ck0001650149-20230831
STATEMENT
OF ADDITIONAL INFORMATION
December
29, 2023
as
supplemented April 24, 2024
Panagram
AAA CLO ETF
Listed
on NYSE Arca, Inc.:
CLOX
Panagram
BBB-B CLO ETF
Listed
on NYSE Arca, Inc.:
CLOZ
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
Wisconsin 53201-0701
800-617-0004
This
Statement of Additional Information (“SAI”) is not a prospectus, but should be
read in conjunction with the Prospectus of the Panagram AAA CLO ETF and Panagram
BBB-B CLO ETF (each a “Fund” and together, the “Funds”), each a series of Series
Portfolios Trust (the “Trust”), dated December 29, 2023 and as may be
supplemented from time to time, which is incorporated by reference into this
SAI.
You
may obtain a copy of the Prospectus without charge by contacting the Funds c/o
U.S. Bank Global Fund Services at the address or telephone number listed above.
The Funds’ audited financial statements and notes thereto for the fiscal year
ended August 31, 2023, and the unqualified opinions of Cohen & Company,
Ltd., the Funds’ independent registered public accounting firm, on such
financial statements are included in the Funds’ Annual Reports (Panagram
AAA CLO ETF Annual Report
and Panagram
BBB-B CLO ETF Annual Report)
to shareholders for the fiscal period ended August 31, 2023, and are
incorporated by reference into this SAI. A copy of the Funds’ Annual and
Semi-Annual Reports to shareholders may be obtained, without charge, upon
request by contacting U.S. Bank Global Fund Services at the address or telephone
number listed above, or by visiting the Funds’ websites at www.cloxfund.com for
the Panagram AAA CLO ETF and www.clozfund.com for the Panagram BBB-B CLO
ETF.
TABLE
OF CONTENTS
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| BOOK
ENTRY ONLY SYSTEM |
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| PURCHASE
AND REDEMPTION OF CREATION UNITS |
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THE
TRUST
The
Trust is a Delaware statutory trust organized on July 27, 2015, and is
registered with the U.S. Securities and Exchange Commission (“SEC”) as an
open-end management investment company. The Trust’s Declaration of Trust, as
amended and/or restated to date (the “Declaration of Trust”) permits the Trust’s
Board of Trustees (the “Board”) to issue an unlimited number of full and
fractional shares of beneficial interest, without par value, which may be issued
in any number of series. The Board may from time to time issue other series, the
assets and liabilities of which will be separate and distinct from any other
series. This SAI relates only to the Funds.
The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of a Fund’s assets for any Trustee or Trust officer held personally
liable for obligations of a Fund or the Trust. All such rights are limited to
the assets of a Fund. The Declaration of Trust further provides that the Trust
may maintain appropriate insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust, its shareholders,
trustees, officers, employees, and agents to cover possible claims and other
liabilities. However, the activities of the Trust as an investment company would
not likely give rise to liabilities in excess of the Trust’s total assets. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which both inadequate insurance exists
and a Fund itself is unable to meet its obligations.
The
Declaration of Trust provides that the Trust shall not in any way be bound or
limited by present or future laws or customs in regard to trust investments. The
Declaration of Trust provides that a Trustee or officer shall be liable for his
or her own willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of the office of Trustee or
officer, and for nothing else, and shall not be liable for errors of judgment or
mistakes of fact or law. The Trustees, as trustees of a registered investment
company, may have a number of duties ascribed to them under the Investment
Company Act of 1940, as amended (the “1940 Act”) and the foregoing provisions
are not intended to eliminate or alter those duties.
The
Declaration of Trust provides that by virtue of becoming a shareholder of the
Trust, each shareholder is bound by the provisions of the Declaration of Trust.
The Declaration of Trust provides a detailed process for the bringing of
derivative actions by shareholders. Prior to bringing a derivative action, a
written demand by the complaining shareholder must first be made on the
Trustees. The Declaration of Trust details conditions that must be met with
respect to the demand, including the requirement that 10% of the outstanding
shares of a Fund who are eligible to bring such derivative action under the
Delaware Statutory Trust Act join in the demand for the Trustees to commence
such derivative action and that the shareholder making a pre-suit demand on the
Board undertakes to reimburse the Fund for the expense of any advisers that the
Board hires in its investigation of the demand, in the event the Board
determines not to bring the action. The demand requirements set out in Delaware
law and the Declaration of Trust, as described above, do not apply to
shareholder actions alleging violations of the federal securities laws.
Additionally,
the Declaration of Trust provides that the Court of Chancery of the State of
Delaware, to the extent there is subject matter jurisdiction in such court for
the claims asserted or, if not, then in the Superior Court of the State of
Delaware shall be the exclusive forum in which certain types of litigation may
be brought, which may require shareholders to have to bring an action in an
inconvenient or less favorable forum. This exclusive forum provision does not
apply to claims arising under the federal securities laws because the Securities
Act of 1933, (the “Securities Act”), and the 1940 Act allow claims to be brought
in state and federal courts and the Securities Exchange Act of 1934 requires
claims to be
brought
exclusively in federal court. The Declaration of Trust provides that
shareholders waive any and all right to trial by jury in any claim, suit,
action, or proceeding.
Pursuant
to the Declaration of Trust, to the extent that, at law or in equity, a Trustee
or officer of the Trust has duties (including fiduciary duties) and liabilities
relating thereto to the Trust, the shareholders or to any other person, such
Trustee or officer acting under the Declaration of Trust shall not be liable to
the Trust, the shareholders or to any other person for his or her good faith
reliance on the provisions of the Declaration of Trust. Notwithstanding the
foregoing, nothing in the Declaration of Trust modifying, restricting, or
eliminating the duties or liabilities of the Trustees shall apply to or in any
way limit the duties (including state law fiduciary duties of loyalty and care)
or liabilities of such persons of matters arising under the federal securities
laws.
The
Funds offer and issue shares at their respective net asset value (“NAV”) only in
aggregations of a specified number of shares (each, a “Creation Unit”). Each
Fund generally offers and issues shares in exchange for a specified cash payment
(“Deposit Cash”). Shares are listed on the NYSE Arca, Inc. (the “Exchange”) and
trade on the Exchange at market prices that may differ from the shares’ NAV.
Shares are also redeemable only in Creation Unit aggregations. A Creation Unit
of a Fund generally consists of a minimum of 25,000 shares, though this may
change from time to time. As a practical matter, only institutions or large
investors purchase or redeem Creation Units. Except when aggregated in Creation
Units, shares are not redeemable securities. Each Fund is classified as a
non-diversified fund.
Panagram
Structured Asset Management, LLC (the “Adviser”) serves as the investment
adviser to the Funds. The Funds as series of the Trust, do not hold themselves
out as related to any other series of the Trust for purposes of investment and
investor services, nor do they share the same investment adviser with any other
series of the Trust.
INVESTMENT
POLICIES AND RISKS
The
Funds’ principal investment strategies utilized by the Adviser and the principal
risks associated with the same are set forth in the Funds’ Prospectus. The
following discussion provides additional information about those principal
investment strategies and related risks, as well as information about investment
strategies (and related risks) that each Fund may utilize, even though they are
not considered to be “principal” investment strategies. Accordingly, an
investment strategy (and related risk) that is described below, but which is not
described in the Prospectus, should not be considered to be a principal strategy
(or related risk) applicable to a Fund. The following strategies and risks apply
to a Fund directly or indirectly through its investments.
Information
Regarding the Funds’ Investment Strategies and Risks
General
Market Risks
The
value of a Fund’s portfolio securities may fluctuate with changes in the
financial condition of an issuer or counterparty, changes in specific economic
or political conditions that affect a particular security or issuer, and changes
in general economic or political conditions. An investor in the Fund could lose
money over short or long periods of time.
There
can be no guarantee that a liquid market for the securities held by a Fund will
be maintained. The existence of a liquid trading market for certain securities
may depend on whether dealers will make a
market
in such securities. There can be no assurance that a market will be made or
maintained or that any such market will be or remain liquid. The price at which
securities may be sold and the value of shares will be adversely affected if
trading markets for the Fund’s portfolio securities are limited or absent, or if
bid/ask spreads are wide.
Cyber
Security Risk. Investment
companies, such as the Funds, and their service providers may be subject to
operational and information security risks resulting from cyber attacks. Cyber
attacks include, among other behaviors, stealing or corrupting data maintained
online or digitally, denial of service attacks on websites, the unauthorized
release of confidential information, or various other forms of cyber security
breaches. Cyber attacks affecting the Funds or the Adviser, Custodian (as
defined below), Transfer Agent (as defined below), intermediaries, and other
third-party service providers may adversely impact the Funds. For instance,
cyber attacks may interfere with the processing of shareholder transactions,
impact the Funds’ ability to calculate their respective NAV, cause the release
of private shareholder information or confidential company information, impede
trading, subject the Funds to regulatory fines or financial losses, or cause
reputational damage. The Funds may also incur additional costs for cyber
security risk management purposes. Similar types of cyber security risks are
also present for issuers of securities in which the Funds invest, which could
result in material adverse consequences for such issuers, and may cause the
Funds’ investments in such portfolio companies to lose value.
Recent
Events. Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and in many cases unprecedented volatility and
severe losses due to the pandemic caused by COVID‑19, a novel coronavirus. The
pandemic has resulted in a wide range of social and economic disruptions,
including closed borders, voluntary or compelled quarantines of large
populations, stressed healthcare systems, reduced or prohibited domestic or
international travel, supply chain disruptions, and so-called “stay-at-home”
orders throughout much of the United States and many other countries. The
fall-out from these disruptions has included the rapid closure of businesses
deemed “non-essential” by federal, state, or local governments and rapidly
increasing unemployment, as well as greatly reduced liquidity for certain
instruments at times. Some sectors of the economy and individual issuers have
experienced particularly large losses. Such disruptions may continue for an
extended period of time or reoccur in the future to a similar or greater extent.
In response, the U.S. government and the Federal Reserve took extraordinary
actions to support the domestic economy and financial markets, resulting in very
low interest rates and in some cases negative yields. In 2022, the Federal
Reserve began increasing the Federal Funds Target Rate, which, among other
effects, may result in higher debt costs for corporate borrowers. In addition,
the U.S. economy is experiencing a high rate of inflation relative to recent
historical periods. The impact of these events could adversely affect Fund
performance.
DESCRIPTION
OF PERMITTED INVESTMENTS
The
following are descriptions of the Funds’ permitted investments and investment
practices and the associated risk factors. A Fund will only invest in any of the
following instruments or engage in any of the following investment practices if
such investment or activity is consistent with the Fund’s investment objective
and permitted by the Fund’s stated investment policies.
Borrowing
Although
each Fund does not currently intend to borrow money, a Fund may do so to the
extent permitted by the 1940 Act. Under the 1940 Act, a Fund may borrow up to
one-third (1/3) of its total assets. A Fund will borrow money only for
short-term or emergency purposes. Such borrowing is not for investment purposes
and will be repaid by the borrowing Fund promptly. Borrowing will tend to
exaggerate the effect on NAV of any increase or decrease in the market value of
the borrowing Fund’s portfolio. Money borrowed will be subject to interest costs
that may or may not be recovered by earnings on the securities purchased. The
Fund also may be required to maintain minimum average balances in connection
with a
borrowing
or to pay a commitment or other fee to maintain a line of credit; either of
these requirements would increase the cost of borrowing over the stated interest
rate.
Collateralized
Loan Obligations
Collateralized
loan obligations (“CLOs”) are special purpose vehicles collateralized by pools
of loans, which may include, among others, domestic and foreign senior secured
loans, senior unsecured loans and subordinate corporate loans. Generally, all
the underlying collateral in a CLO is rated below investment grade. The CLO
structure is split into two or more portions, called tranches, varying in risk
and yield. Senior tranches are paid from the cash flows from the underlying
assets before the junior tranches and equity or “first loss” tranches. Losses
are first borne by the equity tranches, next by the junior tranches, and finally
by the senior tranches. Senior tranches pay the lowest interest rates but are
generally safer investments than more junior tranches because, upon principal
repayment in the collateral pool, senior tranches are typically paid first. The
most junior tranches would attract the highest interest rates but suffer the
highest risk of loss should the holder of an underlying loan default. If the
cash collected by the CLO is insufficient to pay all of its investors, those in
the lowest, most junior tranches suffer losses first. Despite the protection
from the junior tranches, senior CLO tranches can experience substantial losses
due to actual defaults, increased sensitivity to defaults due to collateral
default and impairment of protecting tranches, market anticipation of defaults,
and aversion to CLO securities as a class.
The
risks of an investment in a CLO depend largely on the quality and type of the
collateral and the tranche of the CLO in which the Funds invest. In addition to
the risks associated with debt instruments (e.g., interest rate risk and credit
risk), CLOs carry additional risks including, but not limited to: (i) the
possibility that interest received from underlying obligors will not be adequate
to make interest or other payments; (ii) the quality of the underlying
collateral may decline in value or default; and (iii) the Panagram AAA CLO ETF
may also invest in CLO tranches that are subordinate to other classes of the
issuer’s securities (i.e.,
rated AA-A), while the Panagram BBB-B CLO ETF will invest in CLO tranches that
are subordinate to other classes of the issuer’s securities (i.e.,
rated B).
Loan
Accumulation Facilities. The
Funds may invest in loan accumulation facilities, which are short to medium term
facilities that will serve as the placement agent or arranger on a CLO
transaction and which acquire loans on an interim basis that are expected to
form part of such CLO. Investments in loan accumulation facilities may have
risks similar to those applicable to investments in CLOs, including market,
credit, and leverage risks. In addition, if a planned CLO is not consummated, or
the loans held in a loan accumulation facility are not eligible for purchase by
the CLO, the Funds may be responsible for either holding or disposing of the
loans. This could expose the Funds to credit and/or mark-to-market losses, and
other risks.
Investments
in Other Investment Companies
Each
Fund may invest in shares of other investment companies, including
exchange-traded funds (“ETFs”). As the shareholder of another ETF, each Fund
would bear, along with other shareholders, its pro rata portion of the other
ETF’s expenses, including advisory fees. Such expenses are in addition to the
expenses a Fund pays in connection with its own operations. A Fund’s investments
in other ETFs may be limited by applicable law.
Disruptions
in the markets for the securities underlying ETFs purchased or sold by the Funds
could result in losses on investments in ETFs. ETFs also carry the risk that the
price the Fund pays or receives may be higher or lower than the ETF’s NAV. ETFs
are also subject to certain additional risks, including the risks of illiquidity
and of possible trading halts due to market conditions or other reasons, based
on the policies
of
the relevant exchange. ETFs and other investment companies in which a Fund may
invest may be leveraged, which would increase the volatility of the Fund’s NAV.
Each Fund may also invest in ETFs and other investment companies that seek to
return the inverse of the performance of an underlying index on a daily,
monthly, or other basis, including inverse leveraged ETFs.
Inverse
and leveraged ETFs are subject to additional risks not generally associated with
traditional ETFs. To the extent that a Fund invests in inverse ETFs, the value
of the Fund’s investments will decrease when the index underlying the ETF’s
benchmark rises, a result that is the opposite from traditional equity or bond
funds. The NAV and market price of leveraged or inverse ETFs are usually more
volatile than the value of the tracked index or of other ETFs that do not use
leverage. This is because inverse and leveraged ETFs use investment techniques
and financial instruments that may be considered aggressive, including the use
of derivative transactions and short selling techniques. The use of these
techniques may cause the inverse or leveraged ETFs to lose more money in market
environments that are adverse to their investment strategies than other funds
that do not use such techniques.
The
Funds’ investments in ETFs are subject to applicable limitations under Section
12(d)(1) of the 1940 Act and Rule 12d1-4 under the 1940 Act. Investing in
another pooled vehicle exposes the Funds to all the risks of that pooled
vehicle. Pursuant to Section 12(d)(1), each Fund may invest in the securities of
another investment company (the “acquired company”) provided that the Fund,
immediately after such purchase or acquisition, does not own in the aggregate:
(i) more than 3% of the total outstanding voting stock of the acquired company;
(ii) securities issued by the acquired company having an aggregate value in
excess of 5% of the value of the total assets of the Fund; or (iii) securities
issued by the acquired company and all other investment companies (other than
treasury stock of the Fund) having an aggregate value in excess of 10% of the
value of the total assets of the Fund. To the extent allowed by law or
regulation, each Fund may invest its assets in securities of investment
companies that are money market funds in excess of the limits discussed
above.
If
a Fund invests in and, thus, is a shareholder of, another investment company,
the Fund’s shareholders will indirectly bear the Fund’s proportionate share of
the fees and expenses paid by such other investment company, including advisory
fees, in addition to both the management fees payable directly by the Fund to
the Fund’s own investment adviser and the other expenses that the Fund bears
directly in connection with the Fund’s own operations.
Section
12(d)(1) of the 1940 Act restricts investments by registered investment
companies in securities of other registered investment companies, including the
Funds. The acquisition of a Fund’s shares by registered investment companies is
subject to the restrictions of Section 12(d)(1) of the 1940 Act, except as may
be permitted by exemptive rules under the 1940 Act.
Each
Fund may rely on Section 12(d)(1)(F) and Rule 12d1-3 of the 1940 Act, which
provide an exemption from Section 12(d)(1) that allows a Fund to invest all of
its assets in other registered funds, including ETFs, if, among other
conditions: (a) the Fund, together with its affiliates, acquires no more than
three percent of the outstanding voting stock of any acquired fund, and (b) the
sales load charged on the Fund’s shares is no greater than the limits set forth
in Rule 2341 of the Rules of the Financial Industry Regulatory Authority, Inc.
(“FINRA”). Additionally, a Fund may rely on Rule 12d1-4 under the 1940 Act to
invest in such other funds in excess of the limits of Section 12(d)(1) if the
Fund complies with the terms and conditions of such rule.
Illiquid
Investments
Each
Fund may not acquire any illiquid investment if, immediately after the
acquisition, the Fund would have invested more than 15% of its net assets in
illiquid investments. An illiquid investment means any investment that the 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. If illiquid investments exceed 15%
of a Fund’s net assets, certain remedial actions will be taken as required by
Rule 22e-4 under the 1940 Act and the Funds’ policies and
procedures.
A
Fund may not be able to sell illiquid investments when the Adviser considers it
desirable to do so or may have to sell such investments at a price that is lower
than the price that could be obtained if the securities were more liquid. In
addition, the sale of illiquid investments also may require more time and may
result in higher dealer discounts and other selling expenses than does the sale
of investments that are not illiquid. Illiquid investments also may be more
difficult to value due to the unavailability of reliable market quotations for
such securities, and investment in illiquid investments may have an adverse
impact on NAV.
Floating
Rate Securities
Yields
on floating-rate securities are dependent on a variety of factors, including the
general conditions of the money market and other fixed income securities
markets, the size of a particular offering, the maturity of the obligation and
the rating of the issue. An investment in a Fund will be subject to risk even if
all fixed income securities in the Fund’s portfolio are paid in full at
maturity. All fixed income securities, including U.S. Government securities, can
change in value when there is a change in interest rates or the issuer’s actual
or perceived creditworthiness or ability to meet its obligations.
Securities
with floating or variable interest rates can be less sensitive to interest rate
changes than securities with fixed interest rates, but may decline in value if
their interest rates do not rise as much, or as quickly, as interest rates in
general. Conversely, floating-rate securities will not generally increase in
value if interest rates decline. A decline in interest rates may result in a
reduction of income received from floating rate securities held by a Fund and
may adversely affect the value of the Fund’s shares. The interest rate for a
floating rate note resets or adjusts periodically by reference to a benchmark
interest rate. Benchmark interest rates, such as London Interbank Offered Rate
or Secured Overnight Financing Rate, may not accurately track market interest
rates.
Changes
in the ability of an issuer to make payments of interest and principal and in
the markets’ perception of an issuer’s creditworthiness will also affect the
market value of the debt securities of that issuer. Obligations of issuers of
fixed income securities (including municipal securities) are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In
addition, the obligations of municipal issuers may become subject to laws
enacted in the future by Congress, state legislatures, or referenda extending
the time for payment of principal and/or interest, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. Changes in the ability of an issuer to make payments of interest and
principal and in the market’s perception of an issuer’s creditworthiness will
also affect the market value of the debt securities of that issuer. The
possibility exists, therefore, that, the ability of any issuer to pay, when due,
the principal of and interest on its debt securities may become
impaired.
Each
Fund may invest in debt securities, including non-investment grade debt
securities. The following describes some of the risks associated with fixed
income debt securities:
Interest
Rate Risk. As
interest rates decrease, issuers of the underlying loan obligations may
refinance their loans, which may require the CLO to reinvest cash at what may be
an inopportune time. Conversely, as interest rates rise, borrowers with floating
rate loans may experience difficulty servicing their loans, resulting in
delinquencies and defaults, which will result in a reduction in cash flow to the
CLO and the CLO investors, including the Funds. An increase in interest rates
may cause the value of fixed-income securities held by the Funds to decline. The
Funds may be subject to a greater risk of rising interest rates due to the
current period of historically low rates and the effect of potential government
fiscal and monetary policy initiatives and resulting market reaction to those
initiatives.
Credit
Risk. Fixed
income securities of issuers with lower credit quality have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity of those issuers to make principal or
interest payments, as compared to issuers of more highly rated securities of
issuers with higher credit quality.
Call
Risk.
CLOs generally have a non-call period at inception during which CLO tranches
cannot be redeemed, refinanced, or repaid. After the non-call period expires,
the CLO may choose to redeem outstanding debt tranches. If certain tranches are
repaid, a Fund may be unable to reinvest prepaid amounts in a new investment
with an expected rate of return at least equal to that of the investment repaid,
or investment performance will be adversely impacted, and the Fund may not be
able to reinvest its proceeds in another CLO tranche of similar quality or
spread.
In
a period of declining interest rates, corporate loan borrowers may refinance
their loans at lower rates, leading to principal repayments to CLO tranche
holders. In this scenario, reinvestments of this principal may result in
investments of lower quality or yield.
High
Yield Securities (Panagram BBB-B CLO ETF only)
The
Fund may invest in high yield securities. High yield, high risk bonds are
securities that are generally rated below investment grade by the primary rating
agencies (BB+ or lower by S&P and Ba1 or lower by Moody’s). Other terms used
to describe such securities include “lower rated bonds,” “non-investment grade
bonds,” “below investment grade bonds,” and “junk bonds.” These securities are
considered to be high-risk investments. The risks include the
following:
Greater
Risk of Loss.
These securities are regarded as predominately speculative. There is a greater
risk that issuers of lower rated securities will default than issuers of higher
rated securities. Issuers of lower rated securities generally are less
creditworthy and may be highly indebted, financially distressed, in default, or
bankrupt. These issuers are more vulnerable to real or perceived economic
changes, political changes, or adverse industry developments. In addition, high
yield securities are frequently subordinated to the prior payment of senior
indebtedness. If an issuer fails to pay principal or interest, the Fund would
experience a decrease in income and a decline in the market value of its
investments.
Sensitivity
to Interest Rate and Economic Changes. The
income and market value of lower-rated securities may fluctuate more than higher
rated securities. Although non-investment grade securities tend to be less
sensitive to interest rate changes than investment grade securities,
non-investment grade securities are more sensitive to short-term corporate,
economic, and market developments. During periods of economic uncertainty and
change, the market price of the investments in lower-rated securities may be
volatile. The default rate for high yield bonds tends to be cyclical, with
defaults rising in periods of economic downturn.
Valuation
Difficulties. It
is often more difficult to value lower rated securities than higher rated
securities. If an issuer’s financial condition deteriorates, accurate financial
and business information may be limited or unavailable. In addition, the lower
rated investments may be thinly traded and there may be no established secondary
market. Because of the lack of market pricing and current information for
investments in lower rated securities, valuation of such investments is much
more dependent on judgment than is the case with higher rated
securities.
Liquidity.
There may be no established secondary or public market for investments in lower
rated securities. Such securities are frequently traded in markets that may be
relatively less liquid than the market for higher rated securities. In addition,
relatively few institutional purchasers may hold a major portion of an issue of
lower-rated securities at times. As a result, the Fund may be required to sell
investments at substantial losses or retain them indefinitely when an issuer’s
financial condition is deteriorating.
Credit
Quality.
Credit quality of non-investment grade securities can change suddenly and
unexpectedly, and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security.
New
Legislation.
Future legislation may have a possible negative impact on the market for high
yield, high risk investments. As an example, in the late 1980’s, legislation
required federally-insured savings and loan associations to divest their
investments in high yield, high risk bonds. New legislation, if enacted, could
have a material negative effect on the Fund’s investments in lower rated
securities.
U.S.
Government Securities
Each
Fund may invest in U.S. government securities. Securities issued or guaranteed
by the U.S. government or its agencies or instrumentalities include U.S.
Treasury securities, which are backed by the full faith and credit of the U.S.
Treasury and which differ only in their interest rates, maturities, and times of
issuance. U.S. Treasury bills have initial maturities of one-year or less; U.S.
Treasury notes have initial maturities of one to ten years; and U.S. Treasury
bonds generally have initial maturities of greater than ten years. Certain U.S.
government securities are issued or guaranteed by agencies or instrumentalities
of the U.S. government including, but not limited to, obligations of U.S.
government agencies or instrumentalities such as the Federal National Mortgage
Association (“Fannie Mae”), the Government National Mortgage Association
(“Ginnie Mae”), the Small Business Administration, the Federal Farm Credit
Administration, the Federal Home Loan Banks, Banks for Cooperatives (including
the Central Bank for Cooperatives), the Federal Land Banks, the Federal
Intermediate Credit Banks, the Tennessee Valley Authority, the Export-Import
Bank of the United States, the Commodity Credit Corporation, the Federal
Financing Bank, the Student Loan Marketing Association, the National Credit
Union Administration, and the Federal Agricultural Mortgage Corporation (Farmer
Mac).
Some
obligations issued or guaranteed by U.S. government agencies and
instrumentalities, including, for example, Ginnie Mae pass-through certificates,
are supported by the full faith and credit of the U.S. Treasury. Other
obligations issued by or guaranteed by federal agencies, such as those
securities issued by Fannie Mae, are supported by the discretionary authority of
the U.S. government to purchase certain obligations of the federal agency, while
other obligations issued by or guaranteed by federal agencies, such as those of
the Federal Home Loan Banks, are supported by the right of the issuer to borrow
from the U.S. Treasury, while the U.S. government provides financial support to
such U.S. government-sponsored federal agencies, no assurance can be given that
the U.S. government will always do so, since
the
U.S. government is not so obligated by law. U.S. Treasury notes and bonds
typically pay coupon interest semi-annually and repay the principal at
maturity.
On
September 7, 2008, the U.S. Treasury announced a federal takeover of Fannie Mae
and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), placing the two
federal instrumentalities in conservatorship. Under the takeover, the U.S.
Treasury agreed to acquire $1 billion of senior preferred stock of each
instrumentality and obtained warrants for the purchase of common stock of each
instrumentality (the “Senior Preferred Stock Purchase Agreement” or
“Agreement”). Under the Agreement, the U.S. Treasury pledged to provide up to
$200 billion per instrumentality as needed, including the contribution of cash
capital to the instrumentalities in the event their liabilities exceed their
assets. This was intended to ensure that the instrumentalities maintain a
positive net worth and meet their financial obligations, preventing mandatory
triggering of receivership. On December 24, 2009, the U.S. Treasury announced
that it was amending the Agreement to allow the $200 billion cap on the U.S.
Treasury’s funding commitment to increase as necessary to accommodate any
cumulative reduction in net worth over the next three years. As a result of this
Agreement, the investments of holders, including the Funds, of mortgage-backed
securities and other obligations issued by Fannie Mae and Freddie Mac are
protected.
The
total public debt of the United States as a percentage of gross domestic product
has grown rapidly since the beginning of the 2008-2009 financial downturn.
Although high debt levels do not necessarily indicate or cause economic
problems, they may create certain systemic risks if sound debt management
practices are not implemented. A high national debt can raise concerns that the
U.S. government will not be able to make principal or interest payments when
they are due. This increase has also necessitated the need for the U.S. Congress
to negotiate adjustments to the statutory debt limit to increase the cap on the
amount the U.S. government is permitted to borrow to meet its existing
obligations and finance current budget deficits. In August 2011, S&P lowered
its long-term sovereign credit rating on the U.S. In explaining the downgrade at
that time, S&P cited, among other reasons, controversy over raising the
statutory debt limit and growth in public spending. Any controversy or ongoing
uncertainty regarding the statutory debt ceiling negotiations may impact the
U.S. long-term sovereign credit rating and may cause market uncertainty. As a
result, market prices and yields of securities supported by the full faith and
credit of the U.S. government may be adversely affected.
Securities
Lending
Each
Fund may lend portfolio securities in an amount up to one-third of its total
assets to brokers, dealers, and other financial institutions. In a portfolio
securities lending transaction, a Fund receives from the borrower an amount
equal to the interest paid or the dividends declared on the loaned securities
during the term of the loan as well as the interest on the collateral
securities, less any fees (such as finders or administrative fees) the Fund pays
in arranging the loan. Each Fund may share the interest it receives on the
collateral securities with the borrower. The terms of a Fund’s loans permit it
to reacquire loaned securities on five business days’ notice or in time to vote
on any important matter. Loans are subject to termination at the option of the
Fund or borrower at any time, and the borrowed securities must be returned when
the loan is terminated. The Funds may pay fees to arrange for securities
loans.
The
SEC currently requires that the following conditions must be met whenever a
Fund’s portfolio securities are loaned: (1) the Fund must receive at least 100%
cash collateral from the borrower; (2) the borrower must increase such
collateral whenever the market value of the securities rises above the level of
such collateral; (3) the Fund must be able to terminate the loan at any time;
(4) the Fund must receive reasonable interest on the loan, as well as any
dividends, interest, or other distributions on the loaned
securities,
and any increase in market value; (5) the Fund may pay only reasonable custodian
fees approved by the Board in connection with the loan; (6) while voting rights
on the loaned securities may pass to the borrower, the Board must terminate the
loan and regain the right to vote the securities if a material event adversely
affecting the investment occurs; and (7) the Fund may not loan its portfolio
securities so that the value of the loaned securities is more than one-third of
its total asset value, including collateral received from such loans. These
conditions may be subject to future modification. Such loans will be terminable
at any time upon specified notice. A Fund might experience the risk of loss if
the institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Fund. In addition, each Fund will not enter into
any portfolio security lending arrangement having a duration of longer than one
year. The principal risk of portfolio lending is potential default or insolvency
of the borrower. In either of these cases, a Fund could experience delays in
recovering securities or collateral or could lose all or part of the value of
the loaned securities. As part of participating in a lending program, a Fund may
be required to invest in collateralized debt or other securities that bear the
risk of loss of principal. In addition, all investments made with the collateral
received are subject to the risks associated with such investments. If such
investments lose value, the Fund will have to cover the loss when repaying the
collateral.
Any
loans of portfolio securities are fully collateralized based on values that are
marked-to-market daily. Any securities that a Fund may receive as collateral
will not become part of the Fund’s investment portfolio at the time of the loan
and, in the event of a default by the borrower, the Fund will, if permitted by
law, dispose of such collateral except for such part thereof that is a security
in which the Fund is permitted to invest. During the time securities are on
loan, the borrower will pay the Fund any accrued income on those securities, and
the Fund may invest the cash collateral and earn income or receive an
agreed-upon fee from a borrower that has delivered cash-equivalent
collateral.
Temporary
Defensive Positions
In
order to respond to adverse or unstable market, economic, political, or other
conditions, each Fund may assume a temporary defensive position that is
inconsistent with its investment objective and principal investment strategies
and invest, without limitation, in cash or prime quality cash
equivalents.
INVESTMENT
RESTRICTIONS
The
investment restrictions applicable to each Fund are set forth below and are
either fundamental or non-fundamental. Fundamental restrictions may not be
changed without a majority vote of shareholders as required by the 1940 Act.
Non-fundamental policies or restrictions may be changed by the Board without
shareholder approval. A Fund may not change a policy to invest at least 80% of
its net assets in investments suggested by the Fund’s name without first
changing its name, upon 60 days’ prior written notice to
shareholders.
Fundamental
Investment Restrictions
The
Trust (on behalf of each Fund) has adopted the following restrictions as
fundamental policies, which may not be changed without the affirmative vote of
the holders of a “majority” of the outstanding voting securities of the Fund.
Under the 1940 Act, the “vote of the holders of a majority of the outstanding
voting securities” means the vote of the holders of the lesser of (i) 67%
or more of the shares of the Fund present at a meeting at which the holders of
more than 50% of the Fund’s outstanding shares are present or represented by
proxy, or (ii) more than 50% of the outstanding shares of the
Fund.
As
a matter of fundamental policy:
1.A
Fund may not lend money or other assets except to the extent permitted by (i)
the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other
authority with appropriate jurisdiction, or (ii) exemptive or other relief or
permission from the SEC, SEC staff, or other authority.
2.A
Fund may not borrow money, except as permitted by (i) the 1940 Act, or
interpretations or modifications by the SEC, SEC staff or other authority with
appropriate jurisdiction, or (ii) exemptive or other relief or permission from
the SEC, SEC staff, or other authority.
3.A
Fund may not issue senior securities except as permitted by (i) the 1940 Act, or
interpretations or modifications by the SEC, SEC staff or other authority with
appropriate jurisdiction, or (ii) exemptive or other relief or permission from
the SEC, SEC staff, or other authority.
4.A
Fund may not concentrate its investments in a particular industry, as
concentration is defined under the 1940 Act, the rules or regulations thereunder
or any exemption therefrom, as such statute, rules or regulations may be amended
or interpreted from time to time, except that the Fund may invest without
limitation in: (i) securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, (ii) tax-exempt obligations of state or municipal
governments and their political subdivisions, (iii) securities of other
investment companies, and (iv) repurchase agreements.
5.A
Fund may not purchase or sell real estate, except as permitted by (i) the 1940
Act, or interpretations or modifications by the SEC, SEC staff or other
authority with appropriate jurisdiction, or (ii) exemptive or other relief or
permission from the SEC, SEC staff, or other authority (although the Fund may
purchase and sell securities which are secured by real estate and securities of
companies which invest or deal in real estate, such as REITs).
6.A
Fund may not buy or sell commodities or commodity (futures) contracts, except as
permitted by (i) the 1940 Act, or interpretations or modifications by the SEC,
SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or
other relief or permission from the SEC, SEC staff, or other
authority.
7.A
Fund may not engage in the business of underwriting the securities of other
issuers except as permitted by (i) the 1940 Act, or interpretations or
modifications by the SEC, SEC staff or other authority with appropriate
jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC
staff, or other authority, and except to the extent that the Fund may be deemed
to be an underwriter within the meaning of the Securities Act in connection with
the purchase and sale of portfolio securities.
8.A
Fund may not make investments for the purpose of exercising control or acquiring
management of a company.
Percentage
and Rating Restrictions
Except
with respect to borrowing, all percentage or rating restrictions on an
investment or use of assets set forth herein or in the Prospectus are adhered to
at the time of investment. Later changes in the percentage or rating resulting
from any cause other than actions by a Fund will not be considered a violation
of the
Fund’s
investment restrictions. If the value of a Fund’s holdings of illiquid
investments at any time exceeds the percentage limitation applicable due to
subsequent fluctuations in value or other reasons, the Board will consider what
actions are appropriate to maintain adequate liquidity.
Additional
Information Regarding Fundamental Investment Restrictions
The
following descriptions of the 1940 Act may assist investors in understanding the
above policies and restrictions.
Lending.
The
1940 Act does not prohibit a fund from making loans (including lending its
securities); however, SEC staff interpretations currently prohibit funds from
lending more than one-third of their total assets (including lending its
securities), except through the purchase of debt obligations or the use of
repurchase agreements. In addition, collateral arrangements with respect to
options, forward currency and futures transactions, and other derivative
instruments (as applicable), as well as delays in the settlement of securities
transactions, will not be considered loans.
For
purposes of each Fund’s fundamental investment restriction with respect to
lending, the entry into repurchase agreements, lending securities and acquiring
of debt securities shall not constitute loans by the Fund.
Senior
Securities and Borrowing. The
1940 Act prohibits each Fund from issuing any class of senior securities or
selling any senior securities of which it is the issuer, except that a Fund is
permitted to borrow from a bank so long as, immediately after such borrowings,
there is an asset coverage of at least 300% for all borrowings of the Fund (not
including borrowings for temporary purposes in an amount not exceeding 5% of the
value of the Fund’s total assets). In the event that such asset coverage falls
below this percentage, the Fund is required to reduce the amount of its
borrowings within three days (not including Sundays and holidays) so that the
asset coverage is restored to at least 300%. Asset coverage means the ratio that
the value of a fund’s total assets (including amounts borrowed), minus
liabilities other than borrowings, bears to the aggregate amount of all
borrowings. Borrowing money to increase portfolio holdings is known as
“leveraging.” In addition, Rule 18f-4 under the 1940 Act permits a fund to enter
into derivatives transactions, notwithstanding the prohibitions and restrictions
on the issuance of senior securities under the 1940 Act, provided that the fund
complies with the conditions of Rule 18f-4.
Concentration.
The SEC staff has defined concentration as investing 25% or more of a fund’s
total assets in any particular industry or group of industries, with certain
exceptions such as with respect to investments in obligations issued or
guaranteed by the U.S. government or its agencies and instrumentalities, or
tax-exempt obligations of state or municipal governments and their political
subdivisions. The SEC staff has further maintained that a fund should consider
the underlying investments of investment companies in which the fund is invested
when determining concentration of the fund. For purposes of each Fund’s
concentration policy, the Fund may classify and re-classify companies in a
particular industry and define and re-define industries in any reasonable
manner, consistent with SEC and SEC staff guidance. In this regard, the Adviser
may analyze the characteristics of a particular issuer and instrument and may
assign an industry classification consistent with those characteristics. The
Adviser may, but need not, consider industry classifications provided by third
parties.
Underwriting.
The
1940 Act does not prohibit a fund from engaging in the underwriting business or
from underwriting the securities of other issuers; in fact, in the case of
diversified funds, the 1940 Act permits a fund to have underwriting commitments
of up to 25% of its assets under certain circumstances. Those circumstances
currently are that the amount of a fund’s underwriting commitments, when added
to
the
value of the fund’s investments in issuers where the fund owns more than 10% of
the outstanding voting securities of those issuers, cannot exceed the 25%
cap.
Commodities.
The
1940 Act neither permits nor prohibits a fund from investing in commodities or
commodity (futures) contracts. Each Fund does not currently intend to invest in
commodities or commodity (futures) contracts.
Non-Diversification.
Under
the 1940 Act and the rules, regulations, and interpretations thereunder, an
investment company is a “diversified company” if, as to 75% of its total assets,
it does not purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. government or its agencies, or instrumentalities or
securities of other investment companies) if, as a result, more than 5% of its
total assets would be invested in the securities of such issuer, or more than
10% of the issuer’s voting securities would be held by the investment company.
For purposes of each Fund’s diversification policy, the identification of the
issuer of a security may be determined in any reasonable manner, consistent with
SEC guidance. Each Fund is non-diversified, which means that there is no
restriction under the 1940 Act on how much the Fund may invest in the securities
of one issuer. As a non-diversified investment company, each Fund may be subject
to greater risks than diversified companies because of the larger impact of
fluctuation in the values of securities of fewer issues.
However,
since each Fund intends to qualify as a “regulated investment company” under
Subchapter M of the Internal Revenue Code of 1986, as amended, (the “Code”), the
Funds will limit their investments, excluding cash, cash items (including
receivables), U.S. government securities, and securities of other regulated
investment companies, so that at the close of each quarter of the taxable year,
(1) not more than 25% of the Fund’s total assets will be invested in the
securities of a single issuer, and (2) with respect to 50% of its total assets,
not more than 5% of the Fund’s total assets will be invested in the securities
of a single issuer nor represent more than 10% of the issuer’s outstanding
voting securities.
PORTFOLIO
TURNOVER
The
frequency of each Fund’s portfolio transactions (the portfolio turnover rate)
will vary from year to year depending on many factors. 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 when, in
the opinion of the Adviser, investment considerations warrant such action.
Higher portfolio turnover rates may result in increased brokerage costs to a
Fund and a possible increase in short-term capital gains or losses. The Funds’
portfolio turnover rates for the most recent fiscal period ended August 31 were
as follows:
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| Funds |
2023 |
|
Panagram
AAA CLO ETF(1)
|
0% |
|
Panagram
BBB-B CLO ETF(2)
|
0% |
|
(1)
For
the period July 18, 2023 (the Fund’s inception) to August 31,
2023. |
| (2)
For the period January 23, 2023 (the Fund’s inception) to August 31, 2023.
|
PORTFOLIO
HOLDINGS INFORMATION
The
Trust’s Board has adopted a policy regarding the disclosure of information about
the Funds’ security holdings. Each Fund’s entire portfolio holdings are publicly
disseminated each day the Fund is open for
business
through financial reporting and news services including publicly available
internet web sites. In addition, the composition of the in-kind creation basket
and the in-kind redemption basket is publicly disseminated daily prior to the
opening of the Exchange (as defined below) via the National Securities Clearing
Corporation (“NSCC”).
Greater
than daily access to information concerning a Fund’s portfolio holdings will be
permitted (i) to certain personnel of service providers to the Funds involved in
portfolio management and providing administrative, operational, risk management,
or other support to portfolio management, and (ii) to other personnel of the
Funds’ service providers who deal directly with, or assist in, functions related
to investment management, administration, custody, and fund accounting, as may
be necessary to conduct business in the ordinary course, agreements with the
Funds, and the terms of the Trust’s current registration statement. From time to
time, and in the ordinary course of business, such information may also be
disclosed (i) to other entities that provide services to the Funds, including
pricing information vendors, and third parties that deliver analytical,
statistical or consulting services to the Funds and (ii) generally after it has
been disseminated to the NSCC.
Each
Fund will disclose its complete portfolio holdings in public filings with the
SEC on a quarterly basis, based on the Fund’s fiscal year-end, within 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 any of a Fund’s portfolio holdings or other
investment positions (whether in writing, by fax, by e-mail, orally, or by other
means) except in accordance with this policy. The Trust’s Chief Compliance
Officer may authorize disclosure of portfolio holdings. The Board reviews the
implementation of this policy on a periodic basis.
EXCHANGE
LISTING AND TRADING
A
discussion of exchange listing and trading matters associated with an investment
in a Fund is contained in the Prospectus. The discussion below supplements, and
should be read in conjunction with, the Prospectus.
The
shares of each Fund are listed on the Exchange and trade on the Exchange at
market prices. These prices may differ from a Fund’s NAV per share. There can be
no assurance that the requirements of the Exchange necessary to maintain the
listing of shares of the Fund will continue to be met.
The
Exchange will consider the suspension of trading in, and will initiate delisting
procedures of, the shares of a Fund under any of the following circumstances:
(1) if the Exchange becomes aware that the Fund is no longer eligible to operate
in reliance on Rule 6c-11 under the 1940 Act; (2) if the Fund no longer complies
with the relevant requirements in the Exchange’s rules; (3) if, following the
initial twelve-month period beginning upon the commencement of trading of the
Fund on the Exchange, there are fewer than 50 record and/or beneficial holders
of the shares; or (4) such other event occurs or condition exists that, in the
opinion of the Exchange, makes further dealings on the Exchange
inadvisable.
The
Trust reserves the right to adjust the share price of a Fund in the future 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 the Fund.
As
in the case of other publicly traded securities, brokers’ commissions on
transactions will be based on negotiated commission rates at customary
levels.
The
base and trading currencies of the Funds is the U.S. dollar. The base currency
is the currency in which each Fund’s NAV per share is calculated and the trading
currency is the currency in which shares of the Fund are listed and traded on
the Exchange.
TRUSTEES
AND EXECUTIVE OFFICERS
The
Board oversees the management and operations of the Trust. The Board, in turn,
elects the officers of the Trust, who are responsible for the day-to-day
operations of the Trust and its separate series. The current Trustees and
officers of the Trust, their year of birth, positions with the Trust, terms of
office with the Trust and length of time served, principal occupations during
the past five years, and other directorships are set forth in the table below.
Unless noted otherwise, the principal business address of each Trustee is c/o
U.S. Bank Global Fund Services, 615 East Michigan Street, Milwaukee, Wisconsin
53202.
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| Name
and Year of Birth |
Positions
with
the
Trust |
Term
of Office
and Length of
Time Served |
Principal
Occupations
During
Past Five Years |
Number
of
Portfolios
in
Fund
Complex(2)
Overseen
by
Trustees |
Other
Directorships
Held
During
Past Five Years |
|
Independent
Trustees of the Trust(1) |
Koji
Felton
(born 1961)
|
Trustee |
Indefinite
Term;
Since September 2015. |
Retired. |
2 |
Independent
Trustee, Listed Funds Trust (56 portfolios) (Since 2019). |
Debra
McGinty-Poteet
(born 1956) |
Trustee |
Indefinite
Term; Since September 2015. |
Retired. |
2 |
Lead
Independent Trustee, F/m Funds Trust (4 portfolios) (Since May
2015).
|
Daniel
B. Willey
(born 1955)
|
Trustee |
Indefinite
Term;
Since September 2015. |
Retired.
Chief Compliance Officer, United Nations Joint Staff Pension Fund (2009 -
2017). |
2 |
None |
| Interested
Trustee |
|
Elaine
E. Richards(3)
(born
1968) |
Chair,
Trustee |
Indefinite
Term; Since July 2021. |
Senior
Vice President, U.S. Bank Global Fund Services (since 2007). |
2 |
None |
| Officers
of the Trust |
Ryan
L. Roell
(born 1973) |
President
and Principal Executive Officer |
Indefinite
Term; Since July 2019. |
Vice
President, U.S. Bank Global Fund Services (since 2005). |
Not
Applicable |
Not
Applicable |
Douglas
Schafer
(born 1970)
|
Vice
President, Treasurer and Principal Financial Officer |
Indefinite
Term; Since
November 2023. |
Assistant
Vice President, U.S. Bank Global Fund Services (since 2002). |
Not
Applicable |
Not
Applicable |
Donna
Barrette
(born 1966) |
Vice
President, Chief Compliance Officer and Anti-Money Laundering
Officer |
Indefinite
Term; Since November 2019. |
Senior
Vice President and Compliance Officer, U.S. Bank Global Fund Services
(since 2004). |
Not
Applicable |
Not
Applicable |
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| Name
and Year of Birth |
Positions
with
the
Trust |
Term
of Office
and Length of
Time Served |
Principal
Occupations
During
Past Five Years |
Number
of
Portfolios
in
Fund
Complex(2)
Overseen
by
Trustees |
Other
Directorships
Held
During
Past Five Years |
Adam
W. Smith
(born 1981) |
Secretary |
Indefinite
Term; Since June 2019. |
Vice
President, U.S. Bank Global Fund Services (since 2012). |
Not
Applicable |
Not
Applicable |
Richard
E. Grange
(born 1982) |
Assistant
Treasurer |
Indefinite
Term; Since October 2022. |
Officer,
U.S. Bank Global Fund Services (since 2017). |
Not
Applicable |
Not
Applicable |
Leone
Logan
(born 1986)
|
Assistant
Treasurer |
Indefinite
Term; Since
October 2023. |
Officer,
U.S. Bank Global Fund Services (since 2022); Senior
Financial Reporting
Analyst, BNY Mellon
(2014 - 2022). |
Not
Applicable |
Not
Applicable |
(1)The
Trustees of the Trust who are not “interested persons” of the Trust as defined
under the 1940 Act (“Independent Trustees”).
(2)As
of the date of this SAI, the Trust was comprised of 19 portfolios (including the
Funds) managed by unaffiliated investment advisers. The term “Fund Complex”
applies only to the Funds. The Funds do not hold themselves out as related to
any other series within the Trust for investment purposes, nor do they share the
same investment adviser with any other series within the Trust.
(3)Ms.
Richards, as a result of her employment with U.S. Bancorp Fund Services, LLC,
which acts as transfer agent, administrator, and fund accountant to the Trust,
is considered to be an “interested person” of the Trust, as defined by the 1940
Act.
Additional
Information Concerning the Board of Trustees
The
Role of the Board
The
Board oversees the management and operations of the Trust. Like all mutual
funds, the day-to-day management and operation of the Trust is the
responsibility of the various service providers to the Trust, such as the
Adviser, the Distributor, the Administrator, the Custodian, and the Transfer
Agent, each of whom are discussed in greater detail in this SAI. The Board has
appointed various senior employees of the Administrator as officers of the
Trust, with responsibility to monitor and report to the Board on the Trust’s
operations. In conducting this oversight, the Board receives regular reports
from these officers and the service providers. For example, the Treasurer
provides reports as to financial reporting matters and the President provides
reports as to matters relating to the Trust’s operations. In addition, the
Adviser provides regular reports on the investment strategy and performance of
the Funds. The Board has appointed a CCO who administers the Trust’s compliance
program and regularly reports to the Board as to compliance matters. These
reports are provided as part of formal “Board Meetings” which are typically held
quarterly, in person, and involve the Board’s review of recent operations. In
addition, various members of the Board also meet with management in less formal
settings, between formal “Board Meetings,” to discuss various topics. 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.
Board
Structure, Leadership
The
Board has structured itself in a manner that it believes allows it to perform
its oversight function effectively. It has established two standing committees,
a Governance and Nominating Committee and an Audit Committee, which also serves
as the Qualified Legal Compliance Committee, which are discussed
in
greater detail below under “Trust Committees.” The Board is comprised of one
Interested Trustee and three Independent Trustees, which are Trustees that are
not affiliated with the Adviser, the principal underwriter, or their affiliates.
The Governance and Nominating Committee, Audit Committee, and Qualified Legal
Compliance Committee are comprised entirely of Independent Trustees. The Chair
of the Board is an Interested Trustee. The Board has determined not to appoint a
lead Independent Trustee; however, the Independent Trustees are advised by
independent counsel. The President and Principal Executive Officer of the Trust
is not a Trustee, but rather is a senior employee of the Administrator who
routinely interacts with the unaffiliated
investment advisers of the Trust
and comprehensively manages the operational aspects of the funds in the Trust.
The Trust has determined that it is appropriate to separate the Principal
Executive Officer and Chair of the Board positions because the day-to day
responsibilities of the Principal Executive Officer are not consistent with the
oversight role of the Trustees and because of the potential conflict of interest
that may arise from the Administrator’s duties with the Trust. The Board reviews
its structure and the structure of its committees annually. Given the specific
characteristics of the Trust, as described above, the Board has determined that
the structure of the Interested Chair, the composition of the Board, and the
function and composition of its various committees are appropriate means to
address any potential conflicts of interest that may arise.
Board
Oversight of Risk Management
As
part of its oversight function, the Board receives and reviews various risk
management reports and discusses these matters with appropriate management and
other personnel. Because risk management is a broad concept comprised of many
elements (e.g., investment risk, issuer and counterparty risk, compliance risk,
operational risks, business continuity risks, etc.), the oversight of different
types of risks is handled in different ways. For example, the Audit Committee
meets with the Treasurer and the Trust’s independent registered public
accounting firm to discuss, among other things, the internal control structure
of the Trust’s financial reporting function. The Board meets regularly with the
CCO to discuss compliance and operational risks and how they are managed. The
Board also receives reports from the Adviser as to investment risks of the
Funds. In addition to these reports, from time to time the Board receives
reports from the Administrator and the Adviser as to enterprise risk management.
Information
about Each Trustee’s Qualification, Experience, Attributes or Skills
The
Board believes that each of the Trustees has the qualifications, experience,
attributes, and skills (“Trustee Attributes”) appropriate to their continued
service as Trustees of the Trust in light of the Trust’s business and structure.
The Board annually conducts a “self-assessment” wherein the effectiveness of the
Board and individual Trustees is reviewed.
In
addition to the information provided in the chart above, below is certain
additional information concerning each particular Trustee and his/her Trustee
Attributes. The information is not all-inclusive. Many Trustee Attributes
involve intangible elements, such as intelligence, integrity, work ethic, the
ability to work together, the ability to communicate effectively, the ability to
exercise judgment, to ask incisive questions, and commitment to shareholder
interests.
Koji
Felton. Mr.
Felton has served as a Trustee since 2015 and has substantial experience with
the mutual fund industry and familiarity with federal securities laws and
regulations. Mr. Felton’s prior experience includes serving as Director and
Counsel for KKR Credit Advisors LLC, the asset manager arm of Kohlberg Kravis
Roberts & Co. L.P. (2013 - 2015). Prior to that Mr. Felton served as counsel
in the Financial Services Group at Dechert LLP from (2011 - 2013), as well as in
various capacities, and ultimately as Senior Vice President and Deputy General
Counsel for mutual funds, at Charles Schwab &
Co.,
Inc. (1998 – 2011). Mr. Felton also worked as a staff attorney and served as an
Enforcement Branch Chief for the San Francisco District Office of the SEC (1992
- 1998). Mr. Felton began his career as a litigation associate specializing in
securities and banking litigation at Shearman & Sterling (1986 -
1992).
Debra
McGinty-Poteet.
Ms. McGinty-Poteet has served as a Trustee since 2015 and has significant mutual
fund industry experience, including her current and prior experience on mutual
fund boards. Ms. McGinty-Poteet currently also serves as Lead Independent
Trustee and Chair of the Audit Committee for F/m Funds Trust. Prior to becoming
a Trustee of the Trust, Ms. McGinty-Poteet served as the President, Chair of the
Board, and Interested Trustee for Brandes Investment Trust where she also
oversaw the proprietary and sub-advisory mutual fund business for Brandes
Investment Advisors (1999 – 2012). Ms. McGinty-Poteet previously served as Chief
Operating Officer of North American Trust Company (1997 – 1998); Global Managing
Director of Mutual Funds at Bank of America (1992 – 1996); and in various
capacities, and ultimately as Global Head of Mutual Funds, at Security Pacific
Bank (1982 – 1992).
Daniel
Willey. Mr.
Willey has served as a Trustee since 2015 and has significant work history and
experience in the investment management industry. As a chief compliance officer,
Mr. Willey has valuable experience in an oversight role and in working with
regulatory compliance matters. Mr. Willey served as the Chief Compliance Officer
of the United Nations Joint Staff Pension Fund (2009-2017). Prior to this role,
Mr. Willey served as the Chief Operating and Chief Compliance Officer of Barrett
Associates, Inc. (investment adviser and affiliate of Legg Mason (2007 – 2009);
President and Chief Executive Officer of TIMCO, Citigroup Asset Management (2004
– 2006); Head Equity Trader of TIMCO (1994 – 2004); Vice President, Shawmut
National Bank (1992 – 1994); Investment Officer, State of Connecticut (1990 –
1992); Vice President, Bank of New England (Connecticut Bank & Trust) (1981
– 1990); Registered Representative, Tucker Anthony and R.L. Day, Inc. (1979 –
1981); and Assistant Analyst, The Travelers Insurance Company (1977 –
1979).
Elaine
Richards.
Ms. Richards has served as a Trustee since 2021 and has over 25 years of
experience, knowledge, and understanding of the mutual fund industry. Ms.
Richards currently serves as a Senior Vice President of U.S. Bank Global Fund
Services and has extensive experience in the 1940 Act, securities law in general
and SEC compliance and regulatory matters. In addition, Ms. Richards has
extensive experience in the oversight of regulatory examinations and providing
support and assistance to mutual fund clients implementing new regulatory
requirements. Prior to joining U.S. Bank Global Fund Services, Ms. Richards was
Vice President and senior counsel at Wells Fargo Funds Management.
Trust
Committees
The
Trust has two standing committees: the Governance and Nominating Committee and
the Audit Committee, which also serves as the Qualified Legal Compliance
Committee (“QLCC”).
The
Governance and Nominating Committee, comprised of all the Independent Trustees,
is responsible for making recommendations to the Board regarding various
governance-related aspects of the Board’s responsibilities and seeking and
reviewing candidates for consideration as nominees for Trustees and meets only
as necessary. The Governance and Nominating Committee will consider nominees
nominated by shareholders. Recommendations by shareholders for consideration by
the Governance and Nominating Committee should be sent to the President of the
Trust in writing together with the appropriate biographical information
concerning each such proposed nominee, and such recommendation must comply with
the notice provisions set forth in the Trust Bylaws. In general, to comply with
such procedures, such nominations, together with all required biographical
information, must be delivered to and received by the President of the Trust at
the principal executive offices of the Trust no less than 120
days
and no more than 150 days prior to the shareholder meeting at which any such
nominee would be voted on. During the Funds’ fiscal period ended August 31,
2023, the Governance and Nominating Committee did not meet.
The
Audit Committee is comprised of all of the Independent Trustees. The Audit
Committee generally meets on a quarterly basis with respect to the various
series of the Trust, and may meet more frequently. The function of the Audit
Committee, with respect to each series of the Trust, is to review the scope and
results of the audit of such series’ financial statements and any matters
bearing on the audit or the financial statements, and to ensure the integrity of
the series’ pricing and financial reporting. During the Funds’ fiscal period
ended August 31, 2023, the Audit Committee met two times with respect to the
Funds.
The
function of the QLCC is to receive reports from an attorney retained by the
Trust of evidence of a material violation by the Trust or by any officer,
director, employee, or agent of the Trust.
Trustee
Ownership of Fund Shares and Other Interests
No
Trustee beneficially owned shares of the Funds as of December 31, 2022.
Furthermore, neither the Independent Trustees nor members of their immediate
family, own securities beneficially or of record in the Adviser, the Funds’
principal underwriter, or any of their affiliates as of the same date.
Compensation
The
Independent Trustees each receive an annual retainer of $50,000 for their
services on the Board. Independent Trustees may receive additional fees from
applicable portfolios for any special meetings at rates assessed by the Trustees
depending on the length of the meeting and whether in-person attendance is
required. Independent Trustees will also be reimbursed for out-of-pocket
expenses in connection with each Board meeting attended. These reimbursements
will be allocated among applicable portfolios of the Trust. Trustee compensation
disclosed in the table does not include these reimbursements. The Trust has no
pension or retirement plan. Pursuant to the Advisory Agreement (as defined
below), the Adviser has agreed to pay all expenses of each Fund, except those
specified in the Prospectus. As a result, Independent Trustees are compensated
out of the unified management fee paid to the Adviser by the Funds. The Trust
does not pay any fees to, or reimburse expenses of, the Interested
Trustee.
Set
forth below is the compensation received by the Independent Trustees for the
fiscal period ending August 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
of Person/ Position |
Aggregate
Compensation
From
the
Funds(1) |
Pension
or
Retirement
Benefits Accrued
as Part of
Fund
Expenses |
Estimated
Annual
Benefits Upon
Retirement |
Total
Compensation
from
Fund and Fund
Complex(2)
Paid to
Trustees |
|
Koji
Felton, Independent Trustee |
$1,430 |
None |
None |
$1,430 |
| Debra
McGinty Poteet, Independent Trustee |
$1,430 |
None |
None |
$1,430 |
|
Daniel
Willey, Independent Trustee |
$1,430 |
None |
None |
$1,430 |
(1)Trustees’
fees and expenses are allocated among the Funds and all other series comprising
the Trust.
(2)As
of the date of this SAI, the Trust was comprised of 19 portfolios (including the
Funds which are each managed by the Adviser) managed by unaffiliated investment
advisers. The term “Fund Complex” applies only to the Funds, and not to other
series of the Trust. For the fiscal period ended August 31, 2023, aggregate
Independent Trustees’ compensation amounted to $75,000.
Codes
of Ethics
The
Trust, the Adviser, and the Distributor have each adopted a separate code of
ethics pursuant to Rule 17j-1 of the 1940 Act. These codes of ethics
permit, subject to certain conditions, personnel of the Adviser and distributor
to invest in 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 “Trust Proxy
Policies”) on behalf of the Trust which delegate the responsibility for voting
proxies to the Adviser or its designee, subject to the Board’s continuing
oversight. The Trust’s Proxy Policies require that the Adviser or its designee
vote proxies received in a manner consistent with the best interests of the
Funds and their shareholders. The Trust Proxy Policies also require the Adviser
to present to the Board, at least annually, the Adviser’s proxy policies and a
record of each proxy voted by the Adviser on behalf of the Funds, including a
report on the resolution of all proxies identified by the Adviser as involving a
conflict of interest.
The
Adviser has adopted proxy policies, which may be amended from time to time. In
voting proxies, the Adviser is guided by fiduciary principles. All proxies are
to be voted solely in the best interests of the beneficial owners of the
securities. A copy of the Adviser’s proxy voting policies and procedures is
attached to this SAI as Appendix A.
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. Form N-PX for the Funds is available without charge, upon request, by
calling toll-free 800-617-0004 and on the SEC’s website at
www.sec.gov.
CONTROL
PERSONS, PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP
A
principal shareholder is any person who owns of record or is known by the Trust
to own beneficially 5% or more of any class of the outstanding shares of any
class of a Fund. A control person is any person who owns beneficially or through
controlled companies more than 25% of the voting securities of a Fund or
acknowledges the existence of control.
As
of December 1, 2023, the following shareholders owned 5% or more of the
outstanding shares of a Fund:
Panagram
AAA CLO ETF
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
National
Financial Services, LLC
499 Washington Blvd. Fl.5
Jersey City, NJ
07310-2010 |
26.99% |
Record |
Charles
Schwab & Co., Inc.
211 Main Street
San Francisco, CA
94105-1905 |
24.92% |
Record |
Morgan
Stanley Smith Barney, LLC
Harborside Financial Center Plaza,
23rd
Floor
Jersey City NJ 07311 |
11.11% |
Record |
BofA
Secuities, LLC
One Bryant Park, 6th Floor
New York, NY
10036 |
10.76% |
Record |
J.P.
Morgan Securities LLC/JPMC
383 Madison Avenue
New York, NY
10179 |
8.93% |
Record |
Panagram
BBB-B CLO ETF
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc.
211 Main Street
San Francisco, CA
94105-1905 |
39.5% |
Record |
National
Financial Services, LLC
499 Washington Blvd. Fl.5
Jersey City, NJ
07310-2010 |
19.33% |
Record |
J.P.
Morgan Securities LLC/JPMC
383 Madison Avenue
New York, NY
10179 |
6.99% |
Record |
Pershing
LLC
One Pershing Plaza
Jersey City, NJ 07399 |
6.35% |
Record |
Goldman
Sachs Asset Management, L.P.
200 West Street
New York, NY
10282 |
5.74% |
Record |
As
of December 1, 2023, the Trustees and officers of the Trust as a group did not
own more than 1% of the outstanding shares of a Fund.
THE
FUNDS’ INVESTMENT ADVISER
As
stated in the Prospectus, investment advisory services are provided to the Funds
by the Adviser, pursuant to an investment advisory agreement (the “Advisory
Agreement”).
As
compensation, each Fund will pay the Adviser a monthly unified management fee
(accrued daily) based upon the average daily net assets of each Fund at the
annual rate of 0.20% for the Panagram AAA CLO ETF and 0.50% for the Panagram
BBB-B CLO ETF.
Under
the Advisory Agreement, the Adviser has agreed to pay all expenses of each Fund
(including acquired fund fees and expenses) except for the fee paid to the
Adviser pursuant to the Advisory Agreement, interest charges on any borrowings,
taxes, brokerage commissions and other expenses incurred in placing orders for
the purchase and sale of securities and other investment instruments, accrued
deferred tax liability, extraordinary expenses, and distribution fees and
expenses paid by the Trust under any distribution plan adopted pursuant to Rule
12b-1 under the 1940 Act.
The
Advisory Agreement continues in effect for an initial two year period, and from
year to year thereafter only if such continuance is specifically approved at
least annually by the Board or by vote of a majority of a Fund’s outstanding
voting securities and by a majority of the Independent Trustees, who are not
parties to the Advisory Agreement or interested persons of any such party, in
each case cast in person at a meeting called for the purpose of voting on the
Advisory Agreement. The Advisory Agreement is terminable without penalty by the
Trust on behalf of a Fund on not more than 60 days’, nor less than
30 days’, written notice to the Adviser when authorized either by a
majority vote of the Fund’s shareholders or by a vote of a majority of the
Trustees, or by the Adviser on not more than 60 days’ written notice to the
Trust, and will automatically terminate in the event of its “assignment” (as
defined in the 1940 Act). The Advisory Agreement provides that the Adviser shall
not be liable under such agreement for any error of judgment or mistake of law
or for any loss arising out of any investment or for any act or omission in the
execution of portfolio transactions for a Fund, except for willful misfeasance,
bad faith, or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties thereunder.
The
Funds’ unified management fees paid for the most recent fiscal period ended
August 31 were as follows:
|
|
|
|
|
| |
| Funds |
2023 |
|
Panagram
AAA CLO ETF(1)
|
$8,309 |
|
Panagram
BBB-B CLO ETF(2)
|
$198,747 |
|
(1)
For
the period July 18, 2023 (the Fund’s inception) to August 31,
2023. |
|
(2)
For
the period January 23, 2023 (the Fund’s inception) to August 31,
2023. |
Portfolio
Managers
Mr.
John Kim and Mr. Timothy Wickstrom are the portfolio managers of the Funds and
are responsible for the day-to-day management of the Funds. Information
regarding other accounts managed by Mr. Kim and Mr. Wickstrom as of August 31,
2023, is set forth below:
John
Kim
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Category
of Account |
Total
Number of
Accounts Managed |
Total
Assets in
Accounts Managed
(in millions) |
Number
of
Accounts for which
Advisory Fee is
Based
on
Performance |
Assets
in Accounts
for which Advisory
Fee is Based on
Performance
(in millions) |
| Other
Registered Investment Companies |
1 |
$252.5
million |
1 |
$252.5
million |
| Other
Pooled Investment Vehicles |
1 |
$6.0
million |
0 |
0 |
| Other
Accounts |
6 |
$13.7
billion |
1 |
$10.0
million |
Timothy
Wickstrom
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Category
of Account |
Total
Number of
Accounts Managed |
Total
Assets in
Accounts Managed
(in millions) |
Number
of
Accounts for which
Advisory Fee is
Based
on
Performance |
Assets
in Accounts
for which Advisory
Fee is Based on
Performance
(in millions) |
| Other
Registered Investment Companies |
1 |
$252.5
million |
1 |
$252.5
million |
| Other
Pooled Investment Vehicles |
1 |
$6.0
million |
0 |
0 |
| Other
Accounts |
6 |
$13.7
billion |
1 |
$10.0
million |
Compensation
The
Funds’ portfolio managers are each paid out of the total revenues of the Adviser
and certain of its affiliates, including the advisory fees earned with respect
to providing advisory services to the Adviser. Professional compensation at the
Adviser is structured so that key professionals benefit from strong investment
performance generated on the accounts that the Adviser and its affiliates manage
and from their longevity with the Adviser. Each member of the Adviser’s
investment team receives long-term incentives a fixed base salary and an annual
market and performance-based cash bonus. The bonus is based on both quantitative
and qualitative analysis of several factors, including the profitability of the
Adviser and the contribution of the individual employee. Many of the factors
considered by management in reaching its compensation determinations will be
impacted by the Adviser’s long-term performance and the value of its assets as
well as the portfolios managed for the Adviser’s and its affiliates’ other
clients.
Conflicts
of Interest
Material
conflicts of interest that may arise in connection with the portfolio managers’
management of the Funds’ investments and investments of other accounts managed
by the portfolio managers include conflicts associated with the allocation of
investment opportunities between the Funds and other accounts
managed.
The Adviser maintains investment, trade allocation, and account valuation
(including fair valuation) policies and procedures to address and mitigate such
conflicts of interest.
Additional
information about potential conflicts of interest is set forth in Part 2A of the
Adviser’s Form ADV, which is available on the SEC’s website
(adviserinfo.sec.gov).
Ownership
of Shares of the Funds
The
following tables set forth the dollar range of securities of the Fund
beneficially owned by the portfolio managers as of August 31,
2023.
Panagram
AAA CLO ETF
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Securities in the Fund Beneficially Owned |
|
John
E. Kim |
$50,001
- $100,000 |
|
Timothy
Wickstrom |
None |
Panagram
BBB-B CLO ETF
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Securities in the Fund Beneficially Owned |
|
John
E. Kim |
$100,001
- $500,000 |
|
Timothy
Wickstrom |
None |
SERVICE
PROVIDERS
Administrator,
Transfer Agent, and Fund Accountant
Pursuant
to an administration agreement (the “Administration Agreement”), U.S. Bancorp
Fund Services, LLC, doing business as U.S. Bank Global Fund Services (“Fund
Services”) and is located at 615 East Michigan Street, Milwaukee, Wisconsin
53202, acts as the administrator to the Funds (“Administrator”). Fund Services
provides certain services to the Funds including, among other responsibilities,
coordinating the negotiation of contracts and fees with, and the monitoring of
performance and billing of, the Funds’ independent contractors and agents;
preparation for signature by an officer of the Trust of all documents required
to be filed for compliance by the Trust and the Funds with applicable laws and
regulations, excluding those of the securities laws of various states; arranging
for the computation of performance data, including NAV and yield; responding to
shareholder inquiries; and arranging for the maintenance of books and records of
the Funds, and providing, at its own expense, office facilities, equipment, and
personnel necessary to carry out its duties. 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 the Funds’ shares.
Pursuant
to the Administration Agreement, as compensation for its services, Fund Services
receives from the Funds, a fee based on the Funds’ current average daily net
assets, subject to a minimum annual fee. Fund Services also is entitled to
certain out-of-pocket expenses. Fund Services also acts as fund accountant,
transfer agent (“Transfer Agent”) and dividend disbursing agent under separate
agreements.
The
Funds’ Administration fees for the most recent fiscal period ended August 31,
which are paid by the Adviser, were as follows:
|
|
|
|
|
| |
| Funds |
2023 |
|
Panagram
AAA CLO ETF(1)
|
$12,494 |
|
Panagram
BBB-B CLO ETF(2)
|
$72,187 |
|
(1)
For
the period July 18, 2023 (the Fund’s inception) to August 31,
2023. |
| (2)
For the period January 23, 2023 (the Fund’s inception) to August 31,
2023. |
Custodian
U.S.
Bank National Association is the custodian of the assets of the Funds (the
“Custodian”) pursuant to a custody agreement between the Custodian and the
Trust. For its services, the Custodian receives a monthly fee based on a
percentage of the Funds’ assets, in addition to certain transaction based fees,
and is reimbursed for out of pocket expenses. The Custodian’s address is
1555 N. River Center Drive, Suite 302, Milwaukee, Wisconsin 53212. The
Custodian does not participate in decisions relating to the purchase and sale of
securities by the Funds. Fund Services and the Custodian are affiliated entities
under the common control of U.S. Bancorp. The Custodian and its affiliates may
participate in revenue sharing arrangements with the service providers of mutual
funds in which the Funds may invest.
Independent
Registered Public Accounting Firm and Legal Counsel
Cohen
& Company, Ltd., 342 North Water Street, Suite 830, Milwaukee, WI, is the
independent registered public accounting firm for the Funds and performs an
annual audit of the Funds’ financial statements.
Kirkland
& Ellis LLP, 1301 Pennsylvania Avenue, N.W., Washington, D.C. 20004, serves
as legal counsel to the Trust and to the Independent Trustees.
EXECUTION
OF PORTFOLIO TRANSACTIONS
Pursuant
to the Advisory Agreement, the Adviser determines which securities are to be
purchased and sold by the Funds and which broker-dealers are eligible to execute
each Fund’s portfolio transactions. Purchases and sales of securities on an
exchange are affected through brokers that charge a commission while purchases
and sales of securities in the over-the-counter market will generally be
executed directly with the primary “market-maker” unless, in the opinion of the
Adviser, a better price and execution can otherwise be obtained by using a
broker for the transaction. Purchases and sales of portfolio securities that are
fixed income securities (for instance, money market instruments and bonds,
notes, and bills) usually are principal transactions. In a principal
transaction, the party from whom the Fund purchases or to whom the Fund sells is
acting on its own behalf (and not as the agent of some other party, such as its
customers). These securities normally are purchased directly from the issuer or
from an underwriter or market maker for the securities. The price of securities
purchased from underwriters includes a disclosed fixed commission or concession
paid by the issuer to the underwriter, and prices of securities purchased from
dealers serving as market makers reflects the spread between the bid and asked
price. The price of over-the-counter securities usually includes an undisclosed
commission or markup.
In
selecting brokers or counterparties for the Funds, the Adviser will use its best
judgment to choose the brokers most likely to provide “best execution.” Brokers
are selected on the basis of an evaluation by the Adviser of the overall value
and quality of the brokerage services provided by such firms to clients of the
Adviser, including the Funds. Such service and characteristics may include, but
are not limited to: commission rates charged by the broker and the ability to
minimize overall costs to the Adviser’s clients; possible adverse market impact
of the order and/or the Adviser’s opinion of which broker is best able to handle
the order to minimize adverse market impact; execution capability and expertise;
responsiveness; trading infrastructure; and ability to accommodate any special
execution orders or handling requirements. The Adviser’s choice of brokers and
best execution is subject to periodic, ongoing review by the
Adviser.
In
selecting brokers, the Adviser does not have an obligation to seek the lowest
available cost, but rather may consider all relevant factors, including those
noted above. As a result, the Adviser may pay transaction costs that would be
higher than the Adviser may be able to obtain through another
broker.
Section
28(e) of the Securities Exchange Act of 1934, as amended, is a “safe harbor”
that permits an investment manager to use commissions or “soft dollars” to
obtain research and brokerage services that provide lawful and appropriate
assistance in the investment decision-making process. The Adviser will limit the
use of “soft dollars” to obtain research and brokerage services to services
which constitute research and brokerage within the meaning of Section 28(e).
Research services within Section 28(e) may include, but are not limited to,
research reports (including market research); certain financial newsletters and
trade journals; software providing analysis of securities portfolios; corporate
governance research and rating services; attendance at certain seminars and
conferences; discussions with research analysts; meetings with corporate
executives; consultants’ advice on portfolio strategy; data services (including
services providing market data, company financial data and economic data);
advice from brokers on order execution; and certain proxy services. Brokerage
services within Section 28(e) may include, but are not limited to, services
related to the execution, clearing and settlement of securities transactions and
functions incidental thereto (i.e., connectivity services between an investment
manager and a broker-dealer and other relevant parties such as custodians);
trading software operated by a broker-dealer to route orders; software that
provides trade analytics and trading strategies; software used to transmit
orders; clearance and settlement in connection with a trade; electronic
communication of allocation instructions; routing settlement instructions; post
trade matching of trade information; and services required by the SEC or a
self-regulatory organization such as comparison services, electronic confirms,
or trade affirmations.
For
the fiscal period ended August 31, the Funds paid the following in aggregate
brokerage commissions:
|
|
|
|
|
| |
| Funds |
2023 |
|
Panagram
AAA CLO ETF(1)
|
$0 |
|
Panagram
BBB-B CLO ETF(2)
|
$0 |
|
(1)
For
the period July 18, 2023 (the Fund’s inception) to August 31,
2023. |
| (2)
For the period January 23, 2023 (the Fund’s inception) to August 31,
2023. |
As
of August 31, 2023, the Funds did not own any securities issued by any of its
regular broker-dealers.
BOOK
ENTRY ONLY SYSTEM
Depository
Trust Company (“DTC”) acts as securities depositary for each Fund’s shares.
Shares of the Funds are represented by securities registered in the name of DTC
or its nominee, Cede & Co., and deposited with, or on behalf of, DTC. Except
in limited circumstances set forth below, certificates will not be issued for
shares.
DTC
is a limited-purpose trust company that 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 book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations, some of
whom (and/or their representatives) own DTC. More specifically, DTC is owned by
a number of its DTC Participants and by the New York Stock Exchange (“NYSE”) and
FINRA. Access to the DTC system is also available to others such as banks,
brokers, dealers, and trust companies that clear through or maintain a custodial
relationship with a DTC Participant, either directly or indirectly (the
“Indirect Participants”).
Beneficial
ownership of shares of the Funds are limited to DTC Participants, Indirect
Participants, and persons holding interests through DTC Participants and
Indirect Participants. Ownership of beneficial interests in shares of a Fund
(owners of such beneficial interests are referred to herein as “Beneficial
Owners”) is shown on, and the transfer of ownership is 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
the DTC Participant a written confirmation relating to their purchase of shares
of a Fund. The Trust recognizes DTC or its nominee as the record owner of all
shares of the Funds for all purposes. Beneficial Owners of shares of a Fund are
not entitled to have such shares registered in their names, and will not receive
or be entitled to physical delivery of share certificates. Each Beneficial Owner
must rely on the procedures of DTC and any DTC Participant and/or Indirect
Participant through which such Beneficial Owner holds its interests, to exercise
any rights of a holder of shares of the Fund.
Conveyance
of all notices, statements, and other communications to Beneficial Owners is
effected as follows. DTC will make available to the Trust upon request and for a
fee a listing of shares of a Fund held by each DTC Participant. The Trust shall
obtain from each such DTC Participant the number of Beneficial Owners holding
shares of a Fund, directly or indirectly, through such DTC Participant. The
Trust shall 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.
Share
distributions shall be made to DTC or its nominee, Cede & Co., as the
registered holder of all shares of a Fund. DTC or its nominee, upon receipt of
any such distributions, shall credit immediately DTC Participants’ accounts with
payments in amounts proportionate to their respective beneficial interests in a
Fund as shown on the records of DTC or its nominee. Payments by DTC Participants
to Indirect Participants and Beneficial Owners of shares of a Fund 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 aspect of the records relating
to or notices to Beneficial Owners, or payments made on account of beneficial
ownership interests in a Fund’s 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 the Funds at
any time by giving reasonable notice to the Funds and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Funds shall take action either to find a replacement for DTC
to perform its functions at a comparable cost or, if such replacement is
unavailable, to issue and deliver printed certificates representing ownership of
shares of each Fund, unless the Trust makes other arrangements with respect
thereto satisfactory to the Exchange.
PURCHASE
AND REDEMPTION OF SHARES IN CREATION UNITS
Each
Fund offers and issues shares only in Creation Units on a continuous basis
through the Distributor, without a sales load (but subject to transaction fees,
if applicable), at their NAV per share next determined after receipt of an
order, on any Business Day, in proper form pursuant to the terms of the
authorized participant agreement (“Participant Agreement”). The NAV of each
Fund’s shares is calculated each Business Day as of the scheduled close of
regular trading on the NYSE, generally 4:00 p.m., Eastern time. The Funds will
not issue fractional Creation Units. A “Business Day” is any day on which the
NYSE is open for business.
Deposit
Cash Amount.
Creation Units are sold at their NAV (the “Cash Purchase Amount”) plus a
transaction fee, as described below. Each Fund may also designate an in-kind
deposit of a designated portfolio of securities (the “Deposit
Securities”).
Procedures
for Purchase of Creation Units.
To be eligible to place orders with the Transfer Agent to purchase a Creation
Unit of a Fund, an entity must be (i) a “Participating Party” (i.e., a
broker-dealer or other participant in the clearing process through the
Continuous Net Settlement System of the NSCC (the “Clearing Process”)), a
clearing agency that is registered with the SEC; or (ii) a DTC Participant (see
“Book Entry Only System”). In addition, each Participating Party or DTC
Participant (each, an “Authorized Participant”) must execute a Participant
Agreement that has been agreed to by the Distributor, and that has been accepted
by the Transfer Agent, with respect to purchases and redemptions of Creation
Units. Each Authorized Participant will agree, pursuant to the terms of a
Participant Agreement, on behalf of itself or any investor on whose behalf it
will act, to certain conditions.
All
orders to purchase shares directly from the Funds must be placed for one or more
Creation Units and in the manner and by the time set forth in the Participant
Agreement and/or applicable order form. The order cut-off time for the Funds for
orders to purchase Creation Units is expected to be 2:00 p.m. Eastern time,
which time may be modified by a Fund from time-to-time by amendment to the
Participant Agreement and/or applicable order form. The date on which an order
to purchase Creation Units (or an order to redeem Creation Units, as set forth
below) is received and accepted is referred to as the “Order Placement Date.”
An
Authorized Participant may require an 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 that,
therefore, orders to purchase shares directly from a Fund in Creation Units 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 and only a small
number of such Authorized Participants may have international
capabilities.
On
days when the Exchange closes earlier than normal, each Fund may require orders
to create Creation Units to be placed earlier in the day. In addition, if a
market or markets on which a Fund’s investments are primarily traded is closed,
the Fund will also generally not accept orders on such day(s). Orders must be
transmitted by an Authorized Participant by telephone or other transmission
method acceptable to the Transfer Agent pursuant to procedures set forth in the
Participant Agreement and in accordance with the applicable order form. On
behalf of the Funds, the Transfer Agent will notify the Custodian of such order.
The Custodian will then provide such information to the appropriate local
sub-custodian(s). Those placing orders through an Authorized Participant should
allow sufficient time to permit proper submission of the purchase order to the
Transfer Agent by the cut-off time on such Business Day. Economic or market
disruptions or changes, or telephone or other communication failure may impede
the ability to reach the Transfer Agent or an Authorized
Participant.
The
Cash Purchase Amount transfer must be ordered by the Authorized Participant in a
timely fashion so as to ensure the delivery of the Cash Purchase Amount to the
account of a Fund or its agents by no later than 12:00 p.m. Eastern time (or
such other time as specified by the Trust) on the Settlement Date. If a Fund or
its agents do not receive all of the Cash Purchase Amount by such time, then the
order may be deemed rejected and the Authorized Participant shall be liable to
the Fund for losses, if any, resulting therefrom. The “Settlement Date” for the
Funds is generally the second Business Day after the Order Placement Date. All
questions as to the Cash Purchase Amount and the validity, form, and eligibility
(including time of receipt) for the deposit of any tendered securities or cash,
as applicable, will be determined by the Trust, whose determination shall be
final and binding. The Cash Purchase Amount 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 the Settlement Date.
If the Cash Purchase Amount as applicable, are not received by the Custodian in
a timely manner by the Settlement Date, the creation order may be cancelled.
Upon written notice to the Transfer Agent, such canceled order may be
resubmitted the following Business Day using the new Cash Purchase Amount to
reflect the then current NAV of the Fund.
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 the applicable
cut-off time and the federal funds in the appropriate amount are deposited with
the Custodian on the Settlement Date. If the order is not placed in proper form
as required, or federal funds in the appropriate amount are not received on the
Settlement Date, then the order may be deemed to be rejected and the Authorized
Participant shall be liable to the Fund for losses, if any, resulting therefrom.
A creation request is considered to be in “proper form” if all procedures set
forth in the Participant Agreement, order form, and this SAI are properly
followed.
Issuance
of a Creation Unit.
Except as provided in this SAI, Creation Units will not be issued until the
payment of the Cash Purchase Amount has been completed. When the sub-custodian
has confirmed to the Custodian that the required Cash Purchase Amount has been
delivered to the account of the relevant sub-custodian or sub-custodians, the
Transfer Agent, and the Adviser shall be notified of such delivery, and
the
Trust will issue and cause the delivery of the Creation Units. The delivery of
Creation Units so created generally will occur no later than the second Business
Day following the day on which the purchase order is deemed received by the
Transfer Agent. The Authorized Participant shall be liable to the Fund for
losses, if any, resulting from unsettled orders.
Creation
Units may be purchased in advance of receipt by the Trust of all or a portion of
Cash Purchase Amount as described below. In these circumstances, the initial
deposit will have a value greater than the NAV of shares on the date the order
is placed in proper form since, in addition to available Deposit Securities,
cash must be deposited in an amount equal to the sum of (i) the Cash Component,
plus (ii) an additional amount of cash equal to a percentage of the value as set
forth in the Participant Agreement, of the undelivered Deposit Securities (the
“Additional Cash Deposit”), which shall be maintained in a separate non-interest
bearing collateral account. The Authorized Participant must deposit with the
Custodian the Additional Cash Deposit, as applicable, by 12:00 p.m. Eastern time
(or such other time as specified by the Trust) on the Settlement Date. If a Fund
or its agents do not receive the Additional Cash Deposit in the appropriate
amount, by such time, then the order may be deemed rejected 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 delivery of the missing Deposit Securities to the extent necessary to
maintain the Additional Cash Deposit with the Trust in an amount at least equal
to the applicable percentage, as set forth in the Participant Agreement, of the
daily market value of the missing Deposit Securities. The Participant Agreement
will permit the Trust to buy the missing Deposit Securities at any time.
Authorized Participants will be liable to the Trust 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 value of such Deposit Securities on the day the purchase order was
deemed received by the Transfer Agent 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 missing Deposit Securities have
been properly received by the Custodian or purchased by the Trust and deposited
into the Trust. In addition, a transaction fee, as described below under
“Creation Transaction Fee,” may be charged. The delivery of Creation Units so
created generally will occur no later than the Settlement Date.
Acceptance
of Orders of Creation Units. The
Trust reserves the right to reject an order for Creation Units transmitted to it
by the Transfer Agent with respect to a Fund including, without limitation, if
(a) the order is not in proper form; (b) the Cash Purchase Amount delivered by
the Participant is not disseminated to the Custodian as described herein; (c)
the investor(s), upon obtaining shares ordered, would own 80% or more of the
currently outstanding shares; (d) the acceptance of the Cash Purchase Amount
would, in the opinion of counsel to
the Trust, be unlawful; (e) the acceptance or receipt of the order for a
Creation Unit would, in the opinion of counsel to the Trust,
be unlawful; or (f) in the event that circumstances outside the control of the
Trust, the Custodian, the Transfer Agent, and/or the Adviser make it for all
practical purposes not feasible to process orders for Creation Units, provided
that such action does not result in the suspension of sales of creation units in
contravention of Rule 6c-11 and the SEC’s positions thereunder.
Examples
of such circumstances include acts of God or 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 Distributor, the Custodian, a sub-custodian,
the Transfer Agent, DTC, NSCC, Federal Reserve System, or any other participant
in the creation process, and other extraordinary events. The Transfer Agent
shall notify a prospective creator of a Creation Unit and/or the Authorized
Participant acting on behalf of the creator of a Creation Unit of its rejection
of the
order
of such person. The Trust, the Transfer Agent, 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 either of
them incur any liability for the failure to give any such notification. The
Trust, the Transfer Agent, the Custodian, and the Distributor shall not be
liable for the rejection of any purchase order for Creation Units.
Creation
Transaction Fee.
A fixed purchase (i.e., creation) transaction fee, payable to the Fund’s
Custodian, may be imposed for the transfer and other transaction costs
associated with the purchase of Creation Units (“Creation Order Costs”). The
standard fixed creation transaction fee for each Fund is $300, regardless of the
number of Creation Units created in the transaction. The Funds may adjust the
standard fixed creation transaction fee from time to time. The fixed creation
fee may be waived on certain orders if the Funds’ Custodian has determined to
waive some or all of the Creation Order Costs associated with the order or
another party, such as the Adviser, has agreed to pay such fee.
In
addition, a variable fee, payable to the Fund, of up to a maximum of 2% of the
value of the Creation Units subject to the transaction may be imposed for cash
purchases, non-standard orders, or partial cash purchases of Creation Units. The
variable charge is primarily designed to cover additional costs (e.g.,
brokerage, taxes) involved with buying the securities with cash. Each Fund may
determine to not charge a variable fee on certain orders when the Adviser has
determined that doing so is in the best interests of Fund shareholders, e.g.,
for creation orders that facilitate the rebalance of the Fund’s portfolio in a
more tax efficient manner than could be achieved without such
order.
Investors
who use the services of a broker or other such intermediary may be charged a fee
for such services. Investors are responsible for the fixed costs of transferring
the securities from the Trust to their account or on their order.
Risks
of Purchasing Creation Units. There
are certain legal risks unique to investors purchasing Creation Units directly
from the Funds. Because shares may be issued on an ongoing basis, a
“distribution” of shares could be occurring at any time. Certain activities that
a shareholder performs as a dealer could, depending on the circumstances, result
in the shareholder being deemed a participant in the distribution in a manner
that could render the shareholder a statutory underwriter and subject to the
prospectus delivery and liability provisions of the Securities Act. For example,
a shareholder could be deemed a statutory underwriter if it purchases Creation
Units from a Fund, breaks them down into the constituent shares, and sells those
shares directly to customers, or if a shareholder chooses to couple the creation
of a supply of new shares with an active selling effort involving solicitation
of secondary market demand for shares. Whether a person is an underwriter
depends upon all of the facts and circumstances pertaining to that person’s
activities, and the examples mentioned here should not be considered a complete
description of all the activities that could cause you to be deemed an
underwriter.
Dealers
who are not “underwriters” but are participating in a distribution (as opposed
to engaging in ordinary secondary-market transactions), and thus dealing with
shares as part of an “unsold allotment” within the meaning of Section 4(a)(3)(C)
of the Securities Act, will be unable to take advantage of the prospectus
delivery exemption provided by Section 4(a)(3) of the Securities
Act.
Redemption.
Shares of the Funds may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by a Fund
through the Transfer Agent and only on a Business Day. EXCEPT UPON LIQUIDATION
OF A FUND, THE TRUST WILL NOT REDEEM SHARES IN AMOUNTS LESS THAN CREATION UNITS.
Investors must accumulate enough shares of a Fund in the secondary market to
constitute a Creation Unit to have such shares of the Fund 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. Investors should expect to incur brokerage and other costs in
connection with assembling a sufficient number of shares of a Fund to constitute
a redeemable Creation Unit.
Redemption
proceeds for a Creation Unit are paid either in-kind or in cash, or combination
thereof, as determined by the Trust. Each Fund generally redeems Creation Units
for cash. With respect to in-kind redemptions of a Fund, redemption proceeds for
a Creation Unit will consist of securities as announced by the Custodian on the
Business Day of the request for redemption received in proper form plus cash in
an amount equal to the difference between the NAV of shares of the Fund being
redeemed, as next determined after a receipt of a request in proper form, and
the value of the securities (the “Cash Redemption Amount”), less a fixed
redemption transaction fee, as applicable, as set forth below. In the event that
the securities have a value greater than the NAV of shares of the Fund, a
compensating cash payment equal to the differential is required to be made by or
through an Authorized Participant by the redeeming shareholder.
Redemption
Transaction Fee.
A fixed redemption transaction fee, payable to the Funds’ Custodian, may be
imposed for the transfer and other transaction costs associated with the
redemption of Creation Units (“Redemption Order Costs”). The standard fixed
redemption transaction
fee is $300 for each Fund, regardless of the number of Creation Units redeemed
in the transaction. Each Fund may adjust
the redemption transaction fee from time to time. The fixed redemption fee may
be waived on certain orders if the Funds’ Custodian has determined to waive some
or all of the Redemption Order Costs associated with the order or another party,
such as the Adviser, has agreed to pay such fee.
In
addition, a variable fee, payable to each Fund, of up to a maximum of 2% of the
value of the Creation Units subject to the transaction may be imposed for cash
redemptions, non-standard orders, or partial cash redemptions (when cash
redemptions are available) of Creation Units. The variable charge is primarily
designed to cover additional costs (e.g., brokerage, taxes) involved with
selling portfolio securities to satisfy a cash redemption. Each Fund may
determine to not charge a variable fee on certain orders when the Adviser has
determined that doing so is in the best interests of Fund shareholders, e.g.,
for redemption orders that facilitate the rebalance of the Fund’s portfolio in a
more tax efficient manner than could be achieved without such
order.
Investors
who use the services of a broker or other such intermediary may be charged a fee
for such services. Investors are responsible for the fixed costs of transferring
the securities from the Trust to their account or on their order.
Procedures
for Redemption of Creation Units.
Orders to redeem Creation Units must be submitted in proper form to the Transfer
Agent prior to 2:00 p.m. Eastern time. A redemption request is considered to be
in “proper form” if (i) an Authorized Participant has transferred or caused to
be transferred to the Trust’s Transfer Agent the Creation Unit(s) being redeemed
through the book-entry system of DTC so as to be effective by the time as set
forth in the Participant Agreement, and (ii) a request in form satisfactory to
the Trust is received by the Transfer Agent from the Authorized Participant on
behalf of itself or another redeeming investor within the time periods specified
in the Participant Agreement. If the Transfer Agent does not receive the
investor’s shares through DTC’s facilities by the times and pursuant to the
other terms and conditions set forth in the Participant Agreement, the
redemption request shall be rejected.
The
Authorized Participant must transmit the request for redemption, in the form
required by the Trust, to the Transfer Agent in accordance with procedures set
forth in the Participant Agreement. Investors should be aware that their
particular broker may not have executed a Participant Agreement, and that,
therefore, requests to redeem Creation Units may have to be placed by the
investor’s broker through an Authorized Participant who has executed a
Participant Agreement. Investors making a redemption request should be aware
that such request must be in the form specified by such Authorized Participant.
Investors making a request to redeem Creation Units should allow sufficient time
to permit proper submission of the request by an Authorized Participant and
transfer of shares of a Fund to the Trust’s Transfer Agent; such investors
should allow for the additional time that may be required to effect redemptions
through their banks, brokers, or other financial intermediaries if such
intermediaries are not Authorized Participants.
Additional
Redemption Procedures.
The Funds generally redeem shares in cash, and the redeeming investor will be
required to receive its redemption proceeds in cash. The investor will receive a
cash payment equal to the NAV of its shares based on the NAV of shares next
determined after the redemption request is received in proper form (minus a
redemption transaction fee, if applicable, and additional charge for requested
cash redemptions specified above, to offset the Trust’s brokerage and other
transaction costs associated with the disposition of Fund securities). Each Fund
may also provide such redeemer a portfolio of securities that differs from the
exact composition of the securities in the Fund but does not differ in
NAV.
In
connection with taking delivery of securities upon redemption of Creation Units,
a redeeming shareholder or Authorized Participant acting on behalf of such
shareholder must maintain appropriate custody arrangements with a qualified
broker-dealer, bank, or other custody providers in each jurisdiction in which
any of the securities are customarily traded, to which account such securities
will be delivered. Deliveries of redemption proceeds generally will be made
within two business days of the trade date.
Redemptions
of shares for securities will be subject to compliance with applicable federal
and state securities laws and each 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 securities under
such laws. An Authorized Participant or an investor for which it is acting
subject to a legal restriction with respect to a particular security included in
the securities applicable to the redemption of Creation Units may be paid an
equivalent amount of cash. The Authorized Participant may request the redeeming
investor of shares to complete an order form or to enter into agreements with
respect to such matters as compensating cash payment. Further, an Authorized
Participant that is not a “qualified institutional buyer,” (“QIB”), as such term
is defined under Rule 144A of the Securities Act, will not be able to receive
securities that are restricted securities eligible for resale under Rule 144A.
An Authorized Participant may be required by the Trust to provide a written
confirmation with respect to QIB status to receive securities.
Because
the portfolio securities of each Fund may trade on other exchanges on days that
the Exchange is closed or are otherwise not Business Days for the Fund,
shareholders may not be able to redeem their shares, or to purchase or sell
shares on the Exchange, on days when the NAV of the Fund could be significantly
affected by events in the relevant foreign markets.
The
right of redemption may be suspended or the date of payment postponed with
respect to the Funds (1) for any period during which the Exchange 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 shares or
determination of the NAV of shares is not reasonably practicable; or (4) in such
other circumstance as is permitted by the SEC.
DETERMINATION
OF SHARE PRICE
The
NAV of shares of the Funds will be determined once daily ordinarily as of the
scheduled close of public trading on the NYSE (normally, 4:00 p.m., Eastern
Time) on each day that the NYSE is open for trading. It is expected that the
NYSE will be closed on Saturdays and Sundays and on New Year’s Day, Martin
Luther King Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Juneteenth
National Independence Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. The Funds do not expect to determine the NAV of shares on any day
when the NYSE is not open for trading even if there is sufficient trading in its
portfolio securities on such days to materially affect the NAV per share.
In
valuing each Fund’s assets for calculating NAV, readily marketable portfolio
securities listed on a national securities exchange are valued at the last sale
price on the Business Day as of which such value is being determined. If there
has been no sale on such exchange on such day, the security is valued at the
mean between the bid and asked prices on such day. Securities primarily traded
in the Nasdaq National Market System (“Nasdaq”) for which market quotations are
readily available shall be valued using the Nasdaq Official Closing Price
(“NOCP”). If the NOCP is not available, such securities shall be valued at the
last sale price on the day of valuation, or if there has been no sale on such
day, at the mean between the bid and asked prices. Readily marketable securities
traded only in the over-the market and not on Nasdaq are valued at the most
recent trade price. All other assets of the Funds are valued in such manner as
the Adviser in good faith deems appropriate to reflect their fair value, subject
to Board oversight.
Trading
in most foreign securities markets located outside North America is normally
completed well before the close of the NYSE. In addition, securities trading on
foreign markets may not take place on all days on which the NYSE is open for
trading, and may occur in certain foreign markets on days on which a Fund’s NAV
is not calculated. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of the NYSE
will not be reflected in the calculation of NAV unless the Adviser deems that
the particular event would affect NAV, in which case an adjustment will be made
in such manner as the Adviser in good faith deems appropriate to determine fair
market value. Assets or liabilities expressed in foreign currencies are
translated, in determining NAV, into U.S. dollars based on the spot exchange
rates, or at such other rates as the Adviser, pursuant to fair value procedures
approved by the Board, may determine to be appropriate.
The
Adviser has been designated by the Board as the valuation designee for the Funds
pursuant to Rule 2a-5 under the 1940 Act. In its capacity as valuation designee,
the Advisor performs the fair value determinations relating to any or all Fund
investments, subject to Board oversight. The Advisor has established procedures
for its fair valuation of the Funds’ investments. These procedures address,
among other things, determining when market quotations are not readily available
or reliable and the methodologies to be used for determining the fair value of
investments, as well as the use and oversight of third-party pricing services
for fair valuation.
Fair
value represents a good faith approximation of the value of a security. Fair
value determinations involve the consideration of a number of subjective
factors, an analysis of applicable facts and circumstances and the exercise of
judgment. As a result, it is possible that the fair value for a security
determined in good faith in accordance with the Adviser’s fair value procedures
may differ from valuations for the same security determined by other funds using
their own valuation procedures. Although the Adviser’s fair value procedures are
designed to value a security at the price a Fund may reasonably expect to
receive upon its sale in an orderly transaction, there can be no assurance that
any fair value determination thereunder would, in fact, approximate the amount
that the Fund would actually
realize
upon the sale of the security or the price at which the security would trade if
a reliable market price were readily available.
DISTRIBUTIONS
AND TAX INFORMATION
Distributions
The
following information supplements and should be read in conjunction with the
section in the Prospectus entitled “Dividends, Distributions and Their
Taxation.”
General
Policies
Each
Fund intends to pay dividends from net investment income monthly. Distributions
of remaining net realized capital gains, if any, generally are declared and paid
once a year, but the Funds may make distributions on a more frequent basis for
the Funds to comply with the distribution requirements of the code, in all
events in a manner consistent with the provisions of the 1940 Act.
Dividends
and other distributions on shares of the Funds 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
Funds.
Each
Fund may make additional distributions to the extent necessary (i) to distribute
the entire annual taxable income of the Fund, plus any net capital gains, and
(ii) 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
Fund’s eligibility for treatment as a regulated investment company under the
Code or to avoid imposition of income or excise taxes on undistributed
income.
Dividend
Reinvestment Service
No
dividend reinvestment service is provided by the Trust. Financial intermediaries
may make the DTC book-entry Dividend Reinvestment Service available for use by
beneficial owners of Fund shares for reinvestment of their dividend
distributions. Beneficial owners should contact their financial intermediary to
determine the availability and costs of the service and the details of
participation therein. Financial intermediaries may require beneficial owners to
adhere to specific procedures and timetables. If this service is available and
used, dividend distributions of both income and net realized capital gains will
be automatically reinvested in additional whole shares of the Fund purchased in
the secondary market.
Tax
Information
The
following summary describes the material U.S. federal income tax consequences to
United States Holders (as defined below) of shares in a Fund. This summary is
based upon the Code, Treasury regulations promulgated thereunder, administrative
pronouncements, and judicial decisions, all as in effect as of the date of this
SAI and all of which are subject to change, possibly with retroactive effect.
This summary addresses only shares that are held as capital assets within the
meaning of Section 1221 of the Code and does not address all of the tax
consequences that may be relevant to shareholders in light of their particular
circumstances or to certain types of shareholders subject to special treatment
under the Code, including, without limitation, certain financial institutions,
dealers in securities or commodities, traders in securities who elect to apply a
mark-to-market method of accounting, insurance companies, tax-
exempt
organizations, partnerships or S-corporations (and persons who own their
interest in shares through a partnership or S-corporation), expatriates of the
United States, persons who are subject to alternative minimum tax, persons that
have a “functional currency” other than the United States dollar, persons who
hold shares as a position in a “straddle” or as a part of a “hedging,”
“conversion,” or “constructive sale” transaction for U.S. federal income tax
purposes, or persons who received their shares as compensation. This summary
also does not address the state, local, or foreign tax consequences of an
investment in a Fund.
For
purposes of this discussion, a “United States Holder” means a holder of shares
that for U.S. federal income tax purposes is:
•a
citizen or resident of the United States;
•a
corporation (or other entity treated as a corporation for U.S. federal income
tax purposes) created or organized in the United States or under the laws of the
United States, any State, or the District of Columbia;
•an
estate, the income of which is included in gross income for U.S. federal income
tax purposes, regardless of its source; or
•a
trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all of its substantial decisions, or which has a valid
election in effect under applicable Treasury regulations to be treated as a
United States person.
If
a partnership (or other entity treated as a partnership for U.S. federal income
tax purposes) holds shares, the tax treatment of a partner will generally depend
upon the status of such person and the activities of the limited liability
company or partnership. A shareholder that is a partnership should consult its
own tax advisors regarding the treatment of its partners.
Prospective
shareholders are urged to consult with their own tax advisors and financial
planners regarding the U.S. federal income tax consequences of an investment in
a Fund, the application of state, local, or foreign laws, and the effect of any
possible changes in applicable tax laws on their investment in the
Fund.
Tax
Treatment of the Funds
Each
series of the Trust is treated as a separate entity for U.S. federal income tax
purposes. Each Fund has elected to qualify and intends to continue to qualify
annually as a regulated investment company under Subchapter M of the Code,
requiring it to comply with all applicable requirements regarding its income,
assets and distributions. Provided that a Fund qualifies as a regulated
investment company, it is eligible for a dividends paid deduction, allowing it
to offset dividends it pays to shareholders against its taxable income; if a
Fund fails to qualify as a regulated investment company under Subchapter M, it
will be taxed as a regular corporation.
Each
Fund’s policy is to distribute to its shareholders all of its taxable income,
including any net realized capital gains (taking into account any capital loss
carry-forward of the Fund), each year in a manner that complies with the
distribution requirements applicable to regulated investment companies under the
Code, and results in the Fund not being subject to any U.S. federal income or
excise taxes. In particular, in order to avoid the non-deductible 4% excise tax,
the Fund must also distribute (or be deemed to have distributed) by
December 31 of each calendar year (1) at least 98% of its ordinary
income for such year, (2) at least 98.2% of the excess of its realized
capital gains over its realized capital losses for the 12-
month
period ending on October 31 during such year, and (3) any amounts from
the prior calendar year that were not distributed and on which the Fund paid no
federal income tax. However, the Fund can give no assurances that its
distributions will be sufficient to eliminate all U.S. federal income taxes. The
Fund is not required to consider tax consequences in making or disposing of
investments.
In
order to qualify as a regulated investment company, a Fund must, among other
things, derive at least 90% of its gross income each year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures, or forward
contracts) derived with respect to the business of investing in stock,
securities or currencies, and net income derived from an interest in a qualified
publicly traded partnership. The Fund must also satisfy the following two asset
diversification tests. At the end of each quarter of each taxable year, (i) at
least 50% of the value of the Fund’s total assets must be represented by cash
and cash items (including receivables), U.S. Government securities, the
securities of other regulated investment companies, and other securities, with
such other securities being limited in respect of any one issuer to an amount
not greater than 5% of the value of the Fund’s total assets and not more than
10% of the outstanding voting securities of such issuer, and (ii) not more than
25% of the value of the Fund’s total assets may be invested in the securities of
any one issuer (other than U.S. Government securities or the securities of other
regulated investment companies), the securities of any two or more issuers
(other than the securities of other regulated investment companies) that the
Fund controls (by owning 20% or more of their outstanding voting stock) and
which are determined under Treasury regulations to be engaged in the same or
similar trades or businesses or related trades or businesses, or the securities
of one or more qualified publicly traded partnerships. The Fund must also
distribute each taxable year sufficient dividends to its shareholders to claim a
dividends paid deduction equal to at least the sum of 90% of the Fund’s
investment company taxable income (as adjusted under Section 852(b)(2) of the
Code, but not taking into account the Fund’s dividends paid deduction; in the
case of the Fund generally consisting of interest and dividend income, less
expenses)) and 90% of the Fund’s net tax-exempt interest, if any.
A
Fund’s ordinary income generally consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carry-forward of the Fund.
Distributions
of net investment income and net short-term capital gains are taxable to
shareholders as ordinary income. For individual shareholders, a portion of the
distributions paid by a Fund may be qualified dividends currently eligible for
federal income taxation at long-term capital gain rates to the extent the Fund
reports the amount distributed as a qualifying dividend and certain holding
period requirements are met. In the case of corporate shareholders, a portion of
the distributions may qualify for the inter-corporate dividends-received
deduction to the extent the Fund reports the amount distributed as a qualifying
dividend and certain holding period requirements are met. The aggregate amount
so reported to either individual or corporate shareholders cannot, however,
exceed the aggregate amount of qualifying dividends received by the Fund for its
taxable year. In view of the Fund’s investment policy, it is expected that
dividends from domestic corporations will be part of the Fund’s gross income and
that, accordingly, part of the distributions by the Fund may be eligible for
treatment as qualified dividend income by individual shareholders, or for the
dividends-received deduction for corporate shareholders under federal tax law.
However, the portion of the Fund’s gross income attributable to qualifying
dividends is largely dependent on the Fund’s investment activities for a
particular year and therefore cannot be predicted with any certainty. The
Qualified dividend treatment may be eliminated if the Fund shares held by an
individual investor are held for less than 61 days, and the corporate-dividends
received deduction may be
eliminated
if the Fund shares held by a corporate investor are treated as debt-financed or
are held for less than 46 days. Distributions will be taxable to you even if the
share price of the Fund has declined.
The
sale or exchange of Fund shares is a taxable transaction for federal income tax
purposes. You will generally recognize a gain or loss on such transactions equal
to the difference, if any, between the amount of your net sales proceeds and
your adjusted tax basis in the Fund shares. Such gain or loss will be capital
gain or loss if you held your Fund shares as capital assets. Any capital gain or
loss will be treated as long-term capital gain or loss if you held the Fund
shares for more than one year at the time of the sale or exchange. Any capital
loss arising from the sale or exchange of shares held for six months or less,
however, will be treated as long-term capital loss to the extent of the amount
of net long-term capital gain distributions with regard to these
shares.
Tax
Treatment of United States Holders – Taxation of Distributions
Distributions
paid out of a Fund’s current and accumulated earnings and profits are generally
dividends taxable at ordinary income rates to each shareholder. Dividends will
be taxable to you even if the share price of the Fund has declined.
Distributions in excess of the Fund’s current and accumulated earnings and
profits will first be treated as a nontaxable return of capital up to the amount
of a shareholder’s tax basis in its shares, and then as capital gain.
For
individual shareholders, a portion of the dividends paid by each Fund may be
qualified dividends currently eligible for U.S. federal income taxation at
long-term capital gain rates to the extent the Fund reports the amount
distributed as a qualifying dividend and certain shareholder level holding
period requirements (discussed further below) are met. In the case of corporate
shareholders, subject to certain limitations (not all of which are discussed
herein), a portion of the distributions may qualify for the inter-corporate
dividends-received deduction to the extent the Fund reports the amount
distributed as a qualifying dividend and certain shareholder level holding
period requirements (discussed further below) are met. The aggregate amount so
reported to either individual or corporate shareholders cannot exceed the
aggregate amount of qualifying dividends received by the Fund for its taxable
year. Although no assurances can be provided, each Fund generally expects that
dividends from domestic corporations will be part of the Fund’s gross income and
that, accordingly, part of the distributions by the Fund may be eligible for
treatment as qualified dividend income by individual shareholders, or for the
dividends-received deduction for corporate shareholders. Qualified dividend
treatment may be eliminated if the Fund shares held by an individual investor
are held for less than 61 days, and the corporate dividends-received deduction
may be eliminated if Fund shares held by a corporate investor are treated as
debt-financed or are held for less than 46 days.
Distributions
properly reported by a Fund as capital gain dividends (“Capital Gain Dividends”)
will be taxable to shareholders as long-term capital gain (to the extent such
distributions do not exceed the Fund’s actual net long-term capital gain for the
taxable year), regardless of how long a shareholder has held Fund shares, and do
not qualify as dividends for purposes of the dividends received deduction or as
qualified dividend income. A Fund will report Capital Gain Dividends, if any, in
written statements furnished to its shareholders.
Tax
Treatment of United States Holders - Sales and Dispositions of
Shares
A
sale, redemption, or exchange of shares may give rise to a gain or loss. In
general, any gain or loss realized upon a taxable disposition of shares will be
treated as long-term capital gain or loss if shares have been held for more than
12 months. Otherwise, the gain or loss on the taxable disposition of shares will
generally
be treated as short-term capital gain or loss. Any loss realized upon a taxable
disposition of shares held for six months or less will be treated as long-term
capital loss, rather than short-term capital loss, to the extent of any amounts
treated as distributions to the shareholder of long-term capital gain (including
any amounts credited to the shareholder as undistributed capital gains). All or
a portion of any loss realized upon a taxable disposition of shares may be
disallowed if substantially identical shares are acquired (through the
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the disposition. In such a case, the basis of
the newly acquired shares will be adjusted to reflect the disallowed
loss.
The
cost basis of shares acquired by purchase will generally be based on the amount
paid for shares and then may be subsequently adjusted for other applicable
transactions as required by the Code. The difference between the selling price
and the cost basis of shares generally determines the amount of the capital gain
or loss realized on the sale or exchange of shares. Contact the broker through
whom you purchased your shares to obtain information with respect to the
available cost basis reporting methods and elections for your account. An
Authorized Participant who exchanges securities for Creation Units generally
will recognize a gain or a loss. The gain or loss will be equal to the
difference between the market value of the Creation Units at the time and the
sum of the exchanger’s aggregate basis in the securities surrendered plus the
amount of cash paid for such Creation Units. The ability of Authorized
Participants to receive a full or partial cash redemption of Creation Units of a
Fund may limit the tax efficiency of the Fund. A person who redeems Creation
Units will generally recognize a gain or loss equal to the difference between
the exchanger’s basis in the Creation Units and the sum of the aggregate market
value of any securities received plus the amount of any cash received for such
Creation Units. The Internal Revenue Service (the “IRS”), however, may assert
that a loss realized upon an exchange of securities for Creation Units cannot
currently be deducted under the rules governing “wash sales” (for a person who
does not mark-to-market its portfolio) or on the basis that there has been no
significant change in economic position.
The
Trust, on behalf of each Fund, has the right to reject an order for Creation
Units if the purchaser (or a group of purchasers) would, upon obtaining the
Creation Units so ordered, own 80% or more of the outstanding shares and if,
pursuant to Section 351 of the Code, the Fund would have a basis in the deposit
securities different from the market value of such securities on the date of
deposit. The Trust also has the right to require the provision of information
necessary to determine beneficial share ownership for purposes of the 80%
determination. If a Fund does issue Creation Units to a purchaser (or a group of
purchasers) that would, upon obtaining the Creation Units so ordered, own 80% or
more of the outstanding shares, the purchaser (or a group of purchasers) will
not recognize gain or loss upon the exchange of securities for Creation
Units.
Authorized
Participants purchasing or redeeming Creation Units should consult their own tax
advisers with respect to the tax treatment of any creation or redemption
transaction and whether the wash sales rule applies and when a loss may be
deductible.
Taxation
of Shareholders – Net Investment Income Tax
U.S.
individuals with adjusted gross income (subject to certain adjustments)
exceeding certain threshold amounts ($250,000 if married filing jointly or if
considered a “surviving spouse” for federal income tax purposes, $125,000 if
married filing separately, and $200,000 in other cases) are subject to a 3.8%
tax on all or a portion of their “net investment income,” which includes taxable
interest, dividends, and certain capital gains (generally including capital gain
distributions and capital gains realized on the sale of
shares).
This 3.8% tax also applies to all or a portion of the undistributed net
investment income of certain shareholders that are estates and
trusts.
Tax
Treatment of United States Holders - Medicare Tax
A
3.8% Medicare tax is currently imposed on net investment income earned by
certain individuals, estates, and trusts. “Net investment income,” for these
purposes, means investment income, including ordinary and Capital Gain Dividends
and net gains from taxable dispositions of Fund shares, reduced by the
deductions properly allocable to such income. In the case of an individual, the
tax will be imposed on the lesser of (1) the shareholder’s net investment
income, or (2) the amount by which the shareholder’s modified adjusted
gross income exceeds $250,000 (if the shareholder is married and filing jointly
or a surviving spouse), $125,000 (if the shareholder is married and filing
separately), or $200,000 (in any other case). This Medicare tax, if applicable,
is reported by you on, and paid with, your U.S. federal income tax
return.
Tax
Treatment of Non-U.S. Shareholders
The
foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts, and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Funds, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary
income.
Backup
Withholding
Each
Fund may be required to withhold 24% of certain payments to a shareholder unless
the shareholder has completed and submitted to the Fund a Form W-9 providing the
shareholder’s taxpayer identification number and certifying under penalties of
perjury: (a)(i) that such number is correct, (ii) that (A) the
shareholder is exempt from backup withholding, (B) the shareholder has not
been notified by the IRS that the shareholder is subject to backup withholding
as a result of an under-reporting of interest or dividends, or (C) the IRS
has notified the shareholder that the shareholder is no longer subject to backup
withholding, and (iii) the shareholder is a U.S. citizen or other U.S.
person (as defined in IRS Form W-9); or (b) an exception applies under
applicable law and Treasury regulations. Backup withholding is not an additional
tax, and any amounts withheld may be credited against a shareholder’s ultimate
U.S. federal income tax liability if proper documentation is provided. The Funds
reserve the right to refuse to open an account for any person failing to provide
a certified taxpayer identification number.
FATCA
and Similar Foreign Rules
The
Foreign Account Tax Compliance Act, (“FATCA”) provisions of the Code impose a
withholding tax of 30% on certain types of U.S. sourced income (e.g., dividends,
interest, and other types of passive income) paid, and will be required to
impose a 30% withholding tax on proceeds from the sale or other disposition of
property producing U.S. sourced income paid effective January 1, 2019 to (i)
foreign financial institutions (“FFIs”), including non-U.S. investment funds,
unless they agree to collect and disclose to the IRS information regarding their
direct and indirect U.S. account holders, and (ii) certain nonfinancial foreign
entities (“NFFEs”), unless they certify certain information regarding their
direct and indirect U.S. owners. FATCA withholding will apply to any shareholder
that does not properly certify its status as a U.S. person, or, in the case of a
non-U.S. shareholder, the basis for its exemption from FATCA
withholding.
If each Fund is required to withhold amounts from payments pursuant to FATCA,
investors will receive distributions that are reduced by such withholding
amounts.
To
implement FATCA, the U.S. government has entered into agreements with non-U.S.
governments (and is otherwise bound via automatic exchange of information
agreements in treaties) to provide reciprocal exchanges of taxpayer information
to non-U.S. governments. Each Fund will be required to perform due diligence
reviews to classify non-U.S. entity investors for FATCA purposes. Shareholders
agree to provide information necessary to allow the Funds to comply with the
FATCA and similar foreign rules.
THE
FUND’S PRINCIPAL UNDERWRITER AND DISTRIBUTOR
Quasar
Distributors, LLC (“Quasar” or the “Distributor”), is located at 3 Canal Plaza,
Suite 100, Portland, ME 04101. Quasar serves as the Funds’ principal underwriter
and distributor in a continuous public offering of the Funds’ shares pursuant to
a distribution agreement between the Funds and Quasar (the “Distribution
Agreement”). Shares of the Funds are continuously offered for sale by Quasar
only in Creation Units. Quasar will not distribute shares of the Funds in
amounts less than a Creation Unit. Quasar will deliver prospectuses and, upon
request, Statements of Additional Information to persons purchasing Creation
Units and will maintain records of orders placed with it. Quasar will also
provide certain administrative services pursuant to the Distribution Agreement.
Quasar is a registered broker-dealer under the Securities Exchange Act of 1934,
as amended, and is a member of FINRA.
The
Distributor may also enter into agreements with securities dealers (“Soliciting
Dealers”) who will solicit purchases of Creation Units of shares of the Funds.
Such Soliciting Dealers may also be Authorized Participants (as discussed in
“Procedures for Purchase of Creation Units” above) or DTC participants (as
defined above).
The
Distribution Agreement, with respect to each Fund, will continue for two years
from its effective date and is renewable annually thereafter. The continuance of
the Distribution Agreement must be specifically approved at least annually (i)
by the vote of the Trustees or by a vote of the shareholders of the Fund, and
(ii) by the vote of a majority of the Independent Trustees who have no direct or
indirect financial interest in the operations of the Distribution Agreement or
any related agreement, cast in person at a meeting called for the purpose of
voting on such approval. The Distribution Agreement is terminable without
penalty by the Trust on 60 days’ written notice when authorized either by
majority vote of its outstanding voting shares of the Fund or by a vote of a
majority of its Board (including a majority of the Independent Trustees), or by
the Distributor on 60 days’ written notice, and will automatically terminate in
the event of its assignment. The Distribution Agreement provides that in the
absence of willful misfeasance, bad faith, or gross negligence on the part of
the Distributor, or reckless disregard by it of its obligations thereunder, the
Distributor shall not be liable for any action or failure to act in accordance
with its duties thereunder.
Intermediary
Compensation.
The Adviser or its affiliates, out of their own resources and not out of Fund
assets (i.e., without additional cost to the Funds or their shareholders), may
pay certain broker dealers, banks, and other financial intermediaries
(“Intermediaries”) for certain activities related to the Funds, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange traded products, including the Funds, or for other
activities, such as marketing and educational training or support. These
arrangements are not financed by the Funds and, thus, do not result in increased
Fund expenses. They are not reflected in the fees and expenses listed in the
fees and expenses sections of the Funds’ Prospectus and they do not change the
price paid by investors for the purchase of
shares
of a Fund or the amount received by a shareholder as proceeds from the
redemption of shares. Such compensation may be paid to Intermediaries that
provide services to the Funds, including marketing and education support (such
as through conferences, webinars, and printed communications). The Adviser
periodically assess the advisability of continuing to make these payments.
Payments to an Intermediary may be significant to the Intermediary, and amounts
that Intermediaries pay to your adviser, broker, or other investment
professional, if any, may also be significant to such adviser, broker, or
investment professional. Because an Intermediary may make decisions about what
investment options it will make available or recommend, and what services to
provide in connection with various products, based on payments it receives or is
eligible to receive, such payments create conflicts of interest between the
Intermediary and its clients. For example, these financial incentives may cause
the Intermediary to recommend the Funds over other investments. The same
conflict of interest exists with respect to your financial adviser, broker, or
investment professional if he or she receives similar payments from his or her
Intermediary firm.
Intermediary
information is current only as of the date of this SAI. Please contact your
adviser, broker, or other investment professional for more information regarding
any payments his or her Intermediary firm may receive. Any payments made by the
Adviser or its affiliates to an Intermediary may create the incentive for an
Intermediary to encourage customers to buy shares of the Funds.
Distribution
Plan
As
noted in the Prospectus, each Fund has adopted a Distribution Plan (the “Plan”)
pursuant to Rule 12b-1 under the 1940 Act under which the Fund pays the
Distributor an amount which is accrued daily and paid quarterly.
Under
the Plan, the Trustees will be furnished quarterly with information detailing
the amount of expenses paid under the Plan and the purposes for which payments
were made. The Plan may be terminated at any time by vote of a majority of the
Trustees of the Trust who are not interested persons. Continuation of the Plan
is considered by such Trustees no less frequently than annually. With the
exception of the Distributor and the Adviser, in their capacities as the Funds’
principal underwriter and distribution coordinator, respectively, no interested
person has or had a direct or indirect financial interest in the Plan or any
related agreement.
The
Plan provides that each Fund pays the Distributor an annual fee of up to a
maximum of 0.25% of the average daily net assets of the shares. Under the Plan,
the Distributor may make payments pursuant to written agreements to financial
institutions and intermediaries such as banks, savings and loan associations,
and insurance companies including, without limit, investment counselors,
broker-dealers, and the Distributor’s affiliates and subsidiaries (collectively,
“Agents”) as compensation for services and reimbursement of expenses incurred in
connection with distribution assistance. The Plan is characterized as a
compensation plan since the distribution fee will be paid to the Distributor
without regard to the distribution expenses incurred by the Distributor or the
amount of payments made to other financial institutions and intermediaries. The
Trust intends to operate the Plan in accordance with its terms and with the
FINRA rules concerning sales charges.
Under
the Plan, subject to the limitations of applicable law and regulations, each
Fund is authorized to compensate the Distributor up to the maximum amount to
finance any activity primarily intended to result in the sale of Creation Units
of the Fund or for providing or arranging for others to provide shareholder
services and for the maintenance of shareholder accounts. Such activities may
include, but are not limited to: (i) delivering copies of the Fund’s then
current reports, prospectuses, notices, and similar materials, to
prospective
purchasers of Creation Units; (ii) marketing and promotional services, including
advertising; (iii) paying the costs of and compensating others, including
Authorized Participants (as discussed in “Procedures for Purchase of Creation
Units” above) with whom the Distributor has entered into written Authorized
Participant Agreements, for performing shareholder servicing on behalf of the
Fund; (iv) compensating certain Authorized Participants for providing assistance
in distributing the Creation Units of the Fund, including the travel and
communication expenses and salaries and/or commissions of sales personnel in
connection with the distribution of the Creation Units of the Fund; (v) payments
to financial institutions and intermediaries such as banks, savings and loan
associations, insurance companies and investment counselors, broker-dealers,
mutual fund supermarkets, and the affiliates and subsidiaries of the Trust’s
service providers as compensation for services or reimbursement of expenses
incurred in connection with distribution assistance; (vi) facilitating
communications with beneficial owners of shares, including the cost of providing
(or paying others to provide) services to beneficial owners of shares,
including, but not limited to, assistance in answering inquiries related to
shareholder accounts; and (vii) such other services and obligations as are set
forth in the Distribution Agreement.
While
there is no assurance that the expenditures of a Fund’s assets to finance
distribution of the Fund will have the anticipated results, the Board believes
there is a reasonable likelihood that one or more of such benefits will result,
and because the Board is in a position to monitor the distribution expenses, it
is able to determine the benefit of such expenditures in deciding whether to
continue the Plan.
As
of the date of this SAI, the Plan had not yet been implemented, and there are no
current plans to impose these fees.
Securities
Lending
The
Trust, on behalf of the Funds, may enter into a securities lending agreement
with U.S. Bank (the “Securities Lending Agent”) to provide certain services
related to the Funds’ securities lending program. Pursuant to the securities
lending agreement, the Securities Lending Agent, on behalf of the Funds, will be
authorized to enter into securities loan agreements, negotiate loan fees and
rebate payments, collect loan fees, deliver securities, manage and hold
collateral, invest cash collateral, receive substitute payments, make interest
and dividend payments (in cases where a borrower has provided non-cash
collateral), and upon termination of a loan, liquidate collateral investments
and return collateral to the borrower.
The
Funds have not engaged in any securities lending activities and has not received
any income related to securities lending activities.
As
of the date of this SAI, the Securities Lending Agent has not provided any
services to the Funds or received any fees or compensation from the Funds
related to the securities lending program.
FINANCIAL
STATEMENTS
The
audited financial statements and financial highlights of the Funds for the
fiscal year ended August 31, 2023, as set forth in the Funds’ Annual Reports
(Panagram
AAA CLO ETF Annual Report
and Panagram
BBB-B CLO ETF Annual Report)
to shareholders, including the notes thereto and the report of the registered
public accounting firm, are incorporated by reference into this SAI. You can
obtain a copy of the financial statements contained in the Funds’ Annual or
Semi-Annual Reports without charge by calling the Funds toll-free
800-617-0004.
APPENDIX
A
Panagram
Structured Asset Management, LLC
PROXY
VOTING
AND
CLASS
ACTIONS
Most
Recently
Revised:
October
2023
Background
and General Policy
In
accordance with its fiduciary duty to Clients and Rule 206(4)-6 under the
Advisers Act, Panagram has adopted and implemented these written policies and
procedures governing the voting of proxies relating to securities held by its
Clients. Each investment adviser registered under the Advisers Act has a
fiduciary duty to act solely in the best interests of its Clients.
Given
the nature of the securities in which Panagram invests on behalf of its Clients,
occasions for proxy voting are not regularly expected to arise. Panagram may
receive amendment or consent requests for securities held in a Client’s
portfolio. It is Panagram’s general policy to exercise a Client’s voting or
consent rights in a manner that is in accordance with the proxy voting
instructions conveyed by the Client with respect to that Client’s securities, to
the extent any such proxy voting instructions exist, and serves the best
interests of the Client.
Procedures
Proxy
Voting
Panagram’s
Investment Committee is responsible for reviewing and approving the voting
instructions in accordance with each Client’s investment guidelines and/or proxy
voting instructions (if any), and Panagram’s fiduciary duty.
Panagram
may occasionally be subject to material conflicts of interest in exercising
these rights due to business or personal relationships that Panagram maintains
with persons having an interest in the outcome of certain matters, i.e.,
Panagram may advise or manage assets for an affiliated fund, as well as
third-party Client, who both own securities in the same issuer, but in different
tranches. A conflict of interest shall be deemed to occur when Panagram, the
Clients’ principal underwriters, or an affiliated person of Panagram or a
principal underwriter has a financial interest in a matter presented by a proxy
to be voted on behalf of a Client, which may compromise Panagram’s independence
of judgment and action in voting the proxy.
Access
Persons must notify Compliance if they are aware of any potential conflict of
interest associated with a proxy. Compliance will review the issue(s) creating
the conflict and determine what action should be taken to resolve the conflict
in a way that will maximize the value of Clients’ assets and will not
disadvantage any third- party Client over an affiliated Client or
fund.
If
there is a material conflict of interest affecting an Investment Company that
Panagram advises, that cannot be resolved pursuant to Panagram’s proxy voting
policies and procedures and in consultation with Panagram’s CCO and counsel, the
CCO will notify the relevant Investment Company’s Board and request their
consent in Panagram exercising the vote.
To
enable an Investment Company’s Board to make an informed decision regarding the
vote, disclosure to the Board shall include sufficient detail regarding the
matter and the nature of the conflict. If the Board does not respond to the
conflict disclosure request or denies the request, Panagram shall abstain from
voting the securities held by the Client.
Proxy
Reporting
At
least annually, Panagram shall present its proxy voting policies and procedures
to the Board of each Investment Company it advises for the Board’s review, along
with a record of each proxy voted with respect to portfolio securities held by
the Client during the year. With respect to those proxies that Panagram has
identified as involving a conflict of interest, Panagram shall submit a report
indicating the nature of the conflict of interest and how that conflict was
resolved with respect to the voting of the proxy. In addition, Panagram shall
notify the Board promptly of material changes to Panagram’s proxy voting
policies and procedures.
Rule
30b1-4 under the Investment Company Act requires a registered investment company
to file an annual report on Form N-PX no later than August 31 of each year that
contains the registered investment company’s proxy voting record for the most
recent twelve-month period ended June 30. Panagram is required to ensure that
voting records necessary for the completion and filing of Form N-PX are timely
provided to the administrator of each Investment Company at least annually. With
respect to proxies that Panagram has identified as involving a conflict of
interest, Panagram shall submit a report indicating the nature of the conflict
of interest and how that conflict was resolved with respect to the voting of the
proxy.
Recordkeeping
Compliance
will maintain a proxy voting log and will ensure that Panagram complies with all
applicable recordkeeping requirements associated with proxy voting in accordance
with Rule 204-2 under the Advisers Act.
Class
Actions
Panagram
does not direct Clients’ participation in class actions.
Disclosures
to Clients and Investors
Compliance
will maintain documentation relating to each proxy-related conflict of interest
and its resolution and will ensure that Panagram complies with all applicable
recordkeeping requirements. As a matter of policy, Panagram does not disclose
how it expects to vote on upcoming proxies and does not disclose the way it
voted proxies to unaffiliated third parties without a legitimate need to know
such information.
Panagram
includes a description of its policies and procedures regarding proxy voting in
Part 2A of Form ADV, along with a statement that Clients and Investors can
contact the CCO to obtain a copy of these policies and procedures and
information about how Panagram voted with respect to the Client’s
securities.
Any
request for information about proxy voting should be promptly forwarded to the
CCO, who will respond to any such requests.
