As a Fund shareholder, you may incur two types of costs: (1) transaction costs, including commissions on trading, as applicable; and (2) a unified management fee. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

 

The expense examples below are based on an investment of $1,000 invested at May 1, 2022 and held through the period ended October 31, 2022.

 

The Actual Expense figures in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.

The Hypothetical Expense figures in the table below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

 

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the examples are useful in comparing ongoing costs only and will not help you determine the relative total cost of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

 

Portfolio of Investments

 

Shares						Value
Exchange-Traded Funds — 76.7%
	339,176			Communication Services Select Sector SPDR Fund ETF		$	16,351,675
	207,954			Consumer Discretionary Select Sector SPDR Fund ETF			29,951,615
	267,390			Consumer Staples Select Sector SPDR Fund ETF			19,449,949
	171,460			Energy Select Sector SPDR Fund ETF			15,431,400
	753,205			Financial Select Sector SPDR Fund ETF			25,593,906
	215,984			Health Care Select Sector SPDR Fund ETF			28,671,876
	116,295			Industrial Select Sector SPDR Fund ETF			10,972,433
	82,907			Materials Select Sector SPDR Fund ETF			6,141,751
	142,475			Real Estate Select Sector SPDR Fund ETF			5,233,107
	310,931			SPDR S&P 500 ETF Trust			120,084,661
	512,934			Technology Select Sector SPDR Fund ETF			65,588,870
	78,669			Utilities Select Sector SPDR Fund ETF			5,253,516
	13,294			Vanguard Consumer Staples ETF			2,498,740
Total Exchange-Traded Funds (Cost $343,004,730)						$	351,223,499
Total Investments — 76.7% (Cost $343,004,730)						$	351,223,499
Other Assets less Liabilities — 23.3%							106,668,828
Net Assets — 100.0%						$	457,892,327

 

ETF — Exchange-Traded Fund

 

S&P — Standard and Poor’s

 

SPDR — Standard and Poor’s Depositary Receipts

 

 

Portfolio of Investments

 

Shares						Value
Exchange-Traded Funds — 76.6%
	63,720			SPDR Bloomberg Investment Grade Floating Rate ETF		$	1,931,990
	56,266			SPDR Portfolio Corporate Bond ETF			1,543,376
	103,838			SPDR Portfolio High Yield Bond ETF			2,322,856
	171,863			SPDR Portfolio Long Term Treasury ETF			4,810,446
	165,382			SPDR Portfolio Mortgage Backed Bond ETF			3,494,522
	29,412			Vanguard Emerging Markets Government Bond ETF			1,683,249
	60,120			Vanguard Short-Term Inflation-Protected Securities ETF			2,870,730
	66,814			Vanguard Total International Bond ETF			3,203,063
Total Exchange-Traded Funds (Cost $23,792,088)						$	21,860,232
Total Investments — 76.6% (Cost $23,792,088)						$	21,860,232
Other Assets less Liabilities — 23.4%							6,681,747
Net Assets — 100.0%						$	28,541,979

 

ETF — Exchange-Traded Fund

 

SPDR — Standard and Poor’s Depositary Receipts

 

 

Portfolio of Investments

 

Shares						Value
Exchange-Traded Funds — 75.7%
	15,756			Franklin FTSE Australia ETF		$	388,385
	11,986			Franklin FTSE Brazil ETF			239,054
	23,608			Franklin FTSE Canada ETF			711,297
	52,849			Franklin FTSE China ETF			751,777
	23,010			Franklin FTSE France ETF			551,320
	11,154			Franklin FTSE Germany ETF			189,060
	12,851			Franklin FTSE Hong Kong ETF			217,567
	7,378			Franklin FTSE India ETF			217,899
	45,019			Franklin FTSE Japan ETF			996,721
	14,044			Franklin FTSE South Korea ETF			254,812
	19,747			Franklin FTSE Switzerland ETF			536,988
	26,998			Franklin FTSE United Kingdom ETF			566,823
Total Exchange-Traded Funds (Cost $6,086,689)						$	5,621,703
Total Investments — 75.7% (Cost $6,086,689)						$	5,621,703
Other Assets less Liabilities — 24.3%							1,806,233
Net Assets — 100.0%						$	7,427,936

 

ETF — Exchange-Traded Fund

 

FTSE — Financial Times Stock Exchange

 

 

 

 

 

 

 

 

 

 

 

 

(1) Organization

 

Strategy Shares (the “Trust”) was organized on September 7, 2010 as a Delaware statutory trust. The Trust is registered under the Investment Company Act of 1940 (the “1940 Act”), as an open-end management investment company. The Declaration of Trust permits the Trust to issue an unlimited number of shares of beneficial interest (“Shares”) in one or more series representing interests in separate portfolios of securities. Currently, the Trust offers its Shares in eight separate series. The accompanying Financial Statements relate to the following series: Day Hagan/Ned Davis Research Smart Sector ETF (SSUS), Day Hagan/Ned Davis Research Smart Sector Fixed Income ETF (SSFI) and Day Hagan/Ned Davis Research Smart Sector International ETF (SSXU) (individually referred to as a “Fund,” or collectively as the “Funds”). Each Fund is classified as non-diversified under the 1940 Act and is an actively-managed exchange- traded fund. The investment objective of the Day Hagan/Ned Davis Research Smart Sector ETF is to seek long-term capital appreciation and preservation of capital. The investment objective of each of the Day Hagan/Ned Davis Research Smart Sector Fixed Income ETF and the Day Hagan/Ned Davis Research Smart Sector International ETF is to seek total return, consisting of income and capital appreciation. The Funds’ prospectuses provide a description of each Fund’s investment objectives, policies, and strategies. The assets of each Fund are segregated and a shareholder’s interest is limited to the Fund in which shares are held.

 

The Day Hagan/Ned Davis Research Smart Sector ETF commenced operations on January 16, 2020. The Day Hagan/Ned Davis Research Smart Sector Fixed Income ETF commenced operations on September 28, 2021. The Day Hagan/Ned Davis Research Smart Sector International ETF commenced operations on July 1, 2022. Shares of each Fund are listed and traded on the NYSE Arca, Inc. Market prices for the Shares may be different from their net asset value (“NAV”). Each Fund issues and redeems Shares on a continuous basis at NAV only in large blocks, currently 25,000 Shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified universe. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in amounts less than a Creation Unit.

 

Under the Trust’s organizational documents, its officers and Board of Trustees (“the Board”) are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Trust may enter into contracts with vendors and others that provide for general indemnifications. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust. However, based on experience, the Trust expects that risk of loss to be remote.

 

(2) Significant Accounting Policies

 

The following is a summary of significant accounting policies consistently followed by each Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Each Fund is an investment company and accordingly follows the investment

company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

 

A. Investment Valuations

 

The Funds hold investments at fair value. Fair value is defined as the price that would be expected to be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation techniques used to determine fair value are further described below.

 

Security values are ordinarily obtained through the use of independent pricing services in accordance with procedures approved by the Trust’s Board. Pursuant to these procedures, the Funds may use a pricing service, bank, or broker-dealer experienced in such matters to value the Funds’ securities. When reliable market quotations are not readily available for any security, the fair value of that security will be determined in accordance with procedures approved by the Board. The fair valuation process is designed to value the subject security at the price the Funds would reasonably expect to receive upon its current sale. Additional consideration is given to securities that have experienced a decrease in the volume or level of activity or to circumstances that indicate that a transaction is not orderly.

 

The Trust has a three- tier fair value hierarchy that is dependent upon the various “inputs” used to determine the value of the Funds’ investments. The valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. These inputs are summarized in the three broad levels listed below:

 

●

Level 1 – Quoted prices in active markets for identical assets.

 

●

Level 2 – Other observable pricing inputs at the measurement date (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).

 

●

Level 3 – Significant unobservable pricing inputs at the measurement date (including the Fund’s own assumptions in determining the fair value of investments).

 

The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments.

 

Equity securities (including foreign equity securities) traded on a securities exchange are valued at the last reported sales price on the principal exchange, except that equity securities traded on the Nasdaq Stock Market (“Nasdaq”) are valued at the Nasdaq official closing price. If there is no reported sale on the principal exchange, and in the case of over-the-counter securities, equity securities are valued at the mean of the quoted bid and asked prices. In each of these situations, valuations are typically categorized as Level 1 in the fair value hierarchy.

 

 

Debt securities traded on a national securities exchange or in the over-the-counter market are valued at the last reported sales price on the principal exchange. If there is no reported sale on the principal exchange, and for all other debt securities, debt securities are valued at a price supplied by a security pricing service. In each of these situations, valuations are typically categorized as Level 2 in the fair value hierarchy.

 

The following table provides the fair value measurement as of October 31, 2022.

 

						Total
Fund		Level 1				Investments
Day Hagan/Ned Davis Research Smart Sector ETF (SUSS)
Exchange-Traded Funds		$	351,223,499			$	351,223,499
Total Investments		$	351,223,499			$	351,223,499
Day Hagan/Ned Davis Research Smart Sector Fixed Income ETF (SSFI)
Exchange-Traded Funds			21,860,232				21,860,232
Total Investments		$	21,860,232			$	21,860,232
Day Hagan/Ned Davis Research Smart Sector International ETF (SSXU)
Exchange-Traded Funds			5,621,703				5,621,703
Total Investments		$	5,621,703			$	5,621,703

 

For the period ended October 31, 2022, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.

 

B. Security Transactions and Related Income

 

Investment transactions are accounted for no later than the first calculation of the NAV on the business day following the trade date. For financial reporting purposes, however, security transactions are accounted for on the trade date on the last business day of the reporting period. Discounts and premiums on securities purchased are amortized over the lives of the respective securities using the effective interest method. Securities gains and losses are calculated on the identified cost basis. Interest income and expenses are accrued daily. Dividends, less foreign tax withholding, if any, are recorded on the ex-dividend date. Investment income from non-U.S. sources received by the Fund is generally subject to non-U.S. withholding taxes at rates ranging up to 30%. Such withholding taxes may be reduced or eliminated under the terms of applicable U.S. income tax treaties. The Funds may be subject to foreign taxes on gains in investments or currency repatriation. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.

 

C. Cash and Cash Equivalents

 

Idle cash may be swept into various overnight demand deposits and is classified as cash and cash equivalents on the Statement of Assets and Liabilities. The Funds maintain cash in bank deposit accounts which, at times, may exceed United States federally insured limits. Amounts swept overnight are available on the next business day.

D. Dividends and Distributions to Shareholders

 

Dividends to shareholders are recorded on the ex-dividend date. For the Day Hagan/Ned Davis Research Smart Sector ETF, dividends from net investment income, if any, are declared and paid annually. For the Day Hagan/Ned Davis Research Smart Sector Fixed Income ETF, and Day Hagan/Ned Davis Research Smart Sector International ETF, dividends from net investment income, if any, are declared and paid quarterly. Net realized capital gains, if any, are distributed at least annually.

 

The amount of dividends from net investment income and net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are considered either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., distributions and income received from pass-through investments, differing treatment of income relating to swap agreements), such amounts are reclassified within the capital accounts based on their nature for federal income tax purposes; temporary differences do not require reclassification. Temporary differences are primarily due to wash sales and differing treatment on certain investments. To the extent dividends and distributions exceed net investment income and net realized gains for tax purposes, they are reported as distribution of capital.

 

E. Allocation of Expenses

 

Expenses directly attributable to a Fund are charged to that Fund. Expenses not directly attributable to a Fund are allocated proportionally among all series of the Trust in relation to the net assets of each series or on another reasonable basis. The Trust may share expenses with Mutual Fund and Variable Insurance Trust, an open-end management investment company managed by Rational Advisors, Inc. Those expenses that are shared are allocated proportionally among each of the trusts or on another reasonable basis.

 

(3) Investment Advisory and Other Contractual Services

 

A. Investment Advisory Fees

 

Donald L. Hagan, LLC, doing business as Day Hagan Asset Management (the “Advisor”), serves as the Funds’ investment advisor pursuant to a Management Agreement. Subject at all times to the oversight of the Board, the Advisor is responsible for the overall management of the Funds. The Trust has arranged for distribution, custody, fund administration, transfer agency and all other services necessary for the Funds to operate. Each Fund pays 0.68% of its average daily net assets, computed daily and paid monthly, for advisory services it receives from the Advisor. These fees are each structured as a “Unified Fee,” pursuant to which the Advisor is obligated to pay or arrange for the payment of substantially all expenses of the Funds (including, without limitation, transfer agent fees, administrative fees and expenses, custodian fees, legal fees, accounting fees, any other expenses (including clerical expenses) of issue, sale, repurchase or redemption of shares, expenses of registering or qualifying shares for sale, transfer taxes, all expenses of preparing the Trust’s registration statements and prospectuses for the Funds, and the cost of printing and delivering to shareholders prospectuses and reports), except the Funds’ management fee; taxes; brokerage commissions and trading costs; interest (including borrowing costs and overdraft charges); short sale dividends and interest expenses; acquired fund fees and expenses; and non-routine

 

 

or extraordinary expenses of the Funds (such as litigation or reorganizational costs), each of which is paid by the Funds. The Advisor’s Unified Fee is designed to cause substantially all of each Fund’s expenses to be paid and to compensate the Advisor for providing services for the Funds.

 

B. Distribution and Shareholder Services Fees

 

Foreside Fund Services, LLC (the “Distributor”) is the principal underwriter and distributor of each Fund’s Shares. The Distributor is compensated by the Advisor in accordance with a Distribution Services Agreement between the Advisor and the Distributor. The Trust has adopted but has yet to implement a Rule 12b-1 Distribution Plan (the “Plan”). The Plan is designed to compensate or reimburse financial intermediaries (including the Distributor, the Advisor, and their affiliates) for activities principally intended to result in the sale of Fund shares, such as advertising and marketing of shares (including printing and disseminating prospectuses and sales literature to prospective shareholders and financial intermediaries) and providing incentives to financial intermediaries to sell shares. The Plan is also designed to cover the cost of administrative services performed in conjunction with the sale of shares, including, but not limited to, shareholder services, recordkeeping services and educational services, as well as the costs of implementing and operating the Plan. In accordance with the Plan, the Distributor may enter into agreements with financial intermediaries and dealers relating to distribution and/or marketing services with respect to the Funds. Pursuant to the Plan, each Fund may pay a 12b-1 fee not to exceed 0.25% per year of its average daily net assets. No 12b-1 fee is currently paid by the Funds and the Board has not approved any payments under the Plan.

 

(4) Investment Transactions

 

Purchases and sales of investments, excluding in -kind transactions and short-term investments, for the period ended October 31, 2022 were as follows:

 

Fund		Purchases				Sales
Day Hagan/Ned Davis Research Smart Sector ETF		$	428,010,015			$	526,330,416
Day Hagan/Ned Davis Research Smart Sector Fixed Income ETF			25,209,140				22,070,251
Day Hagan/Ned Davis Research Smart Sector International ETF			450,310				1,232,342

 

Purchases and sales of in-kind transactions for the period ended October 31, 2022 were as follows:

 

Fund		Purchases				Sales
Day Hagan/Ned Davis Research Smart Sector ETF		$	56,559,483			$	39,714,360
Day Hagan/Ned Davis Research Smart Sector Fixed Income ETF			5,356,763				405,541
Day Hagan/Ned Davis Research Smart Sector International ETF			6,905,008				—

 

(5) Capital Share Transactions

 

Shares are issued and redeemed by each Fund only in aggregations of a specified number of shares or multiples thereof at net asset value. Except when aggregated in Creation Units, shares of each Fund are not redeemable. Transactions in shares for each Fund are disclosed in detail on the Statements of Changes in Net Assets.

The consideration for the purchase of Creation Units of a Fund generally consists of the in-kind deposit of a designated basket of securities, which constitutes an optimized representation of the securities of that Fund’s specified universe, and an amount of cash. Investors purchasing and redeeming Creation Units may be charged a transaction fee to cover the transfer and other transactional costs it incurs to issue or redeem Creation Units. The standard charge and maximum transaction fee for each Fund are $250 and $1,000, respectively.

 

From time to time, settlement of securities related to subscriptions-in-kind or redemptions-in-kind may be delayed. In such cases, securities related to in-kind contributions are reflected as “Due from custodian” and securities related to in-kind redemptions are reflected as “Securities payable related to in-kind transactions” on the Statements of Assets and Liabilities.

 

During the period ended October 31, 2022, the Fund received securities in exchange for subscriptions of capital shares (subscriptions-in-kind) and distributed securities in exchange for redemptions (redemptions-in-kind) as follows:

 

		Fair Value of				Fair Value of
Fund		Subscriptions-in-Kind				Redemptions-in-Kind
Day Hagan/Ned Davis Research Smart Sector ETF		$	56,559,483			$	39,714,360
Day Hagan/Ned Davis Research Smart Sector Fixed Income ETF			5,356,763				405,541
Day Hagan/Ned Davis Research Smart Sector International ETF			6,905,008				—

 

(6) Federal Income Taxes

 

It is the policy of each Fund to qualify or continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized capital gains sufficient to relieve it from all, or substantially all, federal income taxes.

 

The Trust has evaluated tax positions taken or expected to be taken in the course of preparing each Fund’s tax returns to determine whether it is more-likely-than not (i.e., greater than 50-percent chance) that each tax position will be sustained upon examination by a taxing authority based on the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in an increase in a liability for taxes payable (or a reduction of a tax refund receivable), including the recognition of any related interest and penalties as an operating expense. Tax positions taken in tax years remain subject to examination by tax authorities (generally three years plus the interim tax period since then for federal income tax purposes). The determination has been made that there are not any uncertain tax positions that would require the Funds to record a tax liability and, therefore, there is no impact to the Funds’ financial statements. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense on the Statements of Operations. During the period ended October 31, 2022, the Funds did not incur any interest or penalties. The tax year end for the Funds is April 30.

 

 

 

 

(7) Investment Risks

 

This section discusses certain common principal risks encountered by the Funds. Each Fund may be subject to other risks in addition to these identified risks. The risks are presented in an order intended to facilitate readability, and their order does not imply that the realization of one risk is likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.

 

ETF Risk

 

The NAV of a Fund can fluctuate up or down, and you could lose money investing in a Fund if the prices of the securities owned by the Fund decline. In addition, a Fund may be subject to the following risks: (1) the market price of a Fund’s shares may trade above or below its NAV; (2) an active trading market for a Fund’s shares may not develop or be maintained; or (3) trading of a Fund’s shares may be halted if the listing exchange’s officials deem such action appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.

 

Market Risk

 

Overall market risks may also affect the value of the Funds. The market values of securities or other investments owned by the Funds will go up or down, sometimes rapidly or unpredictably. Factors such as economic growth and market conditions, interest rate levels, exchange rates and political events affect the securities markets. Changes in market conditions and interest rates generally do not have the same impact on all types of securities and instruments. Unexpected local, regional or global events and their aftermath, such as war; acts of terrorism; financial, political or social disruptions; natural, environmental or manmade disasters; the spread of infectious illnesses or other public health issues; recessions and depressions; or other tragedies, catastrophes and events could have a significant impact on the Funds and their investments and could result in increased premiums or discounts to the Funds’ net asset values, and may impair market liquidity, thereby increasing liquidity risk. Such

events can cause investor fear and panic, which can adversely affect the economies of many companies, sectors, nations, regions and the market in general, in ways that cannot necessarily be foreseen. The Funds could lose money over short periods due to short-term market movements and over longer periods during more prolonged market downturns. During a general market downturn, multiple asset classes may be negatively affected. In times of severe market disruptions you could lose your entire investment.

 

The global outbreak of the novel coronavirus disease, known as COVID-19, has caused adverse effects on many companies, sectors, nations, regions and the markets in general, and may continue for an unpredictable duration. The effects of this pandemic may materially impact the value and performance of the Funds, their ability to buy and sell fund investments at appropriate valuations and their ability to achieve their investment objective(s).

 

Underlying Fund Risk

 

The ETFs in which the Funds invest are subject to investment advisory and other expenses, which will be indirectly paid by the Funds. As a result, the cost of investing in the Funds will be higher than the cost of investing directly in the ETFs and may be higher than other funds that invest directly in stocks and bonds. Each of the ETFs is subject to its own specific risks.

 

As of October 31, 2022, 26.23% of the Day Hagan/Ned Davis Research Smart Sector ETF’s net assets were invested in the SPDR S&P 500 ETF Trust. The financial statements of the SPDR S&P 500 ETF Trust, including its portfolio of investments, can be found at the SEC’s website www.sec.gov and should be read in conjunction with the Day Hagan/Ned Davis Research Smart Sector ETF’s financial statements.

 

(8) Subsequent Events

 

Management of the Funds has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date these financial statements were issued. Based upon this evaluation, no additional disclosures or adjustments were required to the financial statements as of October 31, 2022.