporarily due to short-term market
movements or over a longer period due to prolonged changes in general market
conditions, economic trends or events that are not specifically related to the
issuer of the security or other asset, or factors that affect a particular
issuer, region, market, industry, sector or asset class. Sharp price declines in
securities owned by the Funds, known as flash crash risk, may trigger trading
halts, which may result in the Funds’ shares trading in the market at an
increasingly large discount to NAV during part (or all) of a trading day. Local,
regional or global events such as war, acts of terrorism, international trade
and tariff disputes, epidemics, pandemics or other public health issues,
recessions, or other events could have a significant and protracted impact on
the Funds and their investments.
Turbulence
in the financial and credit markets and reduced market liquidity may negatively
affect issuers, which could have an adverse effect on a Fund. Changes in
financial and credit market conditions and interest rates generally do not have
the same impact on all types of securities and other financial instruments, the
market value of each Fund’s shares may fluctuate as a result of the movement of
the overall stock or bond market. Particularly, common stocks tend to be more
volatile than other investment choices such as bonds and money market
instruments, while fixed-income securities with short-term maturities are
generally less sensitive to such changes than are fixed-income securities with
longer-term maturities. In addition, there is a risk that policy changes by the
U.S. Government, Federal Reserve or other government actors, which could include
increasing interest rates, could cause increased volatility in financial and
credit markets and lead to higher Fund share volatility or higher levels of Fund
redemptions, which could negatively impact a Fund and cause you to lose
money.
Outbreaks
such as the novel coronavirus known as COVID-19 may result in travel
restrictions, closed international borders, enhanced health screenings at ports
of entry and elsewhere, disruption of and delays in healthcare service
preparation and delivery, prolonged quarantines, cancellations, supply chain
disruptions and lower consumer demand, as well as general concern and
uncertainty. The impact of COVID-19, and other infectious illness outbreaks that
may arise in the future, could adversely affect the economies of many nations or
the entire global economy, individual issuers and capital markets in ways that
cannot necessarily be foreseen. In addition, the impact of infectious illnesses
in emerging market countries may be greater due to generally less established
healthcare systems. Public health crises caused by the COVID-19 outbreak may
exacerbate other pre-existing political, social and economic risks in certain
countries or globally. Although effective vaccines are now available, it may be
many months before vaccinations are sufficiently widespread to allow the
restoration of full economic activity. The failure to control the coronavirus in
less developed countries may impact the economies of more developed countries.
The duration of the COVID-19 outbreak and its effects cannot be determined with
certainty.
Russia’s
invasion of Ukraine, and corresponding events in late February 2022, have had,
and could continue to have, severe adverse effects on regional and global
economic markets for securities and commodities. Following Russia’s actions,
various governments, including the United States, have issued broad-ranging
economic sanctions against Russia, including, among other actions, a prohibition
on doing business with certain Russian companies, large financial institutions,
officials and oligarchs; the removal
by
certain countries and the European Union of selected Russian banks from the
Society for Worldwide Interbank Financial Telecommunications (“SWIFT”), the
electronic banking network that connects banks globally; and restrictive
measures to prevent the Russian Central Bank from undermining the impact of the
sanctions.
The
current events, including sanctions and the potential for future sanctions,
including any impacting Russia’s energy sector, and other actions, and Russia’s
retaliatory responses to those sanctions and actions, may continue to adversely
impact the Russian and Ukrainian economies and may result in the further decline
of the value and liquidity of Russian and Ukrainian securities, a continued
weakening of the ruble and hryvnia and continued exchange closures, and may have
other adverse consequences on the Russian and Ukrainian economies that could
impact the value of these investments and impair the ability of the Fund to buy,
sell, receive or deliver those securities.
Moreover,
those events have, and could continue to have, an adverse effect on global
markets performance and liquidity, thereby negatively affecting the value of the
Fund’s investments beyond any direct exposure to Russian and Ukrainian issuers.
The duration of ongoing hostilities and the vast array of sanctions and related
events cannot be predicted. Those
events
present material uncertainty and risk with respect to markets globally and the
performance of the Fund and its investments or operations could be negatively
impacted.
Cybersecurity
Risk
With
the increased use of technologies such as the Internet to conduct business, the
Funds are susceptible to operational, information security and related risks. In
general, cyber incidents can result from deliberate attacks or unintentional
events. Cyber attacks include, but are not limited to, gaining unauthorized
access to digital systems (e.g.,
through “hacking” or malicious software coding) for purposes of misappropriating
assets or sensitive information, corrupting data, or causing operational
disruption. Cyber attacks may also be carried out in a manner that does not
require gaining unauthorized access, such as causing denial-of-service attacks
on websites (i.e.,
efforts to make network services unavailable to intended users). Cybersecurity
failures or breaches suffered by the Funds’ Sub-Advisor, distributor, and other
service providers (including, but not limited to, Fund accountants, custodians,
transfer agents, and administrators), market makers, Authorized Participants (as
defined below) and the issuers of securities in which the Funds invest have the
ability to cause disruptions and impact business operations potentially
resulting in financial losses, interference with a Fund’s ability to calculate
its NAV, impediments to trading, the inability of the shareholders to transact
business, violations of applicable privacy and other laws, regulatory fines,
penalties, reputational damage, reimbursement or other compensation costs, or
additional compliance costs. In addition, substantial costs may be incurred in
order to prevent any cyber incidents in the future. While the Funds have
established business continuity plans in the event of, and risk management
systems to prevent, such cyber attacks, there are inherent limitations in such
plans and systems, including the possibility that certain risks have not been
identified. Furthermore, the Funds cannot control the cybersecurity plans and
systems put in place by service providers to the Funds and issuers in which the
Funds invest, market makers, or Authorized Participants. The Funds and their
shareholders could be negatively impacted as a result of any cyber incidents
impacting such parties.
Each
Fund may invest in the following types of investments, each of which is subject
to certain risks, as discussed below:
Equity
Securities
Common
stocks, preferred stocks, convertible securities, rights, warrants and American
Depositary Receipts (“ADRs”),
and real estate investment trusts (“REITs”)
are examples of equity securities in which the Funds may invest.
All
investments in equity securities are subject to market risks that may cause
their prices to fluctuate over time. Historically, the equity markets have moved
in cycles and the value of the securities in a Fund’s portfolio may fluctuate
substantially from day to day. Owning an equity security can also subject a Fund
to the risk that the issuer may discontinue paying dividends. There is also the
risk that sharp price declines in securities owned by the Funds, known as flash
crash risk, may trigger trading halts, which may result in the Funds’ Shares
trading in the market at an increasingly large discount to NAV during part (or
all) of a trading day.
Common
Stocks.
A
common stock represents a proportionate share of the ownership of a company and
its value is based on the success of the company’s business, any income paid to
stockholders, the value of its assets, and general market conditions. In
addition to the general risks set forth above, investments in common stocks are
subject to the risk that in the event a company in which a Fund or an ETP
invests is liquidated, the holders of preferred stock and
creditors
of that company will be paid in full before any payments are made to a Fund or
such ETP as a holder of common stock. It is possible that all assets of that
company will be exhausted before any payments are made to a Fund or such
ETP.
Preferred
Stocks.
Preferred
stocks are equity securities that often pay dividends at a specific rate and
have a preference over common stocks in dividend payments and liquidation of
assets. A
preferred
stock has a blend of the characteristics of a bond and common stock. It can
offer the higher yield of a bond and has priority over common stock in equity
ownership, but does not have the seniority of a bond and, unlike common stock,
its participation in the issuer’s growth may be limited. Although the dividend
is set at a fixed annual rate, in some circumstances it can be changed or
omitted by the issuer.
Convertible
Securities.
Each
Fund may invest directly, or indirectly, through an ETP in convertible
securities. Traditional convertible securities include corporate bonds, notes,
and preferred stocks that may be converted into or exchanged for common stock,
and other securities that also provide an opportunity for equity participation.
These securities are convertible either at a stated price or a stated rate (that
is, for a specific number of shares of common stock or other security). As with
other debt securities, the price of a convertible security generally varies
inversely with interest rates. While providing a debt stream, a convertible
security also affords the investor an opportunity, through its conversion
feature, to participate in the capital appreciation of the common stock into
which it is convertible. As the market price of the underlying common stock
declines, convertible securities tend to trade increasingly on a yield basis and
so may not experience market value declines to the same extent as the underlying
common stock. When the market price of the underlying common stock increases,
the price of a convertible security tends to rise as a reflection of higher
yield or capital appreciation. In such situations, a Fund or such ETP may have
to pay more for a convertible security than the value of the underlying common
stock.
Rights
and Warrants.
Each
Fund may invest
directly,
or indirectly, through an ETP in rights and warrants. A right is a privilege
granted to existing shareholders of a corporation to subscribe to shares of a
new issue of common stock and it is issued at a predetermined price in
proportion to the number of shares already owned. Rights normally have a short
life, usually two to four weeks, are freely transferable and entitle the holder
to buy the new common stock at a lower price than the current market. Warrants
are options to purchase equity securities at a specific price for a specific
period of time. They do not represent ownership of the securities, but only the
right to buy them. Hence, warrants have no voting rights, pay no dividends and
have no rights with respect to the assets of the corporation issuing them. The
value of warrants is derived solely from capital appreciation of the underlying
equity securities. Warrants differ from call options in that the underlying
corporation issues warrants, whereas call options may be written by
anyone.
An
investment in rights and warrants may entail greater risks than certain other
types of investments. Generally, rights and warrants do not carry the right to
receive dividends or exercise voting rights with respect to the underlying
securities, and they do not represent any rights in the assets of the issuer. In
addition, although their value is influenced by the value of the underlying
security, their value does not necessarily change with the value of the
underlying securities, and they cease to have value if they are not exercised on
or before their expiration date. Investing in rights and warrants increases the
potential profit or loss to be realized from the investment as compared with
investing the same amount in the underlying securities.
REITs.
The
Funds may invest in shares of REITs. REITs are pooled investment vehicles which
invest primarily in real estate or real estate related loans. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets
directly in real property and derive income primarily from the collection of
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Like regulated investment companies such as the Funds, REITs are not
taxed on income distributed to shareholders provided they comply with certain
requirements under the Code. Shareholders of the Funds will indirectly bear a
proportionate share of the expenses of REITs in which the Funds invest, in
addition to the expenses paid by the Funds. Investing in REITs involves certain
unique risks. Equity REITs may be affected by changes in the value of the
underlying property owned by such REITs, while mortgage REITs may be affected by
the quality of any credit extended. REITs are dependent upon management skills,
are not diversified (except to the extent the Code requires), and are subject to
the risks of financing projects. REITs are subject to heavy cash flow
dependency, default by borrowers, self-liquidation, and the possibilities of
failing to qualify for the exemption from tax for distributed income under the
Code and failing to maintain their exemptions from the 1940 Act. REITs
(especially mortgage REITs) are also subject to interest rate risks.
Tracking
Stocks.
Each
Fund may invest in tracking stocks. A tracking stock is a separate class of
common stock whose value is linked to a specific business unit or operating
division within a larger company and which is designed to “track” the
performance of such business unit or division. The tracking stock may pay
dividends to shareholders independent of the parent company. The parent company,
rather than the business unit or division, generally is the issuer of tracking
stock. However, holders of the tracking stock may not have the same rights as
holders of the company’s common stock.
Small-
and Medium-Sized Companies
The
Funds may invest directly, or indirectly through an ETP, in the equity
securities of small- and medium-sized companies. As such, a Fund and such ETP
will be exposed to the risks of smaller sized companies. Small- and medium-sized
companies may have narrower markets for their goods and/or services and may have
more limited managerial and financial resources than larger, more established
companies. Furthermore, such companies may have limited product lines, services,
markets, or financial resources or may be dependent on a small management group.
In addition, because these stocks may not be well-known to the investing public,
do not have significant institutional ownership or are typically followed by
fewer security analysts, there will normally be less publicly available
information concerning these securities compared to what is available for the
securities of larger companies. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, can decrease the value and
liquidity of securities held by a Fund. As a result, their performance can be
more volatile and they face greater risk of business failure, which could
increase the volatility of a Fund’s portfolio or such ETP’s
portfolio.
Investment
Companies
Each
Fund may invest in shares of other registered investment companies, including
other ETFs, closed-end funds, money market mutual funds, unit investment trusts,
and business development companies in pursuit of its investment objective, in
accordance with the limitations established under the 1940 Act
as well as any exemptions from such limitations granted by
the
SEC.
Each Fund also may invest in money market mutual funds in connection with the
Fund’s management of daily cash positions. Investments in the securities of
other investment companies may involve duplication of advisory fees and certain
other expenses. By investing in another investment company, a Fund becomes a
shareholder of that investment company. As a result, Fund shareholders
indirectly will bear a Fund’s proportionate share of the fees and expenses paid
by Fund shareholders of the other investment company, in addition to the fees
and expenses Fund shareholders directly bear in connection with a Fund’s own
operations.
ETPs.
Some ETPs are ETFs which are open-end investment companies whose shares are
listed on a national securities exchange. An ETF is similar to a traditional
mutual fund, but trades at different prices during the day on a securities
exchange. Similar to investments in other investment companies discussed above,
a Fund’s investments in ETPs will involve duplication of advisory fees and other
expenses because the Fund will be investing in another investment company. In
addition, a Fund’s investment in ETPs is also subject to its limitations on
investments in investment companies, as well as any exemptions from such
limitations granted by the SEC. To the extent a Fund invests in ETPs which focus
on a particular market segment or industry, the Fund will also be subject to the
risks associated with investing in those sectors or industries. The shares of
the ETPs in which each Fund will invest will be listed on a national securities
exchange and a Fund will purchase or sell these shares on the secondary market
at its current market price, which may be more or less than its
NAV.
As
a purchaser of ETP shares on the secondary market, each Fund will be subject to
the market risk associated with owning any security whose value is based on
market price. ETP shares historically have tended to trade at or near their NAV,
but there is no guarantee that they will continue to do so. Unlike traditional
mutual funds, shares of an ETP may be purchased and redeemed directly from the
ETPs only in large blocks (typically 50,000 shares or more) and only through
participating organizations that have entered into contractual agreements with
the ETP. The Funds do not expect to enter into such agreements and therefore
will not be able to purchase and redeem their ETP shares directly from the
ETP.
Equity
Options
Each
Fund may directly, or indirectly through an ETP, write call options on stocks
and stock indices if the calls are “covered” throughout the life of the option.
A call is “covered” if a Fund owns the optioned securities. See below for
additional ways a call can be covered. When a Fund writes a call, they receive a
premium and give the purchaser the right to buy the underlying security at any
time during the call period at a fixed exercise price regardless of market price
changes during the call period. If the call is exercised, a Fund will forgo any
gain from an increase in the market price of the underlying security over the
exercise price.
Each
Fund may purchase a call on securities to effect a “closing purchase
transaction,” which is the purchase of a call covering the same underlying
security and having the same exercise price and expiration date as a call
previously written by a Fund on which it wishes to terminate its obligation. If
a Fund is unable to effect a closing purchase transaction, it will not be able
to sell the underlying security until the call previously written by the Fund
expires (or until the call is exercised and the Fund delivers the underlying
security).
Each
Fund may also write and purchase put options (“puts”).
When a Fund writes a put, it receives a premium and gives the purchaser of the
put the right to sell the underlying security to the Fund at the exercise price
at any time during the option period. When a Fund purchases a
put,
it pays a premium in return for the right to sell the underlying security at the
exercise price at any time during the option period. If any put is not exercised
or sold, it will become worthless on its expiration date.
Purchasing
Put and Call Options.
When
a Fund purchases a put option, it buys the right to sell the instrument
underlying the option at a fixed strike price. In return for this right, a Fund
pays the current market price for the option (known as the “option
premium”).
A Fund may purchase put options to offset or hedge against a decline in the
market value of its securities (“protective
puts”)
or to benefit from a decline in the price of securities that it does not own. A
Fund would ordinarily realize a gain if, during the option period, the value of
the underlying securities decreased below the exercise price sufficiently to
cover the premium and transaction costs. However, if the price of the underlying
instrument does not fall enough to offset the cost of purchasing the option, a
put buyer would lose the premium and related transaction costs.
Call
options are similar to put options, except that a Fund obtains the right to
purchase, rather than sell, the underlying instrument at the option’s strike
price. A Fund would normally purchase call options in anticipation of an
increase in the market value of securities it owns or wants to buy. A Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying instrument exceeded the exercise price plus the premium paid and
related transaction costs. Otherwise, a Fund would realize either no gain or a
loss on the purchase of the call option.
The
purchaser of an option may terminate its position by:
•Allowing
it to expire and losing its entire premium;
•Exercising
the option and either selling (in the case of a put option) or buying (in the
case of a call option) the underlying instrument at the strike price; or
•Closing
it out in the secondary market at its current price.
Writing
(Selling) Put and Call Options.
When a Fund writes a call option it assumes an obligation to sell specified
securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. Similarly, when a Fund writes
a put option it assumes an obligation to purchase specified securities from the
option holder at a specified price if the option is exercised at any time before
the expiration date. A Fund may terminate its position in an exchange-traded put
option before exercise by buying an option identical to the one it has written.
Similarly, it may cancel an over-the-counter option by entering into an
offsetting transaction with the counter-party to the option.
A
Fund may try to hedge against an increase in the value of securities it would
like to acquire by writing a put option on those securities. If a security’s
price rises, a Fund would expect the put option to expire and the premium it
received to offset the increase in the security’s value. If a security’s price
remains the same over time, a Fund would hope to profit by closing out the put
option at a lower price. If a security’s price falls, a Fund may lose an amount
of money equal to the difference between the value of the security and the
premium it received. Writing covered put options may deprive a Fund of the
opportunity to profit from a decrease in the market prices of the securities it
would like to acquire.
The
characteristics of writing call options are similar to those of writing put
options, except that call writers expect to profit if prices remain the same or
fall. A Fund could try to hedge against a
decline
in the value of securities it already owns by writing a call option. If the
price of that security falls as expected, a Fund would expect the option expire
and the premium it received to offset the decline of the security’s value.
However, a Fund must be prepared to deliver the underlying instrument in return
for the strike price, which may deprive it of the opportunity to profit from an
increase in the market price of the securities it holds.
Each
Fund is permitted only to write covered options. A Fund can cover a call option
by owning:
•The
underlying security (or securities convertible into the underlying security
without additional consideration), index, interest rate, foreign currency or
futures contract;
•A
call option on the same security or index with the same or lesser exercise
price;
•A
call option on the same security or index with a greater exercise price and
segregating cash or liquid securities in an amount equal to the difference
between the exercise prices;
•Cash
or liquid securities equal to at least the market value of the optioned
securities, interest rate, foreign currency, or futures contract; or
•In
the case of an index, securities whose price movements correlate to the
movements of the index.
A
Fund can cover a put option by:
•Entering
into a short position in the underlying security;
•Purchasing
a put option on the same security, index, interest rate, foreign currency or
futures contract with the same or greater exercise price;
•Purchasing
a put option on the same security, index, interest rate, foreign currency or
futures contract with a lesser exercise price and segregating cash or liquid
securities in an amount equal to the difference between the exercise prices; or
•Maintaining
the entire exercise price in liquid securities.
Options
on Securities Indices.
Options on securities indices are similar to options on securities, except that
the exercise of securities index options requires cash settlement payments and
does not involve the actual purchase or sale of securities. In addition,
securities index options are designed to reflect price fluctuations in a group
of securities or segment of the securities market, rather than price
fluctuations in a single security.
Options
on Futures.
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the option
by the holder, the contract market clearing house establishes a corresponding
short position for the writer of the option (in the case of a call option) or a
corresponding long position (in the case of a put option). If the option is
exercised, the parties will be subject to the futures contracts. In addition,
the writer of an option on a futures contract is subject to initial and
variation margin requirements on the option position. Options on futures
contracts are traded on the same contract market as the underlying futures
contract.
The
buyer or seller of an option on a futures contract may terminate the option
early by purchasing or selling an option of the same series (i.e.,
the same exercise price and expiration date) as the option previously purchased
or sold. The difference between the premiums paid and received represents the
trader’s profit or loss on the transaction.
A
Fund may directly, or indirectly through an ETP, purchase put and call options
on futures contracts instead of selling or buying futures contracts. A Fund or
an ETP may buy a put option on a futures contract for the same reason it would
sell a futures contract. It also may purchase such put options in order to hedge
a long position in the underlying futures contract. Each Fund or an ETP may buy
call options on futures contracts for the same purpose as the actual purchase of
the futures contracts, such as in anticipation of favorable market
conditions.
A
Fund or an ETP may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If the
price of the futures contract at expiration were below the exercise price, a
Fund or ETP would retain the option premium, which would offset, in part, any
decline in the value of its assets.
The
writing of a put option on a futures contract is similar to the purchase of the
futures contracts, except that, if the market price declines, a Fund or such ETP
would pay more than the market price for the underlying instrument. The premium
received on the sale of the put option, less any transaction costs, would reduce
the net cost to a Fund or such ETP.
Combined
Positions.
A Fund or an ETP may purchase and write options in combination with each other,
or in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a Fund could
construct a combined position whose risk and return characteristics are similar
to selling a futures contract by purchasing a put option and writing a call
option on the same underlying instrument. Alternatively, a Fund could write a
call option at one strike price and buy a call option at a lower price to reduce
the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Caps
and Floors.
Each Fund or an ETP may enter cap and floor agreements. Caps and floors have an
effect similar to buying or writing options. In a typical cap or floor
agreement, one party agrees to make payments only under specified circumstances,
usually in return for payment of a fee by the other party. For example, the
buyer of an interest rate cap obtains the right to receive payments to the
extent that a specified interest rate exceeds an agreed-upon level. The seller
of an interest rate floor is obligated to make payments to the extent that a
specified interest rate falls below an agreed-upon level. An interest rate
collar combines elements of buying a cap and selling a floor.
Risks
of Derivatives.
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates,
securities
prices or currency exchange rates may result in poorer overall performance of a
Fund than if it had not entered into any derivatives transactions. Derivatives
may magnify a Fund’s gains or losses, causing it to make or lose substantially
more than it invested.
When
used for hedging purposes, increases in the value of the securities a Fund holds
or intends to acquire should offset any losses incurred with a derivative.
Purchasing derivatives for purposes other than hedging could expose a Fund to
greater risks.
On
October 28, 2020, the SEC adopted Rule 18f-4 under the 1940 Act which regulates
the use of derivatives for certain funds registered under the Investment Company
Act (“Rule 18f-4”). Unless a fund qualifies as a “limited derivatives user” as
defined in Rule 18f-4, the rule, among other things, requires the fund to
establish a comprehensive derivatives risk management program, comply with
certain value-at-risk (“VAR”) based leverage limits, appoint a derivatives risk
manager and provide additional disclosure both publicly and to the SEC regarding
its derivatives positions. Rule 18f-4 provides an exception for limited
derivatives users, which Rule 18f-4 defines as any fund that limits its
derivatives exposure to 10% of its net assets, excluding certain currency and
interest rate hedging transactions.
Limited
derivatives users are exempt from Rule 18f-4’s requirements to comply with
VaR-based limits, appoint a derivatives risk manager, and adopt a derivatives
risk management program. If a fund qualifies as a limited derivatives user, it
must adopt and implement policies and procedures reasonably designed to manage
its derivatives risk. As of the date of this prospectus, each Fund qualifies as
a limited derivatives user and has adopted policies and procedures to manage its
derivatives risk.
Derivative
Management Risk.
If the Sub-Advisor incorrectly predicts stock market and interest rate trends, a
Fund may lose money by investing in derivatives. For example, if a Fund were to
write a call option based on its Sub-Advisor’s expectation that the price of the
underlying security would fall, but the price was to rise instead, a Fund could
be required to sell the security upon exercise at a price below the current
market price.
Short
Selling
All
of the Funds or ETPs may invest, in part, in short positions in equity
securities. As opposed to taking long positions in which an investor seeks to
profit from increases in the price of a stock, short selling (or “selling
short”) is a technique used by the Funds to try and profit from the falling
price of a stock. Short selling involves selling stock that has been borrowed
from a third party with the intention of buying identical stock back at a later
date to return to that third party. The basic principle of short selling is that
selling stock now at a high price, to buy later at a lower price, is profitable.
The short seller hopes to profit from a decline in the price of the assets
between the sale and the repurchase, as the seller will pay less to buy the
assets than it received on selling them.
If
a Fund effects a short sale of Financial Instruments at a time when it has an
unrealized gain on the same instruments, it may be required to recognize that
gain as if it had actually sold the instruments (as a “constructive sale”) on
the date it effects the short sale. However, such constructive sale treatment
may not apply if the Fund closes out the short sale with instruments other than
the appreciated instruments held at the time of the short sale and if certain
other conditions are satisfied. Uncertainty regarding the tax consequences of
effecting short sales may limit the extent to which a Fund may effect short
sales.
A
Fund may be required to close short portfolio security positions in order to
facilitate the redemption process. If a Fund recognizes gain on such
transactions, this generally will cause the Fund to recognize gain it might not
otherwise have recognized, or to recognize such gain sooner than would otherwise
be required had it been able to effect the redemption by distributing portfolio
securities in-kind. The Funds generally intend to distribute these gains to
shareholders
to
avoid being taxed on this gain at the Fund level and otherwise comply with the
special tax rules that apply to it. This strategy may cause shareholders to be
subject to tax on gains they would not otherwise be subject to, or at an earlier
date than, if they had made an investment in a different ETF.
Government
Obligations
Each
Fund may invest directly, or indirectly through ETPs, in U.S. Government
obligations and other quasi government related obligations. Such obligations
include Treasury bills, certificates of indebtedness, notes, and bonds, and
issues of such entities as the Government National Mortgage Association
(“GNMA”),
Export-Import Bank of the United States, Tennessee Valley Authority, Resolution
Funding Corporation, Farmers Home Administration, Federal Home Loan Banks,
Federal Intermediate Credit Banks, Federal Farm Credit Banks, Federal Land
Banks, Federal Housing Administration, Federal National Mortgage Association
(“FNMA”),
Federal Home Loan Mortgage Corporation (“FHLMC”),
and the Student Loan Marketing Association.
Some
of these obligations, such as those of the GNMA, are supported by the full faith
and credit of the U.S. Treasury Department; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the U.S. Treasury; others, such as those of the FNMA, are
supported by the discretionary authority of the U.S. Government to purchase the
agency’s obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
The
Fund may invest directly, or indirectly through ETPs, in sovereign,
quasi-sovereign, supranational or local authority debt obligations issued by
non-U.S. governments. A sovereign debtor’s willingness or ability to repay
principal and interest in a timely manner may be affected by a number of
factors, including its cash flow situation, the extent of its foreign reserves,
the availability of sufficient foreign exchange on the date a payment is due,
the relative size of the debt service burden to the economy as a whole, the
sovereign debtor’s policy toward principal international lenders, and the
political constraints to which it may be subject. Emerging market governments
could default on their sovereign debt. Such sovereign debtors also may be
dependent on expected disbursements from foreign governments, multilateral
agencies and other entities abroad to reduce principal and interest arrearages
on their debt. The commitments on the part of these governments, agencies, and
others to make such disbursements may be conditioned on a sovereign debtor’s
implementation of economic reforms and/or economic performance and the timely
service of such debtor’s obligations. Failure to meet such conditions could
result in the cancellation of such third parties’ commitments to lend funds to
the sovereign debtor, which may further impair such debtor’s ability or
willingness to service its debt in a timely manner.
When-Issued
Securities
Each
Fund or an ETP may purchase securities on a when-issued basis, for payment and
delivery at a later date, generally within one month. The price and yield are
generally fixed on the date of commitment to purchase, and the value of the
security is thereafter reflected in the Fund’s NAV. During the period between
purchase and settlement, no payment is made by the Fund and no interest accrues
to the Fund. At the time of settlement, the market value of the security may be
more or less than the purchase price. When the Fund purchases securities on a
when-issued
basis,
it maintains liquid assets in a segregated account with its custodian in an
amount equal to the purchase price as long as the obligation to purchase
continues.
Illiquid
Securities
As
a non-principal strategy, each Fund may hold up to 15% of its net assets in
securities that are illiquid, which means that there may be legal or contractual
restrictions on their disposition, or that there is no readily available market
for such a security. Illiquid securities present the risks that a Fund may have
difficulty valuing these holdings and/or may be unable to sell these holdings at
the time or price desired. There are generally no restrictions on a Fund’s
ability to invest in restricted securities (that is, securities that are not
registered pursuant to the Securities Act), except to the extent such securities
may be considered illiquid. Securities issued pursuant to Rule 144A of the
Securities Act (“Rule
144A securities”)
will be considered liquid if determined to be so under procedures adopted by the
Board. The Board designated Liquidity Committee is responsible for making the
determination as to the liquidity of restricted securities (pursuant to the
procedures adopted by the Board). A Fund will determine a security to be
illiquid if it cannot be sold or disposed of in current market conditions in
seven calendar days or less without the sale or disposition significantly
changing the market value of the investment. Factors considered in determining
whether a security is illiquid may include, but are not limited to: the
frequency of trades and quotes for the security; the number of dealers willing
to purchase and sell the security and the number of potential purchasers; the
number of dealers who undertake to make a market in the security; the nature of
the security, including whether it is registered or unregistered, and the market
place; whether the security has been rated by a nationally recognized
statistical rating organization (“NRSRO”);
the period of time remaining until the maturity of a debt instrument or until
the principal amount of a demand instrument can be recovered through demand; the
nature of any restrictions on resale; and with respect to municipal lease
obligations and certificates of participation, there is reasonable assurance
that the obligation will remain liquid throughout the time the obligation is
held and, if unrated, an analysis similar to that which would be performed by an
NRSRO is performed. If a restricted security is determined to be liquid, it will
not be included within the category of illiquid securities. Investing in Rule
144A securities could have the effect of increasing the level of a Fund’s
illiquidity to the extent that a Fund, at a particular point in time may be
unable to find qualified institutional buyers interested in purchasing the
securities. Each Fund is permitted to sell restricted securities to qualified
institutional buyers.
Short-Term,
Temporary, and Cash Investments
Each
Fund may invest in any of the following securities and instruments:
Bank
Certificates of Deposit, Bankers’ Acceptances and Time Deposits.
Each Fund or ETP may acquire certificates of deposit, bankers’ acceptances and
time deposits. Certificates of deposit are
negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return. Bankers’ acceptances are
negotiable drafts or bills of exchange, normally drawn by an importer or
exporter to pay for specific merchandise, which are “accepted” by a bank,
meaning in effect that the bank unconditionally agrees to pay the face value of
the instrument on maturity. Certificates of deposit and bankers’ acceptances
acquired by a Fund will be dollar denominated obligations of domestic or foreign
banks or financial institutions which at the time of purchase have capital,
surplus and undivided profits in excess of $100 million (including assets of
both domestic and foreign branches), based on latest published reports, or less
than $100 million if the principal amount of such bank obligations are fully
insured by the U.S. Government. If a Fund holds instruments of foreign banks or
financial
institutions,
it may be subject to additional investment risks that are different in some
respects from those incurred by a fund that invests only in debt obligations of
U.S. domestic issuers. See “Foreign Investments” above. Such risks include
future political and economic developments, the possible imposition of
withholding taxes by the particular country in which the issuer is located on
interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these
securities.
Domestic
banks and foreign banks are subject to different governmental regulations with
respect to the amount and types of loans which may be made and interest rates
which may be charged. In addition, the profitability of the banking industry
depends largely upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operations of
the banking industry.
As
a result of federal and state laws and regulations, domestic banks are, among
other things, required to maintain specified levels of reserves, limited in the
amount which they can loan to a single borrower, and subject to other
regulations designed to promote financial soundness. However, such laws and
regulations do not necessarily apply to foreign bank obligations that a Fund may
acquire.
In
addition to purchasing certificates of deposit and bankers’ acceptances, to the
extent permitted under its investment objectives and policies stated above and
in its Prospectus, a Fund may make interest bearing time or other interest
bearing deposits in commercial or savings banks. Time deposits are
non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
Savings
Association Obligations.
Each Fund or an ETP may invest in certificates of deposit (interest bearing time
deposits) issued by savings banks or savings and loan associations that have
capital, surplus and undivided profits in excess of $100 million, based on
latest published reports, or less than $100 million if the principal amount of
such obligations is fully insured by the U.S. Government.
Commercial
Paper, Short-term, Notes and Other Corporate Obligations.
Each Fund or an ETP may invest a portion of its assets in commercial paper and
short-term notes. Commercial paper consists of unsecured promissory notes issued
by corporations. Issues of commercial paper and short-term notes will normally
have maturities of less than nine months and fixed rates of return, although
such instruments may have maturities of up to one year.
Commercial
paper and short-term notes will consist of issues rated at the time of purchase
“A-2” or higher by S&P, “Prime-1” by Moody’s, or similarly rated by another
NRSRO or, if unrated, will be determined by the Sub-Advisor to be of comparable
quality. These rating symbols are described in Appendix B.
Lending
Portfolio Securities
Each
Fund may lend its portfolio securities in an amount not exceeding one-third of
its total assets to financial institutions such as banks and brokers if the loan
is collateralized in
accordance
with applicable regulations. Under the present regulatory requirements which
govern loans of portfolio securities, the loan collateral must, on each business
day, at least equal the value of the loaned securities and must consist of cash,
letters of credit of domestic banks or domestic branches of foreign banks, or
securities of the U.S. Government or its agencies. To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demanded by
the Funds if the demand meets the terms of the letter. Such terms and the
issuing bank would have to be satisfactory to the Funds. Any loan might be
secured by any one or more of the three types of collateral. The terms of the
Funds’ loans must meet certain tests under the Code.
Securities
lending involves exposure to certain risks, such as operational, counterparty,
credit and market risk. Delays or restrictions upon the Funds’ ability to
recover loaned securities exposes the Fund to operational issues surrounding the
processing and settlement of related trading and could create an inability to
dispose of the collateral for the loan(s). All investments made with the
collateral received are subject to market and other risks associated with such
investments. If such investments lose value, the Funds will have to cover the
loss when repaying the collateral to the borrower, which could require the Fund
to liquidate other investments in order to return said collateral.
Delays
in recovery of loaned securities could result from the event of default or
insolvency by a borrower. While US Bank has agreed to provide the Funds with
indemnification in the event of a borrower default, in such instances, the Funds
are exposed to the risk of a possible loss in the value of loaned securities
(e.g.,
the opportunity of disposition at favorable prices is lost due to a delay in
recover), the risk of a possible opportunity cost of reinvestment (e.g.,
adverse price movement occurs following a cash-in-lieu payment being made where
in-kind recovery of securities is not possible), and the risk of a possible loss
of rights in the collateral, among other risks.
Borrowing
Though
the Funds do not currently intend to borrow money, each Fund is authorized to
borrow money from time to time for temporary, extraordinary or emergency
purposes or for clearance of transactions, and not for the purpose of leveraging
its investments, in amounts not to exceed at any time 33 1/3% of the value of
its total assets at the time of such borrowings, as allowed under the 1940 Act.
The use of borrowing by a Fund involves special risk considerations that may not
be associated with other funds having similar objectives and policies. Because
substantially all of a Fund’s assets fluctuate in value, while the interest
obligation resulting from a borrowing will be fixed by the terms of a Fund’s
agreement with its lender, the NAV per Share of a Fund will tend to increase
more when its portfolio securities increase in value and to decrease more when
its portfolio assets decrease in value than would otherwise be the case if a
Fund did not borrow. In addition, interest costs on borrowings may fluctuate
with changing market rates of interest and may partially offset or exceed the
return earned on borrowed funds. Under adverse market conditions, a Fund might
have to sell portfolio securities to meet interest or principal payments at a
time when fundamental investment considerations would not favor such
sales.
Cash
Transactions Risk
The
Funds currently intend to effect creation and redemptions “in-kind,” although
the Trust reserves the right to require creations and redemption be effected in
whole or in part for cash. To the extent creations and redemptions are effected
in cash, the Funds may be less tax-efficient than an investment in an ETF that
does not elect to effect all creations and redemptions
principally
for cash. ETFs generally are able to make in-kind redemptions and generally are
not taxed on any gains on holdings that are distributed as part of an in-kind
redemption.
Commodities
Risk
The
Funds and certain ETPs may have some investment exposure to the commodities
markets which may subject the market prices of the Funds or such ETPs to greater
volatility than investments in traditional securities, such as stocks and bonds.
The commodities markets may fluctuate widely based on a variety of factors.
These include changes in overall market movements, domestic and foreign
political and economic events and policies, war, acts of terrorism, changes in
domestic or foreign interest rates, and/or investor expectations concerning
interest rates, domestic and foreign inflation rates, and/or investor
expectations concerning inflation rates, investment and trading activities of
mutual funds, hedge funds, and commodities funds. Prices of various commodities
may also be affected by factors such as drought, floods, weather, livestock
disease, embargoes, tariffs, and other regulatory developments. Many of these
factors are very unpredictable. The prices of commodities can also fluctuate
widely due to supply and demand disruptions in major producing or consuming
regions. Certain commodities may be produced in a limited number of countries
and may be controlled by a small number of producers. As a result, political,
economic, and supply related events in such countries could have a
disproportionate impact on the prices of such commodities. Because the
performance of the Funds and such ETPs may be linked to the performance of
highly volatile commodities, investors should be willing to assume the risks of
potentially significant fluctuations in the value of Shares of Funds and shares
of the ETPs.
The
WBI BullBear Value 3000 ETF, WBI BullBear Yield 3000 ETF, and WBI BullBear
Quality 3000 ETF may also invest in the following types of investments, each of
which is subject to certain risks, as discussed below:
Debt
and High-Yield Securities
Debt
securities include traditional debt securities issued by corporations, such as
bonds and debentures and debt securities that are convertible into common stock
and interests. Debt securities that will be eligible for purchase by the Funds
or an ETP include investment grade and high-yield corporate debt securities.
Investment grade securities are those rated BBB or better by Standard &
Poor’s®
Ratings Group (“S&P®”)
and those rated Baa or better by Moody’s Investors Service©,
Inc. (“Moody’s”)
or
their
equivalent. Securities rated BBB by S&P®
are considered investment grade, but Moody’s
considers
securities rated Baa to have speculative characteristics. High-yield securities,
or “junk bonds,” are rated less than investment grade.
The
WBI BullBear Value 3000 ETF, WBI BullBear Yield 3000 ETF, and WBI BullBear
Quality 3000 ETF may invest up to 20% of its net assets in high-yield bonds
(also known as “junk bonds”).
Each
Fund also may obtain indirect exposure to debt and high-yield securities through
investments in other registered investment companies, including ETFs. See
Section “Investment Companies.” The WBI BullBear Value 3000 ETF, WBI BullBear
Yield 3000 ETF, and WBI BullBear Quality 3000 ETF each reserves the right to
invest up to 20% of its net assets in securities rated lower than BBB by
S&P®
or lower than Baa by Moody’s. High-yield debt securities generally offer a
higher current yield than that available for higher-grade issues. However,
lower-rated securities involve higher risks in that they are especially subject
to adverse changes in general economic conditions and in the industries in which
the issuers are engaged, to changes in the financial condition of the issuers,
and to price fluctuations in response to changes in interest rates.
During
periods of economic downturn or rising interest rates, highly leveraged issuers
may experience financial stress that could adversely affect their ability to
make payments of interest and principal and increase the possibility of
default.
The
market for high-yield debt securities is generally thinner and less active than
that for higher quality securities, which may limit a Fund’s ability to sell
such securities at fair value in response to changes in the economy or financial
markets. Adverse publicity and investor perceptions, whether based on
fundamental analysis, may also decrease the values and liquidity of lower-rated
securities, especially in a thinly traded market.
Ratings
of debt securities represent the rating agencies’ opinions regarding their
quality, but are not a guarantee of quality and may be reduced after a Fund or
ETP has acquired the security. If a security’s rating is reduced while it is
held by a Fund, the Sub-Advisor will consider whether the Fund should continue
to hold the security but is not required to dispose of it. Credit ratings
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, rating agencies may
fail to make timely changes in credit ratings in response to subsequent events,
so that an issuer’s current financial condition may be better or worse than the
rating indicates. The ratings for debt securities are described in Appendix
A.
Debt
securities with longer maturities generally entail greater risk than those with
shorter maturities.
The
WBI BullBear Value 3000 ETF, WBI BullBear Yield 3000 ETF, and WBI BullBear
Quality 3000 ETF may also invest in the following types of investments, each of
which is subject to certain risks, as discussed below:
Foreign
Investments and Foreign Currencies
Each
Fund may invest directly, or indirectly through an ETP, in securities of
non-U.S. issuers (“foreign
securities”)
and may take active positions in foreign currencies. Each Fund and an ETP may
reserve the right to invest without limitation in Depositary Receipts
(“DRs”),
U.S. dollar-denominated securities, foreign securities, securities of companies
incorporated outside the U.S., and Financial Instruments that provide exposure
to foreign currencies.
Depositary
Receipts.
DRs
include ADRs, European Depositary Receipts (“EDRs”),
Global Depositary Receipts (“GDRs”),
or other forms of DRs. DRs are receipts typically
issued
in connection with a U.S. or foreign bank or trust company which evidence
ownership of underlying securities issued by a non-U.S. company.
ADRs.
ADRs
are depositary receipts for foreign securities denominated in U.S. dollars and
traded on U.S. securities markets. These securities may not necessarily be
denominated in the same currency as the securities for which they may be
exchanged. These are certificates evidencing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial institutions.
Designed for use in U.S. securities markets, ADRs are alternatives to the
purchase of the underlying securities in their national market and currencies.
ADRs may be purchased through “sponsored” or “unsponsored” facilities. A
sponsored facility is established jointly by the issuer of the underlying
security and a depositary, whereas a depositary may establish an unsponsored
facility without participation by the issuer of the depositary security. Holders
of
unsponsored
DRs generally bear all the costs of such facilities and the depositary of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through voting rights to the holders of such receipts of the deposited
securities. Each Fund may invest up to 10% of its net assets in unsponsored
depositary receipts.
Investments
in foreign securities involve certain inherent risks, including the
following:
Political
and Economic Factors.
Individual economies of certain countries may differ favorably or unfavorably
from the United States’ economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency,
diversification, and balance of payments position. The internal politics of
certain foreign countries may not be as stable as those of the United States.
Governments in certain foreign countries also continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could include restrictions on
foreign investment, nationalization, expropriation of goods, or imposition of
taxes, and could have a significant effect on market prices of securities and
payment of interest. The economies of many foreign countries are heavily
dependent upon international trade and are accordingly affected by the trade
policies and economic conditions of their trading partners. Enactment by these
trading partners of protectionist trade legislation could have a significant
adverse effect upon the securities markets of such countries.
Legal
and Regulatory Matters.
Certain foreign countries may have less supervision of securities markets,
brokers and issuers of securities, and less financial information available to
issuers than is available in the United States.
Currency
Fluctuations.
A change in the value of any foreign currency against the U.S. dollar will
result in a corresponding change in the U.S. dollar value of an ADR’s underlying
portfolio securities denominated in that currency, or the Fund’s, or such ETP’s
investments that provide exposure to the non-U.S. currency. Such changes will
affect a Fund and such ETP to the extent that the Fund or such ETP is directly
or indirectly exposed to foreign securities denominated in foreign
currencies.
Taxes.
The interest and dividends payable to a Fund or an ETP may be subject to foreign
taxes or withholding, thus reducing the net amount of income available for
distribution to shareholders. A Fund and an ETP may not be eligible to pass
through to its shareholders any tax credits or deductions with respect to such
foreign taxes or withholding.
In
considering whether to invest in the securities of a non-U.S. company, the
Sub-Advisor considers such factors as the characteristics of the particular
company, differences between economic trends and the performance of securities
markets within the U.S. and those within other countries, and also factors
relating to the general economic, governmental, and social conditions of the
country or countries where the company is located. The extent to which a Fund
will be invested in non-U.S. companies, foreign countries, and DRs will
fluctuate from time to time within any limitations described in the Prospectus,
depending on the Sub-Advisor’s assessment of prevailing market, economic, and
other conditions.
Emerging
Markets. Each
Fund may invest directly, or indirectly through an ETP, in foreign securities
that may include securities of companies located in developing or emerging
markets, which entail additional risks, including: less social, economic, and
political stability; smaller
securities
markets and lower trading volume, which may result in less liquidity and greater
price volatility; national policies that may restrict a Fund’s or an ETP’s
investment opportunities, including restrictions on investments in issuers or
industries, or expropriation or confiscation of assets or property; and less
developed legal structures governing private or foreign investment.
Additional
risks of emerging markets securities may include: more substantial governmental
involvement in the economy; less governmental supervision and regulation;
unavailability of currency hedging techniques; companies that are newly
organized and small; differences in auditing and financial reporting standards,
which may result in unavailability of material information about issuers; and
less developed legal systems. In addition, emerging securities markets may have
different clearance and settlement procedures, which may be unable to keep pace
with the volume of securities transactions or otherwise make it difficult to
engage in such transactions. Settlement problems may cause a Fund or an ETP to
miss attractive investment opportunities, hold a portion of assets in cash
pending investment, or be delayed in disposing of a portfolio security. Such a
delay could result in possible liability to a purchaser of the
security.
PORTFOLIO
TURNOVER
Although
the Funds generally will not invest for short-term trading purposes, portfolio
securities may be sold without regard to the length of time they have been held.
Portfolio turnover rate is calculated by dividing (1) the lesser of purchases or
sales of portfolio securities for the fiscal year by (2) the monthly average of
the value of portfolio securities owned during the fiscal year. A 100% turnover
rate would occur if all the securities in a Fund’s portfolio, with the exception
of securities whose maturities at the time of acquisition were one year or less,
were sold and either repurchased or replaced within one year. A high rate of
portfolio turnover (100% or more) generally leads to higher transaction costs
and may result in a greater number of taxable transactions. High portfolio
turnover generally results in the distribution of short-term capital gains which
are taxed at the higher ordinary income tax rates.
For
the periods indicated below, the Funds’ portfolio turnover rates
were:
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|
|
Fiscal
year ended June 30, |
| Fund |
|
2023 |
2022 |
|
WBI
BullBear Value 3000 ETF |
|
906% |
845% |
|
WBI
BullBear Yield 3000 ETF |
|
890% |
824% |
|
WBI
BullBear Quality 3000 ETF |
|
805% |
899% |
|
WBI
Power Factor® High Dividend ETF |
|
175% |
183% |
|
WBI
BullBear Trend Switch US 1000 ETF1 |
|
N/A |
N/A |
|
WBI
BullBear Trend Switch US 2000 ETF1 |
|
N/A |
N/A |
|
WBI
BullBear Trend Switch US 1000 Total Return ETF1 |
|
N/A |
N/A |
|
WBI
BullBear Trend Switch US 2000 Total Return ETF1 |
|
N/A |
N/A |
1.The
Fund had not yet commenced operations as of June 30, 2023.
MANAGEMENT
The
Role of the Board
The
business of the Trust is managed under the direction of the Board, which
provides oversight of the management and operations of the Trust. The Board
approves all significant agreements between the Trust and its service providers,
including the agreements with the Advisor, the Sub-Advisor, distributor,
administrator, custodian, and transfer agent, each of whom are discussed in
greater
detail in this SAI. Like all mutual funds and ETFs, the day-to-day
responsibility for the management and operation of the Trust, including the
day-to-day management of risk, is the responsibility of such service providers
to the Trust. The Board is responsible for overseeing the Trust’s service
providers and, thus, has oversight responsibility with respect to the risk
management performed by those service providers. Risk management seeks to
identify and eliminate or mitigate the potential effects of risks such as events
or circumstances that could have material adverse effects on the business,
operations, shareholder services, investment performance or reputation of the
Trust or the Funds. The Board’s role in risk management oversight begins before
the inception of an investment portfolio, at which time the Sub-Advisor presents
the Board with information concerning the investment objectives, strategies, and
risks of the investment portfolio. Additionally, the Sub-Advisor provides the
Board with an overview of, among other things, the respective firm’s investment
philosophy, brokerage practices, and compliance infrastructure. Thereafter, the
Board oversees the risk management of the investment portfolio’s operations, in
part, by requesting periodic reports from and otherwise communicating with
various personnel of the service providers, including the Trust’s Chief
Compliance Officer (“CCO”)
and the independent registered public accounting firm of the Trust. The Board
and the Audit Committee of the Board, with respect to identified risks that
relate to its scope of expertise, oversee efforts by management and service
providers to manage risks to which the Funds may be exposed. In all cases,
however, the role of the Board and of any individual Trustee is one of oversight
and not of management of the day-to-day affairs of the Trust and its oversight
role does not make the Board a guarantor of the Trust’s investments, operations,
or activities.
Under
the overall supervision of the Board and the Audit Committee (discussed in more
detail below), the service providers to the Trust employ a variety of processes,
procedures, and controls to identify the risks relevant to the operations of the
Trust and the Funds to lessen the probability of the risk’s occurrence and/or to
mitigate the effects of such events or circumstances if they do occur. Each
service provider is responsible for one or more discrete aspects of the Trust’s
business and, consequently, for managing the risks associated with that
activity.
The
Board is responsible for overseeing the nature, extent, and quality of the
services provided to the Funds by the Sub-Advisor and receives information about
those services at its regular meetings. In addition, after the Funds have been
investing for two years, on at least an annual basis, in connection with its
consideration of whether to renew the Sub-Advisory Agreement with the
Sub-Advisor, the Board receives detailed information from the Sub-Advisor. Among
other things, the Board regularly considers the Sub-Advisor’s adherence to each
Fund’s investment restrictions and compliance with various policies and
procedures of the Trust and with applicable securities regulations. The Board
also reviews information about each Fund’s performance and
investments.
The
Trust’s CCO meets regularly with the Board to review and discuss compliance and
other issues. At least annually, the Trust’s CCO provides the Board with a
report reviewing the adequacy and effectiveness of the Trust’s policies and
procedures and those of its service providers, including the Sub-Advisor. The
report addresses the operation of the policies and procedures of the Trust and
each service provider since the date of the last report; material changes to the
policies and procedures since the date of the last report; any recommendations
for material changes to the policies and procedures; and material compliance
matters since the date of the last report.
The
Board receives reports from the Trust’s service providers regarding operational
risks, portfolio valuation and other matters. Annually, the independent
registered public accounting firm reviews with the Audit Committee its audit of
the financial statements of the Funds, focusing on major areas of risk
encountered by the Trust and noting any significant deficiencies or material
weaknesses in the Trust’s internal controls.
The
Board recognizes that not all risks that may affect the Funds can be identified,
that it may not be practical or cost-effective to eliminate or mitigate certain
risks, that it may be necessary to bear certain risks (such as
investment-related risks) to achieve each Fund’s goals, and that the processes,
procedures and controls employed to address certain risks may be limited in
their effectiveness. Moreover, despite the periodic reports the Board receives
and the Board’s discussions with the service providers to the Trust, it may not
be made aware of all of the relevant information of a particular risk. Most of
the Trust’s investment management and business affairs are carried out by or
through the Sub-Advisor and other service providers each of which has an
independent interest in risk management but whose policies and the methods by
which one or more risk management functions are carried out may differ from the
Trust’s and each other’s in the setting of priorities, the resources available,
or the effectiveness of relevant controls. As a result of the foregoing and
other factors, the Board’s risk management oversight is subject to substantial
limitations.
The
Chairman of the Board, Don Schreiber, Jr., is an interested person of the Trust
as that term is defined under Section 2(a)(19) of the 1940 Act (“Interested
Trustee”)
because of his affiliation with the Advisor and the Sub-Advisor. Three of the
Trustees (Jude T. Depko, John A. Flanagan, and Andrew Putterman) and their
immediate family members have no affiliation or business connection with the
Advisor, the Sub-Advisor, or the Funds’ principal underwriter or any of their
affiliated persons and do not own any stock or other securities issued by the
Advisor, the Sub-Advisor, or the Funds’ principal underwriter. These Trustees
are not Interested Persons of the Trust and are referred to herein as
“Independent
Trustees”.
There
is an Audit Committee and a Nominating Committee of the Board, each of which is
comprised solely of Independent Trustees. The chair of the Audit Committee is
John Flanagan, an Independent Trustee. The Committee chair for each Committee is
responsible for running the Committee meeting, formulating agendas for those
meetings, and coordinating with management to serve as a liaison between the
Independent Trustees and management on matters within the scope of the
responsibilities of such Committee as set forth in its Board-approved
charter.
The
Independent Trustees have not designated a lead Independent Trustee given that
the number of Trustees is limited. In the future, a lead Independent Trustee may
be appointed who will preside over executive sessions of the Independent
Trustees, review and provide input on Trust meeting agendas and materials, and
represent the Independent Trustees in discussions with the Advisor and the
Sub-Advisor. The Board has determined that its leadership and committee
structure is appropriate. The Board made this determination in consideration of,
among other things, the fact that the Independent Trustees constitute a majority
of the Board, the assets under management of the Funds, the number of portfolios
overseen by the Board and the total number of Trustees on the Board. Currently,
the Independent Trustees are not represented by “independent counsel”; however,
at any time, they are entitled to request representation by independent counsel
at the Trust’s expense.
Members
of the Board and Officers of the Trust.
Set forth below are the names, years of birth, position with the Trust, term of
office, portfolios supervised and the principal occupations and
other
directorships
for a minimum of the last five years of each of the persons currently serving as
members of the Board and as Executive Officers of the Trust. Also included below
is the term of office for each
of
the Executive Officers of the Trust. The members of the Board serve as Trustees
for the life of the Trust or until retirement, removal, or their office is
terminated pursuant to the Trust’s Declaration of Trust.
Trustees
and Officers
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Name
and Year of Birth(1) |
Position(s)
Held with Trust |
Term
of Office and Length of Time Served(2) |
Principal
Occupation(s) During Past 5 Years |
Number
of Portfolios in Fund Complex Overseen by Trustee(3) |
Other
Directorships Held by Trustee During Past 5 Years |
|
Independent
Trustees: |
Jude
T. Depko
1946 |
Trustee |
Since
June 2014 |
Retired.
Former Technical Consultant, Michael Baker Jr., Inc.
(consulting).
|
4 |
None |
John
A. Flanagan
1946 |
Trustee |
Since
June 2014 |
Chief
Financial Officer and Treasurer, ETF Managers Trust (investment company)
(2015 to present); Principal Financial Officer, ETF Managers Capital, LLC
(commodity pool operator) (2014 to present); President, John A. Flanagan
CPA, LLC (accounting services) (2010 to present).
|
4 |
None |
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Name
and Year of Birth(1) |
Position(s)
Held with Trust |
Term
of Office and Length of Time Served(2) |
Principal
Occupation(s) During Past 5 Years |
Number
of Portfolios in Fund Complex Overseen by Trustee(3) |
Other
Directorships Held by Trustee During Past 5 Years |
Andrew
Putterman
1959 |
Trustee |
Since
June 2014 |
Principal,
1812 Park, LLC (financial consulting) (2014 to present); Advisory Board
Member, Silver Lane Advisors (2016 to 2020); Advisory Board Member,
Vestigo Ventures 1 GP, LLC (2016 to present); Managing Director, B+
Institutional Services, LLC (2014 to present); Board Member, Capital
Integration Systems, LLC (2021 to
present). |
4 |
Independent
Board Member of Steben Select Multi-Strategy Fund (2018 to March 2020);
Independent Board Member of Steben Select Managed Futures Strategy Fund
(2018 to March 2020); Independent Board Member of Steben Alternative
Investment Funds (2018 to March 2020) |
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|
Name
and Year of Birth(1) |
Position(s)
Held with Trust |
Term
of Office and Length of Time Served(2) |
Principal
Occupation(s) During Past 5 Years |
Number
of Portfolios in Fund Complex Overseen by Trustee(3) |
Other
Directorships Held by Trustee During Past 5 Years |
| Interested
Trustees: |
|
Don
Schreiber, Jr.
1955(4)
|
Trustee,
President and Principal Executive Officer |
Since
November 2013 |
Co-Chief
Executive
Officer, Director,
Treasurer, Chief Compliance Officer and
Co-Portfolio Manager, WBI Investments, LLC
(registered
investment
advisor) (1984 to
present); Co-Chief Investment Officer
and Chief Compliance Officer, WBI Investments, LLC (registered investment
advisor) (2024 to present); Chief
Executive Officer,
Treasurer,
Director and Chief Compliance Officer, Millington Securities, LLC
(registered investment advisor) (2013 to present); Co-Chief Executive
Officer, Vice President, Director
and Treasurer,
Hartshorne Group,
LLC
(wealth management
services) (2008 to
present);
Managing
Member, Secretary,
Treasurer, and Chief
Visionary
Officer,
CyborgTech, LLC (2019
to present).
|
4 |
None |
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Name
and Year of Birth(1) |
Position(s)
Held with Trust |
Term
of Office and Length of Time Served(2) |
Principal
Occupation(s) During Past 5 Years |
Number
of Portfolios in Fund Complex Overseen by Trustee(3) |
Other
Directorships Held by Trustee During Past 5 Years |
|
Matthew
Schreiber
1980(4) |
Trustee |
Since
June 2014 |
Co-Chief
Executive
Officer of WBI
Investments, LLC (2019 to present);
Co-Portfolio Manager and Co-Chief Investment Officer of WBI Investments,
LLC (2024 to present); Chief Investment Strategist of WBI Investments,
LLC
(2017 to present), Chief Executive Officer of CyborgTech, LLC (2019
to present); Co-Chief Executive Officer,
Hartshorne Group,
LLC
(wealth management
services) (April 2022
to
present). |
4 |
None |
|
|
|
|
|
|
|
|
|
|
|
|
| Name
and Year of Birth |
Positions
held with Trust |
Term
of Office and Length of Time Served |
Principal
Occupation(s) During Past 5 Years |
|
Other
Officers: |
|
Ann
Schreiber
1984(5)
|
Secretary
& Chief Legal Officer |
Since
June 2014 |
President,
CyborgTech, LLC (2019 to present); Chief Marketing Officer, WBI
Investments, LLC (2015 to present); Corporate Secretary, WBI Investments,
LLC; Millington Securities, LLC; Hartshorne
Group, LLC (2012 to
present).
|
Adam
Shoffner
1979 |
Chief
Compliance Officer |
Since
November 2023 |
Senior
Principal Consultant of ACA Group (2020 to present); Vice President of
Duff & Phelps (2018 to 2020); Director—Regulatory Administration of
Foreside Financial Group (2017 to 2018).
|
Fred
Teufel
1959
|
Treasurer
& Principal Financial Officer |
Since
July 2024 |
Director,
Vigilant Compliance, LLC (2020 to present); Professor of Accounting, Saint
Joseph’s University (2015 to 2021).
|
(1)The
address of each Trustee or officer is c/o Absolute Shares Trust, 331 Newman
Springs Road, Suite 143, Red Bank, New Jersey 07701.
(2)Trustees
and Officers serve until their successors are duly elected and
qualified.
(3)The
Fund is part of a “Fund Complex” as defined in the 1940 Act. The Fund Complex
includes all open-end funds (including all of their portfolios) advised by the
Advisor or the Sub-Advisor and any funds that have an investment advisor that is
an affiliated person of the Advisor. As of the date of this SAI, the Fund
Complex consists of the 4 Funds of the Trust.
(4)Don
Schreiber Jr. and Matthew Schreiber are each an “interested person” of the Trust
(as that term is defined in the 1940 Act) because of their affiliations with the
Advisor and the Sub-Advisor. Don Schreiber, Jr. is the father of Matthew
Schreiber.
(5)Ann
Schreiber is the daughter of Don Schreiber, Jr., and the sister of Matthew
Schreiber.
Description
of Standing Board Committees
Audit
Committee.
The principal responsibilities of the Audit Committee are the appointment,
compensation, and oversight of the Trust’s independent auditors, including the
resolution of disagreements regarding financial reporting between Trust
management and such independent auditors. The Audit Committee’s responsibilities
include, without limitation, to (i) oversee the accounting and financial
reporting processes of the Trust and its internal control over financial
reporting and, as the Committee deems appropriate, to inquire into the internal
control over financial reporting of certain third-party service providers; (ii)
oversee the quality and integrity of the Funds’ financial statements and the
independent audits thereof; (iii) oversee, or, as appropriate, assist Board
oversight of, the Trust’s compliance with legal and regulatory requirements that
relate to the Trust’s accounting and financial reporting, internal control over
financial reporting, and independent audits; (iv) approve, prior to appointment,
the engagement of the Trust’s independent auditors and, in connection therewith,
to review and evaluate the qualifications, independence, and performance of the
Trust’s independent auditors; and (v) act as a liaison between the Trust’s
independent auditors and the full Board. The Board has adopted a written charter
for the Audit Committee. The Trust Board’s Audit Committee is comprised of all
Independent Trustees of the Trust, except for Jude Depko. During the fiscal year
ended June 30, 2023, the Audit Committee met two times.
Nominating
Committee.
The Nominating Committee has been established to: (i) assist the Board in
matters involving registered investment company governance and industry
practices; (ii) select and nominate candidates for appointment or election to
serve as Trustees who are not “interested persons” of the Trust or its
Sub-Advisor or distributor (as defined by the 1940 Act); and (iii) advise the
Board of Trustees on ways to improve its effectiveness. All of the Independent
Trustees serve on the Nominating Committee. As stated above, each Trustee holds
office for an indefinite term until the occurrence of certain events. In filling
Board vacancies, the Nominating Committee will consider nominees recommended by
Fund shareholders. Nominee recommendations should be submitted to the Trust at
its mailing address stated in the Fund’s Prospectus and should be directed to
the attention of the Trust’s Nominating Committee. The Trust’s Nominating
Committee is comprised of all Independent Trustees of the Trust. During the
fiscal year ended June 30, 2023, the Nominating Committee met one
time.
Individual
Trustee Qualifications
The
Trust has concluded that each Trustee should serve on the Board because of his
ability to review and understand information about the Trust and the Funds
provided to him by management, to identify and request other information he may
deem relevant to the performance of his duties, to question management and other
service providers regarding material factors bearing on the management and
administration of the Funds, and to exercise his business judgment in a manner
that serves the best interests of the Funds and their shareholders. The Trust
has concluded that each of the Trustees should serve as a Trustee based on their
own experience, qualifications, attributes, and skills as described
below.
The
Trust has concluded that Don Schreiber, Jr. should serve as chairman and trustee
of the Funds because of the experience he has gained as Chief Executive Officer
of each of the Advisor, Sub-Advisor, and Hartshorne Group, and his general
knowledge of and experience in the financial services industry.
The
Trust has concluded that John A. Flanagan should serve as trustee of the Funds
and as the audit committee financial expert because of the experience he has
gained as a certified public accountant licensed to practice in New Jersey, New
York, and Massachusetts, including employment with Ernst & Young,
PricewaterhouseCoopers, Strong Mutual Funds, and the New York Life family of
Mutual Funds, and his experience with mutual funds and exchange-traded funds,
including those of MacroMarkets LLC.
The
Trust has concluded that Jude T. Depko should serve as trustee of the Funds
because of the operational and coordination experience he has gained as
technical consultant for Michael Baker Jr., Inc. and as Director of Operations
and Principal Traffic Engineer for the New Jersey Turnpike
Authority.
The
Trust has concluded that Andrew Putterman should serve as trustee of the Fund
because of the experience he has gained as Principal of 1812 Park, LLC, Chairman
Emeritus, Chief Executive Officer and President of Fortigent LLC, and service as
a director of Princeton Private Equity Fund and The Private Trust Company, as
well as his extensive experience in the financial industry.
The
Trust has concluded that Matthew Schreiber should serve as trustee of the Funds
because of the experience he has gained as Vice President, President, and
Co-Chief Executive Officer of the Sub-Advisor, and his general knowledge of and
experience in investment management.
Trustee
Ownership of Fund Shares and Other Interests
The
following table shows the amount of equity securities owned in each Fund by the
Trustees as of December 31, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dollar
Range of Equity Securities Owned: |
Interested
Trustees: |
Non-Interested
Trustees: |
|
Don
Schreiber,
Jr. |
Matthew
Schreiber |
Jude
T.
Depko |
John
A.
Flanagan |
Andrew
Putterman |
| WBI
BullBear Value 3000 ETF |
More
than $100,000 |
$10,001
- $50,000 |
$10,001
- $50,000 |
$0 |
$0 |
| WBI
BullBear Yield 3000 ETF |
More
than $100,000 |
$10,001
- $50,000 |
$10,001
- $50,000 |
$0 |
$0 |
| WBI
BullBear Quality 3000 ETF |
More
than $100,000 |
$1-$10,000 |
$10,001
- $50,000 |
$0 |
$0 |
|
WBI
Power Factor®
High Dividend ETF |
More
than $100,000 |
$50,001
- $100,000 |
$10,001-
$50,000 |
$0 |
$0 |
|
WBI
BullBear Trend Switch US 1000 ETF 1 |
$0 |
$0 |
$0 |
$0 |
$0 |
|
WBI
BullBear Trend Switch US 2000 ETF 1 |
$0 |
$0 |
$0 |
$0 |
$0 |
|
WBI
BullBear Trend Switch US 1000 Total Return ETF 1 |
$0 |
$0 |
$0 |
$0 |
$0 |
|
WBI
BullBear Trend Switch US 2000 Total Return ETF 1 |
$0 |
$0 |
$0 |
$0 |
$0 |
| Aggregate
Dollar Range of Equity Securities |
More
than $100,000 |
More
than $100,000 |
$50,001
- $100,000 |
$0 |
$0 |
1.As
of the date of this SAI, the Fund has not commenced operations and, therefore no
Trustee or officer of the Trust owned Shares.
As
of June 30, 2023, neither the Independent Trustees nor members of their
immediate family, own securities beneficially or of record in the Advisor,
Sub-Advisor and the Distributor, as defined below, or an affiliate of the
Advisor, Sub-Advisor or the Distributor. Accordingly, neither the Independent
Trustees nor members of their immediate family, have direct or indirect
interest, the value of which exceeds $120,000, in the Advisor, Sub-Advisor, the
Distributor, or any of their affiliates.
Board
Compensation
Each
Independent Trustee receives an annual stipend of $3,000 annually per Fund and
reimbursement for all reasonable travel expenses relating to their attendance at
the Board Meetings. The chairman of the Audit Committee and Governance and
Nominating each receive an annual stipend of $5,000, and each Independent
Trustee serving on the Audit Committee receives an annual stipend of $2,500 and
each Independent Trustee serving on the Governance and Nominating Committee
(except the chairman thereof) receives an annual stipend of $5,000. Interested
Trustees are not compensated for their service as Trustees or as members of
Board committees. The following tables show the compensation earned by each
Trustee for the Fund for the fiscal year ended June 30, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Compensation
From Each Fund |
Interested
Trustees: |
Non-Interested
Trustees: |
|
Don
Schreiber,
Jr. |
Matthew
Schreiber |
Jude
T.
Depko |
John
A.
Flanagan |
Andrew
Putterman |
|
WBI
BullBear Value 3000 ETF |
$0 |
$0 |
$8,750 |
$10,000 |
$8,750 |
|
WBI
BullBear Yield 3000 ETF |
$0 |
$0 |
$8,750 |
$10,000 |
$8,750 |
|
WBI
BullBear Quality 3000 ETF |
$0 |
$0 |
$8,750 |
$10,000 |
$8,750 |
|
WBI
Power Factor®
High Dividend ETF |
$0 |
$0 |
$8,750 |
$10,000 |
$8,750 |
|
WBI
BullBear Trend Switch US 1000 ETF + |
$0 |
$0 |
$0 |
$0 |
$0 |
|
WBI
BullBear Trend Switch US 2000 ETF + |
$0 |
$0 |
$0 |
$0 |
$0 |
|
WBI
BullBear Trend Switch US 1000 Total Return ETF + |
$0 |
$0 |
$0 |
$0 |
$0 |
|
WBI
BullBear Trend Switch US 2000 Total Return ETF + |
$0 |
$0 |
$0 |
$0 |
$0 |
|
Total
Compensation From Fund Complex Paid to Trustees |
$0 |
$0 |
$35,000 |
$40,000 |
$35,000 |
+ The
Fund had not yet commenced operations as of June 30, 2023.
Code
of Ethics
The
Trust, its Advisor, its Sub-Advisor, and Foreside Financial Group, LLC, on
behalf of Foreside Fund Services, LLC and Foreside Fund Officer Services, LLC,
have each adopted codes of ethics under Rule 17j-1 of the 1940 Act that permit
personnel subject to their particular codes of ethics to invest in securities,
including securities that may be purchased or held by the Funds.
PROXY
VOTING POLICIES AND PROCEDURES
The
Board has adopted Proxy Voting Policies and Procedures (the “Policies”)
on behalf of the Trust which delegate the responsibility for voting proxies to
the Sub-Advisor, subject to the Board’s continuing oversight. The Policies
require that the Sub-Advisor vote proxies received in a manner consistent with
the best interests of each Fund and its shareholders. The Policies also require
the Sub-Advisor to present to the Board, at least annually, the Sub-Advisor’s
Policies and a record of each proxy involving a conflict of interest for the
Sub-Advisor and how the conflict of interest was resolved with respect to voting
of each proxy.
The
Sub-Advisor has adopted Proxy Voting Policies and Procedures (“Proxy
Voting Policies”)
that provide that proxies on securities will be voted for the exclusive benefit,
and in the best economic interest of, Fund shareholders, as determined by the
Sub-Advisor in good faith, subject to any restrictions or directions of the
Fund. Such voting responsibilities will be exercised in a manner that is
consistent with the general anti-fraud provisions of the Investment Advisers Act
of 1940, as amended, as well as the Sub-Advisor’s fiduciary duties under federal
and state law to act in the best interest of its clients.
The
Sub-Advisor has engaged Broadridge, an unbiased third party proxy voting
service, to receive and review proxy voting statements, provide information and
research, make proxy voting recommendations, and handle the administrative
functions associated with the voting of proxies. The Sub-Advisor will generally
vote proxies in accordance with these recommendations, but reserves the right to
exercise its own judgment on a case-by-case basis. If the Sub-Advisor determines
that voting a particular proxy would create a material conflict of interest
between its interest or the interests of any of its affiliated parties and the
interests of the Fund, the Sub-Advisor will vote such proxy based upon the
recommendations of the independent third party proxy voting service. The
Sub-Advisor’s Chief Compliance Officer is ultimately responsible for ensuring
that all proxies received by the Sub-Advisor are voted in a timely manner and in
a manner consistent with the Sub-Advisor’s determination of the client’s best
interests. Although many proxy proposals may be voted in accordance with the
guidelines established in these Proxy Voting Policies, some proposals require
special consideration which may dictate an exception to the policies and
procedures.
The
Trust is required to file a Form N-PX, with each Fund’s complete proxy voting
record for the 12 months ended June 30, no later than August 31 of each year.
Each Fund’s proxy voting record is available without charge, upon request, by
calling toll-free (855) WBI-ETFS or (855) 924-3837, on the Trust’s website at
https://wbietfs.com/documents/, effective August 2024, and on the SEC’s website
at www.sec.gov.
CONTROL
PERSONS AND PRINCIPAL SHAREHOLDERS OF SECURITIES
A
principal shareholder is any person who owns of record or beneficially 5% or
more of the outstanding shares of a Fund. A control person is one who owns
beneficially or through controlled companies more than 25% of the voting
securities of a company or acknowledges the existence of control. Shareholders
with a controlling interest could affect the outcome of voting or the direction
of management of a Fund. As of September 29, 2023, the Trustees and officers of
the Trust, as a group, owned less than 1% of the Shares of each Fund. As of
September 29, 2023, the following shareholders were each considered to be a
principal shareholder of the applicable Fund(s):
|
|
|
|
|
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|
|
|
|
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|
|
|
|
| WBI
BullBear Value 3000 ETF |
| Name
and Address |
%
Ownership |
Parent
Company |
Jurisdiction
of Organization |
Ownership
Type |
Pershing
LLC
P.O. Box 2052
Jersey City, NJ 07303-2052
|
77.87% |
Pershing
LLC |
NJ |
Record |
LPL
Financial
75 State Street, 22nd Floor
Boston, MA 02109
|
9.01% |
N/A |
N/A |
Record |
Bank
of America
Four World Financial Center
250 Vesey Street
New York,
NY 10281 |
6.44% |
N/A |
N/A |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| WBI
BullBear Yield 3000 ETF |
| Name
and Address |
%
Ownership |
Parent
Company |
Jurisdiction
of Organization |
Ownership
Type |
Pershing
LLC
P.O. Box 2052
Jersey City, NJ 07303-2052
|
82.44% |
Pershing
LLC |
NJ |
Record |
LPL
Financial
75 State Street, 22nd Floor
Boston, MA 02109
|
9.05% |
N/A |
N/A |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| WBI
BullBear Quality 3000 ETF |
| Name
and Address |
%
Ownership |
Parent
Company |
Jurisdiction
of Organization |
Ownership
Type |
Pershing
LLC
P.O. Box 2052
Jersey City, NJ 07303-2052
|
83.28% |
Pershing
LLC |
NJ |
Record |
LPL
Financial
75 State Street, 22nd Floor
Boston, MA 02109 |
8.89% |
N/A |
N/A |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WBI
Power Factor® High Dividend ETF |
| Name
and Address |
%
Ownership |
Parent
Company |
Jurisdiction
of Organization |
Ownership
Type |
Pershing
LLC
P.O. Box 2052
Jersey City, NJ 07303-2052
|
60.13% |
Pershing
LLC |
NJ |
Record |
LPL
Financial
75 State Street, 22nd Floor
Boston, MA 02109
|
15.03% |
LPL
Holdings, Inc. |
CA |
Record |
Morgan
Stanley Smith Barney, LLC
Harborside Financial Center Plaza
23rd
Floor
Jersey City, NJ 07311 |
5.47% |
N/A |
N/A |
Record |
MANAGEMENT
SERVICES
The
following information supplements and should be read in conjunction with the
section in the Prospectus entitled “Management.”
Advisor
and Sub-Advisor
Millington
Securities, LLC acts as investment advisor to the Funds pursuant to investment
advisory agreements (each, an “Advisory
Agreement”)
with the Trust. Millington Securities, LLC is a registered investment advisor.
Don Schreiber, Jr., a co-portfolio manager of the Funds, is the Chief Executive
Officer of the Advisor and is therefore a control person of the
Advisor.
WBI
Investments, LLC is an affiliate of Millington Securities, LLC and acts as the
“Sub-Advisor”
to the Funds pursuant to sub-advisory agreements (each, a “Sub-Advisory
Agreement”).
Don Schreiber, Jr. founded the Sub-Advisor in 1984 and serves as its Co-Chief
Executive Officer and is therefore a control person of the
Sub-Advisor.
After
their initial two year term, both the Advisory Agreements and the Sub-Advisory
Agreements continue in effect for successive annual periods so long as such
continuation is specifically approved at least annually by the vote of (1) the
Board (or a majority of the outstanding shares of the Funds), and (2) a majority
of the Trustees who are not interested persons of any party to the Advisory
Agreements or the Sub-Advisory Agreements, in each case, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreements and the Sub-Advisory Agreements may be terminated at any time,
without penalty, by either party to the Advisory Agreements or the Sub-Advisory
Agreements upon a 60-day written notice and is automatically terminated in the
event of its “assignment,” as defined in the 1940 Act.
In
consideration of the services provided by the Sub-Advisor pursuant to the
Sub-Advisory Agreements, the Sub-Advisor is entitled to receive from each Fund a
management fee, computed daily and payable monthly, based on a rate set forth in
the table below, of each Fund’s average daily net assets. The Advisor has
delegated the Sub-Advisor to receive such fee directly from the Funds. The
Advisor is paid 0.04% of each Fund’s average daily net assets (calculated daily
and paid monthly) from the management fees collected by the
Sub-Advisor.
|
|
|
|
|
|
| Fund |
Investment
Advisory Fee |
| WBI
BullBear Value 3000 ETF |
0.85% |
| WBI
BullBear Yield 3000 ETF |
0.85% |
| WBI
BullBear Quality 3000 ETF |
0.85% |
|
WBI
Power Factor® High Dividend ETF |
0.55% |
|
WBI
BullBear Trend Switch US 1000 ETF + |
0.65% |
|
WBI
BullBear Trend Switch US 2000 ETF + |
0.65% |
|
WBI
BullBear Trend Switch US 1000 Total Return ETF + |
0.65% |
|
WBI
BullBear Trend Switch US 2000 Total Return ETF + |
0.65% |
+ The
Fund had not yet commenced operations as of June 30, 2023.
Fund
Expenses (Funds other than the Trend Switch Funds)
In
addition to the management fees payable to the Sub-Advisor, the WBI BullBear
Value 3000 ETF, WBI BullBear Yield 3000 ETF, WBI BullBear Quality 3000 ETF, and
WBI Power Factor® High Dividend ETF are responsible for their own operating
expenses, including: fees and expenses incurred in connection with the issuance,
registration, and transfer of its Shares; brokerage and commission expenses; all
expenses of transfer, receipt, safekeeping, servicing, and accounting for the
cash, securities, and other property of the Trust for the benefit of the
applicable Fund, including all fees and expenses of its custodian and accounting
services agent; interest charges on any borrowings; costs and expenses of
pricing and calculating its daily NAV per share and of maintaining its books of
account required under the 1940 Act; taxes, if any; a pro rata portion of
expenditures in connection with meetings of the Funds’ shareholders and the
Board that are properly payable by the Funds; salaries and expenses of officers
and fees and expenses of members of the Board or members of any advisory board
or committee who are not members of, affiliated with, or interested persons of
the Advisor, the Sub-Advisor, or the Administrator; insurance premiums on
property or personnel of the Funds which inure to their benefit, including
liability and fidelity bond insurance; the cost of preparing and printing
reports, proxy statements, prospectuses, and the SAI of the Funds or other
communications for distribution to existing shareholders; legal counsel,
auditing, and accounting fees; trade association membership dues (including
membership dues, such as if the Trust becomes a member of the Investment Company
Institute, dues allocable to each Fund); fees and expenses (including legal
fees) of registering and maintaining registration of its Shares for sale under
federal and applicable state and foreign securities laws; all expenses of
maintaining shareholder accounts, including all charges for transfer,
shareholder recordkeeping, dividend disbursing, redemption, and other agents for
the benefit of each Fund, if any; and all other charges and costs of its
operation plus any extraordinary and non-recurring expenses, except as otherwise
prescribed in the applicable Advisory Agreement and the applicable Sub-Advisory
Agreement.
Expense
Limitation Agreement
The
Sub-Advisor has entered into an Expense Limitation Agreement with the Funds
other than the Trend Switch Funds under which it has agreed to waive or reduce
its fees and to assume other expenses of each such Fund, if necessary, in an
amount that limits “Total Annual Fund Operating Expenses” (exclusive of
interest, taxes, brokerage commissions, acquired fund fees, dividend payments on
short sales, other expenditures which are capitalized in accordance with
generally accepted accounting principles, other extraordinary expenses not
incurred in the ordinary course of a Fund’s business, and amounts, if any,
payable pursuant to a plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940), and organizational costs
(“Operating
Expenses”)
to not more than 1.70% of the average daily net assets for each of the WBI
BullBear Value 3000 ETF, WBI BullBear Yield 3000 ETF, and WBI BullBear Quality
3000 ETF for the fiscal year and 1.00% of the average daily net assets for the
WBI Power Factor®
High
Dividend ETF for the fiscal year.
The
Sub-Advisor currently expects that the contractual agreement will continue from
fiscal year-to-fiscal year, provided such continuance is approved by the Board
on behalf of the applicable Funds. A Fund may terminate the Expense Limitation
Agreement at any time. The Sub-Advisor may also terminate the Expense Limitation
Agreement in respect of any Fund at the end of the then-current term upon not
less than 90 days’ notice to the applicable Fund. The terms of the Expense
Limitation Agreement may be revised upon renewal. The Sub-Advisor is permitted
to recoup from a Fund previously waived fees or reimbursed expenses for three
years from the fiscal year in which fees were waived or expenses reimbursed, as
long as such recoupment does not cause such Fund’s operating expenses to exceed
the then applicable expense cap in place either at the time of recoupment or the
time such fees were waived or expenses were reimbursed.
Unitary
Fee Arrangement (Trend Switch Funds only)
Under
the Trend Switch Funds’ Advisory Agreement, the Advisor has agreed to pay or
will cause its affiliated Sub-Advisor to pay, all of the expenses of each Fund,
except for: the fee payment under the Trend Switch Funds’ Advisory Agreement,
payments under each Fund’s 12b-1 plan, brokerage expenses, acquired fund fees
and expenses, taxes, interest (including borrowing costs and dividend expenses
on securities sold short), compensation and expenses of the independent Trustees
(including independent Trustee counsel fees), litigation expenses, and other
extraordinary expenses (including litigation to which the Trust or a Trend
Switch Fund may be a party and indemnification of the Trustees and officers with
respect thereto). The foregoing arrangement is referred to as a “unitary” fee
arrangement.
The
expenses of the Trend Switch Funds, which are subject to the unitary fee
arrangement under the Trend Switch Funds’ Advisory Agreement, include, but are
not limited to: salaries, expenses, and fees of the Trustees and officers of the
Trust who are officers, directors/trustees, partners, or employees of the
Advisor or its affiliates; any assumption of expense of the Trust by the
Advisor; the costs of preparing, setting in type, printing and mailing of
prospectuses, prospectus supplements, SAI, annual, semiannual, and periodic
reports, and notices and proxy solicitation materials required to be furnished
to shareholders of the Trust or regulatory authorities, and all tax returns; all
legal and other fees and expenses incurred in connection with the affairs of the
Trust, including those incurred with respect to registering its shares with
regulatory authorities and all fees and expenses incurred in connection with the
preparation, setting in type, printing, and filing with necessary regulatory
authorities of any registration statement and prospectus, and any amendments or
supplements that may be made from time to time, including registration, filing
and other fees in connection with requirements of regulatory authorities; all
expenses of the transfer, receipt, safekeeping, servicing and accounting for the
Trust’s cash, securities, and other property, including all charges of
depositories, custodians, and other agents, if any; the charges for the services
and expenses of the independent accountants and legal counsel retained by the
Trust, for itself; the charges and expenses of maintaining shareholder accounts,
including all charges of transfer, bookkeeping, and dividend disbursing agents
appointed by the Trust; any membership fees, dues or expenses incurred in
connection with the Trust’s membership in any trade association or similar
organizations, as approved by the Trustees; all insurance premiums for fidelity
and other coverage, as approved by the Trustees; all expenses
incidental
to holding shareholders and Trustees meetings, including the printing of notices
and proxy materials and proxy solicitation fees and expenses; and all expenses
of pricing of the net asset value per share of each Fund, including the cost of
any equipment or services to obtain price quotations.
Management
Fees Paid
The
management fees paid to the Sub-Advisor and the amount of any advisory fees
waived or expenses reimbursed pursuant to the Expense Limitation Agreement are
indicated for the fiscal periods in the tables below. The Future Funds had not
yet commenced operations as of June 30, 2023, and consequently, are not included
in the tables below.
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|
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|
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|
|
|
|
|
|
|
|
|
| Fiscal
Year Ended June 30, 2023 |
| Fund |
Gross
Management Fees Earned |
|
Fees
Waived/
Expenses Reimbursed |
|
Net
Management Fees Paid |
|
WBI
BullBear Value 3000 ETF |
$349,006 |
|
$(163,249) |
|
$185,757 |
|
WBI
BullBear Yield 3000 ETF |
$470,111 |
|
$(110,851) |
|
$359,259 |
|
WBI
BullBear Quality 3000 ETF |
$348,695 |
|
$(165,942) |
|
$182,753 |
|
WBI
Power Factor® High Dividend ETF |
$400,910 |
|
$(219,678) |
|
$181,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal
Year Ended June 30, 2022 |
| Fund |
Gross
Management Fees Earned |
|
Fees
Waived/
Expenses Reimbursed |
|
Net
Management Fees Paid |
| WBI
BullBear Value 3000 ETF |
$412,022 |
|
$(61,975) |
|
$350,047 |
| WBI
BullBear Yield 3000 ETF |
$373,149 |
|
$(80,088) |
|
$293,061 |
| WBI
BullBear Quality 3000 ETF |
$362,182 |
|
$(85,736) |
|
$276,446 |
|
WBI
Power Factor® High Dividend ETF |
$361,071 |
|
$(159,961) |
|
$201,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal
Year Ended June 30, 2021 |
| Fund |
Gross
Management Fees Earned |
|
Fees
Waived/
Expenses Reimbursed |
|
Net
Management Fees Paid |
| WBI
BullBear Value 3000 ETF |
$360,464 |
|
$(48,760) |
|
$311,704 |
| WBI
BullBear Yield 3000 ETF |
$443,660 |
|
$(10,012) |
|
$433,648 |
| WBI
BullBear Quality 3000 ETF |
$407,206 |
|
$(29,355) |
|
$377,851 |
|
WBI
Power Factor® High Dividend ETF |
$270,347 |
|
$(135,307) |
|
$135,040 |
Portfolio
Managers
The
portfolio managers responsible for the day-to-day management of the Funds are
Mr. Don Schreiber, Jr., Founder and Co-Chief Executive Officer of the
Sub-Advisor, and Matthew Schreiber, Co-Chief Executive Officer of the
Sub-Advisor.
Other
Accounts Managed
The
following table provides additional information about other portfolios or
accounts managed by the Funds’ portfolio managers as of June 30, 2023. Total
number of other accounts managed
by
the portfolio managers within each category below and the total assets in the
accounts managed within each category below.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
Registered
Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
|
Number
of Accounts |
Total
Assets ($mm) |
Number
of Accounts |
Total
Assets ($mm) |
Number
of Accounts |
Total
Assets ($mm) |
| Matthew
Schreiber |
0 |
$0 |
0 |
$0 |
1,600 |
$367.67 |
|
| Don
Schreiber, Jr. |
0 |
$0 |
0 |
$0 |
1,600 |
$367.67 |
|
*A
portion of the separately managed accounts are invested in the Funds. As of June
30, 2023, these accounts have an approximate total asset value of $125.36
million in the Funds. None of the accounts managed by the portfolio managers pay
performance fees.
Material
Conflicts of Interest
Don
Schreiber, Jr., and Matthew Schreiber also manage separate accounts for advisory
clients (“SMA Clients”) of the Sub-Advisor, other Funds in the Trust. There is a
potential conflict with managing multiple SMA Client accounts and the Funds,
including conflicts among the investment strategies and trade allocations to the
accounts and the Funds. The intention of the Sub-Advisor is to treat the various
accounts fairly. The Sub-Advisor may combine or aggregate orders for SMA Clients
and the Funds, in an effort to obtain best execution, to negotiate more
favorable commission rates, or to equitably allocate among the Sub-Advisor’s SMA
Clients and the Funds improvements in price and transaction fees or other
transaction costs that might not have been obtained had such orders been placed
independently. If the Sub-Advisor combines or aggregates client orders, for
those client accounts included in the combined or aggregated orders,
transactions for relevant client accounts will be averaged as to price and will
be allocated among the relevant client accounts in proportion to the purchase
(or sale) orders placed for each relevant client account.
Compensation
Compensation
paid to Don Schreiber, Jr. and Matthew
Schreiber,
in their capacity as portfolio managers of the Funds, is not tied directly to
performance of the Funds. The portfolio managers receive a fixed base salary and
are eligible to receive an annual discretionary bonus. Base salary compensation
is reviewed annually. Discretionary compensation may include consideration of
Sub-Advisor financial results, expense control, profit margins, strategic
planning and implementation, quality of client service, market share, corporate
reputation, compliance and risk control, leadership and innovation. These
factors are considered collectively by executive management of the Sub-Advisor.
A portfolio manager's aggregate salary compensation is designed to be
competitive with the marketplace and further, to reflect the portfolio manager's
relative experience and contribution to the Sub-Advisor. As shareholder of the
parent company of the Advisor and shareholder of the Sub-Advisor, Mr. Schreiber
may also benefit economically from any profits generated by the Advisor and
Sub-Advisor.
Ownership
of Securities
As
of June 30, 2023, the dollar range of equity securities in the Funds
beneficially owned by the Portfolio Managers were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fund |
|
Don
Schreiber, Jr. |
|
Matthew
Schreiber |
|
WBI
BullBear Value 3000 ETF |
|
$10,001
- $50,000 |
|
$10,001
- $50,000 |
|
WBI
BullBear Yield 3000 ETF |
|
$10,001
- $50,000 |
|
$10,001
- $50,000 |
|
WBI
BullBear Quality 3000 ETF |
|
$10,001
- $50,000 |
|
$10,001
- $50,000 |
|
WBI
Power Factor® High Dividend ETF |
|
$50,001
- $100,000 |
|
$10,001
- $50,000 |
The
Future Funds had not yet commenced operations as of June 30, 2023, and therefore
no Portfolio Managers owned Shares.
OTHER
SERVICE PROVIDERS
Fund
Administrator, Custodian, Transfer Agent and Securities Lending
Agent
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services
(“Fund
Services”),
615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as administrator,
transfer agent and index, receipt agent. Pursuant to a Fund Administration
Servicing Agreement and a Fund Accounting Servicing Agreement between the Trust
and Fund Services, Fund Services provides the Trust with administrative and
management services (other than investment advisory services), and accounting
services, including portfolio accounting services, tax accounting services, and
furnishing financial reports. In this capacity, Fund Services does not have any
responsibility or authority for the management of the Funds, the determination
of investment policy, or for any matter pertaining to the distribution of Funds’
Shares. As compensation for the administration, accounting, and management
services, the Sub-Advisor pays Fund Services a fee based on each Fund’s average
daily net assets, subject to a minimum annual fee, as well as certain
out-of-pocket expenses, including pricing expenses.
Pursuant
to a Custody Agreement, U.S. Bank National Association, 1555 North Rivercenter
Drive, Suite 302, Milwaukee, Wisconsin 53212, serves as the custodian of
the Funds’ assets. The custodian holds and administers Fund assets. Pursuant to
the Custody Agreement, the custodian receives an annual fee from the Sub-Advisor
based on the Trust’s total average daily net assets, subject to a minimum annual
fee, and certain settlement charges. The custodian also is entitled to certain
out-of-pocket expenses.
For
the three most recent fiscal periods ended June 30, the Funds paid the fees
in the table below to Fund Services and U.S. Bank National Association for
administration, fund accounting, and custodian services. The Future Funds had
not yet commenced operations as of June 30, 2023, and consequently, are not
included in the table below.
|
|
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|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended June 30, |
| Fund |
2023 |
2022 |
2021 |
|
WBI
BullBear Value 3000 ETF |
$171,583 |
$139,266 |
$108,594 |
|
WBI
BullBear Yield 3000 ETF |
$172,519 |
$139,085 |
$108,904 |
|
WBI
BullBear Quality 3000 ETF |
$171,788 |
$139,357 |
$109,013 |
|
WBI
Power Factor® High Dividend ETF |
$173,162 |
$141,583 |
$107,984 |
The
Funds’ securities lending agent is U.S. Bank National Association, the Funds’
custodian. U.S. Bank receives a fee for its services as securities lending
agent. Some of U.S. Bank’s services may be delegated to U.S. Bancorp Asset
Management, Inc., an affiliate of the Funds’ custodian, transfer agent, and
administrator. Investments of the cash collateral received from
borrowers
of the Funds’ securities are made by U.S. Bancorp Asset Management, Inc. in
accordance with applicable guidelines.
Securities
Lending Activities
U.S.
Bank (the “Securities
Lending Agent”)
serves as securities lending agent to the Fund. The Securities Lending Agent is
responsible for the implementation and administration of the Fund’s securities
lending program pursuant to an agreement between the Trust, on behalf of the
Fund, and the Securities Lending Agent (the “Securities
Lending Agreement”).
The Securities Lending Agent acts as agent to the Fund to lend available
securities with any person on the Securities Lending Agent’s list of approved
borrowers and (i) determines whether a loan shall be made and negotiates and
establishes the terms and conditions of the loan with the borrower; (ii) ensures
that all substitute interest, dividends, and other distributions paid with
respect to loan securities is credited to the Fund’s relevant account on the
date such amounts are delivered by the borrower to the Securities Lending Agent;
(iii) receives and holds, on the Fund’s behalf, collateral from borrowers
to secure obligations of borrowers with respect to any loan of available
securities; (iv) marks loaned securities and collateral to their market value
each business day based upon the market value of the loaned securities and
collateral at the close of business employing the most recently available
pricing information and receives and delivers collateral to maintain the value
of the collateral at no less than 100% of the market value of the loaned
securities; (v) at the termination of a loan, returns the collateral to the
borrower upon the return of the loaned securities to the Securities Lending
Agent; (vi) invests cash collateral in accordance with the Securities Lending
Agreement; and (viii) maintains such records as are reasonably necessary to
account for loans that are made and the income derived therefrom and makes
available to the Fund a monthly statement describing the loans outstanding,
including an accounting of all securities lending transactions.
The
dollar amounts of gross and net income from securities lending activities
received and the related fees and/or compensation paid by the Fund during the
period in which securities lending activities commenced through June 30, 2023
are set forth in the following table.
|
|
|
|
|
|
|
|
|
|
WBI
BullBear Value 3000 ETF |
WBI
BullBear Yield 3000 ETF |
|
Gross
Income from securities lending activities
(including
income from cash collateral reinvestment) |
$277,359 |
|
$356,045 |
|
| Fees
and/or compensation for securities lending activities and related
services |
|
|
|
Fees
paid to securities lending agent from a revenue split |
($3,491) |
|
($4,379) |
|
|
Fees
paid for any cash collateral management service (including fees deducted
from a pooled cash collateral reinvestment vehicle) that are not included
in the revenue split |
($2,025) |
|
($2,543) |
|
|
Administrative
fees not included in revenue split |
$0 |
|
$0 |
|
|
Indemnification
fee not included in revenue split |
$0 |
|
$0 |
|
|
Rebate
(paid to borrower) |
($261,368) |
|
($335,988) |
|
|
Other
fees not included in revenue split |
|
|
| Aggregate
fees/compensation for securities lending activities |
($266,885) |
|
($342,909) |
|
| Net
Income from securities lending activities |
$10,474 |
|
$13,136 |
|
|
|
|
|
|
|
|
|
|
|
WBI
BullBear Quality 3000 ETF |
WBI
Power Factor® High Dividend ETF |
|
Gross
Income from securities lending activities
(including
income from cash collateral reinvestment) |
$265,625 |
|
$757,442 |
|
| Fees
and/or compensation for securities lending activities and related
services |
|
|
|
Fees
paid to securities lending agent from a revenue split |
($3,324) |
|
($15,109) |
|
|
Fees
paid for any cash collateral management service (including fees deducted
from a pooled cash collateral reinvestment vehicle) that are not included
in the revenue split |
($1,989) |
|
($5,558) |
|
|
Administrative
fees not included in revenue split |
$0 |
|
$0 |
|
|
Indemnification
fee not included in revenue split |
$0 |
|
$0 |
|
|
Rebate
(paid to borrower) |
($250,338) |
|
($691,448) |
|
|
Other
fees not included in revenue split |
|
|
| Aggregate
fees/compensation for securities lending activities |
($255,651) |
|
($712,115) |
|
| Net
Income from securities lending activities |
$9,974 |
|
$45,327 |
|
Distributor
Foreside
Fund Services, LLC (“Foreside”)
the Distributor, is located at Three Canal Plaza, Portland, ME 04101. The
Distributor is a broker-dealer registered under the Securities Exchange Act of
1934, as amended (the “Exchange
Act”),
and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
Shares
will be continuously offered for sale by the Trust through the Distributor only
in whole Creation Units, as described in the section of this SAI entitled
“Purchase and Redemption of Creation Units.” The Distributor also acts as an
agent for the Trust. The Distributor will deliver a prospectus to persons
purchasing Shares in Creation Units and will maintain records of both orders
placed with it and confirmations of acceptance furnished by it. The Distributor
has no role in determining the investment policies of the Funds or which
securities are to be purchased or sold by the Funds.
Independent
Registered Public Accounting Firm
The
Trustees have selected the firm of KPMG LLP to serve as independent registered
public accounting firm for the Funds for the current fiscal year and to audit
the annual financial statements of the Funds, prepare the Funds’ federal, state,
and excise tax returns, and consult with the Funds on matters of accounting and
federal and state income taxation. The independent registered public accounting
firm will audit the financial statements of the Funds at least once each year.
Shareholders may access online an annual audited report (the “Annual
Report”)
when published, and a semi-annual, unaudited report when published. A copy of
the most recent Annual Report will accompany the SAI whenever a shareholder or a
prospective investor requests it.
Legal
Counsel
K&L
Gates LLP, 599 Lexington Avenue, New York, New York 10022, serves as legal
counsel to the Trust and the Independent Trustees of the Board.
PORTFOLIO
TRANSACTIONS AND BROKERAGE
Pursuant
to the Sub-Advisory Agreement, the Sub-Advisor determines which securities are
to be purchased and sold by the Funds and which broker-dealers are eligible to
execute the Funds’ portfolio transactions. Broker-dealers selected for execution
by the Sub-Advisor may receive a brokerage commission or other compensation for
transactions effected for a Fund. All executions of Fund trades are subject to
best execution regulations and are reviewed by the Board annually and may be
reviewed more frequently as deemed necessary by the Board.
Purchases
of portfolio securities for the Funds also may be made directly from issuers or
from underwriters. Purchases from underwriters will include a concession paid by
the issuer to the underwriter and purchases from dealers will include the spread
between the bid and the asked price. If the execution and price offered by more
than one dealer or underwriter are comparable, the order may be allocated to a
dealer or underwriter that has provided research or other services as discussed
below.
In
placing portfolio transactions, the Sub-Advisor will seek best execution. The
full range and quality of services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm’s risk in positioning a
block of securities, and other factors. In those instances where it is
reasonably determined that more than one broker-dealer can offer the services
needed to obtain the most favorable price and execution available, consideration
may be given to those broker-dealers which furnish or supply research and
statistical information to the Sub-Advisor that it may lawfully and
appropriately use in its investment advisory capacities, as well as provide
other services in addition to execution services. The Sub-Advisor considers such
information, which is in addition to and not in lieu of the services required to
be performed by it, to be useful in varying degrees, but of indeterminable
value. Portfolio transactions may be placed with broker-dealers who sell shares
of the Funds subject to rules adopted by FINRA and the SEC.
While
it is the Funds’ general policy to first seek to obtain the most favorable price
and execution available in selecting a broker-dealer to execute portfolio
transactions for the Funds, in accordance with Section 28(e) under the
Securities Exchange Act of 1934, when it is determined that more than one broker
can deliver best execution, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Funds or to the
Sub-Advisor, even if the specific services are not directly useful to the Funds
and may be useful to the Sub-Advisor in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Funds may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Sub-Advisor to be reasonable in relation to the value of the brokerage
and/or research services provided by such broker-dealer.
The
practice of using a portion of a Fund’s commission dollars to pay for brokerage
and research services provided to the Sub-Advisor is sometimes referred to as
“soft dollars”. Section 28(e) is sometimes referred to as a “safe harbor”,
because it permits this practice, subject to a number of restrictions, including
the Sub-Advisor’s compliance with certain procedural requirements and
limitations on the type of brokerage and research services that qualify for the
safe harbor.
Research
products and services may include, but are not limited to, general economic,
political, business, and market information and reviews, industry and company
information and reviews,
evaluations
of securities and recommendations as to the purchase and sale of securities,
financial data on a company or companies, performance and risk measuring
services and analysis, stock price quotation services, computerized historical
financial databases and related software, credit rating services, analysis of
corporate responsibility issues, brokerage analysts’ earnings estimates,
computerized links to current market data, software dedicated to research, and
portfolio modeling. Research services may be provided in the form of reports,
computer-generated data feeds and other services, telephone contacts, and
personal meetings with securities analysts, as well as in the form of meetings
arranged with corporate officers and industry spokespersons, economists,
academics, and governmental representatives. Brokerage products and services
assist in the execution, clearance, and settlement of securities transactions,
as well as functions incidental thereto, including but not limited to related
communication and connectivity services and equipment, software related to order
routing, market access, algorithmic trading, and other trading activities. On
occasion, a broker-dealer may furnish the Sub-Advisor with a service that has a
mixed use (that is, the service is used both for brokerage and research
activities that are within the safe harbor and for other activities). In this
case, the Sub-Advisor is required to reasonably allocate the cost of the
service, so that any portion of the service that does not qualify for the safe
harbor is paid for by the Sub-Advisor from its own funds, and not by portfolio
commissions paid by the Fund.
Research
products and services provided to the Sub-Advisor by broker-dealers that effect
securities transactions for the Funds may be used by the Sub-Advisor in
servicing all of its accounts. Accordingly, not all of these services will be
used by the Sub-Advisor in connection with the Funds. Some of these products and
services are also available to the Sub-Advisor for cash, and some do not have an
explicit cost or determinable value. The research received does not reduce the
advisory fees paid to the Sub-Advisor for services provided to the Funds. The
Sub-Advisor’s expenses would increase if the Sub-Advisor had to generate these
research products and services through its own efforts, or if it paid for these
products or services itself.
Investment
decisions for the Funds are made independently from those of other client
accounts managed or advised by the Sub-Advisor. Nevertheless, it is possible
that at times identical securities will be acceptable for both the Funds and one
or more of such client accounts, or other Funds in the Trust. In such event, the
position of the Funds and such client account(s), or other Funds in the Trust in
the same issuer may vary and the length of time that each may choose to hold its
investment in the same issuer may likewise vary. However, to the extent any of
these client accounts, or other Funds in the Trust, seek to acquire the same
security as the Funds at the same time, each Fund may not be able to acquire as
large a portion of such security as it desires, or it may have to pay a higher
price or obtain a lower yield for such security. Similarly, the Funds may not be
able to obtain as high a price for, or as large an execution of, an order to
sell any particular security at the same time.
The
Funds are required to identify any securities of their “regular brokers or
dealers” that the Funds have acquired during its most recent fiscal year. During
the fiscal year ended June 30, 2023, the Funds did not acquire any such
securities.
The
Funds are also required to identify any brokerage transactions during their most
recent fiscal year that were directed to a broker because of research services
provided, along with the amount of any such transactions and any related
commissions paid by the Funds. The following table shows the amount of any such
transactions and related commission paid for research services for the fiscal
year ended June 30, 2023:
|
|
|
|
|
|
|
|
|
| Fund |
Commissions |
Transactions |
|
WBI
BullBear Value 3000 ETF |
$181,722 |
$568,401,244 |
|
WBI
BullBear Yield 3000 ETF |
$337,668 |
$788,300,841 |
|
WBI
BullBear Quality 3000 ETF |
$118,556 |
$522,703,006 |
|
WBI
Power Factor® High Dividend ETF |
$214,682 |
$250,609,296 |
For
the fiscal periods indicated below, the Funds paid the following aggregate
dollar amount of brokerage commissions for Fund portfolio transactions. The
Future Funds had not yet commenced operations as of June 30, 2023, and
consequently, are not included in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended June 30, |
| Fund |
2023 |
2022 |
2021 |
|
WBI
BullBear Value 3000 ETF |
$181,722 |
$104,763 |
$0 |
|
WBI
BullBear Yield 3000 ETF |
$337,668 |
$117,896 |
$0 |
|
WBI
BullBear Quality 3000 ETF |
$118,556 |
$88,208 |
$0 |
|
WBI
Power Factor® High Dividend ETF |
$214,682 |
$97,630 |
$0 |
Frequent
Trading
The
Board has not adopted policies and procedures with respect to frequent purchases
and redemptions of Shares by Fund shareholders (“market
timing”).
In determining not to adopt market timing policies and procedures, the Board
noted that the Funds are expected to be attractive to active institutional and
retail investors interested in buying and selling Shares on a short-term basis.
In addition, the Board considered that, unlike traditional mutual funds, Shares
can only be purchased and redeemed directly from a Fund in Creation Units by
Authorized Participants, and that the vast majority of trading in Shares occurs
on the Secondary Market. Because Secondary Market trades do not involve a Fund
directly, it is unlikely those trades would cause many of the harmful effects of
market timing, including dilution, disruption of portfolio management, increases
in a Fund’s trading costs, and the realization of capital gains. With respect to
trades directly with the Funds, to the extent effected in-kind (namely, for
securities), those trades do not cause any of the harmful effects that may
result from frequent cash trades. To the extent trades are effected in whole or
in part in cash, the Board noted that those trades could result in dilution to a
Fund and increased transaction costs (a Fund may impose higher transaction fees
to offset these increased costs), which could negatively impact the Fund’s
ability to achieve its investment objective. However, the Board noted that
direct trading on a short-term basis by Authorized Participants is critical to
ensuring that Shares trade at or close to NAV. Given this structure, the Board
determined that it is not necessary to adopt market timing policies and
procedures. Each Fund reserves the right to reject any purchase order at any
time and reserves the right to impose restrictions on disruptive or excessive
trading in Creation Units.
The
Board has instructed the officers of the Trust to review reports of purchases
and redemptions of Creation Units on a regular basis to determine if there is
any unusual trading in the Funds. The officers of the Trust will report to the
Board any such unusual trading in Creation Units that is disruptive to the
Funds. In such event, the Board may reconsider its decision not to adopt market
timing policies and procedures.
DISCLOSURE
OF PORTFOLIO HOLDINGS
The
Trust has adopted a Portfolio Holdings Policy (the “Disclosure
Policy”)
designed to govern the disclosure of Fund portfolio holdings and the use of
material non-public information about Fund holdings. The Disclosure Policy
applies to all officers, employees, and agents of the Funds, including the
Sub-Advisor. The Disclosure Policy is designed to ensure that the disclosure of
information about each Fund’s portfolio holdings is consistent with applicable
legal requirements and otherwise in the best interest of each Fund.
As
ETFs, information about each Fund’s portfolio holdings is made available on a
daily basis in accordance with the provisions of any Order of the SEC applicable
to the Funds, regulations of the Funds’ listing Exchange and other applicable
SEC regulations, orders, and no-action relief. Such information typically
reflects all or a portion of a Fund’s anticipated portfolio holdings as of each
Business Day (as defined below). This information is used in connection with the
creation and redemption process and is disseminated on a daily basis through the
facilities of the Exchange, the National Securities Clearing Corporation
(“NSCC”),
and/or third party service providers.
Each
Fund will disclose on the Funds’ website www.wbietfs.com at the start of each
Business Day the identities and quantities of the securities and other assets
held by each Fund that will form the basis of the Fund’s calculation of its NAV
on that Business Day. The portfolio holdings so disclosed will be based on
information as of the close of business on the prior Business Day and/or trades
that have been completed prior to the opening of business on that Business Day
and that are expected to settle on the Business Day. Online disclosure of such
holdings is publicly available at no charge.
Daily
access to each Fund’s portfolio holdings is permitted to personnel of the
Sub-Advisor, the Distributor, and the Funds’ administrator, custodian, and
accountant and other agents or service providers of the trust who have need of
such information in connection with the ordinary course of their respective
duties to the Funds.
Each
Fund will disclose its complete portfolio holdings schedule in public filings
with the SEC on a quarterly basis, based on the Fund’s fiscal year, within sixty
(60) days of the end of the quarter, and will provide that information to
shareholders, as required by federal securities laws and regulations
thereunder.
No
person is authorized to disclose a Fund’s portfolio holdings or other investment
positions except in accordance with the Policy. The Board reviews the
implementation of the Policy on a periodic basis.
DISTRIBUTION
AND SERVICE PLAN
The
Board has adopted a Distribution and Service Plan pursuant to Rule 12b-1 under
the 1940 Act. In accordance with its Rule 12b-1 plan, each Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year to finance
activities primarily intended to result in the sale of Creation Units of each
Fund or the provision of investor services. No Rule 12b-1 fees are currently
paid by the Funds and there are no plans to impose these fees. However, in the
event Rule 12b-1 fees are charged in the future, they will be paid out of the
respective
Fund’s
assets, and over time these fees will increase the cost of your investment and
they may cost you more than certain other types of sales charges.
Under
the Service and Distribution Plan, and as required by Rule 12b-1, the Trustees
will receive and review after the end of each calendar quarter a written report
provided by the Distributor of the amounts expended under the Plan and the
purpose for which such expenditures were made.
The
Sub-Advisor and its affiliates may, out of their own resources, pay amounts to
third parties for the distribution or marketing services on behalf of the Funds.
The making of these payments could create a conflict of interest for a financial
intermediary receiving such payments.
ADDITIONAL
INFORMATION CONCERNING SHARES
Organization
and Description of Shares of Beneficial Interest
The
Trust is a Delaware statutory trust and registered investment company. The Trust
was organized on November 7, 2013, and has authorized capital of an unlimited
number of shares of beneficial interest of no par value that may be issued in
more than one class or series.
Under
Delaware law, the Trust is not required to hold an annual shareholders meeting
if the 1940 Act does not require such a meeting. Generally, there will not be
annual meetings of Trust shareholders. If requested by shareholders of at least
10% of the outstanding Shares of the Trust, the Trust will call a meeting of the
Trust’s shareholders for the purpose of voting upon the question of removal of a
Trustee and will assist in communications with other Trust shareholders.
Shareholders holding two-thirds of Shares outstanding may remove Trustees from
office by votes cast at a meeting of Trust shareholders or by written
consent.
All
Shares will be freely transferable; provided, however, that Shares may not be
redeemed individually, but only in Creation Units. The Shares will not have
preemptive rights or cumulative voting rights, and none of the Shares will have
any preference to conversion, exchange, dividends, retirements, liquidation,
redemption, or any other feature. Shares have equal voting rights, except that
only Shares of a specific Fund may be entitled to vote on a matter affecting
that particular Fund. Trust shareholders are entitled to require the Trust to
redeem Creation Units if such shareholders are Authorized Participants. The
Declaration of Trust confers upon the Board the power, by resolution, to alter
the number of Shares constituting a Creation Unit or to specify that Shares of
the Trust may be individually redeemable. The Trust reserves the right to adjust
the stock prices of Shares to maintain convenient trading ranges for investors.
Any such adjustments would be accomplished through stock splits or reverse stock
splits which would have no effect on the net assets of the Funds.
The
Trust’s Declaration of Trust disclaims liability of the shareholders or the
officers of the Trust for acts or obligations of the Trust which are binding
only on the assets and property of the Trust. The Declaration of Trust provides
for indemnification by the Trust for all loss and expense of the Funds’
shareholders held personally liable for the obligations of the Trust. The risk
of a Trust’s shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Funds themselves would not be
able to meet the Trust’s obligations and this risk should be considered remote.
If a Fund does not grow to a size to permit it to be economically viable, the
Fund may cease operations. In such an event, shareholders may be required to
liquidate or transfer their Shares at an inopportune time and shareholders may
lose money on their investment.
Book
Entry Only System
DTC
will act as securities depositary for the Shares. The Shares of the Fund are
represented by global securities registered in the name of DTC or its nominee
and deposited with, or on behalf of, DTC. Except as provided below, certificates
will not be issued for Shares.
DTC
has advised the Trust as follows: DTC, the world’s largest securities
depository, is a limited-purpose trust company organized under the New York
Banking Law, a member of the Federal Reserve System, a “clearing corporation”
within the meaning of the New York Uniform Commercial Code and a “clearing
agency” registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds and provides asset servicing for over 3.5 million issues of U.S.
and non-U.S. equity issues, corporate and municipal debt issues, and money
market instruments (from over 100 countries). DTC was created to hold securities
of its participants (the “DTC
Participants”)
and to facilitate the clearance and settlement of securities transactions among
the DTC Participants in such securities through electronic computerized
book-entry transfers and pledges in accounts of DTC Participants, thereby
eliminating the need for physical movement of securities certificates. DTC
Participants include both U.S. and non-U.S. securities brokers and dealers,
banks, trust companies, clearing corporations,
and
certain other organizations. DTC is a wholly-owned subsidiary of The Depository
Trust &
Clearing
Corporation (“DTCC”).
DTCC is the holding company for DTC, the NSCC, and Debt Clearing Corporation,
all of which are registered clearing agencies. DTCC is owned by the users of its
regulated subsidiaries. More specifically, DTCC is owned by a number of its DTC
Participants and by the NYSE Arca and FINRA.
Access
to DTC system is also available to others such as both U.S. and non-U.S.
securities brokers and dealers, banks, trust companies, and clearing
corporations that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly (“Indirect
Participants”).
DTC agrees with and represents to DTC Participants that it will administer its
book-entry system in accordance with its rules and bylaws and requirements of
law. Beneficial ownership of Shares will be limited to DTC Participants,
Indirect Participants, and persons holding interests through DTC Participants
and Indirect Participants. Ownership of beneficial interests in Shares (owners
of such beneficial interests are referred to herein as “Beneficial
Owners”)
will be shown on, and the transfer of ownership will be effected only through,
records maintained by DTC (with respect to DTC Participants) and on the records
of DTC Participants (with respect to Indirect Participants and Beneficial Owners
that are not DTC Participants). Beneficial Owners will receive from or through
DTC Participant a written confirmation relating to their purchase of Shares. The
laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability of certain investors to acquire beneficial interests in
Shares.
Beneficial
Owners of Shares will not be entitled to have Shares registered in their names,
will not receive or be entitled to receive physical delivery of certificates in
definitive form and are not considered the registered holders of the Shares.
Accordingly, each Beneficial Owner must rely on the procedures of DTC, DTC
Participants, and any Indirect Participants through which such Beneficial Owner
holds its interests in order to exercise any rights of a holder of Shares. The
Trust understands that under existing industry practice, in the event the Trust
requests any action of holders of Shares, or a Beneficial Owner desires to take
any action that DTC, as the record owner of all outstanding Shares, is entitled
to take, DTC would authorize the DTC Participants to take such action and that
the DTC Participants would authorize the Indirect Participants and Beneficial
Owners acting through such DTC Participants to take such action and
would
otherwise act upon the instructions of Beneficial Owners owning through them.
DTC, through its nominee Cede & Co., is the record owner of all outstanding
Shares.
Conveyance
of all notices, statements, and other communications to Beneficial Owners will
be effected as follows. DTC will make available to the Trust upon request and
for a fee to be charged to the Trust a listing of Shares holdings of each DTC
Participant. The Trust shall inquire of each such DTC Participant as to the
number of Beneficial Owners holding Shares, directly or indirectly, through such
DTC Participant. The Trust will provide each such DTC Participant with copies of
such notice, statement, or other communication, in such form, number, and at
such place as such DTC Participant may reasonably request, in order that such
notice, statement, or communication may be transmitted by such DTC Participant,
directly or indirectly, to such Beneficial Owners. In addition, the Trust shall
pay to each such DTC Participant a fair and reasonable amount as reimbursement
for the expenses attendant to such transmittal, all subject to applicable
statutory and regulatory requirements. Beneficial Owners may wish to take
certain steps to augment the transmission to them of notices of significant
events with respect to Shares by providing their names and addresses to the DTC
registrar and request that copies of notices be provided directly to
them.
Distributions
of Shares shall be made to DTC or its nominee, Cede & Co., as the registered
holder of all Shares. DTC or its nominee, upon receipt of any such
distributions, shall immediately credit DTC Participants’ accounts with payments
in amounts proportionate to their respective beneficial interests in Shares as
shown on the records of DTC or its nominee. Payments by DTC Participants to
Indirect Participants and Beneficial Owners of Shares held through such DTC
Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in a “street name,” and will be the responsibility of such
DTC Participants. The Trust has no responsibility or liability for any aspects
of the records relating to or notices to Beneficial Owners, or payments made on
account of beneficial ownership interests in such Shares, or for maintaining,
supervising, or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between DTC and the DTC
Participants or the relationship between such DTC Participants and the Indirect
Participants and Beneficial Owners owning through such DTC
Participants.
DTC
may determine to discontinue providing its service with respect to Shares at any
time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action either to find a replacement for DTC
to perform its functions at a comparable cost or, if such a replacement is
unavailable, to issue and deliver printed certificates representing ownership of
Shares, unless the Trust makes other arrangements with respect thereto
satisfactory to the Exchange.
DTC
rules applicable to DTC Participants are on file with the SEC. More information
about DTC can be found at www.dtcc.com.
PURCHASE
AND REDEMPTION OF CREATION UNITS
Creation
The
Trust issues and sells Shares of each Fund only in Creation Units on a
continuous basis on any Business Day through the Distributor at the Shares’ NAV
next determined after receipt of an order in proper form. The Distributor
processes purchase orders only on a day that the Exchange
is
open for
trading
(a “Business
Day”).
The Exchange is open for trading Monday through Friday except for the following
holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
The
consideration for purchase of Creation Units of each Fund generally consists of
an in-kind deposit of a designated portfolio of securities – the Deposit
Securities
– for each Creation Unit constituting a substantial replication, or
representation, of the securities included in the Fund’s portfolio as selected
by the Sub-Advisor (“Fund
Securities”)
and an amount of cash – the Cash
Component
– computed as described below. Together, the Deposit Securities and the Cash
Component constitute the “Fund
Deposit,”
which represents the minimum initial and subsequent investment amount for a
Creation Unit of a Fund. The Cash Component is an amount equal to the difference
between the NAV of the Shares (per Creation Unit) and an amount equal to the
market value of the Deposit Securities (the “Deposit
Amount”).
If the Cash Component is a positive number (i.e.,
the NAV per Creation Unit exceeds the Deposit Amount), the Authorized
Participant will deliver the Cash Component. If the Cash Component is a negative
number (i.e.,
the NAV per Creation Unit is less than the Deposit Amount), the Authorized
Participant will receive the Cash Component.
The
Cash Component serves to compensate the Trust or the Authorized Participant, as
applicable, for any differences between the NAV per Creation Unit and the
Deposit Securities.
In
addition, the Trust reserves the right to permit or require the substitution of
an amount of cash (that is a “cash in lieu” amount) to be added to the Cash
Component to replace any Deposit Security which may not be available in
sufficient quantity for delivery or that may not be eligible for transfer
through the systems of DTC or the Clearing Process (discussed below) or for
other similar reasons. The Trust also reserves the right to permit or require a
“cash in lieu” amount where the delivery of Deposit Securities by the Authorized
Participant (as described below) would be restricted under the securities laws
or where delivery of Deposit Securities to the Authorized Participant would
result in the disposition of Deposit Securities by the Authorized Participant
becoming restricted under the securities laws, and in certain other
situations.
The
custodian through the NSCC (see the section of this SAI entitled “Purchase and
Redemption of Creation Units—Creation—Procedures for Creation of Creation
Units”), makes available on each Business Day, prior to the opening of business
on the Exchange (currently 9:30 a.m. New York time), the list of the name and
the required number of shares of each Deposit Security to be included in the
current Fund Deposit (based on information at the end of the previous Business
Day) for each Fund. This Fund Deposit is applicable, subject to any adjustments
as described below, to orders to effect creations of Creation Units of a Fund
until such time as the next-announced composition of the Deposit Securities is
made available.
The
identity and number of shares of the Deposit Securities required for a Fund
Deposit for each Fund changes as rebalancing adjustments and corporate action
events are reflected within the Fund from time to time by the Sub-Advisor, with
a view to the investment objective of the Fund. In addition, the Trust reserves
the right to permit the substitution of an amount of cash — i.e.,
a “cash in lieu” amount — to be added to the Cash Component to replace any
Deposit Security that may not be available in sufficient quantity for delivery
or that may not be eligible for transfer through the systems of DTC or the
Clearing Process (discussed below), or which might not be eligible for trading
by an Authorized Participant (as defined below), or the investor for which it is
acting, or other relevant reason.
In
addition to the list of names and number of securities constituting the current
Deposit Securities of a Fund Deposit, the custodian, through the NSCC, also
makes available on each Business Day the estimated Cash Component, effective
through and including the previous Business Day, per outstanding Creation Unit
of each Fund.
Procedures
for Creation of Creation Units
All
orders to create Creation Units must be placed with the Distributor either (1)
through Continuous Net Settlement System of the NSCC (“Clearing
Process”),
a clearing agency that is registered with the SEC, by a “Participating Party,”
i.e.,
a
broker-dealer or other participant in the Clearing Process; or (2) outside the
Clearing Process by a DTC Participant (see the section of this SAI entitled
“Additional Information Concerning Shares — Book Entry Only System”). In each
case, the Participating Party or the DTC Participant must have executed an
agreement with the Distributor with respect to creations and redemptions of
Creation Units (“Participant
Agreement”);
such parties are collectively referred to as “APs”
or “Authorized
Participants”.
Investors should contact the Distributor for the names of Authorized
Participants. All Shares, whether created through or outside the Clearing
Process, will be entered on the records of DTC in the name of Cede & Co. for
the account of a DTC Participant.
The
Distributor will process orders to purchase Creation Units received by U.S.
mail, telephone, facsimile, and other electronic means of communication by the
closing time of the regular trading session on the Exchange (“Closing
Time”)
(normally 4:00 p.m. New York time), as long as they are in proper form. If an
order to purchase Creation Units is received in proper form by Closing Time,
then it will be processed that day. Purchase orders received in proper form
after Closing Time will be processed on the following Business Day and will be
priced at the NAV determined on that day. Custom orders must be received by the
Distributor no later than 3:00 p.m. New York time on the trade date. A custom
order may be placed by an Authorized Participant in the event that the Trust
permits the substitution of an amount of cash to be added to the Cash Component
to replace any Deposit Security which may not be available in sufficient
quantity for delivery or which may not be eligible for trading by such
Authorized Participant or the investor for which it is acting or other relevant
reason. The date on which an order to create Creation Units (or an order to
redeem Creation Units, as discussed below) is placed is referred to as the
“Transmittal
Date.”
Orders must be transmitted by an Authorized Participant by telephone or other
transmission method acceptable to the Distributor pursuant to procedures set
forth in the Participant
Agreement,
as described below in the sections of this SAI entitled “Purchase and Redemption
of Creation Units—Placement of Creation Orders Using the Clearing Process” and
“Purchase and Redemption of Creation Units—Placement of Creation Orders Outside
the Clearing Process”.
All
orders to create Creation Units from investors who are not Authorized
Participants shall be placed with an Authorized Participant in the form required
by such Authorized Participant. In addition, the Authorized Participant may
request the investor to make certain representations or enter into agreements
with respect to the order, e.g.,
to provide for payments of cash, when required. Investors should be aware that
their particular broker may not have executed a Participant Agreement and,
therefore, orders to create Creation Units of a Fund have to be placed by the
investor’s broker through an Authorized Participant that has executed a
Participant Agreement. In such cases there may be additional charges to such
investor. At any given time, there may be only a limited number of
broker-dealers that have executed a Participant Agreement.
Those
placing orders for Creation Units through the Clearing Process should afford
sufficient time to permit proper submission of the order to the Distributor
prior to the Closing Time on the Transmittal Date. Orders for Creation Units
that are effected outside the Clearing Process are likely to require transmittal
by the DTC Participant earlier on the Transmittal Date than orders effected
using the Clearing Process. Those persons placing orders outside the Clearing
Process should ascertain the deadlines applicable to DTC and the Federal Reserve
Bank wire system by contacting the operations department of the broker or
depository institution effectuating such transfer of the Fund Deposit. For more
information about Clearing Process and DTC, see the sections of this SAI
entitled “Purchase and Redemption of Creation Units—Creation—Placement of
Creation Orders Using the Clearing Process” and “Purchase and Redemption of
Creation Units—Creation—Placement of Creation Orders Outside the Clearing
Process.”
Placement
of Creation Orders Using the Clearing Process
The
Clearing Process is the process of creating or redeeming Creation Units through
the Continuous Net Settlement System of the NSCC. Fund Deposits made through the
Clearing Process must be delivered through a Participating Party that has
executed a Participant Agreement. The Participant Agreement authorizes the
Distributor to transmit through the Custodian to NSCC, on behalf of the
Participating Party, such trade instructions as are necessary to effect the
Participating Party’s creation order. Pursuant to such trade instructions to
NSCC, the Participating Party agrees to deliver the requisite Fund Deposit to
the Trust, together with such additional information as may be required by the
Distributor. An order to create Creation Units through the Clearing Process is
deemed received by the Distributor on the Transmittal Date if (1) such order is
received by the Distributor not later than the Closing Time (or 3:00 p.m. New
York Time, in the case of a custom order) on such Transmittal Date and (2) all
other procedures set forth in the Participant Agreement are properly
followed.
Placement
of Creation Orders Outside the Clearing Process
Fund
Deposits made outside the Clearing Process must be delivered through a DTC
Participant that has executed a Participant Agreement. A DTC Participant who
wishes to place an order creating Creation Units to be effected outside the
Clearing Process does not need to be a Participating Party, but such orders must
state that the DTC Participant is not using the Clearing Process and that the
creation of Creation Units will instead be effected through a
transfer
of cash and securities directly through DTC. The Fund Deposit transfer must be
ordered by the DTC Participant on the Transmittal Date in a timely fashion so as
to ensure the delivery of the requisite number of Deposit Securities through DTC
to the account of the Fund by no later than 11:00 a.m. New York time on the next
Business Day following the Transmittal Date (“DTC
Cut-Off-Time”).
All
questions as to the number of Deposit Securities to be delivered, or the amount
of a Cash Component, and the validity, form, and eligibility (including time of
receipt) for the deposit of any tendered securities, will be determined by the
Trust, whose determination shall be final and binding. The amount of cash equal
to the Cash Component must be transferred directly to the Custodian through the
Federal Reserve Bank wire transfer system in a timely manner so as to be
received by the Custodian no later than 2:00 p.m. New York time on the next
Business Day following the Transmittal Date. An order to create Creation Units
outside the Clearing Process is deemed received by the Distributor on the
Transmittal Date if (1) such order is received by the Distributor not later than
the Closing Time (or 3:00 p.m. New York time in the case of a custom order) on
such Transmittal Date and (2) all other procedures set forth in the Participant
Agreement
are properly followed. However, if the Custodian does not receive both the
requisite Deposit Securities and the Cash Component by 11:00 a.m. on the next
Business Day following the Transmittal Date, such order will be canceled. Upon
written notice to the Distributor, such canceled order may be resubmitted the
following Business Day using a Fund Deposit as newly constituted to reflect the
then-current Deposit Securities and Cash Component. The delivery of Creation
Units so created will occur no later than the second Business Day following the
day on which the purchase order is deemed received by the
Distributor.
Additional
transaction fees may be imposed with respect to transactions effected through a
DTC participant outside the Clearing Process and in the limited circumstances in
which any cash can be used in lieu of Deposit Securities to create Creation
Units. See the section of this SAI entitled “Purchase and Sale of Creation
Units—Creation—Creation Transaction Fee”.
Creation
Units may be created in advance of receipt by the Trust of all or a portion of
the applicable Deposit Securities. In these circumstances, the initial deposit
will have a value greater than the NAV of the Shares on the date the order is
placed in proper form because, in addition to available Deposit Securities, cash
must be deposited in an amount equal to the sum of (1) the Cash Component plus
(2) 110% of the then-current market value of the undelivered Deposit Securities
(“Additional
Cash Deposit”).
The order shall be deemed to be received on the Business Day on which the order
is placed provided that the order is placed in proper form prior to Closing Time
and funds in the appropriate amount are deposited with the Custodian by 11:00
a.m. New York time the following Business Day. If the order is not placed in
proper form by Closing Time or funds in the appropriate amount are not received
by 11:00 a.m. the next Business Day, then the order may be deemed to be canceled
and the Authorized Participant shall be liable to the Fund for losses, if any,
resulting therefrom. An additional amount of cash shall be required to be
deposited with the Trust, pending receipt of the undelivered Deposit Securities
to the extent necessary to maintain the Additional Cash Deposit with the Trust
in an amount at least equal to 110% of the daily marked-to-market value of the
undelivered Deposit Securities. To the extent that undelivered Deposit
Securities are not received by 1:00 p.m. New York time on the second Business
Day following the day on which the purchase order is deemed received by the
Distributor, or in the event a marked-to-market payment is not made within one
Business Day following notification by the Distributor that such a payment is
required, the Trust may use the cash on deposit to purchase the undelivered
Deposit Securities.
Authorized
Participants will be liable to the Trust and the Fund for the costs incurred by
the Trust in connection with any such purchases. These costs will be deemed to
include the amount by which the actual purchase price of the Deposit Securities
exceeds the market value of such Deposit Securities on the day the purchase
order was deemed received by the Distributor plus the brokerage and related
transaction costs associated with such purchases. The Trust will return any
unused portion of the Additional Cash Deposit once all of the undelivered
Deposit Securities have been properly received by the Custodian or purchased by
the Trust and deposited into the Trust. In addition, a transaction fee will be
charged in all cases. See the section of this SAI entitled “Purchase and
Redemption of Creation Units—Creation—Creation Transaction Fee.” The delivery of
Creation Units so created will occur no later than the second Business Day
following the day on which the purchase order is deemed received by the
Distributor.
Acceptance
of Orders for Creation Units
The
Trust reserves the absolute right to reject a creation order transmitted to it
by the Distributor if: (1) the order is not in proper form; (2) the investor(s),
upon obtaining the Shares ordered, would own 80% or more of the currently
outstanding Shares of any Fund; (3) the Deposit
Securities
delivered are not as disseminated for that date by the Custodian, as described
above; (4) acceptance of the Deposit Securities would have certain adverse tax
consequences to the Fund; (5) acceptance of the Fund Deposit would, in the
opinion of counsel, be unlawful; (6) acceptance of the Fund Deposit would
otherwise, in the discretion of the Trust or the Sub-Advisor, have an adverse
effect on the Trust or the rights of beneficial owners; or (7) there exist
circumstances outside the control of the Trust, the Custodian, the Distributor
and the Sub-Advisor that make it for all practical purposes impossible to
process creation orders. Examples of such circumstances include acts of God;
public service or utility problems such as fires, floods, extreme weather
conditions, and power outages resulting in telephone, telecopy, and computer
failures; market conditions or activities causing trading halts; systems
failures involving computer or other information systems affecting the Trust,
the Sub-Advisor, the Distributor, DTC, NSCC, the Custodian or sub-custodian, or
any other participant in the creation process; and similar extraordinary events.
The Distributor shall notify a prospective creator of a Creation Unit and/or the
Authorized Participant acting on behalf of such prospective creator of its
rejection of the order. The Trust, the Custodian, any sub-custodian and the
Distributor are under no duty, however, to give notification of any defects or
irregularities in the delivery of Fund Deposits nor shall any of them incur any
liability for the failure to give any such notification.
All
questions as to the number of shares of each security in the Deposit Securities,
and the validity, form, eligibility, and acceptance for deposit of any
securities to be delivered shall be determined by the Trust and the Trust’s
determination shall be final and binding.
Creation
Units typically are issued on a “T+1 basis” (that is, one Business Day after
trade date), unless the Trust and the Authorized Participant agree
otherwise.
To
the extent contemplated by an Authorized Participant’s agreement with the
Distributor, the Trust will issue Creation Units to such Authorized Participant
notwithstanding the fact that the corresponding Deposit Securities have not been
received in part or in whole, in reliance on the undertaking of the Authorized
Participant to deliver the missing Deposit Securities as soon as possible, which
undertaking shall be secured by such Authorized Participant’s delivery and
maintenance of collateral having a value equal to 110%, which the Advisor may
change from time to time, of the value of the missing Deposit Securities in
accordance with the Trust’s then-effective procedures. Such collateral must be
delivered no later than 2:00 p.m., Eastern Time, on the contractual settlement
date. The only collateral that is acceptable to the Trust is cash in U.S.
Dollars or an irrevocable letter of credit in form, and drawn on a bank, that is
satisfactory to the Trust. The cash collateral posted by the Authorized
Participant may be invested at the risk of the Authorized Participant, and
income, if any, on invested cash collateral will be paid to that Authorized
Participant. Information concerning the Trust’s current procedures for
collateralization of missing Deposit Securities is available from the
Distributor. The Authorized Participant Agreement will permit the Trust to buy
the missing Deposit Securities at any time and will subject the Authorized
Participant to liability for any shortfall between the cost to the Trust of
purchasing such securities and the cash collateral or the amount that may be
drawn under any letter of credit.
In
certain cases, Authorized Participants will create and redeem Creation Units on
the same trade date. In these instances, the Trust reserves the right to settle
these transactions on a net basis. All questions as to the amount of cash
required to be delivered, the number of shares of each security in the Deposit
Securities, and the validity, form, eligibility, and acceptance for
deposit
of any securities to be delivered, as applicable, shall be determined by the
Trust, and the Trust’s determination shall be final and binding.
Creation
Transaction Fee
Authorized
Participants will be required to pay to the Custodian a fixed transaction fee
(the “Creation
Transaction Fee”)
in connection with creations or redemptions or to offset the transfer and other
transaction costs associated with the issuance of Creation Units. The standard
Creation Transaction Fee will be the same regardless of the number of Creation
Units purchased by an investor on the applicable Business Day. The Creation
Transaction Fee charged by each Fund for each creation order is
$500.
An
additional variable fee of up to three (3) times the fixed Transaction Fee plus
all commission and fees payable to each Fund in connection with the purchase of
the Creation Unit Deposit Securities (expressed as a percentage of the value of
such Deposit Securities) may be imposed for (1) creations effected outside the
Clearing Process and (2) creations made whole or in part in cash (to offset the
Trust’s brokerage and other transaction costs associated with using cash to
purchase the requisite Deposit Securities). Investors are responsible for the
costs of transferring the securities constituting the Deposit Securities to the
account of the Trust.
In
order to seek to replicate the in-kind creation order process for creation
orders executed in whole or in part with cash, the Trust expects to purchase, in
the secondary market or otherwise gain exposure to, the portfolio securities
that could have been delivered as a result of an in-kind creation order pursuant
to local law or market convention, or for other reasons (“Creation
Market Purchases”).
In such cases where the Trust makes Creation Market Purchases, the Authorized
Participant will reimburse the Trust for, among other things, any difference
between the market value at which the Financial Instruments were purchased by
the Trust and the “cash-in-lieu” amount, applicable registration fees, brokerage
commissions, and certain taxes.
Redemption
The
process to redeem Creation Units is essentially the reverse of the process by
which Creation Units are created, as described above. To redeem Shares directly
from the Funds, an investor must be an Authorized Participant or must redeem
through an Authorized Participant. The Trust redeems Creation Units on a
continuous basis on any Business Day through the Distributor at the Shares’ NAV
next determined after receipt of an order in proper form. A Fund will not redeem
Shares in amounts less than Creation Units. Authorized Participants must
accumulate enough Shares in the secondary market to constitute a Creation Unit
in order to have such Shares redeemed by the Trust. There can be no assurance,
however, that there will be sufficient liquidity in the public trading market at
any time to permit assembly of a Creation Unit.
Generally,
Creation Units of the Funds will be redeemed in-kind, at NAV per Share next
computed, plus a transaction fee as described below. The Custodian, through the
NSCC, makes available prior to the opening of business on the Exchange
(currently 9:30 a.m. New York time) on each Business Day, the identity of the
Fund Securities that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form (as described below)
on that day. Fund Securities received on redemption may not be identical to
Deposit Securities that are applicable to creations of Creation
Units.
The redemption proceeds for a Creation Unit consists of Fund Securities — as
announced on the Business Day the request for redemption is received in proper
form — plus or minus cash in an amount equal to the difference between the NAV
of the Shares being redeemed, as next determined after a receipt of
a
redemption request in proper form, and the value of the Fund Securities
(“Cash
Redemption Amount”),
less a redemption transaction fee (see the section of this SAI entitled
“Purchase and Redemption of Creation Units—Redemption—Redemption Transaction
Fee”).
The
right of redemption may be suspended or the date of payment postponed with
respect to any Fund (1) for any period during which the NYSE is closed (other
than customary weekend and holiday closings); (2) for any period during which
trading on the Exchange is suspended or restricted; (3) for any period during
which an emergency exists as a result of which disposal of the Shares of the
Fund or determination of a Fund’s NAV is not reasonably practicable; or (4) in
such other circumstances as is permitted by the SEC.
Deliveries
of redemption proceeds by the Fund generally will be made within one Business
Day (that is “T+1”), unless the Trust and the Authorized Participant agree
otherwise. However, the Fund reserves the right to settle redemption
transactions and deliver redemption proceeds on a basis other than T+1 to
accommodate foreign market holiday schedules, to account for different treatment
among foreign and U.S. markets of dividend record dates and dividend ex-dates
(that is the last date the holder of a security can sell the security and still
receive dividends payable on the security sold), and in certain other
circumstances.
Placement
of Redemption Orders Using the Clearing Process
Orders
to redeem Creation Units through the Clearing Process must be delivered through
an Authorized Participant that has executed a Participant Agreement. Investors
other than Authorized Participants are responsible for making arrangements with
an Authorized Participant for an order to redeem. An order to redeem Creation
Units is deemed received by the Trust on the Transmittal Date if: (1) such order
is received by the Distributor not later than Closing Time on such Transmittal
Date; and (2) all other procedures set forth in the Participant Agreement
are properly followed. Such order will be effected based on the NAV of the
relevant Fund as next determined. An order to redeem Creation Units using the
Clearing Process made in proper form but received by the Distributor after
Closing Time will be deemed received on the next Business Day immediately
following the Transmittal Date and will be effected at the NAV determined on
such next Business Day. The requisite Fund Securities and Cash Redemption Amount
will be transferred by the second NSCC business day following the date on which
such request for redemption is deemed received.
Placement
of Redemption Orders Outside the Clearing Process
Orders
to redeem Creation Units outside the Clearing Process must be delivered through
a DTC Participant that has executed the Participant Agreement. A DTC Participant
who wishes to place an order for redemption of Creation Units to be effected
outside the Clearing Process does not need to be a Participating Party, but such
orders must state that the DTC Participant is not using the Clearing Process and
that redemption of Creation Units will instead be effected through transfer of
Shares directly through DTC. An order to redeem Creation Units outside the
Clearing Process is deemed received by the Distributor on the Transmittal Date
if (1) such order is received by the Distributor not later than Closing Time on
such Transmittal Date; (2) such order is accompanied or followed by the
requisite number of Shares, which delivery must be made through DTC to the
Custodian no later than the DTC Cut-Off-Time, and the Cash Redemption Amount, if
owed to the Fund, which delivery must be made by 2:00 p.m. New York Time; and
(3) all other procedures set forth in the Participant Agreement are properly
followed. After the Distributor receives an order for redemption outside the
Clearing Process, the Distributor will initiate procedures to transfer the
requisite Fund Securities which are expected to be delivered
and
the Cash Redemption Amount, if any, by the second Business Day following the
Transmittal Date.
The
calculation of the value of the Fund Securities and the Cash Redemption Amount
to be delivered or received upon redemption (by the Authorized Participant or
the Trust, as applicable) will be made by the Custodian according to the
procedures set forth the section of this SAI entitled “Determination of Net
Asset Value” computed on the Business Day on which a redemption order is deemed
received by the Distributor. Therefore, if a redemption order in proper form is
submitted to the Distributor by a DTC Participant not later than Closing Time on
the Transmittal Date, and the requisite number of Shares of the Fund are
delivered to the Custodian prior to the DTC Cut-Off-Time, then the value of the
Fund Securities and the Cash Redemption Amount to be delivered or received (by
the Authorized Participant or the Trust, as applicable) will be determined by
the Custodian on such Transmittal Date. If, however, either (1) the requisite
number of Shares of the relevant Fund are not delivered by the DTC Cut-Off-Time,
as described above, or (2) the redemption order is not submitted in proper form,
then the redemption order will not be deemed received as of the Transmittal
Date. In such case, the value of Fund Securities and the Cash Redemption Amount
to be delivered or received will be computed on the Business Day following the
Transmittal Date provided that the Shares of the relevant Fund are delivered
through DTC to the Custodian by 11:00 a.m. New York time the following Business
Day pursuant to a properly submitted redemption order.
The
Trust may in its discretion at any time, or from time to time, exercise its
option to redeem Shares by providing the redemption proceeds in cash, and the
redeeming Authorized Participant will be required to receive its redemption
proceeds in cash. In addition, an investor may request a redemption in cash that
the Trust may permit, in its sole discretion. In either case, the investor will
receive a cash payment equal to the NAV of its Shares based on the NAV of Shares
of the relevant Fund next determined after the redemption request is received in
proper form (minus a transaction fee which will include an additional charge for
cash redemptions to offset the Fund’s brokerage and other transaction costs
associated with the disposition of Fund Securities). A Fund may also, in its
sole discretion, upon request of a shareholder, provide such redeemer a
portfolio of securities that differs from the exact composition of the Fund
Securities, or cash in lieu of some securities added to the Cash Redemption
Amount, but in no event will the total value of the securities delivered and the
cash transmitted differ from the NAV. Redemptions of Shares for Fund Securities
will be subject to compliance with applicable federal and state securities laws
and the Fund (whether or not it otherwise permits cash redemptions) reserves the
right to redeem Creation Units for cash to the extent that the Trust could not
lawfully deliver specific Fund Securities upon redemptions or could not do so
without first registering the Fund Securities under such laws. An Authorized
Participant or an investor for which it is acting that is subject to a legal
restriction with respect to a particular security included in the Fund
Securities applicable to the redemption of a Creation Unit may be paid an
equivalent amount of cash. The Authorized Participant may request the redeeming
Beneficial Owner of the Shares to complete an order form or to enter into
agreements with respect to such matters as compensating cash payment, beneficial
ownership of shares, or delivery instructions.
Redemption
Transaction Fee
Investors
will be required to pay to the Custodian a fixed transaction fee (“Redemption
Transaction Fee”)
to offset the transfer and other transaction costs associated with the
redemption of Creation Units. The standard redemption transaction fee will be
the same
regardless
of the number of Creation Units redeemed by an investor on the applicable
Business Day. The Redemption Transaction Fee charged by each Fund for each
redemption order is $500.
An
additional variable fee of up to three (3) times the fixed Transaction Fee plus
all commission and fees payable to each Fund in connection with the sale of the
Fund Securities (expressed as a percentage value of such Fund Securities) may be
imposed for (1) redemptions effected outside the Clearing Process and (2)
redemptions made in cash (to offset the Trust’s brokerage and other transaction
costs associate with the sale of Fund Securities). Investors will also bear the
costs of transferring the Fund Securities from the Trust to their account or on
their order.
In
order to seek to replicate the in-kind redemption order process for creation
orders executed in whole or in part with cash, the Trust expects to sell, in the
secondary market, the portfolio securities or settle any financial instruments
that may not be permitted to be re-registered in the name of the Participating
Party as a result of an in-kind redemption order pursuant to local law or market
convention, or for other reasons (“Market
Sales”).
In such cases where the Trust makes Market Sales, the Authorized Participant
will reimburse the Trust for, among other things, any difference between the
market value at which the securities and other financial instruments were sold
or settled by the Trust and the “cash-in-lieu” amount, applicable registration
fees, brokerage commissions, and certain taxes.
CONTINUOUS
OFFERING
The
method by which Creation Units are created and traded may raise certain issues
under applicable securities laws. Because new Creation Units are issued and sold
by the Trust on an ongoing basis, at any point a “distribution”, as such term is
used in the Securities Act, may occur. Broker-dealers and other persons are
cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
manner which could render them statutory underwriters and subject them to the
prospectus delivery and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with the
Distributor, breaks them down into constituent Shares, and sells such Shares
directly to customers, or if it chooses to couple the creation of a supply of
new Shares with an active selling effort involving solicitation of secondary
market demand for Shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker-dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a categorization
as an underwriter.
Broker-dealers
who are not “underwriters” but are participating in a distribution (as
contrasted to ordinary secondary trading transactions), and thus dealing with
Shares that are part of an “unsold allotment” within the meaning of Section
4(a)(3)(C)
of the Securities Act, would be unable to take advantage of the
prospectus-delivery exemption provided by Section 4(a)(3)
of the Securities Act. This is because the prospectus delivery exemption in
Section 4(a)(3)
of the Securities Act is not available in respect of such transactions as a
result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should
note that dealers who are not underwriters but are participating in a
distribution (as contrasted with ordinary secondary market transactions) and
thus dealing with the Shares that are part of an over-allotment within the
meaning of Section
4(a)(3)(A)
of the Securities Act would be unable to take advantage of the prospectus
delivery exemption provided by Section 4(a)(3)
of the Securities Act. Firms that incur a prospectus delivery obligation with
respect to Shares are reminded that, under Rule 153 of the Securities Act, a
prospectus delivery obligation under Section 5(b)(2) of the Securities Act owed
to an exchange member in connection with a sale on the Exchange is satisfied by
the fact that the prospectus is available at the Exchange upon request. The
prospectus delivery mechanism provided in Rule 153 is only available with
respect to transactions on an exchange.
DETERMINATION
OF NET ASSET VALUE
The
following information supplements and should be read in conjunction with the
section in the Prospectus entitled “Determination of Net Asset Value
(NAV).”
The
NAV per Share for each Fund is computed by dividing the value of the net assets
of the Fund (i.e.,
the value of its total assets less total liabilities) by the total number of
Shares outstanding, rounded to the nearest cent. Expenses and fees, including
the management fee, are accrued daily and taken into account for purposes of
determining NAV. The NAV of each Fund is determined as of the close of the
regular trading session on the Exchange (ordinarily 4:00 p.m., Eastern time) on
each day
that
such exchange is open. Any assets or liabilities denominated in currencies other
than the U.S.
dollar
are converted into U.S. dollars at the current market rates on the date of
valuation as quoted by one or more sources.
In
computing each Fund’s NAV, the Fund’s portfolio securities are valued based on
market quotations. When market quotations are not readily available for a
portfolio security a Fund must use such security’s fair value as determined in
good faith by the Fund’s Valuation Designee, subject to the Board’s general
oversight. The Board has assigned the Advisor as the Valuation Designee to each
Fund.
The
value of each Fund’s portfolio securities is based on such securities’ closing
prices on local markets when available. If a portfolio security’s market price
is not readily available or does not otherwise accurately reflect the fair value
of such security, the portfolio security will be valued by another method that
the Valuation Designee believes will better reflect fair value. Each Fund may
use fair value pricing in a variety of circumstances, including but not limited
to, situations when the value of a Fund’s portfolio security has been materially
affected by events occurring after the close of the market on which such
security is principally traded (such as a corporate action or other news that
may materially affect the price of such security) or trading in such security
has been suspended or halted. In addition, each Fund may fair value foreign
equity portfolio securities each day the Fund calculates its NAV. Accordingly, a
Fund’s NAV may reflect certain portfolio securities’ fair values rather than
their market prices. Fair value pricing involves subjective judgments and it is
possible that a fair value determination for a portfolio security is materially
different than the value that could be realized upon the sale of such security.
With respect to securities that are primarily listed on foreign exchanges, the
value of a Fund’s portfolio securities may change on days when you will not be
able to purchase or sell your Shares.
DIVIDENDS
AND DISTRIBUTIONS
General
Policies
The
following information supplements and should be read in conjunction with the
section in the Prospectus entitled “Dividends, Distributions, and
Taxes.”
Dividends
from net investment income are normally declared and paid with the following
frequency:
|
|
|
|
|
|
| Name
of Fund |
Distribution
Frequency |
| WBI
BullBear Value 3000 ETF |
Quarterly |
| WBI
BullBear Yield 3000 ETF |
Monthly |
| WBI
BullBear Quality 3000 ETF |
Quarterly |
|
WBI
Power Factor®
High
Dividend ETF |
Quarterly |
|
WBI
BullBear Trend Switch 1000 ETF + |
Quarterly |
|
WBI
BullBear Trend Switch 2000 ETF + |
Quarterly |
|
WBI
BullBear Trend Switch US 1000 Total Return ETF + |
Quarterly |
|
WBI
BullBear Trend Switch US 2000 Total Return ETF + |
Quarterly |
+ The
Fund had not yet commenced operations as of June 30, 2023.
Distributions
of net capital gains, if any, generally are declared and paid once a year. The
Trust may make distributions on a more frequent basis for each Fund to comply
with the distribution requirements of the Code, but in all events in a manner
consistent with the provisions of the 1940 Act. In addition, the Trust may
distribute at least annually amounts representing the full dividend yield on the
underlying portfolio securities of the Funds, net of expenses of the Funds, as
if each Fund owned such underlying portfolio securities for the entire dividend
period, in which case some portion of each distribution may result in a return
of capital for tax purposes for certain shareholders.
Dividends
and other distributions on Shares are distributed, as described below, on a pro
rata basis to Beneficial Owners of such Shares. Dividend payments are made
through DTC Participants and Indirect Participants to Beneficial Owners then of
record with proceeds received from the Trust. The Trust makes additional
distributions to the minimum extent necessary (1) to distribute the entire
annual taxable income of the Trust, plus any net capital gains and (2) to avoid
imposition of the excise tax
imposed
by Section 4982 of the Code. Management of the Trust reserves the right to
declare special dividends if, in its reasonable discretion, such action is
necessary or advisable to preserve the status of each Fund as a “Regulated
Investment Company” (“RIC”)
under the Code or to avoid imposition of income or excise taxes on undistributed
income.
Dividend
Reinvestment Service
No
reinvestment service is provided by the Trust. Broker-dealers may make available
the DTC book-entry Dividend Reinvestment Service for use by Beneficial Owners of
the Funds through DTC Participants for reinvestment of their dividend
distributions. If this service is used, dividend distributions of both income
and realized gains will be automatically reinvested in additional whole Shares
of the Funds. Beneficial Owners should contact their broker to determine the
availability and costs of the service and the details of participation therein.
Brokers may require Beneficial Owners to adhere to specific procedures and
timetables.
TAXATION
Set
forth below is a discussion of certain U.S. federal income tax considerations
affecting the Funds and the purchase, ownership and disposition of Shares. It is
based upon the Code, the regulations promulgated thereunder, judicial
authorities, and administrative rulings and practices as in effect as of the
date of this SAI, all of which are subject to change, possibly with retroactive
effect. The following information supplements should be read in conjunction with
the section in the Prospectus entitled “Dividends, Distributions, and
Taxes.”
This
summary assumes that a Fund shareholder holds Shares as capital assets within
the meaning of the Code, and does not hold Shares in connection with a trade or
business. This summary does not address the potential U.S. federal income tax
considerations possibly applicable to an investment in Shares to Fund
shareholders holding Shares through a partnership (or other pass-through entity)
or to Fund shareholders subject to special tax rules. Prospective Fund
shareholders are urged to consult their own tax advisers with respect to the
specific federal, state, local, and foreign tax consequences of investing in
Shares based on their particular circumstances.
The
Funds have not requested and will not request an advance ruling from the
Internal Revenue Service (“IRS”)
as to the federal income tax matters described below. The IRS could adopt
positions contrary to those discussed below and such positions could be
sustained. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Shares, as well as the tax consequences arising under the laws of
any state, foreign country, or other taxing jurisdiction.
Tax
Treatment of the Funds
In
General.
Each Fund intends to qualify and elect to be treated as a separate RIC under the
Code. To qualify and maintain its tax status as a RIC, each Fund must meet
annually certain income and asset diversification requirements and must
distribute annually at least the sum of ninety percent (90%) of its “investment
company taxable income” (which includes dividends, interest, and net short-term
capital gains) and ninety percent (90%) of its net exempt interest income. As a
RIC, a Fund generally will not have to pay corporate-level federal income taxes
on any ordinary income or capital gains that it distributes to its
shareholders.
With
respect to some or all of its investments, a Fund may be required to recognize
taxable income in advance of receiving the related cash payment. For example, if
a Fund invests in original issue discount obligations (such as zero coupon debt
instruments or debt instruments with payment-in-kind interest), the Fund will be
required to include as interest income a portion of the original issue discount
that accrues over the term of the obligation, even if the related cash payment
is not received by the Fund until a later year. Under the “wash sale” rules, a
Fund may not be able to deduct a loss on a disposition of a portfolio security.
As a result, the Fund may be required to make an annual income distribution
greater than the total cash actually received during the year. Such distribution
may be made from the cash assets of the Fund or by selling portfolio securities.
The Fund may realize gains or losses from such sales, in which event the Fund’s
shareholders may receive a larger capital gain distribution than they would in
the absence of such transactions.
A
Fund will be subject to a four percent (4%) excise tax on certain undistributed
income if the Fund does not distribute to its shareholders in each calendar year
at least 98% of its ordinary income for the calendar year plus 98.2% of its
capital gain net income for the twelve months ended October 31 of such year.
Each Fund intends to make distributions necessary to avoid the 4% excise
tax.
Failure
to Maintain RIC Status.
If a Fund fails to qualify as a RIC for any year (subject to certain curative
measures allowed by the Code), the Fund will be subject to regular
corporate-level income tax in that year on all of its taxable income, regardless
of whether the Fund makes any distributions to its shareholders. In addition,
distributions will be taxable to a Fund’s shareholders generally as ordinary
dividends to the extent of the Fund’s current and accumulated earnings and
profits. Distributions from a non-qualifying Fund’s earnings and profits will be
taxable to the Fund’s shareholders as regular dividends, possibly eligible for
(1) in the case of an individual Fund shareholder, treatment as a qualifying
dividend (as discussed below) subject to tax at preferential capital gains rates
or (2) in the case of a corporate Fund shareholder, a dividends-received
deduction.
PFIC
Investments.
A Fund may purchase shares in a foreign corporation treated as a “passive
foreign investment company” (“PFIC”)
for federal income tax purposes. As a result, the Fund may be subject to federal
income tax (plus charges in the nature of interest on previously-deferred income
taxes on the PFIC’s income) on “excess distributions” made on or gain from a
sale (or other disposition) of the PFIC shares even if the Fund distributes the
excess distributions to its shareholders.
In
lieu of the income tax and deferred tax interest charges on excess distributions
on and dispositions of a PFIC’s shares, a Fund can elect to treat the underlying
PFIC as a “qualified electing fund,” provided that the PFIC agrees to provide
the Fund with adequate information regarding its annual results and other
aspects of its operations. With a “qualified electing fund” election in place,
the Fund must include in its income each year its share (whether distributed or
not) of the ordinary earnings and net capital gain of a PFIC.
In
the alternative, a Fund can elect to mark-to-market at the end of each taxable
year its PFIC shares. The Fund would recognize as ordinary income any increase
in the value of the PFIC shares and as an ordinary loss (up to any prior income
resulting from the mark-to-market election) any decrease in the value of the
PFIC shares.
With
a “mark-to-market” or “qualified election fund” election in place on a PFIC, a
Fund might be required to recognize in a year income in excess of its actual
distributions on and proceeds from dispositions of the PFIC’s shares. Any such
income would be subject to the RIC distribution requirements and would be taken
into account for purposes of the 4% excise tax (described above).
Futures
Contracts.
A Fund may be required to mark-to-market and recognize as income for each
taxable year its net unrealized gains and losses on certain futures contracts.
In addition, a Fund may be required to defer the recognition of losses on
futures contracts to the extent of any unrecognized gains on related positions
held by the Fund. Any income from futures contracts would be subject to the RIC
distribution requirements and would be taken into account for purposes of the 4%
excise tax (described above).
Foreign
Currency Transactions.
Gains or losses attributable to fluctuations in exchange rates between the time
a Fund accrues income, expenses, or other items denominated in a foreign
currency
and the time the Fund actually collects or pays such items are generally treated
as ordinary income or
loss.
Similarly, gains or losses on foreign currency forward contracts and the
disposition of debt securities denominated in a foreign currency, to the extent
attributable to fluctuations in exchange rates between the acquisition and
disposition dates, are also treated as ordinary income or loss.
Special
or Uncertain Tax Consequences.
A Fund’s investment or other activities could be subject to special and complex
tax rules that may produce differing tax consequences, such as disallowing or
limiting the use of losses or deductions (such as the “wash sale” rules),
causing the recognition of income or gain without a corresponding receipt of
cash, affecting the time as to when a purchase or sale of stock or securities is
deemed to occur, or altering the characterization of certain complex financial
transactions. Each Fund will monitor its investment activities for any adverse
effects that may result from these special tax rules.
A
Fund may engage in investment or other activities the treatment of which may not
be clear or may be subject to recharacterization by the IRS. In particular, the
tax treatment of swaps and other derivatives and income from foreign currency
transactions is unclear for purposes of determining a Fund’s status as a RIC. If
a final determination on the tax treatment of a Fund’s investment or other
activities differs from the Fund’s original expectations, the final
determination could adversely affect the Fund’s status as a RIC or the timing or
character of income recognized by the Fund, requiring the Fund to purchase or
sell assets, alter its portfolio or take other action in order to comply with
the final determination.
Certain
Net Capital-Loss Carryforward.
For federal income tax purposes, a Fund is generally permitted to carry forward
a net capital loss in any year to offset net capital gains, if any, during its
taxable years following the year of the loss. Capital losses carried forward
will retain their character as either short-term or long-term capital losses. To
the extent subsequent net capital gains are offset by such losses, they would
not result in federal income tax liability to a Fund and would not be
distributed as such to shareholders.
As
of June 30, 2023, the Funds had the following short-term and long-term capital
loss carryforwards available for federal income tax purposes. The Future Funds
had not yet commenced operations as of June 30, 2023, and consequently, are not
included in the table below.
|
|
|
|
|
|
|
|
|
| Fund |
Short-Term |
Long-Term |
| WBI
BullBear Value 3000 ETF+ |
$21,900,878 |
— |
| WBI
BullBear Yield 3000 ETF+ |
$67,164,090 |
— |
| WBI
BullBear Quality 3000 ETF+ |
$29,459,718 |
— |
|
WBI
Power Factor®
High
Dividend ETF |
$4,213,337 |
$3,647,186 |
+
Annual limitation may apply to a portion of the losses under IRC
382.
Tax
Treatment of Fund Shareholders
Fund
Distributions.
In general, Fund distributions are subject to federal income tax when paid,
regardless of whether they consist of cash or property or are reinvested in
Shares. However, any Fund distribution declared in October, November, or
December of any calendar year and payable to shareholders of record on a
specified date during such month will be deemed to have been
received
by each Fund shareholder on December 31 of such calendar year, provided such
dividend is actually paid during January of the following calendar
year.
Distributions
of a Fund’s net investment income (other than, as discussed below, qualified
dividend income) and net short-term capital gains are taxable as ordinary income
to the extent of the Fund’s current or accumulated earnings and profits.
Distributions of a Fund’s net long-term capital gains in excess of net
short-term capital losses are taxable as long-term capital gain to the extent of
the Fund’s current or accumulated earnings and profits, regardless of a Fund
shareholder’s holding period in the Fund’s Shares. Distributions of qualified
dividend income are taxable as long-term capital gain to the extent of the
Fund’s current or accumulated earnings and profits, provided that the Fund
shareholder meets certain holding period and other requirements with respect to
the distributing Fund’s Shares and the distributing Fund meets certain holding
period and other requirements with respect to its dividend-paying
stocks.
Each
Fund intends to distribute its long-term capital gains at least annually.
However, by providing written notice to its shareholders no later than 60 days
after its year-end, a Fund may elect to retain some or all of its long-term
capital gains and designate the retained amount as a “deemed distribution”. In
that event, the Fund pays income tax on the retained long-term capital gain, and
each Fund shareholder recognizes a proportionate share of the Fund’s
undistributed long-term capital gain. In addition, each Fund shareholder can
claim a refundable tax credit for the shareholder’s proportionate share of the
Fund’s income taxes paid on the undistributed long-term capital gain and
increase the tax basis of the Shares by an amount equal to the shareholder’s
proportionate share of the Fund’s undistributed long-term capital gains, reduced
by the amount of the shareholder’s tax credit.
Long-term
capital gains of non-corporate Fund shareholders (i.e.,
individuals, trusts, and estates) are taxed at a maximum rate of
20%.
In
addition, high-income individuals (and certain trusts and estates) will be
subject to a 3.8% Medicare tax on net investment income (which generally
includes all Fund distributions and gains from the sale of Shares) in addition
to otherwise applicable federal income tax. Please consult your tax advisor
regarding this tax.
To
the extent that each Fund makes a distribution of income received by such Fund
in lieu of dividends with respect to securities on loan pursuant to a securities
lending transaction, such income will not constitute qualified dividend income
to individual shareholders and will not be eligible for the dividends-received
deduction for corporate shareholders.
Investors
considering buying Shares just prior to a distribution should be aware that,
although the price of the Shares purchased at such time may reflect the
forthcoming distribution, such distribution nevertheless may be taxable (as
opposed to a non-taxable return of capital).
REIT/REMIC
Investments.
A Fund may invest in REITs owning residual interests in real estate mortgage
investment conduits (“REMICs”).
Income from a REIT to the extent attributable to a REMIC residual interest
(known as “excess inclusion” income) is allocated to a Fund’s shareholders in
proportion to the dividends received from the Fund, producing the same income
tax consequences as if the Fund shareholders directly received the excess
inclusion income. In general, excess inclusion income (1) cannot be offset by
net operating losses (subject to a limited exception for certain thrift
institutions), (2) constitutes “unrelated business taxable income” to certain
entities (such as a qualified pension plan, an individual retirement account, a
401(k)
plan, a Keogh plan, or other tax-exempt entity), and (3) in the case of a
foreign shareholder, does not qualify for any withholding tax reduction or
exemption. In addition, if at any time during any taxable year certain types of
entities own Shares, the Fund will be subject to a tax equal to the product of
(1) the excess inclusion income allocable to such entities and (2) the highest
U.S. federal income tax rate imposed on corporations. A Fund is also subject to
information reporting with respect to any excess inclusion income.
Effective
for taxable years beginning after December 31, 2017, and before January 1, 2026,
the Code generally allows individuals and certain non-corporate entities a
deduction for 20% of qualified REIT dividends. Treasury Regulations permit a RIC
to pass the character of its qualified REIT dividends through to its
shareholders. As a result, a shareholder in a Fund that invests in REITs will be
entitled to the same deduction with respect to the portion of Fund dividends
based on qualified REIT dividends received by a Fund.
Sales
of Shares.
Any capital gain or loss realized upon a sale of Shares is treated generally as
a long-term gain or loss if the Shares have been held for more than one year.
Any capital gain or loss realized upon a sale of Shares held for one year or
less is generally treated as a short-term gain or loss, except that any capital
loss on the sale of Shares held for six months or less is treated as long-term
capital loss to the extent that capital gain dividends were paid with respect to
such Shares.
In-Kind
Creation Unit Issues and Redemptions.
On an issue of Shares as part of a Creation Unit made by means of an in-kind
deposit, an Authorized Participant recognizes capital gain or loss equal to the
difference between (1) the fair market where the creation is conducted in-kind
by deposit of Deposit Securities value (at issue) of the
issued
Shares (plus any cash received by the Authorized Participant as part of the
issue) and (2) the Authorized Participant’s aggregate basis in the exchanged
securities (plus any cash paid by the Authorized Participant as part of the
issue). On a redemption of Shares as part of a Creation Unit where the
redemption is conducted in-kind by a payment of Fund Securities, an Authorized
Participant recognizes capital gain or loss equal to the difference between (1)
the fair market value (at redemption) of the securities received (plus any cash
received by the Authorized Participant as part of the redemption) and (2) the
Authorized Participant’s basis in the redeemed Shares (plus any cash paid by the
Authorized Participant as part of the redemption). However, the IRS may assert,
under the
“wash
sale” rules or on the basis that there has been no significant change in the
Authorized Participant’s economic position, that any loss on an issue or
redemption of Creation Units cannot be deducted currently.
In
general, any capital gain or loss recognized upon the issue or redemption of
Shares (as components of a Creation Unit) is treated either as long-term capital
gain or loss, if the deposited securities (in the case of an issue) or the
Shares (in the case of a redemption) have been held for more than one year, or
otherwise as short-term capital gain or loss. However, any capital loss
recognized on a redemption of Shares held for six months or less is treated as
long-term capital loss to the extent that capital gain dividends were paid with
respect to such Shares.
A
Fund may be subject to foreign income taxes and may be able to elect to
pass-along such credit to its shareholders. If this election is available and
the Fund elects such treatment, the amount of such credit will be treated as an
additional distribution by the Fund and, subject to various limitations of the
Code, its shareholders will be entitled to claim a foreign tax credit to
offset
their tax liability. Please consult your tax advisor regarding whether you will
be able to use such credit against your tax liability.
Back-Up
Withholding.
A Fund may be required to report certain information on a Fund shareholder to
the IRS and withhold federal income tax (“backup withholding”) at a 24% rate
from all taxable distributions and redemption proceeds payable to the Fund
shareholder if the Fund shareholder fails to provide the Fund with a correct
taxpayer identification number (or, in the case of a U.S. individual, a social
security number) or a completed exemption certificate (e.g.,
an IRS Form W-8BEN or W- 8BEN-E, as applicable, in the case of a foreign Fund
shareholder) or if the IRS notifies the Fund that the Fund shareholder is
otherwise subject to backup withholding. Backup withholding is not an additional
tax and any amount withheld may be credited against a Fund shareholder’s federal
income tax liability.
Tax
Shelter Reporting Regulations.
If a Fund shareholder recognizes a loss with respect to Shares of $2 million or
more for an individual Fund shareholder or $10 million or more for a corporate
shareholder in any single taxable year (or a greater loss over a combination of
years), the Fund shareholder may be required file a disclosure statement with
the IRS. Significant penalties may be imposed upon the failure to comply with
these reporting rules.
Special
Issues for Foreign Shareholders
In
general, if a Fund shareholder is not a U.S. citizen or resident or if a Fund
shareholder is a foreign entity, the Fund’s ordinary income dividends (including
distributions of other amounts that would not be subject to U.S. withholding tax
if paid directly to foreign Fund shareholders) will be subject, in general, to
withholding tax at a rate of 30% (or at a lower rate established under an
applicable tax treaty). However interest-related dividends and short-term
capital gain dividends generally will not be subject to withholding tax;
provided that the foreign Fund shareholder furnishes the Fund with a completed
IRS Form W-8BEN or W-8BEN-E, as applicable, (or acceptable substitute
documentation) establishing the Fund shareholder’s status as foreign and that
the Fund does not have actual knowledge or reason to know that the foreign Fund
shareholder would be subject to withholding tax if the foreign Fund shareholder
were to receive the related amounts directly rather than as dividends from the
Fund.
Under
current law, gain on a sale of Shares or an exchange of such Shares will be
exempt from U.S. federal income tax (including withholding at the source) unless
(1) in the case of an individual foreign Fund shareholder, the Fund shareholder
is physically present in the United States for more than 182 days during the
taxable year and meets certain other requirements, or (2) at any time during the
shorter of the period during which the foreign Fund shareholder held such Shares
of the Fund and the five-year period ending on the date of the disposition of
those shares, the Fund was a “U.S. real property holding corporation” (as
defined below), and the foreign Fund shareholder actually or constructively held
more than 5% of the Shares. In the case of a disposition described in clause (2)
of the preceding sentence, the gain would be taxed in the same manner as for a
domestic Fund shareholder and in certain cases will be collected through
withholding at the source in an amount equal to 15% of the sales
proceeds.
Unless
treated as a “domestically-controlled” RIC, a Fund will be a “U.S. real property
holding corporation” if the fair market value of its U.S. real property
interests (which includes shares of U.S. real property holding corporations and
certain participating debt securities) equals or exceeds 50% of the fair market
value of such interests plus its interests in real property located outside the
United States plus any other assets used or held for use in a business. A
“domestically
controlled” RIC is any RIC in which at all times during the relevant testing
period 50% or more in value of the RIC’s stock was owned by U.S.
persons.
Shareholders
that are foreign entities will be subject to U.S. withholding tax of 30 percent
on certain U.S. source investment income (including all dividends from the
Fund), unless they comply or demonstrate their exemption from certainly
reporting requirements. Complying with such requirements may require the
shareholder to provide and certify certain information about itself and (where
applicable) its beneficial owners, and foreign financial institutions may be
required to enter in an agreement with the U.S. Internal Revenue Service or a
government agency in their own country to provide certain information regarding
such shareholder’s account holders. Please consult your tax advisor regarding
this tax.
To
claim a credit or refund for any Fund-level taxes on any undistributed long-term
capital gains (as discussed above) or any taxes collected through withholding, a
foreign Fund shareholder must obtain a U.S. taxpayer identification number and
file a federal income tax return even if the foreign Fund shareholder would not
otherwise be required to obtain a U.S. taxpayer identification number or file a
U.S. income tax return.
Investments
in U.S. Real Property.
In general, if a Fund is a “U.S. real property holding corporation,” (determined
without the exception for “domestically-controlled” RICs and publicly-traded
RICs) distributions by the Fund attributable to gains from “U.S. real property
interests” (including gain on the sale of shares in certain “non-domestically
controlled” REITs and certain capital gain dividends from REITs) will be treated
as income effectively connected to a trade or business within the United States,
subject generally to tax at the same rates applicable to domestic Fund
shareholders and, in the case of the foreign corporate Fund shareholder, a
“branch profits” tax at a rate of 30% (or other applicable lower rate). Such
distributions will be subject to U.S. withholding tax and will generally give
rise to an obligation on the part of the foreign stockholder to file a U.S.
federal income tax return.
Even
if a Fund is treated as a U.S. real property holding company, distributions on
and sales of the Shares will not be treated as income effectively connected with
a U.S. trade or business in the case of a foreign Fund shareholder owning (for
the applicable period) 5% or less of Shares (but such distributions will be
subject to the 30% withholding tax).
Investors
are advised to consult their own tax advisers with respect to the application to
their own circumstances of the above-described rules. There can be no assurance
that these rules, which have expired, will be extended.
Foreign
stockholders that engage in certain “wash sale” and/or substitute dividend
payment transactions the effect of which is to avoid the receipt of
distributions from the Fund that would be treated as gain effectively connected
with a United States trade or business will be treated as having received such
distributions. All shareholders of the Fund should consult their tax advisers
regarding the application of these rules.
INDEX
DISCLAIMER
The
WBI Power Factor® High Dividend ETF is not sponsored, promoted, sold or
supported in any other manner by Solactive AG nor does Solactive AG offer any
express or implicit guarantee or assurance either with regard to the results of
using the Underlying Index and/or Underlying Index trade mark or the Underlying
Index Price at any time or in any other respect. The Underlying Index
is
calculated and published by Solactive AG. Solactive AG uses its best efforts to
ensure that the Parent Index and Underlying Index are calculated correctly.
Irrespective of its obligations towards the licensee, Solactive AG has no
obligation to point out errors in the Parent Index or Underlying Index to third
parties, including, but not limited to, investors and/or financial
intermediaries of the WBI Power Factor® High Dividend ETF. Neither publication
of the Parent Index or Underlying Index by Solactive AG nor the licensing of the
Parent Index, Underlying Index or any other index trade mark for the purpose of
use in connection with the WBI Power Factor® High Dividend ETF constitutes a
recommendation by Solactive AG to invest capital in the WBI Power Factor® High
Dividend ETF nor does it in any way represent an assurance or opinion of
Solactive AG with regard to any investment in the WBI Power Factor® High
Dividend ETF.
OTHER
INFORMATION
The
Funds are not sponsored, endorsed, sold, or promoted by the NYSE Arca. The NYSE
Arca makes no representation or warranty, express or implied, to the owners of
Shares or any member of the public regarding the advisability of investing in
securities generally or in the Funds particularly or the ability of the Funds to
achieve their objective. The NYSE Arca has no obligation or liability in
connection with the administration, marketing, or trading of the
Funds.
For
purposes of the 1940 Act, the Funds are registered investment companies, and the
acquisition of Shares by other registered investment companies and companies
relying on exemption from registration as investment companies under Section
3(c)(1) or 3(c)(7) of the 1940 Act is subject to the restrictions of Section
12(d)(1) of the 1940 Act, except as permitted by an exemptive order that permits
registered investment companies to invest in the Funds beyond those
limitations.
Shareholder
inquiries may be made by writing to the Trust, c/o Millington Securities, LLC,
331 Newman Springs Road, Suite 143, Red Bank, New Jersey 07701.
FINANCIAL
STATEMENTS
The
annual report for the Funds for the fiscal year ended June 30, 2023 is a
separate document and the financial statements and accompanying notes appearing
therein are incorporated by reference in this SAI. You may request a copy of the
Funds’ Annual
Report
to
Shareholders
at no charge by calling the Funds (toll-free) at (855) WBI-ETFS or (855)
924-3837 or through the Funds’ website at www.wbietfs.com.
APPENDIX
A
WBI
Investments, LLC
Proxy
Voting Policies and Procedures
I.General
WBI
Investments, LLC, (“WBI”)
recognizes its obligation to vote proxies for investments held by clients over
which it exercises discretionary authority. It does so in the clients’ best
interest. WBI will generally vote proxies and act on all other actions in a
timely manner as part of its full discretionary authority over client assets
(except in limited circumstances described in section II), in accordance with
these Proxy Voting Policies and Procedures (the “Proxy
Voting Policies”).
If
at any time it determines to decline the responsibility of voting proxies, WBI
must specifically notify clients. It must also make provisions for its clients
to receive proxy information.
II.Proxy
Voting
A.General
Requirements of Rule 206(4)-6
Pursuant
to the requirements of Rule 206(4)-6 under the Investment Advisers Act of 1940
(the “Advisers
Act”),
WBI: (1) has adopted these Proxy Voting Policies that are reasonably designed to
ensure that WBI votes client securities in the best interest of such clients;
(2) will disclose to clients how they may obtain information on how WBI voted
their proxies; and (3) will describe to clients its Proxy Voting Policies and,
upon their request, provide copies to clients.
B.Disclosure
of Proxy Voting Policies
WBI’s
Proxy Voting Procedures are described in ADV Part 2 Brochure. The disclosure
included in the Brochure summarizes these Proxy Voting Policies. The disclosure,
however, does state that a client may obtain a copy of the complete Proxy Voting
Policies upon request.
C.Disclosure
of Voting Information
WBI’s
Form ADV Part 2 Brochure also indicates that clients may obtain information from
WBI on how their securities were voted. Consequently, WBI maintains records of
proxies voted for each client.
D.Procedures
WBI
has engaged an unbiased third party proxy voting service to receive and review
proxy voting statements, provide information and research, make proxy voting
recommendations, and handle the administrative functions associated with the
voting of proxies. The proxy voting guidelines are provided to the proxy
voting service to assure WBI’s intent with regard to voting proxies in the best
interest of clients is observed in the execution of the proxy voting services
provided. WBI will generally vote proxies in accordance with these
recommendations, but reserves the right to exercise its own judgment on a
case-by-case basis. If WBI determines that voting a particular proxy would
create a material conflict of interest between its interest or the
interests
of any of its affiliated parties and the interests of the Fund, WBI will vote
such proxy based upon the recommendations of the independent third party proxy
voting service. The Chief Compliance Officer is ultimately responsible for
ensuring that all proxies received by WBI are voted in a timely manner and in a
manner consistent with WBI’s determination of the client’s best interests.
Although many proxy proposals may be voted in accordance with the guidelines
established in these Proxy Voting Policies, some proposals require special
consideration which may dictate an exception to the policies and
procedures.
E.Guidelines
The
following guidelines summarize WBI’s positions on various issues and give a
general indication as to how WBI will vote shares on each issue. WBI believes
that voting proxies pursuant to the guidelines should be in the best interests
of the client. Although WBI will usually vote proxies in accordance with these
guidelines, WBI reserves the right to vote certain issues counter to the
guidelines if, after a thorough review of the matter, WBI determines that a
client’s best interests would be served by such a vote. Moreover, the list of
guidelines below may not include all potential voting issues. To the extent that
the guidelines do not cover potential voting issues, WBI will vote on such
issues in a manner that is consistent with the spirit of these guidelines and
that promotes the best interests of the client. Each proxy issue will be
considered individually. The following guidelines are a partial list to be used
in voting proposals contained in the proxy statements.
(1)Routine
Matters.
Routine proposals are those that do not change the structure, bylaws or
operations of a corporation to the detriment of the shareholders. Given the
routine nature of these proposals, proxies will normally be voted with
management. Traditionally, these issues include:
•Election
of auditors recommended by management, unless seeking to replace auditors due to
a dispute over policies;
•Date
and place of annual meeting;
•Ratification
of directors’ actions on routine matters since previous annual
meeting;
•Reasonable
Employee Stock Purchase Plans; and
•Establishing
reasonable 401(k) Plans.
(b)Board
of Directors.
If a company’s performance has been poor over a period of time or other negative
factors exist, such as unusual litigation, WBI may consider withholding its
proxy in favor of any incumbent members of board of directors and voting against
any member.
WBI
considers it important that publicly-held companies maintain a Board of
Directors independent from management and qualified in their own
respect.
(c)Management
Compensation.
WBI generally votes in favor of proposals to align management compensation with
the interests of stockholders. However, WBI considers excessive compensation to
be against the best interest of stockholders. It may consider such compensation
as a factor to vote against any incumbent director.
(d)Change
of Control Provisions.
WBI disfavors change of control provisions in whatever format, including without
limitation, staggered boards of directors, poison pills provisions, required
super-majority votes, or any other similar provisions. It will generally vote
against these provisions absent good reasons to the contrary.
WBI
generally votes against any management proposal that is not deemed to be in the
shareholders’ best interests because it may entrench management. Proposals in
this category include:
•Proposals
to stagger board members’ terms;
•Proposals
to limit the ability of shareholders to call special meetings;
•Proposals
to require super majority votes;
•Proposals
requesting excessive increases in authorized common or preferred shares where
management provides no explanation for the use or need of these additional
shares;
•Proposals
regarding “poison pill” provisions;
•Permitting
“green mail”; and
•Providing
cumulative voting rights.
(e)Capital
Structures.
WBI votes on capital structure proposals according to the reasons for the
proposals and in a manner to increase stockholder value. For example, proposals
to increase the number of authorized shares of stock for acquisitions or to
raise capital are favored over proposals to increase the number of authorized
shares for management compensation.
Proposals
to buy back shares of common stock are generally favored. Proposals to issue
shares in such a manner to prevent a change of control are generally disfavored.
(f)Auditor
Approval.
WBI will consider the integrity, qualifications, and disciplinary history of the
proposed accounting firm. WBI does not necessarily consider the size of the firm
to be one of the more important factors.
To
the best of its ability, WBI maintains an awareness of the integrity and
disciplinary history of accounting firms auditing public-held companies’
statements. Any firm with a significant amount of disciplinary history or legal
claims against it is disfavored.
The
composition of the audit committee is an additional factor in ratifying the
appointed independent auditors. A qualified, independent, and active audit
committee’s recommendations are given deference.
(g)Corporate
Governance.
WBI maintains sufficient familiarity with new requirements governing corporate
governance, such as the Sarbanes-Oxley Act. Any reasonable provisions furthering
good corporate governance, integrity and informed decisions by a board of
directors, management or otherwise are endorsed by WBI.
(h)Shareholder
Action.
If proxy materials relate to shareholder action, WBI shall review the matter
with regard to the best interests of the client and to recover the most value
possible or to maintain the highest value of the investment. Within the
consideration of the recovery of an investment with respect to a lawsuit, the
time value of money and the risks and nature of the lawsuit shall be
considered.
(i)Special
Circumstances.
WBI reviews each issue in this category on a case-by-case basis. Voting
decisions will be made based on the financial interest of its clients. These
include matters such as:
•Director/Management
mandatory retirement policy; and
•Option
and stock grants and pay and retirement packages to management and
directors.
(j)Conflict
of Interest.
If a potential conflict of interest exists between a client and the interest of
WBI in voting proxies, any of the following procedures may be followed to
resolve the conflict:
•Vote
in Accordance with the Guidelines.
To the extent that WBI has
little or no discretion
to deviate from the guidelines with respect to the proposal in question, WBI
shall vote in accordance with such pre-determined voting policy.
•Independent
Third Party Recommendation.
If WBI determines that voting a particular proxy would create a material
conflict of interest between its interest or the interests of any of its
affiliated parties and the interests of the Fund, WBI will vote such proxy based
upon the recommendations of the independent third party proxy voting service. If
the independent third party service recuses itself on a proxy voting matter, or
makes no recommendation, WBI will abstain from voting the securities held by
that client’s account.
(k)Shareholder
Proposals.
WBI reviews shareholder proposals individually and determines each proposal on
its own individual merits. WBI balances the needs of the company to maintain
flexibility in its business operations against other considerations proposed by
shareholders.
(l)Additional
Factors.
WBI, in good faith, shall consider such additional factors as it determines
relevant, depending on current issues and issues particular to any
company.
(m)Limitations.
In
certain circumstances, in accordance with a client’s investment advisory
contract (or other written directive), or where WBI has determined that it is in
the client’s best interest, WBI will not vote proxies received. The following
are certain circumstances where WBI will limit its role in voting
proxies:
•Client
Maintains Proxy Voting Authority:
Where a client specifies in writing that it will maintain the authority to vote
proxies itself or that it has delegated
the
right to vote proxies to a third party, WBI will not vote the securities and
will direct the relevant custodian to send the proxy material directly to the
client. In these instances, if any proxy material is received by WBI, it will
promptly be forwarded to the client or specified third party.
•Custodian
Retains Proxy Voting Authority:
Where a client’s account custodian retains proxy voting authority WBI will not
vote those client’s securities.
•Terminated
Account:
Once a client account has been terminated with WBI in accordance with its
investment advisory agreement, WBI will not vote any proxies received after the
termination. However, the client may specify in writing that proxies should be
directed to the client or a specified third party for action.
•Limited
Value:
If WBI determines that the value of a client’s economic interest or the value of
the portfolio holding is indeterminable or insignificant, WBI may abstain from
voting a client’s proxies. WBI also will not vote proxies received for
securities which are no longer held by the client’s account. In addition, WBI
may not vote securities where the economic value of the securities in the client
account is less than $1,000.
•Securities
Lending Programs:
When
securities are out on loan, they are transferred into the borrower’s name and
are voted by the borrower, in its discretion. However, where WBI determines that
a proxy vote, or other shareholder action, is materially important to the
client’s account, WBI may recall the security for purposes of
voting.
•Unjustifiable
Costs:
In certain circumstances, after doing a cost-benefit analysis, WBI may abstain
from voting where the cost of voting a client’s proxy would exceed any
anticipated benefits to the client of the proxy proposal.
F.Client
Directions
Custodians
forward proxy materials for clients who rely on WBI to vote proxies to the proxy
voting service. The proxy voting service is responsible for exercising the
voting rights in accordance with its recommendations. If WBI receives proxy
materials in connection with a client’s account where the client has, in
writing, communicated WBI that the client, plan fiduciary or other third party
has reserved the right to vote proxies, WBI will forward to the party appointed
by client any proxy materials it receives with respect to the account.
G.Third
Party
Although
WBI has determined to use a third party service provider to vote proxies, WBI
must assure that the third party complies with Rule 206(4)-6. It must also
obtain the necessary records required to be maintained.
H.Record
Keeping
WBI
maintains:
•these
Proxy Voting Policies, and all amendments thereto;
•all
proxy statements received regarding client securities; provided, however, that
WBI may rely on the proxy statement filed on EDGAR as its records;
•a
record of all votes cast on behalf of clients;
•records
of all client requests for proxy voting information;
•any
documents prepared by WBI that were material to making a decision how to vote or
that memorialized the basis for the decision; and
•all
records relating to requests made to clients regarding conflicts of interest in
voting the proxy.
WBI
describes in its Form ADV Part 2 Brochure its proxy voting policies and
procedures and will inform clients how they may obtain information on how WBI
voted proxies with respect to the clients’ portfolio securities. Clients may
obtain information on how their securities were voted or a copy of these Proxy
Voting Policies by written request addressed to WBI. WBI will coordinate with
all Investment Company Act clients to assist in the provision of all information
required to be filed by such mutual funds on Form N-PX.
APPENDIX
B
CORPORATE
BOND RATINGS
Moody’s
Investors Service, Inc.
Aaa:
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as “gilt edge.”
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa:
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations or protective elements
may be of greater amplitude or there may be other elements present which make
long-term risks appear somewhat larger than in Aaa securities.
A:
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa:
Bonds which are rated Baa are considered as medium grade obligations,
i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba:
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B:
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa:
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca:
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C:
Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospectus of ever attaining any real
investment standing. Moody’s applies numerical modifiers, 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate bond rating
system. The modified 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range
ranking;
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Standard
& Poor’s Ratings Group
AAA:
Bonds rated AAA are highest grade debt obligations. This rating indicates an
extremely strong capacity to pay principal and interest.
AA:
Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A:
Bonds rated A have a strong capacity to pay principal and interest, although
they are more susceptible to the adverse effects of changes in circumstances and
economic conditions.
BBB:
Bonds rated BBB are regarded as having an adequate capacity to pay principal and
interest. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this category than
for bonds in the A category.
BB,
B, CCC, CC, C: Bonds rated BB, B, CCC, CC, and C are regarded on balance as
predominantly speculative with respect to capacity to pay interest and repay
principal BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions.
BB:
Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B:
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or
BB-rating.
CCC:
Bonds rated CCC have a currently identifiable vulnerability to default and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC:
The rating CC typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI:
The rating CI is reserved for income bonds on which no interest is being paid.
D:
Bonds rated D are in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such
payments are jeopardized.
Plus
(+) or Minus (-): The ratings from AA to CCC may be modified by the addition of
a plus or minus sign to show relative standing with the major categories.
APPENDIX
C
COMMERCIAL
PAPER RATINGS
Moody’s
Investors Service, Inc.
Prime-1--Issuers
(or related supporting institutions) rated “Prime-1” have a superior ability for
repayment of senior short-term debt obligations. “Prime-1” repayment ability
will often be evidenced by many of the following characteristics: leading market
positions in well-established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Prime-2--Issuers
(or related supporting institutions) rated “Prime-2” have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained.
Standard
& Poor’s Ratings Group
A-1--This
highest category indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity
for timely payment on issues with this designation is satisfactory. However, the
relative degree of safety is not as high as for issues designated
“A-1”.