STATEMENT
OF ADDITIONAL INFORMATION
March
1, 2008
The
Ziegler Exchange Traded Trust (the “Trust”) is an investment company offering
professionally managed investment portfolios. This Statement of Additional
Information (“SAI”) relates to shares of the Trust’s only existing portfolio,
the NYSE Arca Tech 100 ETF (the “ETF”).
This
SAI
is not a prospectus. It should be read in conjunction with the ETF’s Prospectus,
dated March 1, 2008 (the “Prospectus”). To obtain, without charge, copies of the
ETF’s Prospectus please call 1-888-798-TECH (8324). This SAI provides details
about the ETF that are not required to be included in the Prospectus, and should
be viewed as a supplement to, and not as a substitute for, the Prospectus.
Capitalized terms not otherwise defined in this SAI have the meanings ascribed
to them in the Prospectus.
The
financial statements of the ETF as of, and for the fiscal year ended October
31,
2007 and the report of the independent registered public accounting firm
thereon, are incorporated by reference into this SAI from the ETF’s Annual
Report to Shareholders for the fiscal period ended October 31, 2007. See
"Financial Statements." A copy of the ETF's Annual Report to Shareholders may
be
obtained without charge by calling the ETF (toll-free) at
1-888-798-TECH
(8324).
TABLE
OF CONTENTS
|
|
|
|
Page
|
|
|
GENERAL
INFORMATION ABOUT THE TRUST AND ETF
|
|
|
3
|
|
|
INVESTMENT
POLICIES AND STRATEGIES
|
|
|
4
|
|
|
INVESTMENT
RESTRICTIONS
|
|
|
17
|
|
|
EXCHANGE-TRADED
FUND RISKS
|
|
|
19
|
|
|
DESCRIPTION
OF THE NYSE ARCA TECH 100 INDEX
|
|
|
21
|
|
|
PORTFOLIO
TRANSACTIONS
|
|
|
25
|
|
|
VALUATION
|
|
|
27
|
|
|
BUYING
AND SELLING INFORMATION
|
|
|
28
|
|
|
MANAGEMENT
OF THE TRUST
|
|
|
37
|
|
|
INVESTMENT
ADVISORY SERVICES
|
|
|
42
|
|
|
PORTFOLIO
MANAGEMENT
|
|
|
43
|
|
|
DISTRIBUTION
SERVICES
|
|
|
45
|
|
|
TRANSFER
AGENCY, CUSTODIAN, ADMINISTRATIVE, ACCOUNTING/PRICING AND ORDER
TAKING
AGREEMENTS
|
|
|
48
|
|
|
PROXY
VOTING GUIDELINES
|
|
|
49
|
|
|
DIVIDENDS,
DISTRIBUTIONS AND TAXES
|
|
|
49
|
|
|
CONTROL
PERSONS AND PRINCIPAL HOLDERS OF ETF SHARES
|
|
|
52
|
|
|
OTHER
INFORMATION
|
|
|
53
|
|
|
INDEX
PROVIDER
|
|
|
57
|
|
|
COUNSEL
|
|
|
57
|
|
|
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
|
|
|
58
|
|
|
FINANCIAL
STATEMENTS
|
|
|
58
|
|
GENERAL
INFORMATION ABOUT THE TRUST AND ETF
The
Ziegler Exchange Traded Trust, a diversified, open-end management investment
company (the “Trust”), was organized as a Delaware statutory trust on July 13,
2005. Currently the Trust has one existing portfolio, the NYSE Arca Tech 100
ETF
(the “ETF”). Additional portfolios of the Trust and/or classes of shares may be
created from time to time. The ETF has its own assets and liabilities. All
payments received by the Trust for shares of the ETF belong to the ETF. Each
additional portfolio of the Trust will have its own assets and liabilities,
and
any payments received by the Trust for shares of such portfolio will belong
to
such portfolio.
The
ETF
is an exchange-traded fund that seeks to provide investment results that closely
correspond to the performance of the NYSE Arca Tech 100 Index
SM
(the
“Index”), a price-weighted index comprised of stocks and American Depository
Receipts (“ADRs”) of companies listed on NYSE Arca, Inc. (“NYSE
Arca”
SM
),
The
American Stock Exchange (“AMEX”), the New York Stock Exchange, Inc. (“NYSE”) or
The Nasdaq Stock Market, Inc. (“Nasdaq”). The ETF issues and redeems shares on a
continuous basis at net asset value (“NAV”) in aggregations of a specific number
of shares called “Creation Units.” Creation Units generally are issued in
exchange for a basket of securities included in the ETF’s Index (“Portfolio
Securities”), together with the deposit of a specific cash payment. Shares of
the ETF are also listed on NYSE Arca, a wholly owned subsidiary of Archipelago
Holdings, Inc. (“Archipelago”), and traded on NYSE Arca, L.L.C. (the “NYSE Arca
Marketplace”®). Shares trade on the NYSE Arca Marketplace at market prices that
may be below, at or above the NAV. Shares are not individually redeemable,
but
are redeemable only in Creation Unit aggregations, and generally only in
exchange for portfolio securities and a specified cash payment. A Creation
Unit
of the ETF consists of a block of 50,000 shares. Retail investors, therefore,
generally are not able to purchase or redeem shares directly with or from the
ETF. Instead, most retail investors buy and sell shares in the secondary market
through a broker.
While
the
Trust typically sells and redeems Creation Units solely in in-kind transactions
(exchanging Creation Units for a basket of designated securities), the Trust
reserves the right to offer an “all cash” option for creations and redemptions
of Creation Units, whereby purchases and redemptions would be made solely in
cash in lieu of a basket of designated securities. In addition, Creation Units
may be issued in advance of receipt of Portfolio Securities subject to various
conditions, including a requirement to maintain a cash deposit with the Trust
at
least equal to
115%
of
the
market value of the missing Portfolio Securities. In each instance, transaction
fees may be imposed that are higher than the transaction fees associated with
traditional in-kind creations or redemptions. See the “Buying and Selling
Information” section for detailed information.
INVESTMENT
POLICIES AND STRATEGIES
The
ETF’s
investment objective is to provide a return, before operating fees or expenses
of the ETF are deducted, that closely corresponds to the return of the Index.
Additional information concerning the ETF’s investment objective and principal
investment strategies is contained in the Prospectus.
The
ETF
seeks to achieve its objective by investing in the equity securities that
comprise the Index. The ETF uses a “replication” strategy to try to track the
Index. “Replication” refers to investing in substantially all of the securities
in the Index in approximately the same proportions as in the Index.
The
following policies and strategies supplement those set forth in the Prospectus
and should be read in conjunction with the Prospectus. The investment policies
and strategies of the ETF discussed below and in the Prospectus may be used
by
the ETF if, in the opinion of the ETF’s investment advisor, Ziegler Capital
Management, LLC (the “Advisor”), these policies and strategies will be
advantageous to the ETF. These policies and strategies are not fundamental
and
may be changed without shareholder approval. There is no assurance that any
of
these policies or strategies will result in the achievement of the ETF’s
objectives.
Unless
otherwise noted, whenever an investment policy or strategy states a maximum
percentage of the ETF’s assets that may be invested in any security or other
asset, or sets forth a policy regarding quality standards, such standard or
percentage limitation will be determined immediately after and as a result
of
the ETF’s acquisition of such security or other asset. Accordingly, any
subsequent change in values, net assets or other circumstances will not be
considered when determining whether the investment complies with the ETF’s
investment policies and limitations.
Options.
To
the
extent consistent with its investment objectives, the ETF may employ options
strategies with respect to uncommitted cash in order to enhance
return.
The
ETF
may buy or sell put and call options on the Nasdaq 100 Index, the Nasdaq
Composite Index, the S&P 100 Index and other indices that the Advisor
deems suitable, and the ETF may buy or sell put and call options on
exchange-traded funds that track such indices. In addition, when appropriate,
the ETF may buy or sell put and call options on the individual securities in
such indices.
A
call
option on a security gives the purchaser of the option the right to buy, and
the
writer (seller) of the option the obligation to sell, the underlying security
at
the exercise price at any time during the option period. The premium paid to
the
writer is the consideration for undertaking the obligations under the option
contract. A call option written (sold) by the ETF exposes the ETF during the
term of the option to possible loss of an opportunity to realize appreciation
in
the market price of the related portfolio security, or to possible continued
holding of a security which might otherwise have been sold to protect against
depreciation in the market price of the security.
A
call
option is considered to be covered if: (i) the writer (seller) thereof owns
the security underlying the call or has an absolute and immediate right to
acquire that security without payment of additional cash consideration (or
for
additional cash consideration held in a segregated account by its custodian
or
depository) upon conversion or exchange of other securities; (ii) the
writer holds on a unit-for-unit basis a call on the same security as the call
written, and the exercise price of the call purchased is equal to or less than
the exercise price of the call written, or greater than the exercise price
of
the call written if the difference is maintained by the ETF in cash or cash
equivalents in a segregated account with its custodian or depository; or
(iii) the writer maintains in a segregated account with its custodian or
depository cash or cash equivalents sufficient to cover the market value of
the
open position.
An
option
on an index is a contract that gives the holder of the option, in return for
payment of a premium, the right to demand from the seller (call) delivery of
cash in an amount equal to the value of the index at a specified exercise price
at any time during the term of the option. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value
of
the index and the exercise price multiplied by the specified multiplier for
the
index option. A call option on an index is considered to be covered if the
writer (seller) maintains with its custodian or depository cash or cash
equivalents equal to the contract value. A call option is also covered if the
writer holds a call on the same index as the call written where the exercise
price of the call purchased is equal to or less than the exercise price of
the
call written.
A
put
option on a security gives the purchaser of the option the right to sell, and
the writer (seller) of the option the obligation to buy, the underlying security
at the exercise price at any time during the option period. A put option on
a
securities index gives the purchaser of the option the right to sell, and the
writer (seller) of the option the obligation to buy, the cash value of the
index
at any time during the option.
A
put
option on an index is covered if a writer holds a put on the same index as
the
put written where the exercise price of the put held is (i) equal to or
greater than the exercise price of the put written, or (ii) less than the
exercise price of the put written provided the difference is maintained by
the
writer in cash or cash equivalents in a segregated account with its custodian
or
depository.
Whenever
the ETF does not own securities underlying an open option position sufficient
to
cover the position, or whenever the ETF has written (sold) a put, the ETF will
maintain in a segregated account with its custodian, or otherwise cause the
custodian to “ear-mark” or note on its books, cash and/or other liquid
securities or assets in an amount sufficient to cover the exercise price or,
with respect to index options, the market value of the open position. The
purchase of a put option may be intended to protect the ETF from the risk of
a
decline in the value of a security below the exercise price of the option.
The
ETF may ultimately sell the option in a closing sale transaction, exercise
it or
permit it to expire.
Futures.
The
ETF
may purchase and sell exchange-traded index futures contracts for the purposes
and strategies described in the Prospectus. The ETF may use futures on the
Nasdaq 100 Index, the Nasdaq Composite Index, the S&P 500 Index and other
indices the Advisor deems suitable.
A
futures
contract on an index is an agreement by which one party agrees to accept
delivery of, and the other party agrees to make delivery of, an amount of cash
equal to the difference between the value of the underlying index at the close
of the last trading day of the futures contract and the price at which the
contract originally was written. Although the value of an index might be a
function of the value of certain specified securities, no physical delivery
of
those securities is made.
Futures
contracts covering the indices in which the ETF may trade presently are traded
on the Chicago Mercantile Exchange or the New York Futures Exchange. The ETF
also may engage in transactions involving futures contracts on other indices
presently traded or in the future created and traded on national stock exchanges
if, in the opinion of the Board of Trustees, such futures contracts are
appropriate instruments to help the ETF achieve its objective.
The
ETF
generally limits its use of futures contracts to hedging transactions and to
equitize cash assets. The ETF may also, to a limited extent, buy or sell futures
contracts on individual stocks that are otherwise eligible for investment by
the
ETF. The ETF will generally use these single stock futures in order to enhance
return, reduce tracking error between the ETF’s performance and that of its
Index or as part of a strategy of harvesting capital losses. The ETF will only
enter into futures contracts which are standardized and traded on a U.S.
exchange, board of trade or similar entity, or quoted on an automated quotation
system. The ETF intends to comply with Rule 4.5 of the Commodity Futures Trading
Commission, under which a mutual fund is conditionally excluded from the
definition of the term “commodity pool operator.”
When
a
purchase or sale of a futures contract is made by the ETF, it is required to
deposit with the custodian (or broker, if legally permitted) a specified amount
of cash or Government Securities (“initial margin”). The margin required for a
futures contract is set by the exchange on which the contract is traded and
may
be modified during the term of the contract. The initial margin is in the nature
of a performance bond or good faith deposit on the futures contract which is
returned to the ETF upon termination of the contract, assuming all contractual
obligations have been satisfied. The ETF expects to earn interest income on
its
initial margin deposits. A futures contract held by the ETF will be valued
daily
at the official settlement price of the exchange on which it is traded. Each
day
the ETF will pay or receive cash, called “variation margin,” equal to the daily
change in value of the futures contract. This process is known as “marking to
market.” Variation margin does not represent a borrowing or loan by the ETF, but
is instead a settlement between the ETF and the broker of the amount one would
owe the other if the futures contract expired. In computing daily net asset
value, the ETF will mark-to-market all of its open futures
positions.
While
the
ETF maintains an open futures position, it must maintain with its custodian,
in
a segregated account, assets with a market value sufficient to cover the ETF’s
exposure on the position (less the amount of the margin deposit associated
with
the position). The ETF’s exposure on a futures contract is equal to the amount
paid for the contract by the ETF.
Futures
contracts in which the ETF may invest are closed out prior to delivery by
offsetting purchases or sales of matching futures contracts (same exchange,
underlying index or stock, and delivery month), or in cash. If an offsetting
purchase price is less than the original sale price, the ETF would realize
a
gain, or if it is more, the ETF would realize a loss. Conversely, if an
offsetting sale price is more than the original purchase price, the ETF would
realize a gain, or if it is less, the ETF would realize a loss. The transaction
costs must also be included in these calculations.
There
are
several risks associated with the use of futures contracts in the manner
intended by the ETF. A purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract. There can
be no
guarantee that there will be a correlation between the price movements in the
underlying index and in the portfolio securities being hedged or the index
being
simulated, as the case may be. In addition, there are significant differences
between the securities and futures markets that could result in an imperfect
correlation between the markets, causing a given strategy not to achieve its
objective. The degree of imperfection of correlation depends on circumstances
such as: variations in speculative market demand for futures and differences
between the financial instruments being hedged or replicated and the instruments
underlying the standard contracts available for trading.
Futures
exchanges may limit the amount of fluctuation permitted in certain futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of the futures contract may vary either up or
down
from the previous day’s settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract, no more
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movements during a particular trading day and, therefore,
does not limit potential losses because the limit may work to prevent the
liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days
with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses. There can
be
no assurance that a liquid market will exist at a time when the ETF seeks to
close out a futures position and the ETF would continue to be required to meet
margin requirements until the position is closed.
To
minimize such risks, the ETF will not enter into a futures contract if,
immediately after such transaction, the initial margin deposits for futures
contracts held by the ETF would exceed 5% of the ETF’s total assets.
Additionally, the ETF may not maintain open short positions in futures contracts
or call options written on indices if, in the aggregate, the market value of
all
such open positions exceeds the current value of the securities in the ETF’s
investment portfolio, plus or minus unrealized gains and losses on the open
positions, adjusted for the historical relative volatility of the relationship
between the portfolio and the positions. For this purpose, to the extent the
ETF
has written call options on specific securities in its investment portfolio,
the
value of those securities will be deducted from the current market value of
the
securities portfolio.
Options
on Futures Contracts.
The
ETF
may buy or sell put and call options on a futures contract (a “futures option”).
A futures option conveys the right, but not the obligation, to purchase (in
the
case of a call option) or sell (in the case of a put option) a specific futures
contract at a specific price (called the “exercise” or “strike” price) any time
before the option expires. The buyer of a call option is said to go “long” a
futures contract, while the buyer of a put option is said to go “short” a
futures contract. The seller of an option is called an option writer. The
purchase price of an option is called the premium. The potential loss to an
option buyer is limited to the amount of the premium plus transaction costs.
This will be the case, for example, if the option is held and not exercised
prior to its expiration date. Generally, an option writer sells options with
the
goal of obtaining the premium paid by the option buyer. If an option sold by
an
option writer expires without being exercised, the writer retains the full
amount of the premium. The option writer, however, has unlimited economic risk
because its potential loss, except to the extent offset by the premium received
when the option was written, is equal to the amount the option is “in-the-money”
at the expiration date. A call option is in-the-money if the value of the
underlying futures contract exceeds the exercise price of the option. A put
option is in-the-money if the exercise price of the option exceeds the value
of
the underlying futures contract. Generally, any profit realized by an option
buyer represents a loss for the option writer.
If
the
ETF takes the position of a writer of a futures option, it will be required
to
deposit and maintain initial and variation margin with respect to the option,
as
described above in the case of futures contracts. The ETF will only enter into
futures options that are standardized and traded on a U.S. or foreign exchange,
board of trade, or similar entity, or quoted on an automated quotation
system.
There
are
several risks with the use of futures options. The risk of loss in writing
futures options can be substantial, because of the low margin deposits required,
the extremely high degree of leverage involved in pricing and the potential
high
volatility of the futures markets. As a result, a relatively small price
movement in a futures position may result in immediate and substantial loss
(or
gain) to the investor. Thus, the writing of a futures option, may result in
losses in excess of the amount invested in the position. In the event of adverse
price movements, the ETF would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if the ETF has
insufficient cash, it may have to sell portfolio securities to meet daily margin
requirements (and segregation requirements, if applicable) at a time when it
may
be disadvantageous to do so.
The
ETF
could suffer losses if it is unable to close out a futures option because of
an
illiquid secondary market. Futures options may be closed out only on an exchange
which provides a secondary market for such products. However, there can be
no
assurance that a liquid secondary market will exist for any particular futures
product at any specific time. Thus, it may not be possible to close an option
position. The inability to close options positions also could have an adverse
impact on the ability to hedge a portfolio investment or to establish a
substitute for a portfolio investment.
The
ETF
will bear the risk that its Advisor will incorrectly predict future market
trends. If the Advisor attempts to use a futures option as a hedge against,
or
as a substitute for, a portfolio investment, the ETF will be exposed to the
risk
that the futures position will have or will develop imperfect or no correlation
with the portfolio investment. This could cause substantial losses for the
ETF.
While hedging strategies involving futures products can reduce the risk of
loss,
they can also reduce the opportunity for gain or even result in losses by
offsetting favorable price movements in other investments.
Taxation
of Options and Futures.
If
the
ETF exercises a call or put option it owns, the premium paid for the option
is
added to the cost of the security purchased (call) or deducted from the proceeds
of the sale (put). For cash settlement options, the difference between the
cash
received at exercise and the premium paid is a capital gain or loss. If a call
or put option written by the ETF is exercised, the premium is included in the
proceeds of the sale of the underlying security (call) or reduces the cost
of
the security purchased (put). For cash settlement options, the difference
between the cash paid at exercise and the premium received is a capital gain
or
loss. Entry into a closing purchase transaction will result in capital gain
or
loss. If an option was “in the money” at the time it was written and the
security covering the option was held for more than one year prior to the
writing of the option, any loss realized as a result of a closing purchase
transaction will be long-term for federal tax purposes. The holding period
of
the securities covering an “in the money” option will not include the period of
time the option was outstanding.
A
futures
contract held until delivery results in capital gain or loss equal to the
difference between the price at which the futures contract was entered into
and
the settlement price on the earlier of the delivery notice date or the
expiration date. Should the ETF ever deliver securities under a futures contract
(which is not expected to occur), the ETF will realize a capital gain or loss
on
those securities.
For
federal income tax purposes, the ETF generally is required to recognize as
income for each taxable year its net unrealized gains and losses as of the
end
of the year on options and futures positions (“year-end mark-to-market”).
Generally any gain or loss recognized with respect to such positions (either
by
year-end mark-to-market or by actually closing of the positions) is considered
to be 60% long term and 40% short term, without regard to the holding periods
of
the contracts. However, in the case of positions classified as part of a “mixed
straddle,” the recognition of losses on certain positions (including options and
futures positions, the related securities positions and certain successor
positions thereto) may be deferred to a later taxable year. Sales of futures
contracts or writing of call options or buying put options, which are intended
to hedge against a change in the value of securities held by the ETF, may affect
the holding period of the hedged securities.
The
taxation of single stock futures contracts differs from the taxation of options
and futures contracts on an index. Holders of single stock futures contracts
are
not subject to the mark-to-market rules and are not entitled to treat 60% of
the
gain as long-term capital gain. Instead, gain or loss from the sale, exchange
or
termination of a single stock futures contract will generally be treated as
capital gain or loss and will be short-term or long-term depending upon the
holding period of the futures contract. However, a holder of a short position
in
a single stock futures contract must treat the gain or loss on the sale,
exchange or termination of the contract as short-term capital gain or loss.
Transactions involving single stock futures contracts may also give rise to
issues under the wash sale rules and straddle rules.
The
ETF
distributes to shareholders annually any net capital gains, which have been
recognized for federal income tax purposes (including year-end mark-to-market
gains) on options and futures transactions. Such distributions are combined
with
distributions of capital gains realized on the ETF’s other investments and
shareholders are advised of the nature of the payments.
Lending
of ETF Portfolio Securities.
In
order
to generate income, the ETF may lend its portfolio securities to brokers,
dealers and other institutional investors, provided the ETF receives cash
collateral which at all times is maintained in an amount equal to at least
100%
of the current market value of the securities loaned. By reinvesting the
collateral it receives in these transactions, the ETF could magnify any gain
or
loss it realizes on the underlying investment. If the borrower fails to return
the securities and the collateral is insufficient to cover the loss, the ETF
could lose money. For the purposes of this policy, the ETF considers collateral
consisting of U.S. Government securities or irrevocable letters of credit issued
by banks whose securities meet the standards for investment by the ETF to be
the
equivalent of cash. During the term of the loan, the ETF is entitled to receive
interest and other distributions paid on the loaned securities, as well as
any
appreciation in the market value. The ETF also is entitled to receive interest
from the institutional borrower based on the value of the securities loaned.
From time to time, the ETF may return to the borrower, and/or a third party
which is unaffiliated with the Trust and which is acting as a “placing broker,”
a part of the interest earned from the investment of the collateral received
for
securities loaned.
When
lending, the ETF does not have the right to vote the securities loaned during
the existence of the loan, but can call the loan to permit voting of the
securities if, in the Advisor’s judgment, a material event requiring a
shareholder vote would otherwise occur before the loan is repaid. In the event
of bankruptcy or other default of the borrowing institution, the ETF could
experience delays in liquidating the loan collateral or recovering the loan
securities, and incur risk of loss including: (1) possible decline in the
value of the collateral or in the value of the securities loaned during the
period while the ETF seeks to enforce its rights thereto; (2) possible
subnormal levels of income and lack of access to income during this period;
and
(3) expenses of enforcing its rights. In addition, the ETF will bear the
risk of loss of any cash collateral that it invests. To minimize these risks,
the Advisor evaluates and continually monitors the creditworthiness of the
institutional borrowers to which the ETF lends its securities.
To
minimize the foregoing risks, the ETF’s securities lending practices are subject
to the following conditions and restrictions: (1) the ETF may not make such
loans in excess of 33% of the value of its total assets; (2) the ETF must
maintain cash collateral in an amount at least equal to 100% of the value of
the
securities loaned; (3) the institutional borrower must be required to
increase the amounts of the cash collateral whenever the market value of the
loaned securities rises above the amount of the collateral; (4) the ETF
must have the right to terminate the loan at any time; (5) the ETF must
receive reasonable interest on the loan, as well as any interest or other
distributions on the loaned securities and any increase in the market value
of
the loaned securities; (6) the ETF may only pay reasonable fees in
connection with the loan (which fees may include fees payable to the lending
agent, the borrower, the ETF’s administrator and the custodian); and (7) voting
rights on the loaned securities may pass to the borrower, provided, however,
that if a material event adversely affecting the investment occurs, the ETF
must
terminate the loan and regain the right to vote the securities.
Short-Term
Investments.
The
ETF
may invest in any of the following securities and instruments in management
of
cash receipts, for liquidity for anticipated redemptions, to meet cash flow
needs to enable the ETF to take advantage of buying opportunities, during
periods when attractive investments are unavailable and for temporary defensive
purposes. Normally, the ETF will invest less than 10% of its total assets in
short-term investments, although the Advisor has discretion to increase the
ETF’s cash position without limit for temporary defensive purposes. This
investment limitation does not apply to the ETF’s investments of cash collateral
received from securities lending activity.
Government
Securities
.
The ETF
may acquire Government Securities. A discussion of Government Securities is
included under the caption “Investment Policies and Strategies- Government
Securities” below.
Commercial
Paper, Short-Term Notes, Variable Rate Demand Notes, Repurchase Agreements
and
Other Corporate Obligations
.
The ETF
may invest a portion of its assets in high quality commercial paper and
short-term notes, including variable rate demand notes. Commercial paper
consists of unsecured promissory notes issued by corporations. Issues of
commercial paper and short-term notes will normally have maturities of less
than
nine months and fixed rates of return, although such instruments may have
maturities of up to one year.
Corporate
obligations include bonds and notes issued by corporations to finance
longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, the ETF may purchase
high quality corporate obligations which have remaining maturities of one year
or less from the date of purchase.
The
ETF
also may purchase corporate obligations known as variable rate demand notes.
Variable rate demand notes are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Although the notes are not normally traded and there may be
no
secondary market in the notes, the ETF may demand payment of principal and
accrued interest at any time. The investment policies of the ETF permit the
purchase of variable rate demand notes only if, at the time of purchase, the
notes are rated in the three highest rating categories by a Nationally
Recognized Statistical Rating Organization, or, if unrated, the issuer has
unsecured debt securities outstanding of an equivalent rating.
The
ETF
also may invest in repurchase agreements as short-term instruments. See
“Investment Policies and Strategies - Repurchase Agreements”
below.
Money
Market Funds.
The ETF
may invest in money market mutual funds. An investment by the ETF in a money
market mutual fund may cause the ETF to incur duplicate and/or increased
administration and distribution expenses. Such investments are limited under
the
Investment Company Act of 1940 Act, as amended (the “1940 Act”) and by
applicable investment restrictions. See “Investment Policies and
Strategies - Investing in Other Investment Companies” below.
Short
Sales “Against-the-Box.”
The
ETF
may make short sales of securities or maintain a short position, provided that
at all times when a short position is open the ETF owns an equal amount of
such
securities of the same issue as the securities sold short. The ETF may not
engage in a short sale if the transaction would result in more than 10% of
the
ETF’s net assets being held as collateral for such short sales. Short sales
structured in this fashion are referred to as short sales “against-the-box.” The
ETF might use short sales against-the-box, for example, to defer the realization
of a capital gain for federal income tax purposes.
Repurchase
Agreements.
The
ETF
may, from time to time, enter into repurchase agreements. Repurchase agreements
involve the sale of securities to the ETF with the concurrent agreement of
the
seller to repurchase the securities at the same price plus an amount equal
to an
agreed upon interest rate within a specified time, usually less than one week,
but on occasion for a longer period. The ETF may enter into repurchase
agreements with broker-dealers and with banks. At the time the ETF enters into
a
repurchase agreement, the value of the underlying security, including accrued
interest, will be equal to or exceed the value of the repurchase agreement
and,
in the case of repurchase agreements exceeding one day, the seller will agree
that the value of the underlying security, including accrued interest, will
at
all times be equal to or exceed the value of the repurchase agreement. The
ETF
will require continual maintenance of cash or cash equivalents held by its
depository in an amount equal to, or in excess of, the market value of the
securities which are subject to the agreement.
In
the
event the seller of the repurchase agreement becomes the subject of a bankruptcy
or insolvency proceeding, or in the event of the failure of the seller to
repurchase the underlying security as agreed, the ETF could experience losses
that include: (1) possible decline in the value of the underlying security
during the period that the ETF seeks to enforce its rights with respect thereto,
and possible delay in the enforcement of such rights; (2) possible loss of
all or a part of the income or proceeds of the repurchase; (3) additional
expenses to the ETF in connection with enforcing those rights; and
(4) possible delay in the disposition of the underlying security pending
court action or possible loss of rights in such securities. The Advisor will
invest in repurchase agreements only when it determines that the ETF should
invest in short-term money market instruments and that the rates available
on
repurchase agreements are favorable as compared to the rates available on other
short-term money market instruments or money market mutual funds. The Advisor
does not currently intend to invest the assets of the ETF in repurchase
agreements if, after doing so, more than 5% of the ETF’s net assets would be
invested in repurchase agreements. This limitation does not apply to the ETF’s
investments in repurchase agreements of the cash collateral received from the
ETF’s securities lending activity.
Depository
Receipts.
Depository
receipts are securities that evidence ownership interests in a security or
a
pool of securities that have been deposited with a “depository.” The ETF may
invest in ADRs, for which the depository is typically a U.S. financial
institution and the underlying securities are issued by foreign issuers. ADRs
may be listed on a national securities exchange or may trade on an
over-the-counter market. ADR prices are denominated in United States dollars,
although the underlying security may be denominated in a foreign currency.
Although generally tempered to some extent, ADRs do not eliminate all of the
risks associated with directly investing in the securities of foreign issuers.
Investments
in Other Investment Companies.
While
the
ETF does not anticipate doing so, the ETF may invest in the securities of other
investment companies to the extent that such an investment would be consistent
with the requirements of Section 12(d)(1) of the 1940 Act. The ETF, therefore,
may invest in the securities of another investment company (the “acquired
company”) provided that the ETF, 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 ETF; or (iii) securities issued by the acquired company and
all other investment companies (other than Treasury stock of the ETF) having
an
aggregate value in excess of 10% of the value of the total assets of the ETF.
Notwithstanding the foregoing, the ETF may enter into “cash sweep arrangements”
and invest its cash in money market funds in excess of the foregoing statutory
limits to the extent permitted by Section 12(d)(1) of the 1940 Act and the
SEC
rules and regulations promulgated thereunder.
If
the
ETF invests in and, thus, is a shareholder of another investment company, the
ETF’s shareholders will indirectly bear the ETF’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 ETF to
the
ETF’s own investment adviser and the other expenses that the ETF bears directly
in connection with the ETF’s own operations.
Swap
agreements.
The
ETF
may enter into equity index or interest rate swap agreements for purposes of
attempting to gain exposure to the stocks making up an index of securities
in a
market without actually purchasing those stocks, or to hedge a position. Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a day to more than one year. In a standard
“swap” transaction, two parties agree to exchange the returns (or differentials
in rates of return) earned or realized on particular predetermined investments
or instruments. The gross returns to be exchanged or “swapped” between the
parties are calculated with respect to a “notional amount,” i.e., the return on
or increase in value of a particular dollar amount invested in a “basket” of
securities representing a particular index. Forms of swap agreements include
interest rate caps, under which, in return for a premium, one party agrees
to
make payments to the other to the extent that interest rates exceed a specified
rate, or “cap,” interest rate floors, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
fall below a specified level, or “floor;” and interest rate dollars, under which
a party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels.
Most
of
the swap agreements that the ETF would enter into would calculate the
obligations of the parties to the agreement on a “net basis.” Consequently, the
ETF’s current obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based
on
the relative values of the positions held by each party to the agreement (the
“net amount”).
The
ETF’s
current obligations under a swap agreement will be accrued daily (offset against
any amounts owing to the ETF) and any accrued but unpaid net amounts owed to
a
swap counterparty will be covered by segregating assets determined to be liquid.
Obligations under swap agreements so covered will not be construed to be “senior
securities” for purposes of the ETF’s investment restriction concerning senior
securities. Because they are two-party contracts and because they may have
terms
of greater than seven days, swap agreements may be considered to be illiquid
for
the ETF’s illiquid investment limitations. The ETF will not enter into any swap
agreements unless the Advisor believes that the other party to the transaction
is creditworthy. The ETF bears the risk of loss of the amount expected to be
received under a swap agreement in the event of the default or bankruptcy of
a
swap agreement counterparty.
The
ETF
may enter into swap agreements to invest in a market without owning or taking
physical custody of securities in circumstances in which direct investment
is
restricted for legal reasons or is otherwise impracticable. The counterparty
to
any swap agreement will typically be a bank, investment banking firm or
broker-dealer. The counterparty will generally agree to pay the ETF the amount,
if any, by which the notional amount of the swap agreement would have increased
in value had it been invested in the particular stocks, plus the dividends
that
would have been received on those stocks. The ETF will agree to pay to the
counterparty a floating rate of interest on the notional amount of the swap
agreement plus the amount, if any, by which the notional amount would have
decreased in value had it been invested in such stocks. Therefore, the return
to
the ETF on any swap agreement should be the gain or loss on the notional amount
plus dividends on the stocks less the interest paid by the ETF on the notional
amount.
Swap
agreements typically are settled on a net basis, which means that the two
payment streams are netted out, with the ETF receiving or paying, as the case
may be, only the net amount of the two payments. Payments may be made at the
conclusion of a swap agreement or periodically during its term.
Swap
agreements do not involve the delivery of securities or other underlying assets.
Accordingly, the risk of loss with respect to swap agreements is limited to
the
net amount of payments that the ETF is contractually obligated to make. If
the
other party to a swap agreement defaults, the ETF’s risk of loss consists of the
net amount of payments that the ETF is contractually entitled to receive, if
any. The net amount of the excess, if any, of the ETF’s obligations over its
entitlements with respect to each equity swap will be accrued on a daily basis
and an amount of cash or liquid assets, having an aggregate net asset value
at
least equal to such accrued excess will be maintained in a segregated account
by
the ETF’s custodian. Inasmuch as these transactions are entered into for hedging
purposes or are offset by segregated cash of liquid assets, as permitted by
applicable law, the ETF and its Advisor believe that these transactions do
not
constitute senior securities under the 1940 Act and, accordingly, will not
treat
them as being subject to the ETF’s borrowing restrictions.
The
swap
market has grown substantially in recent years with a large number of banks
and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid in comparison with the markets for other similar instruments
which are traded in the over-the-counter market. The Advisor, under the
supervision of the Board of Trustees, is responsible for determining and
monitoring the liquidity of ETF transactions in swap agreements.
The
use
of equity swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions.
When-Issued
and Delayed Delivery Transactions.
The
ETF,
from time to time, may purchase or sell securities in when-issued or delayed
delivery transactions. In such transactions, instruments are bought or sold
with
payment and delivery taking place in the future in order to secure what is
considered to be an advantageous yield or price to the ETF at the time of
entering into the transactions. The payment obligations and the interest rate
are fixed at the time the buyer enters into the commitment, although no interest
accrues to the purchaser prior to settlement of the transaction. Consistent
with
the requirements of the 1940 Act, securities purchased on a when-issued basis
are recorded as an asset (with the purchase price being recorded as a liability)
and are subject to changes in value based upon changes in the general level
of
interest rates. At the time of delivery of the security, the value may be more
or less than the transaction price. At the time the ETF would enter into a
binding obligation to purchase securities on a when-issued basis, liquid assets
of the ETF having a value at least as great as the purchase price of the
securities to be purchased would be identified on the books of the ETF and
held
by the ETF’s depository throughout the period of the obligation. The use of
these investment strategies may increase net asset value
fluctuations.
The
ETF
will only make commitments to purchase securities on a when-issued basis with
the intention of actually acquiring the securities, and not for the purpose
of
investment leverage, but the ETF reserves the right to sell the securities
before the settlement date if it is deemed advisable. Any gains from such sales
will be subject to federal income tax to the extent not offset by losses on
other transactions. The ETF currently does not currently intend to purchase
securities in when-issued transactions if, after such purchase, more than 5%
of
the ETF’s net assets would consist of when-issued securities.
Warrants.
The
ETF
may invest in Warrants. Warrants are instruments which entitle the holder to
buy
an equity security at a specific price for a specific period of time. Changes
in
the value of a warrant do no necessarily correspond to changes in the value
of
its underlying security. The price of a warrant may be more volatile than the
price of its underlying security, and a warrant may offer greater potential
for
capital appreciation as well as capital loss.
Warrants
do not entitle a holder to dividends or voting rights with respect to the
underlying security and do not represent any rights in the assets of the issuing
company. A warrant ceases to have value if it is not exercise prior to its
expiration date. These factors can make warrants more speculative than other
types of investments.
Government
Securities.
Although
not included in the Index, the ETF may, in certain circumstances, acquire U.S.
Government securities (“Government Securities”), including direct obligations of
the U.S. Treasury and obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government. Direct obligations issued by
the U.S. Treasury include bills, notes and bonds which differ from each
other only as to interest rate, maturity and time of issuance. Treasury Bills
have a maturity of one year or less, Treasury Notes have maturities of one
to
ten years and Treasury Bonds generally have maturities of greater than ten
years.
Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, such as Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the U.S. Treasury;
other obligations, such as those of the Federal Home Loan Banks, are secured
by
the right of the issuer to borrow from the Treasury; other obligations, such
as
those issued by the Federal National Mortgage Association, are supported by
the
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; and other obligations, such as those issued
by
the Student Loan Marketing Association, are supported only by the credit of
the
instrumentality itself. Although the U.S. Government provides financial support
to such U.S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by
law.
Industry
Concentration.
The
ETF
invests substantially all of its assets in companies included in the Index,
the
greatest component of which consists of companies in the technology sector.
Accordingly, the ETF is subject to the risks associated with the technology
sector. The ETF is also subject to the risks associated with specific industry
groups in the Index. Moreover, because the composition of the companies in
the
Index, and thereby the industries represented in the Index, may change from
time
to time, there may be periods in which the companies in a particular industry
constitute more than 25% of the Index. Given its investment objectives and
principal strategies, the ETF will not take any action to avoid such
concentration. As a result, a relatively high percentage (i.e., more than 25%)
of the ETF’s assets may be concentrated from time to time in stocks of issuers
within a single industry or group of related industries. Such issuers may be
subject to the same economic trends. Securities held by the ETF may therefore
be
more susceptible to any single economic, political, regulatory,
industry-specific or sector-specific occurrence, especially those affecting
companies that are reliant on technology, than the portfolio securities of
many
other investment companies. The ETF’s concentration in any one sector or
industry will result only from the composition of the Index, and the ETF will
float with the Index with respect to any such concentration.
Tracking
Error.
The
following factors may affect the ability of the ETF to achieve correlation
with
the performance of the Index: (1) ETF expenses, including brokerage (which
may be increased by high portfolio turnover); (2) the ETF holding less than
all of the securities in the Index and/or securities not included in the Index
being held by the ETF; (3) an imperfect correlation between the performance
of instruments held by the ETF, such as futures contracts and options, and
the
performance of the underlying securities in the market; (4) bid-ask spreads
(the effect of which may be increased by portfolio turnover); (5) the ETF
holding instruments traded in a market that has become illiquid or disrupted;
(6) ETF share prices being rounded to the nearest cent; (7) changes to
the Index that are not disseminated in advance; or (8) the need to conform
the ETF’s portfolio holdings to comply with investment restrictions or policies
or regulatory or tax law requirements.
INVESTMENT
RESTRICTIONS
The
ETF’s
fundamental investment policies and limitations cannot be changed without
approval by a “majority of the outstanding voting securities” (as defined in the
1940 Act) of the ETF. Such a “majority” vote is defined in the 1940 Act as the
vote of the holders of the lesser of: (i) 67% or more of the shares present
or
represented by proxy at a shareholder meeting, if the holders of more than
50%
of the outstanding shares are present, or (ii) more than 50% of the outstanding
shares. However, except for the fundamental investment limitations and other
limitations on borrowing and investments in illiquid securities listed below,
the investment policies and limitations described in this SAI and the Prospectus
are not fundamental and may be changed without shareholder approval.
Unless
otherwise noted, whenever an investment restriction states a maximum percentage
of the ETF’s assets that may be invested in any security or other asset, or sets
forth a policy regarding quality standards, such standard or percentage
limitation will be determined immediately after and as a result of the ETF’s
acquisition of such security or other asset. Accordingly, any subsequent change
in values, net assets or other circumstances will not be considered when
determining whether the investment complies with the ETF’s investment
restrictions.
The
following are the ETF’s fundamental investment limitations set forth in their
entirety.
In
accordance with the 1940 Act, the ETF must have at least 75% of the value of
its
total assets represented by cash and cash items (including receivables),
government securities, securities of other investment companies, and other
securities. For purposes of this calculation, securities of a single issuer
that comprise more than 5% of the ETF’s assets or that constitute more
than 10% of the issuer’s voting securities may not be included.
In
addition, the ETF may not:
(1)
Borrow
money or property except for temporary or emergency purposes. If the ETF ever
should borrow money it would only borrow from banks and in an amount not
exceeding 5% of the market value of its total assets (not including the amount
borrowed). The ETF will not pledge more than 15% of its net assets to secure
such borrowings. In the event the ETF’s borrowing exceeds 5% of the market value
of its total assets, the ETF will not invest in any portfolio securities until
its borrowings are reduced to below 5% of its total assets. For purposes of
these restrictions, collateral arrangements for premium and margin payments
in
connection with hedging activities, if any, are not to be deemed to be a pledge
of assets.
(2)
Make
loans, except that it may lend its portfolio securities. For the purposes of
this restriction, investments in publicly-traded debt securities or debt
securities of the type customarily purchased by institutional investors and
investments in repurchase agreements are not considered loans.
(3)
Underwrite
the securities of other issuers, except where it might technically be deemed
to
be an underwriter for purposes of the Securities Act of 1933 (the “Securities
Act”) upon the disposition of certain securities.
(4)
Issue
senior securities.
(5)
Purchase
a security if, as a result, more than 10% of the value of the ETF’s net assets
would be invested in: (i) securities with legal or contractual restrictions
on resale (other than investments and repurchase agreements);
(ii) securities for which market quotations are not readily available; and
(iii) repurchase agreements which do not provide for payment within 7
days.
(6)
Invest
in
commodities, but the ETF may invest in financial futures contracts and
options.
(7)
Purchase
securities on margin or effect short sales of securities, except short sales
“against the box” (but the ETF may obtain such short-term credits as may be
necessary for the clearance of transactions and may make margin payments in
connection with transactions in options and futures transactions).
(8)
Buy
or
sell real estate, real estate limited partnerships, or oil and gas interests
or
leases, but the ETF may invest in real estate investment trusts.
With
respect to fundamental restriction (2) above, the ETF may lend in the aggregate
up to one-third (1/3) of its total assets. See “INVESTMENT POLICIES AND
STRATEGIES—Lending of ETF Securities” above.
With
respect to fundamental investment restriction (5) above, portfolio securities
are classified by the Advisor as liquid or illiquid under the supervision of,
and pursuant to guidelines established by, the Board of Trustees. It is possible
that the 10% limitation on illiquid securities could be exceeded as a result
of
a security which, although liquid at the time of purchase, later is classified
by the Advisors as illiquid as a result of market conditions or developments
with respect to the issuer. Under such circumstances the Board of Trustees
would
investigate and consider all of the surrounding circumstances, would evaluate
all available alternatives to bring the ETF back into compliance with the 10%
limitation as soon as reasonably practicable, and would take appropriate action.
However, the ETF would not necessarily be required immediately to dispose of
illiquid securities until the 10% limitation is met if, in the judgment of
the
Board of Trustees, it would not be in the best interests of the shareholders
to
do so. Disposing of illiquid investments potentially may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for the
ETF to sell an illiquid security promptly at an acceptable price. The absence
of
a trading market can make it difficult to ascertain the market value for
illiquid investments, and could require the ETF to employ special pricing
procedures. Because the stocks acquired by the ETF are listed on a U.S.
exchange, the ETF does not anticipate any difficulty in maintaining adequate
liquidity under normal market conditions.
EXCHANGE-TRADED
FUND RISKS
Continuous
Offering.
The
method by which Creation Units are created and traded may raise certain issues
under applicable securities laws. Because new Creation Units of shares are
issued and sold by the ETF on an ongoing basis, at any point a “distribution,”
as such term is used in the Securities Act, may occur. Broker-dealers and other
persons are cautioned that some activities on their part may, depending on
the
circumstances, result in their being deemed participants in a distribution
in a
manner which could render them statutory underwriters and subject them to the
prospectus delivery requirements and liability provisions of the Securities
Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with B.C. Ziegler
and Company, the ETF’s distributor (the “Distributor” or “B.C. Ziegler”), breaks
them down into constituent shares and sells such shares directly to customers,
or if it chooses to couple the creation of a supply of new shares with an active
selling effort involving solicitation of secondary market demand for shares.
A
determination of whether one is an underwriter for purposes of the Securities
Act must take into account all the facts and circumstances pertaining to the
activities of the broker-dealer or its client in the particular case, and the
examples mentioned above should not be considered a complete description of
all
the activities that could lead to a categorization as an underwriter.
Broker-dealer
firms should also note that dealers who are not “underwriters,” but are
effecting transactions in shares, whether or not participating in the
distribution of shares, are generally required to deliver a Prospectus. This
is
because the prospectus delivery exemption in Section 4(3) of the Securities
Act
is not available in respect of such transactions as a result of Section 24(d)
of
the 1940 Act. Firms that incur a prospectus-delivery obligation with respect
to
shares are reminded that, under Rule 153 of the Securities Act, a
prospectus-delivery obligation under Section 5(b)(2) of the Securities Act
owed
to an Equity Permit holder (“EP holder”), or a market maker for the NYSE Arca
Marketplace, in connection with a sale on the NYSE Arca Marketplace is satisfied
by the fact that the Prospectus is available at www.NXT100.com or from the
NYSE
Arca Marketplace, upon request. The Prospectus delivery mechanism provided
in
Rule 153 is only available with respect to transactions on an exchange.
Listing
and Trading.
A
discussion of exchange listing and trading matters associated with an investment
in the ETF is contained in the Prospectus. The discussion below supplements,
and
should be read in conjunction with, such sections of the Prospectus.
The
shares of the ETF
are
listed on NYSE Arca and traded on the NYSE Arca Marketplace. The shares trade
on
the NYSE Arca Marketplace at prices that may differ to some degree from their
NAV. There can be no assurance that the requirements of NYSE Arca necessary
to
maintain the listing of the ETF’s shares will continue to be met.
NYSE
Arca
would consider suspension of trading in or removal from listing of the ETF
if
(1) following the initial 12-month period beginning upon the commencement of
trading of ETF shares of such ETF, there are fewer than 50 beneficial holders
of
the ETF for 30 or more consecutive trading days; (2) the value of the Index
or
portfolio of securities on which the ETF is based is no longer calculated or
available; or (3) such other event shall occur or condition exists which in
the
opinion of NYSE Arca or the NYSE Arca Marketplace makes further dealings
inadvisable. NYSE Arca will remove the shares of the ETF from listing and the
NYSE Arca Marketplace will remove the shares of the ETF from trading upon
termination of the ETF.
As
in the
case of other publicly-traded securities, broker’s commissions on transactions
will be based on negotiated commission rates at customary levels. The Trust
reserves the right to adjust the price levels of shares in the future to help
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 ETF.
The
principal trading markets for securities in the Index will generally be the
NYSE, the American Stock Exchange, Nasdaq, and the NYSE Arca Marketplace. 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 such 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 the
ETF’s shares will be adversely affected if trading markets for the ETF’s
portfolio securities are limited or absent, or if bid/ask spreads are wide.
Portfolio
Turnover
Portfolio
turnover may vary from year to year, as well as within a year. High turnover
rates are likely to result in comparatively greater brokerage expenses. For
the
fiscal year ended October 31, 2007, the portfolio turnover rate for the ETF
was
as follows:
Portfolio
Turnover Rates
(1)
|
(1)
|
The
ETF did not commence operations until March
2007.
|
DESCRIPTION
OF THE NYSE ARCA TECH 100 INDEX
Index
Description.
The
NYSE
Arca Tech 100 Index is a price-weighted index comprised of common stocks and
ADRs of technology-related companies listed on US exchanges. Companies from
different industries that produce or deploy innovative technologies to conduct
their business are considered for inclusion. Leading companies are selected
from
several industries, including computer hardware, software, semiconductors,
telecommunications, data storage and processing, electronics, media, aerospace
& defense, health care equipment, and biotechnology.
Modeled
as a multi-industry technology index, the objective of the Index is to provide
a
benchmark for measuring the performance of technology-related companies
operating across a broad spectrum of industries.
The
Index
components are selected at the discretion of the Selection and Oversight
Committee from the investable universe of securities that meet the
pre-determined eligibility criteria. In administering the Index,
the
Selection and Oversight Committee
will
exercise reasonable discretion as it deems appropriate.
Index
Composition.
The
NYSE
Arca Tech 100 Index is a price-weighted index comprised of common stocks and
ADRs of technology-related companies listed on the U.S. exchanges. Companies
from different industries that produce or deploy innovative technologies to
conduct their business are considered for inclusion. Modeled as a multi-industry
technology index, the objective of the NYSE Arca Tech 100 Index is to provide
a
benchmark for measuring the performance of technology-related companies
operating across a broad spectrum of industries. The Index contains 100
securities, and was established in 1982. A description of the Index and
constituents that make up the Index can be found at NYSE Arca’s website at
http://www.arcaex.com/marketdata/market_arcatech100.asp.
The
Index
is a price-weighted index of 100 technology related securities that are listed
on the NYSE
®
,
NYSE
Arca
SM
,
AMEX
®
or
Nasdaq
®
markets.
A price-weighted index holds the same number of shares of each security, thus
the price of the security is the influencing factor to the value of the index.
Higher-priced securities have a higher weight in the index than lower-priced
securities, as the shares of each component are equally held. The Index is
currently calculated by Dow Jones & Company, Inc.
The
Index
value is the quotient of the sum of last sale prices for all component issues
(as reflected by the primary listed exchange) and a specified Divisor. The
Divisor is initially specified and then adjusted periodically to reflect stock
splits or stock dividends. The value of the Index is calculated based upon
the
formula set forth below.
NYSE
Arca Tech 100 Index =
Σ
Pi
D
where
D=
Divisor and Pi= security price
Divisor
Changes are calculated as follows:
New
Divisor = Old Divisor x ((Sum of New Prices)/(Sum of Old
Prices))
Selection
of Index Component Securities
The
Index
consists of companies, excluding IPOs, that are selected from different
industries and that produce or deploy innovative technologies to conduct their
business. NYSE Arca is the "Index Provider" of the Index. The Index Provider’s
Selection and Oversight Committee considers the following guidelines to
determine the investable universe: liquidity and price; financial viability;
industry representation; and operating company status.
Liquidity
and price.
A
stock’s
liquidity is very important to ensure that the Index is investable. Low-priced
stocks can have lower liquidity. Low-priced stocks are harder to borrow for
short sales, and they often do not have listed options. Further, some
institutions aren’t permitted to hold low-priced stocks.
Financial
viability.
A simple
way to screen for companies is through the positive earnings test, where the
company should have four consecutive quarters of positive earnings in terms
of
Generally Accepted Accounting Principles (“GAAP”) net income.
Industry
representation/balance.
In order
for the Index to reflect the performance of leading technology-related companies
across a broad spectrum, the Selection and Oversight Committee selects new
components so that one industry group does not dominate the Index.
Operating
company status
.
The
Selection and Oversight Committee generally only selects operating companies
and
excludes limited partnerships, non-operating holding companies, closed-end
funds
and exchange traded funds or royalty trusts.
In
addition to the foregoing guidelines, a component security must generally meet
the following criteria.
|
|
·
|
The
security must be listed on the NYSE
®
,
NYSE Arca
SM
,
AMEX
®
or
Nasdaq
®
markets. The security must have “seasoned” on one of these markets for at
least 12 months; in the case of spin-offs, the operating history
of the
predecessor of the spin-off will be
considered.
|
|
|
·
|
The
issuer of the security must not currently be in bankruptcy
proceedings.
|
|
|
·
|
For
the purpose of initial inclusion, the issuer must have reported at
least
four consecutive quarters of positive earnings in terms of GAAP net
income, for the purpose of a positive earnings
test.
|
|
|
·
|
The
security must have an average daily volume of at least 30,000 shares
during the prior quarter.
|
|
|
·
|
The
security must not have accumulated more than 10 non-trading days
in the
prior quarter.
|
Finally,
when composing the Index, the Index Provider’s Selection and Oversight Committee
generally ensures that the Index as a whole meets the following
criteria.
|
|
·
|
At
least 85% of the weight of the Index must be comprised of component
securities which each have a minimum public float value of at least
$150
million and a minimum average daily trading value of at least $1
million
during the previous two months of
trading.
|
|
|
·
|
At
least 90% of the weight of the Index must be comprised of component
securities which each has a minimum monthly trading volume of at
least
250,000 shares during the last six months.
|
|
|
·
|
At
least 30% of Index value must be derived from component securities
for
which the market price per share closed above $3 for the majority
of the
trading days in the past six months, as measured by the highest closing
price recorded in the primary market on which the underlying security
trades.
|
|
|
·
|
No
component security may constitute 10% or more of total Index weight,
unless exempt by the Selection and Oversight Committee from this
requirement, provided that in no case will any component security
represent more than 15% of the total Index weight.
|
|
|
·
|
The
five heaviest weighted component securities may comprise no more
than 25%
of the total Index weight.
|
|
|
·
|
The
Index must contain 100 underlying component
securities.
|
Index
Review
The
Selection and Oversight Committee reviews and reconstitutes (as needed) the
Index semi-annually to ensure that it continues to reflect the performance
of
technology-driven companies. Changes that affect the composition of the Index
include: the addition or deletion of an Index-component security due to a
corporate action and the deletion of an index component security for failure
to
meet requirements specified for inclusion in the index.
Corporate
actions of a component security often have material impact on the value of
the
Index and cause reconstitution of the Index. For example, if a constituent
is
delisted by its principal exchange, enters bankruptcy proceedings, or is under
extreme financial distress, the security is removed immediately from the NYSE
Arca Tech 100 Index. Exceptions are made on a case-by-case basis. A security
might not be removed immediately when a bankruptcy filing is not a result of
operating or financial difficulties. If the issuing company of one or more
NYSE
Arca Tech 100 Index-constituent securities is acquired by or merges with another
company, then the original constituent and the acquirer's securities are
replaced by a security of the successor entity, provided that the successor
meets applicable eligibility criteria. Any such necessary reconstitutions of
the
Index are addressed within 3 business days of the effectiveness of the action
to
maintain the fixed number of stocks in the NYSE Arca Tech 100
Index.
For
the
sake of continuity, composition changes due to other eligibility requirements,
such as average daily volumes, public float, etc., between scheduled dates
are
rare. Extraordinary revisions are generally implemented as needed, when they
have a material effect on the value of the Index. When such an event
necessitates that one component be replaced, the entire Index is reviewed and
multiple component changes may be implemented simultaneously. Information
regarding such reconstitutions of the Index are disclosed to the public at
least
two business days prior to the reconstitution.
Index
Weighting and Calculation Methodology.
The
Index
is a price-weighted rather than market capitalization-weighted index. This
means
the index holds the same number of shares of each security, thus the price
of
the security is the influencing factor to the value of the Index. Higher-priced
securities have a higher weight in the index than lower-priced securities,
as
the shares of each component are equally held. Its' component weightings are,
therefore, affected only by changes in the stocks’ prices, in contrast with
other indices’ weightings that are affected by both price changes and changes in
the number of shares outstanding.
The
Effect of Dividends and the Dividend Policy.
The
Index
is a stock price index. The payment of normal dividends is not taken into
account when computing the Index. On the date on which dividends are announced,
the market price of the stock usually drops abruptly and this is also reflected
in the Index.
Special
dividends from either non-operating income or any cash dividends that are larger
than 10% of the stock price are included in the Index on ex-dividend date.
The
Index is adjusted to prevent the distributions from distorting the price
index.
Index
Calculation and Dissemination Processes.
Values
for the Index will be calculated whenever U.S. exchanges are open and will
be
disseminated every 15 seconds throughout the trading day using the latest traded
price of each common stock or ADR on its primary U.S. exchange. The closing
values of the Index are disseminated at 5:15 PM. U.S. Eastern Time, using the
closing price of each common stock or ADR on its primary U.S. exchange.
If
trading in a stock is suspended while its market is open, the last traded price
for that stock is used for all subsequent index computations until trading
resumes. If trading is suspended before the opening, the stock’s adjusted
closing price from the previous day is used to calculate the Index. Until a
particular stock opens, its adjusted closing price from the previous day is
used
in the Index computation.
Sources
of Data.
Dow
Jones
is the calculation agent using intra-day and last sale prices from the primary
market and reported to the CTA. Dow Jones manages and updates corporate
actions.
PORTFOLIO
TRANSACTIONS
All
orders for purchase or sale of portfolio securities are placed on behalf of
the
ETF by the Advisor, and the transactions may be effected through brokers and
dealers selected by the Advisor. Purchases and sales of securities on a stock
exchange are effected through brokers who charge a commission for their
services. Purchases and sales of securities traded over-the-counter may be
effected through brokers or dealers. Brokerage commissions on securities and
options are subject to negotiation between the Advisor, on behalf of the Trust,
and the broker.
Allocation
of transactions, including their frequency, to various dealers is determined
by
the Advisor in its best judgment, in a manner deemed fair and reasonable to
shareholders and in accordance with the Trust’s Broker Selection and Best
Execution Policy. The primary consideration is prompt and efficient execution
of
orders in an effective manner at the most favorable price. Some of the factors
that may be considered by the Advisor in selecting a broker or dealer include
the following: the execution price; the size and type of transaction; the nature
and character of the markets for the security to be purchased or sold; the
execution efficiency, settlement capability and financial condition of the
firm;
the execution services rendered on a continuing basis; the trading expertise;
the ability to provide anonymity; the reputation and integrity of the firm;
access to management of the firm; the reasonableness of any compensation paid;
and the provision of additional brokerage and research products and services.
In
addition, if the Advisor or another affiliate of an Advisor is utilized as
a
broker by the Trust, and other clients of such Advisor are considering the
same
types of transactions simultaneously, the Advisor will allocate the transactions
and securities in which they are made in a manner deemed by it to be equitable,
taking into account size, timing and amounts. This may affect the price and
availability of securities to the ETF.
Where
more than one broker or dealer is believed to be capable of providing a
combination of best net price and execution with respect to a particular
portfolio transaction, the Advisor often selects a broker or dealer that has
furnished it with investment research products or services such as: economic,
industry or company research reports or investment recommendations; accounting
and tax law interpretations; subscriptions to research data compilations or
certain other publications; compilations of securities prices, earnings,
dividends and similar data; computerized databases; research or analytical
computer software and services; or services of economic and other consultants.
Information so received will enable the Advisor to supplement its own research
and analysis with the views and information of other securities firms, and
may
be used for the benefit of clients of the Advisor other than the ETF. Research
services may include advice as to the value of securities; the advisability
of
investing in, purchasing or selling securities; the availability of securities
or purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance
and
settlement). Such selections are not made pursuant to any agreement or
understanding with any of the brokers or dealers. However, the Advisor does
in
some instances request a broker to provide a specific research or brokerage
product or service which may be proprietary to the broker or produced by a
third
party and made available by the broker and, in such instances, the broker in
agreeing to provide the research or brokerage product or service frequently
will
indicate to the Advisor a specific or minimum amount of commissions which it
expects to receive by reason of its provision of the product or service. The
Advisor does not agree with any broker to direct such specific or minimum
amounts of commissions; however, the Advisor maintains an internal procedure
to
identify those brokers who provide it with research products or services and
the
value of such products or services, and the Advisor endeavors to direct
sufficient commissions on client transactions to ensure the continued receipt
of
research products or services the Advisor feels are useful.
The
Trust
does not believe the ETF will pay brokerage commissions higher than those
obtainable from other brokers in return for research or brokerage products
or
services provided by brokers. Research or brokerage products or services
provided by brokers may be used by the Advisor in servicing any or all of its
clients (including the ETF), and such research products or services may not
necessarily be used by the Advisor in connection with client accounts (including
the ETF) which paid commissions to the brokers providing such product or
service.
For
particular transactions, the ETF may pay higher commissions to brokers than
might be charged if a different broker had been selected, if, in the Advisor’s
opinion, this policy furthers the objective of obtaining best price and
execution. The allocation of orders among brokers and the commission rates
paid
is reviewed periodically by the Trust’s Board of Trustees.
The
Advisor may direct portfolio transactions for the ETF to other broker-dealers
under arrangements in which a portion of the commissions paid to such
broker-dealers by the ETF are returned to the ETF and used to pay some of the
ETF’s expenses. The allocation of transactions to such broker-dealers will only
be made if it is consistent with “best execution.”
The
Trust
may execute brokerage or other agency transactions through registered
broker-dealer affiliates of either the Trust, the Advisor or the Distributor
for
a commission in conformity with the 1940 Act, the Securities Exchange Act of
1934 (the “Exchange Act”) and rules promulgated by the SEC. Under the 1940 Act
and the Exchange Act, affiliated broker-dealers are permitted to receive and
retain compensation for effecting portfolio transactions for the ETF on an
exchange if a written contract is in effect between the affiliate and the Trust
expressly permitting the affiliate to receive and retain such compensation.
These rules further require that commissions paid to the affiliate by the ETF
for exchange transactions not exceed “usual and customary” brokerage
commissions. The rules define “usual and customary” commissions to include
amounts which are “reasonable and fair compared to the commission, fee or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities being purchased or sold
on
a securities exchange during a comparable period of time.” The specified
procedures, which will be periodically reviewed, will be used by the Trust
to
evaluate the reasonableness of commissions paid to affiliates.
T
he
aggregate brokerage commissions paid by the ETF on purchases and sales of
portfolio securities for the fiscal year ended October 31, 2007 were $2,057.
The
Trust did not commence operations until March 2007. Therefore, it did not pay
any brokerage commissions in the fiscal years ended October 31, 2006 and October
31, 2005.
The
ETF
did not pay any brokerage commissions to B.C. Ziegler during the fiscal year
ended October 31, 2007 on purchases and sales of portfolio securities.
For
the
fiscal year ended October 31, 2007, the amount of portfolio transactions
directed to brokers with whom the ETF had "soft dollar" arrangements was
$1,735,808
,
and the
amount of brokerage commissions paid to such brokers was
$1,986
.
As
of
October 31, 2007, the ETF did not own any securities of its "regular
broker-dealers" (as defined in Rule 10b-1 under the 1940 Act).
VALUATION
The
following information supplements and should be read in conjunction with the
section in the Prospectus entitled “Valuing Shares.”
The
ETF’s
NAV is the value of a single share. The NAV of the ETF is computed by adding
the
value of the ETF’s investments, cash and other assets, subtracting its
liabilities, and dividing the result by the number of shares outstanding.
Expenses and fees, including without limitation, the management, administration
and distribution fees, are accrued daily and taken into account for purposes
of
determining NAV. The NAV per share for the ETF is calculated by J.P. Morgan
Investor Services Co. (the “Accounting/Pricing Agent”) and determined as of 4:00
p.m. Eastern Time on each day that the NYSE Arca Marketplace is open for
trading.
As
required by the 1940 Act, the ETF values its portfolio securities at their
market value when market quotations are readily available. When market
quotations are not readily available for a particular security (e.g., because
there is no regular market quotation for such security, the market for such
security is limited, the exchange or market in which such security trades does
not open for an entire trading day, the validity of quotations is questionable
or some significant event occurs after the close of trading of such security
and
before such security is valued), the ETF will value such security at its “fair
value” as determined in good faith by the Trust’s Board of Trustees. The Board
has delegated responsibility for daily pricing to the Advisor. The Advisor
has
appointed a Valuation Committee to perform such pricing functions in accordance
with pricing policies and procedures adopted by the Trust’s Board. The Valuation
Committee’s fair value determinations are reviewed regularly by the
Board.
Equity
securities that are traded on U.S. exchanges, including futures contracts and
options, and for which market quotations are readily available will be valued
at
their last sale price on the principal exchange on which such securities are
traded as of the close of regular trading on such exchange or, lacking any
sales, at the latest bid quotation. Over-the-counter securities for which a
last
sales price on the valuation date and at the valuation time is available will
be
valued at that price. All other over-the-counter securities for which market
quotations are readily available will be valued at the latest bid
quotation.
Because
market quotations for most debt and convertible securities are not readily
available, such securities will generally be valued using valuations published
by an independent pricing service. Preferred stock and options for which market
quotations are not readily available will be valued using an independent pricing
service. The pricing service uses various valuation methodologies such as matrix
pricing and other analytical pricing models as well as market transactions
and
dealer quotations. Debt securities purchased with maturities of 60 days or
less
will be valued on an amortized cost basis, under which the value of such
securities is equal to its acquisition cost, plus or minus any amortized
discount or premium in accordance with Rule 2a-7 under the 1940 Act. However,
because the ETF, for the most part, invests in securities for which market
quotations are available, the circumstances in which such valuation procedures
will be used is expected to be limited.
The
value
of ETF shares, when aggregated into Creation Units and sold or redeemed directly
by the ETF, is determined by the ETF’s NAV.
The
value
of ETF shares bought and sold in the secondary market is driven by market price.
The price of these shares, like the price of all traded securities, is subject
to factors such as supply and demand, as well as the current value of the
portfolio securities held by the ETF. Secondary market shares, available for
purchase or sale on an intraday basis, do not have a fixed relationship either
to the previous day’s NAV nor the current day’s NAV. Prices in the secondary
market, therefore, may be below, at or above the most recently calculated NAV
of
such shares.
BUYING
AND SELLING INFORMATION
The
following information supplements and should be read in conjunction with the
section of the Prospectus entitled “Shareholder Information.”
Book-Entry
Only System.
The
Depository Trust Company (“DTC”) acts as securities depository for the shares of
the ETF. Shares of the ETF are represented by securities registered in the
name
of DTC, or its nominee, and deposited with, or on behalf of, DTC.
DTC,
a
limited-purpose trust company, was created to hold securities of its
participants and to facilitate the clearance and settlement of securities
transactions among 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. 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.
Beneficial
ownership of shares is limited to DTC participants and persons holding interests
through DTC participants. Ownership of beneficial interests in shares (owners
of
beneficial interests are referred to herein as “Beneficial Owners”) is shown on,
and the transfer of ownership is effected only though, records maintained by
DTC
(with respect to DTC participants) and on the records of DTC participants (with
respect to indirect DTC participants and Beneficial Owners that are not DTC
participants). Beneficial Owners will receive from or through a DTC participant
a written confirmation relating to their purchase of shares.
Conveyance
of all notices, statements and other communications to Beneficial Owners is
effected as follows. Pursuant to the Depository Agreement between the Trust
and
DTC, DTC is required to make available to the Trust upon request and for a
fee
to be charged to the Trust a listing of the shares of the ETF held by each
DTC
participant. The Trust shall inquire of each such DTC participant as to the
number of Beneficial Owners holding ETF shares, 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 are made to DTC, or its nominee, as the registered holder of
all
shares. DTC, or its nominee, upon receipt of any such distribution, shall credit
immediately DTC participants’ accounts with payments in the amount proportionate
to their respective beneficial interests in shares of the ETF as shown on the
records of DTC, or its nominee. Payments by DTC participants to indirect DTC
participants and Beneficial Owners of shares held through such DTC participants
will be governed by standing instructions and customary practices, as is now
the
case with securities held for the account 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 such shares, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests, or for any other
aspect of the relationship between DTC and the DTC participants or the
relationship between such DTC participants and the indirect DTC participants
and
Beneficial Owners owning through such DTC participants.
DTC
may
decide to discontinue providing its service with respect to shares at any time
by giving reasonable notice to the Trust and discharging its responsibilities
with respect thereto under applicable law. Under such circumstances, the Trust
shall take action either to find a replacement for DTC to perform its functions
at a comparable price.
Creation
Units.
The
Trust
issues and redeems shares of the ETF only in Creation Unit aggregations on
a
continuous basis through the ETF’s Distributor, without a sales load, at its NAV
next determined after receipt, on any “Business Day” (as defined herein), of an
order in proper form. A “Business Day” is defined as any day that the Trust is
open for business as required by Section 22(e) of the 1940 Act. Each Creation
Unit consists of a block of 50,000 shares. The value of one Creation Unit of
the
ETF as of December 31, 2007, based on the ETF's NAV, was $1,312,500.
To
be
eligible to place orders with the Distributor to purchase a Creation Unit of
the
ETF, an entity must be an “Authorized Participant,” which is either (1) a
“Participating Party,” i.e., a broker-dealer or other participant in the
Continuous Net Settlement (“CNS”) System of the National Securities Clearing
Corporation (“NSCC”) (the “Clearing Process”), a clearing agency registered with
the SEC; or (2) a Participant in DTC, which in any case, has signed a
“Participant Agreement” with the Distributor. Investors should contact the
Distributor for the names of Authorized Participants that have signed a
Participant Agreement. All shares of the ETF, however created, will be entered
on the records of DTC in the name of Cede & Co. for the account of a DTC
participant.
Portfolio
Deposit.
The
consideration for purchase of a Creation Unit generally consists of an in-kind
deposit of a designated portfolio of equity securities (“Deposit Securities”)
constituting a substantial replication, or representation, of the stocks
included in the ETF’s Index and an amount of cash (“Balancing Amount”) computed
as described below. Together, the Deposit Securities and the Balancing Amount
constitute the “Portfolio Deposit,” which represents the minimum initial and
subsequent investment amount for a Creation Unit. The Balancing Amount serves
the function of compensating for any difference between the NAV per Creation
Unit and the market value of the Deposit Securities. If the Balancing Amount
is
a positive number (i.e., the net asset value per Creation Unit exceeds the
market value of the Deposit Securities), the Balancing Amount will be such
positive amount. If the Balancing Amount is a negative number (i.e., the net
asset value per Creation Unit is less than the market value of the Deposit
Securities), the Balancing Amount will be such negative amount and the purchaser
will be entitled to receive cash in an amount equal to the Balancing Amount.
The
Balancing Amount is an amount equal to the difference between the NAV of the
shares (per Creation Unit) and the market value of the Deposit Securities.
The
Balancing Amount will either be paid to or received from the ETF after the
NAV
has been calculated.
The
Advisor through NSCC
makes
available on each Business Day, prior to the opening of trading on the NYSE
Arca
Marketplace (currently 4:00 a.m. Eastern Time), a list of the names and the
required number of shares of each Deposit Security to be included in the current
Portfolio Deposit (based on the information at the end of the previous Business
Day) for the ETF. Such Portfolio Deposit is applicable, subject to any
adjustments as described below, in order to effect purchases of Creation Units
until such time as the next-announced Portfolio Deposit composition is made
available.
The
identity and number of shares of the Deposit Securities required for a Portfolio
Deposit for the ETF changes as rebalancing adjustments and corporate action
events, such as stock dividends, splits and right issues, are reflected from
time to time by the Advisor with a view to the investment objective of the
ETF.
The composition of the Deposit Securities may also change in response to
adjustments to the weighting or composition of the securities constituting
the
Index. In addition, the ETF reserves the right to permit or require the
substitution of an amount of cash (i.e., a cash in lieu amount) to be added
to
the Balancing Amount to replace any Deposit Security which may not be available
in sufficient quantity for delivery or which may not be eligible for transfer
through the Clearing Process, or which may not be eligible for trading by an
Authorized Participant or the investor for which it is acting. The adjustments
described above will reflect changes, known to the Advisor on the date of the
announcement to be in effect by the time of delivery of the Portfolio Deposit,
in the composition of the Index being tracked by the ETF or resulting from
certain corporate actions. No personnel of the Advisor or of any sub-advisor
with knowledge of the composition of a Creation Unit is allowed to disclose
such
information except as authorized in the course of his or her employment, until
such information is made public.
In
addition to the list of names and numbers of securities constituting the current
Deposit Securities of a Portfolio Deposit, on each Business Day, the previous
day’s Balancing Amount, per outstanding share of the ETF, is made available.
Procedures
for Creation Unit Purchases.
All
purchase orders must be placed for one or more Creation Units. All orders to
purchase Creation Units must be received by the Distributor no later than 4:00
p.m. Eastern Time, or 3:00 p.m. Eastern Time in the case of orders outside
the
Clearing Process, in each case on the date such order is placed in order for
the
creation of Creation Units to be effected based on the NAV of shares of the
ETF
as next determined on such date after receipt of the order in proper form.
The
date on which an order to purchase Creation Units (or an order to redeem
Creation Units as discussed below) is placed is referred to as the “Transmittal
Date.” Orders must be transmitted by an Authorized Participant by telephone or
other transmission method acceptable to the Distributor pursuant to procedures
set forth in the Participant Agreement (see “Purchasing Through the Clearing
Process” and “Purchasing Outside the Clearing Process” below). Severe economic
or market disruption or changes, or telephone or other communications failure
may impede the ability to reach the Distributor or an Authorized Participant.
All
orders to purchase Creation Units shall be placed with an Authorized
Participant, as applicable, in the form required by such Authorized Participant.
In addition, the Authorized Participant may require the investor to make certain
representations or enter into agreements with respect to the order, including
payments of cash to pay the Balancing Amount, when required. Investors should
be
aware that their particular broker may not have executed a Participant Agreement
and that, therefore, orders to purchase 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.
Those
placing orders to purchase Creation Units through the Clearing Process should
afford sufficient time to permit proper submission of the order to the
Distributor prior to 4:00 p.m. Eastern Time on the Transmittal Date. Orders
of
Creation Units effected outside the Clearing Process are likely to require
transmittal by the DTC participant earlier on the Transmittal Date than orders
effected using the Clearing Process. Those persons placing orders outside the
Clearing Process should do so in a timely manner so as to ensure the delivery
of
both the Deposit Securities, through DTC, and the Balancing Amount, through
the
Federal Reserve Bank wire system to the Custodian, by 11:00 a.m. and 2:00 p.m.
Eastern Time, respectively, on the next Business Day immediately following
the
Transmittal Date.
Purchases
Through the Clearing Process.
The
Clearing Process is the process of purchasing or redeeming Creation Units
through the CNS System of the NSCC. Portfolio Deposits made through the Clearing
Process must be delivered through an Authorized Participant that has executed
a
Participant Agreement. The Participant Agreement authorizes the Distributor
to
transmit through the transfer agent to NSCC, on behalf of the Authorized
Participant, such trade instructions as are necessary to effect the Authorized
Participant’s purchase order. Pursuant to such trade instructions to NSCC, the
Authorized Participant agrees to deliver the requisite Deposit Securities and
the Balancing Amount to the ETF, together with such additional information
as
may be required by the Distributor. An order to purchase Creation Units through
the Clearing Process is deemed received by the Distributor on the Transmittal
Date if (i) such order is received by the Distributor not later than 4:00 p.m.
Eastern Time on such Transmittal Date; and (ii) all other procedures set forth
in the Participant Agreement are properly followed. The delivery of Creation
Units so purchased will occur no later than the third (3
rd
)
Business Day following the day on which the purchase order is deemed received
by
the Distributor. In certain cases, Authorized Participants purchase and redeem
Creation Units of the ETF on the same Transmittal Date. In these instances,
the
ETF reserves the right to settle these transactions on a net basis.
Purchases
Outside the Clearing Process.
Portfolio
Deposits made outside the Clearing Process must be delivered through a DTC
participant that has executed a Participant Agreement. A DTC participant who
wishes to place an order to purchase Creation Units outside the Clearing Process
must state that the DTC participant is not using the Clearing Process and that
the purchase of Creation Units will instead be effected through a transfer
of
securities and cash directly through DTC and the ETF’s Custodian. The Portfolio
Deposit transfer must be ordered by the DTC participant on the Transmittal
Date
in a timely fashion so as to ensure the delivery of the requisite number of
Deposit Securities through DTC to the account of the ETF by no later than 11:00
a.m. Eastern Time of the next Business Day immediately following the Transmittal
Date. In certain cases, Authorized Participants will purchase and redeem
Creation Units of the ETF on the same Transmittal Date. In these instances,
the
ETF reserves the right to settle these transactions on a net basis.
All
questions as to the number of Deposit Securities to be delivered, and the
validity, form and eligibility (including time of receipt) for the deposit
of
any tendered securities, are determined by the ETF, whose determination shall
be
final and binding. The amount of cash equal to the Balancing Amount must be
transferred directly to the ETF’s Custodian through the Federal Reserve Bank
wire transfer system in a timely manner so as to be received by the ETF’s
Custodian no later than 2:00 p.m. Eastern Time
on
the
next Business Day immediately following such Transmittal Date. An order to
purchase Creation Units outside the Clearing Process is deemed received by
the
Distributor on the Transmittal Date if (i) such order is received by the
Distributor not later than 3:00 p.m. Eastern Time on such Transmittal Date;
and
(ii) all other procedures set forth in the Participant Agreement are properly
followed. However, if the ETF’s Custodian does not receive both the required
Deposit Securities and the Balancing Amount by 11:00 a.m. and 2:00 p.m.,
respectively, on the next Business Day immediately following the Transmittal
Date, such order will be deemed not in proper form and canceled. Upon written
notice to the Distributor, such canceled order may be resubmitted the following
Business Day using a Portfolio Deposit as newly constituted to reflect the
next
calculated NAV of the ETF. The delivery of Creation Units so purchased will
occur not later than the third (3
rd
)
Business Day following the day on which the purchase order is deemed received
by
the Distributor.
Creation
Units may be created in advance of receipt by the ETF of all or a portion of
the
applicable Deposit Securities as described below. In these circumstances, the
initial deposit will have a value greater than the NAV of the shares on the
date
the order is placed in proper form since, in addition to available Deposit
Securities, cash must be deposited in an amount equal to the sum of (i) the
Balancing Amount; plus (ii) 115% of the market value of the undelivered Deposit
Securities (the “Additional Cash Deposit”). The order shall be deemed to be
received on the Business Day on which the order is placed provided that the
order is placed in proper form prior to 3:00 p.m. Eastern Time on such date
and
federal funds in the appropriate amount are deposited with the ETF’s Custodian
by 11:00 a.m. Eastern Time the following Business Day. If the order is not
placed in proper form by 3:00 p.m. or federal funds in the appropriate amount
are not received by 11:00 a.m. the next Business Day, then the order may be
deemed to be rejected and the Authorized Participant shall be liable to the
ETF
for losses, if any, resulting therefrom. An additional amount of cash shall
be
required to be deposited with the ETF pending delivery of the missing Deposit
Securities to the extent necessary to maintain the Additional Cash Deposit
with
the ETF in an amount at least equal to 115%
of
the
daily mark-to-market value of the missing Deposit Securities. To the extent
that
missing Deposit Securities are not received by 11:00 a.m. Eastern
Time
on
the
third (3
rd
)
Business Day following the day on which the purchase order is deemed received
by
the Distributor or in the event a mark-to-market payment is not made within
one
Business Day following notification by the Distributor that such a payment
is
required, the ETF may use the cash on deposit to purchase the missing Deposit
Securities. Authorized Participants will be liable to the ETF for the costs
incurred by the ETF in connection with any such purchases. These costs will
be
deemed to include the amount by which the actual purchase price of the Deposit
Securities exceeds the market value of such Deposit Securities on the day the
purchase order was deemed received by the Distributor plus the brokerage and
related transaction costs associated with such purchases. The ETF will return
any unused portion of the Additional Cash Deposit once all of the missing
Deposit Securities have been properly received by the Distributor or purchased
by the ETF and deposited into the ETF. In addition, a transaction fee of $1,000
will be charged in all cases, as well as an additional fee of $3,000. The
delivery of Creation Units so purchased will occur no later than the third
(3
rd
)
Business Day following the day on which the purchase order is deemed received
by
the Distributor.
Rejection
of Purchase Orders.
The
Trust, on behalf of the ETF, reserves the absolute right to reject a purchase
order transmitted to it by the Distributor if (i) the order is not in proper
form; (ii) the investor(s), upon obtaining the shares ordered, would own 80%
or
more of the currently outstanding shares of the ETF; (iii) the Deposit
Securities delivered are not as disseminated through the facilities of NSCC
for
that date by the Distributor, as described above; (iv) acceptance of the Deposit
Securities would have certain adverse tax consequences to the ETF; (v)
acceptance of the Portfolio Deposit would, in the opinion of counsel, be
unlawful; (vi) acceptance of the Portfolio Deposit would otherwise, in the
discretion of the Trust or the Advisor, have an adverse effect on the ETF or
the
rights of Beneficial Owners; or (vii) in the event that circumstances outside
the control of the Trust, the ETF, the Advisor, the Distributor and the transfer
agent make it impractical to process creation orders. Examples of such
circumstances include acts of God; public service or utility problems such
as
fires, floods, extreme weather conditions and power outages resulting in
telephone, telecopy and computer failures; market conditions or activities
causing trading halts; systems failures involving computer or other information
systems affecting the Trust, the ETF, the Advisor, the Distributor, DTC, NSCC,
the transfer agent or any other participant in the purchase process, and similar
extraordinary events. The ETF has the right to require information to determine
beneficial share ownership for purposes of (ii) above should it so choose or
to
rely on a certification from a broker-dealer who is a member of the FINRA as
to
the cost basis of Deposit Securities. The Distributor shall notify a prospective
purchaser of a Creation Unit and/or the Authorized Participant acting on the
purchaser’s behalf, of its rejection of the purchaser’s order. The Trust, the
ETF, the transfer agent, the Custodian and the Distributor are under no duty,
however, to give notification of any defects or irregularities in the delivery
of a Portfolio Deposit, nor shall any of them incur any liability for the
failure to give any such notification.
Transaction
Fees on Purchases of Creation Units.
A
fixed
transaction fee of $1,000 is applicable to each purchase, regardless of the
number of Creation Units purchased. An additional transaction charge of $3,000
will be imposed for purchases effected outside the Clearing Process, which
would
include purchases of Creation Units for cash and in-kind purchases where the
investor is allowed to substitute cash in lieu of depositing a portion of the
Deposit Securities. Accordingly, the maximum transaction fee charge may be
$4,000. Purchasers of shares in Creation Units are responsible for the costs
of
transferring the securities constituting the Deposit Securities to the account
of the ETF. Investors are also responsible for payment of the costs of
transferring the Deposit Securities to the ETF. Investors who use the services
of a broker or other such intermediary may be charged a fee for such services.
The transaction fees are charged to cover the estimated costs associated with
the issuance of Creation Units.
Redemption
of Creation Units.
Shares
may be redeemed only in Creation Units at their NAV next determined after
receipt of a redemption request in proper form by the ETF through the
Distributor and only on a Business Day. The ETF does not redeem shares in
amounts less than Creation Unit-size aggregations. Beneficial Owners must
accumulate enough shares in the secondary market to constitute a Creation Unit
in order to have such shares redeemed by the ETF. 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 to constitute a redeemable Creation Unit.
The
Advisor through NSCC
makes
available prior to the opening of trading on the NYSE Arca Marketplace
(currently 4:00 a.m. Eastern Time) on each Business Day, the identity of the
basket of securities (the “Fund Securities”) that will be applicable (subject to
possible amendment or correction) to redemption requests received in proper
form
(as defined below) on that day. Fund Securities received on redemption may
not
be identical to Deposit Securities that are applicable to purchases of Creation
Units.
Unless
cash redemptions are available or specified for the ETF, the redemption proceeds
for a Creation Unit generally consists of Fund Securities—as announced by the
Advisor 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 the
shares being redeemed, as next determined after a receipt of the request in
proper form, and the value of the Fund Securities (the “Cash Redemption
Amount”), less a redemption transaction fee as listed below. In the event that
the Fund Securities have a value greater than the NAV of the shares, a
compensating cash payment equal to the differential is required to be made
by or
through an Authorized Participant by the redeeming shareholder.
Consistent
with provisions of Section 22(e) of the 1940 Act and Rule 22e-2 thereunder,
the
right to redeem will not be suspended, nor payment upon redemption delayed,
except as provided by Section 22(e) of the 1940 Act.
Redemption
Through the Clearing Process.
Orders
to
redeem Creation Units through the Clearing Process must be delivered through
an
Authorized Participant. An order to redeem Creation Units using the Clearing
Process is deemed received on the Transmittal Date if (i) such order is received
in proper form by the Distributor not later than 4:00 p.m. Eastern Time on
such
Transmittal Date; and (ii) all other procedures set forth in the Participant
Agreement are properly followed, such order will be effected based on the NAV
of
the ETF as next determined. An order to redeem Creation Units using the Clearing
Process made in proper form but received by the ETF after 4:00 p.m. Eastern
Time
will be deemed received on the next Business Day immediately following the
Transmittal Date and will be effected at the NAV next determined on such
Business Day. The requisite Fund Securities and the Cash Redemption Amount
will
be transferred by the third (3
rd
)
Business Day following the date on which such request for redemption is deemed
received, which in no event shall be more than seven (7) days after such request
for redemption. In certain cases, Authorized Participants will redeem and
purchase Creation Units of the ETF on the same Transmittal Date. In these
instances, the ETF reserves the right to settle these transactions on a net
basis.
Redemptions
Outside the Clearing Process.
Orders
to
redeem Creation Units outside the Clearing Process must be delivered through
a
DTC participant. A DTC participant who wishes to place an order for redemption
of Creation Units to be effected outside the Clearing Process must state that
it
is not using the Clearing Process and that redemption of Creation Units will
instead be effected through a transfer of shares directly through DTC. An order
to redeem Creation Units outside the Clearing Process is deemed received by
the
ETF on the Transmittal Date if (i) such order is received in proper form by
the Distributor not later than 3:00 p.m. Eastern Time on such Transmittal Date;
(ii) such order is accompanied or followed by the requisite number of
shares of the ETF and the Cash Redemption Amount specified in such order, which
delivery must be made through DTC to the ETF’s Custodian no later than 11:00
a.m., for the shares, and 2:00 p.m., for the Cash Redemption Amount, Eastern
Time
on
the
next Business Day following such Transmittal Date (the “DTC Cut-Off Time”); and
(iii) all other procedures set forth in the Participant Agreement are
properly followed. The requisite Fund Securities and the Cash Redemption Amount
will be transferred by the third (3
rd
)
Business Day following the date on which such request for redemption is deemed
received, which in no event shall be more than seven (7) days after such request
for redemption. In certain cases, Authorized Participants will redeem and
purchase Creation Units of the ETF on the same Transmittal Date. In these
instances, the ETF reserves the right to settle these transactions on a net
basis.
To
the
extent contemplated by an Authorized Participant’s agreement, in the event the
Authorized Participant has submitted a redemption request in proper form but
is
unable to transfer all or part of the Creation Units to be redeemed by the
Distributor, on behalf of the ETF, at or prior to the time required above on
the
date such redemption request is submitted, the Distributor will nonetheless
accept the redemption request in reliance on the undertaking by the Authorized
Participant to deliver the missing ETF shares as soon as possible, which
undertaking shall be secured by the Authorized Participant’s delivery and
maintenance of collateral consisting of cash having a value (mark-to-market
daily) at least equal to 115% of the value of the missing ETF shares. The
current procedures for collateralization of missing shares require, among other
things, that any cash collateral shall be in the form of U.S. dollars in
immediately available funds and shall be held by the ETF and mark-to-market
daily, and that the fees of the ETF and any sub-custodians in respect of the
delivery, maintenance and redelivery of the cash collateral shall be payable
by
the Authorized Participant. The Authorized Participant’s agreement will permit
the ETF to purchase the missing ETF shares or acquire the Deposit Securities
and
the Balancing Amount underlying such shares at any time and will subject the
Authorized Participant to liability for any shortfall between the cost to the
ETF of purchasing such shares, Deposit Securities or Balancing Amount and the
value of the collateral.
The
calculation of the value of the Fund Securities and the Cash Redemption Amount
to be delivered upon redemption will be made by the Custodian according to
the
procedures set forth in the section entitled “Valuation” computed on the
Business Day on which a redemption order is deemed received by the Distributor.
Therefore, if a conforming redemption order in proper form is submitted to
the
Distributor by a DTC participant not later than 4:00 p.m. Eastern Time, or
3:00
p.m. Eastern Time in the case of nonconforming orders, on the Transmittal Date,
and the requisite number of shares of the ETF are delivered to the ETF’s
Custodian prior to the DTC Cut-Off Time, then the value of the Fund Securities
and the Cash Redemption Amount to be delivered will be determined by the
Custodian on such Transmittal Date. If, however, a conforming redemption order
is submitted to the Distributor by an Authorized Participant not later than
4:00
p.m. Eastern Time on the Transmittal Date but either (i) the requisite number
of
shares of the ETF and the Cash Redemption Amount are not delivered by the DTC
Cut-Off Time as described above on the next Business Day following the
Transmittal Date; or (ii) the redemption order is not submitted in proper form,
then the redemption order will not be deemed received as of the Transmittal
Date. In such case, the value of the Fund Securities and the Cash Redemption
Amount to be delivered will be computed on the Business Day that such order
is
deemed received by the Distributor (i.e., the Business Day on which the shares
of the ETF are delivered through DTC to the Custodian by the DTC Cut-Off Time
on
such Business Day pursuant to a properly submitted redemption
order).
If
it is
not possible to effect deliveries of the Fund Securities, the ETF may in its
discretion exercise its option to redeem such shares in cash, and the redeeming
Beneficial Owner will be required to receive its redemption proceeds in cash.
In
addition, an investor may request a redemption in cash that the ETF may, in
its
sole discretion, permit. In either case, the investor will receive a cash
payment equal to the NAV of its shares based on the NAV of shares of the ETF
next determined after the redemption request is received in proper form (minus
a
redemption transaction fee and additional charge for requested cash redemptions
specified above, to offset the ETF’s brokerage and other transaction costs
associated with the disposition of Fund Securities). The ETF may also, in its
sole discretion, upon request of a shareholder, provide such redeemer a
portfolio of securities which differs from the exact composition of the Fund
Securities but does not differ in NAV.
Redemption
of shares for Fund Securities will be subject to compliance with applicable
federal and state securities laws and the ETF (whether or not it otherwise
permits cash redemptions) reserves the right to redeem Creation Units for cash
to the extent that the ETF could not lawfully deliver specific Fund Securities
upon redemptions or could not do so without first registering the Fund
Securities under such laws. An Authorized Participant or a Beneficial Owner
for
which it is acting subject to a legal restriction with respect to a particular
stock included in the Fund Securities is applicable to the redemption of a
Creation Unit may be paid an equivalent amount of cash. The Authorized
Participant may request the redeeming Beneficial Owner of the shares to complete
an order form or to enter into agreements with respect to such matters as
compensating cash payment, beneficial ownership of shares or delivery
instructions.
Transaction
Fees on Redemption of Creation Units.
A
fixed
transaction fee of $1,000 is applicable to each redemption, regardless of the
number of Creation Units redeemed. An additional charge of $3,000 will be
imposed for redemptions effected outside the Clearing Process, which would
include cash redemptions. Accordingly, the maximum transaction fee charge may
be
$4,000. Investors will also bear the costs of transferring the Fund Securities
from the ETF to their account or on their order. Investors who use the services
of a broker or other such intermediary may be charged a fee for such services.
The transaction fees are charged to cover the estimated costs associated with
the redemption of Creation Units.
MANAGEMENT
OF THE TRUST
Board
Responsibilities.
Under
applicable law, the Board of Trustees is responsible for management of the
Trust, and provides broad supervision over its affairs. The Board of Trustees
meets regularly to review the ETF’s investments, performance and expenses. The
Board elects the officers of the Trust, and hires the ETF’s service providers,
including the ETF’s investment advisor and distributor of the ETF’s shares. The
Board annually reviews and considers approval of the continuation of the
investment advisory agreement with the Advisor and the ETF’s distribution plan
and related agreements, and annually approves the selection of independent
public accountants for the ETF. The Board also establishes, monitors and
periodically reviews numerous policies and procedures governing the conduct
of
the Trust’s business.
Members
of the Board.
Set
forth
below is the name, address, birthdate, position with the Trust, length of term
of office, principal occupations for a minimum of the last five years, number
of
portfolios of the Trust overseen by and other directorships held by each of
the
persons currently serving as Trustees of the Trust.
|
Name,
Address &
Birthdate
|
|
Position(s)
Held with
the
Trust
|
|
Term
of Office
and
Length
of
Time
Served
(1)
|
|
Principal
Occupation(s)
During
Past
Five
Years
|
|
Number
of Portfolios of the Trust Overseen
by
Trustee
|
|
Other
Directorships
(2)
Held
by
Trustees
|
|
|
|
|
|
|
|
|
|
|
|
Independent
Trustees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcia
L. Wallace
200
South Wacker Drive
Suite
2000
Chicago,
IL 60606
Birthdate:
12-2-47
|
|
Trustee
and Independent Chair
|
|
Since
2005
|
|
Retired;
Senior Vice President in Global Trust Services and Institutional
Custody,
First Chicago NBD/Bank One from 1985 to 1999.
|
|
1
|
|
The
North Track Funds, Inc. (10 Portfolios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
G. DeJong
200
South Wacker Drive
Suite
2000
Chicago,
IL 60606
Birthdate:
10-18-51
|
|
Trustee
|
|
Since
2005
|
|
President
and Managing Shareholder, O’Neil, Cannon, Hollman, DeJong, S.C. (law firm)
since 1987.
|
|
1
|
|
The
North Track Funds, Inc. (10 Portfolios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
J. Girvan
200
South Wacker Drive
Suite
2000
Chicago,
IL 60606
Birthdate:
10-20-55
|
|
Trustee
|
|
Since
2005
|
|
Partner,
Ascent Venture Management, Inc. since August 2003; Chief Operating
Officer
and Chief Financial Officer of Argo Global Capital, LLC (venture
capital
company) from 2001 to 2003; Senior Vice President and Division Executive
of Fidelity Investments from 1999 to 2001; Senior Vice President
and Group
CFO of Fidelity Investments from 1998 to 1999.
|
|
1
|
|
The
North Track Funds, Inc. (10 Portfolios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cornelia
Boyle
200
South Wacker Drive
Suite
2000
Chicago,
IL 60606
Birthdate:
09-23-53
|
|
Trustee
|
|
Since
2005
|
|
Currently
Retired; Executive Vice President and Chief Operations Officer of
AIG
SunAmerica Retirement Markets, Inc.
(distribution
and marketing company for variable annuity and retirement
products)
from 2000 to 2003; and Executive Vice President, Fidelity Investments
from
1996 to 2000.
|
|
1
|
|
The
North Track Funds, Inc. (10 Portfolios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interested
Trustees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
J. Mulherin(3)
200
South Wacker Drive
Suite
2000
Chicago,
IL 60606
Birthdate:
5-18-51
|
|
Trustee
|
|
Since
2005
|
|
Chief
Executive Officer, The Ziegler Companies, Inc. since February
2000.
|
|
1
|
|
The
North Track Funds, Inc. (10
Portfolios)
|
|
(1)
|
Trustees
of the Trust serve a term of indefinite length until their resignation
or
removal, and stand for re-election by shareholders only as and when
required under the 1940 Act.
|
|
(2)
|
Only
includes directorships held in a company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of
1934 or subject to the requirements of Section 15(d) of the
Securities Exchange Act of 1934, or any company registered as
an
investment company under the 1940
Act.
|
|
(3)
|
This
Trustee is deemed to be an “interested person” of the Trust, within the
meaning of Section 2(a)(19) of the 1940 Act, because of his affiliation
with the Advisor and the
Distributor.
|
Board
Standing Committees.
The
Board
has established the following standing committees:
Audit
Committee.
The
Board has a standing Audit Committee. The Audit Committee consists of all the
independent trustees, namely Brian J. Girvan (chair), James G. DeJong, Cornelia
Boyle and Marcia L. Wallace. Mr. Girvan has been determined to be an audit
committee financial expert. The Audit Committee annually selects an independent
public accountant for the Trust; reviews the independent public accountant’s
compensation, proposed scope and terms of engagement; reviews and confirms
the
independent public accountant’s independence; and oversees the preparation of
the Trust’s financial statements. In this capacity, the Audit Committee meets at
least annually with the independent public accountants to discuss any issues
surrounding the preparation and audit of the Trust’s financial statements,
including, but not limited to, considering any significant disputes between
the
Trust’s management and the independent public accountant; reviewing any major
changes regarding auditing and accounting principles; and analyzing practices
to
be followed when preparing the Trust’s financial statements. The Audit Committee
also discusses with the independent public accountants the strengths and
weaknesses of the systems and operating procedures employed in connection with
the preparation of the Trust’s internal financial statements, pricing procedures
and the like, as well as the performance and cooperation of staff members
responsible for these functions. The Audit Committee has adopted a written
charter.
The
Audit
Committee met three times during the fiscal year ended October 31, 2007.
Nominating
Committee.
The
Board
has a standing Nominating Committee that is composed of James G. DeJong (chair),
Brian J. Girvan and Marcia L. Wallace. The Nominating Committee nominates
candidates for appointment to the Board of Trustees to fill vacancies and to
nominate candidates for election and re-election to the Board as and when
required. No policy or procedure has been established as to the recommendation
of trustee nominees by shareholders, except that nominations of trustees who
are
not “interested persons” must be made and approved by the Nominating Committee.
The Nominating Committee has adopted a written charter.
The
Nominating Committee met
two
times
during the fiscal year ended October 31, 2007.
Pricing
Committee.
The
Board
has a standing Pricing Committee that is composed of Cornelia Boyle (chair)
and
Marcia L. Wallace. The Pricing Committee oversees the pricing policies and
guidelines established by the Board of Trustees and confers with management
personnel of the Advisor on matters relating to the pricing of securities held
by the ETF. The Pricing Committee has adopted a written charter.
The
Pricing Committee met two
times
during the fiscal year ended October 31, 2007.
Contract
Review Committee.
The
Board has a standing Contract Review Committee that is composed of all the
independent trustees, namely James G. DeJong (chair), Brian J. Girvan, Cornelia
Boyle and Marcia L. Wallace. The Contract Review Committee reviews the ETF’s
advisory contract and contracts with other service providers, to the extent
necessary. The Contract Review Committee will report to the full board regarding
its review of the advisory agreement and make recommendations regarding its
adoption or continuation.
The
Contract Review Committee has adopted a written charter. The Contract Review
Committee met three times during the fiscal year ended October 31, 2007.
ETF
Shares Owned by Board Members.
The
table
below sets forth the dollar range of ETF shares owned by each Trustee as of
December 31, 2007.
|
Name
of Trustee
|
Dollar
Range of Equity
Securities
in the Trust
|
Aggregate
Dollar Range of Equity
Securities
in all Registered
Investment
Companies Overseen by
Trustee
in Family of Investment
Company
|
|
Marcia
L. Wallace
|
$1-10,000
|
$1-10,000
|
|
James
G. DeJong
|
None
|
None
|
|
Brian
J. Girvan
|
None
|
None
|
|
Cornelia
Boyle
|
$10,001-50,000
|
$10,001-50,000
|
|
John
J. Mulherin
|
None
|
None
|
No
Trustee who is not an interested person of the Trust, or his or her immediate
family members, owned beneficially or of record, as of December 31, 2007, any
securities of the Advisor, the Distributor or any person controlling, controlled
by or under common control with the Advisor or the Distributor.
Board
Compensation.
The
Trust
pays the compensation of the Trustees who are not officers, directors or
employees of the Advisor or the Distributor. The Trust may also retain
consultants, who will be paid a fee, to provide the Board with advice and
research on governance matters and advisory and other types of fees.
The
table
below sets forth compensation paid by the Trust to the Trustees as of
October 31, 2007. No compensation information is provided for John Mulherin
because he is an officer of the Advisor and/or the Distributor.
|
Name
of Person and
Position
with
the
Trust
|
Compensation
from
the
Trust
|
Pension
or
Retirement
Benefits
Accrued
As
Part of Trust
Expenses
|
Estimated
Annual
Benefits
Upon
Retirement
|
Total
Compensation
From
the Trust and
the
Fund Complex
(1)
Paid
to Trustees
|
|
Cornelia
Boyle, Independent Trustee
|
$3,900
(NYSE
Arca Tech 100 ETF)
|
$0
|
$0
|
$31,779
|
|
James
G. DeJong, Independent Trustee
|
$3,900
(NYSE Arca Tech 100 ETF)
|
$0
|
$0
|
$31,779
|
|
Brian
J. Girvan, Independent Trustee
|
$3,900
(NYSE Arca Tech 100 ETF)
|
$0
|
$0
|
$31,779
|
|
Marcia
L. Wallace, Independent Trustee and Independent Chair
|
$4,723
(NYSE Arca Tech 100 ETF)
|
$0
|
$0
|
$38,482
|
|
(1)
|
The
Fund Complex includes the North Track Funds, Inc., an open-end investment
company, which is also advised by ZCM. ZCM serves as investment advisor
to
all 10 portfolios of the North Track Funds,
Inc.
|
Trust
Officers.
Set
forth
below are the names, addresses, birthdates, positions with the Trust, length
of
term of office and the principal occupation for a minimum of the last five
years
of each of the persons currently serving as Executive Officers of the Trust.
|
Name,
Address &
Birthdate
|
|
Position(s)
Held with
the
Trust
|
|
Term
of Office
and
Length
of
Time
Served
(1)
|
|
Principal
Occupation(s)
During
Past
Five
Years
|
|
Brian
K. Andrew
200
South Wacker Drive
Suite
2000
Chicago,
IL 60606
Birthdate:
10-31-62
|
|
President
and Chief Executive Officer
|
|
Since
2006
|
|
President
and Director, Ziegler Capital Management, LLC since 2006; President,
North
Track Funds, Inc. since 2006; Senior Managing Director of The Ziegler
Companies, Inc. since 2000; Chief Investment Officer, The Ziegler
Companies, Inc. from 2000 to 2006.
|
|
|
|
|
|
|
|
|
|
Todd
A. Krause
200
South Wacker Drive
Suite
2000
Chicago,
IL 60606
Birthdate:
2-20-63
|
|
Chief
Financial Officer and Treasurer
|
|
Since
2007
|
|
Chief
Financial Officer and Director, Ziegler Capital Management, LLC since
2007; Chief Financial Officer and Treasurer, Ziegler Exchange Traded
Trust
since 2007; First Vice President of LaSalle Fund Services, ABN Amro
LaSalle Bank NA from 2006 to 2007; Chief Financial Officer and Manager
of
Fund Operations, Trident Financial Services, LLC from 2002 to 2006;
Chief
Financial Officer and Manager of Operations, Anchor Asset Management,
LLC
(registered
investment advisor)
from
2001 to 2002.
|
|
|
|
|
|
|
|
|
|
Benjamin
H. DeBerry
200
South Wacker Drive
Suite
2000
Chicago,
IL 60606
Birthdate:
4-29-71
|
|
Secretary
|
|
Since
2007
|
|
Senior
Managing Director and General Counsel, The Ziegler Companies, Inc.
since
2007; Secretary, Ziegler Exchange Traded Trust since 2007; Senior
Counsel
of the Networks and Enterprise Business, Motorola, Inc.
(communications
company)
from 2005 to 2007; Associate, Wildman, Harold, Allen & Dixon LLP (law
firm) from 2004 to 2005; Associate, Chapman and Cutler LLP (law firm)
from
2002 to 2004.
|
|
|
|
|
|
|
|
|
|
Angelique
A. David
200
South Wacker Drive
Suite
2000
Chicago,
IL 60606
Birthdate:
7-26-77
|
|
Assistant
Secretary
|
|
Since
2007
|
|
Vice
President and Assistant General Counsel, The Ziegler Companies, Inc.
since
2007; Assistant Secretary, Ziegler Exchange Traded Trust since 2007;
Associate, Locke Lord Bissell & Liddell LLP (law firm) from 2002 to
2007.
|
|
|
|
|
|
|
|
|
|
Elizabeth
A. Watkins
200
South Wacker Drive
Suite
2000
Chicago,
IL 60606
Birthdate:
1-29-68
|
|
Chief
Compliance Officer
|
|
Since
2007
|
|
Senior
Managing Director and Chief Compliance Officer, The Ziegler Companies,
Inc. since 2007; Chief Compliance Officer, Ziegler Exchange Traded
Trust
since 2007; Managing Director and Chief Compliance Officer, The Ziegler
Companies, Inc. from 2006 to 2007; Vice President and Chief Compliance
Officer, The Ziegler Companies, Inc. from 2003 to 2006; Compliance
Consultant, Northwestern Mutual Investment Services from 2002 to
2003;
Vice President of Brokerage Services, Oberweis Securities, Inc. from
1999
to 2002.
|
|
(1)
|
Officers
of the Trust serve one-year terms, subject to annual reappointment
by the
Board of Trustees.
|
Material
Transactions With Independent Trustees.
No
Trustee who is not an interested person of the Trust, or immediate family member
of that Trustee, has had, during the two most recently completed calendar years,
a direct or indirect interest in the Advisor, the Distributor or in any person
directly or indirectly controlling, controlled by or under common control with
the Advisor or the Distributor exceeding $120,000. In addition, no Trustee
who
is not an interested person of the Advisor or the Distributor, or any immediate
family members of that Trustee, has had, during the two most recently completed
calendar years, a direct or indirect material interest in any transaction or
series of similar transactions in which the amount involved exceeds $120,000
and
to which one of the parties was the Trust; an officer of the Trust; an
investment company or an officer of an investment company having the Advisor
or
the Distributor as its investment advisor or principal underwriter or having
an
investment advisor or principal underwriter that directly or indirectly
controls, is controlled by or under common control with the Advisor or the
Distributor; the Advisor or Distributor; or an officer of the Advisor or the
Distributor. No Trustee who is not an interested person of the Trust, or
immediate family member of such a Trustee, has had, in the two most recently
completed calendar years, a direct or indirect relationship in which the amount
involved exceeds $120,000, with any of the persons described above in this
paragraph and which include payments for property or services to or from any
of
those persons; provision of legal services to any person specified above in
this
paragraph; provision of investment banking services to any person specified
above in this paragraph, other than a participating underwriter in a syndicate;
or any consulting or other relationship that is substantially similar in nature
and scope to the relationships detailed herein. No Trustee who is not an
interested person of the Trust, or immediate family member of such a Trustee,
has been, during the two most recently completed years, an officer of a company
for which an officer of the Advisor or the Distributor or an officer of a person
directly or indirectly controlling, controlled by or under common control with
the Advisor or the Distributor was a director.
INVESTMENT
ADVISORY SERVICES
Under
an
investment advisory agreement with the Advisor, Ziegler Capital Management,
LLC,
the Advisor serves as the investment advisor for the Trust and provides
investment advice to the ETF and oversees the day-to-day operation of the ETF,
subject to direction and control by the Trustees and the officers of the Trust.
As of December 31, 2007, net assets under discretionary management of the
Advisor and its affiliates were approximately $3.5 billion. For its investment
management services, the ETF pays the Advisor a fee of 0.30% on the first $250
million in average daily net assets; 0.25% on the next $250 million in average
daily net assets; 0.20% on the next $500 million in average daily net assets;
and 0.15% on average daily net assets in excess of $1 billion.
For
the
fiscal year ended October 31, 2007, the ETF paid no advisory fees and the
Adviser waived advisory fees and/or reimbursed expenses equal to $150,331.
The
ETF paid no advisory fees during the fiscal years ended October 31, 2006 and
October 31, 2005 because the ETF did not commence operations until March 2007.
The Advisor has contractually agreed to waive management fees and/or reimburse
expenses incurred by the ETF from March 1, 2008 through February 28, 2009,
so
that the annual operating expenses of the ETF do not exceed 0.50% of its average
daily net assets.
The
Advisor manages the investment and reinvestment of the assets of the ETF, in
accordance with the investment objectives, policies and limitations of the
ETF,
subject to the general supervision and control of the Trustees and the officers
of the Trust. The Advisor bears all costs associated with providing these
advisory services and the expenses of the Trustees of the Trust who are
affiliated with or interested persons of the Advisor.
The
Advisor may from time to time reimburse certain expenses of the ETF in order
to
limit the ETF’s operating expenses as described in the Prospectus. The Advisor
is a wholly-owned subsidiary of The Ziegler Companies, Inc., a financial
services holding company, and is an affiliate of the Trust’s Distributor, B.C.
Ziegler. Mr. Peter K. Kellogg, a businessman, holds the power to direct more
than 25% of the outstanding voting securities of The Ziegler Companies, Inc.,
and therefore, is considered a controlling person of the Advisor’s parent
company, The Ziegler Companies, Inc., and the Advisor. The Advisor’s office is
located at 200 South Wacker Dr., Suite 2000, Chicago, Illinois 60606. The
Advisor is a Wisconsin limited liability company.
Board
Considerations In Approving the Advisory Agreement.
A
discussion regarding the basis for the Board of Trustees approving the
investment advisory contract of the ETF is available in the ETF’s Annual Report
to Shareholders for the period ended October 31, 2007.
PORTFOLIO
MANAGEMENT
As
described in the Prospectus, the day-to-day operations of the ETF are managed
by
the portfolio managers listed in the table below. In addition to serving as
portfolio managers for the ETF, the portfolio managers also manage the
operations of other investment companies and other accounts. Information
regarding the other accounts managed by, the compensation received by and the
ETF shares owned by each portfolio manager who is identified in the Prospectus
as being responsible for the day-to-day management of the ETF is listed below.
Other
Accounts Managed by the Portfolio Managers of the ETF.
(1)
|
|
|
|
|
|
Other
Registered
Investment
Companies
|
Other
Accounts Managed by
Portfolio
Manager
|
|
Portfolio
Manager
|
Number
|
Total
Assets
|
Number
|
Total
Assets
|
Number
with
Performance-Based
Fees
|
Total
Assets
of
Accounts
with
Performance-Based
Fees
|
|
Donald
Nesbitt
|
1
|
$753,753,904
|
167
|
$811.9
million
|
1
|
$3.3
million
|
|
Brian
Andrew
|
1
|
$753,753,904
|
167
|
$811.9
million
|
0
|
0
|
|
Mikhail
Alkhazov
|
1
|
$753,753,904
|
167
|
$811.9
million
|
0
|
0
|
(1)
As
of
October 31, 2007.
Many,
but
not all, of the accounts and mutual fund series managed by Mr. Nesbitt, Mr.
Andrew and Mr. Alkhazov have investment strategies similar to those employed
for
the ETF. Possible material conflicts of interest arising from these portfolio
managers’ management of the investments of the ETF, on the one hand, and the
investments of other accounts and mutual fund series, on the other hand, include
the portfolio managers’ allocation of sufficient time, energy and resources to
managing the investments of the ETF in light of their responsibilities with
respect to numerous other accounts and mutual fund series, particularly accounts
and series that have different strategies from those of the ETF; the fact that
the fees payable to the Advisor for managing the ETF may be less than the fees
payable to the Advisor for managing other accounts and mutual fund series,
potentially motivating the portfolio managers to spend more time on managing
the
other accounts and mutual fund series; the proper allocation of investment
opportunities that are appropriate for the ETF, other accounts and mutual fund
series; and the proper allocation of aggregated purchase and sale orders for
the
ETF, other accounts and mutual fund series. Despite these potential conflicts,
the Advisor believes that the management of the other accounts and mutual fund
series by the portfolio managers will not be detrimental to the interests of
the
ETF or its shareholders.
Portfolio
Managers’ Compensation.
Portfolio
managers receive a base salary plus incentive compensation. The incentive
compensation generally ranges from 15% to 100% of the portfolio manager’s base
pay. The amount of incentive compensation potentially available to a portfolio
manager is a function of the ETF’s annual return on equity compared to returns
achieved by the Advisor’s peer group and the asset management division’s
achievement of its profit goal for the year. Thus, if the ETF’s annual return on
equity matches returns achieved by the Advisor’s peer group and the asset
management division achieves its annual profit goal, a portfolio manager will
be
eligible to receive his applicable incentive compensation percentage.
The
Advisor’s peer group is constructed by the Securities Industry Association each
year and it includes small-firm financial services companies. The actual amount
of incentive compensation payable to a portfolio manager is then determined
by
comparing the performance of the portfolios/accounts managed by the portfolio
manager to their benchmark indices over one, two and three-year periods, with
50% of the incentive compensation tied to the performance over the one-year
period and 25% tied to the performance over each of the two and three-year
periods. In the case of the ETF, the benchmark index is the NYSE Arca Tech
100
Index.
Portfolio
Manager Ownership of ETF Shares.
The
table
below sets forth the dollar range of shares of the ETF owned by each portfolio
manager as of October 31, 2007.
|
Name
of Portfolio
Manager
|
Dollar
Range of Equity
Securities
in the ETF
|
Aggregate
Dollar Range of Equity
Securities
in the Trust
|
|
Donald
Nesbitt
|
$1-10,000
|
$1-10,000
|
|
Brian
Andrew
|
$1-10,000
|
$1-10,000
|
|
Mikhail
Alkhazov
|
None
|
None
|
DISTRIBUTION
SERVICES
Pursuant
to the Distribution Agreement adopted by the Trust, the Distributor, B.C.
Ziegler and Company, located at 200 South Wacker Dr., Suite 2000, Chicago,
Illinois 60606, acts as distributor for the shares of the ETF under the general
supervision and control of the Trustees and the officers of the Trust. The
Distribution Agreement grants the Distributor the right to distribute the shares
of the ETF. In addition, the Distribution Agreement permits the Distributor
to
receive as compensation an asset-based fee. The Distribution Agreement calls
for
the Distributor to use all reasonable efforts, consistent with its other
business, to secure purchasers for shares of the ETF, which are continuously
offered at NAV. Promotional and administrative expenses in connection with
the
offer and sale of shares may be paid to third parties providing such services
in
accordance with Trust’s Distribution and Service Plan described
below.
The
Trust
has adopted a Distribution and Service Plan for the ETF (the “Plan”) pursuant to
Rule 12b-1 (the “Rule”) under the 1940 Act. The Rule provides in substance that
a mutual fund may not engage directly or indirectly in financing any activity
that is primarily intended to result in the sale of shares of the fund except
pursuant to a plan approved on behalf of the fund under the Rule. Under the
Plan, a portion of the ETF’s assets may be used to finance activities relating
to the marketing and distribution of its shares and the maintenance of
shareholder accounts and other shareholder services. The Plan adopted by the
Trust is described in the Prospectus.
The
Plan
authorizes the Trust, or the Distributor on behalf of the Trust, to make certain
payments to any qualified recipient, as defined in the Plan, that has rendered
assistance in the distribution of the Trust’s shares (such as sale or placement
of the ETF’s shares, or administrative assistance, such as maintenance of
sub-accounting or other records). Qualified recipients include securities
broker-dealers, banks and other financial institutions. The Plan also authorizes
the Trust, or the Distributor on behalf of the Trust, to purchase advertising
for shares of the Trust, to pay for sales literature and other promotional
material, and to make payments to its sales personnel. The maximum amount that
the Trust may pay for such services may not exceed 0.25% of the ETF’s average
net assets on an annual basis. The fee paid by the Trust pursuant to the Plan
is
defined as the “12b-1 fee.”
Pursuant
to a Marketing Agreement among Archipelago or its affiliate, the Distributor
and
the Trust, the Trust pays a 12b-1 fee to Archipelago or its affiliate, as
Marketing Agent, at an annual rate of 0.08% of the ETF’s average net assets as
reimbursement for branding, marketing and advertising expenses Archipelago
or
its affiliate incurs. Archipelago or its affiliate has agreed to waive its
right
to this 12b-1 fee until the sooner to occur of: (a) the ETF’s total assets
reaching $60 million or (b) 365 days after the date on which the ETF commences
trading.
The
remaining portion of the 12b-1 fee may be used to reimburse other qualified
recipients and service providers for the costs of distributing the shares of
the
ETF, including direct expenses incurred in the course of distributing the ETF
shares; expenses incurred in providing administrative assistance to the ETF
or
its shareholders; marketing costs; expenses incurred in promotional activities;
and advertising costs. Although the Plan allows for up to 0.25% of the ETF’s
average net assets to be paid to the Distributor or qualified recipients
annually for distribution services, as of the date of this SAI, the only 12b-1
fees anticipated to be paid are the reimbursement fee to Archipelago or its
affiliate for marketing services, after termination of the waiver period. The
Distributor will not retain any of the 12b-1 fee for distributing shares of
the
ETF. No reimbursement or payment may be made for expenses of past fiscal years
or in contemplation of expenses for future fiscal years under the Plan.
The
Plan
states that if and to the extent that any of the payments by the Trust listed
below are considered to be “primarily intended to result in the sale of shares”
issued by the Trust within the meaning of the Rule, such payments by the Trust
are authorized without limit under the Plan, shall not be included in the
limitations contained in the Plan and shall be paid regardless of restrictions
on or waivers of 12b-1 fees: (1) the costs of the preparation, printing and
mailing of all required reports and notices to shareholders, irrespective of
whether such reports or notices contain or are accompanied by material intended
to result in the sale of shares of the Trust; (2) the costs of preparing,
printing and mailing of all prospectuses to shareholders; (3) the costs of
preparing, printing and mailing of any proxy statements and proxies,
irrespective of whether any such proxy statement includes any item relating
to,
or directed toward, the sale of the Trust’s shares; (4) all legal and
accounting fees relating to the preparation of any such reports, prospectuses,
proxies and proxy statements; (5) all fees and expenses relating to the
qualification of the Trust and/or its shares under the securities or “Blue Sky”
laws of any jurisdiction; (6) all fees under the 1940 Act and the
Securities Act of 1933, including fees in connection with any application for
exemption relating to or directed toward the sale of the Trust’s shares;
(7) all fees and assessments of the Investment Company Institute or any
successor organization or industry association irrespective of whether some
of
its activities are designed to provide sales assistance; (8) all costs of
preparing and mailing confirmations of shares sold or redeemed or share
certificates and reports of share balances; and (9) all costs of responding
to telephone or mail inquiries of shareholders.
The
Plan
also states that it is recognized that the costs of distribution of the Trust’s
shares are expected to exceed the sum of permitted payments and permitted
expenses and that the profits, if any, of the Advisor, an affiliate of the
Distributor, are dependent primarily on the advisory fees paid by the Trust
to
the Advisor. If and to the extent that any investment advisory fees paid by
the
Trust might, in view of any excess distribution costs, be considered as
indirectly financing any activity which is primarily intended to result in
the
sale of shares issued by the Trust, the payment of such fees is nonetheless
authorized under the Plan. The Plan states that in taking any action
contemplated by Section 15 of the 1940 Act as to any investment advisory
contract to which the Trust is a party, the Board of Trustees, including its
Trustees who are not interested persons and who have no direct or indirect
financial interest in the operation of the Plan or any agreements related to
the
Plan (“Qualified Trustees”), shall, in acting on the terms of any such contract,
apply the “fiduciary duty” standard contained in Sections 36(a) and (b) of the
1940 Act.
The
Plan
requires that while it is in effect the Distributor shall report in writing
at
least quarterly to the Trustees, and the Trustees shall review, the following:
(1) the amounts of all payments, the identity of recipients of each such
payment, the basis on which each such recipient was chosen and the basis on
which the amount of the payment was made; (2) the amounts of expenses and
the purpose of each such expense; and (3) all costs of the other payments
specified in the Plan (making estimates of such costs where necessary or
desirable) in each case during the preceding calendar or fiscal
quarter.
The
Plan
will continue in effect from year to year only so long as such continuance
is
specifically approved at least annually by the majority vote of the Board of
Trustees and of its Qualified Trustees cast in person at a meeting called for
the purpose of voting on such continuance. The Plan may be terminated any time
without penalty by a vote of a majority of the Qualified Trustees or by the
vote
of the holders of a majority of the outstanding voting securities of the Trust
(or with respect to a portfolio of the Trust (including the ETF), by the vote
of
a majority of the outstanding shares of the portfolio). Although no Trustee
who
is not an interested person of the Trust has any direct or indirect financial
interest in the operation of the Plan, the Distribution Agreement or any other
related agreements, Trustees who are affiliated with the Advisor or the
Distributor may obtain a direct or indirect financial interest in the operation
of the Plan, the Distribution Agreement and other related agreements and,
therefore, will not be considered Qualified Trustees. The Plan may not be
amended to increase materially the amount of payments to be made without
shareholder approval. While the Plan is in effect, the selection and nomination
of those Trustees who are not interested persons of the Trust is committed
to
the discretion of such disinterested Trustees. Nothing in the Plan will prevent
the involvement of others in such selection and nomination if the final decision
on any such selection and nomination is approved by a majority of such
disinterested Trustees.
The
Distributor may also make payments from its own resources to selected
broker-dealers or institutions that are instrumental in the acquisition of
shareholders for the ETF or that perform recordkeeping or other services with
respect to shareholder accounts. The amount of such payments may be affected
by,
among other things, sales that these broker-dealers generate, aggregate value
of
accounts in the ETF for which these broker-dealers are responsible, flat fees,
levels of redemptions, participation in marketing efforts and programs and
fulfillment of various duties and obligations. The minimum aggregate size
required for eligibility for such payments, as well as the factors in selecting
the broker-dealer firms and institutions to which they are made, are determined
by the Distributor from time to time.
The
payment of all Rule 12b-1 fees for the fiscal year ended October 31, 2007 was
waived.
TRANSFER
AGENCY, CUSTODIAN, ADMINISTRATIVE,
ACCOUNTING/PRICING
AND ORDER TAKING AGREEMENTS
Transfer
Agency Services
Pursuant
to an Agency Services Agreement with the Trust, JPMorgan Chase Bank, N.A. acts
as transfer agent, dividend-paying agent, and index receipt agent for the ETF.
Its principal address is 3 ChaseMetroTech Center, Brooklyn, New York
11245.
Custodian
Services
JPMorgan
Chase Bank, N.A. also serves as the custodian of the ETF’s assets, pursuant to a
Domestic Custody Agreement. Under the Domestic Custody Agreement, JPMorgan
Chase
Bank is responsible for holding and safekeeping of the ETF’s
assets.
Administrative
and Accounting/Pricing Services
J.P.
Morgan Investor Services Co., located at
73
Tremont Street, Boston, Massachusetts 02108, serves as the ETF’s
administrator
and accounting/pricing agent under a Mutual Funds Service Agreement. Some of
the
administrative services include assisting with the preparation and review of
reports to be filed with the SEC, providing tax and 1940 Act regulatory
compliance services, and preparing materials and reports for the Trustees to
review. Some of the accounting services include the maintenance of the ETF’s
books and records of ETF assets, calculation of the ETF’s NAV, and coordination
with the Trust’s independent auditors with respect to the Trust’s annual
audit.
As
consideration for the administrative and accounting services described above,
the Trust pays J.P. Morgan Investor Services an annual fee based upon the
average daily net assets of the ETF and reimburses it for its out-of-pocket
expenses as follows. For the first year of the agreement, the fee was equal
to
10 basis points per annum of the average daily net assets of the ETF for the
first six months plus 20 basis points per annum of the average daily net assets
of the ETF for the last six months. For the second year of the agreement, the
annual fee will be equal to 20 basis points per annum of the average daily
net
assets of the ETF, with a guaranteed minimum annual fee of $15,000, but the
fee
cannot exceed $100,000 in year two. After year two of the agreement, the annual
fee will be equal to 20 basis points per annum of the average daily net assets
of the ETF, with a guaranteed minimum annual fee of $100,000. The fees, together
with the out-of-pocket expenses, will be computed, billed and paid monthly.
For
the
fiscal year ended October 31, 2007, the ETF paid $3,608 for the administrative
and accounting services described above. The ETF did not incur any expenses
for
these services for the fiscal years ended October 31, 2006 and October 31,
2005
because it did not commence operations until March 2007.
Order
Taking Services
SEI
Investment Distribution Co., located at One Freedom Valley Drive, Oaks,
Pennsylvania 19456, serves as the ETF’s order taker, pursuant to a Services
Agreement. Under the Services Agreement, SEI Investment Distribution Co. is
responsible for taking Creation Unit purchase and redemption orders from
Authorized Participants and transmitting relevant information to the Distributor
and other service providers in order for such purchase and redemption orders
to
be properly processed. All or a portion of the fees associated with this service
will be paid for by the Advisor. For the fiscal year ended October 31, 2007,
the
Advisor paid $47,284 for the order taking services described above.
PROXY
VOTING GUIDELINES
Proxy
voting policies adopted by the Trust are attached to this Statement of
Additional Information as
Appendix
A
.
These
proxy voting policies describe the procedures used to determine how to vote
proxies. The Board of Trustees of the Trust has delegated responsibility for
decisions regarding proxy voting for securities held by the ETF to the Advisor.
The Advisor votes such proxies in accordance with the attached voting policies.
Information regarding how the Trust voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 is available,
without charge, upon request, by calling the Trust’s toll-free number
(1-888-798-TECH(8324)), through the Trust’s website (
http://www.NXT100
.com),
and on the SEC’s website (
http://www.sec.gov
).
DIVIDENDS,
DISTRIBUTIONS AND TAXES
The
following information supplements and should be read in conjunction with the
Prospectus.
Dividends
and Distributions.
General
Policies.
Dividends
from net investment income, if any, are declared and paid at least annually
by
the ETF. Distributions of capital gains, if any, generally are declared and
paid
once a year, but the Trust may make distributions on a more frequent basis
for
the ETF. The Trust reserves the right to declare special distributions if,
in
its reasonable discretion, such action is necessary or advisable to preserve
the
status of the ETF as a Regulated Investment Company (a “RIC”) under Subchapter M
of the Internal Revenue Code of 1986, as amended (the “Code”), or to avoid
imposition of income or excise taxes on undistributed income.
Dividends
and other distributions on shares are distributed, as described below, on a
pro
rata basis to Beneficial Owners of such shares. Dividend payments are made
through DTC participants and indirect participants to Beneficial Owners then
of
record with proceeds received from the ETF.
Dividend
Reinvestment Services.
No
reinvestment services are provided by the Trust. Broker-dealers may make a
dividend reinvestment service available for use by Beneficial Owners of the
ETF
for reinvestment of their dividend distributions. Beneficial Owners should
contact their broker to determine the availability and costs of the service
and
the details of specific procedures and timetables. If this service is available
and used, dividend distributions of both income and realized gains will be
automatically reinvested in additional whole shares of the ETF purchased in
the
secondary market. Brokerage commissions and other costs, if any, incurred in
purchasing shares of the ETF with cash from the distributions generally will
be
an expense borne by the individual Beneficial Owner participating in
reinvestment through such service.
Taxes.
The
following is only a summary of certain additional tax considerations generally
affecting the ETF and its shareholders that are not described in the Prospectus.
No attempt is made to present a detailed explanation of the federal, state
or
local tax treatment of the ETF or its shareholders, and the discussion here
and
in the Prospectus is not intended to be a substitute for careful tax planning.
The
following general discussion of certain federal income tax consequences is
based
on provisions of the Code and the regulations issued thereunder as in effect
on
the date of this SAI. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein
and
may have a retroactive effect with respect to the transactions contemplated
herein.
Shareholders
are urged to consult their own tax advisors regarding the application of the
provisions of tax law described in this SAI in light of the particular tax
situations of the shareholders and regarding specific questions as to federal,
state or local taxes.
General
Tax Status.
Generally, each series of a series company, such as the Trust, is treated as
a
single entity for federal income tax purposes so that the net realized capital
gains and losses of the various portfolios in the company are not
combined.
The
Trust
intends to qualify as a RIC under the Code. A series company that qualifies
as a
RIC under the Code is generally not subject to tax on its income, and the
shareholders of the company pay tax on their shares of the company’s income. A
company that fails to qualify as a RIC will be required to pay tax on its
income, and the shareholders of the company will also pay tax on the amount
of
the income received from the company. In order to qualify as a RIC, the Trust
must satisfy a number of requirements. Among such requirements is the
requirement that at least 90% of the Trust’s gross income is derived from
dividends, interest, payments with respect to securities loans, gains from
the
sale or other disposition of stocks, securities or foreign currencies and other
income (including but not limited to gains from options, futures or forward
contracts) derived with respect to the Trust’s business of investing in such
stock, securities or currencies, and net income derived from an interest in
a
qualified publicly traded partnership. In addition, the ETF must distribute
at
least 90% of its taxable income (including short-term realized gains on the
sale
of securities in addition to interest, dividend and other income) and 90% of
its
net tax-exempt income, and the ETF is subject to a 4% federal excise tax if
it
fails to distribute at least an amount equal to the sum of 98% of its ordinary
income and 98% of its net capital gains earned or realized during a calendar
year. The ETF plans to distribute its income and capital gains so as to avoid
the excise tax. The ETF is subject to the further limitation that at least
50%
of its assets are invested in cash and cash items, Government securities,
securities of other regulated investment companies, and other securities,
provided that no more than 5% of its assets may be invested in the securities
of
any one issuer and the ETF may not hold more than 10% of the outstanding voting
securities of such issuer. Finally, the ETF may not invest more than 25% of
its
assets in securities (other than Government securities or securities of other
regulated investment companies) of any one issuer or two or more affiliated
issuers in the same or similar businesses or in related businesses or one or
more qualified publicly traded partnerships. The Board of Trustees reserves
the
right not to maintain the qualifications of a RIC if it determines such course
of action to be beneficial to shareholders. If the Trust determines that it
will
not qualify as a RIC under the Code, the Trust will establish procedures to
reflect the anticipated tax liability in the ETF’s net asset value.
A
portion
of the ETF’s net investment income may qualify for the 70% dividends received
deduction for corporations. The aggregate amount eligible for the dividends
received deduction may not exceed the aggregate qualifying dividends received
by
the ETF for the year.
Dividends
paid to individuals may be eligible for the reduced rate of tax on qualified
dividend income. The ETF shareholders will be notified of the amount of
dividends that potentially qualify for the reduced rate of tax. However, a
shareholder will only be entitled to the reduced rate of tax on these dividends
to the extent the shareholder meets the holding period requirement with respect
to the shareholder’s ownership of the ETF shares. The Trust will furnish to the
DTC participants for distribution to indirect participants and Beneficial Owners
an annual notification as to the federal tax status of all distributions made
by
the ETF. Distributions may be subject to state and local taxes.
Shareholders
who have not held ETF shares for a full year should be aware that the ETF may
designate and distribute, as ordinary income or capital gains, a percentage
of
income that is not equal to the actual amount of such income earned during
the
period of investment in the ETF.
If
the
ETF’s distributions exceed its taxable income and capital gains realized during
a taxable year, all or a portion of the distributions made in the same taxable
year may be recharacterized as a return of capital to shareholders. A return
of
capital distributions will generally not be taxable, but will reduce each
shareholder’s cost basis in the ETF and result in a higher reported capital gain
or lower reported capital loss when those shares on which the distribution
was
received are sold.
Options
and Other Complex Securities.
The
ETF
may invest in complex securities such as equity options, index options,
repurchase agreements, hedges and swaps and futures contracts. These investments
may be subject to numerous special and complex tax rules. These rules could
affect whether gains and losses recognized by the ETF are treated as ordinary
income or capital gain, accelerate the recognition of income to the ETF and/or
defer the ETF’s ability to recognize losses. In turn, those rules may affect the
amount, timing or character of the income distributed by the ETF.
The
ETF’s
transactions in options, under some circumstances, could preclude the ETF’s
qualifying for the special tax treatment available to investment companies
meeting the requirements to be treated as a RIC under Subchapter M of the Code.
However, it is the intention of the ETF’s portfolio management to limit gains
from such investments to less than 10% of the gross income of the ETF during
any
fiscal year in order to maintain this qualification.
Taxes
on Purchase of Creation Units.
The
purchase of Creation Units generally will be a taxable event for the person
who
transfers securities in exchange for Creation Units but generally will not
be a
taxable event for the ETF. The transferor will recognize gain or loss equal
to
the difference between (a) the sum of the fair market value of the Creation
Units (which may differ from their NAV) and any Balancing Amount that is
received
and
(b) the
sum of the transferor’s basis in the transferred securities, transaction fees
and any Balancing Amount that is paid. Gain or loss generally will be capital
and will be long-term or short-term depending on whether the transferred
securities have been held for more than one year. The purchase of Creation
Units
may be treated as a “wash sale” for federal tax purposes.
Taxes
on Redemption of Creation Units.
The
redemption of Creation Units generally will be a taxable event for the person
who receives securities in exchange for Creation Units but generally will not
be
a taxable event for the ETF. The recipient will recognize gain or loss equal
to
the difference between (a) the sum of the fair market value of the securities
and any Cash Redemption Amount that is received
and
(b) the
sum of the basis of the Creation Unit shares, transaction fees and any Cash
Redemption Amount that is paid. Gain or loss generally will be capital and
will
be long-term or short-term depending on whether Creation Units have been held
for more than one year. The redemption of Creation Units may be treated as
a
“wash sale” for federal tax purposes.
CONTROL
PERSONS AND PRINCIPAL HOLDERS OF ETF SHARES
As
of February 26, 2008, the officers and trustees of the Trust as a group owned
less than 1% of the outstanding shares of the Trust and the ETF.
Although
the Trust does not have information concerning the beneficial ownership of
ETF
shares held in the names of DTC participants, as of February 26, 2008, the
name,
addresses and percentage ownership of each DTC participant that owned of
record
5% or more of the outstanding ETF shares is set forth below:
|
Holder
|
Percentage
of
ETF
(and
Trust)
Shares
Owned
|
Address
|
|
|
|
|
|
Fortis
Clearing Americas LLC
|
26.63%
*
|
175
W. Jackson
Chicago,
IL 60604
|
|
|
|
|
|
Morgan
Stanley
|
13.00%
|
Harborside
Financial Center
Plaza
3, 6th Flr.
Jersey
City, NJ 07311
|
|
|
|
|
|
National
Financial Services
|
10.88%
|
200
Liberty St
New
York, NY 10281
|
|
|
|
|
|
Charles
Schwab & Co., Inc.
|
8.36%
|
P.O.
Box 7778
San
Francisco, CA 94120
|
|
|
|
|
|
Merrill
Lynch
|
7.04%
|
101
Hudson St.
9th
Flr.
Jersey
City, NJ 07302
|
|
|
|
|
|
BMO
Nesbitt Burns, Inc.
|
6.20%
|
1
First Canadian Place
P.O.
Box 150, 35th Flr
Toronto,
ON M5X1H3
|
_______________________
*
A shareholder who beneficially owns, directly or indirectly, more than 25%
of
the voting securities of the ETF may be deemed a “control person” and may be
able to determine the outcome of any matter submitted for shareholder
consideration with respect to the ETF. From time to time, due to the manner
in
which ETF shares are sold and redeemed, a holder of the ETF shares may be
a
“control person” of the ETF.
Information
as to beneficial ownership was obtained from information on file with the
Securities and Exchange Commission or furnished by the specified person or
the
transfer agent.
OTHER
INFORMATION
Codes
of Ethics.
Personal
Trading.
Rule
17j-1 under Section 17(j) of the 1940 Act makes it illegal for any person
associated with the Trust, the Advisor or the Sub-Advisor, if any, who has
knowledge of portfolio securities trades that the ETF makes or intends to make
or other non-public information, to use that information in a manner that
benefits that person and/or harms the ETF. To protect against such conduct,
the
Trust, the Advisor and the Distributor have adopted codes of ethics in
accordance with requirements established under Rule 17j-1. The codes of ethics
do not prohibit persons who have knowledge of the ETF’s portfolio securities
trades from investing in the same securities; however, the codes of ethics
establish time frames, prior approval procedures and reporting requirements
designed to assure that persons who have knowledge of the ETF’s securities
trades cannot use that information in a manner which is detrimental to the
ETF
and/or which benefits the person.
Code
for Principal Executive, Financial and Accounting
Officers.
The
Trust has
established
a separate code of ethics that applies to its principal executive, financial
and
accounting officers. This written code sets forth standards that are reasonably
designed to deter wrongdoing and to promote honest and ethical conduct,
including the ethical handling of conflicts of interest; full, fair, accurate,
timely and understandable disclosure in reports and documents the Trust files
with the SEC and in other shareholder communications; compliance with applicable
governmental laws, rules or registrations; the prompt internal reporting of
violations of the code to an appropriate person; and accountability for
adherence to the code.
Portfolio
Holdings Policies and Procedures.
Information
about the portfolio holdings of the ETF is generally considered to be relevant
and significant to persons in deciding to buy or sell shares of the ETF. Such
information should be safeguarded as material, non-public information until
publicly disclosed. This means, at a minimum, that information about the
portfolio holdings of the ETF should not be selectively disclosed to investors
or potential investors (or their advisers, consultants or intermediaries) or
to
any other persons unless there are legitimate business purposes for doing so
and
such persons are subject to a duty of confidentiality and trading restrictions.
However, it is understood that because the ETF invests in stocks that are
included in an index and the composition of the index is publicly available,
the
portfolio holdings of the ETF may not constitute material, non-public
information.
Based
on
the need to safeguard and monitor disclosure of information about the portfolio
holdings of the ETF, the Board of Trustees of the Trust has approved portfolio
holdings disclosure policies that govern the timing and circumstances of
disclosure to shareholders and third parties of information regarding the
portfolio investments held by the ETF.
Specific
Authorized Public Disclosures.
The
ETF
shall post on its website a complete schedule of the securities and investments
owned by the ETF as of the end of each month. This posting shall be made within
thirty (30) days of the end of such month. The posting shall at least identify
the ETF’s securities or investments and the percent of its portfolio made up by
such securities or investments at the end of the month. The ETF may also provide
in monthly or quarterly fact sheets and other sales literature (all of which
is
publicly available and posted on its website) information about the holdings
of
the ETF (including top 10 holdings lists).
The
Trust
shall disclose the investments of the ETF as required by the 1940 Act and the
rules and regulations adopted thereunder. Currently, the 1940 Act requires
the
semi-annual and annual reports to shareholders to include information about
the
holdings of the ETF. The 1940 Act also requires the filing of a complete
schedule of investments as of the end of each fiscal quarter on Form N-CSR
(for
the second and fourth quarters) or Form N-Q (for the first and third quarters).
The quarterly holdings schedule shall only be made publicly available once
it is
filed with the SEC on Form N-CSR or N-Q. Such forms are filed within 60 days
following the end of the fiscal quarter. Portfolio holdings of the ETF shall
also be disclosed to the extent required by applicable law, including without
limitation the Securities Act of 1933 and the Securities Exchange Act of 1934
such as in filings on Schedule 13D or 13G or Form 13F.
The
Trust
may refer persons who seek information on portfolio holdings to the complete
schedule of the securities and investments owned by the ETF (the “Holdings
Schedule”) available at the SEC’s website or to information that is posted on
the ETF’s website, or the ETF may deliver a copy of the Holdings Schedule to
them, but not until after the Holdings Schedule has been filed with the SEC.
In
all cases, prior to releasing any information regarding the portfolio holdings
of the ETF, the information must either be filed with the SEC or posted on
the
ETF’s website.
Prohibition
Against Selective Disclosure.
Other
than the Specific Authorized Public Disclosures described above, as described
under “Permissible Disclosure” below or as required by law, no person associated
with the Trust, the Advisor, the Distributor or any other service provider
to
the ETF may disclose to any person any information regarding the portfolio
holdings of the ETF. This prohibition includes a partial or complete list of
the
securities and other investments of the ETF, as well as information about a
particular security or investment purchased, sold or held (or proposed to be
purchased or sold) by the ETF. The Trust shall advise its service providers
(including without limitation, its advisors, distributor, transfer agent,
accounting/pricing agent, administrator, custodian, counsel and independent
auditors) of this Policy and determine the ability of such service providers
to
comply with it.
Permissible
Disclosure.
Notwithstanding
the prohibitions above, each business day, an officer of the Trust will disclose
certain information regarding the Deposit Securities and the Balancing Amount
that the Trust anticipates would be required to be deposited by an Authorized
Participant in order to purchase a Creation Unit on the following day. Such
information will be provided by the Distributor or other agent for dissemination
through the facilities of the NSCC and/or other fee-based subscription services
to NSCC members and/or subscribers to those fee-based subscription services,
including Authorized Participants, and to entities that publish and/or analyze
such information in connection with the process of purchasing or redeeming
Creation Units or trading shares of the ETF in the secondary market.
Daily
access to information concerning the ETF’s portfolio holdings also is permitted,
subject to imposing appropriate conditions on the confidentiality and
safekeeping of such information, (i) to certain personnel of those service
providers that are involved in portfolio management and providing
administrative, operational, risk management or other support to portfolio
management, including affiliated broker-dealers and/or Authorized Participants,
and (ii) to other personnel of the Advisor and other service providers, such
as
the ETF’s administrator, custodian and accountant, who deal directly with, or
assist in, functions related to investment management, administration, custody
and accounting, as may be necessary to conduct business in the ordinary course
in a manner consistent with agreements with the ETF and/or the terms of the
ETF’s current registration statement.
From
time
to time, information concerning ETF portfolio holdings, other than portfolio
holding information made available in connection with the creation/redemption
process, as discussed above, may also be provided by an officer of the Trust
to
other entities that provide additional services to the ETF, including, among
others, rating or ranking organizations, in the ordinary course of business,
no
earlier than one business day following the date of the information. Portfolio
holdings information made available in connection with the creation/redemption
process may be provided to other entities that provide additional services
to
the ETF in the ordinary course of business after it has been disseminated to
the
NSCC. Portfolio holdings information may be disclosed to a Trustee in connection
with Board meetings.
In
addition, an officer of the Trust (and the portfolio manager(s) of the ETF,
after consultation with the Trust’s President) may disclose to a newspaper,
magazine or television, cable or radio program that the ETF owns a particular
security or securities within a particular industry, sector or market
capitalization, but shall not disclose the number of shares or principal amount
involved owned or the percentage that any such position represents in the ETF
or
in the issuer of such securities and shall not disclose that the ETF is
considering the purchase or sale of any security.
Information
about the ETF’s portfolio holdings may also be disclosed if, in advance of such
disclosure, it is established to the satisfaction of the Board of Trustees,
including a majority of Trustees who are not “interested persons” of the Trust,
upon the advice of legal counsel, that such disclosure does not violate
applicable securities laws and is in the best interests of shareholders of
the
ETF and that the recipient of such information has agreed to maintain the
confidentiality of such information and will not trade on such information.
In
no event shall the ETF, the Advisor or any other party receive any direct or
indirect compensation in connection with the disclosure of information about
the
ETF’s portfolio holdings.
Capital
Stock.
The
ETF’s
shares, when issued and paid for in accordance with the terms of the offering,
will be fully paid and non-assessable. All shares of the ETF have identical
dividend, liquidation and other rights. Shares of the ETF have no preemptive,
subscription or conversion rights and are freely transferable.
Restrictions
on Holding or Disposing of Shares.
There
are
no restrictions on the rights of shareholders to retain or dispose of the ETF’s
shares, other than the possible future termination of the ETF. The ETF may
be
terminated by reorganization into another portfolio or class of a portfolio
or
by liquidation and distribution of the assets of the ETF. Unless terminated
by
reorganization or liquidation, the ETF will continue indefinitely. Each share
issued by the ETF has a pro rata interest in the assets of the ETF. Each share
is entitled to participate equally in dividends and distributions declared
by
the Board with respect to the ETF, and in the net distributable assets of the
ETF on liquidation.
Shareholder
Liability.
The
Trust
is organized under Delaware law, which provides that the shareholders of a
statutory trust are entitled to the same limitations of personal liability
as
shareholders of a corporation organized under Delaware law. Effectively, this
means that a shareholder of the ETF will not be personally liable for payment
of
the ETF’s debts except by reason of his loss as a result of an ETF obligation
only if the ETF itself had no remaining assets with which to meet such
obligation.
The
Amended Agreement and Declaration of Trust contains as express disclaimer of
shareholder liability for the debts, liability, obligations and expenses
incurred by, contracted for or otherwise existing with respect to the Trust
or
the ETF. The Amended Agreement and Declaration of Trust provides that the Trust
shall not have any claim against shareholders except for the payment of the
purchase price of shares and requires that each agreement, obligation or
instrument entered into or executed by the Trust or the Trustees relating to
the
Trust or the ETF shall include a provision limiting the obligations created
thereby to the Trust or to the ETF and its assets. The Amended Agreement and
Declaration of Trust further provides that shareholders of the ETF shall not
have a claim or right to any assets belonging to any other portfolio that may
be
established by the Trust in the future.
The
Amended Agreement and Declaration of Trust provides for indemnification out
of
the ETF’s property of any shareholder or former shareholder held personally
liable for the obligations of the ETF solely by reason of his or her being
or
having been a shareholder and not because of his or her acts or omissions or
for
some other reason. The Amended Agreement and Declaration of Trust also provides
that the ETF shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the ETF and satisfy any judgment
thereon.
Thus,
the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the ETF itself would be unable
to
meet its obligations. We believe that, in view of the above, the risk of
personal liability to shareholders is remote.
Voting
Rights.
Each
whole share of the ETF shall be entitled to one vote as to any matter on which
it is entitled to vote consistent with the requirements of the 1940 Act and
rules promulgated thereunder, and each fractional share shall be entitled to
a
proportionate fractional vote. On any matter submitted to a vote of the
shareholders, all shares shall be voted separately by individual portfolios
of
the Trust, if more than one portfolio exists in the future, except: (i) when
required by the 1940 Act, shares shall be voted in the aggregate and not by
individual portfolios; and (ii) when the Trustees have determined that the
matter affects the interests of more than one portfolio, then the shareholders
of all such affected portfolios shall be entitled to vote thereon. The Trustees
also may determine that a matter affects only the interests of one or more
classes of a portfolio, if such classes exist, in which case any such matter
shall be voted on by such class or classes.
Shareholder
Meetings.
As
a
Delaware statutory trust, the Trust is not required to hold, and in the future
does not plan to hold, annual shareholder meetings unless required by law or
deemed appropriate by the Board of Trustees. However, special meetings may
be
called for purposes such as electing or removing Trustees, changing fundamental
policies or approving an investment advisory contract. In addition, if specified
requirements are met, a meeting may be called by shareholders owning at least
10% of the outstanding shares of the Trust. If a meeting is requested by
shareholders, the Trust will provide appropriate assistance and information
to
the shareholders who requested the meeting.
INDEX
PROVIDER
The
ETF
is based upon the NYSE Arca Tech 100 Index compiled by the NYSE Arca
Marketplace, which is not affiliated with the ETF or with the Advisor or its
affiliates. The ETF is entitled to use the Index pursuant to a licensing
agreement with the index provider.
COUNSEL
Quarles &
Brady LLP, as counsel to the Trust, has rendered its opinion as to certain
legal
matters regarding the due authorization and valid issuance of the shares of
common stock being sold pursuant to the Prospectus.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The
Trust’s Board of Trustees engaged Deloitte & Touche LLP, an independent
registered public accounting firm, located at 555 East Wells Street, Milwaukee,
Wisconsin, 53202, to perform the annual audits of the ETF.
FINANCIAL
STATEMENTS
The
following financial statements and financial highlights and Report of the
Independent Registered Public Accounting Firm included in the Trust’s 2007
Annual Report to Shareholders are incorporated herein by reference:
|
|
1.
|
Schedule
of Investments as of October 31,
2007.
|
|
|
2.
|
Statement
of Assets and Liabilities as of October 31,
2007.
|
|
|
3.
|
Statement
of Operations for the period ended October 31,
2007.
|
|
|
4.
|
Statements
of Changes in Net Assets for the period ended October 31,
2007.
|
|
|
6.
|
Notes
to the Financial Statements.
|
Copies
of
the Annual Report may be obtained free of charge by writing or calling the
Trust, 200 South Wacker Dr., Suite 2000, Chicago, Illinois 60606, telephone:
1-888-798-TECH(8324)
.
|
Ziegler
Exchange Traded Trust
|
Administrator
and Accounting/Pricing Agent
|
|
1-888-798-TECH(8324)
|
J.P.
Morgan Investor Services Co.
73
Tremont Street
Boston,
MA 02108
|
|
|
|
200
South Wacker Dr.
Suite
2000
Chicago,
Illinois 60606
|
Transfer
Agent and Custodian
JPMorgan
Chase Bank, N.A.,
3
ChaseMetroTech Center,
Brooklyn,
New York 11245
|
|
|
|
|
Investment
Advisor
Ziegler
Capital Management, LLC
200
South Wacker Dr.
Suite
2000
Chicago,
Illinois 60606
|
Counsel
Quarles &
Brady LLP
411
East Wisconsin Avenue
Milwaukee,
Wisconsin 53202
|
|
|
|
|
Distributor
B.C.
Ziegler and Company
200
South Wacker Dr.
Suite
2000
Chicago,
Illinois 60606
|
Independent
Registered Public Accounting Firm
Deloitte
& Touche LLP
555
East Wells Street
Milwaukee,
Wisconsin 53202
|