It is proposed that this filing will become effective (check
appropriate box)
The Securities and Exchange Commission
(“SEC”) has not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.
ADDITIONAL INFORMATION ABOUT THE FUND’S
STRATEGIES AND RISKS
ADDITIONAL STRATEGIES
In addition to the investment strategies
discussed above under
Fund
Summaries—Principal Investment Strategies
, the Fund may use the following investment
strategies:
Derivative Instruments, Cash or Stocks
not included in the Underlying Index:
The Fund may invest up to 20% of its assets in (i) certain futures, options and swap
contracts (which may be leveraged and are considered derivatives), (ii) cash and cash equivalents and (iii) stocks not included
in the Underlying Index that the Adviser believes will help the Fund track the Underlying Index.
Leverage:
The Fund may borrow money
from a bank as permitted under the Investment Company Act of 1940 (“1940 Act”), and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
Securities Lending:
The Fund may
lend its portfolio securities. In connection with such loans, the Fund receives liquid collateral equal to at least 102% of the
value of domestic equity securities and ADRs and 105% of the value of the foreign equity securities (other than ADRs) being lent.
This collateral is marked-to-market on a daily basis.
ADDITIONAL RISKS
The Fund is subject to the risks described
below. Some or all of these risks may adversely affect the Fund’s NAV, trading price, yield, total return and/or its ability
to meet its objectives.
Asset Class Risk
The returns from the types of securities
in which the Fund invests may under-perform returns from the various general securities markets or different asset classes. The
stocks in the Underlying Indexes may under-perform fixed-income investments and stock market investments that track other markets,
segments and sectors. Different types of securities tend to go through cycles of out-performance and under-performance in comparison
to the general securities markets.
Cash Transactions Risk
Unlike most exchange-traded funds, this
Fund intends to effect all redemptions for cash, rather than in-kind. As a result, an investment in the Fund may be less tax-efficient
than an investment in a more conventional ETF. Because the Fund currently intends to affect all redemptions for cash, rather than
in-kind distributions, it may be required to sell portfolio securities in order to obtain the cash needed to distribute redemption
proceeds. If the Fund recognizes a gain on these sales, this generally will cause the Fund to recognize a gain it might not otherwise
have recognized, or to recognize such a gain sooner than would otherwise be required if it were to distribute portfolio securities
in-kind. Moreover, cash transactions may have to be carried out over several days if the securities market is relatively illiquid
and may involve considerable brokerage fees and taxes. These brokerage fees, which will be higher than if the Fund redeemed its
Shares in-kind, will be passed on to redeemers of Creation Units in the form of redemption transaction fees. In addition, these
factors may result in wider spreads between the bid and the offered prices of the Fund’s Shares than for more conventional
ETFs.
Concentration Risk
To the extent that its Underlying Index
or portfolio is concentrated in the securities of companies in a particular country, market, industry, group of industries, sector
or asset class, the Fund may be adversely affected by the performance of those securities, may be subject to increased price volatility
and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting that market, industry, group
of industries, sector or asset class. For example, changes in governmental policies towards energy infrastructure and natural gas
may adversely affect the Fund’s performance
The Global X Junior MLP ETF may be concentrated
in energy, and as such the Fund may be susceptible to adverse economic or regulatory occurrences affecting this sector.
Counterparty Risk
Counterparty risk is the risk that a counterparty
to a swap contract or other similar investment instrument may default on its payment obligation to the Fund. Such a default may
cause the value of an investment in the Fund to decrease.
Derivatives Risk
Derivatives risk is the risk that loss
may result from the Fund’s investments in options, futures and swap contracts, which may be leveraged and are types of derivatives.
Investments in leveraged instruments may result in losses exceeding the amounts invested. The Fund may use these instruments to
help the Fund track its Underlying Index. Compared to conventional securities, derivatives can be more sensitive to changes in
interest rates or to sudden fluctuations in market prices and thus the Fund’s losses may be greater if it invests in derivatives
than if it invests only in conventional securities.
Equity Securities Risk
The Fund invests in equity securities,
which are subject to changes in value that may be attributable to market perception of a particular issuer or to general stock
market fluctuations that affect all issuers. Investments in equity securities may be more volatile than investments in other asset
classes.
Industry Specific Risk
MLPs operating in the energy sector are
also subject to risks that are specific to the industry they serve.
Midstream
MLPs that operate midstream assets are
subject to supply and demand fluctuations in the markets they serve which may be impacted by a wide range of factors including
fluctuating commodity prices, weather, increased conservation or use of alternative fuel sources, increased governmental or environmental
regulation, depletion, rising interest rates, declines in domestic or foreign production, accidents or catastrophic events, increasing
operating expenses and economic conditions, among others. Further, MLPs that operate gathering and processing assets are subject
to natural declines in the production of the oil and gas fields they serve. In addition, some gathering and processing contracts
subject the owner of such assets to direct commodity price risk.
Exploration and production
Exploration and production MLPs are particularly
vulnerable to declines in the demand for and prices of crude oil and natural gas. Reductions in prices for crude oil and natural
gas can cause a given reservoir to become uneconomic for continued production earlier than it would if prices were higher, resulting
in the plugging and abandonment of, and cessation of production from, that reservoir. In addition, lower commodity prices not only
reduce revenues but also can result in substantial downward adjustments in reserve estimates. The accuracy of any reserve estimate
is a function of the quality of available data, the accuracy of assumptions regarding future commodity prices and future exploration
and development costs and engineering and geological interpretations and judgments. Different reserve engineers may make different
estimates of reserve quantities and related revenue based on the same data. Actual oil and gas prices, development expenditures
and operating expenses will vary from those assumed in reserve estimates, and these variances may be significant. Any significant
variance from the assumptions used could result in the actual quantity of reserves and future net cash flow being materially different
from those estimated in reserve reports. In addition, results of drilling, testing and production and changes in prices after the
date of reserve estimates may result in downward revisions to such estimates. Substantial downward adjustments in reserve estimates
could have a material adverse effect on a given exploration and production company’s financial position and results of operations.
In addition, due to natural declines in reserves and production, exploration and production companies must economically find or
acquire and develop additional reserves in order to maintain and grow their revenues and distributions. Exploration and production
MLPs seek to reduce cash flow volatility associated with commodity prices by executing multi-year hedging strategies that fix the
price of gas and oil produced. There can be no assurance that the hedging strategies currently employed by these MLPs are currently
effective or will remain effective.
Marine shipping
Marine shipping MLPs are primarily marine
transporters of natural gas, crude oil or refined petroleum products. Marine shipping companies are exposed to many of the same
risks as other energy companies. In addition, the highly cyclical nature of the marine transportation industry may lead to volatile
changes in charter rates and vessel values, which may adversely affect the revenues, profitability and cash flows of such companies.
Fluctuations in charter rates result from changes in the supply and demand for vessel capacity and changes in the supply and demand
for certain energy commodities. Changes in demand for transportation of commodities over longer distances and supply of vessels
to carry those commodities may materially affect revenues, profitability and cash flows. The value of marine transportation vessels
may fluctuate and could adversely affect the value of shipping company securities in the Fund’s portfolio. Declining marine
transportation values could affect the ability of shipping companies to raise cash by limiting their ability to refinance their
vessels, thereby adversely impacting such company’s liquidity. Shipping company vessels are at risk of damage or loss because
of events such as mechanical failure, collision, human error, war, terrorism, piracy, cargo loss and bad weather. In addition,
changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from
time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes, boycotts and government requisitioning
of vessels. These sorts of events could interfere with shipping lanes and result in market disruptions and a significant reduction
in cash flow for the shipping companies.
Propane
Propane MLPs are distributors or propane
to homeowners for space and water heating. MLPs with propane assets are subject to earnings variability based upon weather conditions
in the markets they serve, fluctuating commodity prices, customer conservation and increased use of alternative fuels, increased
governmental or environmental regulation, and accidents or catastrophic events, among others.
Natural Resource
MLPs with coal, timber, fertilizer and
other mineral assets are subject to supply and demand fluctuations in the markets they serve, which will be impacted by a wide
range of domestic and foreign factors including fluctuating commodity prices, the level of their customers’ coal stockpiles,
weather, increased conservation or use of alternative fuel sources, increased governmental or environmental regulation, depletion,
declines in production, mining accidents or catastrophic events, health claims and economic conditions, among others. In light
of increased state and federal regulation, it has been increasingly difficult to obtain and maintain the permits necessary to mine
coal. Further, such permits, if obtained, have increasingly contained more stringent, and more difficult and costly to comply with,
provisions relating to environmental protection.
Issuer Risk
Issuer risk is the risk that any of the
individual companies that the Fund invests in may perform badly, causing the value of its securities to decline. Poor performance
may be caused by poor management decisions, competitive pressures, changes in technology, disruptions in supply, labor problems
or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in times of distress or on their
own discretion, decide to reduce or eliminate dividends which would also cause their stock prices to decline.
Leverage Risk
The Fund (i) may invest up to 20% of its
assets in certain futures, options and swap contracts, and (ii) borrow money from a bank as permitted under the 1940 Act, and as
interpreted or modified by regulatory authority having jurisdiction, from time to time. As a result, the Fund may be exposed to
the risks of leverage, which may be considered a speculative investment technique. Leverage magnifies the potential for gain and
loss on amounts invested and therefore increase the risks associated with investing in our Fund. If the value of the Fund’s
assets increases, then leveraging would cause the Fund's net asset value to increase more sharply than it would have had the Fund
not leveraged. Conversely, if the value of the Fund’s assets decreases, leveraging would cause the Fund's NAV to decline
more sharply than it otherwise would have had the Fund not leveraged. The Fund may incur additional expenses in connection with
borrowings.
Liquidity Risk
Although common units of MLPs trade on
the NYSE and the NASDAQ, certain MLP securities may trade less frequently than those of larger companies due to their smaller capitalizations.
In the event certain MLP securities experience limited trading volumes, the prices of such MLPs may display abrupt or erratic movements
at times. Additionally, it may be more difficult for the Fund to buy and sell significant amounts of such securities without an
unfavorable impact on prevailing market prices. As a result, these securities may be difficult to dispose of at a fair price at
the times when the Adviser believes it is desirable to do so. The Fund’s investment in securities that are less actively
traded or over time experience decreased trading volume may restrict its ability to take advantage of other market opportunities
or to dispose of securities. This also may affect adversely the Fund’s ability to make dividend distributions to you.
Management Risk
The Fund may not fully replicate its Underlying
Index and may hold securities not included in its Underlying Index. Therefore, the Fund is subject to management risk. That is,
the Adviser’s investment strategy, the implementation of which is subject to a number of constraints, may not produce the
intended results. The ability of the Adviser to successfully implement the Fund’s investment strategies will influence the
Fund’s performance significantly.
The Fund is not actively managed. The Fund
may be affected by a general decline in the market segments relating to its Underlying Index. The Fund invests in securities included
in, or representative of, its Underlying Index regardless of their investment merit. The Adviser does not attempt to take defensive
positions in declining markets.
Market Risk
Market risk is the risk that the value
of the securities in which the Fund invests may go up or down in response to the prospects of individual issuers and/or general
economic conditions. Price changes may be temporary or last for extended periods. You could lose money over short periods due to
fluctuation in the Fund’s NAV in response to market movements, and over longer periods during market downturns.
Market Trading Risks
Absence of Active Market
Although Shares are or will be listed for
trading on the exchange and may be listed on certain foreign exchanges, there can be no assurance that an active trading market
for such Shares will develop or be maintained.
Lack of Market Liquidity
Secondary market trading in Shares may
be halted by the exchange because of market conditions or for other reasons. In addition, trading in Shares is subject to trading
halts caused by extraordinary market volatility pursuant to “circuit breaker” rules. There can be no assurance that
the requirements necessary to maintain the listing of Shares will continue to be met or will remain unchanged.
Risks of Secondary Listings
The Fund’s shares may be listed or
traded on U.S. and non-U.S. stock exchanges other than the U.S. stock exchange where the Fund’s primary listing is maintained.
There can be no assurance that the Fund’s shares will continue to trade on any such stock exchange or in any market or that
the Fund’s shares will continue to meet the requirements for listing or trading on any exchange or in any market. The Fund’s
shares may be less actively traded in certain markets than others, and investors are subject to the execution and settlement risks
and market standards of the market where they or their broker direct their trades for execution. Certain information available
to investors who trade shares on a U.S. stock exchange during regular U.S. market hours may not be available to investors who trade
in other markets, which may result in secondary market prices in such markets being less efficient.
Secondary Market Trading Risk
Shares of the Fund may trade in the secondary
market on days when the Fund does not accept orders to purchase or redeem Shares. On such days, Shares may trade in the secondary
market with more significant premiums or discounts than might be experienced on days when the Fund accepts purchase and redemption
orders.
Secondary market trading in Fund shares
may be halted by a stock exchange because of market conditions or other reasons. In addition, trading in Fund shares on a stock
exchange or in any market may be subject to trading halts caused by extraordinary market volatility pursuant to "circuit breaker"
rules on the stock exchange or market. There can be no assurance that the requirements necessary to maintain the listing or trading
of Fund shares will continue to be met or will remain unchanged.
Statement of Additional Information
Dated November 27, 2012
This Statement of Additional Information
(“Additional Statement”) is not a prospectus. It should be read in conjunction with the current Prospectus (“Prospectus”)
for the Global X Junior MLP ETF (MLPJ), the (“Fund”) of Global X Funds (“Trust”) as such Prospectus may
be revised or supplemented from time to time.
The Prospectus for the Funds is dated November
27, 2012. Capitalized terms used herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted.
A copy of the Prospectus may be obtained without charge by writing to SEI Investments Global Fund Services, One Freedom Valley
Drive Oaks, PA 19456, calling 1-888-GXFund-1 (1-888-493-8631) or visiting www.globalxfunds.com. The principal U.S. national stock
exchange on which all Funds identified in this SAI are or will be listed is NYSE Arca (“Exchange”).
TABLE OF CONTENTS
GENERAL DESCRIPTION OF THE TRUST AND its FUNDs
|
1
|
ADDITIONAL INVESTMENT INFORMATION
|
1
|
EXCHANGE LISTING AND TRADING
|
1
|
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
|
2
|
INFORMATION REGARDING THE INDEX AND THE INDEX PROVIDER
|
13
|
INVESTMENT RESTRICTIONS
|
14
|
CURRENT 1940 ACT LIMITATIONS
|
15
|
CONTINUOUS OFFERING
|
15
|
PORTFOLIO HOLDINGS
|
16
|
MANAGEMENT OF THE TRUST
|
17
|
BOARD OF TRUSTEES AND OFFICERS
|
17
|
STANDING BOARD COMMITTEES
|
21
|
TRUSTEE OWNERSHIP OF FUND SHARES
|
22
|
TRUSTEE OWNERSHIP OF SECURITIES OF THE ADVISER AND RELATED COMPANIES
|
22
|
TRUSTEE COMPENSATION
|
23
|
CODE OF ETHICS
|
23
|
INVESTMENT ADVISER
|
24
|
PORTFOLIO MANAGERS
|
25
|
BROKERAGE TRANSACTIONS
|
26
|
PROXY VOTING
|
26
|
SUB-ADMINISTRATOR
|
27
|
DISTRIBUTOR
|
27
|
CUSTODIAN AND TRANSFER AGENT
|
28
|
DESCRIPTION OF SHARES
|
28
|
BOOK-ENTRY ONLY SYSTEM
|
31
|
PURCHASE AND REDEMPTION OF CREATION UNITS
|
32
|
CREATION UNIT AGGREGATIONS
|
32
|
PURCHASE AND ISSUANCE OF CREATION UNIT AGGREGATIONS
|
32
|
REDEMPTION OF CREATION UNITS
|
36
|
TAXES
|
38
|
SALES OF SHARES
|
40
|
REPORTING
|
41
|
NET ASSET VALUE
|
41
|
DIVIDENDS AND DISTRIBUTIONS
|
42
|
GENERAL POLICIES
|
42
|
DIVIDEND REINVESTMENT SERVICE
|
42
|
OTHER INFORMATION
|
42
|
COUNSEL
|
42
|
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
42
|
STATEMENT OF ADDITIONAL INFORMATION
|
43
|
GENERAL
DESCRIPTION OF THE TRUST AND its FUNDs
The Trust currently consists of 87 investment
portfolios. The Trust was formed as a Delaware Statutory Trust on March 6, 2008 and is authorized to have multiple series or portfolios.
The Trust is an open-end management investment company, registered under the Investment Company Act of 1940, as amended (“1940
Act”). The offering of the Trust’s shares is registered under the Securities Act of 1933, as amended (“Securities
Act”). This SAI relates only to the Global X Junior MLP ETF (the “Fund”). The Fund is “non-diversified”
and as such, the Fund’s investments are not required to meet certain diversification requirements under the 1940 Act.
The investment objective of the Fund is
to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of a specified
benchmark index (“Underlying Index”). The Fund’s investment objective and Underlying Index may be changed without
shareholder approval. Shareholders will be given 60 days’ prior notice of any change of the Fund’s investment objective.
If the Adviser changes the Underlying Index, the name of the Fund may be changed as well. The Fund is managed by Global X Management
Company LLC (“Adviser”).
The Fund offers and issue shares at its
net asset value per share (“NAV”) only in aggregations of a specified number of shares (each, a “Creation Unit”
or a “Creation Unit Aggregation”), generally in exchange for a basket of equity and securities included in its Underlying
Index (“Deposit Securities”), together with the deposit of a specified cash payment (“Cash Component”).
The shares of the Fund are, or will be, listed and expected to be traded on the NYSE Arca (“Exchange”).
Shares trade in the secondary market and elsewhere at market
prices that may be at, above or below NAV. Shares are redeemable only in Creation Unit Aggregations and, generally, in exchange
for portfolio securities and a Cash Component. Creation Units typically are a specified number of shares. The number of shares
per Creation Unit of the Fund are as follows:
Fund
|
Number of Shares per
Creation Unit
|
Global X Junior MLP ETF
|
50,000
|
The Trust reserves the right to offer a
“cash” option for creations and redemptions of shares. Shares may be issued in advance of receipt of Deposit Securities
subject to various conditions including a requirement to maintain on deposit with the Trust cash equal to 110% of the market value
of the missing Deposit Securities. The required amount of deposit may be changed by the Adviser from time to time. See the Purchase
and Redemption of Creation Units section of this SAI for further discussion. In each instance of such cash creations or redemptions,
transaction fees may be imposed that will be in addition to the transaction fees associated with in-kind creations or redemptions.
In all cases, such conditions and fees will be limited in accordance with the requirements of the Securities and Exchange Commission
(“SEC”) applicable to management investment companies offering redeemable securities.
ADDITIONAL
INVESTMENT INFORMATION
EXCHANGE LISTING AND TRADING
A discussion of exchange listing and trading
matters associated with an investment in the Fund is contained in the Prospectus. The discussion below supplements, and should
be read in conjunction with, that section of the Prospectus.
Shares of the Fund are listed for trading
on the Exchange and trade throughout the day on the Exchange and other secondary markets. There can be no assurance that the requirements
of the Exchange necessary to maintain the listing of shares of any Fund will continue to be met. The Exchange may, but is not required
to, remove the shares of the Fund from its listing if (1) following the initial twelve-month period beginning upon the commencement
of trading of the Fund, there are fewer than fifty (50) record and/or beneficial holders of the Fund for thirty (30) or more consecutive
trading days, (2) the value of the Underlying Index on which the Fund is based is no longer calculated or available, (3) the “indicative
optimized portfolio value” (“IOPV”) of the Fund is no longer calculated or available, or (4) any other event
shall occur or condition exist that, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable. The Exchange
will remove the shares of the Fund from listing and trading upon termination of the Fund.
As in the case of other publicly-traded
securities, brokers’ commissions on transactions will be based on negotiated commission rates at customary levels.
In order to provide additional information
regarding the indicative value of shares of the Fund, the Exchange disseminates every fifteen seconds, through the facilities of
the Consolidated Tape Association, an updated IOPV for the Fund as calculated by an information provider or a market data vendor.
The Trust is not involved in or responsible for any aspect of the calculation or dissemination of the IOPVs, and makes no representation
or warranty as to the accuracy of the IOPVs.
An IOPV has an equity securities value
component and a cash component. The equity securities values included in an IOPV are the values of the Deposit Securities for the
applicable Fund. While the IOPV reflects the current market value of the Deposit Securities required to be deposited in connection
with the purchase of a Creation Unit Aggregation, it does not necessarily reflect the precise composition of the current portfolio
of securities held by the applicable Fund at a particular point in time because the current portfolio of the Fund may include securities
that are not a part of the Deposit Securities. Therefore, the Fund’s IOPV disseminated during the Exchange trading hours
should not be viewed as a real time update of the Fund’s NAV, which is calculated only once a day.
In addition to the equity component described
in the preceding paragraph, the IOPV for the Fund includes a cash component consisting of estimated accrued dividends and other
income, less expenses. If applicable, the IOPV also reflects changes in currency exchange rates between the U.S. Dollar and the
applicable foreign currency.
The Trust reserves the right to adjust
the share prices of Fund in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished
through stock splits or reverse stock splits, which would have no effect on the net assets of the applicable Fund.
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
The Fund seeks to achieve its objective
by investing primarily in equity securities issued by companies that comprise the relevant Underlying Index and through transactions
that provide substantially similar exposure to securities in the Underlying Index. The Fund operates as an index fund and will
not be actively managed. Adverse performance of a security in the Fund’s portfolio will ordinarily not result in the elimination
of the security from the Fund’s portfolio. The Fund invests at least 80% of its total assets in the securities of its Underlying
Index and in American Depositary Receipts (“ADRs”), and Global Depositary Receipts (“GDRs”) (collectively
“Depositary Receipts”) based on the securities in its Underlying Index. The Fund may also invest up to 20% of its assets
in certain futures, options and swap contracts, cash and cash equivalents, as well as in stocks not included in its Underlying
Index but which the Adviser believes will help the Fund track its Underlying Index.
The Global X Junior MLP ETF will use a
replication strategy. A replication strategy is an indexing strategy that involves investing in the securities of the Underlying
Index in approximately the same proportions as in the Underlying Index. However, the Fund may utilize a representative sampling
strategy with respect to its Underlying Index when a replication strategy might be detrimental to its shareholders, such as when
there are practical difficulties or substantial costs involved in compiling a portfolio of equity securities to follow its Underlying
Index, or, in certain instances, when securities in the Underlying Index become temporarily illiquid, unavailable or less liquid,
or due to legal restrictions.
The Fund has adopted a non-fundamental
investment policy in accordance with Rule 35d-1 under the 1940 Act to invest, under normal circumstances, at least 80% of the value
of its net assets, plus the amount of any borrowings for investment purposes, in securities of the Fund’s Underlying Index
and in Depositary Receipts based on securities in the Underlying Index. The Fund also has adopted a non-fundamental policy to invest
at least 80% of its total assets in securities suggested by its name. The Fund has also adopted a policy to provide its shareholders
with at least 60 days’ prior written notice of any change in such policy. If, subsequent to an investment, the 80% requirement
is no longer met, the Fund’s future investments will be made in a manner that will bring the Fund into compliance with this
policy.
The following supplements the information
contained in the Prospectus concerning the investment objectives and policies of the Fund.
COMMODITY RISK
Commodity
risks would subject the Fund to potentially greater volatility than traditional securities. Commodity prices are influenced by
unfavorable weather, animal and plant disease, geologic and environmental factors as well as government regulation.
CONCENTRATION RISK.
To the extent
that its Underlying Index or portfolio is concentrated in the securities of companies in a particular country, market, industry,
group of industries, sector or asset class, the Fund may be adversely affected by the performance of those securities, may be subject
to increased price volatility and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting
that market, industry, group of industries, sector or asset class.
EQUITY SWAPS, TOTAL RATE OF RETURN SWAPS
AND CURRENCY SWAPS.
The Fund may invest up to 20% of its total assets in swap contracts.
A swap is an agreement involving the exchange
by the Fund with another party of their respective commitments to pay or receive payments at specified dates based upon or calculated
by reference to changes in specified prices or rates (e.g., interest rates in the case of interest rate swaps) based on a specified
amount (the “notional” amount). Some swaps currently are, and more in the future will be, centrally cleared. Examples
of swap agreements include, but are not limited to, equity, index or other total return swaps and foreign currency swaps.
The Fund may enter into equity swap contracts
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. These instruments provide a great deal of flexibility. For example, a counterparty
may agree to pay the Fund the amount, if any, by which the notional amount of the equity swap contract would have increased in
value had it been invested in particular stocks (or an index of stocks), plus the dividends that would have been received on those
stocks. In these cases, the Fund may agree to pay to the counterparty the amount, if any, by which that notional amount would have
decreased in value had it been invested in the stocks. Therefore, the return to the Fund on any equity swap contract should be
the gain or loss on the notional amount plus dividends on the stocks less the interest paid by the Fund on the notional amount.
In other cases, the counterparty and the Fund may each agree to pay the other the difference between the relative investment performances
that would have been achieved if the notional amount of the equity swap contract had been invested in different stocks (or indices
of stocks).
Total rate of return swaps are contracts
that obligate a party to pay or receive interest in exchange for the payment by the other party of the total return generated by
a security, a basket of securities, an index or an index component. The Fund also may enter into currency swaps, which involve
the exchange of the rights of the Fund and another party to make or receive payments in specific currencies. Currency swaps involve
the exchange of rights of the Fund and another party to make or receive payments in specific currencies.
Some swaps transactions are entered into
on a net basis, i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. The Fund will enter into equity swaps only on a net basis. Payments may be made at the conclusion of
an equity swap contract or periodically during its term. Equity swaps do not involve the delivery of securities or other underlying
assets. Accordingly, the risk of loss with respect to equity swaps is limited to the net amount of payments that such Fund is contractually
obligated to make. If the other party to an equity swap, or any other swap entered into on a net basis, defaults, the Fund’s
risk of loss consists of the net amount of payments that such Fund is contractually entitled to receive, if any. In contrast, other
swaps transactions may involve the payment of the gross amount owed. For example, currency swaps usually involve the delivery of
the entire principal amount of one designated currency in exchange for the other designated currency. Therefore, the entire principal
value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations.
To the extent that the amount payable by the Fund under a swap is covered by segregated cash or liquid assets, the Fund and the
Adviser believe that transactions do not constitute senior securities under the 1940 Act and, accordingly, will not treat them
as being subject to the Fund’s borrowing restrictions.
Swaps that are centrally-cleared are subject
to the creditworthiness of the clearing organizations involved in the transaction. For example, an investor could lose margin payments
it has deposited with the clearing organization as well as the net amount of gains not yet paid by the clearing organization if
it breaches its agreement with the investor or becomes insolvent or goes into bankruptcy. In the event of bankruptcy of the clearing
organization, the investor may be entitled to the net amount of gains the investor is entitled to receive plus the return of margin
owed to it only in proportion to the amount received by the clearing organization’s other customers, potentially resulting
in losses to the investor.
To the extent a swap is not centrally cleared,
the use of swaps also involves the risk that a loss may be sustained as a result of the insolvency or bankruptcy of the counterparty
or the failure of the counterparty to make required payments or otherwise comply with the terms of the agreement.
The Fund will not enter into any swap transactions
unless the unsecured commercial paper, senior debt or claims-paying ability of the other party is rated either A, or A-1 or better
by S&P, or Fitch Ratings (“Fitch”); or A or Prime-1 or better by Moody’s, or has received a comparable rating
from another organization that is recognized as a nationally recognized statistical rating organization (“NRSRO”) or,
if unrated by such rating organization, is determined to be of comparable quality by the Adviser. If a counterparty’s creditworthiness
declines, the value of the swap might decline, potentially resulting in losses to the Fund. Changing conditions in a particular
market area, whether or not directly related to the referenced assets that underlie the swap agreement, may have an adverse impact
on the creditworthiness of the counterparty. For example, the counterparty may have experienced losses as a result of its exposure
to a sector of the market that adversely affect its creditworthiness. If there is a default by the other party to such a transaction,
the Fund will have contractual remedies pursuant to the agreements related to the transaction. Such contractual remedies, however,
may be subject to bankruptcy and insolvency laws that may affect such Fund’s rights as a creditor (e.g
.
, the Fund
may not receive the net amount of payments that it contractually is entitled to receive). 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 markets for other similar instruments
which are traded in the interbank market.
The use of equity, total rate of return
and currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions.
In connection with the Fund’s position in a swaps contract,
the Fund will segregate liquid assets or will otherwise cover its position in accordance with applicable SEC requirements.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS.
To the extent consistent with its investment policies, the Fund may invest up to 20% of its total assets (minus
any percent of Fund assets invested in other derivatives) in U.S. or foreign futures contracts and may purchase and sell call and
put options on futures contracts. These futures contracts and options will be used to simulate full investment in the respective
Underlying Index, to facilitate trading or to reduce transaction costs. The Fund will only enter into futures contracts and options
on futures contracts that are traded on a U.S. or foreign exchange. The Fund will not use futures or options for speculative purposes.
In connection with the Fund’s position in a futures contract or related option, the Fund will segregate liquid assets or
will otherwise cover its position in accordance with applicable SEC requirements.
Futures Contracts
. Each Fund may
enter into certain equity, index and currency futures transactions, as well as other futures transactions that become available
in the markets. By using such futures contracts, the Funds may obtain exposure to certain equities, indexes and currencies without
actually investing in such instruments. Index futures may be based on broad indices, such as the S&P 500 Index, or narrower
indices. A futures contract on foreign currency creates a binding obligation on one party to deliver, and a corresponding obligation
on another party to accept delivery of, a stated quantity of foreign currency for an amount fixed in U.S. dollars. Foreign currency
futures may be used by the Fund to help the Fund track the price and yield performance of its Underlying Index.
Some futures contracts are traded on organized
exchanges regulated by the SEC or Commodity Futures Trading Commission (“CFTC”), and transactions on them are cleared
through a clearing corporation, which guarantees the performance of the parties to the contract. If regulated by the CFTC, such
exchanges may be designated contract markets or swap execution facilities.
The Fund may also engage in transactions
in foreign stock index futures, which may be traded on foreign exchanges. Participation in foreign futures and foreign options
transactions involves the execution and clearing of trades on or subject to the rules of a foreign board of trade. Neither the
National Futures Association (“NFA”) nor any domestic exchange regulates activities of any such organization, even
if it is formally linked to a domestic market. Moreover, foreign laws and regulations and transactions executed under such laws
and regulation may not be afforded certain of the protective measures provided by domestically. In addition, the price of foreign
futures or foreign options contract may be affected by any variance in the foreign exchange rate between the time an order is placed
and the time it is liquidated, offset or exercised.
Unlike purchases or sales of portfolio
securities, no price is paid or received by the Fund upon the purchase or sale of a futures contract. Initially, the Fund will
be required to deposit with the broker or in a segregated account with a custodian or sub-custodian an amount of liquid assets,
known as initial margin, based on the value of the contract. The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions. Rather, the initial margin is in the nature of a performance bond or good faith deposit on the contract,
which is returned to the Fund upon termination of the futures contract assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the broker, will be made on a daily basis as the price of the underlying
instruments fluctuates making the long and short positions in the futures contract more or less valuable, a process known as “marking-to-market.”
For example, when the Fund has purchased a futures contract and the price of the contract has risen in response to a rise in the
underlying instruments, that position will have increased in value and the Fund will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where the Fund has purchased a futures contract and the price of the
future contract has declined in response to a decrease in the underlying instruments, the position would be less valuable and the
Fund would be required to make a variation margin payment to the broker. Prior to expiration of the futures contract, the Adviser
may elect to close the position by taking an opposite position, subject to the availability of a secondary market, which will operate
to terminate the Fund’s position in the futures contract. A final determination of variation margin is then made, additional
cash is required to be paid by or released to the Fund, and the Fund realizes a loss or gain.
There are several risks in connection with
the use of futures by the Fund. One risk arises because of the imperfect correlation between movements in the price of the futures
and movements in the price of the instruments which are the subject of the hedge. The price of the future may move more than or
less than the price of the instruments being hedged. If the price of the futures moves less than the price of the instruments which
are the subject of the hedge, the hedge will not be fully effective but, if the price of the instruments being hedged has moved
in an unfavorable direction, the Fund would be in a better position than if it had not hedged at all. If the price of the instruments
being hedged has moved in a favorable direction, this advantage will be partially offset by the loss on the futures. If the price
of the futures moves more than the price of the hedged instruments, the Fund involved will experience either a loss or gain on
the futures which will not be completely offset by movements in the price of the instruments that are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price of instruments being hedged and movements in the price of
futures contracts, the Fund may buy or sell futures contracts in a greater dollar amount than the dollar amount of instruments
being hedged if the volatility over a particular time period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate by the Adviser. Conversely, the Fund may buy or
sell fewer futures contracts if the volatility over a particular time period of the prices of the instruments being hedged is less
than the volatility over such time period of the futures contract being used, or if otherwise deemed to be appropriate by the Adviser.
In addition to the possibility that there
may be an imperfect correlation, or no correlation at all, between movements in the futures and the instruments being hedged, the
price of futures may not correlate perfectly with movement in the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts through off-setting transactions which could distort
the normal relationship between the cash and futures markets. Second, with respect to financial futures contracts, the liquidity
of the futures market depends on participants entering into off-setting transactions rather than making or taking delivery. To
the extent participants decide to make or take delivery, liquidity in the futures market could be reduced thus producing distortions.
Third, from the point of view of speculators, the deposit requirements in the futures market are less onerous than margin requirements
in the securities market. Therefore, increased participation by speculators in the futures market may also cause temporary price
distortions. Due to the possibility of price distortion in the futures market, and because of the imperfect correlation between
the movements in the cash market and movements in the price of futures, a correct forecast of general market trends or interest
rate movements by the Adviser may still not result in a successful hedging transaction over a short time frame.
In general, positions in futures may be
closed out only on an exchange, board of trade or other trading facility that provides a secondary market for such futures. Although
each Fund intends to purchase or sell futures only on trading facilities where there appear to be active secondary markets, there
is no assurance that a liquid secondary market on any trading facility will exist for any particular contract or at any particular
time. In such an event, it may not be possible to close a futures contract position, and in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation margin. However, in the event futures contracts
have been used to hedge portfolio securities, such securities may not be sold until the futures contract can be terminated. In
such circumstances, an increase in the price of the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of the securities will in fact correlate with the price
movements in the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity
of a secondary market in a futures contract may be adversely affected by “daily price fluctuation limits” established
by commodity exchanges which limit the amount of fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a price beyond the limit, thus preventing the liquidation
of open futures positions. The trading of futures contracts is also subject to the risk of trading halts, suspensions, exchange
or clearing house equipment failures, government intervention, insolvency of a brokerage firm or clearing house or other disruptions
of normal trading activity, which could at times make it difficult or impossible to liquidate existing positions or to recover
excess variation margin payments.
Successful use of futures by the Fund is
subject to the Adviser’s ability to predict correctly movements in the direction of the market. In addition, in such situations,
if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements. Such sales of securities
may be, but will not necessarily be, at increased prices which reflect the rising market. The Fund may have to sell securities
at a time when it may be disadvantageous to do so.
Options on Futures Contracts
. The
Fund may purchase and write options on the futures contracts described above. A futures option gives the holder, in return for
the premium paid, the right to receive and execute a long futures contract (if the option is a call) or a short futures contract
(if the option is a put) at a specified price at any time during the period of the option. Like the buyer or seller of a futures
contract, the holder, or writer, of an option has the right to terminate its position prior to the scheduled expiration of the
option by selling, or purchasing an option of the same series, at which time the person entering into the closing transaction will
realize a gain or loss. Each Fund will be required to deposit initial margin and variation margin with respect to put and call
options on futures contracts written by it pursuant to brokers’ requirements similar to those described above. Net option
premiums received will be included as initial margin deposits.
Investments in futures options involve
some of the same considerations that are involved in connection with investments in futures contracts (for example, the existence
of a liquid secondary market). In addition, the purchase or sale of an option also entails the risk that changes in the value of
the underlying futures contract will not correspond to changes in the value of the option purchased. Depending on the pricing of
the option compared to either the futures contract upon which it is based, or upon the price of the securities being hedged, an
option may or may not be less risky than ownership of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the underlying futures contract. Compared to the purchase
or sale of futures contracts, however, the purchase of call or put options on futures contracts may frequently involve less potential
risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). The writing of
an option on a futures contract involves risks similar to those risks relating to the purchase or sale of futures contracts.
CFTC
REGULATION.
In February 2012, the CFTC announced substantial amendments to the exclusions, and to the conditions for
reliance on the exclusions, from registration as a commodity pool operator. Under these amendments, the Fund may only use a de
minimis amount of commodity interests (such as futures contracts, options on futures contracts and swaps) other than for bona fide
hedging purposes (as defined by the CFTC). A de minimis amount is defined as amount such that the aggregate initial margin and
premiums required to establish these positions (after taking into account unrealized profits and unrealized losses on any such
positions and excluding the amount by which options that are “in-the-money” at the time of purchase) may not exceed
5% of the Fund’s net asset value or, alternatively, the aggregate net notional value of those positions, determined at the
time the most recent position was established, may not exceed 100% of the Fund’s net asset value (after taking into account
unrealized profits and unrealized losses on any such positions). The CFTC amendments became effective on April 24, 2012, but the
compliance date is December 31, 2012. Therefore, pending judicial challenge, as of January 1, 2013, the CFTC amendments will impose
limitations on the Funds’ trading of commodity interests. Because, however, each of the Funds engages only in a de minimis
amount of such transactions, the Funds expect to continue to claim an exclusion from registration as a commodity pool operator
under the Commodity Exchange Act, and the Adviser expects to continue to claim an exclusion as a commodity trading advisor with
respect to the Funds. Therefore, none of the Funds or the Adviser expect to be subject to the registration and regulatory requirements
of the Commodity Exchange Act.
Government
Intervention in Financial Markets.
Recent instability in the financial markets
has led the U.S. Government, other governments and financial and prudential regulators to take a number of unprecedented actions
designed to support certain financial institutions and segments of the financial markets that have experienced extreme volatility,
and in some cases a lack of liquidity. Most significantly, the U.S. Government has enacted a broad-reaching new regulatory framework
over the financial services industry and consumer credit markets, the potential impact of which on the value of securities held
by the Fund is unknown. Federal, state, and other governments, their regulatory agencies, or self-regulatory organizations may
take actions that affect the regulation of the instruments in which the Fund invests, or the issuers of such instruments, in ways
that are unforeseeable. Legislation or regulation may also change the way in which the Fund itself is regulated. Such legislation
or regulation could limit or preclude the Fund’s ability to achieve its investment objective.
Governments or their agencies may also
acquire distressed assets from financial institutions and acquire ownership interests in those institutions. The implications of
government ownership and disposition of these assets are unclear, and such a program may have positive or negative effects on the
liquidity, valuation and performance of the Fund’s portfolio holdings. Furthermore, volatile financial markets can expose
the Fund to greater market and liquidity risk and potential difficulty in valuing portfolio instruments held by the Fund. The Fund
has established procedures to assess the liquidity of portfolio holdings and to value instruments for which market prices may not
be readily available. The Adviser will monitor developments and seek to manage the Fund in a manner consistent with achieving the
Fund’s investment objective, but there can be no assurance that it will be successful in doing so.
The value of the Fund’s holdings
is also generally subject to the risk of future local, national, or global economic disturbances based on unknown weaknesses in
the markets in which the Fund invests. In the event of such a disturbance, issuers of securities held by the Fund may experience
significant declines in the value of their assets and even cease operations, or may receive government assistance accompanied by
increased restrictions on their business operations or other government intervention. In addition, it is not certain that the U.S.
Government will intervene in response to a future market disturbance and the effect of any such future intervention cannot be predicted.
It is difficult for issuers to prepare for the impact of future financial downturns, although companies can seek to identify and
manage future uncertainties through risk management programs.
ILLIQUID OR RESTRICTED SECURITIES.
To
the extent consistent with its investment policies, the Fund may invest up to 15% of its net assets in securities that are illiquid.
The Fund may purchase commercial paper issued pursuant to Section 4(2) of the Securities Act and securities that are not registered
under the Securities Act but can be sold to “qualified institutional buyers” in accordance with Rule 144A under the
Securities Act. These securities will not be considered illiquid so long as the Adviser determines, under guidelines approved by
the Trust’s Board of Trustees that an adequate trading market exists. This practice could increase the level of illiquidity
during any period that qualified institutional buyers become uninterested in purchasing these securities.
INVESTMENT COMPANIES.
To the extent
consistent with its investment policies, the Fund may invest in the securities of other investment companies. Such investments
will be limited so that, as determined after a purchase is made, either: (a) not more than 3% of the total outstanding stock of
such investment company will be owned by the Fund, the Trust as a whole and its affiliated persons (as defined in the 1940 Act);
or (b) (i) not more than 5% of the value of the total assets of the Fund will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be invested in the aggregate securities of investment companies
as a group and (iii) not more than 3% of the outstanding voting stock of any one investment company will be owned by the Fund.
Investments by the Fund in other investment companies, including exchange-traded funds (“ETFs”), will be subject to
the limitations of the 1940 Act except as permitted by SEC orders. Each Fund may rely on SEC orders that permit it to invest in
certain ETFs beyond the limits contained in the 1940 Act, subject to certain terms and conditions. Generally, these terms and conditions
require the Board to approve policies and procedures relating to certain of the Fund’s investments in ETFs. These policies
and procedures require, among other things, that (i) the Adviser conduct the Fund’s investment in ETFs without regard to
any consideration received by the Fund or any of its affiliated persons and (ii) the Adviser certify to the Board quarterly that
it has not received any consideration in connection with an investment by the Fund in an ETF, or if it has, the amount and purpose
of the consideration will be reported to the Board and an equivalent amount of advisory fees shall be waived by the Adviser.
Certain investment companies whose securities
are purchased by the Fund may not be obligated to redeem such securities in an amount exceeding 1% of the investment company’s
total outstanding securities during any period of less than 30 days. Therefore, such securities that exceed this amount may be
illiquid.
If required by the 1940 Act, the Fund expects
to vote the shares of other investment companies that are held by it in the same proportion as the vote of all other holders of
such securities.
Leverage.
The Fund may (i) invest up to 20% of its total assets in certain futures, options and swap contracts or other derivatives,
and (ii) borrow money at fiscal quarter ends to maintain the required level of diversification to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code. As a result, the fund may be exposed to the risks of leverage,
which may be considered a speculative investment technique. Leverage magnifies the potential for gain and loss on amounts invested
and therefore increase the risks associated with investing in our Fund. If the value of the Fund's assets increases, then leveraging
would cause the Fund's net asset value to increase more sharply than it would have had the Fund not leveraged. Conversely, if the
value of the Fund's assets decreases, leveraging would cause the Fund's net asset value to decline more sharply than it otherwise
would have had the Fund not leveraged. The Fund may incur additional expenses in connection with borrowings.
MLP
Risk.
Investments in securities of MLPs involve risks that differ from an investment in common stock. Holders of units
of MLPs have more limited control right sand limited rights to vote on matters affecting the MLP as compared to holders of stock
of a corporation. For example, MLP unit holders may not elect the general partner or the directors of the general partner and the
MLP unit holders have limited ability to remove an MLP’s general partner. MLPs are controlled by their general partners,
which generally have conflicts of interest and limited fiduciary duties to the MLP, which may permit the general partner to favor
its own interests over the MLPs. The Fund derives substantially all of its cash flow from investments in equity securities of MLPs.
The amount of cash that the Fund will have available to pay or distribute to you depends entirely on the ability of the MLPs that
the Fund owns to make distributions to their partners and the tax character of those distributions. Neither the Fund nor the Adviser
has control over the actions of underlying MLPs. The amount of cash that each individual MLP can distribute to its partners will
depend on the amount of cash it generates from operations, which will vary from quarter to quarter depending on factors affecting
the energy infrastructure market generally and on factors affecting the particular business lines of the MLP. Available cash will
also depend on the MLPs’ level of operating costs (including incentive distributions to the general partner), level of capital
expenditures, debt service requirements, acquisition costs (if any), fluctuations in working capital needs, and other factors.
The Fund expects to generate significant investment income, and the Fund’s investments may not distribute the expected or
anticipated levels of cash, resulting in the risk that the Fund may not have the ability to make cash distributions as investors
expect from MLP-focused investments.
Certain MLPS in which the Fund may invest
depend upon their parent or sponsor entities for a majority of their revenues. If their parent or sponsor entities fail to make
such payments or satisfy their obligations, the revenues and cash flows of such MLPs and ability of such MLPs to make distributions
to unit holders, such as the Fund, would be adversely affected.
MLPs are subject to various federal, state
and local environmental laws and health and safety laws as well as laws and regulations specific to their particular activities.
These laws and regulations address: health and safety standards for the operation of facilities, transportation systems and the
handling of materials; air and water pollution requirements and standards; solid waste disposal requirements; land reclamation
requirements; and requirements relating to the handling and disposition of hazardous materials. MLPs are subject to the costs of
compliance with such laws applicable to them, and changes in such laws and regulations may adversely affect their results of operations.
MLPs are subject to numerous business related
risks, including: deterioration of business fundamentals reducing profitability due to development of alternative energy sources,
among other things, consumer sentiment, changing demographics in the markets served, unexpectedly prolonged and precipitous changes
in commodity prices and increased competition that reduces the MLP’s market share; the lack of growth of markets requiring
growth through acquisitions; disruptions in transportation systems; the dependence of certain MLPs upon unrelated third parties;
availability of capital for expansion and construction of needed facilities; a significant decrease in production due to depressed
commodity prices or otherwise; the inability of MLPs to successfully integrate recent or future acquisitions; and the general level
of the economy.
New
Fund Risks.
The Fund is a new fund, with no operating history, which may result in additional risks for investors in
the Fund. There can be no assurance that the Fund will grow to or maintain an economically viable size, in which case the Board
of Trustees may determine to liquidate the Fund. While shareholder interests will be the paramount consideration, the timing of
any liquidation may not be favorable to certain individual shareholders.
NON-DIVERSIFICATION RISK.
Non-diversification
risk is the risk that a non-diversified fund may be more susceptible to adverse financial, economic or other developments affecting
any single issuer, and more susceptible to greater losses because of these developments. The Fund is classified as “non-diversified”
for purposes of the 1940 Act. A “non-diversified” classification means that the Fund is not limited by the 1940 Act
with regard to the percentage of its assets that may be invested in the securities of a single issuer. The securities of a particular
issuer may dominate the Underlying Index of such the Fund and, consequently, the Fund’s investment portfolio. The Fund may
also concentrate its investments in a particular industry or group of industries, as noted in the description of the Fund. The
securities of issuers in particular industries may dominate the Underlying Index of such the Fund and, consequently, the Fund’s
investment portfolio. This may adversely affect its performance or subject the Fund’s shares to greater price volatility
than that experienced by less concentrated investment companies.
OPTIONS.
To the extent consistent
with its investment policies, the Fund may invest up to 20% of net assets in put options and buy call options and write covered
call and secured put options. Such options may relate to particular securities, foreign and domestic stock indices, financial instruments,
foreign currencies or the yield differential between two securities (“yield curve options”) and may or may not be listed
on a domestic or foreign securities exchange or issued by the Options Clearing Corporation. A call option for a particular security
or currency gives the purchaser of the option the right to buy, and a writer the obligation to sell, the underlying security at
the stated exercise price prior to the expiration of the option, regardless of the market price of the security or currency. The
premium paid to the writer is in consideration for undertaking the obligation under the option contract. A put option for a particular
security or currency gives the purchaser the right to sell the security or currency at the stated exercise price to the expiration
date of the option, regardless of the market price of the security or currency. In contrast to an option on a particular security,
an option on an index provides the holder with the right to make or receive a cash settlement upon exercise of the option. The
amount of this settlement will be equal to the difference between the closing price of the index at the time of exercise and the
exercise price of the option expressed in dollars, times a specified multiple.
Options trading is a highly specialized
activity, which entails greater than ordinary investment risk. Options on particular securities may be more volatile than the underlying
instruments and, therefore, on a percentage basis, an investment in options may be subject to greater fluctuation than an investment
in the underlying instruments themselves.
Each Fund will write call options only
if they are “covered.” In the case of a call option on a security or currency, the option is “covered”
if the Fund owns the security or currency underlying the call or has an absolute and immediate right to acquire that security without
additional cash consideration (or, if additional cash consideration is required, liquid assets in such amount are segregated) upon
conversion or exchange of other securities held by it. For a call option on an index, the option is covered if the Fund maintains
with its custodian a portfolio of securities substantially replicating the index, or liquid assets equal to the contract value.
A call option also is covered if the Fund holds a call on the same security, currency or index as the call written where the exercise
price of the call held is (i) equal to or less than the exercise price of the call written, or (ii) greater than the exercise price
of the call written provided the Fund segregates liquid assets in the amount of the difference.
All put options written by the Fund would
be covered, which means that such Fund will segregate cash or liquid assets with a value at least equal to the exercise price of
the put option or will use the other methods described in the next sentence. A put option also is covered if the Fund holds a put
option on the same security or currency as the option written where the exercise price of the option held is (i) equal to or higher
than the exercise price of the option written, or (ii) less than the exercise price of the option written provided the Fund segregates
liquid assets in the amount of the difference.
With respect to yield curve options, a
call (or put) option is covered if the Fund holds another call (or put) option on the spread between the same two securities and
segregates liquid assets sufficient to cover the Fund’s net liability under the two options. Therefore, the Fund’s
liability for such a covered option generally is limited to the difference between the amount of the Fund’s liability under
the option written by the Fund less the value of the option held by the Fund. Yield curve options also may be covered in such other
manner as may be in accordance with the requirements of the counterparty with which the option is traded and applicable laws and
regulations.
The Fund’s obligation to sell subject
to a covered call option written by it, or to purchase a security or currency subject to a secured put option written by it, may
be terminated prior to the expiration date of the option by the Fund’s execution of a closing purchase transaction, which
is effected by purchasing on an exchange an option of the same series (
i.e
., same underlying security or currency, exercise
price and expiration date) as the option previously written. Such a purchase does not result in the ownership of an option. A closing
purchase transaction will ordinarily be effected to realize a profit on an outstanding option, to prevent an underlying instrument
from being called, to permit the sale of the underlying security or currency or to permit the writing of a new option containing
different terms on such underlying security. The cost of such a liquidation purchase plus transaction costs may be greater than
the premium received upon the original option, in which event the Fund will have incurred a loss in the transaction. There is no
assurance that a liquid secondary market will exist for any particular option. An option writer, unable to effect a closing purchase
transaction, will not be able to sell the underlying security or currency (in the case of a covered call option) or liquidate the
segregated assets (in the case of a secured put option) until the option expires or the optioned security or currency is delivered
upon exercise with the result that the writer in such circumstances will be subject to the risk of market decline or appreciation
in the instrument during such period.
When the Fund purchases an option, the
premium paid by it is recorded as an asset of the Fund. When the Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability section of the Fund’s statement of assets
and liabilities as a deferred credit. The amount of this asset or deferred credit will be subsequently marked-to-market to reflect
the current value of the option purchased or written. The current value of the traded option is the last sale price or, in the
absence of a sale, the current bid price. If an option purchased by the Fund expires unexercised, the Fund realizes a loss equal
to the premium paid. If the Fund enters into a closing sale transaction on an option purchased by it, the Fund will realize a gain
if the premium received by the Fund on the closing transaction is more than the premium paid to purchase the option, or a loss
if it is less. If an option written by the Fund expires on the stipulated expiration date or if the Fund enters into a closing
purchase transaction, it will realize a gain (or loss if the cost of a closing purchase transaction exceeds the net premium received
when the option is sold) and the deferred credit related to such option will be eliminated. If an option written by the Fund is
exercised, the proceeds of the sale will be increased by the net premium originally received and the Fund will realize a gain or
loss.
There are several risks associated with
transactions in certain options. For example, there are significant differences between the securities, currency and options markets
that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives.
In addition, a liquid secondary market for particular options, whether traded over-the-counter or on an exchange, may be absent
for reasons which include the following: there may be insufficient trading interest in certain options; restrictions may be imposed
by an exchange on opening transactions or closing transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying securities or currencies; unusual or unforeseen circumstances
may interrupt normal operations on an exchange; the facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading value; or one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options
that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable
in accordance with their terms.
REPURCHASE AGREEMENTS.
To the extent
consistent with its investment policies, the Fund may agree to purchase portfolio securities from financial institutions subject
to the seller’s agreement to repurchase them at a mutually agreed upon date and price (“repurchase agreements”).
Repurchase agreements are considered to be loans under the 1940 Act. Although the securities subject to a repurchase agreement
may bear maturities exceeding one year, settlement for the repurchase agreement will never be more than one year after the Fund’s
acquisition of the securities and normally will be within a shorter period of time. Securities subject to repurchase agreements
normally are held either by the Trust’s custodian or sub-custodian (if any), or in the Federal Reserve/Treasury Book-Entry
System. The seller under a repurchase agreement will be required to maintain the value of the securities subject to the agreement
in an amount exceeding the repurchase price (including accrued interest). Default by the seller would, however, expose the Fund
to possible loss because of adverse market action or delay in connection with the disposition of the underlying obligations. In
addition, in the event of a bankruptcy, the Fund could suffer additional losses if a court determines that the Fund’s interest
in the collateral is unenforceable.
REVERSE REPURCHASE AGREEMENTS.
To
the extent consistent with its investment policies, the Fund may borrow funds by selling portfolio securities to financial institutions
such as banks and broker/dealers and agreeing to repurchase them at a mutually specified date and price (“reverse repurchase
agreements”). Each Fund may use the proceeds of reverse repurchase agreements to purchase other securities either maturing,
or under an agreement to resell, on a date simultaneous with or prior to the expiration of the reverse repurchase agreement. Reverse
repurchase agreements are considered to be borrowings under the 1940 Act. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase price. Each Fund will pay interest on amounts
obtained pursuant to a reverse repurchase agreement. While reverse repurchase agreements are outstanding, the Fund will segregate
liquid assets in an amount at least equal to the market value of the securities, plus accrued interest, subject to the agreement.
SECURITIES LENDING.
Collateral for
loans of portfolio securities made by the Fund may consist of cash, cash equivalents, securities issued or guaranteed by the U.S.
government or its agencies or irrevocable bank letters of credit (or any combination thereof). The borrower of securities will
be required to maintain the market value of the collateral at not less than the market value of the loaned securities, and such
value will be monitored on a daily basis. When the Fund lends its securities, it continues to receive payments equal to the dividends
and interest paid on the securities loaned and simultaneously may earn interest on the investment of the cash collateral. Investing
the collateral subjects it to market depreciation or appreciation, and the Fund is responsible for any loss that may result from
its investment in borrowed collateral. The Fund will have the right to terminate a loan at any time and recall the loaned securities
within the normal and customary settlement time for securities transactions. Although voting rights, or rights to consent, attendant
to securities on loan pass to the borrower, such loans may be called so that the securities may be voted by the Fund if a material
event affecting the investment is to occur. As with other extensions of credit there are risks of delay in recovering, or even
loss of rights in, the collateral should the borrower of the securities fail financially.
SENIOR SECURITIES.
Senior securities
include
any obligation or instrument issued by the Fund evidencing indebtedness and increases the speculative nature of
your investment. The 1940 Act generally prohibits the Funds from issuing senior securities, although it does not treat certain
transactions as senior securities, such as certain borrowings, short sales, reverse repurchase agreements, with appropriate earmarking
or segregation of assets to cover such obligation. Please see the discussion above regarding Leverage for risks associated with
senior securities.
SHORT-TERM INSTRUMENTS AND TEMPORARY
INVESTMENTS.
To the extent consistent with its investment policies, the Fund may invest in short-term instruments, including
money market instruments, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally
short-term investments that may include but are not limited to: (i) shares of money market funds; (ii) obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates
of deposit (“CDs”), bankers’ acceptances, fixed time deposits, bank notes and other obligations of U.S. and foreign
banks (including foreign branches) and similar institutions; (iv) commercial paper rated at the date of purchase “Prime-1”
by Moody’s Investors Service, Inc. (“Moody’s”), “A-1” by Standard & Poors Rating Service
(“S&P”) or, if unrated, of comparable quality as determined by the Adviser; (v) non-convertible corporate debt
securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that satisfy
the rating requirements set forth in Rule 2a-7 under the 1940 Act; (vi) repurchase agreements; and (vii) short-term U.S. dollar-denominated
obligations of foreign banks (including U.S. branches) that, in the opinion of the Adviser, are of comparable quality to obligations
of U.S. banks which may be purchased by the Fund. Any of these instruments may be purchased on a current or a forward-settled basis.
Time deposits are non-negotiable deposits
maintained in banking institutions for specified periods of time at stated interest rates. Bankers’ acceptances are time
drafts drawn on commercial banks by borrowers, usually in connection with international transactions. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by banks or bank holding companies, corporations and finance companies.
Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of
time and earning a specified return. Bankers’ acceptances are negotiable drafts or bills of exchange, normally drawn by an
importer or exporter to pay for specific merchandise, which are “accepted” by a bank, meaning, in effect, that the
bank unconditionally agrees to pay the face value of the instrument on maturity. Fixed time deposits are bank obligations payable
at a stated maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand by the investor,
but may be subject to early withdrawal penalties that vary depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial interest in a fixed time deposit to a third party.
Bank notes generally rank junior to deposit liabilities of banks and pari passu with other senior, unsecured obligations of the
bank. Bank notes are classified as “other borrowings” on a bank’s balance sheet, while deposit notes and certificates
of deposit are classified as deposits. Bank notes are not insured by the FDIC or any other insurer. Congress has temporarily increased
FDIC deposit insurance on deposit notes from $100,000 to $250,000 per depositor through December 31, 2013.
The Fund may invest a portion of its assets
in the obligations of foreign banks and foreign branches of domestic banks. Such obligations include Eurodollar Certificates of
Deposit (“ECDs”), which are U.S. dollar-denominated certificates of deposit issued by offices of foreign and domestic
banks located outside the United States; Eurodollar Time Deposits (“ETDs”), which are U.S. dollar-denominated deposits
in a foreign branch of a U.S. bank or a foreign bank; Canadian Time Deposits (“CTDs”), which are essentially the same
as ETDs except they are issued by Canadian offices of major Canadian banks; Schedule Bs, which are obligations issued by Canadian
branches of foreign or domestic banks; Yankee Certificates of Deposit (“Yankee CDs”), which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank and held in the United States; and Yankee Bankers’ Acceptances
(“Yankee BAs”), which are U.S. dollar-denominated bankers’ acceptances issued by a U.S. branch of a foreign bank
and held in the United States.
Commercial paper purchased by the Fund
may include asset-backed commercial paper. Asset-backed commercial paper is issued by a special purpose entity that is organized
to issue the commercial paper and to purchase trade receivables or other financial assets. The credit quality of asset-backed commercial
paper depends primarily on the quality of these assets and the level of any additional credit support.
TRACKING VARIANCE.
As discussed
in the Prospectus, the Fund is subject to the risk of tracking variance. Tracking variance may result from share purchases and
redemptions, transaction costs, expenses and other factors. Share purchases and redemptions may necessitate the purchase and sale
of securities by the Fund and the resulting transaction costs which may be substantial because of the number and the characteristics
of the securities held. In addition, transaction costs are incurred because sales of securities received in connection with spin-offs
and other corporate reorganizations are made to conform the Fund’s holdings to its investment objective. Tracking variance
also may occur due to factors such as the size of the Fund, the maintenance of a cash reserve pending investment or to meet expected
redemptions, changes made in the Fund’s designated index or the manner in which the index is calculated or because the indexing
and investment approach of the Adviser does not produce the intended goal of the Fund. Tracking variance is monitored by the Adviser
at least quarterly. In the event the performance of the Fund is not comparable to the performance of its designated index, the
Board of Trustees will evaluate the reasons for the deviation and the availability of corrective measures.
UNDERWRITING.
Underwriting risk
is when the Fund buys all of the new shares that a company is selling, and the price goes down before they are sold or investors
de not want to buy them.
WARRANTS.
To the extent consistent
with its investment policies, the Fund may purchase warrants and similar rights, which are privileges issued by corporations enabling
the owners to subscribe to and purchase a specified number of shares of the corporation at a specified price during a specified
period of time. The prices of warrants do not necessarily correlate with the prices of the underlying shares. The purchase of warrants
involves the risk that the Fund could lose the purchase value of a warrant if the right to subscribe to additional shares is not
exercised prior to the warrant’s expiration. Also, the purchase of warrants involves the risk that the effective price paid
for the warrant added to the subscription price of the related security may exceed the value of the subscribed security’s
market price such as when there is no movement in the level of the underlying security.
INFORMATION REGARDING THE INDEX AND THE INDEX PROVIDER
Solactive Junior MLP Index
The Solactive Junior MLP Index is intended
to give investors a means of tracking the overall performance of the small-capitalization segment of the United States master limited
partnerships (MLP) asset class. As of November 14, 2012, the market capitalization of the Solactive Junior MLP Index was between
$200 million and $2.5 billion. As of November 14, 2012, the Underlying Index was comprised of 24 MLPs engaged in the transportation,
storage, processing, refining, marketing, exploration, production, and mining of natural resources. The Underlying Index is comprised
of MLPs that meet certain criteria relating to size and liquidity, as determined by Structured Solutions AG. The index is maintained
by Structured Solutions AG.
The Index Provider is described below:
Structured Solutions AG (Structured Solutions)
is a leading company in the structuring and indexing business for institutional clients. Structured Solutions runs the Solactive
index platform (formerly S-BOX platform). Solactive indices are used by issuers worldwide as underlying indices for financial products.
Structured Solutions does not sponsor, endorse or promote the Fund and is not in any way connected to it and does not accept any
liability in relation to its issue, operation and trading.
INVESTMENT RESTRICTIONS
The Fund is subject to the investment policies
enumerated in this section, which may be changed with respect to a particular Fund only by a vote of the holders of a majority
of such Fund’s outstanding shares.
The Fund:
|
1.
|
May not issue any senior security, except as permitted under the 1940 Act, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time;
|
|
2.
|
May not borrow money, except as permitted under the 1940 Act, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
|
|
3.
|
May not act as an underwriter of securities within the meaning of the Securities Act, except as
permitted under the Securities Act, and as interpreted or modified by regulatory authority having jurisdiction, from time to time.
Among other things, to the extent that the Fund may be deemed to be an underwriter within the meaning of the Securities Act, this
would permit the Fund to act as an underwriter of securities in connection with the purchase and sale of its portfolio securities
in the ordinary course of pursuing its investment objective, investment policies and investment program;
|
|
4.
|
May not purchase or sell real estate or any interests therein, except as permitted under the 1940
Act, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. Notwithstanding this limitation,
the Fund may, among other things: (i) acquire or lease office space for its own use; (ii) invest in securities of issuers that
invest in real estate or interests therein; (iii) invest in mortgage-related securities and other securities that are secured by
real estate or interests therein; or (iv) hold and sell real estate acquired by the Fund as a result of the ownership of securities;
|
|
5.
|
May not purchase physical commodities or contracts relating to physical commodities, except as
permitted under the 1940 Act, and as interpreted or modified by regulatory authority having jurisdiction, from time to time;
|
|
6.
|
May not make loans, except as permitted under the 1940 Act, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
|
|
7.
|
May not “concentrate” its investments in a particular industry or group of industries:
(I) except that the Fund will concentrate to approximately the same extent that its Underlying Index concentrates in the securities
of such particular industry or group of industries; and (II) except as permitted under the 1940 Act, and as interpreted or modified
by regulatory authority having jurisdiction from time to time, provided that, without limiting the generality of the foregoing:
(a) this limitation will not apply to the Fund’s investments in: (i) securities of other investment companies; (ii) securities
issued or guaranteed as to principal and/or interest by the U.S. government, its agencies or instrumentalities; (iii) repurchase
agreements (collateralized by the instruments described in clause (ii)) or (iv) securities of state or municipal governments and
their political subdivisions are not considered to be issued by Members of any industry; (b) wholly-owned finance companies will
be considered to be in the industries of their parents if their activities are primarily related to the financing activities of
the parents; and (c) utilities will be divided according to their services, for example, gas, gas transmission, electric and gas,
electric and telephone will each be considered a separate industry.
|
Notwithstanding these fundamental investment
restrictions, the Fund may purchase securities of other investment companies to the full extent permitted under Section 12 or any
other provision of the 1940 Act (or any successor provision thereto) or under any regulation or order of the SEC.
If a percentage limitation is satisfied
at the time of investment, a later increase or decrease in such percentage resulting from a change in the value of the Fund’s
investments will not constitute a violation of such limitation, except that any borrowing by the Fund that exceeds the fundamental
investment limitations stated above must be reduced to meet such limitations within the period required by the 1940 Act (currently
three days). In addition, if the Fund’s holdings of illiquid securities exceed 15% of net assets because of changes in the
value of the Fund’s investments, the Fund will take action to reduce its holdings of illiquid securities within a time frame
deemed to be in the best interest of the Fund. Otherwise, the Fund may continue to hold a security even though it causes the Fund
to exceed a percentage limitation because of fluctuation in the value of the Fund’s assets.
Any Investment Restriction which involves
a maximum percentage (other than the restriction set forth above in Investment Restriction No. 2) will not be considered violated
unless an excess over the percentage occurs immediately after, and is caused by, an acquisition or encumbrance of securities or
assets of the Fund. The 1940 Act requires that if the asset coverage for borrowings at any time falls below the limits under the
1940 Act described in Investment Restriction No. 2, the Fund will, within three days thereafter (not including Sundays and holidays),
reduce the amount of its borrowings to an extent that the net asset coverage of such borrowings shall conform to such limits.
CURRENT 1940 ACT LIMITATIONS
BORROWING.
Investment companies may not borrow money,
except that an investment company may borrow money in an amount not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings).
LOANS.
Investment companies may not lend any security
or make any other loan if, as a result, more than 33 1/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or to repurchase agreements, or to acquisitions of loans, loan participations or
other forms of debt instruments.
CONCENTRATION.
For purposes of calculating
concentration percentages, investment companies investing in (a) affiliated investment companies are required to look through to
the holdings of the affiliated investment companies and include the holdings in calculations of concentration percentages, and
(ii) unaffiliated investment companies are required to include the holdings of the unaffiliated investment companies to the extent
that they are concentrated in calculations of concentration percentages. In addition, revenue bonds are characterized by the industry
in which the revenue is used.
CONTINUOUS OFFERING
The method by which Creation Unit Aggregations
of shares are created and traded may raise certain issues under applicable securities laws. Because new Creation Unit Aggregations
of shares are issued and sold by the Fund 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 requirement 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 Unit Aggregations after placing an order with the Distributor,
breaks them down into constituent shares, and sells such shares directly to customers, or if it chooses to couple the creation
of a supply of new shares with an active selling effort involving solicitation of secondary market demand for shares. A determination
of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining
to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered
a complete description of all the activities that could lead to a categorization as an underwriter. Broker-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, generally are 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 of the Funds are reminded that, pursuant to Rule
153 under the Securities Act, a prospectus delivery obligation under Section 5(b)(2) of the Securities Act owed to an exchange
member in connection with a sale on the Exchange is satisfied by the fact that the prospectus is available at the Exchange upon
request. The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions on an exchange.
PORTFOLIO HOLDINGS
Policy On Disclosure Of Portfolio Holdings
The Board of Trustees of the Trust has
adopted a policy on disclosure of portfolio holdings, which it believes is in the best interest of the Fund’s shareholders.
The policy is designed to: (i) protect the confidentiality of the Fund’s non-public portfolio holdings information, (ii)
prevent the selective disclosure of such information, and (iii) ensure compliance by Adviser and the Fund with the federal securities
laws, including the 1940 Act and the rules promulgated thereunder and general principles of fiduciary duty. Each Fund’s portfolio
holdings, or information derived from the Fund’s portfolio holdings, may, in the Adviser’s discretion, be made available
to third parties if: i) such disclosure has been included in the Fund’s public filings with the SEC or is disclosed on the
Fund’s publicly accessible Website; ii) such disclosure is determined by the Chief Compliance Officer (“CCO”)
to be in the best interests of Fund shareholders and consistent with applicable law; (iii) such disclosure information is made
equally available to anyone requesting it; and (iv) the Adviser determines that the disclosure does not present the risk of such
information being used to trade against the Fund.
Each business day portfolio holdings information
will be provided to the Transfer Agent or other agent for dissemination through the facilities of the National Securities Clearing
Corporation (“NSCC”) and/or other fee based subscription services to NSCC members and/or subscribers to those other
fee based subscription services, including Authorized Participants, (defined below) 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 Funds in the secondary
market. Information with respect to the Fund’s portfolio holdings is also disseminated daily on the Fund’s website.
The Distributor may also make available
portfolio holdings information to other institutional market participants and entities that provide information services. This
information typically reflects the Fund’s anticipated holdings on the following business day. “Authorized Participants”
are generally large institutional investors that have been authorized by the Distributor to purchase and redeem large blocks of
shares (known as Creation Units) pursuant to legal requirements, including the exemptive order granted by the SEC, to which the
Fund offers and redeems shares (“Global X Order”). Other than portfolio holdings information made available in connection
with the creation/redemption process, as discussed above, portfolio holdings information that is not filed with the SEC or posted
on the publicly available Website may be provided to third parties only in limited circumstances, as described above.
Disclosure to providers of auditing, custody,
proxy voting and other similar services for the Fund, as well as rating and ranking organizations, will generally be permitted;
however, information may be disclosed to other third parties (including, without limitation, individuals, institutional investors,
and Authorized Participants that sell shares of the Fund) only upon approval by the CCO. The recipients who may receive non-public
portfolio holdings information are as follows: the Adviser and its affiliates, the Fund’s independent registered public accounting
firm, the Fund’s distributor, administrator and custodian, the Fund’s legal counsel, the Fund’s financial printer
and the Fund’s proxy voting service. These entities are obligated to keep such information confidential. Third-party providers
of custodial or accounting services to the Fund may release non-public portfolio holdings information of the Fund only with the
permission of the CCO.
Portfolio holdings will be disclosed through
required filings with the SEC. Each Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with
respect to each annual period and semiannual period) and Form N-Q (with respect to the first and third quarters of the Fund’s
fiscal year). Shareholders may obtain the Fund’s Forms N-CSR and N-Q filings on the SEC’s Website at sec.gov. In addition,
the Fund’s Forms N-CSR and N-Q filings may be reviewed and copied at the SEC’s public reference room in Washington,
DC. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s Website or the operation of the public reference
room.
Under the policy, the Board is to receive
information, on a quarterly basis, regarding any other disclosures of non-public portfolio holdings information that were permitted
during the preceding quarter.
MANAGEMENT
OF THE TRUST
BOARD OF TRUSTEES AND OFFICERS
The business and affairs of the Trust are
overseen by the Trust’s Board of Trustees (“Board”). Subject to the provisions of the Trust’s Declaration
of Trust and By-Laws and Delaware law, the Board has all powers necessary and convenient to carry out this general oversight responsibility,
including the power to the elect and remove the Trust’s officers. The focus of the Board’s oversight of the business
and affairs of the Trust (and each of the Funds) is to protect the interests of the shareholders in the Funds.
The Board appoints and oversees the Trust’s
officers and service providers. The Trust’s Adviser is responsible for the day-to-day management and operations of the Trust
and each of the Funds based on each Fund’s investment objective, strategies, policies, and restrictions and agreements entered
into by the Trust and/or the Adviser on behalf of the Trust. In carrying out its general oversight responsibility, the Board regularly
interacts with and receives reports from the senior personnel of the Trust’s service providers (including, in particular,
the Adviser) and the Trust’s CCO. The Board is assisted by the Trust’s independent registered public accounting firm
(who reports directly to the Trust’s Audit Committee), independent counsel to the Independent Trustees (as defined below),
counsel to the Trust and the Adviser, and other experts selected and approved by the Board. (For purposes of this discussion and
the discussion below, the term “Fund” or “Funds” means each Fund that has commenced operations.)
BOARD STRUCTURE AND RELATED MATTERS.
Board members who are not “interested persons” of the Funds, as defined in Section
2(a)(19) of the 1940 Act (“Independent Trustees”), constitute 75 percent of the Board. Mr. Kartik Kiran Shah, an Independent
Trustee, serves as Independent Chairman of the Board. The Independent Chairman’s helps to facilitate communication among
the Independent Trustees as well as communication between the Independent Trustees and management of the Trust. The Independent
Chairman may assume such other duties and performs such activities as the Board may, from time to time, determine should be handled
by the Independent Chairman. Mr. Bruno del Ama is the sole Board member who is an “interested person” of the Trust
(“Interested Trustee”). Mr. del Ama is an Interested Trustee due to his affiliation with the Adviser. The Board believes
that having an interested person on the Board facilitates the ability of the Independent Trustees to fully understand (i) the Adviser’s
commitment to providing and/or arranging for the provision of quality services to the Funds and (ii) corporate and financial matters
of the Adviser that may be of importance in the Board’s decision-making process.
The Trustees discharge their responsibilities
collectively as a Board, as well as through Board committees, each of which operates pursuant to a charter that delineates the
specific responsibilities of that committee. The Board has established two standing committees: an Audit Committee and a Corporate
Governance, Nomination and Compensation Committee. Currently, each of the Independent Trustee serves on each of these committees,
which are comprised solely of Independent Trustees.
The Board periodically evaluates its structure
and composition as well as various aspects of its operations. On an annual basis, the Board conducts a self-evaluation process
that, among other things, considers (i) whether the Board and its committees are functioning effectively, (ii) given the size and
composition of the Board and each if its committees, whether the Trustees are able to effectively oversee the number of Funds in
the complex and (iii) whether the mix of skills, perspectives, qualifications, attributes, education, and relevant experience of
the Trustees helps to enhance the Board’s effectiveness.
There are no specific required qualifications
for Board membership. The Board believes that the different skills, perspectives, qualifications, attributes, education, and relevant
experience of each of the Board members provide the Board with a variety of complementary skills. Please note that (i) none of
the Board members is an “expert” within the meaning of the federal securities laws and (ii) the Board not is responsible
for the day to day operations of the Trust and the Funds.
The Board of Trustees met six (6) times
during the fiscal period ended November 30, 2012. The Board may hold special meetings, as needed, either in person or by telephone,
to address matters arising between regular meetings.
The Trustees are identified in the table
below, which provides information as to their principal business occupations held during the last five years and certain other
information. Each Trustee serves until his or her death, resignation or removal and replacement. As of November 14, 2012 each of
the Trustees oversees 87 Funds (31 of which were operational). Each Trustee serves until his death, resignation or removal and
replacement. The address for all Trustees and officers is c/o Global X Funds, 623 Fifth Avenue, 15
th
floor, New York,
New York 10022.
Independent Trustees
Name, Address
(Year of Birth)
|
Position(s) Held
with Funds
|
Principal Occupation(s) During
the Past 5 Years
|
Number of Portfolios in Fund Complex Overseen by Directors
|
Other Directorships Held
by Trustees during the Past 5 Years
|
|
|
Sanjay Ram Bharwani
(1974)
|
Trustee (since 2008)
|
CEO of Risk Advisors Inc. (since 2007) (consulting firm); Chief Information Officer, M. Safra & Co (2004-2006) (hedge fund).
|
87
|
None.
|
Scott R. Chichester
1
(1970)
|
Trustee (since 2008)
|
CFO, Sterling Seal & Supply Inc. (since 2011), Director, President & Treasurer, Bayview Acquisition Corp (since 2010); CPA, Penda Aiken Inc. (2009-2011) (consultant); Founder and President, DirectPay USA LLC (since 2006) (payroll company); Chief Financial Officer, Ong Corporation (2002-2010) (technology company); and Proprietor, Scott R. Chichester CPA (since 2001) (CPA firm).
|
87
|
Director of Bayview Acquisition Corp (since 2010).
|
Kartik Kiran Shah
(1977)
|
Trustee (since 2008)
|
Vice President, Business Development, Cynvenio Biosystems (2012-present); Independent Consultant, Self-Employed (2011-2012) (non-financial services); Director, Wireless Generation (2008-2011) (software).
|
87
|
None.
|
|
|
|
|
|
|
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1
|
Mr.
Chichester
is currently married
to a sister of Mr. del Ama’s wife. While an “immediate family member” (as defined in Section 2(a)(19) of the
1940 Act) of Mr. del Ama would be considered an Interested Person, Mr. Chichester is not considered an immediate family member
for this purpose. Although this fact was taken into consideration in determining whether Mr.
Chichester
should be considered to be an Independent Trustee for purposes of the Section 2(a)(19) of the 1940 Act, it was determined that
this relationship was not one that should disqualify Mr. Chichester from serving as an Independent Trustee of the Trust.
|
Interested Trustees/Officers
Name, Address
(Year of Birth)
|
Position(s) Held
with Funds
|
Principal Occupation(s) During
the Past 5 Years
|
Other Directorships Held
by Trustees During the Past 5 Years
|
Bruno del Ama
(1976)
|
Trustee (since 2008), President and Chief Executive Officer (since 2008)
|
Chief Executive Officer and Chief Compliance Officer, Global X Management Company LLC (since 2008); Head of Global Structured Products Operations at Radian Asset Assurance (2004-2008) (financial services firm).
|
None.
|
Jose C. Gonzalez
(1976)
|
Chief Operating Office, Chief Compliance Officer, Treasurer, Principal Accounting Officer and Chief Financial Officer (since 2008)
|
Chief Operating Officer, Global X Management Company LLC (since 2008); Founder and President of GWM Group, Inc. (since 2006) (broker-dealer firm).
|
None.
|
Daphne Tippens Chisolm
(1969)
|
Secretary (since 2012)
|
General Counsel, Global X Management Company LLC (since 2011); Founder and President of Law Offices of DT Chisolm, P.C. (since 2009) (law firm); Counsel, Dechert (2007-2009) (law firm)
|
None.
|
Dianne M. Sulzbach
(1977)
|
Assistant Secretary (since 2011)
|
Counsel at SEI Investments (since 2010); Associate at Morgan, Lewis & Bockius LLP (2006-2010).
|
None.
|
Peter Rodriguez
(1962)
|
Assistant Treasurer (since 2011)
|
Fund Accounting Director of the Administrator (since 2011); Mutual Fund Trading Director, SEI Global Trust Company (2009-2011); Asset Data Services Director at the Administrator (2006-2009).
|
None.
|
In addition to the information set forth
in the table above, each Trustee possesses other relevant skills, perspectives, qualifications, attributes, education, and relevant
experience. The following provides additional information about certain qualifications and experience of each of the Trustees and
the reason why he was selected to serve as trustee.
Sanjay Ram Bharwani: Mr. Bharwani
has experience
in capital markets, technology, risk management and security valuation. He is currently
the CEO of Risk Advisors Inc., a risk management consultancy and previously served as the Chief Information Officer of a multi-strategy
hedge fund. Mr.
Bharwani received his MBA from the Wharton Business School.
Scott R. Chichester: Mr. Chichester,
CPA, has experience in accounting and finance, having served as CEO of a payroll business; experience as CFO of a technology start-up;
experience as an accountant at a bulge bracket investment bank; experience as an auditor at a Big Four accounting firm.
Kartik Kiran Shah: Mr. Shah
has experience in organizational design, strategic planning, financial analysis and product development, having served as a senior
manager in an education software and consulting business; manager of corporate strategy at a biotechnology company; and as consultant
with a major management consulting firm. Mr. Shah received his MBA from the Harvard Business School.
Bruno del Ama: Mr. del Ama has
experience in the investment management industry, including as a board member of another investment adviser; management and organizational
experience as chief executive officer of the Fund’s Adviser; experience as a manager at a bond insurance company; experience
as a management consultant. Mr. del Ama received his MBA from the Wharton Business School.
RISK MANAGEMENT OVERSIGHT.
The Funds
are subject to a variety of risks, including (but not limited to) investment risk, financial risk, legal, regulatory and compliance
risk, and operational risk. Consistent with its responsibility for general oversight of business and affairs of the Trust and the
Funds, the Board oversees the Adviser’s day to day management of the risks to which the Trust and the Funds are subject.
The Board has charged the Adviser with (i) identifying possible events and circumstances that could have demonstrable, adverse
effects on the business and affairs of the Trust and the Funds; (ii) implementation of processes and controls to lessen the possibility
that such events or circumstances occur or mitigate the effects of such events or circumstances if they do occur; and (iii) creating
and maintaining a system designed to continuously evaluate business and market conditions to facilitate the processes described
in (i) and (ii) above. The Adviser seeks to address the day-to-day risk management of the Trust and the Funds by relying on the
Trust’s compliance policies and procedures (i.e., the Trust’s compliance program) as well as the compliance programs
of the Trust’s various service providers, internal control mechanisms and other risk oversight mechanisms as well as the
assistance of the Trust’s sub-administrator. The Adviser also separately considers potential risks that may impact the individual
Funds.
As noted above, on behalf of the Trust,
the Board has adopted, and periodically reviews, various compliance policies and procedures that are designed to address certain
of risks to the Trust and the Funds. In addition, under the general oversight of the Board, the Adviser and the Trust’s other
service providers have adopted a variety of processes, policies, procedures and controls designed to address particular risks to
which the Trust and the Funds are subject. Different processes, policies, procedures and controls are employed with respect to
different types of risks. Further, the Adviser oversees and regularly monitors the investments, operations, and compliance of the
Funds’ investments with various regulatory and other requirements.
Because the day to day operations of the
Fund is carried out by the Adviser, the risk exposure of the Trust and the Funds are mitigated but not eliminated by the processes
overseen by the Board. In addition to the risk management processes, policies, procedures, and controls implemented by the Adviser,
the Board seeks to oversee the risk management structure of the Trust and the Funds directly and through its committees (as described
below). In this regard, the Board has requested that the Adviser, the CCO for the Trust and the Adviser, the independent auditors
for the Trust, and counsel to the Trust and Adviser provide the Board with periodic reports regarding issues that should be focused
on the Board members. In large part, the Board oversees Adviser’s management of the Trust’s risk management structure
through the Board’s review of regular reports, presentations and other information from officers of the Trust and other persons.
Senior officers of the Trust, including the Trust’s CCO, regularly report to the Board on a range of matters, including those
relating to risk management. In this regard, the Board periodically receives reports regarding the Trust’s service providers,
either directly or through the CCO. On at least a quarterly basis, the Independent Trustees meet with the CCO to discuss matters
relating to the Trust’s compliance program and, in accordance with Rule 38a-1 under the 1940 Act, the Board receives at least
annually a written report from the CCO regarding the effectiveness of the Trust’s compliance program. In connection with
the CCO’s annual Rule 38a-1 compliance report to the Board, the Independent Trustees meet with the CCO in executive session
to discuss the Trust’s compliance program.
Further, the Board regularly receives reports
from the Adviser with respect to the Funds’ investments and securities trading and, as necessary, any fair valuation determinations
made by the Advisers with respect to certain investments held by the Funds. Senior officers of the Trust and Adviser routinely
report regularly to the Board on valuation matters, internal controls, accounting and financial reporting policies and practices. In
addition, the Audit Committee receives information on the Funds’ internal controls and financial reporting from the Trust’s
independent registered public accounting firm.
The Board recognizes that not all risks
that may affect the Funds can be identified nor can processes and controls be developed to eliminate or mitigate their occurrence
or effects of certain risks. Some risks are simply beyond the reasonable control of the Funds, their management and service providers.
Although the risk management process, policies and procedures of the Funds, their management and service providers are designed
to be effective, there is no guarantee that they will eliminate or mitigate all such risks. Moreover, it may be necessary to bear
certain risks to achieve each Fund’s investment objective.
STANDING BOARD COMMITTEES
The Board of Trustees currently has two
standing committees: an Audit Committee and a Corporate Governance, Nomination and Compensation Committee. Currently, each Independent
Trustee serves on each of these committees.
AUDIT COMMITTEE.
The purposes of
the Audit Committee are to assist the Board of Trustees in (1) its oversight of the Trust’s accounting and financial reporting
principles and policies and related controls and procedures maintained by or on behalf of the Trust; (2) its oversight of the Trust’s
financial statements and the independent audit thereof; (3) selecting, evaluating and, where deemed appropriate, replacing the
independent registered public accounting firm (or nominating the independent registered public accounting firm to be proposed for
shareholder approval in any proxy statement); and (4) evaluating the independence of the independent registered public accounting
firm. During the fiscal period ended November 30, 2011, the Audit Committee held 4 meetings.
CORPORATE GOVERNANCE, NOMINATION AND
COMPENSATION COMMITTEE.
The purposes of the Corporate Governance, Nomination and Compensation Committee are, among other things,
to assist the Board of Trustees in (1) its assessment of the adequacy of the Board’s adherence to industry corporate governance
best practices; (2) periodic evaluation of the operation of the Trust and meetings with management of the Trust concerning the
Trust’s operations and the policies and procedures application to the Fund; (3) review, consideration and recommendation
to the full Board regarding Independent Trustee compensation; (4) its identification and evaluation of potential candidates to
fill a vacancy on the Board; and (5) selection from among potential candidates of a nominee to be presented to the full Board for
its consideration. The Corporate Governance, Nomination and Compensation Committee will not consider shareholders’ nominees.
During the fiscal period ended November 30, 2011, the Corporate Governance, Nomination and Compensation Committee held 2 meetings.
TRUSTEE OWNERSHIP OF FUND SHARES
Listed below for each Trustee is a dollar
range of securities beneficially owned in the Fund together with the aggregate dollar range of equity securities in all registered
investment companies overseen by each Trustee that are in the same family of investment companies as the Trust, as of December
31, 2011.
Name of Trustee
|
Dollar Range of Equity Securities In Fund
|
Aggregate Dollar Range of Equity Securities in All Funds Overseen by Trustee in Family of Investment Companies
|
Independent Trustees
|
|
|
Sanjay Ram Bharwani
|
N/A
|
N/A
|
Scott R. Chichester
|
N/A
|
N/A
|
Kartik Kiran Shah
|
N/A
|
N/A
|
|
|
|
Interested Trustee
|
|
|
Bruno del Ama
|
N/A
|
$50,001 - $100,000
|
To the best of the Trust’s knowledge,
as of the date of this Statement of Additional Information, the Trustees and Officers of the Trust, as a group, owned less than
1% of the shares of the Fund.
TRUSTEE OWNERSHIP OF SECURITIES OF THE ADVISER AND RELATED
COMPANIES
As of December 31, 2011, no Independent
Trustee (or any of his immediate family members) owned beneficially or of record securities of any Trust investment adviser, its
principal underwriter, or any person directly or indirectly, controlling, controlled by or under common control with any Trust
investment adviser or principal underwriter.
Name of Independent Trustee
|
Name of Owners and Relationship to Director
|
Company
|
Title of Class
|
Value of Securities
|
Percent of Class
|
Sanjay Ram Bharwani
|
None
|
None
|
None
|
None
|
None
|
Scott R. Chichester
|
None
|
None
|
None
|
None
|
None
|
Kartik Kiran Shah
|
None
|
None
|
None
|
None
|
None
|
No Independent Trustee or immediate family
member has during the two most recently completed calendar years had: (i) any material interest, direct or indirect, in any
transaction or series of similar transactions, in which the amount involved exceeds $120,000; (ii) any securities interest
in the principal underwriter of the Trust or the investment adviser or their affiliates (other than the Trust); or (iii) any
direct or indirect relationship of any nature, in which the amount involved exceeds $120,000, with:
|
·
|
an officer of the Funds;
|
|
·
|
an investment company, or person that would be an investment company but for the exclusions provided
by Sections 3(c)(1) and 3(c)(7) of the 1940 Act, having the same investment adviser or principal underwriter as the Funds or having
an investment adviser or principal underwriter that directly or indirectly controls, is controlled by, or is under common control
with the investment adviser or principal underwriter of the Funds;
|
|
·
|
an officer or an investment company, or a person that would be an investment company but for the
exclusions provided by Sections 3(c)(1) and 3(c)(7) of the 1940 Act, having the same investment adviser or principal underwriter
as the Funds or having an investment adviser or principal underwriter that directly or indirectly controls, is controlled by, or
is under common control with the investment adviser or principal underwriter of the Funds;
|
|
·
|
the investment adviser or principal underwriter of the Funds;
|
|
·
|
an officer of the investment adviser or principal underwriter of the Funds;
|
|
·
|
a person directly or indirectly controlling, controlled by, or under common control with the investment
adviser or principal underwriter of the Funds; or
|
|
·
|
an officer of a person directly or indirectly controlling, controlled by, or under common control
with the investment adviser or principal underwriter of the Funds.
|
TRUSTEE COMPENSATION
The Interested Trustee is not compensated
by the Trust. Independent Trustee fees are paid by the Adviser. All of the Independent Trustees are reimbursed for their travel
expenses and other reasonable out-of-pocket expenses incurred in connection with attending Board meetings (these other expenses
are subject to Board review to ensure that they are not excessive). The Trust does not accrue pension or retirement benefits as
part of the Funds’ expenses, and Trustees are not entitled to benefits upon retirement from the Board of Trustees. The Trust’s
officers receive no compensation directly from the Trust.
The estimated compensation to be paid to
the Independent Trustees for the fiscal year end November 30, 2013 is set forth in the following table:
Name of Independent Trustee
|
Aggregate Compensation from Funds
|
Pension or Retirement Benefits Accrued
as Part of Funds Expenses
|
Total Compensation from Trust
|
|
|
|
|
Sanjay Ram Bharwani
|
$470
|
$0
|
$15,000
|
Scott R. Chichester
|
$470
|
$0
|
$15,000
|
Kartik Kiran Shah
|
$470
|
$0
|
$15,000
|
CODE OF ETHICS
The Trust, the Adviser, and the Distributor
each have adopted a code of ethics, as required by applicable law, which is designed to prevent affiliated persons of the Trust,
the Adviser, and the Distributor from engaging in deceptive, manipulative or fraudulent activities in connection with securities
held or to be acquired by the Fund (which may also be held by persons subject to a code of ethics). There can be no assurance that
the codes of ethics will be effective in preventing such activities. The codes permit personnel subject to them to invest in securities,
including securities that may be held or purchased by the Fund. The codes are on file with the SEC and are available to the public.
INVESTMENT ADVISER
The Adviser, Global X Management Company
LLC, serves as investment manager to the Funds pursuant to an Investment Advisory Agreement between the Trust and the Adviser.
It is registered as an investment adviser with the SEC and is located at 623 Fifth Avenue, 15th Floor New York, NY 10022. Bruno
del Ama and Jose C. Gonzalez each own more than 25% of the outstanding shares of the Adviser, which was organized in Delaware on
March 28, 2008 as a limited liability company.
Pursuant to a Supervision and Administration
Agreement between the Trust and the Adviser, the Adviser oversees the operation of the Fund, provides or causes to be furnished
the advisory, supervisory, administrative, distribution, transfer agency, custody and all other services necessary for the Fund
to operate, and exercises day-to-day oversight over The Fund’s service providers. Under the Supervision and Administration
Agreement, the Adviser also bears all the fees and expenses incurred in connection with its obligations under the Supervision and
Administration Agreement, including, but not limited to, the costs of various third-party services required by the Fund, including
audit, certain custody, portfolio accounting, legal, transfer agency and printing costs except those fees and expenses specifically
assumed by the Trust on behalf of the Fund.
Under the Investment Advisory Agreement
between the Trust and the Adviser, the Adviser is responsible for the management of the investment portfolio of the Fund. The ability
of the Adviser to successfully implement the Fund's investment strategies will influence the Fund's performance significantly.
The Fund pays the Adviser a fee (“Management
Fee”) for the advisory, supervisory, administrative and other services it requires under an all-in fee structure. The Fund
also bears other expenses which are not covered under the Supervisory and Administrative Agreement that may vary and will affect
the total level of expenses paid by the Fund, such as taxes, brokerage fees, commissions and other transaction expenses, interest
and extraordinary expenses (such as litigation and indemnification expenses).
For its advisory, supervisory and administrative
services, the Fund will pay monthly a Management Fee to the Adviser at annual rates set forth in the table below (stated as a percentage
of the Fund’s respective average daily net assets).
Fund
|
Management Fee
|
Global X Junior MLP ETF
|
0.75%
|
The Adviser and its affiliates deal, trade
and invest for their own accounts in the types of securities in which the Fund also may invest. The Adviser does not use inside
information in making investment decisions on behalf of the Fund.
Each of the Supervision and Administration
Agreement and the related Investment Advisory Agreement remains in effect for two (2) years from its effective date and thereafter
continues in effect for as long as its continuance is specifically approved at least annually, by (1) the Board of Trustees of
the Trust, or by the vote of a majority (as defined in the 1940 Act) of the outstanding shares of the Fund, and (ii) by the vote
of a majority of the Trustees of the Trust who are not parties to the Investment Advisory Agreement or interested persons of the
Adviser, cast in person at a meeting called for the purpose of voting on such approval. Each of the Supervision and Administration
Agreement and the related Investment Advisory Agreement provides that it may be terminated at any time without the payment of any
penalty, by the Board of Trustees of the Trust or by vote of a majority of the Funds’ shareholders, on 60 calendar days written
notice to the Adviser, and by the Adviser on the same notice to the Trust and that it shall be automatically terminated if it is
assigned.
Each of the Supervision and Administration
Agreement and the related Investment Advisory Agreement provides that the Adviser shall not be liable to the Funds or its shareholders
for anything other than willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations or duties. The
Investment Advisory Agreement also provides that the Adviser may engage in other businesses, devote time and attention to any other
business whether of a similar or dissimilar nature, and render investment advisory services to others.
PORTFOLIO MANAGERS
Bruno del Ama and Jose Gonzalez are primarily
responsible for the day-to-day management of the Fund’s investments.
Portfolio Manager’s Compensation
The Adviser believes that its compensation
program is competitively positioned to attract and retain high-caliber investment professionals. Portfolio managers receive a salary
and are eligible to receive an annual bonus. The portfolio manager’s salary compensation is designed to be competitive with
the marketplace and reflect the portfolio manager’s relative experience and contribution to the Funds. Base salary compensation
is reviewed and adjusted annually to reflect increases in the cost of living and market rates. The annual incentive bonus opportunity
provides cash bonuses based upon the Fund’s performance and individual contributions. As shareholders of the Adviser, Bruno
del Ama and Jose C. Gonzalez also may benefit economically from any profits generated by the Adviser.
Other Accounts Managed by Portfolio
Manager
It is anticipated that the portfolio manager
will be responsible for multiple investment accounts, including other investment companies registered under the 1940 Act. As a
general matter, certain conflicts of interest may arise in connection with the portfolio manager’s management of the Fund’s
investments, on the one hand, and the investments of other accounts for which the portfolio manager is responsible, on the other.
For example, it is possible that the various accounts managed could have different investment strategies that, at times, might
conflict with one another to the possible detriment of the Fund. Alternatively, to the extent that the same investment opportunities
might be desirable for more than one account, possible conflicts could arise in determining how to allocate them. Other potential
conflicts might include conflicts created by specific portfolio manager compensation arrangements and conflicts relating to selection
of brokers or dealers to execute the Fund’s trades. The Adviser has structured the portfolio manager’s compensation
in a manner, and the Fund and the Adviser have adopted policies, procedures and a code of ethics, reasonably designed to safeguard
the Fund from being negatively affected as a result of any such conflicts that may arise.
As of October 31, 2012, Bruno del Ama and
Jose Gonzalez were responsible for the management of the following accounts:
Name of Portfolio Manager
|
Other Accounts Managed
(As of October 31, 2012)
|
Accounts with respect to which the advisory fee is based on the performance of the account
|
Category of Account
|
Number of Accounts in Category
|
Total Assets in Accounts in Category
|
Number of Accounts in Category
|
Total Assets in Accounts in Category
|
Bruno del Ama
|
Registered investment companies
|
31
|
1,446,638,595
|
0
|
$0
|
|
Other pooled investment vehicles
|
0
|
$0
|
0
|
$0
|
|
Other accounts
|
0
|
$0
|
0
|
$0
|
Jose C. Gonzalez
|
Registered investment companies
|
31
|
1,446,638,595
|
0
|
$0
|
|
Other pooled investment vehicles
|
0
|
$0
|
0
|
$0
|
|
Other accounts
|
0
|
$0
|
0
|
$0
|
Although the funds in the Trust that are
managed by Messrs. del Ama and Gonzalez may have different investment strategies, each has an investment objective of seeking to
replicate, before fees and expenses, its respective underlying index. The Adviser does not believe that management of the various
accounts presents a material conflict of interest for Messrs. del Ama and Gonzalez or the Adviser.
Disclosure of Securities Ownership
As of the date of this Statement of Additional
Information, the Fund’s portfolio managers did not beneficially own any shares of the Fund.
BROKERAGE TRANSACTIONS
The policy of the Trust regarding purchases
and sales of securities is that primary consideration will be given to obtaining the most favorable prices and efficient executions
of transactions. Consistent with this policy, when securities transactions are effected on a stock exchange, the Trust’s
policy is to pay commissions that are considered fair and reasonable without necessarily determining that the lowest possible commissions
are paid in all circumstances. In seeking to determine the reasonableness of brokerage commissions paid in any transaction, the
Adviser relies upon its experience and knowledge regarding commissions generally charged by various brokers and in various jurisdictions.
The Adviser effects transactions for the Fund with those brokers and dealers that the Adviser believes provide the most favorable
prices and are capable of providing the most efficient and best execution of trades. The primary consideration of the Adviser is
to seek prompt execution of orders at the most favorable net price. The sale of Shares by a broker-dealer is not a factor in the
selection of broker-dealers. The Adviser and its affiliates do not currently participate in any soft dollar transactions, although
the Adviser relies on Section 28(e) of the 1934 Act in effecting or executing transactions for the Fund. Accordingly, in selecting
broker-dealers to execute a particular transaction, the Adviser may consider the brokerage and research services (as those terms
are defined in Section 28(e) of the 1934 Act) provided to the Fund and/or other accounts over which the Adviser or its affiliates
exercise investment discretion. The Adviser may cause the Fund to pay a broker-dealer that furnishes brokerage and research services
a higher commission than that which might be charged by another broker-dealer for effecting the same transaction, provided that
the Adviser determines in good faith that such commission is reasonable in relation the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either the particular transaction or the overall responsibilities of the Adviser
to the Fund. Such brokerage and research services might consist of reports and statistics on specific companies or industries or
broad overviews of the securities markets and the economy. Shareholders of the Fund should understand that the services provided
by such brokers may be useful to the Adviser in connection with its services to other clients.
The Adviser assumes general supervision
over placing orders on behalf of the Funds for the purchase or sale of portfolio securities. If purchases or sales of portfolio
securities by the Funds are considered at or about the same time, transactions in such securities are allocated among the Funds
in a manner deemed equitable to all of the Funds by the Adviser. Bundling or bunching transactions for the Funds is intended to
result in better prices for portfolio securities and lower brokerage commissions, which should be beneficial to all of the Funds.
PROXY VOTING
The Fund has delegated proxy voting responsibilities
to the Adviser, subject to the Boards of Trustees’ oversight. In delegating proxy responsibilities, the Board has directed
that proxies be voted consistent with The Fund’s and its shareholders' best interests and in compliance with all applicable
proxy voting rules and regulations. The Adviser has adopted proxy voting policies and guidelines for this purpose ("Proxy
Voting Policies") and the Adviser has engaged a third party proxy solicitation firm which is responsible for the actual voting
of all proxies in a timely manner, while the CCO is responsible for monitoring the effectiveness of the Proxy Voting Policies.
The Proxy Voting Policies have been adopted by the Trust as the policies and procedures that the Adviser will use when voting proxies
on behalf of the Fund.
I. General Policy
The Proxy Voting Policies address, among
other things, material conflicts of interest that may arise between the interests of the Funds and the interests of the Adviser.
The Proxy Voting Policies will ensure that all issues brought to shareholders are analyzed in light of the Adviser’s fiduciary
responsibilities.
In voting to elect board nominees for uncontested
seats, the following factors will be taken into account: (i) whether majority of the company’s directors are independent;
(ii) whether key board committees are entirely composed of independent directors; (iii) excessive board memberships and professional
time commitments to effectively serve the company’s board; and (iv) the attendance record of incumbent directors at board
and committee meetings.
Equity compensation plans will also be
reviewed on a case-by-case basis based upon their specific features. For example, stock option plans will be evaluated using criteria
such as: (i) whether the plan is performance-based; (ii) dilution to existing shareholders; (iii) the cost of the plan; (iv) whether
discounted options are allowed under the plan; (v) whether the plan authorizes the re-pricing of options or reload options without
shareholder approval; and (vi) the equity overhang of all plans. Similarly, employee stock purchase plans generally will be supported
under the guidelines upon consideration of factors such as (i) whether the plan sets forth adequate limits on share issuance; (ii)
whether participation limits are defined; and (iii) whether discounts to employees exceed a threshold amount.
The Proxy Voting Policies provide for review
and vote on shareholder proposals on a case-by-case basis. In accordance with this approach, these guidelines support a shareholder
proposal upon the compelling showing that it has a substantial economic impact on shareholder value. As such, proposals that request
that the company report on environmental, labor or human rights issues are only supported when such concerns pose a substantial
risk to shareholder value.
II. Record of Proxy Voting
Information on how the Funds voted proxies
relating to portfolio securities during the most recent 12 month period ended November 30 is available (1) without charge, upon
request, by calling 1-888-843-7824 and (2) on the SEC’s website at www.sec.gov.
SUB-ADMINISTRATOR
SEI Investments Global Fund Services (“SEI
Global”), located at Freedom Valley Drive Oaks, PA 19456, serves as Sub-Administrator to the Fund. As sub-administrator,
SEI Global provides the Fund with all required general administrative services, including, without limitation, office space, equipment,
and personnel; clerical and general back office services; bookkeeping, internal accounting and secretarial services; the calculation
of NAV; and the preparation and filing of all reports, registration statements, proxy statements and all other materials required
to be filed or furnished by the Fund under federal and state securities laws. As compensation for these services, the sub-Administrator
receives certain out-of-pocket costs, transaction fees and asset-based fees which are accrued daily and paid monthly by the Adviser
from its fees.
DISTRIBUTOR
The Trust has entered into a Distribution
Agreement under which SEI Investments Distribution Co. (“SEI”), with principal offices at One Freedom Valley Drive
Oaks, PA 19456, as agent, receives orders to create and redeem shares in Creation Unit Aggregations and transmits such orders to
the Trust’s Custodian and Transfer Agent. The Distributor has no obligation to sell any specific quantity of Fund shares.
SEI bears the following costs and expenses relating to the distribution of shares: (i) the costs of processing and maintaining
records of creations of Creation Units; (ii) all costs of maintaining the records required of a registered broker/dealer; (iii)
the expenses of maintaining its registration or qualification as a dealer or broker under federal or state laws; (iv) filing fees;
and (v) all other expenses incurred in connection with the distribution services as contemplated in the Distribution Agreement.
No compensation is payable by the Trust to SEI for such distribution services. The Distribution Agreement provides that the Trust
will indemnify SEI against certain liabilities relating to untrue statements or omissions of material fact except those resulting
from the reliance on information furnished to the Trust by SEI, or those resulting from the willful misfeasance, bad faith or gross
negligence of SEI, or SEI’s reckless disregard of its duties and obligations under the Distribution Agreement. The Distributor,
its affiliates and officers have no role in determining the investment policies or which securities are to be purchased or sold
by the Trust or the Fund. The Distributor is not affiliated with the Trust, the Adviser or any stock exchange.
Additionally, the Adviser or its affiliates
may, from time to time, and from its own resources, pay, defray or absorb costs relating to distribution, including payments out
of its own resources to the Distributor or to otherwise promote the sale of shares.
CUSTODIAN AND TRANSFER AGENT
Brown Brothers Harriman & Co., located
at 40 Water Street, Boston, MA 02109, serves as Custodian of the Fund’s assets. The custodian relationship is managed through
SEI Global. As Custodian, Brown Brothers Harriman & Co. has agreed to (1) make receipts and disbursements of money on behalf
of the Fund, (2) collect and receive all income and other payments and distributions on account of the Fund’s portfolio investments,
(3) respond to correspondence from shareholders, security brokers and others relating to its duties; and (4) make periodic reports
to the Fund concerning the Fund’s operations. Brown Brothers Harriman & Co. does not exercise any supervisory function
over the purchase and sale of securities. As compensation for these services, the Custodian receives certain out-of-pocket costs,
transaction fees and asset-based fees which are accrued daily and paid monthly by the Adviser from its fees.
As Transfer Agent, Brown Brothers Harriman
& Co. has agreed to (1) issue and redeem shares of the Fund, (2) make dividend and other distributions to shareholders of the
Fund, (3) respond to correspondence by Fund shareholders and others relating to its duties; (4) maintain shareholder accounts,
and (5) make periodic reports to the Fund. As compensation for these services, the Transfer Agent receives certain out-of-pocket
costs, transaction fees and asset-based fees which are accrued daily and paid monthly by the Adviser from its fees.
DESCRIPTION OF SHARES
The Declaration of Trust of the Trust (“Declaration”)
permits the Trust’s Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest of
one or more separate series representing interests in one or more investment portfolios. The Trustees or Trust may create additional
series and each series may be divided into classes.
Under the terms of the Declaration, each
share of the Fund represents a proportionate interest in the particular Fund with each other share of its class in the same Fund
and is entitled to such dividends and distributions out of the income belonging to the Fund as are authorized by the Trustees and
declared by the Trust. Upon any liquidation of the Fund, shareholders of each class of the Fund are entitled to share pro rata
in the net assets belonging to that class available for distribution. Shares do not have any preemptive or conversion rights. The
right of redemption is described in the Prospectus. In addition, pursuant to the terms of the 1940 Act, the right of a shareholder
to redeem shares and the date of payment by the Fund may be suspended for more than seven days (i) for any period during which
the New York Stock Exchange is closed, other than the customary weekends or holidays, or trading in the markets the Fund normally
utilizes is closed or is restricted as determined by the SEC, (ii) during any emergency, as determined by the SEC, as a result
of which it is not reasonably practicable for the Fund to dispose of instruments owned by it or fairly to determine the value of
its net assets, or (iii) for such other period as the SEC may by order permit for the protection of the shareholders of the Fund.
The Trust also may suspend or postpone the recording of the transfer of its shares upon the occurrence of any of the foregoing
conditions. In addition, shares of the Fund are redeemable at the unilateral option of the Trust. The Declaration permits the Board
to alter the number of shares constituting a Creation Unit or to specify that shares of beneficial interest of the Trust may be
individually redeemable. Shares when issued as described in the Prospectus are validly issued, fully paid and non-assessable. In
the interests of economy and convenience, certificates representing shares of the Fund are not issued.
Following the creation of the initial Creation
Unit Aggregation(s) of the Fund and immediately prior to the commencement of trading in such Fund’s shares, a holder of shares
may be a “control person” of the Fund, as defined in the 1940 Act. The Fund cannot predict the length of time for which
one or more shareholders may remain a control person of the Fund.
The proceeds received by the Fund for each
issue or sale of its shares, and all net investment income, realized and unrealized gain and proceeds thereof, subject only to
the rights of creditors of that Fund, will be specifically allocated to and constitute the underlying assets of that Fund. The
underlying assets of the Fund will be segregated on the books of account, and will be charged with the liabilities in respect to
that Fund and with a share of the general liabilities of the Trust. Expenses with respect to the Funds normally are allocated in
proportion to the NAV of the respective Fund except where allocations of direct expenses can otherwise be fairly made.
Shareholders are entitled to one vote for
each full share held and proportionate fractional votes for fractional shares held. Each Fund and other funds of the Trust entitled
to vote on a matter will vote in the aggregate and not by Fund, except as required by law or when the matter to be voted on affects
only the interests of shareholders of a particular Fund or class.
Rule 18f-2 under the 1940 Act provides
that any matter required by the provisions of the 1940 Act or applicable state law, or otherwise, to be submitted to the holders
of the outstanding voting securities of an investment company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of each investment portfolio affected by such matter.
Rule 18f-2 further provides that an investment portfolio shall be deemed to be affected by a matter unless the interests of each
investment portfolio in the matter are substantially identical or the matter does not affect any interest of the investment portfolio.
Under the Rule, the approval of an Investment Advisory Agreement, a distribution plan subject to Rule 12b-1 under the 1940 Act
or any change in the fundamental investment policy would be effectively acted upon with respect to an investment portfolio only
if approved by a majority of the outstanding shares of such investment portfolio. However, the Rule also provides that the ratification
of the appointment of independent accountants, the approval of principal underwriting contracts and the election of Trustees are
exempt from the separate voting requirements stated above.
The Trust is not required to hold annual
meetings of shareholders and does not intend to hold such meetings. In the event that a meeting of shareholders is held, each share
of the Trust will be entitled, as determined by the Trustees without the vote or consent of shareholders to one vote for each share
represented by such shares on all matters presented to shareholders, including the election of Trustees (this method of voting
being referred to as “dollar-based voting”). However, to the extent required by the 1940 Act or otherwise determined
by the Trustees, series and classes of the Trust will vote separately from each other. Shareholders of the Trust do not have cumulative
voting rights in the election of Trustees and, accordingly, the holders of more than 50% of the aggregate voting power of the Trust
may elect all of the Trustees, irrespective of the vote of the other shareholders. Meetings of shareholders of the Trust, or any
series or class thereof, may be called by the Trustees, the President or Secretary of the Trust or upon the written request of
holders of at least a majority of the shares entitled to vote at such meeting. The shareholders of the Trust will have voting rights
only with respect to the limited number of matters specified in the Declaration and such other matters as the Trustees may determine
or may be required by law.
The Declaration authorizes the Trustees,
without shareholder approval (except as stated in the next paragraph), to cause the Trust, or any series thereof, to merge or consolidate
with any corporation, association, trust or other organization or sell or exchange all or substantially all of the property belonging
to the Trust, or any series thereof. In addition, the Trustees, without shareholder approval, may adopt a “master-feeder”
structure by investing substantially all of the assets of a series of the Trust in the securities of another open-end investment
company or pooled portfolio.
The Declaration also authorizes the Trustees,
in connection with the termination or other reorganization of the Trust or any series or class by way of merger, consolidation,
the sale of all or substantially all of the assets, or otherwise, to classify the shareholders of any class into one or more separate
groups and to provide for the different treatment of shares held by the different groups, provided that such termination or reorganization
is approved by a majority of the outstanding voting securities (as defined in the 1940 Act) of each group of shareholders that
are so classified.
The Declaration permits the Trustees to
amend the Declaration without a shareholder vote. However, shareholders of the Trust have the right to vote on any amendment: (i)
that would adversely affect the voting rights of shareholders specified in the Declaration; (ii) that is required by law to be
approved by shareholders; (iii) to the amendment section of the Declaration; or (iv) that the Trustees determine to submit to shareholders.
The Declaration permits the termination
of the Trust or of any series or class of the Trust: (i) by a majority of the affected shareholders at a meeting of shareholders
of the Trust, series or class; or (ii) by a majority of the Trustees without shareholder approval if the Trustees determine that
such action is in the best interest of the Trust or its shareholders. The factors and events that the Trustees may take into account
in making such determination include: (i) the inability of the Trust or any series or class to maintain its assets at an appropriate
size; (ii) changes in laws or regulations governing the Trust, or any series or class thereof, or affecting assets of the type
in which it invests; or (iii) economic developments or trends having a significant adverse impact on their business or operations.
In the event of a termination of the Trust
or the Fund, the Board, in its sole discretion, could determine to permit the shares to be redeemable in aggregations smaller than
Creation Unit Aggregations or to be individually redeemable. In such circumstance, the Trust may make redemptions in-kind, for
cash, or for a combination of cash or securities.
The Declaration provides that the Trustees
will not be liable to any person other than the Trust or a shareholder and that a Trustee will not be liable for any act as a Trustee.
Additionally, subject to applicable federal law, no person who is or who has been a Trustee or officer of the Trust shall be liable
to the Trust or to any shareholder for money damages except for liability resulting from (a) actual receipt of an improper benefit
or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment and which is material
to the cause of action. However, nothing in the Declaration protects a Trustee against any liability to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct
of his or her office. The Declaration provides for indemnification of Trustees and officers of the Trust unless the indemnitee
is liable to the Trust or any shareholder by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such person’s office.
The Declaration provides that each shareholder,
by virtue of becoming such, will be held to have expressly assented and agreed to the terms of the Declaration.
The Declaration provides that a shareholder
of the Trust may bring a derivative action on behalf of the Trust only if the following conditions are met: (i) the shareholder
was a shareholder at the time of the action complained of; (ii) the shareholder was a shareholder at the time demand is made; (iii)
the shareholder must make demand to the Trustees before commencing at derivative action on behalf of the Trust; (iv) any shareholders
that hold at least 10% of the outstanding shares of the Trust (or 10% of the outstanding shares of the series or class to which
such action relates) must join in the request for the Trustees to commence such action; and (v) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to investigate the basis of such claim. The Declaration also
provides that no person, other than the Trustees, who is not a shareholder of a particular series or class shall be entitled to
bring any derivative action, suit or other proceeding on behalf of or with respect to such series or class. The Trustees will be
entitled to retain counsel or other advisers in considering the merits of the request and will require an undertaking by the shareholders
making such request to reimburse the Trust for the expense of any such advisers in the event that the Trustees determine not to
bring such action.
The term “majority of the outstanding
shares” of either the Trust or a particular Fund or investment portfolio means, with respect to the approval of an Investment
Advisory Agreement, a distribution plan or a change in the Fundamental investment policy, the vote of the lesser of (i) 67% or
more of the shares of the Trust or such Fund or portfolio present at a meeting, if the holders of more than 50% of the outstanding
shares of the Trust or such Fund or portfolio are present or represented by proxy, or (ii) more than 50% of the outstanding shares
of the Trust or such Fund or portfolio.
BOOK-ENTRY ONLY SYSTEM
The following information supplements and
should be read in conjunction with the Shareholder Information section in the Prospectus. The Depository Trust Company (“DTC”)
Acts as Securities Depository for the Shares of the Trust. Shares of the Fund 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 (“DTC Participants”) and to facilitate the clearance and settlement
of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the
DTC Participants, thereby eliminating the need for physical movement of securities’ certificates. DTC Participants include
securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or
their representatives) own DTC. More specifically, DTC is a subsidiary of the Depository Trust and Clearing Corporation (“DTCC”),
which is owned by its member firms including international broker/dealers, correspondent and clearing banks, mutual fund companies
and investment banks. 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 (“Indirect
Participants”).
Beneficial ownership of shares is limited
to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership
of beneficial interests in shares (owners of such beneficial interests are referred to herein as “Beneficial Owners”)
is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants)
and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants).
Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of shares.
The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive
form. Such laws may impair the ability of certain investors to acquire beneficial interests in shares.
Beneficial Owners of shares are not entitled
to have shares registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive
form and are not considered the registered holder thereof. Accordingly, each Beneficial Owner must rely on the procedures of DTC,
the DTC Participant and any Indirect Participant through which such Beneficial Owner holds its interests, to exercise any rights
of a holder of shares. The Trust understands that under existing industry practice, in the event the Trust requests any action
of holders of shares, or a Beneficial Owner desires to take any action that DTC, as the record owner of all outstanding shares,
is entitled to take, DTC would authorize the DTC Participants to take such action and that the DTC Participants would authorize
the Indirect Participants and Beneficial Owners acting through such DTC Participants to take such action and would otherwise act
upon the instructions of Beneficial Owners owning through them. As described above, the Trust recognizes DTC or its nominee as
the owner of all shares for all purposes.
Conveyance of all notices, statements and
other communications to Beneficial Owners is effected as follows. Pursuant to the Depositary 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 share holdings
of each DTC Participant. The Trust shall inquire of each such DTC Participant as to the number of Beneficial Owners holding shares
of the Fund, directly or indirectly, through such DTC Participant. The Trust shall provide each such DTC Participant with copies
of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly,
to such Beneficial Owners. In addition, the Trust shall pay to each such DTC Participant a fair and reasonable amount as reimbursement
for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC
or its nominee, Cede & Co., as the registered holder of all shares of the Trust. DTC or its nominee, upon receipt of any such
distributions, shall credit immediately DTC Participants’ accounts with payments in amounts proportionate to their respective
beneficial interests in shares as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants
and Beneficial Owners of shares held through such DTC Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer form or registered in a “street name,”
and will be the responsibility of such DTC Participants. The Trust has no responsibility or liability for any aspects of the records
relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such shares, or for
maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the
relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants
and Beneficial Owners owning through such DTC Participants.
DTC may determine to discontinue providing
its service with respect to shares of the Trust at any time by giving reasonable notice to the Trust and discharging its responsibilities
with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to find a replacement for
DTC to perform its functions at a comparable cost or, if such a replacement is unavailable, to issue and deliver printed certificates
representing ownership of shares, unless the Trust makes other arrangements with respect thereto satisfactory to the Exchange on
which shares are listed.
PURCHASE
AND REDEMPTION OF CREATION UNITS
CREATION UNIT AGGREGATIONS
The Trust issues and sells shares of the
Fund only in Creation Unit Aggregations. The Board reserves the right to declare a split or a consolidation in the number of shares
outstanding of any Fund of the Trust, and to make a corresponding change in the number of shares constituting a Creation Unit,
in the event that the per share price in the secondary market rises (or declines) to an amount that falls outside the range deemed
desirable by the Board.
PURCHASE AND ISSUANCE OF CREATION UNIT AGGREGATIONS
General.
The Trust issues and sells
shares of the Fund only in Creation Units on a continuous basis through the Distributor, without a sales load, at the Fund’s
NAV next determined after receipt, on any Business Day (as defined herein), of an order in proper form.
A “Business Day” with respect
to the Fund is any day on which the NYSE is open for business. As of the date of this SAI, the NYSE observes the following holidays:
New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Portfolio Deposit.
The consideration
for purchase of a Creation Unit of shares of the Fund generally consists of the in-kind deposit of a designated portfolio of equity
securities (the “Deposit Securities”) constituting an optimized representation of the Fund’s Underlying Index
and an amount of cash in U.S. dollars computed as described below (the “Cash Component”). Together, the Deposit Securities
and the Cash Component constitute the “Portfolio Deposit,” which represents the minimum initial and subsequent investment
amount for a Creation Unit of the Fund. The Cash Component is an amount equal to the Balancing Amount (as defined below). The “Balancing
Amount” is an amount equal to the difference between (x) the net asset value (per Creation Unit) of the Fund and (y) the
“Deposit Amount” which is the market value (per Creation Unit) of the Deposit Securities. The Balancing Amount serves
the function of compensating for any differences between the net asset value per Creation Unit and the Deposit Amount. If the Balancing
Amount is a positive number (
i.e.
, the net asset value per Creation Unit is more than the Deposit Amount), the Authorized
Participant will deliver the Balancing Amount. If the Balancing Amount is a negative number (
i.e.
, the net asset value per
Creation Unit is less than the Deposit Amount), the Authorized Participant will receive the Balancing Amount. Payment of any stamp
duty or other similar fees and expenses payable upon transfer of beneficial ownership of the Deposit Securities shall be the sole
responsibility of the Authorized Participant that purchased the Creation Unit. The Authorized Participant must ensure that all
Deposit Securities properly denote change in beneficial ownership.
The Adviser makes available through the
National Securities Clearing Corporation (“NSCC”) on each Business Day, prior to the opening of business on the Exchange
(currently 9:30 a.m., Eastern Time), the list of the names and the required number of shares of each Deposit Security to be included
in the current Portfolio Deposit (based on information at the end of the previous Business Day) for the Fund. Such Portfolio Securities
are applicable, subject to any adjustments as described below, to purchases of Creation Units of a given Fund until such time as
the next-announced Deposit Securities composition is made available.
The identity and number of shares of the
Deposit Securities required for a Portfolio Deposit for the Fund changes pursuant to changes in the composition of the Fund’s
Portfolio and as rebalancing adjustments and corporate action events are reflected from time to time by the Adviser with a view
to the investment objective of the Fund. The composition of the Deposit Securities may also change in response to adjustments to
the weighting or composition of the securities constituting the Underlying Index.
In addition, the Trust reserves the right
to permit or require the substitution of an amount of cash (that is a “cash in lieu” amount) to be added to the Cash
Component to replace any Deposit Security which may not be available in sufficient quantity for delivery or that may not be eligible
for transfer through the systems of DTC or the Clearing Process (discussed below) or for other similar reasons. The Trust also
reserves the right to permit or require a “cash in lieu” amount where the delivery of Deposit Securities by the Authorized
Participant (as described below) would be restricted under the securities laws or where delivery of Deposit Securities to the Authorized
Participant would result in the disposition of Deposit Securities by the Authorized Participant becoming restricted under the securities
laws, and in certain other situations. The adjustments described above will reflect changes, known to the Adviser on the date of
announcement to be in effect by the time of delivery of the Portfolio Deposit, in the composition of the Underlying Index, or resulting
from stock splits and other corporate actions.
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 Cash Component effective
through and including the previous Business Day, per outstanding Creation Unit of the Fund, will be made available.
Role of the Authorized Participant.
Creation Units of shares may be purchased only by or through a DTC Participant that has entered into an Authorized Participant
Agreement with the Distributor (an Authorized Participant). Such Authorized Participant will agree pursuant to the terms of such
Authorized Participant Agreement on behalf of itself or any investor on whose behalf it will act, as the case may be, to certain
conditions, including that such Authorized Participant will make available in advance of each purchase of Creation Units an amount
of cash sufficient to pay the Cash Component, once the net asset value of a Creation Unit is next determined after receipt of the
purchase order in proper form, together with the transaction fee described below. The Authorized Participant may require the investor
to enter into an agreement with such Authorized Participant with respect to certain matters, including payment of the Cash Component.
Investors who are not Authorized Participants must make appropriate arrangements with an Authorized Participant. Investors should
be aware that their particular broker may not be a DTC Participant or may not have executed an Authorized Participant Agreement,
and that therefore orders to purchase Creation Units may have to be placed by the investor’s broker through an Authorized
Participant. As a result, purchase orders placed through an Authorized Participant may result in additional charges to such investor.
The Trust does not expect to enter into an Authorized Participant Agreement with more than a small number of DTC Participants that
have international capabilities. A list of the current Authorized Participants may be obtained from the Distributor.
Purchase Order.
To initiate an order
for a Creation Unit of shares of the Fund, the Authorized Participant must submit to the Distributor an irrevocable order to purchase
shares of the Fund. With respect to the Fund, the Distributor will notify the Adviser and the Custodian of such order. The Custodian
will then provide such information to the appropriate local sub-custodian(s). The Custodian shall cause the appropriate local sub-custodian(s)
of the Fund to maintain an account into which the Authorized Participant shall deliver, on behalf of itself or the party on whose
behalf it is acting, the securities included in the designated Portfolio Deposit (or the cash value of all or a part of such securities,
in the case of a permitted or required cash purchase or “cash in lieu” amount), with any appropriate adjustments as
advised by the Trust. Deposit Securities must be delivered to an account maintained at the applicable local sub-custodian. Those
placing orders to purchase Creation Units through an Authorized Participant should allow sufficient time to permit proper submission
of the purchase order to the Distributor by the Cut-Off Time (as defined below) on such Business Day.
The Authorized Participant must also make
available on or before the contractual settlement date, by means satisfactory to the Trust, immediately available or same day funds
in U.S. dollars estimated by the Trust to be sufficient to pay the Cash Component next determined after acceptance of the purchase
order, together with the applicable purchase transaction fee. Any excess funds will be returned following settlement of the issue
of the Creation Unit. Those placing orders should ascertain the applicable deadline for cash transfers by contacting the operations
department of the broker or depositary institution effectuating the transfer of the Cash Component. This deadline is likely to
be significantly earlier than the closing time of the regular trading session on the Exchange.
Investors should be aware that an Authorized
Participant may require orders for purchases of shares placed with it to be in the particular form required by the individual Authorized
Participant.
Timing of Submission of Purchase Orders.
An Authorized Participant must submit an irrevocable purchase order no later than the earlier of (i) 4:00 p.m., Eastern Time
or (ii) the closing time of the trading session on the relevant Fund’s Exchange, on any Business Day in order to receive
that Business Day’s NAV.
Acceptance of Purchase Order.
Subject
to the conditions that (i) an irrevocable purchase order has been submitted by the Authorized Participant (either on its own or
another investor’s behalf) and (ii) arrangements satisfactory to the Trust are in place for payment of the Cash Component
and any other cash amounts which may be due, the Trust will accept the order, subject to its right (and the right of the Distributor
and the Adviser) to reject any order until acceptance.
Once the Trust has accepted an order, upon
next determination of the NAV of the shares, the Trust will confirm the issuance of a Creation Unit of the Fund, against receipt
of payment, at such NAV. The Distributor will then transmit a confirmation of acceptance to the Authorized Participant that placed
the order.
The Trust reserves the absolute right to
reject or revoke acceptance of a purchase order transmitted to it by the Distributor in respect of any Fund if (a) the order is
not in proper form; (b) the investor(s), upon obtaining the shares ordered, would own 80% or more of the currently outstanding
shares of any Fund; (c) the Deposit Securities delivered do not conform to the identify and number of shares disseminated through
the facilities of the NSCC for that date by the Adviser, as described above; (d) acceptance of the Deposit Securities would have
certain adverse tax consequences to the Fund; (e) the acceptance of the Portfolio Deposit would, in the opinion of counsel, be
unlawful; (f) the acceptance of the Portfolio Deposit would otherwise, in the discretion of the Trust or the Adviser, have an adverse
effect on the Trust or the rights of beneficial owners; or (g) in the event that circumstances outside the control of the Trust,
the Distributor and the Adviser make it for all practical purposes impossible to process purchase orders. Examples of such circumstances
include acts of God; public service or utility problems resulting in telephone, telecopy or computer failures; fires, floods or
extreme weather conditions; market conditions or activities causing trading halts; systems failures involving computer or other
informational systems affecting the Trust, the Distributor, DTC, NSCC, the Adviser, the Fund’s Custodian, a sub-custodian
or any other participant in the creation process; and similar extraordinary events. The Trust shall notify a prospective purchaser
and/or the Authorized Participant acting on behalf of such person of its rejection of the order of such person. The Trust, the
Fund’s Custodian, any sub-custodian and the Distributor are under no duty, however, to give notification of any defects or
irregularities in the delivery of Portfolio Deposits nor shall either of them incur any liability for the failure to give any such
notification.
Issuance of a Creation Unit.
Except
as provided herein, a Creation Unit of shares of the Fund will not be issued until the transfer of good title to the Trust of the
Deposit Securities and the payment of the Cash Component have been completed. When the applicable local sub-custodian(s) have confirmed
to the Custodian that the required securities included in the Portfolio Deposit (or the cash value thereof) have been delivered
to the account of the applicable local sub-custodian or sub-custodians, the Distributor and the Adviser shall be notified of such
delivery, and the Trust will issue, and cause the delivery of the Creation Unit. Creation Units typically are issued on a “T+3
basis” (that is three Business Days after trade date). To the extent contemplated by an Authorized Participant’s agreement
with the Distributor, the Trust will issue Creation Units to such Authorized Participant notwithstanding the fact that the corresponding
Portfolio Deposits have not been received in part or in whole, in reliance on the undertaking of the Authorized Participant to
deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by such Authorized Participant’s
delivery and maintenance of collateral having a value equal to 110%, which the Adviser may change from time to time, of the value
of the missing Deposit Securities in accordance with the Trust’s then-effective procedures. Such collateral must be delivered
no later than 2:00 p.m., Eastern Time, on the contractual settlement date. The only collateral that is acceptable to the Trust
is cash in U.S. Dollars or an irrevocable letter of credit in form, and drawn on a bank, that is satisfactory to the Trust. The
cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized Participant, and income, if
any, on invested cash collateral will be paid to that Authorized Participant. Information concerning the Trust’s current
procedures for collateralization of missing Deposit Securities is available from the Distributor. The Authorized Participant Agreement
will permit the Trust to buy the missing Deposit Securities at any time and will subject the Authorized Participant to liability
for any shortfall between the cost to the Trust of purchasing such securities and the cash collateral or the amount that may be
drawn under any letter of credit.
In certain cases, Authorized Participants
will create and redeem Creation Units on the same trade date. In these instances, the Trust reserves the right to settle these
transactions on a net basis. All questions as to the number of shares of each security in the Deposit Securities and the validity,
form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trust’s
determination shall be final and binding.
Cash Purchase Method.
When cash
purchases of Creation Units are available or specified for the Fund, they will be effected in essentially the same manner as in-kind
purchases thereof. In addition, the Trust may in its discretion make Creation Units of any of the other funds available for purchase
and redemption in U.S. dollars. In the case of a cash purchase, the investor must pay the cash equivalent of the Deposit Securities
it would otherwise be required to provide through an in-kind purchase, plus the same Cash Component required to be paid by an in-kind
purchaser. In addition, to offset the Trust’s brokerage and other transaction costs associated with using the cash to purchase
the requisite Deposit Securities, the investor will be required to pay a fixed purchase transaction fee, plus an additional variable
charge for cash purchases, which is expressed as a percentage of the value of the Deposit Securities. The transaction fees for
in-kind and cash purchases of Creation Units are described below.
Purchase Transaction Fee.
A fixed
purchase transaction fee payable to the Custodian is imposed on each creation transaction regardless of the number of Creation
Units purchased in the transaction. Purchasers of Creation Units for cash are required to pay an additional variable charge to
compensate the Fund for brokerage and market impact expenses relating to investing in portfolios securities. Where the Trust permits
an in-kind purchaser to substitute cash in lieu of depositing a portion of the Deposit Securities, the purchaser will be assessed
the additional variable charge for cash purchases on the “cash in lieu” portion of its investment. Purchasers of Creation
Units are responsible for the costs of transferring the securities constituting the Deposit Securities to the account of the Trust.
Investors who use the services of a broker, or other such intermediary may be charged a fee for such services. The purchase transaction
fees for in-kind purchases and cash purchases (when available) are listed in the table below. This table is subject to revision
from time to time.
Fund
|
Standard Fee for In-Kind and Cash
Purchases
|
Maximum Additional Variable Charge for Cash Purchases*
|
Global X Junior MLP ETF
|
$500
|
3%
|
_____________
* As a percentage of the value of the amount invested.
REDEMPTION OF CREATION UNITS
Shares of the Fund may be redeemed only
in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Distributor. The Trust
will not redeem shares in amounts less than Creation Units. Beneficial owners also may sell shares in the secondary market, but
must accumulate enough shares to constitute a Creation Unit in order to have such shares redeemed by the Trust. There can be no
assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a Creation
Unit. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of shares to
constitute a redeemable Creation Unit.
With respect to the Fund the Adviser makes
available through the NSCC prior to the opening of business on the Exchange (currently 9:30 a.m., Eastern Time) on each Business
Day, the identity and number of shares that will be applicable (subject to possible amendment or correction) to redemption requests
received in proper form (as described below) on that day. To the extent redemptions are effected in-kind, Portfolio Securities
received on redemption may not be identical to Deposit Securities that are applicable to creation of Creation Units. To the extent
redemptions are effected in-kind, the redemption proceeds for a Creation Unit generally consist of Portfolio Securities on the
Business Day of the request for redemption, plus cash in an amount equal to the difference between the NAV of the shares being
redeemed, as next determined after a receipt of a request in proper form, and the value of the Portfolio Securities, less the redemption
transaction fee described below. The redemption transaction fee described below is deducted from such redemption proceeds.
A fixed redemption transaction fee payable
to the Custodian is imposed on each redemption transaction. Redemptions of Creation Units for cash are required to pay an additional
variable charge to compensate the relevant Fund for brokerage and market impact expenses relating to disposing of portfolio securities.
The fixed redemption transaction fee for redemptions in kind and for cash and the additional variable charge for cash redemptions
(when cash redemptions are available or specified) are listed in the table below. Investors will also bear the costs of transferring
the Portfolio Deposit from the Trust 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.
Fund
|
Standard Fee for In-Kind and Cash
Redemptions
|
Maximum Additional Variable Charge for Cash Redemptions*
|
Global X Junior MLP ETF
|
$500
|
2%
|
_____________
* As a percentage of the value of the amount invested.
Redemption requests in respect of Creation
Units must be submitted to the Distributor by or through an Authorized Participant. Investors other than Authorized Participants
are responsible for making arrangements for a redemption request through an Authorized Participant. An Authorized Participant must
submit an irrevocable redemption request no later than the earlier of (i) 4:00 p.m., Eastern Time or (ii) the closing time of the
trading session on the relevant Fund’s Exchange, on any Business Day in order to receive that Business Day’s NAV.
The Distributor will provide a list of
current Authorized Participants upon request. The Authorized Participant must transmit the request for redemption, in the form
required by the Trust, to the Distributor in accordance with procedures set forth in the Authorized Participant Agreement. Investors
should be aware that their particular broker may not have executed an Authorized Participant Agreement, and that, therefore, requests
to redeem Creation Units may have to be placed by the investor’s broker through an Authorized Participant who has executed
an Authorized Participant Agreement. At any given time there will be only a limited number of broker-dealers that have executed
an Authorized Participant Agreement. Investors making a redemption request should be aware that such request must be in the form
specified by such Authorized Participant. Investors making a request to redeem Creation Units should allow sufficient time to permit
proper submission of the request by an Authorized Participant and transfer of the shares to the Trust’s Transfer Agent; such
investors should allow for the additional time that may be required to effect redemptions through their banks, brokers or other
financial intermediaries if such intermediaries are not Authorized Participants.
Orders to redeem Creation Unit Aggregations
of funds based on foreign indexes must be delivered through an Authorized Participant that has executed an Authorized Participant
Agreement. Investors other than Authorized Participants are responsible for making arrangements for a redemption request to be
made through an Authorized Participant. An order to redeem Creation Unit Aggregations of the Fund is deemed received by the Trust
on the Business Day if: (i) such order is received by the Fund’s Distributor not later than the closing time of the applicable
Exchange on the applicable Business Day; (ii) such order is accompanied or followed by the requisite number of shares of the Fund
specified in such order, which delivery must be made through DTC to the Fund’s Custodian no later than 10:00 a.m., Eastern
Time, on the next Business Day following the day the order was transmitted; and (iii) all other procedures set forth in the Authorized
Participant Agreement are properly followed. Deliveries of Fund securities to redeeming investors generally will be made within
three Business Days.
A redemption request is considered to be
in “proper form” if (i) an Authorized Participant has transferred or caused to be transferred to the Trust’s
Transfer Agent the Creation Unit of shares being redeemed through the book-entry system of DTC so as to be effective by the Exchange
closing time on any Business Day and (ii) a request in form satisfactory to the Trust is received by the Distributor from the Authorized
Participant on behalf of itself or another redeeming investor within the time periods specified above. If the Transfer Agent does
not receive the investor’s shares through DTC’s facilities by 10:00 a.m., Eastern Time, on the Business Day next following
the day that the redemption request is received, the redemption request shall be rejected. Investors should be aware that the deadline
for such transfers of shares through the DTC system may be significantly earlier than the close of business on the Exchange. Those
making redemption requests should ascertain the deadline applicable to transfers of shares through the DTC system by contacting
the operations department of the broker or depositary institution effecting the transfer of the shares.
Upon receiving a redemption request, the
Distributor shall notify the Trust and the Trust’s Transfer Agent of such redemption request. The tender of an investor’s
shares for redemption and the distribution of the cash redemption payment in respect of Creation Units redeemed will be effected
through DTC and the relevant Authorized Participant to the beneficial owner thereof as recorded on the book-entry system of DTC
or the DTC Participant through which such investor holds, as the case may be, or by such other means specified by the Authorized
Participant submitting the redemption request.
In connection with taking delivery of shares
of Portfolio Securities upon redemption of shares of the Fund, a redeeming Beneficial Owner, or Authorized Participant acting on
behalf of such Beneficial Owner, must maintain appropriate security arrangements with a qualified broker-dealer, bank or other
custody providers in each jurisdiction in which any of the Portfolio Securities are customarily traded, to which account such Portfolio
Securities will be delivered.
Deliveries of redemption proceeds by the
Fund generally will be made within three Business Days (that is “T+3”). If neither the redeeming Beneficial Owner nor
the Authorized Participant acting on behalf of such redeeming Beneficial Owner has appropriate arrangements to take delivery of
the portfolio securities in the applicable jurisdiction and it is not possible to make other such arrangements, or if it is not
possible to effect deliveries of the Portfolio Securities in such jurisdiction, the Trust may in its discretion 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 Trust may, in its sole discretion, permit. In either case, the investor will receive
a cash payment equal to the net asset value of its shares based on the NAV of shares of the relevant Fund next determined after
the redemption request is received in proper form (minus a redemption transaction fee and additional variable charge for cash redemptions
specified above, to offset the Trust’s brokerage and other transaction costs associated with the disposition of Portfolio
Securities). The Trust may also, in its sole discretion, upon request of a shareholder, provide such redeemer a portfolio of securities
that differ from the exact composition of the Portfolio Securities but does not differ in NAV. Redemptions of shares for Deposit
Securities will be subject to compliance with applicable U.S. federal and state securities laws and the Fund (whether or not it
otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Fund could not
lawfully deliver specific Deposit Securities upon redemptions or could not do so without first registering the Deposit Securities
under such laws.
In the event that cash redemptions are
permitted or required by the Trust, proceeds will be paid to the Authorized Participant redeeming shares on behalf of the redeeming
investor as soon as practicable after the date of redemption (within seven calendar days thereafter).
To the extent contemplated by an Authorized
Participant’s agreement with the Distributor, in the event the Authorized Participant that has submitted a redemption request
in proper form is unable to transfer all or part of the Creation Units to be redeemed to the Trust, at or prior to 10:00 a.m.,
Eastern Time, on the Business Day after the date of submission of such redemption request, the Distributor will nonetheless accept
the redemption request in reliance on the undertaking by the Authorized Participant to deliver the missing shares as soon as possible.
Such undertaking shall be secured by the Authorized Participant’s delivery and maintenance of collateral consisting of cash
having a value equal to 110%, which the Adviser may change from time to time, of the value of the missing shares in accordance
with the Trust’s then-effective procedures. The only collateral that is acceptable to the Trust is cash in U.S. dollars or
an irrevocable letter of credit in form, and drawn on a bank, that is satisfactory to the Trust. The Trust’s current procedures
for collateralization of missing shares require, among other things, that any cash collateral shall be held by the Trust’s
Custodian, and that the fees of the Custodian and any sub-custodians in respect of the delivery, maintenance and redelivery of
the cash collateral shall be payable by the Authorized Participant. The cash collateral posted by the Authorized Participant may
be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral will be paid to that Authorized
Participant. The Authorized Participant Agreement permits the Trust to purchase the missing shares or acquire the portfolio securities
and the Cash Component underlying such shares at any time and subjects the Authorized Participant to liability for any shortfall
between the cost to the Trust of purchasing such shares, Portfolio Securities or Cash Component and the cash collateral or the
amount that may be drawn under any letter of credit.
Because the portfolio securities of the
Fund may trade on the relevant exchange(s) on days that the Exchange is closed or are otherwise not Business Days for such Fund,
shareholders may not be able to redeem their shares of such Fund, or to purchase or sell shares of such Fund on the Exchange, on
days when the NAV of such Fund could be significantly affected by events in the relevant foreign markets.
The right of redemption may be suspended
or the date of payment postponed with respect to any Fund (1) for any period during which the New York Stock Exchange is closed
(other than customary weekend and holiday closings); (2) for any period during which trading on the New York Stock Exchange is
suspended or restricted; (3) for any period during which an emergency exists as a result of which disposal of the shares of the
Fund’s portfolio securities or determination of its net asset value is not reasonably practicable; or (4) in such other circumstance
as is permitted by the SEC.
TAXES
Set forth below is a discussion of certain
U.S. federal income tax considerations affecting the Fund and the purchase, ownership and disposition of Shares. It is based upon
the Internal Revenue Code of 1986, as amended (the “Code”), the regulations promulgated thereunder, judicial authorities,
and administrative rulings and practices as in effect as of the date of this SAI, all of which are subject to change, including
the following information which also supplements and should be read in conjunction with the section in the Prospectus entitled
“Dividends, Distributions and Taxes.”
The following is a summary of the material
U.S. federal income tax considerations applicable to an investment in Fund Shares. The summary is based on the laws in effect on
the date of this SAI and existing judicial and administrative interpretations thereof, all of which are subject to change, possibly
with retroactive effect. In addition, this summary assumes that the Fund shareholder holds Fund Shares as capital assets within
the meaning of the Code, and does not hold Fund Shares in connection with a trade or business. This summary does not address all
potential U.S. federal income tax considerations possibly applicable to an investment in Fund Shares, to Fund shareholders holding
Fund Shares through a partnership (or other pass-through entity) or to Fund shareholders subject to special tax rules. Prospective
Fund shareholders are urged to consult their own tax advisers with respect to the specific federal, state, local and foreign tax
consequences of investing in Fund Shares.
The Fund is taxed as a regular corporation
for federal income tax purposes and as such is obligated to pay federal and applicable state and foreign corporate taxes on its
taxable income. This differs from most investment companies, which elect to be treated as “regulated investment companies”
under the Code in order to avoid paying entity level income taxes. Under current law, the Fund is not eligible to elect treatment
as a regulated investment company due to its investments primarily in MLPs invested in energy assets. As a result, the Fund will
be obligated to pay federal and state taxes on its taxable income as opposed to most other investment companies which are not so
obligated.
As discussed below, the Fund expects that
a portion of the distribution it receives from MLPs may be treated as a tax-deferred return of capital, thus reducing the Fund’s
current tax liability. However, the amount of taxes currently paid by the Fund will vary depending on the amount of income and
gains derived from investments and/or sales of MLP interests and such taxes will reduce your return from an investment in the Fund.
The Fund invests its assets primarily in
MLPs, which generally are treated as partnerships for federal income tax purposes. As a partner in the MLPs, the fund must report
its allocable share of the MLPs’ taxable income in computing its taxable income, regardless of the extent (if any) to which
the MLPs make distributions. Based upon the Investment Adviser’s review of the historic results of the types of MLPs in which
the Fund invests, the Investment Adviser expects that the cash flow received by the fund with respect to its MLP investments will
generally exceed the taxable income allocated to the Fund (and this excess generally will not be currently taxable to the Fund
but, rather, will result in a reduction of the Fund’s adjusted tax basis in each MLP as described in the following paragraph).
This is the result of a variety of factors, including significant non-cash deductions, such as accelerated depreciation. There
is no assurance that the Investment Adviser’s expectation regarding the tax character of MLP distributions will be realized.
If this expectation is not realized, there may be greater tax expense borne by the Fund and less cash available to distribute to
you or to pay to expenses.
The Fund will also be subject to U.S. federal
income tax at the regular graduated corporate tax rates on any gain recognized by the applicable Fund on any sale of equity securities
of an MLP. Cash distributions from an MLP to the Fund that exceed such Fund’s allocable share of such MLP’s net taxable
income will reduce the Fund’s adjusted tax basis in the equity securities of the MLP. These reductions in such Fund’s
adjusted tax basis in the MLP equity securities will increase the amount of any taxable gain (or decrease the amount of any tax
loss) recognized by the Fund on a subsequent sale of the securities.
The Fund will accrue deferred income taxes
for any future tax liability associated with (i) that portion of MLP distributions considered to be a tax-deferred return of capital
as well as (ii) capital appreciation of its investments. Upon the sale of MLP security, the Fund may be liable for previously deferred
taxes. The Fund will rely to some extent on information provided by the MLPs which is not necessarily timely, to estimate deferred
tax liability for purposes of financial statement reporting and determining the NAV. From time to time, the Investment Adviser
will modify the estimates or assumptions regarding the Fund’s deferred tax liability as new information becomes available.
The Fund will generally compute deferred income taxes based on the federal income tax rate applicable to corporations currently
35% and an assumed rate attributable to state taxes.
The sale, exchange or redemption of Shares
may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of Shares will be treated as
long-term capital gain or loss if the Shares have been held for more than one year. Otherwise, the gain or loss on the taxable
disposition of Shares will be treated as short-term capital gain or loss. The tax basis of Shares of the Fund must be reduced by
any distribution which is treated as a return of capital for tax purposes. A loss realized on a sale or exchange of Shares of the
Fund may be disallowed if Fund Shares or other substantially identical shares are acquired (whether through the automatic reinvestment
of dividends or otherwise) within a sixty-one (61) day period beginning thirty (30) days before and ending thirty (30) days after
the date on which the Shares are disposed. In such a case, the basis of the shares acquired must be adjusted to reflect the disallowed
loss. Distribution may also be subject to state and local taxes.
Distributions reinvested in additional
Shares of the Fund through the means of the dividend reinvestment service (see above) will nevertheless be taxable dividends to
shareholders acquiring such additional Shares.
U.S. Shareholder. A “U.S. shareholder”
is a beneficial owner of shares of the Fund that is for U.S. federal income tax purposes:
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a citizen or individual resident of the United States (including certain former citizens and former
long-term residents);
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a domestic partnership;
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a domestic corporation or other entity treated as a corporation for U.S. federal income tax purposes,
created or organized in or under the laws of the United States or any state thereof or the District of Columbia;
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an estate , the income of which is subject to U.S. federal income taxation regardless of its source;
or
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a trust if a court within the United States is able to exercise primary supervision over its administration
and one or more U.S. persons have the authority to control all of its substantial decisions or the trust has made a valid election
in effect under applicable Treasury Regulations to be treated as a U.S. person.
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A “Non-U.S. shareholder” is
a beneficial owner of shares of the Fund that is an individual, corporation, trust or estate and is not a U.S. shareholder.
Distributions by the Fund will be treated
as dividends for U.S. federal income tax purposes to the extent paid from such Fund’s current or accumulated earnings and
profits (as determined under U.S. federal income tax principles). Such dividends may be eligible for treatment as qualified dividend
income through 2012 if certain holding period requirements are satisfied. Dividends paid by the Fund to a Non-U.S. Shareholder
generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. If an
income tax treaty applies to a Non-U.S. Shareholder, the Non-U.S. Shareholder will be required to provide an IRS Form W-8BEN certifying
its entitlement to benefits under the treaty in order to obtain a reduced rate of withholding tax.
If the amount of a distribution exceeds
a Shareholder’s allocable share of the Fund’s current and accumulated earnings and profits, such excess will be treated
for U.S. federal income tax purposes as a tax-free return of capital to the extent of the Shareholder’s tax basis in such
Fund’s shares and will reduce the tax basis of such shares. To the extent that any distribution received by a Shareholder
exceeds the sum of (i) Shareholder’s allocable share of the Fund’s current and accumulated earnings and profits and
(ii) such Shareholder’s tax basis in such Fund’s shares, such excess will be treated as gain from the sale of the shares
and will be taxed as described in “Redemptions and Sales of Shares” below.
SALES OF SHARES
Upon the sale or exchange of his shares,
a shareholder will realize a taxable gain or loss equal to the difference between the amount realized and his basis in his shares.
A redemption of shares by the Fund will be treated as a sale for this purpose. Such gain or loss will be treated as capital gain
or loss if the shares are capital assets in the shareholder’s hands, and will be long-term capital gain or loss if the shares
are held for more than one year and short-term capital gain or loss if the shares are held for one year or less. Any loss realized
on a sale or exchange will be disallowed to the extent the shares disposed of are replaced, including replacement through the reinvesting
of dividends and capital gains distributions in the Fund, within a 61-day period beginning 30 days before and ending 30 days after
the disposition of the shares. In such a case, the basis of the shares acquired will be increased to reflect the disallowed loss.
REPORTING
If a shareholder recognizes a loss with
respect to the Fund’s shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder,
the shareholder may be required to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders
of portfolio securities are in many cases exempted from this reporting requirement, but under current guidance, shareholders of
a regulated investment company are not exempted. The fact that a loss is reportable under these regulations does not affect the
legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult their tax advisors
to determine the applicability of these regulations in light of their individual circumstances. Under recently enacted legislation,
certain tax-exempt entities and their managers may be subject to excise tax if they are parties to certain reportable transactions.
The foregoing discussion is a summary only and is not intended
as a substitute for careful tax planning. Purchasers of shares should consult their own tax advisers as to the tax consequences
of investing in such shares, including under state, local and foreign tax laws. Finally, the foregoing discussion is based on applicable
provisions of the Code, regulations, judicial authority and administrative interpretations in effect on the date of this Statement
of Additional Information. Changes in applicable authority could materially affect the conclusions discussed above, and such changes
often occur.
BACK-UP WITHHOLDING
In certain cases, the Fund will be required to withhold at the
applicable withholding rate, and remit to the U.S. Treasury such amounts withheld from any distributions paid to a shareholder
who: (a) has failed to provide a correct taxpayer identification number; (b) is subject to backup withholding by the Internal Revenue
Service; (c) has failed to certify to the Fund that such shareholder is not subject to backup withholding; or (d) has not certified
that such shareholder is a U.S. person (including a U.S. resident alien).
NET ASSET
VALUE
The NAV for the Fund is calculated by deducting
all of the Fund’s liabilities (including accrued expenses) from the total value of its assets (including the securities held
by the Fund plus any cash or other assets, including interest and dividends accrued but not yet received) and dividing the result
by the number of shares outstanding, and generally rounded to the nearest cent, although the Fund reserves the right to calculate
its NAV to more than two decimal places. The NAV for the Fund will generally be determined by SEI Global once daily Monday through
Friday generally as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day that
the NYSE is open for trading, based on prices at the time of closing, provided that (a) any assets or liabilities denominated in
currencies other than the U.S. dollar shall be translated into U.S. dollars at the prevailing market rates on the date of valuation
as quoted by one or more major banks or dealers that makes a two-way market in such currencies (or a data service provider based
on quotations received from such banks or dealers); and (b) U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments on any day that the Bond Market Association announces an early closing time.
In calculating the Fund’s NAV, the
Fund’s investments are generally valued using market valuations. In the event that current market valuations are not readily
available or such valuations do not reflect current market values, the affected investments will be valued using fair value pricing
pursuant to the pricing policy and procedures approved by the Board of Trustees. A market valuation generally means a valuation
(i) obtained from an exchange, a pricing service, or a major market maker (or dealer), (ii) based on a price quotation or other
equivalent indication of value supplied by an exchange, a pricing service, or a major market maker (or dealer) or (iii) based on
amortized cost. In the case of shares of funds that are not traded on an exchange, a market valuation means such fund’s published
net asset value per share. SEI Global may use various pricing services or discontinue the use of any pricing service. A price obtained
from a pricing service based on such pricing service’s valuation matrix may be considered a market valuation.
The value of assets denominated in foreign
currencies is converted into U.S. dollars using exchange rates deemed appropriate by the Adviser as investment adviser. Any use
of fair value prices, current market valuations or exchange rates different from the prices and rates used by the Index Providers
may adversely affect the Fund’s ability to track its underlying index.
DIVIDENDS
AND DISTRIBUTIONS
GENERAL POLICIES
Dividends from net investment income, including
any net foreign currency gains, are declared and paid at least annually and any net realized securities gains are distributed at
least annually. In order to improve tracking error or comply with the distribution requirements of the Internal Revenue Code of
1986, dividends may be declared and paid more frequently than annually. Dividends and securities gains distributions are distributed
in U.S. dollars and cannot be automatically reinvested in additional shares of the Fund.
Dividends and other distributions of shares
are distributed 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 Fund.
DIVIDEND REINVESTMENT SERVICE
No dividend reinvestment service is provided
by the Trust. Broker-dealers may make available the DTC book-entry Dividend Reinvestment Service for use by Beneficial Owners of
the Fund 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 participation therein. Brokers may require Beneficial Owners to adhere to 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 same Fund purchased in the secondary market.
OTHER INFORMATION
COUNSEL
Dechert LLP, with offices at 1775 I Street Washington, DC 20006-2401,
is counsel to the Independent Trustees of the Fund.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young, LLP serves as the independent
registered public accounting firm of the Trust, audits the Fund’s financial statements and may perform other services.
SECURITIES LENDING AGENT
Citibank, N.A. (“Citi”) acts
as the securities lending agent for the Trust. In its capacity as securities lending agent, Citi, among other things, enters into
and maintains securities loan agreements with borrowers, negotiates fees with borrowers, delivers securities to borrowers, receives
collateral from borrowers in connection with each loan, holds and safekeeps the collateral on behalf of the Trust portfolios and
invests the cash collateral in accordance with the Adviser's instructions. The securities lending agents will receive fees from
the Fund and such fee will be calculated on, and deducted from, that Fund's securities lending revenues.