UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22310
FactorShares Trust
(Exact name of registrant as specified in charter)
(Exact name of registrant as specified in charter)
615 East Michigan Street
Milwaukee, WI 53202
(Address of principal executive offices) (Zip code)
(Address of principal executive offices) (Zip code)
SR Services, LLC
300 Delaware Ave, Suite 800
Wilmington, DE 19801
(Name and address of agent for service)
(Name and address of agent for service)
(877) 756-PURE
Registrant’s telephone number, including area code
Date of fiscal year end: September 30, 2016
Date of reporting period: March 31, 2016
Item 1. Reports to Stockholders.
Semi-Annual Report
March 31, 2016
March 31, 2016
PureFunds™ ISE Junior Silver ETF
Ticker: SILJ
PureFunds™ ISE Cyber Security ETF
Ticker: HACK
PureFunds™ ISE Big Data ETF
Ticker: BIGD
PureFunds™ ISE Mobile Payments ETF
Ticker: IPAY
PureFunds™ Drone Economy Strategy ETF
Ticker: IFLY
PureFunds™ Video Game Tech ETF
Ticker: GAMR
The Funds are series of FactorShares Trust.
PureFundsTM ETFs
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The six months ended March 31, 2016 has been a banner period for PureFunds. With our most recent Exchange-Traded Funds launched in March 2016, PureFunds has continued to expand its leadership role in the thematic ETF space. PureFunds Video Game Tech ETF (NYSE Arca Ticker: GAMR) and PureFunds Drone Economy Strategy ETF (NYSE Arca Ticker: IFLY) now join our PureFunds ISE Big Data ETF (NYSE Arca Ticker: BIGD), PureFunds ISE Mobile Payments ETF (NYSE Arca Ticker: IPAY), PureFunds ISE Cyber Security ETF (NYSE Arca Ticker: HACK) and PureFunds ISE Junior Silver ETF (NYSE Arca Ticker: SILJ) in this thematic advancement of the ETF industry. PureFunds strives to continue its endeavor of providing first-to-market thematic investments in the form of ETFs and are thrilled to now provide access to the in-demand markets of video gaming and drone technology. We are extremely proud of the many accomplishments PureFunds has achieved with its partners to date and strive to continue providing investors with access to in demand investment themes and strategies.
During the six month period from September 30, 2015 to March 31, 2016, the S&P 500 Information Technology Sector Index, a broad measure of US listed technology companies, returned 11.09%. During the same period, the S&P Global 1200 Information Technology Sector Index, a broad measure of global technology companies, returned 11.01%. It was a strong six months for the broad technology sector and the more targeted strategies followed by the tech oriented PureFunds ETFs underperformed the broader sector during the period. For all of the funds , the primary difference between fund returns and index returns were the expenses of the funds, which are not part of the indexes that each of the funds track.
The ISE Cyber Security Index (“Index”) returned -4.85% over the period, showing a reversal of outperformance in cyber security stocks experienced over the prior year. The Fund NAV return for HACK was -5.13%, in line with the return of the Index. The best performing stocks during the period were Ahnlab (up 42.29%), Science Applications Intl Corp (up 34.59%) and Mantech Intl Corp (up 26.17%). The worst performing stocks during the period were Fireeye (down -43.46%), Rapid7 (down -42.55%) and Fortinet (down -27.9%).
The ISE Big Data Index (“Index”) returned -2.93% during the period, also underperforming the broader technology sector. The Fund NAV return for BIGD was -3.4%, in line with the return of the Index. The best performing stocks during the period were Software AG (up 34.39%), Baidu ADR (up 33.79%) and Fair Isaac Corp (up 25.6%). The worst performing stocks during the period were Fusionex (down -51.05%), Hortonworks (down -48.38%) and Mattersight (down -47.73%).
The ISE Mobile Payments Index (“Index”) returned 2.34% during the period. The Fund NAV return for IPAY was 1.86%, in line with the return of the index. The best performing stocks during the period were Higher One Holdings (up 98.48%), Heartland Payment Systems (up 53.62%) and NCR Corp (up 31.56%). The worst performing stocks during the period were Earthport (down -59.97%), Everi Holdings (down -55.36%) and Net 1 UEPS Technologies (down -45.04%).
IFLY was listed for trading on March 9, 2016. From fund inception, The Reality Shares Drone Index (“Index”) returned 4.77%. The Fund NAV return for IFLY was 4.65%, in line with the return of the Index. The best performing stocks were Kratos Defense & Security (up 33.06%), Ambarella (up 17.97%) and Finmeccanica (up 14.6%). The worst performing stocks during the period were Jabil Circuit (down -8.24%), Gopro (down -3.63%) and Ixys (down -3.19%).
GAMR was listed for trading on March 9, 2016. From fund inception, the EEFund Video Game Tech Index returned 7.01%. The Fund NAV return for GAMR was 6.69%, in line with the return of the index. The best performing stocks during the period were Advanced Micro Devices (up 23.91%), Konami Holdings (up 15.77%) and NCSoft (up 14.77%). The worst performing stocks during the period were Glu Mobile (down -6%), Kongzhong ADR (down -2.97%) and Koei Tecmo Holdings (down -2.89%).
2
Although HACK has received the lion’s share of PureFunds’ media related attention in 2015 and 2016, we are excited to see what the rest of the year (and years to come) will bring for the silver, big data, mobile payment, video gaming and drone technology markets.
Silver prices have risen thus far in 2016. This has significantly benefited the junior silver mining/exploration industry. We are excited to see the renewed interest in this space positively affect SILJ. We have seen inflows into SILJ throughout the year while Assets Under Management in the fund have risen from ~$3.5 million at the start of the year to almost ~$30 million as of the 4/28/16 (roughly a 720% increase YTD). Additionally, SILJ finished the first quarter of 2016 up 71.65%.
The period ended on a strong note for technology in general and for the thematic strategies tracked by PureFunds.
On behalf of PureFunds and our industry leading partners, I would like to thank you for your continued interest in PureFunds and our unique suite of ETFs. We endeavor to provide our investors with new and innovative products and look forward to continuing this for years to come.
You can find further details about BIGD, HACK, IPAY, IFLY, GAMR and SILJ by visiting www.purefunds.com, or by calling 1-877-756-PURE.
Sincerely,
Samuel Masucci III
Chairman of the Board
Chairman of the Board
Samuel Masucci III is a registered representative of ALPS Distributors, Inc.
3
Growth of $10,000 (Unaudited)
Average Annual Returns Period Ended March 31, 2016 | 6 Months Return | 1 Year Return | Since Inception (11/29/12) | |||||||||
PureFundsTM ISE Junior Silver | ||||||||||||
(Small Cap Miners/Explorers) ETF (NAV) | 67.07 | % | 25.04 | % | -21.73 | % | ||||||
PureFundsTM ISE Junior Silver | ||||||||||||
(Small Cap Miners/Explorers) ETF (Market) | 63.07 | % | 25.69 | % | -21.49 | % | ||||||
S&P 500 Index | 8.49 | % | 1.78 | % | 14.42 | % | ||||||
ISE Junior Silver (Small Cap Miners/Explorers) Index | 69.97 | % | 29.47 | % | -20.53 | % | ||||||
Total Fund Operating Expenses1 | 0.69% |
1. The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2016.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on November 29, 2012, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the redemption of fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
4
PureFundsTM ISE Junior Silver (Small Cap Miners/Explorers) ETF |
Top Ten Holdings* |
% of Total | |||||
Security | Investments† | ||||
1 | First Majestic Silver Corporation | 16.29% | |||
2 | MAG Silver Corporation | 11.95% | |||
3 | Pan American Silver Corporation | 11.95% | |||
4 | Coeur Mining Inc. | 6.21% | |||
5 | Hochschild Mining PLC | 5.23% | |||
6 | Silvercorp Metals, Inc. | 5.12% | |||
7 | Endeavour Silver Corporation | 4.87% | |||
8 | Fortuna Silver Mines, Inc. | 4.55% | |||
9 | Mandalay Resources Corporation | 4.01% | |||
10 | Sierra Metals, Inc. | 3.91% | |||
Top Ten Holdings =74.09% of Total Investments† | |||||
* Current portfolio holdings may not be indicative of future fund holdings. | |||||
† Percentage of total investments less cash. |
5
PureFunds™ ISE Cyber Security ETF
Growth of $10,000 (Unaudited)
Growth of $10,000 (Unaudited)
Since | ||||||||||||
Average Annual Returns | 6 Months | 1 Year | Inception | |||||||||
Period Ended March 31, 2016 | Return | Return | (11/11/14) | |||||||||
PureFundsTM ISE Cyber Security ETF (NAV) | -5.13 | % | -14.16 | % | -2.97 | % | ||||||
PureFundsTM ISE Cyber Security ETF (Market) | -5.07 | % | -14.30 | % | -3.00 | % | ||||||
S&P 500 Index | 8.49 | % | 1.78 | % | 2.90 | % | ||||||
ISE Cyber Security Index | -4.85 | % | -13.29 | % | -1.46 | % | ||||||
Total Fund Operating Expenses1 | 0.75% |
1. The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2016.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on November 11, 2014, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the redemption of fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
6
PureFundsTM ISE Cyber Security ETF |
Top Ten Holdings* |
Security | % of Total Investments† | ||||
1 | Science Applications International Corporation | 4.44% | |||
2 | CyberArk Software Ltd. | 4.23% | |||
3 | Infoblox, Inc. | 4.19% | |||
4 | Barracuda Networks, Inc. | 4.15% | |||
5 | Imperva, Inc. | 4.11% | |||
6 | Fortinet, Inc. | 4.11% | |||
7 | Check Point Software Technologies, Ltd. | 4.03% | |||
8 | Palo Alto Networks, Inc. | 3.96% | |||
9 | Cisco Systems, Inc. | 3.91% | |||
10 | Proofpoint, Inc. | 3.91% | |||
Top Ten Holdings =41.04% of Total Investments† | |||||
* Current portfolio holdings may not be indicative of future Fund holdings. | |||||
† Percentage of total investments less cash. |
7
PureFunds™ ISE Big Data ETF
Growth of $10,000
Cumulative Returns Period Ended March 31, 2016 | 6 Months Return | Since Inception (7/15/15) | ||||||
PureFundsTM ISE Big Data ETF (NAV) | -3.40 | % | -13.92 | % | ||||
PureFundsTM ISE Big Data ETF (Market) | -4.87 | % | -16.40 | % | ||||
S&P 500 Index | 8.49 | % | -0.70 | % | ||||
ISE Big DataTM Index | -2.93 | % | -13.38 | % | ||||
Total Fund Operating Expenses1 | 0.75% |
1. The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2016.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on July 15, 2015, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the redemption of fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
8
PureFundsTM ISE Big Data ETF |
Top Ten Holdings* |
Security | % of Total Investments† | ||||
1 | Hexagon AB | 2.62% | |||
2 | Qlik Technologies, Inc. | 2.62% | |||
3 | Hewlett Packard Enterprise Co. | 2.61% | |||
4 | Software AG | 2.61% | |||
5 | Marketo, Inc. | 2.60% | |||
6 | NICE-Systems Ltd. - ADR | 2.58% | |||
7 | Rubicon Project, Inc. | 2.58% | |||
8 | Thomson Reuters Corporation | 2.56% | |||
9 | International Business Machines Corporation | 2.55% | |||
10 | Fair Isaac Corporation | 2.55% | |||
Top Ten Holdings =25.88% of Total Investments† | |||||
* Current Fund holdings may not be indicative of future Fund holdings. | |||||
† Percentage of total investments less cash. |
9
PureFunds™ ISE Mobile Payments ETF |
Growth of $10,000 (Unaudited) |
Cumulative Returns Period Ended March 31, 2016 | 6 Months Return | Since Inception (7/15/15) | ||||||
PureFundsTM ISE Mobile Payments ETF (NAV) | 1.86 | % | -4.11 | % | ||||
PureFundsTM ISE Mobile Payments ETF (Market) | 2.91 | % | -3.96 | % | ||||
S&P 500 Index | 8.49 | % | -0.70 | % | ||||
ISE Mobile PaymentsTM Index | 2.34 | % | -3.53 | % | ||||
Total Fund Operating Expenses1 | 0.75% |
1. The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2016.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on July 15, 2015, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the redemption of fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
10
PureFundsTM ISE Mobile Payments ETF |
Top Ten Holdings* |
% of Total | |||||
Security | Investments† | ||||
1 | Visa, Inc. | 5.48% | |||
2 | MasterCard, Inc. | 5.32% | |||
3 | American Express Co. | 4.99% | |||
4 | Fiserv, Inc. | 4.74% | |||
5 | PayPal Holdings, Inc. | 4.58% | |||
6 | Discover Financial Services | 4.53% | |||
7 | FleetCor Technologies, Inc. | 4.34% | |||
8 | Fidelity National Information Services, Inc. | 4.26% | |||
9 | Vantiv, Inc. | 3.95% | |||
10 | First Data Corporation | 3.84% | |||
Top Ten Holdings =46.03% of Total Investments† | |||||
* Current Fund holdings may not be indicative of future Fund holdings. | |||||
† Percentage of total investments less cash. |
11
PureFunds™ Drone Economy Strategy ETF |
Growth of $10,000 (Unaudited) |
Since | ||||
Cumulative Returns | Inception | |||
Period Ended March 31, 2016 | (3/8/2016) | |||
PureFundsTM Drone Economy Strategy ETF (NAV) | 4.65 | % | ||
PureFundsTM Drone Economy Strategy ETF (Market) | 5.21 | % | ||
S&P 500 Index | 4.19 | % | ||
Reality Shares Drone Index | 4.77 | % | ||
Total Fund Operating Expenses1 | 0.75% |
1. The expense ratio is taken from the Fund’s most recent prospectus dated March 8, 2016.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on March 8, 2016, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the redemption of fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
12
PureFundsTM Drone Economy Strategy ETF |
Top Ten Holdings* |
% of Total | |||||
Security | Investments† | ||||
1 | Aerovironment, Inc. | 12.47% | |||
2 | Parrot SA | 8.61% | |||
3 | Boeing Co. | 4.67% | |||
4 | GoPro, Inc. | 3.44% | |||
5 | Ambarella, Inc. | 3.09% | |||
6 | BAE Systems PLC | 3.01% | |||
7 | Honeywell International, Inc. | 3.01% | |||
8 | Thales SA | 2.98% | |||
9 | Elbit Systems Ltd. | 2.92% | |||
10 | Dassault Aviation SA | 2.91% | |||
Top Ten Holdings =47.11% of Total Investments† | |||||
* Current Fund holdings may not be indicative of future Fund holdings. | |||||
† Percentage of total investments less cash. |
13
PureFunds™ Video Game Tech ETF |
Growth of $10,000 (Unaudited) |
Since | ||||
Cumulative Returns | Inception | |||
Period Ended March 31, 2016 | (3/8/2016) | |||
PureFundsTM Video Game Tech ETF (NAV) | 6.69 | % | ||
PureFundsTM Video Game Tech ETF (Market) | 7.16 | % | ||
S&P 500 Index | 4.19 | % | ||
EEFund Video Game Tech Index | 7.01 | % | ||
Total Fund Operating Expenses1 | 0.75% |
1. The expense ratio is taken from the Fund’s most recent prospectus dated March 8, 2016.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on March 8, 2016, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the redemption of fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
14
PureFundsTM Video Game Tech ETF |
Top Ten Holdings* |
% of Total | |||||
Security | Investments† | ||||
1 | Activision Blizzard, Inc. | 9.36% | |||
2 | NCSoft Corporation | 5.82% | |||
3 | Konami Holdings Co. | 5.60% | |||
4 | Gree, Inc. | 5.48% | |||
5 | Nintendo Co. Ltd. | 5.38% | |||
6 | Square Enix Holdings Co. Ltd. | 5.31% | |||
7 | Gamestop Corporation | 5.28% | |||
8 | UBISOFT Entertainment | 5.12% | |||
9 | Take-Two Interactive Software, Inc. | 4.82% | |||
10 | Capcom Co. Ltd. | 4.61% | |||
Top Ten Holdings =56.78% of Total Investments† | |||||
* Current Fund holdings may not be indicative of future Fund holdings. | |||||
† Percentage of total investments less cash. |
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Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility.
IFLY and GAMR are new Funds with limited operating history.
Past performance is no indicative of future return. A fund’s performance for very short time periods may not be indicative of future performance.
SILJ
The PureFunds® ISE Junior SilverTM (Small Cap Miners/Explorers) ETF (the “Fund” or the “Junior Silver ETF”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the ISE Junior Silver (Small Cap Miners/Explorers)TM Index (the “Index”).
Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. These risks are greater for investments in emerging markets. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual issuer volatility than a diversified fund. Funds that are less diversified across countries or geographic regions are generally riskier than more geographically diversified funds and risks associated with such countries or geographic regions may negatively affect a Fund. Investments in small-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The PureFundsTM ISE Junior Silver ETF is subject to risks associated with the worldwide price of silver and the costs of extraction and production. Worldwide silver prices may fluctuate substantially over short periods of time, so the Fund’s share price may be more volatile than other types of economic conditions, tax treatment, government regulation and intervention, and world events in the regions in which the companies operation. Several foreign countries have begun a process of privatizing certain entities and industries. Privatized entities may lose money or be renationalized. The Fund invests in some economies that are heavily dependent upon trading with key partners. Any reduction in this trading may cause an adverse impact on the economy in which the Fund invests. The Fund’s return may not match or achieve a high degree of correlation with the return of the ISE Junior Silver (Small Cap Miners/Explorers)TM Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the ISE Junior Silver (Small Cap Miners/Explorers)TM Index. IOPV or indicative optimized portfolio value is an estimated intraday fair value of one share of an ETF determined by the last trade price of the fund’s underlying securities.
The ISE Junior Silver (Small Cap Miners/Explorers) Index is designed to reflect the performance of small-capitalization companies involved in the silver industry, including companies that mine, explore and refine silver. The stocks are screened for liquidity and weighted according to modified free-float market capitalization. The Index generally is comprised of 20-30 securities. The Index was created and is maintained by ISE Indexes. An investment cannot be made directly in an index.
HACK
The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the ISE Cyber SecurityTM Index (the “Index”).
The fund is concentrated in technology-related companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Such companies may have
16
PureFundsTM ETFs
limited product lines, markets, financial resources or personnel. The products of such companies may face obsolescence due to rapid technological developments, frequent new product introduction, unpredictable changes in growth rates, competition for the services of qualified personnel, and competition from foreign competitors with lower production costs. Technology companies are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. The Funds are non-diversified, meaning they may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The Fund’s return may not match or achieve a high degree of correlation with the return of the ISE Cyber Security Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the ISE Cyber Security Index.
The ISE Cyber Security Index is designed to reflect the performance of companies involved in the cyber security industry, including companies that provide cyber security related hardware/software and services. The stocks are screened for liquidity and weighted according to modified free-float market capitalization. The Index was created and is maintained by ISE Indexes. An investment cannot be made directly in an index.
BIGD
The PureFundsTM ISE Big Data ETF (the “Fund” or the “Big Data ETF”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the ISE Big DataTM Index (the “Index”).
Big Data Companies face intense competition, both domestically and internationally, may have limited product lines, markets, financial resources or personnel, may have products that face rapid obsolescence, and are heavily dependent on the protection of patent and intellectual property rights. Big Data Companies are also subject to increasing regulatory constraints, particularly with respect to cybersecurity and privacy. Such factors may adversely affect the profitability and value of such companies. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The Fund’s return may not match or achieve a high degree of correlation with the return of the ISE Big Data Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The ISE Big Data Index is designed to reflect the performance of companies involved in the big data and analytics industry, including companies that provide big data origination, aggregation, applications and solutions. The stocks are screened for liquidity and weighted according to a modified linear-based capitalization-weighted methodology. The Index was created and is maintained by ISE Indexes. An investment cannot be made directly in an index.
IPAY
The PureFundsTM ISE Mobile Payments ETF (the “Fund” or the “Mobile Payments ETF”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the ISE Mobile PaymentsTM Index (the “Index”).
Mobile Payment Companies face intense competition, both domestically and internationally, and are subject to increasing regulatory constraints, particularly with respect to fees, competition and anti-
17
PureFundsTM ETFs
trust matters, cybersecurity and privacy. Mobile Payment Companies may be highly dependent on their ability to enter into agreements with merchants and other third parties to utilize a particular payment method, system, software or service, and such agreements may be subject to increased regulatory scrutiny. Additionally, certain Mobile Payment Companies have recently faced increased costs related to class-action litigation challenging such agreements. Such factors may adversely affect the profitability and value of such companies. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The Fund’s return may not match or achieve a high degree of correlation with the return of the ISE Mobile Payments Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The ISE Mobile Payments Index is designed to reflect the performance of companies involved in the mobile and electronic payments industry, including card networks, processors, infrastructure/software and solutions companies. The stocks are screened for liquidity and weighted according to a modified linear-based capitalization-weighted methodology. The Index was created and is maintained by ISE Indexes. An investment cannot be made directly in an index.
IFLY
The PureFundsTM Drone Economy Strategy ETF (the “Fund” or the “Drone Economy ETF”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Reality Shares DroneTM Index (the “Index”).
Drone Economy Companies face intense competition, both domestically and internationally and are heavily dependent on the protection of patent and intellectual property rights. In addition, Drone Economy Companies may be dependent on the U.S. government and its agencies for a significant portion of their sales, and their success and growth may be affected by budgetary constraints, spending reductions, congressional appropriations, and administrative allocations of funds that affect the U.S. government and its agencies. Such factors may adversely affect the profitability and value of such companies. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The Fund’s return may not match or achieve a high degree of correlation with the return of the Reality Shares DroneTM Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The Reality Shares DroneTM Index provides a benchmark for investors interested in tracking companies actively involved in drone technology and services. The Index uses Modified Equal Weight capitalization-weighted methodology. The index was created and is maintained by Reality Shares Index Committee. You cannot invest directly in an index.
GAMR
The PureFundsTM Video Game Tech ETF (the “Fund” or the “Video Game Tech ETF”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the EEFund Video Game Tech index (the “Index”).
Investing involves risk, including the possible loss of principal. The fund is new with limited operating history. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will
18
PureFundsTM ETFs
reduce returns. Narrowly focused investments typically exhibit higher volatility. Video Game Tech Companies face intense competition, both domestically and internationally, may have limited product lines, markets, financial resources or personnel, may have products that face rapid obsolescence, and are heavily dependent on the protection of patent and intellectual property rights. Video Game Tech Companies are also subject to increasing regulatory constraints, particularly with respect to cybersecurity and privacy. Such factors may adversely affect the profitability and value of such companies. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The Fund’s return may not match or achieve a high degree of correlation with the return of the EEFund Video Game Tech Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The EEFund Video Game TechTM Index provides a benchmark for investors interested in tracking companies actively involved in the electronic gaming industry including the entertainment, education and simulation segments. The Index uses a market capitalization weighted allocation across the pure play and non-pure play sectors and a set weight for the conglomerate sector as well as an equal weighted allocation methodology for all components within each sector allocation. The index was created and is maintained by EEFund Management. You cannot invest directly in an index.
S&P 500: The S&P 500 Index is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices.
19
PureFundsTM ETFs |
As of March 31, 2016 (Unaudited) |
PureFundsTM ISE Junior Silver (Small Cap Miners/Explorers) ETF | PureFundsTM ISE Cyber Security ETF | PureFundsTM ISE Big Data ETF | PureFundsTM ISE Mobile Payments ETF | PureFundsTM Drone Economy Strategy ETF | PureFundsTM Video Game Tech ETF | |||||||||||||||||||
As a percent of Net Assets: | ||||||||||||||||||||||||
Australia | — | % | — | % | 2.4 | % | — | % | — | % | — | % | ||||||||||||
Canada | 86.2 | 0.1 | 2.5 | — | — | — | ||||||||||||||||||
Cayman Islands | — | — | — | — | 3.0 | 7.1 | ||||||||||||||||||
Cyprus | — | — | — | 1.8 | — | — | ||||||||||||||||||
Finland | — | 1.3 | — | — | — | — | ||||||||||||||||||
France | — | — | — | 3.5 | 14.1 | 8.9 | ||||||||||||||||||
Germany | — | — | 5.1 | 2.8 | 2.2 | — | ||||||||||||||||||
Hong Kong | — | — | — | 2.0 | — | 0.9 | ||||||||||||||||||
Israel | — | 10.9 | 2.6 | — | 2.9 | — | ||||||||||||||||||
Italy | — | — | — | — | 2.2 | — | ||||||||||||||||||
Japan | — | 3.7 | — | — | 10.6 | 31.8 | ||||||||||||||||||
Netherlands | — | 5.7 | — | — | 2.1 | — | ||||||||||||||||||
Puerto Rico | — | — | — | 1.7 | — | — | ||||||||||||||||||
Republic of Korea | — | 2.8 | — | — | — | 5.7 | ||||||||||||||||||
Spain | — | — | — | — | 1.5 | — | ||||||||||||||||||
Sweden | — | — | 2.6 | — | 4.3 | — | ||||||||||||||||||
Switzerland | — | — | — | — | — | 1.5 | ||||||||||||||||||
United Kingdom | 5.1 | 4.3 | — | 4.8 | 5.9 | — | ||||||||||||||||||
United States | 6.5 | 71.0 | 84.0 | 83.0 | 49.1 | 43.2 | ||||||||||||||||||
Short-Term and other Net | ||||||||||||||||||||||||
Assets (Liabilities) | 2.2 | 0.2 | 0.8 | 0.4 | 2.1 | 0.9 | ||||||||||||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
20
PureFundsTM ETFs |
PureFunds ISE Junior Silver (Small Cap Miners/Explorers) ETF |
March 31, 2016 (Unaudited) |
Shares | Market Value | |||||||
COMMON STOCKS - 97.8% | ||||||||
Canada - 86.2% | ||||||||
Metals & Mining - 86.2% | ||||||||
Alexco Resource Corporation (a) | 306,376 | $ | 295,653 | |||||
Americas Silver Corporation (a) | 1,268,590 | 234,427 | ||||||
Aurcana Corporation (a) | 252,063 | 33,964 | ||||||
Bear Creek Mining Corporation (a) | 235,739 | 235,966 | ||||||
Endeavour Silver Corporation (a) | 174,909 | 430,276 | ||||||
Excellon Resources, Inc. (a) | 108,297 | 50,865 | ||||||
First Majestic Silver Corporation (a) | 222,328 | 1,440,685 | ||||||
Fortuna Silver Mines, Inc. (a) | 103,172 | 401,964 | ||||||
Great Panther Silver Ltd. (a) | 328,307 | 311,892 | ||||||
IMPACT Silver Corporation (a) | 238,812 | 69,874 | ||||||
Kootenay Silver, Inc. (a) | 146,265 | 32,660 | ||||||
MAG Silver Corporation (a) | 111,973 | 1,057,008 | ||||||
Mandalay Resources Corporation (a) | 517,201 | 354,425 | ||||||
Minco Silver Corporation (a) | 74,398 | 45,827 | ||||||
Mirasol Resources Ltd. (a) | 190,697 | 174,729 | ||||||
Pan American Silver Corporation (a) | 97,156 | 1,056,279 | ||||||
Sabina Gold & Silver Corporation (a) | 386,515 | 273,797 | ||||||
Santacruz Silver Mining Ltd. (a) | 282,030 | 47,774 | ||||||
Sierra Metals, Inc. (a) | 320,565 | 345,556 | ||||||
Silver Standard Resources, Inc. (a) | 46,933 | 261,271 | ||||||
Silvercorp Metals, Inc. (a) | 317,663 | 452,494 | ||||||
Trevali Mining Corporation (a) | 643,784 | 183,407 | ||||||
Total Canada | 7,790,793 | |||||||
United Kingdom - 5.1% | ||||||||
Hochschild Mining PLC (a) | 349,708 | 462,085 | ||||||
United States - 6.5% | ||||||||
Coeur Mining Inc. (a) | 97,650 | 548,793 | ||||||
Golden Minerals Co. (a) | 90,314 | 40,642 | ||||||
Total United States | 589,435 | |||||||
Total Metals & Mining | 8,842,313 | |||||||
TOTAL COMMON STOCKS (Cost $7,763,642) | 8,842,313 | |||||||
Total Investments (Cost $7,763,642) - 97.8% | 8,842,313 | |||||||
Other Assets in Excess of Liabilities - 2.2% | 202,464 | |||||||
TOTAL NET ASSETS - 100.0% | $ | 9,044,777 |
Percentages are stated as a percent of net assets.
(a) Non-income producing security.
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
21
PureFundsTM ETFs |
PureFundsTM ISE Cyber Security ETF |
Schedule of Investments |
March 31, 2016 - (Unaudited) |
Shares | Market Value | |||||||
COMMON STOCKS - 99.8% | ||||||||
Canada - 0.1% | ||||||||
Software - 0.1% | ||||||||
Absolute Software Corporation (a) | 206,669 | $ | 999,331 | |||||
Finland - 1.3% | ||||||||
Software - 1.3% | ||||||||
F-Secure OYJ * | 3,334,484 | 9,979,055 | ||||||
Israel - 10.9% | ||||||||
Communications Equipment - 2.7% | ||||||||
Radware Ltd. (a) * | 1,701,623 | 20,130,200 | ||||||
Software - 8.2% | ||||||||
Check Point Software Technologies, Ltd. (a) ^ | 341,984 | 29,913,341 | ||||||
CyberArk Software Ltd. (a) ^ | 736,689 | 31,405,052 | ||||||
Total Software | 61,318,393 | |||||||
Total Israel | 81,448,593 | |||||||
Japan - 3.7% | ||||||||
Software - 3.7% | ||||||||
Trend Micro, Inc. | 745,823 | 27,302,774 | ||||||
Netherlands - 5.7% | ||||||||
Software - 5.7% | ||||||||
AVG Technologies NV (a) | 1,386,643 | 28,772,842 | ||||||
Gemalto NV | 180,177 | 13,320,399 | ||||||
Total Software | 42,093,241 | |||||||
Republic of Korea - 2.8% | ||||||||
Internet Software & Services - 2.8% | ||||||||
Ahnlab, Inc. | 403,719 | 20,510,733 | ||||||
United Kingdom - 4.3% | ||||||||
Internet Software & Services - 0.6% | ||||||||
Mimecast Ltd. (a) | 407,464 | 3,964,625 | ||||||
Software - 3.7% | ||||||||
Sophos Group PLC * | 8,842,928 | 27,687,334 | ||||||
Total United Kingdom | 31,651,959 | |||||||
United States - 71.0% | ||||||||
Aerospace & Defense - 1.4% | ||||||||
The KEYW Holding Corporation (a) ^ | 1,564,805 | 10,390,305 |
The accompanying notes are an integral part of these financial statement
22
PureFundsTM ETFs |
PureFundsTM ISE Cyber Security ETF |
Schedule of Investments |
March 31, 2016 - (Unaudited) (Continued) |
Communications Equipment - 13.3% | ||||||||
Cisco Systems, Inc. ^ | 1,018,829 | $ | 29,006,062 | |||||
F5 Networks, Inc. (a) | 130,452 | 13,808,344 | ||||||
Juniper Networks, Inc. | 1,082,968 | 27,626,514 | ||||||
Palo Alto Networks, Inc. (a) ^ | 179,854 | 29,341,381 | ||||||
Total Communications Equipment | 99,782,301 | |||||||
Internet Software & Services - 4.5% | ||||||||
Intralinks Holdings, Inc. (a) | 1,391,645 | 10,966,163 | ||||||
VeriSign, Inc. (a) ^ | 148,780 | 13,172,981 | ||||||
Zix Corporation (a) | 2,196,847 | 8,633,609 | ||||||
Total Internet Software & Services | 32,772,753 | |||||||
IT Services - 10.1% | ||||||||
Booz Allen Hamilton Holding Corporation ^ | 459,451 | 13,912,176 | ||||||
Leidos Holdings, Inc. ^ | 275,922 | 13,884,395 | ||||||
ManTech International Corporation | 436,540 | 13,964,915 | ||||||
Science Applications International Corporation | 617,728 | 32,949,611 | ||||||
Total IT Services | 74,711,097 | |||||||
Software - 41.7% | ||||||||
Barracuda Networks, Inc. (a) ^ | 1,997,508 | 30,761,623 | ||||||
FireEye, Inc. (a) ^ | 1,553,618 | 27,949,588 | ||||||
Fortinet, Inc. (a) | 995,252 | 30,484,569 | ||||||
Imperva, Inc. (a) ^ | 604,056 | 30,504,828 | ||||||
Infoblox, Inc. (a) | 1,817,196 | 31,074,052 | ||||||
Proofpoint, Inc. (a) ^ | 538,811 | 28,977,255 | ||||||
Qualys, Inc. (a) ^ | 1,117,943 | 28,295,137 | ||||||
Rapid7, Inc. (a) ^ | 1,595,128 | 20,848,323 | ||||||
Splunk, Inc. (a) ^ | 591,963 | 28,964,750 | ||||||
Symantec Corporation ^ | 1,543,479 | 28,369,144 | ||||||
VASCO Data Security International, Inc. (a) ^ | 1,542,966 | 23,761,675 | ||||||
Total Software | 309,990,944 | |||||||
Total United States | 527,647,400 | |||||||
TOTAL COMMON STOCKS (Cost $946,493,836) | 741,633,086 | |||||||
SHORT-TERM INVESTMENTS - 35.3% | ||||||||
Mount Vernon Prime Portfolio, 0.54% (b) + | 262,900,625 | |||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $262,900,625) | ||||||||
Total Investments (Cost $1,209,394,461) - 135.1% | 1,004,533,711 | |||||||
Liabilities in Excess of Other Assets- (35.1)% | (261,160,326 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 743,373,385 |
The accompanying notes are an integral part of these financial statement
23
PureFundsTM ETFs |
PureFundsTM ISE Cyber Security ETF |
Schedule of Investments |
March 31, 2016 - (Unaudited) (Continued) |
Percentages are stated as a percent of net assets.
(a) Non-income producing security.
* Illiquid Security - At March 31, 2016, the value of these securities amount to $57,796,589 or 7.8% of net assets.
+ Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $262,900,625 as of March 31, 2016.
^ All or a portion of this security is out on loan as of March 31, 2016. Total value of securities out on loan is $259,322,443.
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
24
PureFundsTM ETFs |
PureFundsTM ISE Big Data ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) |
Shares | Market Value | |||||||
COMMON STOCKS - 99.2% | ||||||||
Australia - 2.4% | ||||||||
Software - 2.4% | ||||||||
iSentia Group Ltd. | 9,790 | $ | 26,041 | |||||
Canada - 2.5% | ||||||||
Media - 2.5% | ||||||||
Thomson Reuters Corporation | 676 | 27,364 | ||||||
Germany - 5.1% | ||||||||
Software - 5.1% | ||||||||
SAP SE | 329 | 26,618 | ||||||
Software AG | 712 | 27,833 | ||||||
Total Software | 54,451 | |||||||
Israel - 2.6% | ||||||||
Software - 2.6% | ||||||||
NICE-Systems Ltd. - ADR | 425 | 27,536 | ||||||
Sweden - 2.6% | ||||||||
Electronic Equipment, Instruments & Components - 2.6% | ||||||||
Hexagon AB | 719 | 27,987 | ||||||
United States - 84.0% | ||||||||
Diversified Financial Services - 2.3% | ||||||||
FactSet Research Systems, Inc. | 166 | 25,154 | ||||||
Health Care Technology - 7.3% | ||||||||
IMS Health Holdings, Inc. (a) | 974 | 25,860 | ||||||
Inovalon Holdings, Inc. (a) | 1,378 | 25,521 | ||||||
Medidata Solutions, Inc. (a) | 690 | 26,709 | ||||||
Total Health Care Technology | 78,090 | |||||||
Internet Software & Services - 9.5% | ||||||||
Hortonworks, Inc. (a) | 2,258 | 25,515 | ||||||
Marketo, Inc. (a) | 1,418 | 27,751 | ||||||
New Relic, Inc. (a) | 966 | 25,193 | ||||||
OPOWER, Inc. (a)^ | 3,527 | 24,019 | ||||||
Total Internet Software & Services | 102,478 | |||||||
IT Services - 17.1% | ||||||||
Acxiom Corporation (a) | 1,222 | 26,200 | ||||||
Alliance Data Systems Corporation (a)^ | 122 | 26,840 | ||||||
Black Knight Financial Services, Inc. (a) | 870 | 26,996 | ||||||
CoreLogic, Inc. (a) | 758 | 26,303 |
The accompanying notes are an integral part of these financial statements.
25
PureFundsTM ETFs |
PureFundsTM ISE Big Data ETF |
Schedule of Investments |
March 31, 2016 - (Unaudited) (Continued) |
Shares | Market Value | |||||||
International Business Machines Corporation^ | 180 | $ | 27,260 | |||||
NeuStar, Inc. (a) | 993 | 24,428 | ||||||
Teradata Corporation (a) | 959 | 25,164 | ||||||
Total IT Services | 183,191 | |||||||
Professional Services - 7.4% | ||||||||
Dun & Bradstreet Corporation | 256 | 26,388 | ||||||
Nielsen Holdings PLC^ | 506 | 26,646 | ||||||
Verisk Analytics, Inc. (a) | 336 | 26,854 | ||||||
Total Professional Services | 79,888 | |||||||
Software - 37.8% | ||||||||
ANSYS, Inc. (a) | 296 | 26,480 | ||||||
Blackbaud, Inc. | 409 | 25,722 | ||||||
Fair Isaac Corporation | 256 | 27,159 | ||||||
Guidewire Software, Inc. (a) | 485 | 26,423 | ||||||
HubSpot, Inc. (a) | 561 | 24,471 | ||||||
MicroStrategy, Inc. (a) | 150 | 26,958 | ||||||
Oracle Corporation^ | 659 | 26,960 | ||||||
PROS Holdings, Inc. (a) | 2,194 | 25,867 | ||||||
Qlik Technologies, Inc. (a) | 965 | 27,907 | ||||||
Rubicon Project, Inc. (a) | 1,504 | 27,493 | ||||||
Splunk, Inc. (a)^ | 535 | 26,178 | ||||||
Tableau Software, Inc. (a) | 570 | 26,146 | ||||||
TubeMogul, Inc. (a) | 2,078 | 26,889 | ||||||
Varonis Systems, Inc. (a) | 1,408 | 25,696 | ||||||
Verint Systems, Inc. (a) | 720 | 24,034 | ||||||
Workiva, Inc. (a) | 1,075 | 12,524 | ||||||
Total Software | 406,907 | |||||||
Technology Hardware, Storage & Peripherals - 2.6% | ||||||||
Hewlett Packard Enterprise Co. | 1,571 | 27,854 | ||||||
Total United States | 903,562 | |||||||
TOTAL COMMON STOCKS (Cost $1,206,017) | 1,066,941 |
The accompanying notes are an integral part of these financial statements.
26
PureFundsTM ETFs |
PureFundsTM ISE Big Data ETF |
Schedule of Investments |
March 31, 2016 - (Unaudited) (Continued) |
SHORT-TERM INVESTMENTS - 11.4% | ||||
Mount Vernon Prime Portfolio, 0.54% (b) + | $ | 122,256 | ||
TOTAL SHORT-TERM INVESTMENTS (Cost $122,256) | ||||
Total Investments (Cost $1,328,273) - 110.6% | 1,189,197 | |||
Liabilities in Excess of Other Assets- (10.6)% | (113,175 | ) | ||
TOTAL NET ASSETS - 100.0% | $ | 1,076,022 |
Percentages are stated as a percent of net assets.
ADR American Depositary Receipt
(a) Non-income producing security.
(b) The rate quoted is the annualized seven-day yield at March 31, 2016.
+ Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $122,256 as of March 31, 2016.
^ All or a portion of this security is out on loan as of March 31, 2016. Total value of securities out on loan is $119,419.
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
27
PureFundsTM ETFs |
PureFundsTM ISE Mobile Payments ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) |
Shares | Market Value | |||||||
COMMON STOCKS - 99.6% | ||||||||
Cyprus - 1.8% | ||||||||
IT Services - 1.8% | ||||||||
QIWI PLC – ADR^ | 10,539 | $ | 152,710 | |||||
France - 3.5% | ||||||||
Electronic Equipment, Instruments & Components - 3.5% | ||||||||
Ingenico Group SA | 2,529 | 290,509 | ||||||
Germany - 2.8% | ||||||||
IT Services - 2.8% | ||||||||
Wirecard AG^ | 6,224 | 235,841 | ||||||
Hong Kong - 2.0% | ||||||||
Electronic Equipment, Instruments & Components - 2.0% | ||||||||
PAX Global Technologies Ltd. | 169,000 | 169,058 | ||||||
Puerto Rico - 1.7% | ||||||||
IT Services - 1.7% | ||||||||
EVERTEC, Inc. | 9,948 | 139,073 | ||||||
United Kingdom - 4.8% | ||||||||
Commercial Services & Supplies - 1.4% | ||||||||
PayPoint PLC | 10,964 | 117,787 | ||||||
IT Services - 3.4% | ||||||||
Earthport PLC (a) | 146,243 | 35,444 | ||||||
Worldpay Group PLC (a) | 64,732 | 255,763 | ||||||
Total IT Services | 291,207 | |||||||
Total United Kingdom | 408,994 | |||||||
United States - 83.0% | ||||||||
Consumer Finance - 11.4% | ||||||||
American Express Co.^ | 6,795 | 417,214 | ||||||
Discover Financial Services | 7,444 | 379,048 | ||||||
Green Dot Corporation (a) | 6,821 | 156,678 | ||||||
Total Consumer Finance | 952,940 | |||||||
IT Services - 65.3% | ||||||||
Blackhawk Network Holdings, Inc. (a) | 5,214 | 178,840 | ||||||
Euronet Worldwide, Inc. (a) | 3,034 | 224,850 | ||||||
Everi Holdings, Inc. (a) | 19,489 | 44,630 | ||||||
Fidelity National Information Services, Inc.^ | 5,629 | 356,372 | ||||||
First Data Corporation (a) | 24,831 | 321,313 |
The accompanying notes are an integral part of these financial statements
28
PureFundsTM ETFs |
PureFundsTM ISE Mobile Payments ETF |
Schedule of Investments |
March 31, 2016 - (Unaudited) (Continued) |
Shares | Market Value | |||||||
Fiserv, Inc. (a) | 3,860 | $ | 395,959 | |||||
FleetCor Technologies, Inc. (a)^ | 2,438 | 362,653 | ||||||
Global Payments, Inc.^ | 4,617 | 301,490 | ||||||
Heartland Payment Systems, Inc. | 2,036 | 196,617 | ||||||
Higher One Holdings, Inc. (a) | 12,234 | 47,835 | ||||||
MasterCard, Inc. | 4,703 | 444,433 | ||||||
MoneyGram International, Inc. (a) | 12,143 | 74,315 | ||||||
Net 1 UEPS Technologies, Inc. (a) | 9,463 | 87,060 | ||||||
PayPal Holdings, Inc. (a) | 9,911 | 382,565 | ||||||
Square, Inc. (a)^ | 20,474 | 312,843 | ||||||
Total System Services, Inc. | 6,484 | 308,509 | ||||||
Vantiv, Inc. (a) | 6,123 | 329,907 | ||||||
VeriFone Systems, Inc. (a) | 5,820 | 164,357 | ||||||
Visa, Inc.^ | 5,992 | 458,267 | ||||||
Western Union Co.^ | 15,855 | 305,843 | ||||||
WEX, Inc. (a) | 2,211 | 184,309 | ||||||
Total IT Services | 5,482,967 | |||||||
Software - 2.3% | ||||||||
ACI Worldwide, Inc. (a)^ | 9,441 | 196,278 | ||||||
Technology Hardware, Storage & Peripherals - 4.0% | ||||||||
CPI Card Group, Inc.^ | 12,968 | 106,856 | ||||||
NCR Corporation (a) | 7,524 | 225,194 | ||||||
Total Technology Hardware, Storage & Peripherals | 332,050 | |||||||
Total United States | 6,964,235 | |||||||
TOTAL COMMON STOCKS (Cost $8,460,477) | 8,360,420 | |||||||
SHORT-TERM INVESTMENTS - 28.3% | ||||||||
Mount Vernon Prime Portfolio, 0.54% (b) + | 2,369,786 | |||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $2,369,786) | ||||||||
Total Investments (Cost $10,830,262) - 127.9% | 10,730,206 | |||||||
Liabilities in Excess of Other Assets- (27.9)% | (2,339,464 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 8,390,742 |
Percentages are stated as a percent of net assets.
ADR American Depositary Receipt
(a) Non-income producing security.
+ Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $2,369,786 as of March 31, 2016.
^ All or a portion of this security is out on loan as of March 31, 2016. Total value of securities out on loan is $2,311,885.
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
29
PureFundsTM ETFs |
PureFundsTM Drone Economy Strategy ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) |
Shares | Market Value | |||||||
COMMON STOCKS - 97.9% | ||||||||
Cayman Islands - 3.0% | ||||||||
Semiconductors & Semiconductor Equipment - 3.0% | ||||||||
Ambarella, Inc. (a) | 1,768 | $ | 79,029 | |||||
France - 14.1% | ||||||||
Aerospace & Defense - 5.7% | ||||||||
Dassault Aviation SA | 62 | 74,398 | ||||||
Thales SA | 870 | 76,228 | ||||||
Total Aerospace & Defense | 150,626 | |||||||
Communications Equipment - 8.4% | ||||||||
Parrot SA (a) | 10,759 | 220,368 | ||||||
Total France | 370,994 | |||||||
Germany - 2.2% | ||||||||
Industrial Conglomerates - 2.2% | ||||||||
Rheinmetall AG | 728 | 58,170 | ||||||
Israel - 2.9% | ||||||||
Aerospace & Defense - 2.9% | ||||||||
Elbit Systems Ltd. | 793 | 74,671 | ||||||
Italy - 2.2% | ||||||||
Aerospace & Defense - 2.2% | ||||||||
Finmeccanica Spa (a) | 4,594 | 58,287 | ||||||
Japan - 10.6% | ||||||||
Automobiles - 2.2% | ||||||||
Fuji Heavy Industries Ltd. | 1,000 | 35,319 | ||||||
Yamaha Motor Co. Ltd. | 1,400 | 23,287 | ||||||
Total Automobiles | 58,606 | |||||||
Electrical Equipment - 1.6% | ||||||||
Mitsubishi Electric Corporation | 4,000 | 41,921 | ||||||
Electronic Equipment, Instruments & Components - 0.7% | ||||||||
Hitachi Ltd. | 4,000 | 18,716 | ||||||
Household Durables - 2.1% | ||||||||
Sony Corporation. - ADR (a) | 2,160 | 55,555 | ||||||
Machinery - 2.7% | ||||||||
Kawasaki Heavy Industries Ltd. | 14,000 | 40,428 | ||||||
Mitsubishi Heavy Industries Ltd. | 8,000 | 29,720 | ||||||
Total Machinery | 70,148 |
The accompanying notes are an integral part of these financial statements.
30
PureFundsTM ETFs |
PureFundsTM Drone Economy Strategy ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Shares | Market Value | |||||||
Technology Hardware, Storage & Peripherals - 1.3% | ||||||||
NEC Corporation | 14,000 | $ | 35,204 | |||||
Total Japan | 280,150 | |||||||
Netherlands - 2.1% | ||||||||
Aerospace & Defense - 2.1% | ||||||||
Airbus Group SE | 822 | 54,578 | ||||||
Spain - 1.5% | ||||||||
IT Services - 1.5% | ||||||||
Indra Sistemas SA (a) | 3,322 | 38,652 | ||||||
Sweden - 4.3% | ||||||||
Aerospace & Defense - 2.4% | ||||||||
Saab AB | 1,830 | 62,756 | ||||||
Electronic Equipment, Instruments & Components - 1.9% | ||||||||
Hexagon AB | 1,200 | 46,710 | ||||||
Total Sweden | 109,466 | |||||||
United Kingdom - 5.9% | ||||||||
Aerospace & Defense - 5.9% | ||||||||
BAE Systems PLC | 10,558 | 77,184 | ||||||
Cobham PLC | 10,386 | 32,384 | ||||||
QinetiQ Group PLC | 13,512 | 44,247 | ||||||
Total Aerospace & Defense | 153,815 | |||||||
United States - 49.1% | ||||||||
Aerospace & Defense - 39.8% | ||||||||
Aerovironment, Inc. (a) | 11,277 | 319,366 | ||||||
Boeing Co. | 942 | 119,577 | ||||||
General Dynamics Corporation | 385 | 50,577 | ||||||
Honeywell International, Inc. | 688 | 77,090 | ||||||
Kratos Defense & Security Solutions, Inc. (a) | 7,854 | 38,877 | ||||||
L-3 Communications Holdings, Inc. | 598 | 70,863 | ||||||
Lockheed Martin Corporation | 267 | 59,141 | ||||||
Northrop Grumman Corporation | 305 | 60,360 | ||||||
Orbital ATK, Inc. | 568 | 49,382 | ||||||
Raytheon Co. | 398 | 48,807 | ||||||
Rockwell Collins, Inc. | 556 | 51,269 | ||||||
Textron, Inc. | 1,182 | 43,096 | ||||||
United Technologies Corporation | 518 | 51,852 | ||||||
Total Aerospace & Defense | 1,040,257 |
The accompanying notes are an integral part of these financial statements.
31
PureFundsTM ETFs |
PureFundsTM Drone Economy Strategy ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Electronic Equipment, Instruments & Components - 4.7% | ||||||||
FLIR Systems, Inc. | 736 | $ | 24,251 | |||||
InvenSense, Inc. (a) | 3,322 | 27,905 | ||||||
Jabil Circuit, Inc. | 1,416 | 27,286 | ||||||
Trimble Navigation Ltd. (a) | 1,812 | 44,938 | ||||||
Total Electronic Equipment, Instruments & Components | 124,380 | |||||||
Household Durables - 3.4% | ||||||||
GoPro, Inc. (a) | 7,369 | 88,133 | ||||||
Semiconductors & Semiconductor Equipment - 1.2% | ||||||||
IXYS Corporation | 2,690 | 30,181 | ||||||
Total United States | 1,282,951 | |||||||
TOTAL COMMON STOCKS (Cost $2,446,437) | 2,560,763 | |||||||
Total Investments (Cost $2,446,437) - 97.9% | 2,560,763 | |||||||
Other Assets in Excess of Liabilities - 2.1% | 55,425 | |||||||
TOTAL NET ASSETS - 100.0% | $ | 2,616,188 |
Percentages are stated as a percent of net assets.
(a) Non-income producing security.
ADR American Depositary Receipt
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
32
PureFundsTM ETFs |
PureFundsTM Video Game Tech ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) |
Shares | Market Value | |||||||
COMMON STOCKS - 99.1% | ||||||||
Cayman Islands - 7.1% | ||||||||
Internet Software & Services - 1.5% | ||||||||
NetEase, Inc. - ADR | 126 | $ | 18,091 | |||||
SINA Corporation (a) | 463 | 21,932 | ||||||
Total Internet Software & Services | 40,023 | |||||||
Software - 5.6% | ||||||||
Changyou.com Ltd. - ADR (a) | 3,244 | 60,922 | ||||||
iDreamsky Technology Ltd. - ADR (a) | 2,850 | 39,159 | ||||||
KongZhong Corporation - ADR (a) | 6,775 | 48,645 | ||||||
Total Software | 148,726 | |||||||
Total Cayman Islands | 188,749 | |||||||
France - 8.9% | ||||||||
Software - 8.9% | ||||||||
GameLoft SE (a) | 11,780 | 100,266 | ||||||
UBISOFT Entertainment (a) | 4,311 | 135,392 | ||||||
Total Software | 235,658 | |||||||
Hong Kong - 0.9% | ||||||||
Internet Software & Services - 0.9% | ||||||||
Tencent Holdings Ltd. | 1,200 | 24,503 | ||||||
Japan - 31.8% | ||||||||
Household Durables - 1.4% | ||||||||
Sony Corporation - ADR (a) | 1,482 | 38,117 | ||||||
Internet Software & Services - 6.4% | ||||||||
DeNa Co. Ltd. | 1,400 | 24,120 | ||||||
Gree, Inc. | 26,400 | 144,967 | ||||||
Total Internet Software & Services | 169,087 | |||||||
Leisure Products - 1.7% | ||||||||
Bandai Namco Holdings, Inc. | 1,000 | 21,805 | ||||||
Sega Sammy Holdings, Inc. | 2,200 | 23,985 | ||||||
Total Leisure Products | 45,790 | |||||||
Software - 22.3% | ||||||||
Capcom Co. Ltd. | 5,000 | 121,951 | ||||||
GungHo Online Entertainment, Inc. | 7,800 | 21,970 | ||||||
Koei Tecmo Holdings Co. Ltd. | 1,400 | 21,433 | ||||||
Konami Holdings Co. | 5,000 | 147,941 | ||||||
Nintendo Co. Ltd. | 1,000 | 142,165 | ||||||
Square Enix Holdings Co. Ltd. | 5,200 | 140,459 | ||||||
Total Software | 595,919 | |||||||
Total Japan | 848,913 |
The accompanying notes are an integral part of these financial statements.
33
PureFundsTM ETFs |
PureFundsTM Video Game Tech ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Shares | Market Value | |||||||
Republic of Korea - 5.7% | ||||||||
Software - 5.7% | ||||||||
NCSoft Corporation | 694 | $ | 153,838 | |||||
Switzerland - 1.5% | ||||||||
Technology Hardware, Storage & Peripherals - 1.5% | ||||||||
Logitech International SA | 2,497 | 39,727 | ||||||
United States - 43.2% | ||||||||
Leisure Products - 3.0% | ||||||||
Hasbro, Inc. | 350 | 28,035 | ||||||
JAKKS Pacific, Inc. (a) | 2,967 | 22,074 | ||||||
Mattel, Inc. | 880 | 29,586 | ||||||
Total Leisure Products | 79,695 | |||||||
Semiconductors & Semiconductor Equipment - 4.4% | ||||||||
Advanced Micro Devices, Inc. (a) | 14,821 | 42,240 | ||||||
Intel Corporation | 1,073 | 34,712 | ||||||
NVIDIA Corporation | 1,129 | 40,226 | ||||||
Total Semiconductors & Semiconductor Equipment | 117,178 | |||||||
Software - 28.5% | ||||||||
Activision Blizzard, Inc. | 7,315 | 247,539 | ||||||
Electronic Arts, Inc. (a) | 1,832 | 121,114 | ||||||
Glu Mobile, Inc. (a) | 42,864 | 120,876 | ||||||
Microsoft Corporation | 670 | 37,004 | ||||||
Take-Two Interactive Software, Inc. (a) | 3,386 | 127,551 | ||||||
Zynga, Inc. (a) | 47,786 | 108,952 | ||||||
Total Software | 763,036 | |||||||
Specialty Retail - 5.3% | ||||||||
Gamestop Corporation | 4,396 | 139,485 | ||||||
Technology Hardware, Storage & Peripherals - 2.0% | ||||||||
Apple, Inc. | 343 | 37,383 | ||||||
Immersion Corporation (a) | 1,894 | 15,644 | ||||||
Total Technology Hardware, Storage & Peripherals | 53,027 | |||||||
Total United States | 1,152,421 | |||||||
TOTAL COMMON STOCKS (Cost $2,480,540) | 2,643,809 | |||||||
Total Investments (Cost $2,480,540) - 99.1% | 2,643,809 | |||||||
Other Assets in Excess of Liabilities - 0.9% | 23,400 | |||||||
TOTAL NET ASSETS - 100.0% | $ | 2,667,209 |
The accompanying notes are an integral part of these financial statements.
34
PureFundsTM ETFs |
PureFundsTM Video Game Tech ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Percentages are stated as a percent of net assets.
ADR American Depositary Receipt
(a) Non-income producing security.
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
35
As of March 31, 2016 (Unaudited) |
PureFundsTM ISE Junior Silver (Small Cap Miners/ Explorers) ETF | PureFundsTM ISE Cyber Security ETF | PureFundsTM ISE Big Data ETF | PureFundsTM ISE Mobile Payments ETF | PureFundsTM Drone Economy Strategy ETF | PureFundsTM Video Game Tech ETF | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Investments in securities, at value* | $ | 8,842,313 | $ | 1,004,533,711 | $ | 1,189,197 | $ | 10,730,206 | $ | 2,560,763 | $ | 2,643,809 | ||||||||||||
Cash | 173,046 | 971,673 | 9,587 | 25,424 | 46,276 | 4,149 | ||||||||||||||||||
Dividends and interest receivable | 345 | 226,077 | 105 | 6,419 | 3,207 | 6,477 | ||||||||||||||||||
Securities lending income receivable | — | 87,144 | 220 | 3,753 | — | — | ||||||||||||||||||
Receivable for investments sold | 33,306 | 3,694,854 | — | — | 7,102 | 13,939 | ||||||||||||||||||
Total Assets | 9,049,010 | 1,009,513,459 | 1,199,109 | 10,765,802 | 2,617,348 | 2,668,374 | ||||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||
Collateral received for securities loaned (Note 7) | $ | — | $ | 262,900,625 | $ | 122,256 | $ | 2,369,786 | $ | — | $ | — | ||||||||||||
Payable for investments purchased | — | 382,435 | — | — | — | — | ||||||||||||||||||
Payable for fund shares redeemed | — | 2,397,970 | — | — | — | — | ||||||||||||||||||
Management fees payable | 4,233 | 459,044 | 831 | 5,274 | 1,160 | 1,165 | ||||||||||||||||||
Total Liabilities | 4,233 | 266,140,074 | 123,087 | 2,375,060 | 1,160 | 1,165 | ||||||||||||||||||
Net Assets | $ | 9,044,777 | $ | 743,373,385 | $ | 1,076,022 | $ | 8,390,742 | $ | 2,616,188 | $ | 2,667,209 | ||||||||||||
NET ASSETS CONSIST OF: | ||||||||||||||||||||||||
Paid-in Capital | $ | 12,582,843 | $ | 1,041,180,415 | $ | 1,451,088 | $ | 8,592,056 | $ | 2,500,000 | $ | 2,500,122 | ||||||||||||
Undistributed (accumulated) net investment income (loss) | (111,673 | ) | 5,831,534 | (2,075 | ) | 7,094 | 2,022 | 5,364 | ||||||||||||||||
Accumulated net realized gain (loss) on investments | (4,505,064 | ) | (98,787,586 | ) | (233,569 | ) | (108,352 | ) | (184 | ) | (1,574 | ) | ||||||||||||
Net unrealized appreciation (depreciation) on: | ||||||||||||||||||||||||
Investments in securities | 1,078,671 | (204,860,750 | ) | (139,076 | ) | (100,056 | ) | 114,326 | 163,269 | |||||||||||||||
Foreign currency and translation of other assets and liabilities in foreign currency | — | 9,772 | (346 | ) | — | 24 | 28 | |||||||||||||||||
Net Assets | $ | 9,044,777 | $ | 743,373,385 | $ | 1,076,022 | $ | 8,390,742 | $ | 2,616,188 | $ | 2,667,209 | ||||||||||||
*Identified Cost: Investments in unaffiliated securities | $ | 7,763,642 | $ | 1,209,394,461 | $ | 1,328,273 | $ | 10,830,262 | $ | 2,446,437 | $ | 2,480,540 | ||||||||||||
Shares Outstanding^ | 1,050,000 | 31,000,000 | 50,000 | 350,000 | 100,000 | 100,000 | ||||||||||||||||||
Net Asset Value, Offering and Redemption Price per Share | $ | 8.61 | $ | 23.98 | $ | 21.52 | $ | 23.97 | $ | 26.16 | $ | 26.67 |
^ No par value, unlimited number of shares authorized
The accompanying notes are an integral part of these financial statements.
36
PureFundsTM ETFs
For the six months ended March 31, 2016 (Unaudited) |
PureFundsTM ISE Junior Silver (Small Cap Miners/ Explorers) ETF | PureFundsTM ISE Cyber Security ETF | PureFundsTM ISE Big Data ETF | PureFundsTM ISE Mobile Payments ETF | PureFundsTM Drone Economy Strategy ETF1 | PureFundsTM Video Game Tech ETF1 | |||||||||||||||||||
INVESTMENT INCOME | ||||||||||||||||||||||||
Income: | ||||||||||||||||||||||||
Dividends from unaffiliated securities (net of foeign withholdings tax of $1,070,$159,370, $184, $127, $351,$505) | $ | 7,636 | $ | 10,044,467 | $ | 4,209 | $ | 28,193 | $ | 3,182 | $ | 6,529 | ||||||||||||
Securities Lending Income | — | 439,623 | 501 | 4,799 | — | — | ||||||||||||||||||
Total Investment Income | 7,636 | 10,484,090 | 4,710 | 32,992 | 3,182 | 6,529 | ||||||||||||||||||
Expenses: | ||||||||||||||||||||||||
Management fees | 15,340 | 3,459,137 | 6,785 | 25,898 | 1,160 | 1,165 | ||||||||||||||||||
Total Expenses | 15,340 | 3,459,137 | 6,785 | 25,898 | 1,160 | 1,165 | ||||||||||||||||||
Net Investment Income (Loss) | (7,704 | ) | 7,024,953 | (2,075 | ) | 7,094 | 2,022 | 5,364 | ||||||||||||||||
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||||||||||||||||||||||
Net Realized Gain (Loss) on: | ||||||||||||||||||||||||
Unaffiliated investments | (1,351,416 | ) | (52,780,602 | ) | (150,878 | ) | (84,716 | ) | (184 | ) | 887 | |||||||||||||
In-Kind redemptions | — | (20,842,082 | ) | (62,388 | ) | — | — | — | ||||||||||||||||
Foreign currency | (2,853 | ) | (44,863 | ) | (528 | ) | (33 | ) | — | (2,461 | ) | |||||||||||||
Net Change in Unrealized | ||||||||||||||||||||||||
Appreciation (Depreciation) of: | ||||||||||||||||||||||||
Unaffiliated investments in securities and foregin currency | 3,993,221 | 7,617,364 | 112,865 | 100,330 | 114,326 | 163,269 | ||||||||||||||||||
Foreign currency | 9 | 12,448 | (346 | ) | — | 24 | 28 | |||||||||||||||||
Net Realized and Unrealized Gain (Loss) on Investments | 2,638,961 | (66,037,735 | ) | (101,275 | ) | 15,581 | 114,166 | 161,723 | ||||||||||||||||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 2,631,257 | $ | (59,012,782 | ) | $ | (103,350 | ) | $ | 22,675 | $ | 116,188 | $ | 167,087 |
1Fund commenced operations on March 8, 2016. The information presented is for the period from March 8, 2016 to March 31, 2016.
The accompanying notes are an integral part of these financial statements.
37
PureFundsTM ISE Junior Silver (Small Cap Miners/Explorers) ETF
Six Months ended March 31, 2016 (Unaudited) | Year ended September 30, 2015 | |||||||
OPERATIONS | ||||||||
Net investment income (loss) | $ | (7,704 | ) | $ | (19,154 | ) | ||
Net realized gain (loss) on investments and In-Kind Redemptions | (1,354,269 | ) | (2,287,841 | ) | ||||
Net change in unrealized appreciation (depreciation) of investments | 3,993,230 | (853,399 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 2,631,257 | (3,160,394 | ) | |||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | (87,131 | ) | — | |||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase (decrease) in net assets derived from net change in outstanding shares (a) | 3,068,910 | (405,000 | ) | |||||
Net increase (decrease) in net assets | $ | 5,613,036 | $ | (3,565,394 | ) | |||
NET ASSETS | ||||||||
Beginning of Period | 3,431,741 | 6,997,135 | ||||||
End of Period | $ | 9,044,777 | $ | 3,431,741 | ||||
Undistributed net investment income (loss) | $ | (111,673 | ) | $ | (16,838 | ) |
(a) Summary of share transactions is as follows:
Six Months Ended March 31, 2016 (Unaudited) | Year Ended September 30, 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 400,000 | $ | 3,068,910 | — | $ | — | ||||||||||
Reinvested Dividends | — | — | — | — | ||||||||||||
Shares Redeemed | — | — | (50,000 | ) | (405,000 | ) | ||||||||||
400,000 | $ | 3,068,910 | (50,000 | ) | $ | (405,000 | ) | |||||||||
Beginning Shares | 650,000 | 700,000 | ||||||||||||||
Ending Shares | 1,050,000 | 650,000 |
The accompanying notes are an integral part of these financial statements.
38
PureFundsTM ISE Cyber Security ETF
STATEMENT OF CHANGES IN NET ASSETS
Six Months ended March 31, 2016 (Unaudited) | Year ended September 30, 2015* | |||||||
OPERATIONS | ||||||||
Net investment income (loss) | $ | 7,024,953 | $ | (1,115,975 | ) | |||
Net realized gain (loss) on investments and In-Kind Redemptions | (73,667,547 | ) | 4,593,655 | |||||
Net change in unrealized appreciation (depreciation) of investments | 7,629,812 | (212,480,790 | ) | |||||
Net increase (decrease) in net assets resulting from operations | (59,012,782 | ) | (209,003,110 | ) | ||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | — | — | ||||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase (decrease) in net assets derived from net change in outstanding shares (a) | (256,739,030 | ) | 1,268,128,154 | |||||
Transaction Fees (Note 1) | 153 | — | ||||||
Net increase (decrease) in net assets | $ | (315,751,659 | ) | $ | 1,059,125,044 | |||
NET ASSETS | ||||||||
Beginning of Period | 1,059,125,044 | — | ||||||
End of Period | $ | 743,373,385 | $ | 1,059,125,044 | ||||
Undistributed net investment income (loss) | $ | 5,831,534 | $ | (1,193,419 | ) |
(a) Summary of share transactions is as follows:
Six Months Ended March 31, 2016 (Unaudited) | Period Ended September 30, 2015* | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 900,000 | $ | 23,013,605 | 49,000,000 | $ | 1,473,110,885 | ||||||||||
Transaction Fees | — | 153 | — | 48,459 | ||||||||||||
Shares Redeemed | (11,800,000 | ) | (279,752,635 | ) | (7,100,000 | ) | (205,031,190 | ) | ||||||||
(10,900,000 | ) | $ | (256,738,877 | ) | 41,900,000 | $ | 1,268,128,154 | |||||||||
Beginning Shares | 41,900,000 | — | ||||||||||||||
Ending Shares | 31,000,000 | 41,900,000 |
*Fund commenced operations on November 11, 2014. The information presented is for the period from November 11, 2014 to September 30, 2015.
The accompanying notes are an integral part of these financial statements.
39
PureFundsTM ISE Big Data ETF
STATEMENT OF CHANGES IN NET ASSETS
Six Months ended March 31, 2016 (Unaudited) | Period ended September 30, 2015* | |||||||
OPERATIONS | ||||||||
Net investment income (loss) | $ | (2,075 | ) | $ | (392 | ) | ||
Net realized gain (loss) on investments and In-Kind Redemptions | (213,794 | ) | (19,980 | ) | ||||
Net change in unrealized appreciation (depreciation) of investments | 112,519 | (251,941 | ) | |||||
Net increase (decrease) in net assets resulting from operations | (103,350 | ) | (272,313 | ) | ||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | — | — | ||||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase (decrease) in net assets derived from net change in outstanding shares (a) | (1,048,315 | ) | 2,500,000 | |||||
Net increase (decrease) in net assets | $ | (1,151,665 | ) | $ | 2,227,687 | |||
NET ASSETS | ||||||||
Beginning of Period | 2,227,687 | — | ||||||
End of Period | $ | 1,076,022 | $ | 2,227,687 | ||||
Undistributed net investment income (loss) | $ | (2,075 | ) | $ | — |
(a) Summary of share transactions is as follows:
Six Months Ended March 31, 2016 (Unaudited) | Period Ended September 30, 2015* | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | — | $ | — | 100,000 | $ | 2,500,000 | ||||||||||
Transaction Fees | — | — | — | — | ||||||||||||
Shares Redeemed | (50,000 | ) | (1,048,315 | ) | — | — | ||||||||||
(50,000 | ) | $ | (1,048,315 | ) | 100,000 | $ | 2,500,000 | |||||||||
Beginning Shares | 100,000 | — | ||||||||||||||
Ending Shares | 50,000 | 100,000 | ||||||||||||||
*Fund commenced operations on July 15, 2015. The information presented is for the period from July 15, 2015 to September 30, 2015.
The accompanying notes are an integral part of these financial statements.
40
PureFundsTM ISE Mobile Payments ETF
STATEMENT OF CHANGES IN NET ASSETS
Six Months ended March 31, 2016 (Unaudited) | Period ended September 30, 2015* | |||||||
OPERATIONS | ||||||||
Net investment income (loss) | $ | 7,094 | $ | (1,899 | ) | |||
Net realized gain (loss) on investments and In-Kind Redemptions | (84,749 | ) | (23,598 | ) | ||||
Net change in unrealized appreciation (depreciation) of investments | 100,330 | (200,386 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 22,675 | (225,883 | ) | |||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | — | — | ||||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase (decrease) in net assets derived from net change in outstanding shares (a) | 3,661,130 | 4,932,820 | ||||||
Net increase (decrease) in net assets | $ | 3,683,805 | $ | 4,706,937 | ||||
NET ASSETS | ||||||||
Beginning of Period | 4,706,937 | — | ||||||
End of Period | $ | 8,390,742 | $ | 4,706,937 | ||||
Undistributed net investment income (loss) | $ | 7,094 | $ | — |
(a) Summary of share transactions is as follows:
Six Months Ended March 31, 2016 (Unaudited) | Period Ended September 30, 2015* | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 150,000 | $ | 3,661,130 | 200,000 | $ | 4,932,820 | ||||||||||
Transaction Fees | — | — | — | — | ||||||||||||
Shares Redeemed | — | — | — | — | ||||||||||||
150,000 | $ | 3,661,130 | 200,000 | $ | 4,932,820 | |||||||||||
Beginning Shares | 200,000 | — | ||||||||||||||
Ending Shares | 350,000 | 200,000 |
*Fund commenced operations on July 15, 2015. The information presented is for the period from July 15, 2015 to September 30, 2015.
The accompanying notes are an integral part of these financial statements.
41
PureFundsTM Drone Economy Strategy ETF
STATEMENT OF CHANGES IN NET ASSETS
Period ended March 31, 2016 (Unaudited)* | ||||
OPERATIONS | ||||
Net investment income (loss) | $ | 2,022 | ||
Net realized gain (loss) on investments and In-Kind Redemptions | (184 | ) | ||
Net change in unrealized appreciation (depreciation) of investments | 114,350 | |||
Net increase (decrease) in net assets resulting from operations | 116,188 | |||
DISTRIBUTIONS TO SHAREHOLDERS | ||||
From net investment income | — | |||
CAPITAL SHARE TRANSACTIONS | ||||
Net increase (decrease) in net assets derived from net change in outstanding shares (a) | 2,500,000 | |||
Net increase (decrease) in net assets | $ | 2,616,188 | ||
NET ASSETS | ||||
Beginning of Period | — | |||
End of Period | $ | 2,616,188 | ||
Undistributed net investment income (loss) | $ | 2,022 |
(a) Summary of share transactions is as follows:
Period Ended March 31, 2016 (Unaudited)* | ||||||||
Shares | Amount | |||||||
Shares Sold | 100,000 | $ | 2,500,000 | |||||
Transaction Fees | — | — | ||||||
Shares Redeemed | — | — | ||||||
100,000 | $ | 2,500,000 | ||||||
Beginning Shares | — | |||||||
Ending Shares | 100,000 |
*Fund commenced operations on March 8, 2016. The information presented is for the period from March 8, 2016 to March 31, 2016.
The accompanying notes are an integral part of these financial statements.
42
PureFundsTM Video Game Tech ETF
STATEMENT OF CHANGES IN NET ASSETS
Period ended March 31, 2016 (Unaudited)* | ||||
OPERATIONS | ||||
Net investment income (loss) | $ | 5,364 | ||
Net realized gain (loss) on investments and In-Kind Redemptions | (1,574 | ) | ||
Net change in unrealized appreciation (depreciation) of investments | 163,297 | |||
Net increase (decrease) in net assets resulting from operations | 167,087 | |||
DISTRIBUTIONS TO SHAREHOLDERS | ||||
From net investment income | — | |||
CAPITAL SHARE TRANSACTIONS | ||||
Net increase (decrease) in net assets derived from net change in outstanding shares (a) | 2,500,000 | |||
Transaction Fees (Note 1) | 122 | |||
2,500,122 | ||||
Net increase (decrease) in net assets | $ | 2,667,209 | ||
NET ASSETS | ||||
Beginning of Period | — | |||
End of Period | $ | 2,667,209 | ||
Undistributed net investment income (loss) | $ | 5,364 |
(a) Summary of share transactions is as follows:
Period Ended March 31, 2016 (Unaudited)* | ||||||||
Shares | Amount | |||||||
Shares Sold | 100,000 | $ | 2,500,000 | |||||
Transaction Fees | — | 122 | ||||||
Shares Redeemed | — | — | ||||||
100,000 | $ | 2,500,122 | ||||||
Beginning Shares | — | |||||||
Ending Shares | 100,000 |
*Fund commenced operations on March 8, 2016. The information presented is for the period from March 8, 2016 to March 31, 2016.
The accompanying notes are an integral part of these financial statements.
43
PureFundsTM ISE Junior Silver (Small Cap Miners/Explorers) ETF
For a capital share outstanding throughout the period
Six Months Ended March 31, 2016 (Unaudited) | Year Ended September 30, 2015 | Year Ended September 30, 2014 | Period Ended September 30, 20131 | |||||||||||||
Net Asset Value, Beginning of Period | $ | 5.28 | $ | 10.00 | $ | 11.71 | $ | 20.00 | ||||||||
Income (Loss) from Investment Operations: | ||||||||||||||||
Net investment income (loss)2 | (0.01 | ) | (0.03 | ) | (0.06 | ) | (0.02 | ) | ||||||||
Net realized and unrealized gain (loss) on investments | 3.46 | (4.69 | ) | (1.64 | ) | (8.27 | ) | |||||||||
Total from investment operations | 3.45 | (4.72 | ) | (1.70 | ) | (8.29 | ) | |||||||||
Less Distributions: | ||||||||||||||||
Distributions from net investment income | (0.12 | ) | — | (0.01 | ) | — | ||||||||||
Total distributions | (0.12 | ) | — | (0.01 | ) | — | ||||||||||
Net asset value, end of period | $ | 8.61 | $ | 5.28 | $ | 10.00 | $ | 11.71 | ||||||||
Total Return | 67.07 | %3 | -47.20 | % | -14.52 | % | -41.45 | %3 | ||||||||
Ratios/Supplemental Data: | ||||||||||||||||
Net assets at end of period (000’s) | $ | 9,045 | $ | 3,432 | $ | 6,997 | $ | 1,757 | ||||||||
Expenses to Average Net Assets | 0.69 | %4 | 0.69 | % | 0.69 | % | 0.69 | %4 | ||||||||
Net Investment Income (Loss) to Average Net Assets | -0.35 | %4 | -0.39 | % | -0.52 | % | -0.21 | %4 | ||||||||
Portfolio Turnover Rate | 26 | %3 | 55 | % | 44 | % | 69 | %3 |
1Commencement of operations on November 29, 2012.
2Calculated based on average shares outstanding during the period.
3Not annualized.
4Annualized.
The accompanying notes are an integral part of these financial statements.
44
PureFundsTM ISE Cyber Security ETF
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
Six Months Ended March 31, 2016 (Unaudited) | Period Ended September 30, 20151 | |||||||
Net Asset Value, Beginning of Period | $ | 25.28 | $ | 25.00 | ||||
Income (Loss) from Investment Operations: | ||||||||
Net investment income (loss)2 | 0.19 | (0.05 | ) | |||||
Net realized and unrealized gain (loss) on investments | (1.49 | ) | 0.33 | |||||
Total from investment operations | (1.30 | ) | 0.28 | |||||
Less Distributions: | ||||||||
Distributions from net investment income | — | — | ||||||
Total distributions | — | — | ||||||
Net asset value, end of period | $ | 23.98 | $ | 25.28 | ||||
Total Return | -5.13 | %3 | 1.11 | %3 | ||||
Ratios/Supplemental Data: | ||||||||
Net assets at end of period (000’s) | $ | 743,373 | $ | 1,059,125 | ||||
Expenses to Average Net Assets | 0.75 | %4 | 0.75 | %4 | ||||
Net Investment Income (Loss) to Average Net Assets | 1.52 | %4 | -0.19 | %4 | ||||
Portfolio Turnover Rate | 16 | %3 | 31 | %3 |
1Commencement of operations on November 11, 2014.
2Calculated based on average shares outstanding during the period.
3Not annualized.
4Annualized.
The accompanying notes are an integral part of these financial statements.
45
PureFundsTM ISE Big Data ETF
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
Six Months Ended March 31, 2016 (Unaudited) | Period Ended September 30, 20151 | |||||||
Net Asset Value, Beginning of Period | $ | 22.28 | $ | 25.00 | ||||
Income (Loss) from Investment Operations: | ||||||||
Net investment income (loss)2 | (0.03 | ) | — | 5 | ||||
Net realized and unrealized gain (loss) on investments | (0.73 | ) | (2.72 | ) | ||||
Total from investment operations | (0.76 | ) | (2.72 | ) | ||||
Less Distributions: | ||||||||
Distributions from net investment income | — | — | ||||||
Total distributions | — | — | ||||||
Net asset value, end of period | $ | 21.52 | $ | 22.28 | ||||
Total Return | -3.40 | %3 | -10.89 | %3 | ||||
Ratios/Supplemental Data: | ||||||||
Net assets at end of period (000’s) | $ | 1,076 | $ | 2,228 | ||||
Expenses to Average Net Assets | 0.75 | %4 | 0.75 | %4 | ||||
Net Investment Income (Loss) to Average Net Assets | -0.23 | %4 | -0.08 | %4 | ||||
Portfolio Turnover Rate | 32 | %3 | 25 | %3 |
1Commencement of operations on July 15, 2015.
2Calculated based on average shares outstanding during the period.
3Not annualized.
4Annualized.
5Amount is less than $0.005 per share
The accompanying notes are an integral part of these financial statements.
46
PureFundsTM ISE Mobile Payments ETF
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
Six Months Ended March 31, 2016 (Unaudited) | Period Ended September 30, 20151 | |||||||
Net Asset Value, Beginning of Period | $ | 23.53 | $ | 25.00 | ||||
Income (Loss) from Investment Operations: | ||||||||
Net investment income (loss)2 | 0.02 | (0.01 | ) | |||||
Net realized and unrealized gain (loss) on investments | 0.42 | (1.46 | ) | |||||
Total from investment operations | 0.44 | (1.47 | ) | |||||
Less Distributions: | ||||||||
Distributions from net investment income | — | — | ||||||
Total distributions | — | — | ||||||
Net asset value, end of period | $ | 23.97 | $ | 23.53 | ||||
Total Return | 1.86 | %3 | -5.86 | %3 | ||||
Ratios/Supplemental Data: | ||||||||
Net assets at end of period (000’s) | $ | 8,391 | $ | 4,707 | ||||
Expenses to Average Net Assets | 0.75 | %4 | 0.75 | %4 | ||||
Net Investment Income (Loss) to Average Net Assets | 0.20 | %4 | -0.23 | %4 | ||||
Portfolio Turnover Rate | 22 | %3 | 8 | %3 |
1Commencement of operations on July 15, 2015.
2Calculated based on average shares outstanding during the period.
3Not annualized.
4Annualized.
The accompanying notes are an integral part of these financial statements.
47
PureFundsTM Drone Economy Strategy ETF
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
Period Ended March 31, 2016 (Unaudited) 1 | ||||
Net Asset Value, Beginning of Period | $ | 25.00 | ||
Income (Loss) from Investment Operations: | ||||
Net investment income (loss)2 | 0.02 | |||
Net realized and unrealized gain (loss) on investments | 1.14 | |||
Total from investment operations | 1.16 | |||
Less Distributions: | ||||
Distributions from net investment income | — | |||
Total distributions | — | |||
Net asset value, end of period | $ | 26.16 | ||
Total Return | 4.65 | %3 | ||
Ratios/Supplemental Data: | ||||
Net assets at end of period (000’s) | $ | 2,616 | ||
Expenses to Average Net Assets | 0.75 | %4 | ||
Net Investment Income (Loss) to Average Net Assets | 1.30 | %4 | ||
Portfolio Turnover Rate | 0 | %3 |
1Commencement of operations on March 8, 2016.
2Calculated based on average shares outstanding during the period.
3Not annualized.
4Annualized.
The accompanying notes are an integral part of these financial statements.
48
PureFundsTM Video Game Tech ETF
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
Period Ended March 31, 2016 (Unaudited) 1 | ||||
Net Asset Value, Beginning of Period | $ | 25.00 | ||
Income (Loss) from Investment Operations: | ||||
Net investment income (loss)2 | 0.05 | |||
Net realized and unrealized gain (loss) on investments | 1.62 | |||
Total from investment operations | 1.67 | |||
Less Distributions: | ||||
Distributions from net investment income | — | |||
Total distributions | — | |||
Net asset value, end of period | $ | 26.67 | ||
Total Return | 6.69 | %3 | ||
Ratios/Supplemental Data: | ||||
Net assets at end of period (000’s) | $ | 2,667 | ||
Expenses to Average Net Assets | 0.75 | %4 | ||
Net Investment Income (Loss) to Average Net Assets | 3.45 | %4 | ||
Portfolio Turnover Rate | 1 | %3 |
1Commencement of operations on March 8, 2016.
2Calculated based on average shares outstanding during the period.
3Not annualized.
4Annualized.
The accompanying notes are an integral part of these financial statements.
49
PureFunds™ ETFs
NOTE 1 – ORGANIZATION
PureFunds™ ISE Junior Silver (Small Cap Miners/Explorers) ETF, PureFunds™ ISE Cyber Security ETF, PureFunds™ ISE Big Data ETF, PureFunds™ ISE Mobile Payments ETF, PureFunds™ ISE Drone Economy Strategy ETF, and PureFunds™ ISE Video Game Tech ETF (each a “Fund”, or collectively the “Funds”) are series of FactorShares Trust (the “Trust”), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on July 1, 2009. The Trust is registered with the SEC under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Funds’ shares (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”). PureFunds™ Junior Silver (Small Cap Miners/Explorers) ETF seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the ISE Junior Silver (Small Cap Miners/Explorers)™ Index. The PureFunds™ ISE Cyber Security ETF seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield of the ISE Cyber Security™ Index. The PureFunds™ ISE Big Data ETF seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the ISE Big Data™ Index. The PureFunds ISE Mobile Payments ETF seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the ISE Mobile Payments™ Index. The PureFunds Drone Economy Strategy ETF seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Reality Shares Drone™ Index. The PureFunds Video Game Tech ETF seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the EEFund Video Game Tech™ Index. PureFunds™ Junior Silver (Small Cap Miners/Explorers) ETF commenced operations on November 29, 2012, PureFunds™ ISE Cyber Security ETF commenced operations on November 11, 2014, PureFunds™ ISE Big Data ETF and PureFunds™ ISE Mobile Payments ETF commenced operations on July 15, 2015, and PureFunds™ ISE Drone Economy Strategy ETF and PureFunds™ ISE Video Game Tech ETF commenced operations on March 8, 2016.
The Funds each currently offer one class of shares, which have no front end sales load, no deferred sales charges, and no redemption fees. The Funds may issue an unlimited number of shares of beneficial interest, with no par value. All shares of each Fund have equal rights and privileges.
Shares of the Funds are listed and traded on the NYSE Arca, Inc. Market prices for the Shares may be different from their net asset value (“NAV”). Each Fund issues and redeems Shares on a continuous basis at NAV only in blocks of 50,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified Index. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in quantities less than a Creation Unit. Except when aggregated in Creation Units, Shares are not redeemable securities of a Fund. Shares of a Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the Shares directly from a Fund. Rather, most retail investors may purchase Shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees.
Authorized Participants transacting in Creation Units for cash may pay an additional variable charge to compensate the relevant Fund for certain transaction costs (i.e., brokerage costs) and market impact expenses relating to investing in portfolio securities. Such variable charges, if any, are included in “Transaction Fees” in the statements of changes in net assets.
50
PureFunds™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
A. | Security Valuation. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on the valuation date (or at approximately 4:00 pm Eastern Time if a security’s primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. | |
Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees (the “Board”). When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Funds’ Board. The use of fair value pricing by a fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated without regard to such considerations. As of March 31, 2016, the Funds did not hold any fair valued securities. | ||
As described above, the Funds utilize various methods to measure the fair value of their investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are: | ||
As described above, the Funds utilize various methods to measure the fair value of their investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are: | ||
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities that the Funds have the ability to access. | |
Level 2 | Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. | |
Level 3 | Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Funds’ own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
51
PureFunds™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The following is a summary of the inputs used to value the Funds’ investments as of March 31, 2016:
PureFunds™ ISE Junior Silver (Small Cap Miners/Explorers)
ETF
ETF
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 8,842,313 | $ | — | $ | — | $ | 8,842,313 | ||||||||
Total Investments in Securities | $ | 8,842,313 | $ | — | $ | — | $ | 8,842,313 | ||||||||
PureFunds™ ISE Cyber Security ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 741,633,086 | $ | — | $ | — | $ | 741,633,086 | ||||||||
Short Term Investments | 262,900,625 | — | — | 262,900,625 | ||||||||||||
Total Investments in Securities | $ | 1,004,533,711 | $ | — | $ | — | $ | 1,004,533,711 | ||||||||
PureFunds™ ISE Big Data ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 1,066,941 | $ | — | $ | — | $ | 1,066,941 | ||||||||
Short Term Investments | 122,256 | — | — | 122,256 | ||||||||||||
Total Investments in Securities | $ | 1,189,197 | $ | — | $ | — | $ | 1,189,197 | ||||||||
PureFunds™ ISE Mobile Payments ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 8,360,420 | $ | — | $ | — | $ | 8,360,420 | ||||||||
Short Term Investments | 2,369,786 | — | — | 2,369,786 | ||||||||||||
Total Investments in Securities | $ | 10,730,206 | $ | — | $ | — | $ | 10,730,206 | ||||||||
PureFunds™ ISE Drone Economy Strategy ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 2,560,763 | $ | — | $ | — | $ | 2,560,763 | ||||||||
Total Investments in Securities | $ | 2,560,763 | $ | — | $ | — | $ | 2,560,763 | ||||||||
PureFunds™ ISE Video Game Tech ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 2,643,809 | $ | — | $ | — | $ | 2,643,809 | ||||||||
Total Investments in Securities | $ | 2,643,809 | $ | — | $ | — | $ | 2,643,809 |
52
PureFunds™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
^ See Schedule of Investment for classifications by sector or country.
Below are the transfers into or out of Levels 1 and 2 during the period ended March 31, 2016:
PureFunds™ ISE Junior Silver (Small Cap Miners/Explorers) ETF
Transfers into Level 1 | $ | 425,990 | ||
Transfers out of Level 1 | — | |||
Net Transfers in and/(out) of Level 1 | $ | 425,990 | ||
Transfers into Level 2 | $ | — | ||
Transfers out of Level 2 | (425,990 | ) | ||
Net Transfers in and/(out) of Level 2 | $ | (425,990 | ) |
The transfers from Level 1 to Level 2 are due to an increase in trading activity on March 31, 2016. Transfers between levels are recognized at the end of the reporting period.
Each of PureFunds™ ISE Cyber Security ETF, PureFunds™ ISE Big Data ETF, PureFunds™ ISE Mobile Payments ETF, PureFunds™ ISE Drone Economy Strategy ETF, and PureFunds™ ISE Video Game Tech ETF did not have any transfers between Levels 1 and 2 during the period ended March 31, 2016.
The Funds did not have any transfers into or out of Level 3 during the period ended March 31, 2016.
B. | Federal Income Taxes. The Funds have each elected to be taxed as a “regulated investment company” and intend to distribute substantially all taxable income to their shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. Therefore, no provisions for federal income taxes or excise taxes have been made. |
To avoid imposition of the excise tax applicable to regulated investment companies, each Fund intends to declare each year as dividends, in each calendar year, at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years. | |
Net capital losses incurred after October 31, within the taxable year are deemed to arise on the first business day of each Fund’s next taxable year. | |
Each Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Each Fund has analyzed its tax position and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Funds’ 2016 tax returns. The Funds identify their major tax jurisdictions as U.S. Federal, the State of New Jersey, and the State of Delaware; however the Funds are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months. |
53
PureFunds™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
C. | Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Income, including gains, from investments in foreign securities received by the Funds may be subject to income, withholding or other taxes imposed by foreign countries. |
D. | Foreign Currency Translations and Transactions. The Funds may engage in foreign currency transactions. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. For financial reporting purposes, the Funds do not isolate changes in the exchange rate of investment securities from the fluctuations arising from changes in the market prices of securities for unrealized gains and losses. However, for federal income tax purposes, the Funds do isolate and treat as ordinary income the effect of changes in foreign exchange rates on realized gains or losses from the sale of investment securities and payables and receivables arising from trade-date and settlement-date differences. |
E. | Distributions to Shareholders. Distributions to shareholders from net investment income are declared and paid for each of the Funds on a quarterly basis. Net realized gains on securities for each Fund normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. |
F. | Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. |
G. | Share Valuation. The net asset value (“NAV”) per share of each Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for the Fund, rounded to the nearest cent. The Funds’ shares will not be priced on the days on which the NYSE is closed for trading. The offering and redemption price per share for the Funds are equal to the Funds’ respective net asset value per share. |
H. | Guarantees and Indemnifications. In the normal course of business, the Funds enter into contracts with service providers that contain general indemnification clauses. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote. |
54
PureFunds™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
NOTE 3 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The “Derivatives and Hedging” Topic of the Codification (Accounting Standards Codification 815, formerly Statement of Financial Accounting Standards (“SFAS”) 133 and SFAS 161) requires enhanced disclosures about the Funds’ derivative and hedging activities, including how such activities are accounted for and their effect on the Funds’ financial position, performance and cash flows. The Funds did not use derivatives during the period ended March 31, 2016.
NOTE 4 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
Factor Advisors, LLC (the “Advisor”), serves as the investment advisor to the Funds. Pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Funds, and the Advisor, the Advisor provides investment advice to the Funds and oversees the day-to-day operations of the Funds, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Advisor is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Funds to operate.
Under the Investment Advisory Agreement with PureFunds™ ISE Cyber Security ETF, PureFunds™ ISE Big Data ETF, PureFunds™ ISE Mobile Payments ETF, PureFunds™ ISE Drone Economy Strategy ETF, and PureFunds™ ISE Video Game Tech ETF, the Advisor has overall responsibility for the general management and administration of the Funds and arranges for sub-advisory, transfer agency, custody, fund administration, securities lending, and all other non-distribution related services necessary for the Funds to operate. The Advisor bears the costs of all advisory and non-advisory services required to operate the Funds, in exchange for a single unitary fee. For services provided the Funds pay the Advisor at an annual rate of 0.75% of the Funds’ average daily net assets. The Advisor has an agreement with, and is dependent on, a third party to pay the Funds’ expenses in excess of 0.75% of the Funds’ average daily net assets. Additionally, under the Investment Advisory Agreement, the Advisor has agreed to pay all expenses of the Funds, except for: the fee paid to the Advisor pursuant to the Investment Advisory Agreement, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses, and distribution (12b-1) fees and expenses (collectively, “Excluded Expenses”). The Advisor has entered into an Agreement with PureShares, LLC (the “Sponsor”), under which the Sponsor agrees to sublicense the use of the Underlying Index to the Advisor. The Sponsor also provides marketing support for the Funds, including distributing marketing materials related to the Funds. PureShares, LLC is a privately held business focused on bringing exchange-traded
55
PureFunds™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
investment products to investors in the U.S. The Sponsor does not make investment decisions, provide investment advice, or otherwise act in the capacity of an investment adviser to the Funds. Additionally, the Sponsor is not involved in the maintenance of the Underlying Index and does not otherwise act in the capacity of an index provider.
U.S. Bancorp Fund Services, LLC (the “Administrator”) provides fund accounting, fund administration, and transfer agency services to the Funds. The Advisor compensates the Administrator for these services under an administration agreement between the two entities.
The Advisor pays each independent Trustee a quarterly fee for service to the Funds. Each Trustee is also reimbursed by the Advisor for all reasonable out-of-pocket expenses incurred in connection with his duties as Trustee, including travel and related expenses incurred in attending Board meetings.
NOTE 5 – DISTRIBUTION PLAN
The Funds have each adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, each Fund may pay compensation to the Distributor or any other distributor or financial institution with which the Trust has an agreement with respect to each Fund, with the amount of such compensation not to exceed an annual rate of 0.25% of each Fund’s daily average net assets. For the period ended March 31, 2016, the Funds did not incur any 12b-1 expenses.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
The costs of purchases and sales of securities, excluding short-term securities and in-kind transactions, for the period ended March 31, 2016:
Purchases | Sales | |||||||
PureFunds™ ISE Junior Silver (Small Cap Miners/Explorers) ETF | $ | 1,181,248 | $ | 1,322,946 | ||||
PureFunds™ ISE Cyber Security ETF | 146,439,765 | 161,692,819 | ||||||
PureFunds™ ISE Big Data ETF | 571,927 | 585,043 | ||||||
PureFunds™ ISE Mobile Payments ETF | 1,516,193 | 1,475,417 | ||||||
PureFunds™ ISE Drone Economy Strategy ETF | 55,800 | 7,102 | ||||||
PureFunds™ ISE Video Game Tech ETF | 205,978 | 13,939 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the period ended March 31, 2016:
Purchases In- Kind | Sales In- Kind | |||||||
PureFunds™ ISE Junior Silver (Small Cap Miners/Explorers) ETF | $ | 2,976,828 | $ | — | ||||
PureFunds™ ISE Cyber Security ETF | 22,336,264 | 262,651,129 | ||||||
PureFunds™ ISE Big Data ETF | — | 1,046,711 | ||||||
PureFunds™ ISE Mobile Payments ETF | 3,644,478 | — | ||||||
PureFunds™ ISE Drone Economy Strategy ETF | 2,397,712 | — | ||||||
PureFunds™ ISE Video Game Tech ETF | 2,287,614 | — |
56
PureFunds™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all proceeds from in-kind sales. Net capital gains or losses resulting from in-kind redemptions are excluded from the Funds’ taxable gains and are not distributed to shareholders.
During the period ended March 31, 2016, the Funds incurred broker commissions to affiliated brokers Esposito Securities, LLC and Penserra LLC in the amount of $8,295 and $12,956, respectively.
There were no purchases or sales of U.S. Government obligations for the period ended March 31, 2016.
NOTE 7 — SECURITIES LENDING
The Funds, except for Pure FundsTM ISE Junior Silver (Small Cap Miners/Explorers) ETF, may lend up to 331/3% of the value of the securities in their portfolios to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program administered by U.S. Bank N.A. (“the Custodian”). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any loaned securities at the time of the loan, plus accrued interest. The Funds receive compensation in the form of fees and earn interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Funds continue to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss in the fair value of securities loaned that may occur during the term of the loan will be for the account of the Funds. The Funds have the right under the terms of the securities lending agreement to recall the securities from the borrower on demand. As of March 31, 2016, Funds had loaned securities and received cash collateral for the loans. The cash collateral is invested by the Custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Funds could also experience delays in recovering their securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the securities lending agent.
As of March 31, 2016, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan Collateral Received
Fund | Values of Securities on Loan | Fund Collateral Received* | ||||||
PureFunds™ ISE Cyber Security ETF | $ | 259,322,443 | $ | 262,900,625 | ||||
PureFunds™ ISE Big Data ETF | 119,419 | 122,256 | ||||||
PureFunds™ ISE Mobile Payments ETF | 2,311,885 | 2,369,786 |
* The cash collateral received was invested in the Mount Vernon Prime Portfolio as shown on the Schedule of Investments, a money market fund with an overnight and continuous maturity.
Fees and interest income earned on collateral investments and recognized by the Fund during the six months ended March 31, 2016, was as follows:
57
PureFunds™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
Fees and Interest Income Earned
Fund | Fees and Interest Income Earned | |||
PureFunds™ ISE Cyber Security ETF | $ | 439,623 | ||
PureFunds™ ISE Big Data ETF | 501 | |||
PureFunds™ ISE Mobile Payments ETF | 4,799 |
Offsetting Assets and Liabilities
The Funds are subject to various netting arrangements, which govern the terms of certain transactions with counterparties. The arrangements allow the Funds to close out and net their total exposure to a counterparty in the event of a default with respect to all transactions governed under a single agreement with a counterparty. The following is a summary of the arrangements subject to offsetting as of March 31, 2016.
Fund | Description | Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Statement of Assets & Liabilities | Net Amounts Presented in the Statement of Assets & Liabilities | Collateral Received | Net Amount | ||||||||||||||||
PureFunds™ | ||||||||||||||||||||||
ISE Cyber | Securities | |||||||||||||||||||||
Security ETF | Lending | $ | 262,900,625 | $ | 262,900,625 | $ | — | $ | 262,900,625 | $ | — | |||||||||||
PureFunds™ | ||||||||||||||||||||||
ISE Big Data | Securities | |||||||||||||||||||||
ETF | Lending | 122,256 | 122,256 | — | 122,256 | — | ||||||||||||||||
PureFunds™ | ||||||||||||||||||||||
ISE Mobile | Securities | |||||||||||||||||||||
Payments ETF | Lending | 2,369,786 | 2,369,786 | — | 2,369,786 | — | ||||||||||||||||
NOTE 8 – FEDERAL INCOME TAXES
The components of distributable earnings (losses) and cost basis of investments for federal income tax purposes at September 30, 2015 were as follows:
58
PureFunds™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
PureFunds™ ISE Junior Silver (Small Cap Miners/Explorers) ETF
Cost of investments | $ | 6,470,632 | ||
Gross tax unrealized appreciation | 6,904 | |||
Gross tax unrealized depreciation | (3,115,842 | ) | ||
Net tax unrealized depreciation | (3,108,938 | ) | ||
Undistributed ordinary income | — | |||
Undistributed long-term gain | — | |||
Total distributable earnings | — | |||
Other accumulated (loss) | (2,973,254 | ) | ||
Total Accumulated (loss) | $ | (6,082,192 | ) | |
PureFunds™ ISE Cyber Security ETF | ||||
Cost of investments | $ | 1,279,605,241 | ||
Gross tax unrealized appreciation | 26,700,109 | |||
Gross tax unrealized depreciation | (243,104,552 | ) | ||
Net tax unrealized depreciation | (216,404,443 | ) | ||
Undistributed ordinary income | 6,938 | |||
Undistributed long-term gain | — | |||
Total distributable earnings | 6,938 | |||
Other accumulated (loss) | (22,396,743 | ) | ||
Total Accumulated (loss) | $ | (238,794,248 | ) | |
PureFunds™ ISE Big Data ETF | ||||
Cost of investments | $ | 2,479,444 | ||
Gross tax unrealized appreciation | 28,854 | |||
Gross tax unrealized depreciation | (281,130 | ) | ||
Net tax unrealized depreciation | (252,276 | ) | ||
Undistributed ordinary income | — | |||
Undistributed long-term gain | — | |||
Total distributable earnings | — | |||
Other accumulated (loss) | (19,440 | ) | ||
Total Accumulated (loss) | $ | (271,716 | ) | |
PureFunds™ ISE Mobile Payments ETF | ||||
Cost of investments | $ | 4,874,520 | ||
Gross tax unrealized appreciation | 114,372 | |||
Gross tax unrealized depreciation | (329,339 | ) | ||
Net tax unrealized depreciation | (214,967 | ) | ||
Undistributed ordinary income | — | |||
Undistributed long-term gain | — | |||
Total distributable earnings | — | |||
Other accumulated (loss) | (9,022 | ) | ||
Total Accumulated (loss) | $ | (223,989 | ) | |
59
PureFunds™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
The difference between the tax cost of investments and the cost of investments for GAAP purposes is primarily due to the tax treatment of wash sale losses.
As of September 30, 2015, the Funds had accumulated capital loss carryovers of:
Capital Loss Carryover | Expires | ||||
PureFunds™ ISE Junior Silver (Small Cap Miners/Explorers) ETF | $ | 552,980 | Indefinite | ||
PureFunds™ ISE Cyber Security ETF | — | Indefinite | |||
PureFunds™ ISE Big Data ETF | 19,440 | Indefinite | |||
PureFunds™ ISE Mobile Payments ETF | 9,022 | Indefinite |
Under current tax law, capital and currency losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The following Funds had deferred post-October capital and currency losses, which will be treated as arising on the first business day of the year ending September 30, 2016.
Late Year Ordinary Loss | Post- October Capital Loss | |||||||
PureFunds™ ISE Junior Silver (Small Cap Miners/Explorers) ETF | $ | 13,200 | $ | 2,407,065 | ||||
PureFunds™ ISE Cyber Security ETF | 1,113,629 | 21,280,438 | ||||||
PureFunds™ ISE Big Data ETF | — | — | ||||||
PureFunds™ ISE Mobile Payments ETF | — | — |
NOTE 9 – DISTRIBUTIONS TO SHAREHOLDERS
PureFunds ISE Junior Silver (Small Cap Miners/Explorers) ETF paid $87,131 from ordinary income for the period ended March 31, 2016, and did not pay any distributions from ordinary income or capital gains for the year ending September 30, 2016.
Each of PureFunds™ ISE Cyber Security ETF, PureFunds™ ISE Big Data ETF, PureFunds™ ISE Mobile Payments, PureFunds™ ISE Drone Economy Strategy ETF, and PureFunds™ ISE Video Game Tech ETF has paid no distributions to shareholders for the periods ended March 31, 2016 and September 30, 2015..
NOTE 10 – INVESTMENTS IN AFFILIATES
PureFunds ISE Cyber Security ETF
PureFunds™ Cyber Security ETF owned 5% or more of the voting securities of the following companies during the year ended September 30, 2015. After PureFunds™ Cyber Security ETF sold some of their holdings in each company, each company was no longer deemed an affiliate of the Fund as defined by the Investment Company Act of 1940. Transactions during the period in these securities were as follows:
60
PureFunds™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
Share Activity | ||||||||||||||||||||||||||||
Security Name | Balance September 30, 2015 | Purchases | Sales | Balance March 31, 2016 | Realized Gains (Losses)2 | Dividend Income | Value March 31, 2016 | |||||||||||||||||||||
Absolute Software Corporation | 2,439,332 | 58,408 | (2,291,071 | ) | 206,669 | $ | (5,433,464 | ) | $ | 213,518 | $ | 999,331 | ||||||||||||||||
AhnLab, Inc. | 781,693 | 22,881 | (400,855 | ) | 403,719 | 87,394 | 170,824 | 20,510,733 | ||||||||||||||||||||
F-Secure OYJ | 9,766,867 | 254,529 | (6,686,912 | ) | 3,334,484 | (3,714,078 | ) | — | 9,979,055 | |||||||||||||||||||
Guidance Software, Inc. | 2,131,824 | 46,568 | (2,178,392 | ) | — | (7,362,325 | ) | — | — | |||||||||||||||||||
IntraLinks Holding Corporation | 4,290,158 | 134,436 | (3,032,949 | ) | 1,391,645 | (8,641,885 | ) | — | 10,966,163 | |||||||||||||||||||
The KEYW Holding Corporation | 3,163,201 | 89,351 | (1,687,747 | ) | 1,564,805 | (6,037,665 | ) | — | 10,390,305 | |||||||||||||||||||
Radware Ltd. | 2,336,508 | 454,800 | (1,089,685 | ) | 1,701,623 | (7,535,820 | ) | — | 20,130,200 | |||||||||||||||||||
VASCO Data Security International, Inc. | 2,448,262 | 98,203 | (1,003,499 | ) | 1,542,966 | (7,949,358 | ) | — | 23,761,675 | |||||||||||||||||||
Zix Corporation | 3,204,568 | 107,989 | (1,115,710 | ) | 2,196,847 | 404,508 | — | 8,633,609 | ||||||||||||||||||||
$ | (46,182,693 | ) | $ | 384,342 | $ | 105,371,071 |
1 Commencement of operations
2 Realized Gains (Losses) includes transactions in affiliated investments and affiliated in-kind redemptions
2 Realized Gains (Losses) includes transactions in affiliated investments and affiliated in-kind redemptions
NOTE 11 – SUBSEQUENT EVENTS
In preparing these financial statements, the Funds have evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
At a special meeting held on April 21, 2016, the Board of Trustees (“Board”) including a majority of the Trustees who are not interested persons of the Trust (as defined in the Investment Company Act of 1940, as amended (the “1940 Act”)), of the Trust approved an Interim Sub-Advisory Agreement between Factor Advisors, LLC (“Factor Advisors”) and Penserra Capital Management, LLC (“Penserra”), with respect to PureFunds™ Junior Silver (Small Cap Miners/Explorers) ETF (“SILJ”) replacing Esposito Partners, LLC (“Esposito”) as investment sub-adviser to SILJ, effective April 20, 2016. The Interim Sub-Advisory Agreement is identical to the terminated Sub-Advisory Agreement with Esposito with respect to the compensation payable to the applicable investment sub-adviser for its services. The Interim Sub-Advisory Agreement enables Penserra to provide investment sub- advisory services to SILJ and will be in effect until the earlier of (i) the date that shareholders of SILJ approve a Sub-Advisory Agreement between Factor Advisors and Penserra, or (ii) 150 days after the effective date of the Interim Sub-Advisory Agreement, unless extended by permission of the SEC. At a special in-person meeting held on May 24, 2016, the Trustees, including a majority of the Trustees who are not interested persons of the Trust (as defined in the 1940 Act), approved a Sub-Advisory Agreement between Factor Advisors and Penserra, with respect to SILJ. This Agreement will take effect upon receiving approval from a majority of the outstanding voting securities of SILJ.
61
PureFunds™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
At the special meeting held on May 24, 2016, the Trustees, including a majority of the Trustees who are not interested persons of the Trust (as defined in the 1940 Act), ratified the transfer of each Investment Advisory Agreement between Factor Advisors and the Trust (the “Advisory Agreements”), as well as the Interim Sub-Advisory Agreement and Sub-Advisory Agreement relating to the Funds (together with the Advisory Agreements, the “Agreements”), to, and the assumption of the Agreements by, ETF Managers Group LLC (“ETF Managers”), effective April 26, 2016. ETF Managers is an investment adviser registered with the SEC under the Investment Advisers Act of 1940, as amended, with the same ownership and identical personnel as Factor Advisors. Such transfer and assumption of the Agreements does not amount to an assignment of such Agreements under the 1940 Act. Therefore, the Agreements remain in effect with ETF Managers serving as the investment adviser to the Funds.
At the special meeting held on May 24, 2016, the Board approved changing the name of the Trust to “ETF Managers Trust,” effective June 24, 2016.
62
PureFunds ISE Junior Silver (Small Cap Miners/Explorers) ETF
APPROVAL OF ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2015 (Unaudited)
For the Period Ended March 31, 2015 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on March 17, 2016, the Board of Trustees (the “Board”) of FactorShares Trust (the “Trust”) considered the renewal of the following agreements (collectively, the “Agreements”):
● | the Advisory Agreement between Factor Advisors, LLC (the “Adviser”) and the Trust, on behalf of PureFunds ISE Junior Silver (Small Cap Miners/Explorers) ETF (the “Fund”); and |
● | the Sub-Advisory Agreement between the Adviser and Esposito Partners, LLC (the “Sub-Adviser”) with respect to the Fund. |
Pursuant to Section 15(c) of the 1940 Act, the Board must annually review and approve the Agreements after their initial two-year term: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Agreements or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year, the Board calls and holds a meeting to decide whether to renew the Agreements for an additional one-year term. In preparation for such meetings, the Board requests and reviews a wide variety of information from the Adviser and the Sub-Adviser.
Prior to and at the meeting held on March 17, 2016 the Board, including the Independent Trustees, reviewed written and oral information from the Advisor and the Sub-Adviser regarding, among other things: (i) the nature, extent and quality of the services to be provided to the Fund’s shareholders by the Adviser and the Sub-Adviser; (ii) the Adviser’s and the Sub-Adviser’s cost and profits they realize in providing their services, including any fall-out benefits enjoyed by the Adviser and the Sub-Adviser; (iii) comparative fee and expense data for the Fund and other investment companies with similar investment objectives; (iv) the extent to which economies of scale would be realized as the Fund grows and whether the proposed advisory fee for the Fund reflects these economies of scale for the benefit of the Fund; and (v) other financial benefits to the Adviser and Sub-Adviser and their affiliates resulting from services rendered to the Fund. The Board’s review included relevant information furnished to the Board throughout the year. Among other things, representatives from the Adviser and the Sub-Adviser provided overviews of their advisory businesses, including investment personnel and investment processes. The representatives discussed the services provided by the Sub-Adviser, which was responsible for executing purchase and sale transactions in the Fund, and discussed brokerage commissions charged to the Fund. The representatives also discussed fee structures of comparable investment companies. The Board then discussed the written materials that it received before the meeting and throughout the year and the Adviser and Sub-Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the renewal of the Agreements in light of this information. In its deliberations, the Board did not identify any single piece of information discussed below that was all-important or controlling.
63
PureFunds ISE Junior Silver (Small Cap Miners/Explorers) ETF
APPROVAL OF ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2015 (Unaudited) (Continued)
For the Period Ended March 31, 2015 (Unaudited) (Continued)
Nature, Extent and Quality of Services Provided by the Adviser and the Sub-Adviser
The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser will be providing investment management services to the Fund. In considering the nature, extent and quality of the services provided by the Adviser, the Board reviewed the quality of the Adviser’s compliance infrastructure. The Board also considered the Adviser’s experience managing ETFs, including other series of the Trust.
The Board also considered other services to be provided to the Fund, such as overseeing the activities of the Sub-Advisor, as well as the Fund’s other service providers, monitoring adherence to the Fund’s investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities regulations.
The Trustees then considered the scope of services to be provided under the Sub-Advisory Agreement, noting that Sub-Adviser will be providing investment management services to the Fund. The Board discussed the responsibilities of the Sub-Adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of the Fund; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; oversight of general portfolio compliance with relevant law; responsibility for daily monitoring of tracking error and quarterly reporting to the Board; and implementation of Board directives as they relate to the Fund.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services to be provided to the Fund by the Adviser and the Sub-Adviser.
Historical Performance
The Board then considered the performance information over various time periods. The Board noted that the index-based investment objective of the Fund made analysis of investment performance, in absolute terms, less of a priority than that which normally attaches to the performance of actively managed funds. Instead, the Board focused on the extent to which the Fund achieved its investment objective as a passively managed fund. In that regard, the Board reviewed information regarding factors impacting the performance of the Fund, including the weights of the Fund’s portfolio holdings relative to their weights in the reference index. The Board reviewed the information regarding the Fund’s index tracking, noting that the Fund’s tracking error, as explained by the Sub- Adviser, was attributable to the Fund’s status as a Regulated Investment Company under Section 851 of the Internal Revenue Code and that, after taking this into account, the Fund satisfactorily tracked its underlying index. The Board further noted that it received regular reports regarding the Fund’s performance at its quarterly meetings.
Cost of Services Provided and Economies of Scale
The Board reviewed the Fund’s expense ratio and the advisory fee paid by the Fund and considered the expense ratios of comparable Funds. The Board also took into consideration management’s discussion of the fees and other factors considered. The Board also noted the importance of the fact that the advisory fee for the Fund was a “unified fee,” meaning
64
PureFunds ISE Junior Silver (Small Cap Miners/Explorers) ETF
APPROVAL OF ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2015 (Unaudited) (Continued)
For the Period Ended March 31, 2015 (Unaudited) (Continued)
that the shareholders of the Fund pays no expenses other than the advisory fee and certain other costs such as interest, brokerage and extraordinary expenses. The Board noted that the Advisor was responsible for compensating the Trust’s other service providers and paying the Fund’s other expenses out of its own fee and resources. The Board also considered the profitability of the Adviser with respect to its management of the Fund. The Board concluded that the advisory fee was reasonable and the result of arm’s length negotiations. The Board also evaluated the compensation and benefits received by the Adviser from its relationship with the Fund.
In addition, the Board considered whether economies of scale were realized with respect to the Fund during the current contract period, but concluded that no significant economies of scale had yet been achieved. The Board noted that it will have the opportunity to periodically reexamine whether such economies have been achieved.
The Board reviewed the fees paid by the Adviser to the Sub-Adviser for its services to the Fund under the Sub-Advisory Agreement. In considering the Sub-Adviser’s profitability from its relationship with the Fund, the Board noted that the fees under the Sub-Advisory Agreement are paid by the Adviser out of the fees that the Adviser receives under the Advisory Agreement, so that Fund shareholders are not directly impacted by those fees. In considering the reasonableness of the fees payable by the Adviser, the Board noted the ability of the Adviser to negotiate the Sub-Advisory Agreement and the fees thereunder at arm’s length. For these reasons, the Board concluded that the profitability to the Sub- Adviser from its relationship with the Fund was not a material factor in approval of the Sub-Advisory Agreement. The Board also noted that the Fund may use Esposito Securities, LLC, a broker-dealer affiliated with the Sub-Adviser, for Fund brokerage transactions, but further noted that the amount of commissions related to such transactions was small, and would be expected to remain small, given the Fund’s use of in-kind transactions for creation and redemption activities.
Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Agreements are fair and reasonable; (b) concluded that the Adviser’s and Sub- Adviser’s fees are reasonable in light of the services that the Adviser and Sub-Adviser provide to the Fund; and (c) agreed to renew the Agreements for another year.
65
PureFunds™ ETFs
APPROVAL OF ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2015 (Unaudited)
For the Period Ended March 31, 2015 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on December 2, 2015, the Board of Trustees (the “Board”) of FactorShares Trust (the “Trust”) considered the approval of the following agreements (collectively, the “Agreements”):
● | the Advisory Agreement between Factor Advisors, LLC (the “Adviser”) and the Trust, on behalf of PureFunds™ Video Game Tech ETF and PureFunds™ Drone Economy Strategy ETF (the “Funds”); and |
● | the Sub-Advisory Agreement between the Adviser and Penserra Capital Management LLC (the “Sub-Adviser”) with respect to the Funds. |
The Agreements must be approved: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Agreements or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year after the initial two-year term, the Board will call and hold a meeting to decide whether to renew the Agreements for an additional one-year term. In preparation for such meetings, the Board requests and reviews a wide variety of information from the Adviser and the Sub-Adviser.
Prior to and at the meeting held on December 2, 2015 the Board, including the Independent Trustees, reviewed written and oral information from the Advisor and the Sub-Adviser regarding, among other things: (i) the nature, extent and quality of the services to be provided to the Funds’ shareholders by the Adviser and the Sub-Adviser; (ii) the Adviser’s and the Sub-Adviser’s cost and profits they will realize in providing their services, including any fall-out benefits enjoyed by the Adviser and the Sub-Adviser; (iii) comparative fee and expense data for the Funds and other investment companies with similar investment objectives; (iv) the extent to which economies of scale would be realized as the Funds grow and whether the proposed advisory fee for the Funds reflects these economies of scale for the benefit of the Funds; and (v) other financial benefits to the Adviser and Sub-Adviser and their affiliates resulting from services rendered to the Funds. The Board’s review included relevant information furnished to the Board throughout the year. Among other things, representatives from the Adviser and the Sub-Adviser provided overviews of their advisory businesses, including investment personnel and investment processes. The Adviser and Sub-Adviser each discussed its experience with exchange- traded funds. The representatives discussed the services to be provided by the Sub-Adviser, which would be responsible for executing purchase and sale transactions in the Funds. The representatives also discussed the rationale for launching the Funds, the Funds’ fees and fee structures of comparable investment companies. The Board then discussed the written materials that it received before the meeting and throughout the year, and the Adviser and Sub-Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the approval of the Agreements in light of this information. In its deliberations, the Board did not identify any single piece of information discussed below that was all-important or controlling.
66
PureFunds™ ETFs
APPROVAL OF ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2015 (Unaudited) (Continued)
For the Period Ended March 31, 2015 (Unaudited) (Continued)
Nature, Extent and Quality of Services Provided by the Adviser and the Sub-Adviser
The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser will be providing investment management services to the Fund. In considering the nature, extent and quality of the services provided by the Adviser, the Board reviewed the quality of the Adviser’s compliance infrastructure. The Board also considered the Adviser’s experience managing ETFs, including other series of the Trust.
The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser will be providing investment management services to the Fund. In considering the nature, extent and quality of the services provided by the Adviser, the Board reviewed the quality of the Adviser’s compliance infrastructure. The Board also considered the Adviser’s experience managing ETFs, including other series of the Trust.
The Board also considered other services to be provided to the Fund, such as overseeing the activities of the Sub-Advisor, as well as the Funds’ other service providers, monitoring adherence to the Funds’ investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities regulations.
The Trustees then considered the scope of services to be provided under the Sub-Advisory Agreement, noting that Sub-Adviser will be providing investment management services to the Funds. The Board discussed the responsibilities of the Sub-Adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of the Funds; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; oversight of general portfolio compliance with relevant law; responsibility for daily monitoring of tracking error and quarterly reporting to the Board; and implementation of Board directives as they relate to the Funds. In considering the nature, extent and quality of the services to be provided by the Sub- Advisor, the Board considered the history and experience Sub-Adviser has as an investment advisor, as well as the experience of its personnel in managing ETFs.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services to be provided to the Funds by the Adviser and the Sub-Adviser.
Cost of Services Provided and Economies of Scale
The Board reviewed the Funds’ estimated expense ratio and the advisory fee to be paid by the Funds, considered the expense ratios of comparable Funds. The Board also took into consideration management’s discussion of the fees and other factors considered. The Board concluded that the advisory fee was reasonable and the result of arm’s length negotiations. Additionally, the Board took into consideration that the advisory fees, along with most of the Funds’ other operating expenses, would be paid by the Adviser. The Board also evaluated the compensation and benefits expected to be received by the Adviser from its relationship with the Funds.
The Board reviewed the Funds’ estimated expense ratio and the advisory fee to be paid by the Funds, considered the expense ratios of comparable Funds. The Board also took into consideration management’s discussion of the fees and other factors considered. The Board concluded that the advisory fee was reasonable and the result of arm’s length negotiations. Additionally, the Board took into consideration that the advisory fees, along with most of the Funds’ other operating expenses, would be paid by the Adviser. The Board also evaluated the compensation and benefits expected to be received by the Adviser from its relationship with the Funds.
The Board determined that the Adviser is likely to realize economies of scale in managing the Funds as assets grow in size and intends to monitor fees as the Funds grow in size and determine whether fee breakpoints may be warranted
The Board then reviewed the advisory fee to be paid by the Adviser to the Sub-Adviser for its services as Sub-Adviser to the Funds. The Board considered that the fees paid to the Sub-Adviser would be paid by the Adviser from the advisory fee the Adviser will receive
67
PureFunds™ ETFs
APPROVAL OF ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2015 (Unaudited) (Continued)
For the Period Ended March 31, 2015 (Unaudited) (Continued)
and noted that the fee reflected an arms-length negotiation between the Adviser and the Sub-Adviser. The Board concluded that the sub-advisory fees were reasonable.
Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Agreements are fair and reasonable; (b) concluded that the Adviser’s and Sub- Adviser’s fees are reasonable in light of the services that the Adviser and Sub-Adviser will provide to the Fund; and (c) agreed to approve the Agreements for an initial term of two years.
68
PureFunds™ ETFs
EXPENSE EXAMPLES
For the Period Ended March 31, 2016 (Unaudited)
For the Period Ended March 31, 2016 (Unaudited)
As a shareholder of PureFunds™ ISE Junior Silver (Small Cap Miners/Explorers) ETF, PureFunds™ ISE Cyber Security ETF, PureFunds™ ISE Big Data ETF, PureFunds™ ISE Mobile Payments ETF, PureFunds™ Drone Economy Strategy ETF, and PureFunds™ Video Game Tech ETF (the “Funds”) you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds. The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period (October 1, 2015 to March 31, 2016) for PureFunds™ ISE Junior Silver (Small Cap Miners/Explorers) ETF, PureFunds™ ISE Cyber Security ETF, PureFunds™ ISE Big Data ETF, and PureFunds™ ISE Mobile Payments ETF or the period since inception (March 8, 2016 to March 31, 2016) for PureFunds™ Drone Economy Strategy ETF and PureFunds™ Video Game Tech ETF.
Actual Expenses
The first line of the table provides information about actual account values based on actual returns and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
69
PureFunds™ ETFs
EXPENSE EXAMPLES
For the Period Ended March 31, 2016 (Unaudited) (Continued)
For the Period Ended March 31, 2016 (Unaudited) (Continued)
PureFunds™ ISE Junior Silver (Small Cap Miners/Explorers) ETF
Beginning Account Value October 1, 2015 | Ending Account Value March 31, 2016 | Expenses Paid During the Period^ | ||||||||||
Actual | $ | 1,000.00 | $ | 1,670.70 | $ | 4.61 | ||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,021.55 | $ | 3.49 | ||||||
PureFunds™ ISE Cyber Security ETF | ||||||||||||
Beginning Account Value October 1, 2015 | Ending Account Value March 31, 2016 | Expenses Paid During the Period^ | ||||||||||
Actual | $ | 1,000.00 | $ | 948.70 | $ | 3.65 | ||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,021.25 | $ | 3.79 | ||||||
PureFunds™ ISE Big Data ETF | ||||||||||||
Beginning Account Value October 1, 2015 | Ending Account Value March 31, 2016 | Expenses Paid During the Period^ | ||||||||||
Actual | $ | 1,000.00 | $ | 966.00 | $ | 3.69 | ||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,021.25 | $ | 3.79 | ||||||
PureFunds™ ISE Mobile Payments ETF | ||||||||||||
Beginning Account Value October 1, 2015 | Ending Account Value March 31, 2016 | Expenses Paid During the Period^ | ||||||||||
Actual | $ | 1,000.00 | $ | 1,018.60 | $ | 3.78 | ||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,021.25 | $ | 3.79 |
70
PureFunds™ ETFs
For the Period Ended March 31, 2016 (Unaudited) (Continued)
PureFunds™ Drone Economy Strategy ETF
Beginning Account Value March 8, 2016 | Ending Account Value March 31, 2016 | Expenses Paid During the Period^ | ||||||||||
Actual | $ | 1,000.00 | $ | 1,046.50 | $ | 0.50 | ||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,002.79 | $ | 0.49 | ||||||
PureFunds™ Video Game Tech ETF | ||||||||||||
Beginning Account Value March 8, 2016 | Ending Account Value March 31, 2016 | Expenses Paid During the Period^ | ||||||||||
Actual | $ | 1,000.00 | $ | 1,071.60 | $ | 0.51 | ||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,002.79 | $ | 0.49 |
^ The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio multiplied by the average account value during the period, multiplied by 183/366 (to reflect the one-half year period in the case of PureFundsTM ISE Junior Silver (Small Cap Miners/Explorers) ETF, PureFundsTM ISE Cyber Security ETF, PureFundsTM ISE Big Data ETF, and PureFundsTM ISE Mobile Payments ETF) and 24/366 (to reflect the period from March 8, 2016 to March 31, 2016 in the case of PureFundsTM Drone Economy Strategy ETF and PureFundsTM Video Game Tech ETF).
71
PureFunds™ ETFs
Carefully consider the Funds’ investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Funds’ prospectuses, which may be obtained by calling 1-877-756-PURE (1.877.756.7873), or by visiting www.PureFunds.com. Read the prospectuses carefully before investing.
(Unaudited)
Each Fund files its complete schedule of portfolio holdings for its first and third fiscal quarters with the Securities and Exchange Commission (“SEC”) on Form N-Q. The Funds’ Form N-Q is available without charge, upon request, by calling toll-free at (877) 756-7873. Furthermore, you may obtain the Form N-Q on the SEC’s website at www.sec.gov. The Funds’ portfolio holdings are posted on the Funds’ website at www.pureetfs.com daily.
(Unaudited)
A description of the polices and procedures the Funds use to determine how to vote proxies relating to portfolio securities is provided in the Statement of Additional Information (“SAI”). The SAI is available without charge upon request by calling toll-free at (877) 756- 7873, by accessing the SEC’s website at www.sec.gov, or by accessing the Funds’ website at www.pureetfs.com.
Information regarding how the Funds voted proxies relating to portfolio securities during the period ending June 30 is available by calling toll-free at (877) 756-7873 or by accessing the SEC’s website at www.sec.gov.
72
Advisor
Factor Advisors, LLC
30 Maple Street, Summit, NJ 07901
Factor Advisors, LLC
30 Maple Street, Summit, NJ 07901
Sub-Adviser – SILJ, HACK, BDAT, IPAY, GAMR, and IFLY
Penserra Capital Management, LLC
4 Orinda Way, Suite 100-A, Orinda, CA 94563
Penserra Capital Management, LLC
4 Orinda Way, Suite 100-A, Orinda, CA 94563
Index Provider
International Securities Exchange, LLC
60 Broad Street, New York, NY 10004
International Securities Exchange, LLC
60 Broad Street, New York, NY 10004
Distributor
ALPS Distributors, Inc.
1290 Broadway, Suite 1100, Denver, CO 80203
ALPS Distributors, Inc.
1290 Broadway, Suite 1100, Denver, CO 80203
Custodian
U.S. Bank National Association
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
U.S. Bank National Association
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
Transfer Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street, Milwaukee, Wisconsin 53202
U.S. Bancorp Fund Services, LLC
615 East Michigan Street, Milwaukee, Wisconsin 53202
Securities Lending Agent
U.S. Bank National Lending Association
Securities Lending
800 Nicolet Mall, Minneapolis, MN 55402
U.S. Bank National Lending Association
Securities Lending
800 Nicolet Mall, Minneapolis, MN 55402
Independent Registered Public Accounting Firm
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
73
Semi–Annual Report
March 31, 2016
March 31, 2016
TierraXP™ Latin America Real Estate ETF
Ticker: LARE
The Fund is a series of FactorShares Trust.
TierraXPTM Latin America Real Estate ETF
TABLE OF CONTENTS |
March 31, 2016 |
Page | ||
2 | ||
3 | ||
4 | ||
5 | ||
6 | ||
7 | ||
10 | ||
11 | ||
12 | ||
13 | ||
14 | ||
20 | ||
21 | ||
23 |
On behalf of the entire team, we want to express our appreciation for the confidence you have placed in the Tierra XP Latin America Real Estate Exchange-Traded Fund. (“LARE” or the “Fund”). The following information pertains to the fiscal period from December 3, 2015 (the Fund’s Inception Date) to March 31, 2016.
The Fund saw positive performance during the fiscal period ended on March 31, 2016. The NAV price for LARE rose 10.15%, while the Solactive Latin America Real Estate Index (“Index’), the Fund’s benchmark, rose 10.86% over the same period. The primary difference between the Fund return and the Index return was attributable to Fund expenses, which are not a part of the Index.
For the period ended March 31, 2016, the best performing securities in the Fund were Direcional Engenharia (up 86.21%), Brasil Brokers Participacoes (up 59.41%) and MRV Engenharia (up 53.84%). The worst performing securities in the Fund were Grupo Gicsa (down - 20.73%), Impulsora del Desarrollo (down - 19.09%) and Hoteles City Express (down - 9.3%).
Global markets in general saw a sell off to begin 2016 on the back of falling oil prices and uncertainty around global growth and future actions of the Federal Reserve. From mid-February to the end of the fiscal period on March 31, 2016, markets staged a comeback. The Latin American Real Estate Index outperformed the S&P 500 By the end of the period ended March 31, 2016, the Fund and the Index showed impressive double digit gains.
NAV realized volatility was materially lower versus major regional and global benchmarks during the period. The Fund’s regional focus seeks to capture a balanced exposure to the asset class with lower volatility versus major benchmarks.
You can find further details about LARE by visiting www.TIERRAFUNDS.com, or by calling 1‐844‐ETF‐ MGRS (1‐844‐383‐6477).
Sincerely,
Samuel Masucci III Chairman of the Board
Samuel Masucci III is a registered representative of ALPS Distributors, Inc.
2
Cumulative Returns | Since Inception | |
Period Ended March 31, 2016 | (12/2/2015) | |
TierraXPTM Latin America Real Estate ETF (NAV) | 10.17% | |
TierraXPTM Latin America Real Estate ETF (Market) | 13.20% | |
S&P 500 Index | -0.24% | |
Solactive Latin America Real Estate Index | 10.86% | |
Total Fund Operating Expenses1 | 0.79% |
1. The expense ratio is taken from the Fund’s most recent prospectus dated October 17, 2015.
Performance data quoted represents past performance and does not guarantee future results.
The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on December 2, 2015, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the redemption of fund shares. The chart assumes reinvestment of capital gains and dividends, if any.
The unmanaged indices do not reflect fees and are not available for direct investment.
3
TierraXPTM Latin America Real Estate ETF |
Security | % of Total Investments† | ||
1 | FII BTG Pactual Corporate Office Fund | 3.89% | |
2 | Ez Tec Empreendimentos e Participacoes SA | 3.68% | |
3 | BR Properties SA | 3.57% | |
4 | Grupo Aeroportuario del Centro Norte SAB de CV | 3.22% | |
5 | Prologis, Inc. | 3.18% | |
6 | Fibra Uno Administracion SA de CV | 3.17% | |
7 | BB Progressivo II FII | 3.11% | |
8 | Macquarie Mexico Real Estate Management SA de CV | 3.09% | |
9 | PLA Administradora Industrial S de RL de CV | 3.03% | |
10 | Concentradora Fibra Hotelera Mexicana SA de CV | 3.02% |
Top Ten Holdings = 32.96% of Total Investments†
* Current Fund holdings may not be indicative of future Fund holdings.
† Percentage of total investments less cash.
4
TierraXPTM Latin America Real Estate ETF |
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility.
The TierraXPTM Latin America Real Estate ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Solactive Latin America Real Estate Index (the “Index”).
Foreign investing involves special risks such as currency fluctuations and political uncertainty. Investments in emerging markets accentuate these risks. The Fund is subject to the risks associated with investing in real estate, which may include possible declines in the value of real estate. Funds focusing on a single country or sector may experience greater price volatility. The Fund’s return may not match or achieve a high degree of correlation with the return of the Solactive Latin America Real Estate Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
Real estate risk factors include, but are not limited to, the fact that direct ownership of real estate is subject to fluctuations in the value of underlying properties, the impact of economic conditions on real estate values, the strength of specific industries renting properties and defaults by borrowers or tenants. Real estate is a cyclical business, highly sensitive to general and local economic conditions and developments, and characterized by intense competition and periodic overbuilding. Changing interest rates and credit quality requirements may affect the cash flow of real estate companies and their ability to borrow or lend money or to meet capital needs.
The Fund is new with limited operating history.
LAREPR: The Solactive Latin America Real Estate Index screens for all listed equities with primary listings in the Latin America region and which derive substantially most of their income from real estate and real estate services.
MSCI EM: The MSCI Emerging Markets Index captures large and mid cap representation across 23 Emerging Markets (EM) countries*. With 836 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
MSCI Mexico: The MSCI Mexico Index is designed to measure the performance of the large and mid cap segments of the Mexican market. With 27 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Mexico.
MSCI Brazil: The MSCI Brazil Index is designed to measure the performance of the large and mid cap segments of the Brazilian market. With 61 constituents, the index covers about 85% of the Brazilian equity universe.
S&P 500: The S&P 500 Index is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices.
5
TierraXPTM Latin America Real Estate ETF
As of March 31, 2016 (Unaudited) |
TierraXP Latin | ||||
America Real Estate | ||||
ETFTM | ||||
As a percent of Net Assets: | ||||
Argentina | 1.2 | % | ||
Brazil | 52.9 | |||
Chile | 3.0 | |||
Mexico | 37.6 | |||
United States | 5.0 | |||
Short-Term and other Net Assets (Liabilities) | 0.3 | |||
100.0 | % |
6
TierraXPTM Latin America Real Estate ETF
March 31, 2016 (Unaudited) |
Shares | Market Value | |||||||
COMMON STOCKS - 99.7% | ||||||||
Argentina - 1.2% | ||||||||
Real Estate Management & Development - 1.2% | ||||||||
IRSA Inversiones y Representaciones SA - ADR (a) | 2,196 | $ | 32,852 | |||||
Brazil - 52.9% | ||||||||
Capital Markets - 0.3% | ||||||||
GP Investments Ltd. (a) | 3,800 | 7,641 | ||||||
Household Durables - 15.9% | ||||||||
Cyrela Brazil Realty SA Empreendimentos e Participacoes | 28,000 | 80,753 | ||||||
Direcional Engenharia SA | 31,600 | 51,588 | ||||||
Even Construtora e Incorporadora SA | 32,600 | 37,082 | ||||||
Ez Tec Empreendimentos e Participacoes SA | 22,400 | 100,425 | ||||||
Gafisa SA | 31,000 | 23,019 | ||||||
Helbor Empreendimentos SA | 48,400 | 20,864 | ||||||
MRV Engenharia e Participacoes SA | 22,200 | 73,349 | ||||||
Tecnisa SA | 66,000 | 44,420 | ||||||
Total Household Durables | 431,500 | |||||||
Real Estate Investment Trusts (REITs) - 22.5% | ||||||||
BB Progressivo II FII | 2,968 | 84,772 | ||||||
CSHG Brasil Shopping Investimento Imobiliario * | 136 | 57,681 | ||||||
CSHG Logistica FI Imobiliario * | 136 | 38,466 | ||||||
CSHG Real Estate FI Imobiliario | 246 | 76,283 | ||||||
FII BTG Pactual Corporate Office Fund | 3,674 | 106,000 | ||||||
FII TB Office * | 1,958 | 34,198 | ||||||
JS Real Estate Multigestao FII | 1,812 | 45,355 | ||||||
Kinea Renda Imobiliaria FII | 2,278 | 72,370 | ||||||
Kinea Rendimentos Imobiliarios FII | 2,064 | 63,717 | ||||||
Santander Agencias FII | 1,532 | 38,304 | ||||||
Total Real Estate Investment Trusts (REITs) | 617,146 | |||||||
Real Estate Management & Development - 14.2% | ||||||||
Aliansce Shopping Centers SA | 17,800 | 64,257 | ||||||
BR Malls Participacoes SA | 19,600 | 79,912 | ||||||
BR Properties SA | 40,000 | 97,339 | ||||||
Brasil Brokers Participacoes SA (a) | 7,600 | 4,143 | ||||||
Iguatemi Empresa de Shopping Centers SA | 7,200 | 49,600 | ||||||
JHSF Participacoes SA (a) | 15,000 | 6,466 | ||||||
Multiplan Empreendimentos Imobiliarios SA | 4,600 | 68,892 | ||||||
Sao Carlos Empreendimentos e Participacoes SA | 2,200 | 15,296 | ||||||
Total Real Estate Management & Development | 385,905 | |||||||
Total Brazil | 1,442,192 |
The accompanying notes are an integral part of these financial statements.
7
TierraXPTM Latin America Real Estate ETF
Schedule of Investments |
March 31, 2016 (Unaudited) |
Shares | Market Value | |||||||
Chile - 3.0% | ||||||||
Real Estate Management & Development - 3.0% | ||||||||
PAZ Corporacion SA | 42,366 | $ | 27,099 | |||||
Parque Arauco SA | 30,306 | 55,618 | ||||||
Total Real Estate Management & Development | 82,717 | |||||||
Mexico - 37.6% | ||||||||
Construction & Engineering - 1.7% | ||||||||
Empresas ICA SAB de CV (a) | 61,896 | 14,903 | ||||||
Impulsora del Desarrollo y el Empleo en America Latina SAB de | ||||||||
CV (a)* | 21,994 | 31,800 | ||||||
Total Construction & Engineering | 46,703 | |||||||
Diversified Financial Services - 2.4% | ||||||||
Concentradora Hipotecaria SAPI de CV | 45,652 | 65,212 | ||||||
Hotels, Restaurants & Leisure - 0.8% | ||||||||
Hoteles City Express SAB de CV (a) | 18,272 | 22,474 | ||||||
Household Durables - 1.3% | ||||||||
Consorcio ARA SAB de CV | 52,558 | 19,682 | ||||||
Corporacion GEO SAB de CV (a) | 32,300 | 9,497 | ||||||
Desarrolladora Homex SAB de CV (a) | 39,700 | 8,157 | ||||||
Total Household Durables | 37,336 | |||||||
Real Estate Investment Trusts (REITs) - 20.5% | ||||||||
Asesor de Activos Prisma SAPI de CV | 32,486 | 25,572 | ||||||
Concentradora Fibra Danhos SA de CV | 34,932 | 72,888 | ||||||
Concentradora Fibra Hotelera Mexicana SA de CV | 89,204 | 82,351 | ||||||
FIBRA HD Servicios SC | 2,590 | 1,522 | ||||||
Fibra MTY SAPI de CV * | 24,822 | 18,921 | ||||||
Fibra Shop Portafolios Inmobiliarios SAPI de CV | 47,888 | 47,536 | ||||||
Fibra Uno Administracion SA de CV | 37,170 | 86,465 | ||||||
Macquarie Mexico Real Estate Management SA de CV | 62,364 | 84,285 | ||||||
PLA Administradora Industrial S de RL de CV | 44,436 | 82,611 | ||||||
Prologis Property Mexico SA de CV | 35,668 | 56,649 | ||||||
Total Real Estate Investment Trusts (REITs) | 558,800 | |||||||
Real Estate Management & Development - 3.0% | ||||||||
Corporacion Inmobiliaria Vesta SAB de CV | 24,188 | 36,246 | ||||||
Corpovael SA de CV (a) | 14,764 | 11,622 | ||||||
Grupo GICSA SA de CV (a) | 37,540 | 29,898 | ||||||
Servicios Corporativos Javer SAPI de CV (a)* | 5,600 | 5,805 | ||||||
Total Real Estate Management & Development | 83,571 | |||||||
Transportation Infrastructure - 7.9% | ||||||||
Grupo Aeroportuario del Centro Norte SAB de CV | 15,324 | 87,915 | ||||||
Grupo Aeroportuario del Pacifico SAB de CV | 7,928 | 70,570 | ||||||
Grupo Aeroportuario del Sureste SAB de CV | 3,748 | 56,433 | ||||||
Total Transportation Infrastructure | 214,918 | |||||||
Total Mexico | 1,029,014 |
The accompanying notes are an integral part of these financial statements.
8
TierraXPTM Latin America Real Estate ETF
Schedule of Investments |
March 31, 2016 (Unaudited) |
Shares | Market Value | |||||||
United States - 5.0% | ||||||||
Real Estate Investment Trusts (REITs) - 3.1% | ||||||||
Prologis, Inc. | 1,964 | $ | 86,769 | |||||
Real Estate Management & Development - 1.9% | ||||||||
Brookfield Property Partners LP | 2,272 | 52,665 | ||||||
Total United States | 139,434 | |||||||
TOTAL COMMON STOCKS (Cost $2,476,997) | 2,726,209 | |||||||
Total Investments (Cost $2,476,997) - 99.7% | 2,726,209 | |||||||
Other Assets in Excess of Liabilities - 0.3% | 6,647 | |||||||
TOTAL NET ASSETS - 100.0% | $ | 2,732,856 |
Percentages are stated as a percent of net assets.
ADR American Depositary Receipt
(a) | Non-income producing security. |
* | Illiquid Security - At March 31, 2016, the value of these securities amount to $129,190 or 4.7% of net assets. |
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
9
TierraXPTM Latin America Real Estate ETF
As of March 31, 2016 (Unaudited) |
TierraXPTM Latin America Real Estate ETF | ||||
ASSETS | ||||
Investments in securities, at value* | $ | 2,726,209 | ||
Cash | 5,732 | |||
Foreign currency* | 975 | |||
Dividends and interest receivable | 1,527 | |||
Total Assets | 2,734,443 | |||
LIABILITIES | ||||
Management fees payable | 1,587 | |||
Total Liabilities | 1,587 | |||
Net Assets | $ | 2,732,856 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 2,532,816 | ||
Undistributed (accumulated) net investment income (loss) | 4,984 | |||
Accumulated net realized gain (loss) on investments | (54,287 | ) | ||
Net unrealized appreciation (depreciation) on: | ||||
Investments in securities | 249,212 | |||
Foreign currency and translation of other assets and liabilities in foreign currency | 131 | |||
Net Assets | $ | 2,732,856 | ||
*Identified Cost: | ||||
Investments in unaffiliated securities | $ | 2,476,997 | ||
Foreign currency | 964 | |||
Shares Outstanding^ | 100,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 27.33 |
^ No par value, unlimited number of shares authorized
The accompanying notes are an integral part of these financial statements.
10
TierraXPTM Latin America Real Estate ETF
For the Period ended March 31, 2016 (Unaudited) |
TierraXPTM Latin America Real Estate ETF 1 | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends from unaffiliated securities (net of foreign withholdings tax of $2,943) | $ | 31,023 | ||
Total Investment Income | 31,023 | |||
Expenses: | ||||
Management fees | 5,949 | |||
Total Expenses | 5,949 | |||
Net Investment Income (Loss) | 25,074 | |||
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Net Realized Gain (Loss) on: | ||||
Unaffiliated investments | (54,287 | ) | ||
Net Change in Unrealized Appreciation (Depreciation) of: | ||||
Unaffiliated investments in securities and foreign currency | 249,212 | |||
Foreign currency | 131 | |||
Net Realized and Unrealized Gain (Loss) on Investments | 195,056 | |||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 220,130 |
1 | Fund commenced operations on December 2, 2015. The information presented is for the period from December 2, 2015 to March 31, 2016. |
The accompanying notes are an integral part of these financial statements.
11
TierraXPTM Latin America Real Estate ETF |
Period ended March 31, 2016 (Unaudited)* | ||||
OPERATIONS | ||||
Net investment income (loss) | $ | 25,074 | ||
Net realized gain (loss) on investments | (54,287 | ) | ||
Net change in unrealized appreciation (depreciation) of investments | 249,343 | |||
Net increase (decrease) in net assets resulting from operations | 220,130 | |||
DISTRIBUTIONS TO SHAREHOLDERS | ||||
From net investment income | (20,090 | ) | ||
Total Distributions to Shareholders | (20,090 | ) | ||
CAPITAL SHARE TRANSACTIONS | ||||
Net increase (decrease) in net assets derived from net change in outstanding shares (a) | 2,500,000 | |||
Transaction Fee (Note 1) | 32,816 | |||
2,532,816 | ||||
Net increase (decrease) in net assets | $ | 2,732,856 | ||
NET ASSETS | ||||
Beginning of Period | $ | — | ||
End of Period | 2,732,856 | |||
Undistributed net investment income (loss) | $ | 4,984 | ||
(a) Summary of share transactions is as follows: |
Period Ended March 31, 2016 (Unaudited) | ||||||||
Shares | Amount | |||||||
Shares Sold | 100,000 | $ | 2,500,000 | |||||
Transaction Fees | — | 32,816 | ||||||
Shares Redeemed | — | — | ||||||
100,000 | $ | 2,532,816 | ||||||
Beginning Shares | — | |||||||
Ending Shares | 100,000 |
*Fund commenced operations on December 2, 2015. The information presented is for the period from December 2, 2015 to March 31, 2016.
The accompanying notes are an integral part of these financial statements.
12
TierraXPTM Latin America Real Estate ETF |
For a capital share outstanding throughout the period |
Period Ended March 31, 2016 (Unaudited)1 | ||||
Net Asset Value, Beginning of Period | $ | 25.00 | ||
Income (Loss) from Investment Operations: | ||||
Net investment income (loss) 2 | 0.25 | |||
Net realized and unrealized gain (loss) on investments | 2.28 | |||
Total from investment operations | 2.53 | |||
Less Distributions: | ||||
Distributions from net investment income | (0.20 | ) | ||
Total distributions | (0.20 | ) | ||
Net asset value, end of period | $ | 27.33 | ||
Total Return | 10.17 | %3 | ||
Ratios/Supplemental Data: | ||||
Net assets at end of period (000’s) | $ | 2,733 | ||
Expenses to Average Net Assets | 0.79 | %4 | ||
Net Investment Income (Loss) to Average Net Assets | 3.27 | %4 | ||
Portfolio Turnover Rate | 20 | %3 |
1Commencement of operations on December 2, 2015.
2Calculated based on average shares outstanding during the period.
3Not annualized.
4Annualized.
The accompanying notes are an integral part of these financial statements.
13
TierraXPTM Latin America Real Estate ETF |
NOTE 1 – ORGANIZATION
TierraXPTM Latin America Real Estate ETF (the “Fund”) is a series of FactorShares Trust (the “Trust”), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on July 1, 2009. The Trust is registered with the SEC under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Fund’s shares (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”). The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Solactive Latin America Real Estate Index. The Fund commenced operations on December 2, 2015.
The Fund currently offers one class of shares, which has no front end sales load, no deferred sales charges, and no redemption fees. The Fund may issue an unlimited number of shares of beneficial interest, with no par value. All shares of the Fund have equal rights and privileges.
Shares of the Fund are listed and traded on the NYSE Arca, Inc. Market prices for the Shares may be different from their net asset value (“NAV”). The Fund issues and redeems Shares on a continuous basis at NAV only in blocks of 50,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified Index. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in quantities less than a Creation Unit. Except when aggregated in Creation Units, Shares are not redeemable securities of a Fund. Shares of a Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the Shares directly from a Fund. Rather, most retail investors may purchase Shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
A. | Security Valuation. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on the valuation date (or at approximately 4:00 pm Eastern Time if a security’s primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. |
Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees (the “Board”). When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Fund’s Board. The use of fair value pricing by a fund may cause the net asset value of its shares to differ
14
TierraXPTM Latin America Real Estate ETF |
NOTES TO FINANCIAL STATEMENTS |
March 31, 2016 (Unaudited) |
significantly from the net asset value that would be calculated without regard to such considerations. As of March 31, 2016, the Fund did not hold any fair valued securities.
As described above, the Fund utilizes various methods to measure the fair value of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. |
Level 2 | Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 | Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The following is a summary of the inputs used to value the Fund’s investments as of March 31, 2016:
TierraXPTM Latin America Real Estate ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 2,720,404 | $ | 5,805 | $ | — | $ | 2,726,209 | ||||||||
Total Investments in Securities | $ | 2,720,404 | $ | 5,805 | $ | — | $ | 2,726,209 |
^ See Schedule of Investments for classifications by sector or country.
There were no transfers between Levels 1, 2 and 3 during the period ended March 31, 2016. Transfers between levels are recognized at the end of the reporting period.
B. | Federal Income Taxes. The Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. Therefore, no provisions for federal income taxes or excise taxes have been made. |
15
TierraXPTM Latin America Real Estate ETF |
NOTES TO FINANCIAL STATEMENTS |
March 31, 2016 (Unaudited) |
To avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare each year as dividends, in each calendar year, at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years.
Net capital losses incurred after October 31, within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. The Fund has analyzed its tax position and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Fund’s 2016 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal, the State of New Jersey, and the State of Delaware; however the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
C. | Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Income, including gains, from investments in foreign securities received by the Fund may be subject to income, withholding or other taxes imposed by foreign countries. |
D. | Foreign Currency Translations and Transactions. The Fund may engage in foreign currency transactions. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. For financial reporting purposes, the Fund does not isolate changes in the exchange rate of investment securities from the fluctuations arising from changes in the market prices of securities for unrealized gains and losses. However, for federal income tax purposes, the Fund does isolate and treat as ordinary income the effect of changes in foreign exchange rates on realized gains or losses from the sale of investment securities and payables and receivables arising from trade-date and settlement-date differences. |
E. | Distributions to Shareholders. Distributions to shareholders from net investment income are declared and paid for the Fund on a monthly basis. Net realized gains on securities for the Fund normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. |
F. | Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. |
G. | Share Valuation. The net asset value (“NAV”) per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for the Fund, rounded to the nearest cent. The Fund’s shares will not be priced on the days on which the NYSE |
16
TierraXPTM Latin America Real Estate ETF |
NOTES TO FINANCIAL STATEMENTS |
March 31, 2016 (Unaudited) |
is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s net asset value per share.
H. | Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. |
NOTE 3 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The “Derivatives and Hedging” Topic of the Codification (Accounting Standards Codification 815, formerly Statement of Financial Accounting Standards (“SFAS”) 133 and SFAS 161) requires enhanced disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial position, performance and cash flows. The Fund did not use derivatives during the period ended March 31, 2016.
NOTE 4 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
Factor Advisors, LLC (the “Advisor”), serves as the investment advisor to the Fund. Pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Fund, and the Advisor, the Advisor provides investment advice to the Fund and oversees the day-to-day operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Advisor is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate.
Under the Investment Advisory Agreement with the Fund, the Advisor has overall responsibility for the general management and administration of the Fund and arranges for sub-advisory, transfer agency, custody, fund administration, securities lending, and all other non-distribution related services necessary for the Fund to operate. The Advisor bears the costs of all advisory and non-advisory services required to operate the Fund, in exchange for a single unitary fee. For services provided the Fund pays the Advisor at an annual rate of 0.79% of the Fund’s average daily net assets. The Advisor has an agreement with, and is dependent on, a third party to pay the Fund’s expenses in excess of 0.79% of the Fund’s average daily net assets. Additionally, under the Investment Advisory Agreement, the Advisor has agreed to pay all expenses of the Fund, except for: the fee paid to the Advisor pursuant to the Investment Advisory Agreement, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses, and distribution (12b-1) fees and expenses (collectively, “Excluded Expenses”). The Advisor has entered into an Agreement with Tierra Funds, LLC (the “Sponsor”), under which the Sponsor agrees to sublicense the use of the Underlying Index to the Advisor. The Sponsor also provides marketing support for the Fund, including distributing marketing materials related to the Fund. Tierra Funds, LLC is a privately held business focused on bringing exchange-traded investment products to investors in the U.S. The Sponsor does not make investment decisions, provide investment advice, or otherwise act in the capacity of an investment adviser to the Fund. Additionally, the Sponsor is not involved in the maintenance of the Underlying Index and does not otherwise act in the capacity of an index provider.
17
TierraXPTM Latin America Real Estate ETF |
NOTES TO FINANCIAL STATEMENTS |
March 31, 2016 (Unaudited) |
US Bancorp Fund Services, LLC (the “Administrator”) provides fund accounting, fund administration, and transfer agency services to the Fund. The Advisor compensates the Administrator for these services under an administration agreement between the two entities.
The Advisor pays each independent Trustee a quarterly fee for service to the Fund. Each Trustee is also reimbursed by the Advisor for all reasonable out-of-pocket expenses incurred in connection with his duties as Trustee, including travel and related expenses incurred in attending Board meetings.
NOTE 5 – DISTRIBUTION PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may pay compensation to the Distributor or any other distributor or financial institution with which the Trust has an agreement with respect to the Fund, with the amount of such compensation not to exceed an annual rate of 0.25% of each Fund’s daily average net assets. For the period ended March 31, 2016, the Fund did not incur any 12b-1 expenses.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
The costs of purchases and sales of securities, excluding short-term securities and in-kind transactions, for the period ended March 31, 2016:
Purchases | Sales | |||||||
TierraXPTM Latin America Real Estate ETF | $ | 2,051,182 | $ | 474,817 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the period ended March 31, 2016:
Purchases In- Kind | Sales In- Kind | |||||||
TierraXPTM Latin America Real Estate ETF | $ | 927,032 | $ | — |
Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all proceeds from in-kind sales. Net capital gains or losses resulting from in-kind redemptions are excluded from the Fund’s taxable gains and are not distributed to shareholders.
There were no purchases or sales of U.S. Government obligations for the period ended March 31, 2016.
NOTE 7 — SECURITIES LENDING
The Fund may lend up to 331/3% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program administered by U.S. Bank N.A. (“the Custodian”). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any loaned securities at the time of the loan, plus accrued interest. The Fund receives compensation in the form of fees and earn interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss in the fair value of
18
TierraXPTM Latin America Real Estate ETF |
NOTES TO FINANCIAL STATEMENTS |
March 31, 2016 (Unaudited) |
securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand. The cash collateral is invested by the Custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the securities lending agent.
There were no securities on loan during the period ended March 31, 2016.
NOTE 8 – DISTRIBUTIONS TO SHAREHOLDERS
The Fund paid $20,090 from ordinary income for the period ended March 31, 2016.
NOTE 9 – SUBSEQUENT EVENTS
In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
The Fund paid a distribution of $4,000 from ordinary income on April 22, 2016 and $45,000 from ordinary income on May 27, 2016.
At a special meeting held on May 24, 2016, the Trustees, including a majority of the Trustees who are not interested persons of the Trust (as defined in the 1940 Act), ratified the transfer of the Investment Advisory Agreement between Factor Advisors and the Trust (the “Advisory Agreement”), to, and the assumption of the Agreement by, ETF Managers Group LLC (“ETF Managers”), effective April 26, 2016. ETF Managers is an investment adviser registered with the SEC under the Investment Advisers Act of 1940, as amended, with the same ownership and identical personnel as Factor Advisors. Such transfer and assumption of the Agreement does not amount to an assignment of such Agreement under the 1940 Act. Therefore, the Agreement remains in effect with ETF Managers serving as the investment adviser to the Fund.
At the special meeting held on May 24, 2016, the Board approved changing the name of the Trust to “ETF Managers Trust,” effective June 24, 2016.
19
TierraXPTM Latin America Real Estate ETF |
March 31, 2016 (Unaudited) |
Disclosure of Portfolio Holdings
The Fund files a Form N-Q with the Securities and Exchange Commission (the ‘‘SEC’’) no more than sixty days after the Fund’s first and third fiscal quarters. For the Fund, this would be for the fiscal quarters ending June 30 and December 31. Form N-Q includes a complete schedule of the Fund’s portfolio holdings as of the end of those fiscal quarters. The Fund’s N-Q filings can be found free of charge on the SEC’s website at http://www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (call 800-SEC-0330 for information on the operation of the Public Reference Room).
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 are available without charge, upon request, by calling 800-625-7071 or on the SEC’s website at http://www.sec.gov.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477) or by visiting www.tierrafunds.com. Read the prospectus carefully before investing.
20
TierraXPTM Latin America Real Estate ETF |
For the Period Ended March 31, 2016 (Unaudited) |
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on September 10, 2015, the Board of Trustees (the “Board”) of FactorShares Trust (the “Trust”) considered the approval of the following agreements (collectively, the “Agreements”):
• | the Advisory Agreement between Factor Advisors, LLC (the “Adviser”) and the Trust, on behalf of the TierraXPTM Latin America Real Estate ETF (the “Fund”); and |
• | the Sub-Advisory Agreement between the Adviser and Penserra Capital Management LLC (the “Sub-Adviser”) with respect to the Fund. |
The Agreements must be approved: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Agreements or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year after the initial two-year term, the Board will call and hold a meeting to decide whether to renew the Agreements for an additional one-year term. In preparation for such meetings, the Board requests and reviews a wide variety of information from the Adviser and the Sub-Adviser.
Prior to and at the meeting held on September 10, 2015 the Board, including the Independent Trustees, reviewed written and oral information from the Advisor and the Sub-Adviser regarding, among other things: (i) the nature, extent and quality of the services to be provided to the Fund’s shareholders by the Adviser and the Sub-Adviser; (ii) the Adviser’s and the Sub-Adviser’s cost and profits they will realize in providing their services, including any fall-out benefits enjoyed by the Adviser and the Sub-Adviser; (iii) comparative fee and expense data for the Fund and other investment companies with similar investment objectives; (iv) the extent to which economies of scale would be realized as the Fund grows and whether the proposed advisory fee for the Fund reflects these economies of scale for the benefit of the Fund; and (v) other financial benefits to the Adviser and Sub-Adviser and their affiliates resulting from services rendered to the Fund. The Board’s review included relevant information furnished to the Board throughout the year. Among other things, representatives from the Adviser and the Sub-Adviser provided overviews of their advisory businesses, including investment personnel and investment processes. The Adviser and Sub-Adviser each discussed its experience with exchange-traded funds. The representatives discussed the services to be provided by the Sub-Adviser, which would be responsible for executing purchase and sale transactions in the Fund. The representatives also discussed the rationale for launching the Fund, the Fund’s fees and fee structures of comparable investment companies. The Board then discussed the written materials that it received before the meeting and throughout the year and the Adviser and Sub-Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the approval of the Agreements in light of this information. In its deliberations, the Board did not identify any single piece of information discussed below that was all-important or controlling.
Nature, Extent and Quality of Services Provided by the Adviser and the Sub-Adviser
The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser will be providing investment management services to the Fund. In considering the nature, extent and quality of the services provided by the Adviser, the Board reviewed the quality of the Adviser’s compliance infrastructure. The Board also considered the Adviser’s experience managing ETFs, including other series of the Trust.
The Board also considered other services to be provided to the Fund, such as overseeing the activities of the Sub-Advisor, as well as the Fund’s other service providers, monitoring adherence to the Fund’s investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities regulations.
21
TierraXPTM Latin America Real Estate ETF |
APPROVAL OF ADVISORY AGREEMENT & BOARD CONSIDERATIONS |
For the Period Ended March 31, 2016 (Unaudited) (Continued) |
The Trustees then considered the scope of services to be provided under the Sub-Advisory Agreement, noting that Sub-Adviser will be providing investment management services to the Fund. The Board discussed the responsibilities of the Sub-Adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of the Fund; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; oversight of general portfolio compliance with relevant law; responsibility for daily monitoring of tracking error and quarterly reporting to the Board; and implementation of Board directives as they relate to the Fund. In considering the nature, extent and quality of the services to be provided by the Sub-Advisor, the Board considered the history and experience Sub-Adviser has as an investment advisor, as well the experience of its personnel in managing ETFs.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services to be provided to the Fund by the Adviser and the Sub-Adviser.
Cost of Services Provided and Economies of Scale
The Board reviewed the Fund’s estimated expense ratio and the advisory fee to be paid by the Fund, considered the expense ratios of comparable Funds. The Board also took into consideration management’s discussion of the fees and other factors considered. The Board concluded that the advisory fee was reasonable and the result of arm’s length negotiations. Additionally, the Board took into consideration that the advisory fees, along with most of the Fund’s other operating expenses, would be paid by the Adviser. The Board also evaluated the compensation and benefits expected to be received by the Adviser from its relationship with the Fund.
The Board determined that the Adviser is likely to realize economies of scale in managing the Fund as assets grow in size and intends to monitor fees as the Fund grows in size and determine whether fee breakpoints may be warranted
The Board then reviewed the advisory fee to be paid by the Adviser to the Sub-Adviser for its services as Sub-Adviser to the Fund. The Board considered that the fees paid to the Sub-Adviser would be paid by the Adviser from the advisory fee the Adviser will receive and noted that the fee reflected an arms-length negotiation between the Adviser and the Sub-Adviser. The Board concluded that the sub-advisory fees were reasonable.
Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Agreements are fair and reasonable; (b) concluded that the Adviser’s and Sub- Adviser’s fees are reasonable in light of the services that the Adviser and Sub-Adviser will provide to the Fund; and (c) agreed to approve the Agreements for an initial term of two years.
22
TierraXPTM Latin America Real Estate ETF |
For the Period Ended March 31, 2016 (Unaudited) |
As a shareholder of TierraXPTM Latin America Real Estate ETF (the “Fund”) you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (December 2, 2015 to March 31, 2016).
Actual Expenses
The first line of the table provides information about actual account values based on actual returns and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
TierraXPTM Latin America Real Estate ETF
Beginning Account Value December 2, 2015 | Ending Account Value March 31, 2016 | Expenses Paid During the Period^ | ||||||||||
Actual | $ | 1,000.00 | $ | 1,101.70 | $ | 4.15 | ||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,012.58 | $ | 3.97 |
^ The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio multiplied by the average account value during the period, multiplied by 121/366 (to reflect the period from December 2, 2015 to March 31, 2016.
23
Advisor
Factor Advisors, LLC
30 Maple Street #2, Summit, NJ 07901
30 Maple Street #2, Summit, NJ 07901
Sub-Adviser
Penserra Capital Management, LLC
4 Orinda Way, Suite 100-A, Orinda, CA 94563
Distributor
ALPS Distributors, Inc.
1290 Broadway, Suite 1100, Denver, Colorado 80203
Custodian
U.S. Bank National Association
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
Transfer Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street, Milwaukee, Wisconsin 53202
Securities Lending Agent
U.S Bank, National Association
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Independent Registered Public Accounting Firm
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
24
Semi-Annual Report
March 31, 2016
March 31, 2016
The Restaurant ETF™
Ticker: BITE
Ticker: BITE
The Fund is a series of FactorShares Trust.
The Restaurant ETFTM | ||
TABLE OF CONTENTS | ||
March 31, 2016 |
Page | ||
2 | ||
3 | ||
4 | ||
5 | ||
6 | ||
7 | ||
9 | ||
10 | ||
11 | ||
12 | ||
13 | ||
20 | ||
21 | ||
23 |
On behalf of the entire team, we want to express our appreciation for the confidence you have placed in The Restaurant Exchange-Traded Fund (“BITE” or the “Fund”). The following information pertains to the fiscal period from October 28, 2015 (the Fund’s Inception Date) to March 31, 2016.
The Fund saw positive performance during the fiscal period ended March 31, 2016. The NAV price for BITE rose 3.16%, while the BITE Index (“Index”), the Fund’s benchmark, rose 3.34% over the same period. The primary difference between the Fund return and the Index return was attributable to Fund expenses, which are not a part of the Index.
For the period ended March 31, 2016, the best performing securities in the Fund were Domino’s Pizza (up 26.35%), Potbelly Corp (up 23.17%) and Texas Roadhouse (up 23.12%). The worst performing securities in the Fund were Chipotle Mexican Grill (down - 28.27%), Papa John’s Intl (down - 24.17%) and Noodles & Co (down - 20.83%).
US markets saw a sell off to begin 2016 on the back of falling oil prices and uncertainty around global growth and future actions of the Federal Reserve. From mid-February to the end of the period on March 31, 2016, markets staged a comeback, leaving the Fund and the index it tracks slightly positive for the fiscal period.
You can find further details about BITE by visiting www.biteetf.com, or by calling 1-800-ETF-MGRS (1-800-383-6477.
Sincerely,
Samuel Masucci III
Chairman of the Board
Chairman of the Board
Samuel Masucci III is a registered representative of ALPS Distributors, Inc.
2
The Restaurant ETFTM
Cumulative Returns | Since Inception |
Period Ended March 31, 2016 | (10/27/2015) |
The Restaurant ETFTM (NAV) | 3.16% |
The Restaurant ETFTM (Market) | 2.80% |
S&P 500 Index | 0.72% |
The BITE Index | 3.34% |
Total Fund Operating Expenses1 | 0.75% |
1. The expense ratio is taken from the Fund’s most recent prospectus dated October 17, 2015. |
Performance data quoted represents past performance and does not guarantee future results.may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on October 27, 2015, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the redemption of fund shares. The chart assumes reinvestment of capital gains and dividends, if any.
The unmanaged indices do not reflect fees and are not available for direct investment.
3
The Restaurant ETFTM
% of Total | ||||||
Security | Investments† | |||||
1 | Texas Roadhouse, Inc. | 2.94% | ||||
2 | Domino’s Pizza, Inc. | 2.88% | ||||
3 | Cracker Barrel Old Country Store, Inc. | 2.87% | ||||
4 | Sonic Corporation | 2.85% | ||||
5 | Carrols Restaurant Group, Inc. | 2.83% | ||||
6 | Darden Restaurants, Inc. | 2.79% | ||||
7 | Bob Evans Farms, Inc. | 2.75% | ||||
8 | Zoe’s Kitchen, Inc. | 2.70% | ||||
9 | Cheesecake Factory, Inc. | 2.66% | ||||
10 | Yum! Brands, Inc. | 2.66% |
Top Ten Holdings =27.93% of Total Investments† | ||
* Current Fund holdings may not be indicative of future Fund holdings. | ||
† Percentage of total investments less cash. |
4
The Restaurant ETFTM
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility.
The Restaurant ETFTM (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the BITE Index (the “Index”).
The Fund will be sensitive to changes in, and its performance will depend to a greater extent on, the overall condition of the retail sector. Returns on investments in foreign companies could be more volatile than, or trail the returns on, investments in U.S. companies. Smaller companies in which the Fund may invest may be more vulnerable to adverse business or economic events than larger, more established companies, and may underperform other segments of the market or the equity market as a whole. Companies owning and operating restaurants may be affected by the performance of the domestic and international economy, interest rates, rates of inflation, exchange rates, competition, consumer confidence and reputational damage. These companies may be subject to severe competition, which may have an adverse impact on their profitability. The Fund’s return may not match or achieve a high degree of correlation with the return of the BITE The Restaurant IndexTM . To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The Fund is new with limited operating history.
The BITE Index is an equal-weighted index of all restaurants that are publicly traded in the United States with a market cap of $200 million or greater and $1 million of daily average turnover. An equal-weighted approach helps to minimize the outsized impact that a few mega-cap restaurant operators can have on more traditional, market cap-weighted indexes.
S&P 500: The S&P 500 Index is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices.
5
The Restaurant ETFTM
As of March 31, 2016 (Unaudited)
The | ||||
Restaurant | ||||
ETFTM | ||||
As a percent of Net Assets: | ||||
Canada | 2.5 | % | ||
United States | 95.1 | |||
Virgin Islands (UK) | 2.3 | |||
Short-Term and other Net Assets (Liabilities) | 0.1 | |||
100.0 | % |
6
The Restaurant ETFTM
March 31, 2016 (Unaudited)
Market | ||||||||
Shares | Value | |||||||
COMMON STOCKS - 99.9% | ||||||||
Canada - 2.5% | ||||||||
Hotels, Restaurants & Leisure - 2.5% | ||||||||
Restaurant Brands International, Inc. | 1,657 | $ | 64,341 | |||||
United States - 95.1% | ||||||||
Hotels, Restaurants & Leisure - 95.1% | ||||||||
Biglari Holdings, Inc. (a) | 164 | 60,960 | ||||||
BJ’s Restaurants, Inc. (a) | 1,318 | 54,789 | ||||||
Bloomin’ Brands, Inc. | 3,504 | 59,112 | ||||||
Bob Evans Farms, Inc. | 1,520 | 70,969 | ||||||
Brinker International, Inc. | 1,331 | 61,159 | ||||||
Buffalo Wild Wings, Inc. (a) | 378 | 55,989 | ||||||
Carrols Restaurant Group, Inc. (a) | 5,043 | 72,821 | ||||||
Cheesecake Factory, Inc. ^ | 1,291 | 68,539 | ||||||
Chipotle Mexican Grill, Inc. (a) ^ | 106 | 49,923 | ||||||
Chuy’s Holdings, Inc. (a) | 1,825 | 56,703 | ||||||
Cracker Barrel Old Country Store, Inc. ^ | 485 | 74,046 | ||||||
Darden Restaurants, Inc. | 1,086 | 72,002 | ||||||
Dave & Busters Entertainment, Inc. (a) | 1,580 | 61,272 | ||||||
Del Frisco’s Restaurant Group, Inc. (a) | 4,048 | 67,116 | ||||||
Del Taco Restaurants, Inc. (a) | 5,495 | 56,763 | ||||||
Denny’s Corporation (a) | 6,296 | 65,227 | ||||||
DineEquity, Inc. | 716 | 66,896 | ||||||
Domino’s Pizza, Inc. | 562 | 74,106 | ||||||
Dunkin’ Brands Group, Inc. | 1,430 | 67,453 | ||||||
El Pollo Loco Holdings, Inc. (a) ^ | 4,939 | 65,886 | ||||||
Fiesta Restaurant Group, Inc. (a) | 1,576 | 51,661 | ||||||
Habit Restaurants, Inc. (a) | 2,524 | 47,022 | ||||||
Jack in the Box, Inc. | 820 | 52,373 | ||||||
Krispy Kreme Doughnuts, Inc. (a) | 4,288 | 66,850 | ||||||
McDonald’s Corporation | 536 | 67,364 | ||||||
Panera Bread Co. (a) | 332 | 68,004 | ||||||
Papa John’s International, Inc. ^ | 1,060 | 57,441 | ||||||
Popeyes Louisiana Kitchen, Inc. (a) | 1,050 | 54,663 | ||||||
Potbelly Corporation (a) | 4,866 | 66,226 | ||||||
Red Robin Gourmet Burgers, Inc. (a) | 898 | 57,894 | ||||||
Ruby Tuesday, Inc. (a) | 10,971 | 59,024 | ||||||
Ruth’s Hospitality Group, Inc. ^ | 3,524 | 64,877 | ||||||
Shake Shack, Inc. (a) ^ | 1,324 | 49,412 | ||||||
Sonic Corporation | 2,088 | 73,415 | ||||||
Starbucks Corporation | 992 | 59,222 | ||||||
Texas Roadhouse, Inc. | 1,735 | 75,612 | ||||||
Wendy’s Co. | 5,773 | 62,868 | ||||||
Yum! Brands, Inc. | 836 | 68,427 | ||||||
Zoe’s Kitchen, Inc. (a) ^ | 1,783 | 69,519 | ||||||
Total Hotels, Restaurants & Leisure | 2,453,605 | |||||||
Total United States | 2,453,605 |
The accompanying notes are an integral part of these financial statements.
7
The Restaurant ETFTM
Schedule of Investments
March 31, 2016 (Unaudited) (Continued)
Virgin Islands (UK) - 2.3% | ||||||||
Hotels, Restaurants & Leisure - 2.3% | ||||||||
Arcos Dorados Holdings, Inc. (a) | 15,512 | $ | 58,170 | |||||
Total Hotels, Restaurants & Leisure | 2,576,116 | |||||||
TOTAL COMMON STOCKS (Cost $2,532,127) | 2,576,116 | |||||||
SHORT-TERM INVESTMENTS - 8.1% | ||||||||
Mount Vernon Prime Portfolio, 0.54% (b) + | 208,592 | 208,592 | ||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $208,592) | 208,592 | |||||||
Total Investments (Cost $2,740,719) - 108.0% | 2,784,708 | |||||||
Liabilities in Excess of Other Assets - (8.0)% | (205,734 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 2,578,974 |
Percentages are stated as a percent of net assets.
(a) | Non-income producing security. |
(b) | The rate quoted is the annualized seven-day yield at March 31, 2016. |
^ | All or a portion of this security is out on loan as of March 31, 2016. Total value of securities out on loan is $203,284. |
+ | Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $208,592 as of March 31, 2016. |
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
8
The Restaurant ETFTM
The | ||||
Restaurant | ||||
ETFTM | ||||
ASSETS | ||||
Investments in securities, at value* | $ | 2,784,708 | ||
Cash | 2,983 | |||
Dividends and interest receivable | 588 | |||
Securities Lending income receivable | 329 | |||
Total Assets | 2,788,608 | |||
LIABILITIES | ||||
Collateral received for securities loaned (Note 7) | 208,592 | |||
Management fees payable | 1,042 | |||
Total Liabilities | 209,634 | |||
Net Assets | $ | 2,578,974 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 2,634,325 | ||
Undistributed (accumulated) net investment income (loss) | 3,436 | |||
Accumulated net realized gain (loss) on investments | (102,776 | ) | ||
Net unrealized appreciation (depreciation) on: | ||||
Investments in securities | 43,989 | |||
Foreign currency and translation of other assets and liabilities in foreign currency | — | |||
Net Assets | $ | 2,578,974 | ||
*Identified Cost: | ||||
Investments in unaffiliated securities | $ | 2,740,719 | ||
Shares Outstanding^ | 100,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 25.79 |
^ No par value, unlimited number of shares authorized
The accompanying notes are an integral part of these financial statements.
9
The Restaurant ETFTM
For the period ended March 31, 2016 (Unaudited)
The | ||||
Restaurant | ||||
ETFTM1 | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends from unaffiliated securities (net of foreign withholdings tax of $50) | $ | 9,043 | ||
Securities Lending Income | 1,086 | |||
Total Investment Income | 10,129 | |||
Expenses: | ||||
Management fees | 6,693 | |||
Total Expenses | 6,693 | |||
Net Investment Income (Loss) | 3,436 | |||
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Net Realized Gain (Loss) on: | ||||
Unaffiliated investments | (12,678 | ) | ||
In-Kind redemptions | (90,098 | ) | ||
Net Change in Unrealized Appreciation (Depreciation) of: | ||||
Unaffiliated investments in securities and foreign currency | 43,989 | |||
Net Realized and Unrealized Gain (Loss) on Investments | (58,787 | ) | ||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | (55,351 | ) |
1 | Fund commenced operations on October 2015. The information presented is for the period from October 27, 2015 to March 31, 2016. |
The accompanying notes are an integral part of these financial statements.
10
The Restaurant ETFTM
Period ended | ||||
March 31, 2016 | ||||
(Unaudited)* | ||||
OPERATIONS | ||||
Net investment income (loss) | $ | 3,436 | ||
Net realized gain (loss) on investments | (102,776 | ) | ||
Net change in unrealized appreciation (depreciation) of investments | 43,989 | |||
Net increase (decrease) in net assets resulting from operations | (55,351 | ) | ||
DISTRIBUTIONS TO SHAREHOLDERS | ||||
From net investment income | — | |||
CAPITAL SHARE TRANSACTIONS | ||||
Net increase (decrease) in net assets derived from net change in outstanding shares (a) | 2,634,325 | |||
Net increase (decrease) in net assets | $ | 2,578,974 | ||
NET ASSETS | ||||
Beginning of Period | $ | — | ||
End of Period | 2,578,974 | |||
Undistributed net investment income (loss) | $ | 3,436 |
(a) Summary of share transactions is as follows:
Period Ended March 31, 2016 (Unaudited) | ||||||||
Shares | Amount | |||||||
Shares Sold | 150,000 | $ | 3,775,415 | |||||
Reinvested Dividends | — | — | ||||||
Shares Redeemed | (50,000 | ) | (1,141,090 | ) | ||||
100,000 | $ | 2,634,325 | ||||||
Beginning Shares | — | |||||||
Ending Shares | 100,000 |
*Fund commenced operations on October 27, 2015. The information presented is for the period from October 27, 2015 to March 31, 2016.
The accompanying notes are an integral part of these financial statements.
11
The Restaurant ETFTM
For a capital share outstanding throughout the period
Financial Highlights
For a capital share outstanding throughout the period
Period Ended March 31, 2016 (Unaudited)1 | ||||
Net Asset Value, Beginning of Period | $ | 25.00 | ||
Income (Loss) from Investment Operations: | ||||
Net investment income (loss) 2 | 0.04 | |||
Net realized and unrealized gain (loss) on investments | 0.75 | |||
Total from investment operations | 0.79 | |||
Less Distributions: | ||||
Distributions from net investment income | — | |||
Total distributions | — | |||
Net asset value, end of period | $ | 25.79 | ||
Total Return | 3.16 | %3 | ||
Ratios/Supplemental Data: | ||||
Net assets at end of period (000’s) | $ | 2,579 | ||
Expenses to Average Net Assets | 0.75 | %4 | ||
Net Investment Income (Loss) to Average Net Assets | 0.38 | %4 | ||
Portfolio Turnover Rate | 11 | %3 |
1Commencement of operations on October 27, 2015.
2Calculated based on average shares outstanding during the period.
3Not annualized.
4Annualized.
The accompanying notes are an integral part of these financial statements.
12
The Restaurant ETFTM
NOTE 1 – ORGANIZATION
The Restaurant ETFTM (the “Fund”) is a series of FactorShares Trust (the “Trust”), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on July 1, 2009. The Trust is registered with the SEC under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Fund’s shares (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”). The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the BITE Index. The Fund commenced operations on October 27, 2015.
The Fund currently offers one class of shares, which has no front end sales load, no deferred sales charges, and no redemption fees. The Fund may issue an unlimited number of shares of beneficial interest, with no par value. All shares of the Fund have equal rights and privileges.
Shares of the Fund are listed and traded on the NASDAQ Stock Market, LLC. Market prices for the Shares may be different from their net asset value (“NAV”). The Fund issues and redeems Shares on a continuous basis at NAV only in blocks of 50,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified Index. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in quantities less than a Creation Unit. Except when aggregated in Creation Units, Shares are not redeemable securities of a Fund. Shares of a Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the Shares directly from a Fund. Rather, most retail investors may purchase Shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
A. | Security Valuation. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on the valuation date (or at approximately 4:00 pm Eastern Time if a security’s primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. |
Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees (the “Board”). When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Fund’s Board. The use of fair value pricing by a fund may cause the net asset value of its shares to differ |
13
The Restaurant ETFTM
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
significantly from the net asset value that would be calculated without regard to such considerations. As of March 31, 2016, the Fund did not hold any fair valued securities. | |
As described above, the Fund utilizes various methods to measure the fair value of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are: |
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. | |
Level 2 | Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. | |
Level 3 | Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. | |
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety. | |
The following is a summary of the inputs used to value the Fund’s investments as of March 31, 2016: |
The Restaurant ETFTM
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 2,576,116 | $ | — | $ | — | $ | 2,576,116 | ||||||||
Short-Term Investments | 208,592 | $ | — | $ | — | 208,592 | ||||||||||
Total Investments in Securities | $ | 2,784,708 | $ | — | $ | — | $ | 2,784,708 |
^ See Schedule of Investments for classifications by sector or country.
There were no transfers between Levels 1, 2 and 3 during the period ended March 31, 2016. Transfers between levels are recognized at the end of the reporting period.
14
The Restaurant ETFTM
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
B. | Federal Income Taxes. The Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. Therefore, no provisions for federal income taxes or excise taxes have been made. |
To avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare each year as dividends, in each calendar year, at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years. | |
Net capital losses incurred after October 31, within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year. | |
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. The Fund has analyzed its tax position and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Fund’s 2016 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal, the State of New Jersey, and the State of Delaware; however the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months. | |
C. | Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Income, including gains, from investments in foreign securities received by the Fund may be subject to income, withholding or other taxes imposed by foreign countries. |
D. | Foreign Currency Translations and Transactions. The Fund may engage in foreign currency transactions. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. For financial reporting purposes, the Fund does not isolate changes in the exchange rate of investment securities from the fluctuations arising from changes in the market prices of securities for unrealized gains and losses. However, for federal income tax purposes, the Fund does isolate and treat as ordinary income the effect of changes in foreign exchange rates on realized gains or losses from the sale of investment securities and payables and receivables arising from trade-date and settlement-date differences. |
E. | Distributions to Shareholders. Distributions to shareholders from net investment income are declared and paid for the Fund on a quarterly basis. Net realized gains on securities for the Fund normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. |
F. | Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. |
15
The Restaurant ETFTM
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
G. | Share Valuation. The net asset value (“NAV”) per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for the Fund, rounded to the nearest cent. The Fund’s shares will not be priced on the days on which the NYSE is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s net asset value per share. |
H. | Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. |
NOTE 3 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The “Derivatives and Hedging” Topic of the Codification (Accounting Standards Codification 815, formerly Statement of Financial Accounting Standards (“SFAS”) 133 and SFAS 161) requires enhanced disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial position, performance and cash flows. The Fund did not use derivatives during the period ended March 31, 2016.
NOTE 4 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
Factor Advisors, LLC (the “Advisor”), serves as the investment advisor to the Fund. Pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Fund, and the Advisor, the Advisor provides investment advice to the Fund and oversees the day-to-day operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Advisor is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate.
Under the Investment Advisory Agreement with the Fund, the Advisor has overall responsibility for the general management and administration of the Fund and arranges for sub-advisory, transfer agency, custody, fund administration, securities lending, and all other non-distribution related services necessary for the Fund to operate. The Advisor bears the costs of all advisory and non-advisory services required to operate the Fund, in exchange for a single unitary fee. For services provided the Fund pays the Advisor at an annual rate of 0.75% of the Fund’s average daily net assets. The Advisor has an agreement with, and is dependent on, a third party to pay the Fund’s expenses in excess of 0.75% of the Fund’s average daily net assets. Additionally, under the Investment Advisory Agreement, the Advisor has agreed to pay all expenses of the Fund, except for: the fee paid to the Advisor pursuant to the Investment Advisory Agreement, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses, and distribution (12b-1) fees and expenses (collectively, “Excluded Expenses”). The Advisor has entered into an Agreement with Big Tree Capital, LLC (the “Sponsor”), under which the Sponsor agrees to sublicense the use of the Underlying Index to the Advisor. The Sponsor also provides marketing support for the Fund, including distributing marketing materials related to the Fund. Big Tree Capital, LLC is a privately held business focused on bringing exchange-traded investment products to investors in the U.S. The Sponsor does not make investment decisions, provide investment advice, or otherwise act in the capacity of an investment
16
The Restaurant ETFTM
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
adviser to the Fund. Additionally, the Sponsor is not involved in the maintenance of the Underlying Index and does not otherwise act in the capacity of an index provider.
US Bancorp Fund Services, LLC (the “Administrator”) provides fund accounting, fund administration, and transfer agency services to the Fund. The Advisor compensates the Administrator for these services under an administration agreement between the two entities.
The Advisor pays each independent Trustee a quarterly fee for service to the Fund. Each Trustee is also reimbursed by the Advisor for all reasonable out-of-pocket expenses incurred in connection with his duties as Trustee, including travel and related expenses incurred in attending Board meetings.
NOTE 5 – DISTRIBUTION PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may pay compensation to the Distributor or any other distributor or financial institution with which the Trust has an agreement with respect to the Fund, with the amount of such compensation not to exceed an annual rate of 0.25% of each Fund’s daily average net assets. For the period ended March 31, 2016, the Fund did not incur any 12b-1 expenses.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
The costs of purchases and sales of securities, excluding short-term securities and in-kind transactions, for the period ended March 31, 2016:
Purchases | Sales | |||||||
The Restaurant ETFTM | $ | 320,945 | $ | 259,563 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the period ended March 31, 2016:
Purchases In- | Sales In- | |||||||
Kind | Kind | |||||||
The Restaurant ETFTM | $ | 3,706,849 | $ | 1,133,328 |
Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all proceeds from in-kind sales. Net capital gains or losses resulting from in-kind redemptions are excluded from the Fund’s taxable gains and are not distributed to shareholders.
During the period ended March 31, 2016, the Fund incurred broker commissions to affiliated broker Penserra LLC in the amount of $10.
There were no purchases or sales of U.S. Government obligations for the period ended March 31, 2016.
NOTE 7 — SECURITIES LENDING
The Fund may lend up to 331/3% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program administered by U.S. Bank N.A. (“the Custodian”). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any loaned
17
The Restaurant ETFTM
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
securities at the time of the loan, plus accrued interest. The Fund receives compensation in the form of fees and earn interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss in the fair value of securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand. As of March 31, 2016, the Fund had loaned securities and received cash collateral for the loans. The cash collateral is invested by the Custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the securities lending agent.
As of March 31, 2016, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan Collateral Received
Values of | Fund | |||||||
Securities | Collateral | |||||||
Fund | on Loan | Received* | ||||||
The Restaurant ETFTM | $ | 203,284 | $ | 208,592 |
* The cash collateral received was invested in the Mount Vernon Securities Lending Prime Portfolio as shown on the Schedule of Investments, a money market fund with an overnight and continuous maturity.
Fees and interest income earned on collateral investments and recognized by the Fund during the period ended March 31, 2016, was as follows:
Fees and Interest Income Earned
Fees and | ||||
Interest | ||||
Income | ||||
Fund | Earned | |||
The Restaurant ETFTM | $ | 1,086 |
Offsetting Assets and Liabilities
In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
At a special meeting held on May 24, 2016, the Trustees, including a majority of the Trustees who are not interested persons of the Trust (as defined in the 1940 Act), ratified the transfer of the Investment Advisory Agreement between Factor Advisors and the Trust (the “Advisory Agreement”), to, and the assumption of the Agreement by, ETF Managers Group LLC (“ETF Managers”), effective April 26, 2016. ETF Managers is an investment adviser registered with the SEC under the Investment Advisers Act of 1940, as amended, with the same ownership and identical personnel as Factor Advisors. Such transfer and assumption of the Agreement does not amount to an assignment of such Agreement under
18
The Restaurant ETFTM
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
the 1940 Act. Therefore, the Agreement remains in effect with ETF Managers serving as the investment adviser to the Fund.
At the special meeting held on May 24, 2016, the Board approved changing the name of the Trust to “ETF Managers Trust,” effective June 24, 2016.
Fund | Description | Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Statement of Assets & Liabilities | Net Amounts Presented in the Statement of Assets & Liabilities | Collateral Received | Net Amount | ||||||||||||||||
The Restaurant ETFTM | Securities Lending | $ | 208,592 | $ | 208,592 | $ | — | $ | 208,592 | $ | — |
NOTE 8 – DISTRIBUTIONS TO SHAREHOLDERS
The Fund did not pay any distributions from ordinary income or capital gains during the period ended March 31, 2016.
NOTE 9 – SUBSEQUENT EVENTS
In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
At a special meeting held on May 24, 2016, the Trustees, including a majority of the Trustees who are not interested persons of the Trust (as defined in the 1940 Act), ratified the transfer of the Investment Advisory Agreement between Factor Advisors and the Trust (the “Advisory Agreement”), to, and the assumption of the Agreement by, ETF Managers Group LLC (“ETF Managers”), effective April 26, 2016. ETF Managers is an investment adviser registered with the SEC under the Investment Advisers Act of 1940, as amended, with the same ownership and identical personnel as Factor Advisors. Such transfer and assumption of the Agreement does not amount to an assignment of such Agreement under the 1940 Act. Therefore, the Agreement remains in effect with ETF Managers serving as the investment adviser to the Fund.
At the special meeting held on May 24, 2016, the Board approved changing the name of the Trust to “ETF Managers Trust,” effective June 24, 2016.
19
The Restaurant ETFTM
March 31, 2016 (Unaudited)
Disclosure of Portfolio Holdings
The Fund files a Form N-Q with the Securities and Exchange Commission (the ‘‘SEC’’) no more than sixty days after the Fund’s first and third fiscal quarters. For the Fund, this would be for the fiscal quarters ending June 30 and December 31. Form N-Q includes a complete schedule of the Fund’s portfolio holdings as of the end of those fiscal quarters. The Fund’s N-Q filings can be found free of charge on the SEC’s website at http://www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (call 800-SEC-0330 for information on the operation of the Public Reference Room).
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 are available without charge, upon request, by calling 800-625-7071 or on the SEC’s website at http://www.sec.gov.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477) or by visiting www.biteetf.com. Read the prospectus carefully before investing.
20
The Restaurant ETFTM
For the Period Ended March 31, 2016 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on September 10, 2015, the Board of Trustees (the “Board”) of FactorShares Trust (the “Trust”) considered the approval of the following agreements (collectively, the “Agreements”):
• | the Advisory Agreement between Factor Advisors, LLC (the “Adviser”) and the Trust, on behalf of The Restaurant ETFTM (the “Fund”); and |
• | the Sub-Advisory Agreement between the Adviser and Penserra Capital Management LLC (the “Sub-Adviser”) with respect to the Fund. |
The Agreements must be approved: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Agreements or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year after the initial two-year term, the Board will call and hold a meeting to decide whether to renew the Agreements for an additional one-year term. In preparation for such meetings, the Board requests and reviews a wide variety of information from the Adviser and the Sub-Adviser.
Prior to and at the meeting held on September 10, 2015 the Board, including the Independent Trustees, reviewed written and oral information from the Advisor and the Sub-Adviser regarding, among other things: (i) the nature, extent and quality of the services to be provided to the Fund’s shareholders by the Adviser and the Sub-Adviser; (ii) the Adviser’s and the Sub-Adviser’s cost and profits they will realize in providing their services, including any fall-out benefits enjoyed by the Adviser and the Sub-Adviser; (iii) comparative fee and expense data for the Fund and other investment companies with similar investment objectives; (iv) the extent to which economies of scale would be realized as the Fund grows and whether the proposed advisory fee for the Fund reflects these economies of scale for the benefit of the Fund; and (v) other financial benefits to the Adviser and Sub-Adviser and their affiliates resulting from services rendered to the Fund. The Board’s review included relevant information furnished to the Board throughout the year. Among other things, representatives from the Adviser and the Sub-Adviser provided overviews of their advisory businesses, including investment personnel and investment processes. The Adviser and Sub-Adviser each discussed its experience with exchange-traded funds. The representatives discussed the services to be provided by the Sub-Adviser, which would be responsible for executing purchase and sale transactions in the Fund. The representatives also discussed the rationale for launching the Fund, the Fund’s fees and fee structures of comparable investment companies. The Board then discussed the written materials that it received before the meeting and throughout the year and the Adviser and Sub-Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the approval of the Agreements in light of this information. In its deliberations, the Board did not identify any single piece of information discussed below that was all-important or controlling.
Nature, Extent and Quality of Services Provided by the Adviser and the Sub-Adviser
The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser will be providing investment management services to the Fund. In considering the nature, extent and quality of the services provided by the Adviser, the Board reviewed the quality of the Adviser’s compliance infrastructure. The Board also considered the Adviser’s experience managing ETFs, including other series of the Trust.
The Board also considered other services to be provided to the Fund, such as overseeing the activities of the Sub-Advisor, as well as the Fund’s other service providers, monitoring adherence to the Fund’s investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities regulations.
21
The Restaurant ETFTM
APPROVAL OF ADVISORY AGREEMENT & BOARD CONSIDERATIONS
For the Period Ended March 31, 2016 (Unaudited) (Continued)
For the Period Ended March 31, 2016 (Unaudited) (Continued)
The Trustees then considered the scope of services to be provided under the Sub-Advisory Agreement, noting that Sub-Adviser will be providing investment management services to the Fund. The Board discussed the responsibilities of the Sub-Adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of the Fund; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; oversight of general portfolio compliance with relevant law; responsibility for daily monitoring of tracking error and quarterly reporting to the Board; and implementation of Board directives as they relate to the Fund. In considering the nature, extent and quality of the services to be provided by the Sub-Advisor, the Board considered the history and experience Sub-Adviser has as an investment advisor, as well the experience of its personnel in managing ETFs.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services to be provided to the Fund by the Adviser and the Sub-Adviser.
Cost of Services Provided and Economies of Scale
The Board reviewed the Fund’s estimated expense ratio and the advisory fee to be paid by the Fund, considered the expense ratios of comparable Funds. The Board also took into consideration management’s discussion of the fees and other factors considered. The Board concluded that the advisory fee was reasonable and the result of arm’s length negotiations. Additionally, the Board took into consideration that the advisory fees, along with most of the Fund’s other operating expenses, would be paid by the Adviser. The Board also evaluated the compensation and benefits expected to be received by the Adviser from its relationship with the Fund.
The Board determined that the Adviser is likely to realize economies of scale in managing the Fund as assets grow in size and intends to monitor fees as the Fund grows in size and determine whether fee breakpoints may be warranted
The Board then reviewed the advisory fee to be paid by the Adviser to the Sub-Adviser for its services as Sub-Adviser to the Fund. The Board considered that the fees paid to the Sub-Adviser would be paid by the Adviser from the advisory fee the Adviser will receive and noted that the fee reflected an arms-length negotiation between the Adviser and the Sub-Adviser. The Board concluded that the sub-advisory fees were reasonable.
Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Agreements are fair and reasonable; (b) concluded that the Adviser’s and Sub-Adviser’s fees are reasonable in light of the services that the Adviser and Sub-Adviser will provide to the Fund; and (c) agreed to approve the Agreements for an initial term of two years.
22
The Restaurant ETFTM
For the Period Ended March 31, 2016 (Unaudited)
As a shareholder of The Restaurant ETFTM (the “Fund”) you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (October 27, 2015 to March 31, 2016).
Actual Expenses
The first line of the table provides information about actual account values based on actual returns and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
The Restaurant ETFTM
Beginning Account Value October 27, 2015 | Ending Account Value March 31, 2016 | Expenses Paid During the Period^ | ||||||||||
Actual | $ | 1,000.00 | $ | 1,031.60 | $ | 3.81 | ||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,017.70 | $ | 3.78 |
^ The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio multiplied by the average account value during the period, multiplied by 157/366 (to reflect the period from October 27, 2015 to March 31, 2016.
23
Advisor
Factor Advisors, LLC
30 Maple Street #2, Summit, NJ 07901
30 Maple Street #2, Summit, NJ 07901
Sub-Adviser
Penserra Capital Management, LLC
4 Orinda Way, Suite 100-A, Orinda, CA 94563
4 Orinda Way, Suite 100-A, Orinda, CA 94563
Distributor
ALPS Distributors, Inc.
1290 Broadway, Suite 1100, Denver, Colorado 80203
1290 Broadway, Suite 1100, Denver, Colorado 80203
Custodian
U.S. Bank National Association
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
Transfer Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street, Milwaukee, Wisconsin 53202
615 East Michigan Street, Milwaukee, Wisconsin 53202
Securities Lending Agent
U.S Bank, National Association
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Independent Registered Public Accounting Firm
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
1666 K Street NW, Washington, DC 20006
24
Semi-Annual Report
March 31, 2016
March 31, 2016
BlueStar TA-BIGITech™ Israel Technology ETF
Ticker: ITEQ
The Fund is a series of FactorShares Trust.
BlueStar TA-BIGITechTM Israel Technology ETF
TABLE OF CONTENTS | |
March 31, 2016 | |
Page | |
2 | |
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7 | |
11 | |
12 | |
13 | |
14 | |
15 | |
22 | |
23 | |
25 |
On behalf of the entire team, we want to express our appreciation for the confidence you have placed in the Bluestar TA-BIGITech Israel Technology Exchange-Traded Fund (“ITEQ” or the “Fund”). The following information pertains to the fiscal period from November 3, 2015 (the Fund’s Inception Date) to March 31, 2016.
The Fund saw negative performance during the fiscal period ended March 31, 2016. The NAV price for ITEQ fell -4.43%, while the TASE-Bluestar Israel Global Technology Index (“Index”), the Fund’s benchmark, fell -4.14% over the same period. The difference was primarily attributable to Fund expenses that are not a part of the Index.
For the period ended March 31, 2016, the best performing securities in the Fund were Plus500 (up 53.96%), Orbotech (up 43.17%) and Solaredge Technologies (up 38.97%). The worst performing securities in the Fund were Chiasma (down - 54.7%), Alcobra (down - 54.23%) and Supercom (down - 54.23%).
Global markets saw a sell off to begin 2016 on the back of falling oil prices and uncertainty around global growth and future actions of the Federal Reserve. From mid-February to the end of the period on March 31, 2016, global markets staged a comeback, leaving the Fund and the index it tracks slightly negative for the fiscal period.
We believe Israeli companies play an essential role in the global high technology value chain. Most technology users, from online shoppers to Fortune 500 companies, use Israeli technology applications and solutions every day without ever being aware of it. From cybersecurity and defense to clean energy and agriculture, Israeli innovations power some of the biggest names in the tech industry today.
There are seven technology sub---industries in particular where Israeli companies have greater than a 5% market share worldwide1:
● | 3D Printing (45%) | |
● | Advanced Driver Assistance (28%) | |
● | Cybersecurity Software (23%) | |
● | Communications Software (13%) | |
● | App-Specific Input/Output & Storage (13%) | |
● | Geothermal Energy (8%) | |
● | Business Process Outsourcing (5%) |
Even in industries where Israeli companies do not have dominant individual market share, the collective footprint of Israeli companies is significant in many key technology subsectors, and Israel-based Research & Development and non-public companies are usually significant contributors to that same sub-industry’s ecosystem.
There is much ahead for Israeli Technology companies and we are thankful you have joined us. You can find further details about ITEQ by visiting www.ITEQETF.com, or by calling 1-844-ETF-MGRS. (1-844-383‐6477).
Sincerely,
Samuel Masucci III Chairman of the Board
Samuel Masucci III is a registered representative of ALPS Distributors, Inc.
1 Bloomberg, BlueStar Global Investors LLC, September 30, 2015
2
BlueStar TA‐BIGITechTM Israel Technology ETF
Cumulative Returns | Since Inception | |||
Period Ended March 31, 2016 | (11/2/2015) | |||
BlueStar TA-BIGITechTM Israel Technology ETF (NAV) | -4.43 | % | ||
BlueStar TA-BIGITechTM Israel Technology ETF (Market) | -3.84 | % | ||
S&P 500 Index | -1.13 | % | ||
BlueStar Israel Global TechnologyTM Index | -4.14 | % | ||
Total Fund Operating Expenses1 | 0.75 | % |
1. The expense ratio is taken from the Fund’s most recent prospectus dated October 21, 2015.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on November 2, 2015, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the redemption of fund shares. The chart assumes reinvestment of capital gains and dividends, if any.
The unmanaged indices do not reflect fees and are not available for direct investment.
3
BlueStar TA-BIGITechTM Israel Technology ETF
Security | % of Total Investments† | ||||
1 | Amdocs Ltd. | 11.01% | |||
2 | Check Point Software Technologies Ltd. | 10.45% | |||
3 | Mobileye NV | 8.81% | |||
4 | Mellanox Technologies Ltd. | 5.90% | |||
5 | NICE-Systems Ltd. | 5.06% | |||
6 | OPKO Health, Inc. | 4.28% | |||
7 | Elbit Systems Ltd. | 4.21% | |||
8 | Verint Systems, Inc. | 3.76% | |||
9 | Ormat Technologies, Inc. | 2.96% | |||
10 | Imperva, Inc. | 2.77% |
Top Ten Holdings = 59.21% of Total Investments†
* Current Fund holdings may not be indicative of future Fund holdings.
† Percentage of total investments less cash.
4
BlueStar TA-BIGITechTM Israel Technology ETF
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility.
The BlueStar TA-BIGITechTM Israel Technology ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the TASE-BlueStar Israel Global Technology IndexTM (“TA-BIGITechTM” or the “Index”).
Investment in securities of Israeli companies involves risks that may negatively affect the value of your investment in the Fund. Among other things, Israel’s economy depends on imports of certain key items, such as crude oil, coal, grains, raw materials and military equipment. Foreign investing involves special risks such as currency fluctuations and political uncertainty. Funds that invest in smaller companies may experience greater volatility. Funds that emphasize investments in technology generally will experience greater price volatility. The Fund’s return may not match or achieve a high degree of correlation with the return of the TA-BIGITechTM Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The Fund is new with limited operating history.
The TASE- BlueStar Israel Technology IndexTM (TA-BIGITechTM ) is an index of more than 60 Israeli technology companies listed on global stock exchanges in Tel Aviv, New York, London and elsewhere.
S&P 500: The S&P 500 Index is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices.
5
BlueStar TA-BIGITechTM Israel Technology ETF
As of March 31, 2016 (Unaudited)
BlueStar TA- BIGITechTM Israel Technology ETF | ||||
As a percent of Net Assets: | ||||
Guernsey | 11.4 | % | ||
Isle of Man | 0.2 | |||
Israel | 52.7 | |||
Jersey | 0.4 | |||
Netherlands | 8.7 | |||
Netherlands Antilles | 1.0 | |||
United Kingdom | 3.3 | |||
United States | 21.0 | |||
Short-Term and other Net Assets (Liabilities) | 1.3 | |||
100.0 | % |
6
BlueStar TA-BIGITechTM Israel Technology ETF
March 31, 2016 (Unaudited)
Market | ||||||||
Shares | Value | |||||||
COMMON STOCKS - 98.7% | ||||||||
Guernsey - 11.4% | ||||||||
IT Services - 10.8% | ||||||||
Amdocs Ltd. | 6,444 | $ | 389,346 | |||||
Technology Hardware, Storage & Peripherals - 0.6% | ||||||||
SafeCharge International Group Ltd. | 5,841 | 21,602 | ||||||
Total Guernsey | 410,948 | |||||||
Isle Of Man - 0.2% | ||||||||
Media - 0.2% | ||||||||
Crossrider PLC (a) | 14,891 | 7,806 | ||||||
Israel - 52.7% | ||||||||
Aerospace & Defense - 4.2% | ||||||||
Elbit Systems Ltd. | 1,580 | 148,778 | ||||||
Biotechnology - 1.0% | ||||||||
Enzymotec Ltd. (a) | 2,061 | 18,610 | ||||||
Kamada Ltd. (a) | 4,109 | 15,862 | ||||||
Total Biotechnology | 34,472 | |||||||
Chemicals - 0.5% | ||||||||
Evogene Ltd. (a) | 2,932 | 19,561 | ||||||
Communications Equipment - 4.6% | ||||||||
Allot Communications Ltd. (a) | 3,760 | 19,580 | ||||||
AudioCodes Ltd. (a) | 4,380 | 20,301 | ||||||
Ceragon Networks Ltd. (a) | 12,787 | 16,239 | ||||||
Ituran Location And Control Ltd. | 1,501 | 29,495 | ||||||
RADCOM Ltd. (a) | 1,327 | 18,167 | ||||||
Radware Ltd. (a) | 3,171 | 37,513 | ||||||
Silicom Ltd. | 734 | 25,059 | ||||||
Total Communications Equipment | 166,354 | |||||||
Diversified Financial Services - 1.0% | ||||||||
Elron Electronic Industries Ltd. (a) | 2,894 | 13,198 | ||||||
Hilan Ltd. | 1,523 | 20,512 | ||||||
Total Diversified Financial Services | 33,710 | |||||||
Electronic Equipment, Instruments & Components - 2.0% | ||||||||
Orbotech Ltd. (a) | 2,515 | 59,806 | ||||||
SuperCom Ltd. (a) | 2,862 | 11,391 | ||||||
Total Electronic Equipment, Instruments & Components | 71,197 | |||||||
Health Care Equipment & Supplies - 2.4% | ||||||||
Brainsway Ltd. (a) | 2,410 | 10,464 | ||||||
Mazor Robotics Ltd. (a) | 4,981 | 30,235 | ||||||
ReWalk Robotics Ltd. (a) ^ | 2,083 | 19,580 | ||||||
Syneron Medical Ltd. (a) | 3,502 | 25,600 | ||||||
Total Health Care Equipment & Supplies | 85,879 |
The accompanying notes are an integral part of these financial statements.
7
BlueStar TA-BIGITechTM Israel Technology ETF
Schedule of Investments
March 31, 2016 (Unaudited) (Continued)
Household Durables - 0.5% | ||||||||
Maytronics Ltd. | 6,348 | $ | 16,401 | |||||
Internet Software & Services - 1.8% | ||||||||
CYREN Ltd. (a) | 9,013 | 15,232 | ||||||
Wix.com Ltd. (a) | 2,353 | 47,695 | ||||||
Total Internet Software & Services | 62,927 | |||||||
IT Services - 0.6% | ||||||||
Matrix IT Ltd. | 3,617 | 23,158 | ||||||
Machinery - 1.2% | ||||||||
Kornit Digital Ltd. (a) | 1,560 | 15,522 | ||||||
Sarine Technologies Ltd. | 23,100 | 28,621 | ||||||
Total Machinery | 44,143 | |||||||
Pharmaceuticals - 3.3% | ||||||||
Alcobra Ltd. (a) | 3,325 | 12,602 | ||||||
BioLine RX Ltd. (a) | 10,657 | 11,156 | ||||||
Compugen Ltd. (a) | 4,833 | 27,290 | ||||||
Foamix Pharmaceuticals Ltd. (a) | 2,673 | 17,427 | ||||||
MediWound Ltd. (a) | 1,716 | 13,848 | ||||||
Neuroderm Ltd. (a) | 1,230 | 17,368 | ||||||
Redhill Biopharma Ltd. (a) | 15,060 | 17,621 | ||||||
Total Pharmaceuticals | 117,312 | |||||||
Semiconductors & Semiconductor Equipment - 8.2% | ||||||||
Mellanox Technologies Ltd. (a) | 3,840 | 208,626 | ||||||
Nova Measuring Instruments Ltd. (a) | 2,560 | 26,648 | ||||||
Tower Semiconductor Ltd. (a) | 4,869 | 60,042 | ||||||
Total Semiconductors & Semiconductor Equipment | 295,316 | |||||||
Software - 19.0% | ||||||||
Attunity Ltd. (a) | 1,761 | 12,609 | ||||||
Check Point Software Technologies Ltd. (a) ^ | 4,225 | 369,560 | ||||||
CyberArk Software Ltd. (a) ^ | 1,404 | 59,853 | ||||||
Formula Systems 1985 Ltd. | 901 | 27,657 | ||||||
Magic Software Enterprises Ltd. ^ | 3,332 | 22,558 | ||||||
NICE-Systems Ltd. | 2,726 | 178,891 | ||||||
Perion Network Ltd. (a) | 5,797 | 11,720 | ||||||
Total Software | 682,848 | |||||||
Technology Hardware, Storage & Peripherals - 2.4% | ||||||||
Stratasys Ltd. (a) ^ | 3,256 | 84,396 | ||||||
Total Israel | 1,886,452 | |||||||
Jersey - 0.4% | ||||||||
Media - 0.4% | ||||||||
XLMedia PLC | 13,342 | 13,893 | ||||||
Netherlands - 8.7% | ||||||||
Software - 8.7% | ||||||||
Mobileye NV (a) ^ | 8,359 | 311,707 |
The accompanying notes are an integral part of these financial statements.
8
BlueStar TA-BIGITechTM Israel Technology ETF
Schedule of Investments
March 31, 2016 (Unaudited) (Continued)
Netherlands Antilles - 1.0% | ||||||||
Software - 1.0% | ||||||||
Sapiens International Corporation NV | 2,649 | $ | 31,530 | |||||
United Kingdom - 3.3% | ||||||||
Communications Equipment - 0.7% | ||||||||
Telit Communications PLC | 8,091 | 25,391 | ||||||
Diversified Financial Services - 1.3% | ||||||||
Plus500 Ltd. | 5,569 | 49,231 | ||||||
Hotels, Restaurants & Leisure - 1.0% | ||||||||
888 Holdings PLC | 11,587 | 35,322 | ||||||
Media - 0.3% | ||||||||
Matomy Media Group Ltd. (a) | 9,606 | 11,624 | ||||||
Total United Kingdom | 121,568 | |||||||
United States - 21.0% | ||||||||
Biotechnology - 2.0% | ||||||||
Brainstorm Cell Therapeutics, Inc. (a) | 4,980 | 13,297 | ||||||
Chiasma, Inc. (a) ^ | 916 | 8,391 | ||||||
Medgenics, Inc. (a) | 3,544 | 15,594 | ||||||
Pluristem Therapeutics Ltd. (a) | 13,802 | 21,686 | ||||||
Protalix BioTherapeutics, Inc. (a) | 16,799 | 14,316 | ||||||
Total Biotechnology | 73,284 | |||||||
Communications Equipment - 0.6% | ||||||||
Gilat Satellite Networks Ltd. (a) | 4,707 | 21,929 | ||||||
Electric Utilities - 3.0% | ||||||||
Ormat Technologies, Inc. | 2,542 | 104,759 | ||||||
Health Care Equipment & Supplies - 0.2% | ||||||||
EndoChoice Holdings, Inc. (a) | 1,643 | 8,560 | ||||||
Pharmaceuticals - 4.6% | ||||||||
OPKO Health, Inc. (a) | 15,036 | 151,510 | ||||||
Oramed Pharmaceuticals, Inc. (a) | 1,741 | 11,595 | ||||||
Total Pharmaceuticals | 163,105 | |||||||
Semiconductors & Semiconductor Equipment - 2.8% | ||||||||
CEVA, Inc. (a) | 1,747 | 39,308 | ||||||
DSP Group, Inc. (a) | 2,368 | 21,596 | ||||||
SolarEdge Technologies, Inc. (a) | 1,554 | 39,068 | ||||||
Total Semiconductors & Semiconductor Equipment | 99,972 | |||||||
Software - 7.8% | ||||||||
Imperva, Inc. (a) ^ | 1,938 | 97,869 | ||||||
LivePerson, Inc. (a) | 4,946 | 29,271 | ||||||
Varonis Systems, Inc. (a) | 1,208 | 22,046 | ||||||
Verint Systems, Inc. (a) | 3,982 | 132,919 | ||||||
Total Software | 282,105 | |||||||
Total United States | 753,714 | |||||||
TOTAL COMMON STOCKS (Cost $3,610,231) | 3,537,618 |
The accompanying notes are an integral part of these financial statements.
9
BlueStar TA-BIGITechTM Israel Technology ETF
Schedule of Investments
March 31, 2016 (Unaudited) (Continued)
SHORT-TERM INVESTMENTS - 17.7% | ||||||||
Mount Vernon Prime Portfolio, 0.54% (b) + | 634,930 | $ | 634,930 | |||||
TOTAL SHORT-TERM INVESTMENTS (Cost $634,930) | 634,930 | |||||||
Total Investments (Cost $4,245,161) - 116.4% | 4,172,548 | |||||||
Liabilities in Excess of Other Assets - (16.4)% | (588,730 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 3,583,818 |
Percentages are stated as a percent of net assets.
(a) | Non-income producing security. |
(b) | The rate quoted is the annualized seven-day yield at March 31, 2016. |
^ | All or a portion of this security is out on loan as of March 31, 2016. Total value of securities out on loan is $630,375. |
+ | Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $634,930 as of March 31, 2016. |
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
10
BlueStar TA-BIGITechTM Israel Technology ETF
As of March 31, 2016 (Unaudited)
BlueStar TA- BIGITechTM Israel Technology ETF | ||||
ASSETS | ||||
Investments in securities, at value* | $ | 4,172,548 | ||
Cash | 43,760 | |||
Receivable for investments sold | 3 | |||
Dividends and interest receivable | 5,920 | |||
Securities Lending income receivable | 844 | |||
Total Assets | 4,223,075 | |||
LIABILITIES | ||||
Payable for investments purchased | 2,452 | |||
Collateral received for securities loaned (Note 7) | 634,930 | |||
Management fees payable | 1,875 | |||
Total Liabilities | 639,257 | |||
Net Assets | $ | 3,583,818 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 3,656,040 | ||
Undistributed (accumulated) net investment income (loss) | 3,460 | |||
Accumulated net realized gain (loss) on investments | (3,060 | ) | ||
Net unrealized appreciation (depreciation) on: | ||||
Investments in securities | (72,613 | ) | ||
Foreign currency and translation of other assets and liabilities in foreign currency | (9 | ) | ||
Net Assets | $ | 3,583,818 | ||
*Identified Cost: | ||||
Investments in securities | $ | 4,245,161 | ||
Shares Outstanding^ | 150,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 23.89 |
^ No par value, unlimited number of shares authorized
The accompanying notes are an integral part of these financial statements.
11
BlueStar TA-BIGITechTM Israel Technology ETF
For the period ended March 31, 2016 (Unaudited)
BlueStar TA- BIGITechTM Israel Technology ETF 1 | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends from unaffiliated securities (net of foreign withholdings tax of $1,127) | $ | 9,645 | ||
Securities Lending Income | 1,268 | |||
Total Investment Income | 10,913 | |||
Expenses: | ||||
Management fees | 7,453 | |||
Total Expenses | 7,453 | |||
Net Investment Income (Loss) | 3,460 | |||
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Net Realized Gain (Loss) on: | ||||
Unaffiliated investments | (5,132 | ) | ||
Foreign currency | 2,072 | |||
Net Change in Unrealized Appreciation (Depreciation) of: | ||||
Unaffiliated investments in securities and foreign currency | (72,613 | ) | ||
Foreign currency | (9 | ) | ||
Net Realized and Unrealized Gain (Loss) on Investments | (75,682 | ) | ||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | (72,222 | ) |
1 Fund commenced operations on November 2, 2015. The information presented is for the period from November 2, 2015 to March 31, 2016.
The accompanying notes are an integral part of these financial statements.
12
BlueStar TA-BIGITechTM Israel Technology ETF
Period ended March 31, 2016 (Unaudited)* | ||||
OPERATIONS | ||||
Net investment income (loss) | $ | 3,460 | ||
Net realized gain (loss) on investments | (3,060 | ) | ||
Net change in unrealized appreciation (depreciation) of investments | (72,622 | ) | ||
Net increase (decrease) in net assets resulting from operations | (72,222 | ) | ||
DISTRIBUTIONS TO SHAREHOLDERS | ||||
From net investment income | — | |||
CAPITAL SHARE TRANSACTIONS | ||||
Net increase (decrease) in net assets derived from net change in outstanding shares (a) | 3,656,040 | |||
Net increase (decrease) in net assets | $ | 3,583,818 | ||
NET ASSETS | ||||
Beginning of Period | $ | — | ||
End of Period | 3,583,818 | |||
Undistributed net investment income (loss) | $ | 3,460 |
(a) Summary of share transactions is as follows:
Period Ended March 31, 2016 (Unaudited) | ||||||||
Shares | Amount | |||||||
Shares Sold | 150,000 | $ | 3,656,040 | |||||
Reinvested Dividends | — | — | ||||||
Shares Redeemed | — | — | ||||||
150,000 | $ | 3,656,040 | ||||||
Beginning Shares | — | |||||||
Ending Shares | 150,000 |
*Fund commenced operations on November 2, 2015. The information presented is for the period from November 2, 2015 to March 31, 2016.
The accompanying notes are an integral part of these financial statements.
13
BlueStar TA-BIGITechTM Israel Technology ETF
For a capital share outstanding throughout the period
Period Ended March 31, 2016 (Unaudited)1 | ||||
Net Asset Value, Beginning of Period | $ | 25.00 | ||
Income (Loss) from Investment Operations: | ||||
Net investment income (loss) 2 | 0.03 | |||
Net realized and unrealized gain (loss) on investments | (1.14 | ) | ||
Total from investment operations | (1.11 | ) | ||
Less Distributions: | ||||
Distributions from net investment income | — | |||
Total distributions | — | |||
Net asset value, end of period | $ | 23.89 | ||
Total Return | -4.43 | %3 | ||
Ratios/Supplemental Data: | ||||
Net assets at end of period (000’s) | $ | 3,584 | ||
Expenses to Average Net Assets | 0.75 | %4 | ||
Net Investment Income (Loss) to Average Net Assets | 0.35 | %4 | ||
Portfolio Turnover Rate | 10 | %3 |
1 Commencement of operations on November 2, 2015.
2 Calculated based on average shares outstanding during the period.
3 Not annualized.
4 Annualized.
The accompanying notes are an integral part of these financial statements.
14
BlueStar TA-BIGITechTM Israel Technology ETF
March 31, 2016 (Unaudited)
NOTE 1 – ORGANIZATION
BlueStar TA-BIGITechTM Israel Technology ETF (the “Fund”) is a series of FactorShares Trust (the “Trust”), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on July 1, 2009. The Trust is registered with the SEC under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Fund’s shares (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”). The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the TASE-BlueStar Israel Global Technology IndexTM. The Fund commenced operations on November 2, 2015.
The Fund currently offers one class of shares, which has no front end sales load, no deferred sales charges, and no redemption fees. The Fund may issue an unlimited number of shares of beneficial interest, with no par value. All shares of the Fund have equal rights and privileges.
Shares of the Fund are listed and traded on the NASDAQ Stock Market, LLC. Market prices for the Shares may be different from their net asset value (“NAV”). The Fund issues and redeems Shares on a continuous basis at NAV only in blocks of 50,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified Index. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in quantities less than a Creation Unit. Except when aggregated in Creation Units, Shares are not redeemable securities of a Fund. Shares of a Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the Shares directly from a Fund. Rather, most retail investors may purchase Shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
A. | Security Valuation. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on the valuation date (or at approximately 4:00 pm Eastern Time if a security’s primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. |
Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees (the “Board”). When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Fund’s Board. The use of fair value pricing by a fund may cause the net asset value of its shares to differ |
15
BlueStar TA-BIGITechTM Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
significantly from the net asset value that would be calculated without regard to such considerations. As of March 31, 2016, the Fund did not hold any fair valued securities. | ||
As described above, the Fund utilizes various methods to measure the fair value of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are: | ||
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. | |
Level 2 | Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. | |
Level 3 | Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. | |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. | ||
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety. | ||
The following is a summary of the inputs used to value the Fund’s investments as of March 31, 2016: |
BlueStar TA-BIGITechTM Israel Technology ETF
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 3,537,618 | $ | — | $ | — | $ | 3,537,618 | ||||||||
Short-Term Investments | 634,930 | — | — | 634,930 | ||||||||||||
Total Investments in Securities | $ | 4,172,548 | $ | — | $ | — | $ | 4,172,548 |
^ See Schedule of Investments for classifications by sector or country.
There were no transfers between Levels 1, 2 and 3 during the period ended March 31, 2016. Transfers between levels are recognized at the end of the reporting period.
16
BlueStar TA-BIGITechTM Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
B. | Federal Income Taxes. The Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. Therefore, no provisions for federal income taxes or excise taxes have been made. |
To avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare each year as dividends, in each calendar year, at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years. | |
Net capital losses incurred after October 31, within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year. | |
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. The Fund has analyzed its tax position and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Fund’s 2016 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal, the State of New Jersey, and the State of Delaware; however the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months. | |
C. | Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Income, including gains, from investments in foreign securities received by the Fund may be subject to income, withholding or other taxes imposed by foreign countries. |
D. | Foreign Currency Translations and Transactions. The Fund may engage in foreign currency transactions. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. For financial reporting purposes, the Fund does not isolate changes in the exchange rate of investment securities from the fluctuations arising from changes in the market prices of securities for unrealized gains and losses. However, for federal income tax purposes, the Fund does isolate and treat as ordinary income the effect of changes in foreign exchange rates on realized gains or losses from the sale of investment securities and payables and receivables arising from trade-date and settlement-date differences. |
E. | Distributions to Shareholders. Distributions to shareholders from net investment income are declared and paid for the Fund on a quarterly basis. Net realized gains on securities for the Fund normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. |
F. | Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. |
17
BlueStar TA-BIGITechTM Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
G. | Share Valuation. The net asset value (“NAV”) per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for the Fund, rounded to the nearest cent. The Fund’s shares will not be priced on the days on which the NYSE is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s net asset value per share. |
H. | Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. |
NOTE 3 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The “Derivatives and Hedging” Topic of the Codification (Accounting Standards Codification 815, formerly Statement of Financial Accounting Standards (“SFAS”) 133 and SFAS 161) requires enhanced disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial position, performance and cash flows. The Fund did not use derivatives during the period ended March 31, 2016.
NOTE 4 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
Factor Advisors, LLC (the “Advisor”), serves as the investment advisor to the Fund. Pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Fund, and the Advisor, the Advisor provides investment advice to the Fund and oversees the day-to-day operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Advisor is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate.
Under the Investment Advisory Agreement with the Fund, the Advisor has overall responsibility for the general management and administration of the Fund and arranges for sub-advisory, transfer agency, custody, fund administration, securities lending, and all other non-distribution related services necessary for the Fund to operate. The Advisor bears the costs of all advisory and non-advisory services required to operate the Fund, in exchange for a single unitary fee. For services provided the Fund pays the Advisor at an annual rate of 0.75% of the Fund’s average daily net assets. The Advisor has an agreement with, and is dependent on, a third party to pay the Fund’s expenses in excess of 0.75% of the Fund’s average daily net assets. Additionally, under the Investment Advisory Agreement, the Advisor has agreed to pay all expenses of the Fund, except for: the fee paid to the Advisor pursuant to the Investment Advisory Agreement, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses, and distribution (12b-1) fees and expenses (collectively, “Excluded Expenses”). The Advisor has entered into an Agreement with ITEQ ETF Partners, LLC (the “Sponsor”), under which the Sponsor agrees to sublicense the use of the Underlying Index to the Advisor. The Sponsor also provides marketing support for the Fund, including distributing marketing materials related to the Fund. ITEQ ETF Partners, LLC is a privately held business focused on bringing exchange-traded investment products to investors in the U.S. The Sponsor does not make
18
BlueStar TA-BIGITechTM Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
investment decisions, provide investment advice, or otherwise act in the capacity of an investment adviser to the Fund. Additionally, the Sponsor is not involved in the maintenance of the Underlying Index and does not otherwise act in the capacity of an index provider.
US Bancorp Fund Services, LLC (the “Administrator”) provides fund accounting, fund administration, and transfer agency services to the Fund. The Advisor compensates the Administrator for these services under an administration agreement between the two entities.
The Advisor pays each independent Trustee a quarterly fee for service to the Fund. Each Trustee is also reimbursed by the Advisor for all reasonable out-of-pocket expenses incurred in connection with his duties as Trustee, including travel and related expenses incurred in attending Board meetings.
NOTE 5 – DISTRIBUTION PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may pay compensation to the Distributor or any other distributor or financial institution with which the Trust has an agreement with respect to the Fund, with the amount of such compensation not to exceed an annual rate of 0.25% of each Fund’s daily average net assets. For the period ended March 31, 2016, the Fund did not incur any 12b-1 expenses.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
The costs of purchases and sales of securities, excluding short-term securities and in-kind transactions, for the period ended March 31, 2016:
Purchases | Sales | ||||||
BlueStar TA-BIGITechTM Israel Technology ETF | $ | 326,766 | $ | 266,145 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the period ended March 31, 2016:
Purchases In- Kind | Sales In- Kind | ||||||
BlueStar TA-BIGITechTM Israel Technology ETF | $ | 3,589,255 | $ | — |
Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all proceeds from in-kind sales. Net capital gains or losses resulting from in-kind redemptions are excluded from the Fund’s taxable gains and are not distributed to shareholders.
During the period ended March 31, 2016, the Fund incurred broker commissions to affiliated broker Penserra LLC in the amount of $43.
There were no purchases or sales of U.S. Government obligations for the period ended March 31, 2016.
NOTE 7 – SECURITIES LENDING
The Fund may lend up to 331/3% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program
19
BlueStar TA-BIGITechTM Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
March 31, 2016 (Unaudited)
administered by U.S. Bank N.A. (“the Custodian”). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any loaned securities at the time of the loan, plus accrued interest. The Fund receives compensation in the form of fees and earn interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss in the fair value of securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand. As of March 31, 2016, the Fund had loaned securities and received cash collateral for the loans. The cash collateral is invested by the Custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the securities lending agent.
As of March 31, 2016, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan Collateral Received | |||||||
Fund | Values of Securities on Loan | Fund Collateral Received* | |||||
BlueStar TA-BIGITechTM Israel Technology ETF | $ | 630,375 | $ | 634,930 |
* The cash collateral received was invested in the Mount Vernon Securities Lending Prime Portfolio as shown on the Schedule of Investments, a money market fund with an overnight and continuous maturity.
Fees and interest income earned on collateral investments and recognized by the Fund during the period ended March 31, 2016, were as follows:
Fees and Interest Income Earned | ||||
Fund | Fees and Interest Income Earned | |||
BlueStar TA-BIGITechTM Israel Technology ETF | $ | 1,268 |
Offsetting Assets and Liabilities
The Fund is subject to various netting arrangements, which govern the terms of certain transactions with counterparties. The arrangements allow the Fund to close out and net its total exposure to a counterparty in the event of a default with respect to all transactions governed under a single agreement with a counterparty. The following is a summary of the arrangements subject to offsetting as of March 31, 2016.
20
BlueStar TA-BIGITechTM Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2016 (Unaudited)
Fund | Description | Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Statement of Assets & Liabilities | Net Amounts Presented in the Statement of Assets & Liabilities | Collateral Received | Net Amount | ||||||||||||
BlueStar TA-BIGITechTM Israel Technology ETF | Securities Lending | $ | 634,930 | $ | 634,930 | $ | — | $ | 634,930 | $ | — |
NOTE 8 – DISTRIBUTIONS TO SHAREHOLDERS
The Fund did not pay any distributions from ordinary income or capital gains during the period ended March 31, 2016.
NOTE 9 – SUBSEQUENT EVENTS
In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
At a special meeting held on May 24, 2016, the Trustees, including a majority of the Trustees who are not interested persons of the Trust (as defined in the 1940 Act), ratified the transfer of the Investment Advisory Agreement between Factor Advisors and the Trust (the “Advisory Agreement”), to, and the assumption of the Agreement by, ETF Managers Group LLC (“ETF Managers”), effective April 26, 2016. ETF Managers is an investment adviser registered with the SEC under the Investment Advisers Act of 1940, as amended, with the same ownership and identical personnel as Factor Advisors. Such transfer and assumption of the Agreement does not amount to an assignment of such Agreement under the 1940 Act. Therefore, the Agreement remains in effect with ETF Managers serving as the investment adviser to the Fund.
At the special meeting held on May 24, 2016, the Board approved changing the name of the Trust to “ETF Managers Trust,” effective June 24, 2016.
21
BlueStar TA-BIGITechTM Israel Technology ETF
March 31, 2016 (Unaudited)
Disclosure of Portfolio Holdings
The Fund files a Form N-Q with the Securities and Exchange Commission (the ‘‘SEC’’) no more than sixty days after the Fund’s first and third fiscal quarters. For the Fund, this would be for the fiscal quarters ending June 30 and December 31. Form N-Q includes a complete schedule of the Fund’s portfolio holdings as of the end of those fiscal quarters. The Fund’s N-Q filings can be found free of charge on the SEC’s website at http://www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (call 800-SEC-0330 for information on the operation of the Public Reference Room).
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 are available without charge, upon request, by calling 800-625-7071 or on the SEC’s website at http://www.sec.gov.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477) or by visiting www.iteqetf.com. Read the prospectus carefully before investing.
22
BlueStar TA-BIGITechTM Israel Technology ETF
For the Period Ended March 31, 2016 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on September 10, 2015, the Board of Trustees (the “Board”) of FactorShares Trust (the “Trust”) considered the approval of the following agreements (collectively, the “Agreements”):
• | the Advisory Agreement between Factor Advisors, LLC (the “Adviser”) and the Trust, on behalf of the BlueStar TA‐BIGITechTM Israel Technology ETF (the “Fund”); and |
• | the Sub-Advisory Agreement between the Adviser and Penserra Capital Management LLC (the “Sub-Adviser”) with respect to the Fund. |
The Agreements must be approved: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Agreements or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year after the initial two-year term, the Board will call and hold a meeting to decide whether to renew the Agreements for an additional one-year term. In preparation for such meetings, the Board requests and reviews a wide variety of information from the Adviser and the Sub-Adviser.
Prior to and at the meeting held on September 10, 2015 the Board, including the Independent Trustees, reviewed written and oral information from the Advisor and the Sub-Adviser regarding, among other things: (i) the nature, extent and quality of the services to be provided to the Fund’s shareholders by the Adviser and the Sub-Adviser; (ii) the Adviser’s and the Sub-Adviser’s cost and profits they will realize in providing their services, including any fall-out benefits enjoyed by the Adviser and the Sub-Adviser; (iii) comparative fee and expense data for the Fund and other investment companies with similar investment objectives; (iv) the extent to which economies of scale would be realized as the Fund grows and whether the proposed advisory fee for the Fund reflects these economies of scale for the benefit of the Fund; and (v) other financial benefits to the Adviser and Sub-Adviser and their affiliates resulting from services rendered to the Fund. The Board’s review included relevant information furnished to the Board throughout the year. Among other things, representatives from the Adviser and the Sub-Adviser provided overviews of their advisory businesses, including investment personnel and investment processes. The Adviser and Sub-Adviser each discussed its experience with exchange-traded funds. The representatives discussed the services to be provided by the Sub-Adviser, which would be responsible for executing purchase and sale transactions in the Fund. The representatives also discussed the rationale for launching the Fund, the Fund’s fees and fee structures of comparable investment companies. The Board then discussed the written materials that it received before the meeting and throughout the year and the Adviser and Sub-Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the approval of the Agreements in light of this information. In its deliberations, the Board did not identify any single piece of information discussed below that was all-important or controlling.
Nature, Extent and Quality of Services Provided by the Adviser and the Sub-Adviser
The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser will be providing investment management services to the Fund. In considering the nature, extent and quality of the services provided by the Adviser, the Board reviewed the quality of the Adviser’s compliance infrastructure. The Board also considered the Adviser’s experience managing ETFs, including other series of the Trust.
The Board also considered other services to be provided to the Fund, such as overseeing the activities of the Sub-Advisor, as well as the Fund’s other service providers, monitoring adherence to the Fund’s investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities regulations.
23
BlueStar TA-BIGITechTM Israel Technology ETF
APPROVAL OF ADVISORY AGREEMENT & BOARD CONSIDERATIONS
For the Period Ended March 31, 2016 (Unaudited) (Continued)
The Trustees then considered the scope of services to be provided under the Sub-Advisory Agreement, noting that Sub-Adviser will be providing investment management services to the Fund. The Board discussed the responsibilities of the Sub-Adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of the Fund; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; oversight of general portfolio compliance with relevant law; responsibility for daily monitoring of tracking error and quarterly reporting to the Board; and implementation of Board directives as they relate to the Fund. In considering the nature, extent and quality of the services to be provided by the Sub-Advisor, the Board considered the history and experience Sub-Adviser has as an investment advisor, as well the experience of its personnel in managing ETFs.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services to be provided to the Fund by the Adviser and the Sub-Adviser.
Cost of Services Provided and Economies of Scale
The Board reviewed the Fund’s estimated expense ratio and the advisory fee to be paid by the Fund, considered the expense ratios of comparable Funds. The Board also took into consideration management’s discussion of the fees and other factors considered. The Board concluded that the advisory fee was reasonable and the result of arm’s length negotiations. Additionally, the Board took into consideration that the advisory fees, along with most of the Fund’s other operating expenses, would be paid by the Adviser. The Board also evaluated the compensation and benefits expected to be received by the Adviser from its relationship with the Fund.
The Board determined that the Adviser is likely to realize economies of scale in managing the Fund as assets grow in size and intends to monitor fees as the Fund grows in size and determine whether fee breakpoints may be warranted
The Board then reviewed the advisory fee to be paid by the Adviser to the Sub-Adviser for its services as Sub-Adviser to the Fund. The Board considered that the fees paid to the Sub-Adviser would be paid by the Adviser from the advisory fee the Adviser will receive and noted that the fee reflected an arms-length negotiation between the Adviser and the Sub-Adviser. The Board concluded that the sub-advisory fees were reasonable.
Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Agreements are fair and reasonable; (b) concluded that the Adviser’s and Sub- Adviser’s fees are reasonable in light of the services that the Adviser and Sub-Adviser will provide to the Fund; and (c) agreed to approve the Agreements for an initial term of two years.
24
BlueStar TA-BIGITechTM Israel Technology ETF
For the Period Ended March 31, 2016 (Unaudited)
As a shareholder of BlueStar TA-BIGITechTM Israel Technology ETF (the “Fund”) you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (November 2, 2015 to March 31, 2016).
Actual Expenses
The first line of the table provides information about actual account values based on actual returns and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
BlueStar TA-BIGITechTM Israel Technology ETF
Beginning Account Value November 2, 2015 | Ending Account Value March 31, 2016 | Expenses Paid During the Period^ | ||||||||||
Actual | $ | 1,000.00 | $ | 955.70 | $ | 3.15 | ||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,017.41 | $ | 3.25 |
^ The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio multiplied by the average account value during the period, multiplied by 151/366 (to reflect the period from November 2, 2015 to March 31, 2016.
25
Advisor
Factor Advisors, LLC
30 Maple Street #2, Summit, NJ 07901
30 Maple Street #2, Summit, NJ 07901
Sub-Adviser
Penserra Capital Management, LLC
4 Orinda Way, Suite 100-A, Orinda, CA 94563
4 Orinda Way, Suite 100-A, Orinda, CA 94563
Distributor
ALPS Distributors, Inc.
1290 Broadway, Suite 1100, Denver, Colorado 80203
1290 Broadway, Suite 1100, Denver, Colorado 80203
Custodian
U.S. Bank National Association
Custody Operations
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
Transfer Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street, Milwaukee, Wisconsin 53202
615 East Michigan Street, Milwaukee, Wisconsin 53202
Securities Lending Agent
U.S Bank, National Association
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Independent Registered Public Accounting Firm
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
1666 K Street NW, Washington, DC 20006
26
Semi-Annual Report
March 31, 2016
March 31, 2016
Etho Climate Leadership U.S. ETF
Ticker: ETHO
Ticker: ETHO
The Fund is a series of FactorShares Trust.
Etho Climate Leadership U.S. ETF
TABLE OF CONTENTS |
March 31, 2016 |
Page | ||
2 | ||
3 | ||
4 | ||
5 | ||
6 | ||
7 | ||
20 | ||
21 | ||
22 | ||
23 | ||
24 | ||
31 | ||
32 | ||
34 |
On behalf of the entire team, we want to express our appreciation for the confidence you have placed in the Etho Climate Leadership U.S. Exchange-Traded Fund (“ETHO” or the “Fund”). The following information pertains to the fiscal period from November 19, 2015 (the Fund’s Inception Date) to March 31, 2016.
The Fund saw positive performance during the fiscal period ended March 31, 2016. The NAV price for ETHO rose 0.46%, while the Etho Climate Leadership Index – U.S. (“Index”), the Fund’s benchmark, rose 0.24% over the same period.
For the period ended March 31, 2016, the best performing securities in the Fund were Keurig Green Mountain (up 127.16%), 3D Systems (up 73.04%) and Lululemon Athletica (up 48.19%). The worst performing securities in the Fund were LinkedIn (down - 54.03%), Alkermes (down - 53.98%) and Endo Intl (down - 52.55%).
U.S. markets saw a sell off to begin 2016 on the back of falling oil prices and uncertainty around global growth and future actions of the Federal Reserve. From mid-February to the end of the period on March 31, 2016, markets staged a comeback, leaving the Fund and the index it tracks slightly positive for the fiscal period.
As you may know, the Etho Climate Leadership Index U.S. ETF offers broad diversification across companies that have demonstrated efficiency and leadership with their use of resources and their supply chains when compared to industry peers. The Fund holds roughly 400 equities equally weighted and results in a carbon emissions profile that is, on average, 50-70% lower per dollar invested than conventional U.S. benchmark indices.1 ETHO avoids investment in any direct fossil fuel companies, as well as enablers of that industry, along with a series of other unsustainable industries such as Tobacco/Weapons/Gambling, etc. Equal weighting of the Fund allows for the elimination of equities that do not meet ETHO’S standards without there being a significant impact on the diversification or performance of the Fund. It also creates broad exposure to both the sectors and factors that potentially make for greater stability and higher performance.
There is much ahead for environmentally sustainable and socially responsible investing. We are thankful you have joined us by investing in the Etho Climate Leadership U.S. ETF.
You can find further details about ETHO by visiting www.ETHOETF.com, or by calling 1-844-ETF-MGRS (1-844-383-6477).
Sincerely,
Samuel Masucci III
Chairman of the Board
Chairman of the Board
Samuel Masucci III is a registered representative of ALPS Distributors, Inc.
1 Etho Capital. www.ethocapital.com
2
Cumulative Returns Period Ended March 31, 2016 | Since Inception (11/18/2015) | |
Etho Climate Leadership U.S. ETF (NAV) | 0.46% | |
Etho Climate Leadership U.S. ETF (Market) | 0.68% | |
S&P 500 Index | -0.34% | |
Etho Climate Leadership Index - U.S. | 0.24% | |
Total Fund Operating Expenses1 | 0.45% | |
1. The expense ratio is taken from the Fund’s most recent prospectus dated March 18, 2016. |
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on November 18, 2015, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the redemption of fund shares. The chart assumes reinvestment of capital gains and dividends, if any.
The unmanaged indices do not reflect fees and are not available for direct investment.
3
Security | % of Total Investments† | |||||
1 | Centene Corporation | 0.42% | ||||
2 | Valspar Corporation | 0.34% | ||||
3 | 3D Systems Corporation | 0.30% | ||||
4 | Energy Recovery, Inc. | 0.30% | ||||
5 | White Mountains Insurance Group Ltd. | 0.29% | ||||
6 | AutoZone, Inc. | 0.29% | ||||
7 | Ulta Salon Cosmetics & Fragrance, Inc. | 0.29% | ||||
8 | Markel Corporation | 0.29% | ||||
9 | Tesla Motors, Inc. | 0.29% | ||||
10 | Dollar General Corporation | 0.29% | ||||
Top Ten Holdings = 3.10% of Total Investments† | ||||||
* Current Fund holdings may not be indicative of future Fund holdings. | ||||||
† Percentage of total investments less cash. |
4
Etho Climate Leadership U.S. ETF |
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility.
The Etho Climate Leadership U.S. ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Etho Climate Leadership Index – US (the “Index”).
Funds that invest in smaller companies may experience greater volatility. The Fund’s return may not match or achieve a high degree of correlation with the return of the Etho Climate Leadership Index – US (ticker: ETHO INDEX). To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The Fund is new with limited operating history.
The Etho Climate Leadership IndexTM (ECLITM) is an index of more than 350 companies listed on the NYSE Arca stock exchange that have the smallest carbon footprint in their industries.
S&P 500: The S&P 500 Index is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices.
5
Etho Climate Leadership U.S. ETF | ||||
As a percent of Net Assets: | ||||
Bermuda | 2.4 | % | ||
Ireland | 2.2 | |||
Jersey | 0.3 | |||
Netherlands | 0.2 | |||
Switzerland | 0.9 | |||
United Kingdom | 0.2 | |||
United States | 92.1 | |||
Virgin Islands (UK) | 0.2 | |||
Mutual Funds | 0.5 | |||
Short-Term and other Net Assets (Liabilities) | 1.0 | |||
100.0 | % |
6
Shares | Market Value | |||||||
COMMON STOCKS - 98.5% | ||||||||
Bermuda - 2.4% | ||||||||
Insurance - 1.9% | ||||||||
Arch Capital Group Ltd. (a) | 90 | $ | 6,399 | |||||
Axis Capital Holdings Ltd. | 113 | 6,267 | ||||||
Endurance Specialty Holdings Ltd. | 97 | 6,338 | ||||||
Everest Re Group Ltd. | 33 | 6,515 | ||||||
RenaissanceRe Holdings Ltd. | 54 | 6,471 | ||||||
Validus Holdings Ltd. | 137 | 6,465 | ||||||
White Mountains Insurance Group Ltd. | 9 | 7,224 | ||||||
Total Insurance | 45,679 | |||||||
IT Services - 0.3% | ||||||||
Genpact Ltd. (a) | 233 | 6,335 | ||||||
Specialty Retail - 0.2% | ||||||||
Signet Jewelers Ltd. | 55 | 6,822 | ||||||
Total Bermuda | 58,836 | |||||||
Ireland - 2.2% | ||||||||
Biotechnology - 0.2% | ||||||||
Alkermes PLC (a) | 183 | 6,257 | ||||||
Building Products - 0.3% | ||||||||
Allegion PLC | 99 | 6,307 | ||||||
Health Care Equipment & Supplies - 0.2% | ||||||||
Medtronic Plc | 82 | 6,150 | ||||||
Insurance - 0.3% | ||||||||
XL Group PLC | 177 | 6,514 | ||||||
IT Services - 0.2% | ||||||||
Accenture PLC | 61 | 7,040 | ||||||
Machinery - 0.3% | ||||||||
Pentair PLC | 121 | 6,565 | ||||||
Pharmaceuticals - 0.7% | ||||||||
Allergan PLC (a) | 22 | 5,897 | ||||||
Endo International PLC (a) | 140 | 3,941 | ||||||
Jazz Pharmaceuticals PLC (a) | 49 | 6,397 | ||||||
Total Pharmaceuticals | 16,235 | |||||||
Total Ireland | 55,068 | |||||||
Jersey - 0.3% | ||||||||
Auto Components - 0.3% | ||||||||
Delphi Automotive PLC | 89 | 6,677 | ||||||
Total Jersey | 6,677 | |||||||
Netherlands - 0.2% | ||||||||
Electrical Equipment - 0.2% | ||||||||
Sensata Technologies Holding NV (a) | 173 | 6,719 | ||||||
Total Netherlands | 6,719 |
The accompanying notes are an integral part of these financial statements.
7
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Shares | Market Value | |||||||
Switzerland - 0.9% | ||||||||
Commercial Services & Supplies - 0.2% | ||||||||
Tyco International PLC | 171 | $ | 6,277 | |||||
Electronic Equipment, Instruments & Components - 0.3% | ||||||||
TE Connectivity Ltd. | 102 | 6,316 | ||||||
Household Durables - 0.2% | ||||||||
Garmin Ltd. | 154 | 6,154 | ||||||
Insurance - 0.2% | ||||||||
Allied World Assurance Co. Holdings AG | 179 | 6,254 | ||||||
Total Switzerland | 25,001 | |||||||
United Kingdom - 0.2% | ||||||||
Insurance - 0.2% | ||||||||
Aon PLC | 63 | 6,580 | ||||||
Total United Kingdom | 6,580 | |||||||
United States - 92.1% | ||||||||
Air Freight & Logistics - 0.3% | ||||||||
CH Robinson Worldwide, Inc. | 86 | 6,384 | ||||||
Airlines - 0.5% | ||||||||
JetBlue Airways Corporation (a) | 285 | 6,019 | ||||||
Southwest Airlines Co. | 150 | 6,720 | ||||||
Total Airlines | 12,739 | |||||||
Auto Components - 0.7% | ||||||||
Autoliv, Inc. | 56 | 6,635 | ||||||
BorgWarner, Inc. | 176 | 6,758 | ||||||
Gentex Corporation | 396 | 6,213 | ||||||
Total Auto Components | 19,606 | |||||||
Automobiles - 0.3% | ||||||||
Tesla Motors, Inc. (a) | 31 | 7,123 | ||||||
Banks - 3.2% | ||||||||
Associated Banc-Corp | 335 | 6,010 | ||||||
BancorpSouth, Inc. | 286 | 6,095 | ||||||
Bank of Hawaii Corporation | 91 | 6,213 | ||||||
Citizens Financial Group, Inc. | 290 | 6,076 | ||||||
Commerce Bancshares, Inc. | 136 | 6,113 | ||||||
First Citizens BancShares, Inc. | 25 | 6,277 | ||||||
First Republic Bank | 93 | 6,198 | ||||||
Fulton Financial Corporation | 465 | 6,222 | ||||||
M&T Bank Corporation | 56 | 6,216 | ||||||
People’s United Financial, Inc. | 399 | 6,355 | ||||||
SVB Financial Group (a) | 61 | 6,225 | ||||||
Synovus Financial Corporation | 216 | 6,245 | ||||||
Valley National Bancorp | 645 | 6,153 | ||||||
Total Banks | 80,398 |
The accompanying notes are an integral part of these financial statements.
8
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Shares | Market Value | |||||||
Beverages - 0.5% | ||||||||
Dr Pepper Snapple Group, Inc. | 69 | $ | 6,170 | |||||
Monster Beverage Corporation (a) | 48 | 6,402 | ||||||
Total Beverages | 12,572 | |||||||
Biotechnology - 2.4% | ||||||||
Agios Pharmaceuticals, Inc. (a) | 131 | 5,319 | ||||||
Alexion Pharmaceuticals, Inc. (a) | 41 | 5,708 | ||||||
Alnylam Pharmaceuticals, Inc. (a) | 103 | 6,465 | ||||||
BioMarin Pharmaceutical, Inc. (a) | 70 | 5,774 | ||||||
Celgene Corporation (a) | 60 | 6,005 | ||||||
Incyte Corporation (a) | 85 | 6,160 | ||||||
Ionis Pharmaceuticals, Inc. (a) | 150 | 6,075 | ||||||
Medivation, Inc. (a) | 152 | 6,988 | ||||||
Regeneron Pharmaceuticals, Inc. (a) | 15 | 5,407 | ||||||
Vertex Pharmaceuticals, Inc. (a) | 69 | 5,485 | ||||||
Total Biotechnology | 59,386 | |||||||
Building Products - 2.0% | ||||||||
Advanced Drainage Systems, Inc. | 285 | 6,071 | ||||||
AO Smith Corporation | 86 | 6,563 | ||||||
Apogee Enterprises, Inc. | 152 | 6,671 | ||||||
Fortune Brands Home & Security, Inc. | 121 | 6,781 | ||||||
Lennox International, Inc. | 49 | 6,624 | ||||||
Masco Corporation | 215 | 6,762 | ||||||
Simpson Manufacturing Co., Inc. | 171 | 6,527 | ||||||
Trex Co., Inc. (a) | 138 | 6,614 | ||||||
Total Building Products | 52,613 | |||||||
Capital Markets - 2.0% | ||||||||
BlackRock, Inc. | 20 | 6,810 | ||||||
Charles Schwab Corporation | 227 | 6,361 | ||||||
E*TRADE Financial Corporation (a) | 246 | 6,025 | ||||||
Interactive Brokers Group, Inc. | 161 | 6,331 | ||||||
NorthStar Asset Management Group, Inc. | 563 | 6,390 | ||||||
SEI Investments Co. | 154 | 6,629 | ||||||
T Rowe Price Group, Inc. | 86 | 6,318 | ||||||
TD Ameritrade Holding Corporation | 198 | 6,243 | ||||||
Total Capital Markets | 51,107 | |||||||
Chemicals - 2.7% | ||||||||
Airgas, Inc. | 45 | 6,374 | ||||||
Albemarle Corporation | 107 | 6,841 | ||||||
Celanese Corporation | 98 | 6,419 | ||||||
Ecolab, Inc. | 59 | 6,580 | ||||||
International Flavors & Fragrances, Inc. | 59 | 6,712 | ||||||
PPG Industries, Inc. | 61 | 6,801 | ||||||
RPM International Inc. | 146 | 6,910 | ||||||
Sherwin-Williams Co. | 23 | 6,547 |
The accompanying notes are an integral part of these financial statements.
9
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Shares | Market Value | |||||||
Valspar Corporation | 79 | $ | 8,455 | |||||
Westlake Chemical Corporation | 137 | 6,343 | ||||||
Total Chemicals | 67,982 | |||||||
Commercial Services & Supplies - 1.6% | ||||||||
Brink’s Co. | 206 | 6,920 | ||||||
Cintas Corporation | 70 | 6,287 | ||||||
Copart, Inc. (a) | 156 | 6,360 | ||||||
Stericycle, Inc. (a) | 54 | 6,814 | ||||||
The ADT Corporation | 153 | 6,313 | ||||||
Waste Connections, Inc. | 97 | 6,265 | ||||||
Total Commercial Services & Supplies | 38,959 | |||||||
Communications Equipment - 1.3% | ||||||||
Cisco Systems, Inc. | 230 | 6,548 | ||||||
F5 Networks, Inc. (a) | 62 | 6,563 | ||||||
Juniper Networks, Inc. | 248 | 6,326 | ||||||
Palo Alto Networks, Inc. (a) | 41 | 6,689 | ||||||
QUALCOMM, Inc. | 117 | 5,983 | ||||||
Total Communications Equipment | 32,109 | |||||||
Construction & Engineering - 1.0% | ||||||||
AECOM (a) | 210 | 6,466 | ||||||
EMCOR Group, Inc. | 130 | 6,318 | ||||||
Fluor Corporation | 121 | 6,498 | ||||||
Jacobs Engineering Group, Inc. (a) | 150 | 6,532 | ||||||
Total Construction & Engineering | 25,814 | |||||||
Construction Materials - 0.5% | ||||||||
Martin Marietta Materials, Inc. | 41 | 6,540 | ||||||
Vulcan Materials Co. | 60 | 6,334 | ||||||
Total Construction Materials | 12,874 | |||||||
Consumer Finance - 0.3% | ||||||||
SLM Corporation (a) | 993 | 6,315 | ||||||
Containers & Packaging - 0.8% | ||||||||
AptarGroup, Inc. | 83 | 6,508 | ||||||
Avery Dennison Corporation | 91 | 6,562 | ||||||
Sealed Air Corporation | 136 | 6,529 | ||||||
Total Containers & Packaging | 19,599 | |||||||
Distributors - 0.5% | ||||||||
Genuine Parts Co. | 65 | 6,458 | ||||||
LKQ Corporation (a) | 205 | 6,546 | ||||||
Total Distributors | 13,004 | |||||||
Diversified Consumer Services - 0.2% | ||||||||
H&R Block, Inc. | 221 | 5,839 | ||||||
Diversified Financial Services - 2.3% | ||||||||
CME Group, Inc. | 66 | 6,339 | ||||||
FactSet Research Systems, Inc. | 39 | 5,910 | ||||||
Intercontinental Exchange, Inc. | 26 | 6,114 | ||||||
McGraw Hill Financial, Inc. | 66 | 6,533 |
The accompanying notes are an integral part of these financial statements.
10
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Shares | Market Value | |||||||
Moody’s Corporation | 66 | $ | 6,373 | |||||
Morningstar, Inc. | 78 | 6,885 | ||||||
MSCI, Inc. | 90 | 6,667 | ||||||
Nasdaq, Inc. | 98 | 6,505 | ||||||
Voya Financial, Inc. | 198 | 5,894 | ||||||
Total Diversified Financial Services | 57,220 | |||||||
Diversified Telecommunication Services - 0.2% | ||||||||
Zayo Group Holdings, Inc. (a) | 251 | 6,084 | ||||||
Electric Utilities - 1.4% | ||||||||
Eversource Energy | 111 | 6,476 | ||||||
Exelon Corporation | 183 | 6,562 | ||||||
Hawaiian Electric Industries, Inc. | 203 | 6,578 | ||||||
ITC Holdings Corporation | 147 | 6,405 | ||||||
NextEra Energy, Inc. | 54 | 6,390 | ||||||
Total Electric Utilities | 32,411 | |||||||
Electrical Equipment - 2.1% | ||||||||
Acuity Brands, Inc. | 29 | 6,326 | ||||||
AMETEK, Inc. | 130 | 6,497 | ||||||
Emerson Electric Co. | 120 | 6,526 | ||||||
FuelCell Energy, Inc. (a) | 916 | 6,201 | ||||||
Generac Holdings, Inc. (a) | 174 | 6,480 | ||||||
Hubbell, Inc. | 61 | 6,462 | ||||||
PowerSecure International, Inc. (a) | 334 | 6,242 | ||||||
Rockwell Automation, Inc. | 58 | 6,598 | ||||||
Total Electrical Equipment | 51,332 | |||||||
Electronic Equipment, Instruments & Components - 3.5% | ||||||||
Amphenol Corporation | 110 | 6,360 | ||||||
Badger Meter, Inc. | 91 | 6,052 | ||||||
Corning, Inc. | 319 | 6,664 | ||||||
Dolby Laboratories, Inc. | 154 | 6,693 | ||||||
FLIR Systems, Inc. | 193 | 6,359 | ||||||
IPG Photonics Corporation (a) | 70 | 6,727 | ||||||
Itron, Inc. (a) | 149 | 6,216 | ||||||
Keysight Technologies, Inc. (a) | 229 | 6,352 | ||||||
Littelfuse, Inc. | 54 | 6,648 | ||||||
National Instruments Corporation | 208 | 6,263 | ||||||
OSI Systems, Inc. (a) | 100 | 6,549 | ||||||
Trimble Navigation Ltd. (a) | 248 | 6,150 | ||||||
Universal Display Corporation (a) | 120 | 6,492 | ||||||
Zebra Technologies Corporation (a) | 93 | 6,417 | ||||||
Total Electronic Equipment, Instruments & Components | 89,942 | |||||||
Food & Staples Retailing - 1.3% | ||||||||
Costco Wholesale Corporation | 43 | 6,776 | ||||||
CVS Health Corporation | 64 | 6,639 | ||||||
PriceSmart, Inc. | 80 | 6,766 | ||||||
Walgreens Boots Alliance, Inc. | 78 | 6,571 | ||||||
Whole Foods Market, Inc. | 186 | 5,786 | ||||||
Total Food & Staples Retailing | 32,538 |
The accompanying notes are an integral part of these financial statements.
11
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Shares | Market Value | |||||||
Food Products - 1.5% | ||||||||
Hain Celestial Group, Inc. (a) | 159 | $ | 6,505 | |||||
Kraft Heinz Co. | 82 | 6,442 | ||||||
McCormick & Co., Inc. | 67 | 6,665 | ||||||
Mead Johnson Nutrition Co. | 83 | 7,052 | ||||||
Pinnacle Foods, Inc. | 139 | 6,211 | ||||||
WhiteWave Foods Co. (a) | 151 | 6,137 | ||||||
Total Food Products | 39,012 | |||||||
Health Care Equipment & Supplies - 0.8% | ||||||||
Edwards Lifesciences Corporation (a) | 71 | 6,263 | ||||||
GenMark Diagnostics, Inc. (a) | 1,020 | 5,375 | ||||||
Intuitive Surgical, Inc. (a) | 11 | 6,612 | ||||||
Total Health Care Equipment & Supplies | 18,250 | |||||||
Health Care Providers & Services - 3.3% | ||||||||
Aetna, Inc. | 57 | 6,404 | ||||||
AMN Healthcare Services, Inc. (a) | 196 | 6,588 | ||||||
Anthem, Inc. | 47 | 6,533 | ||||||
Centene Corporation (a) ^ | 168 | 10,340 | ||||||
Cigna Corporation | 44 | 6,039 | ||||||
Envision Healthcare Holdings, Inc. (a) | 263 | 5,365 | ||||||
Henry Schein, Inc. (a) | 38 | 6,560 | ||||||
Humana, Inc. | 33 | 6,037 | ||||||
Laboratory Corporation of America Holdings (a) | 56 | 6,559 | ||||||
MEDNAX, Inc. (a) | 93 | 6,010 | ||||||
Quest Diagnostics, Inc. | 89 | 6,359 | ||||||
UnitedHealth Group, Inc. | 52 | 6,703 | ||||||
VCA, Inc. (a) | 116 | 6,692 | ||||||
Total Health Care Providers & Services | 86,189 | |||||||
Health Care Technology - 0.8% | ||||||||
Allscripts Healthcare Solutions, Inc. (a) | 475 | 6,275 | ||||||
Cerner Corporation (a) | 119 | 6,302 | ||||||
IMS Health Holdings, Inc. (a) | 238 | 6,319 | ||||||
Total Health Care Technology | 18,896 | |||||||
Hotels, Restaurants & Leisure - 1.0% | ||||||||
Chipotle Mexican Grill, Inc. (a) | 12 | 5,652 | ||||||
Choice Hotels International, Inc. | 119 | 6,432 | ||||||
International Speedway Corporation | 173 | 6,385 | ||||||
Starbucks Corporation | 108 | 6,448 | ||||||
Total Hotels, Restaurants & Leisure | 24,917 | |||||||
Household Durables - 2.6% | ||||||||
DR Horton, Inc. | 221 | 6,681 | ||||||
Harman International Industries, Inc. | 77 | 6,856 | ||||||
Jarden Corporation (a) | 114 | 6,720 | ||||||
KB Home | 462 | 6,597 | ||||||
Lennar Corporation | 136 | 6,577 | ||||||
Newell Rubbermaid, Inc. | 158 | 6,998 |
The accompanying notes are an integral part of these financial statements.
12
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Shares | Market Value | |||||||
NVR, Inc. (a) | 3 | $ | 5,197 | |||||
Tempur Sealy International, Inc. (a) | 99 | 6,018 | ||||||
Toll Brothers, Inc. (a) | 218 | 6,433 | ||||||
TopBuild Corporation (a) | 217 | 6,454 | ||||||
Total Household Durables | 64,531 | |||||||
Household Products - 0.8% | ||||||||
Church & Dwight Co., Inc. | 68 | 6,268 | ||||||
Colgate-Palmolive Co. | 92 | 6,500 | ||||||
Procter & Gamble Co. | 74 | 6,091 | ||||||
Total Household Products | 18,859 | |||||||
Independent Power and Renewable Electricity Producers - 1.0% | ||||||||
NextEra Energy Partners LP | 242 | 6,580 | ||||||
NRG Yield, Inc. | 476 | 6,459 | ||||||
Ormat Technologies, Inc. | 157 | 6,475 | ||||||
Pattern Energy Group, Inc. | 332 | 6,331 | ||||||
Total Independent Power and Renewable Electricity Producers | 25,845 | |||||||
Industrial Conglomerates - 1.3% | ||||||||
3M Co. | 38 | 6,332 | ||||||
Carlisle Cos, Inc. | 66 | 6,567 | ||||||
Danaher Corporation | 69 | 6,545 | ||||||
General Electric Co. | 205 | 6,517 | ||||||
Roper Technologies, Inc. | 36 | 6,580 | ||||||
Total Industrial Conglomerates | 32,541 | |||||||
Insurance - 2.0% | ||||||||
Alleghany Corporation (a) | 12 | 5,954 | ||||||
Brown & Brown, Inc. | 185 | 6,623 | ||||||
Cincinnati Financial Corporation | 97 | 6,340 | ||||||
Markel Corporation (a) | 8 | 7,133 | ||||||
Marsh & McLennan Cos, Inc. | 108 | 6,565 | ||||||
MBIA, Inc. (a) | 697 | 6,168 | ||||||
Torchmark Corporation | 116 | 6,283 | ||||||
Travelers Companies, Inc. | 56 | 6,536 | ||||||
Total Insurance | 51,602 | |||||||
Internet & Catalog Retail - 1.5% | ||||||||
Amazon.com, Inc. (a) | 11 | 6,530 | ||||||
Expedia, Inc. | 59 | 6,361 | ||||||
Liberty Interactive Corporation (a) | 163 | 6,377 | ||||||
Netflix, Inc. (a) | 66 | 6,747 | ||||||
Priceline Group, Inc. (a) | 4 | 5,156 | ||||||
TripAdvisor, Inc. (a) | 95 | 6,318 | ||||||
Total Internet & Catalog Retail | 37,489 | |||||||
Internet Software & Services - 1.5% | ||||||||
Alphabet, Inc. (a) | 9 | 6,704 | ||||||
Facebook, Inc. (a) | 58 | 6,618 | ||||||
LinkedIn Corporation (a) | 54 | 6,175 |
The accompanying notes are an integral part of these financial statements.
13
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Shares | Market Value | |||||||
Twitter, Inc. (a) | 325 | $ | 5,379 | |||||
VeriSign, Inc. (a) | 70 | 6,198 | ||||||
Zillow Group, Inc. (a) | 265 | 6,288 | ||||||
Total Internet Software & Services | 37,362 | |||||||
IT Services - 3.9% | ||||||||
Alliance Data Systems Corporation (a) | 29 | 6,380 | ||||||
Automatic Data Processing, Inc. | 73 | 6,549 | ||||||
Broadridge Financial Solutions, Inc. | 108 | 6,405 | ||||||
Cognizant Technology Solutions Corporation (a) | 109 | 6,835 | ||||||
CoreLogic, Inc. (a) | 182 | 6,315 | ||||||
Fidelity National Information Services, Inc. | 104 | 6,584 | ||||||
Fiserv, Inc. (a) | 65 | 6,668 | ||||||
FleetCor Technologies, Inc. (a) | 43 | 6,396 | ||||||
Global Payments, Inc. | 103 | 6,727 | ||||||
MasterCard, Inc. | 70 | 6,615 | ||||||
Paychex, Inc. | 119 | 6,427 | ||||||
Total System Services, Inc. | 140 | 6,661 | ||||||
Vantiv, Inc. (a) | 118 | 6,358 | ||||||
VeriFone Systems, Inc. (a) | 237 | 6,693 | ||||||
Visa, Inc. | 86 | 6,577 | ||||||
Total IT Services | 98,190 | |||||||
Leisure Products - 0.3% | ||||||||
Hasbro, Inc. | 79 | 6,328 | ||||||
Life Sciences Tools & Services - 0.8% | ||||||||
Bio-Techne Corporation | 67 | 6,333 | ||||||
Illumina, Inc. (a) | 39 | 6,322 | ||||||
Waters Corporation (a) | 49 | 6,464 | ||||||
Total Life Sciences Tools & Services | 19,119 | |||||||
Machinery - 4.8% | ||||||||
CLARCOR, Inc. | 117 | 6,762 | ||||||
Donaldson Co., Inc. | 189 | 6,031 | ||||||
Dover Corporation | 95 | 6,111 | ||||||
Energy Recovery, Inc. (a) | 727 | 7,518 | ||||||
Flowserve Corporation | 137 | 6,084 | ||||||
Graco, Inc. | 75 | 6,297 | ||||||
IDEX Corporation | 80 | 6,630 | ||||||
Illinois Tool Works, Inc. | 64 | 6,556 | ||||||
ITT Corporation | 166 | 6,124 | ||||||
Lincoln Electric Holdings, Inc. | 108 | 6,326 | ||||||
Lindsay Corporation | 83 | 5,944 | ||||||
Snap-on, Inc. | 40 | 6,280 | ||||||
Stanley Black & Decker, Inc. | 63 | 6,628 | ||||||
Tennant Co. | 121 | 6,229 | ||||||
Toro Co. | 76 | 6,545 | ||||||
WABCO Holdings, Inc. (a) | 63 | 6,736 | ||||||
Wabtec Corporation | 80 | 6,343 |
The accompanying notes are an integral part of these financial statements.
14
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Shares | Market Value | |||||||
Watts Water Technologies, Inc. | 117 | $ | 6,450 | |||||
Xylem, Inc. | 162 | 6,626 | ||||||
Total Machinery | 122,220 | |||||||
Media - 2.8% | ||||||||
Charter Communications, Inc. (a) | 33 | 6,680 | ||||||
DISH Network Corporation (a) | 125 | 5,783 | ||||||
DreamWorks Animation SKG, Inc. (a) | 238 | 5,938 | ||||||
Liberty Broadband Corporation (a) | 118 | 6,837 | ||||||
Liberty Media Corporation (a) | 163 | 6,297 | ||||||
Scripps Networks Interactive, Inc. | 96 | 6,288 | ||||||
Starz (a) | 220 | 5,793 | ||||||
Time Warner Cable, Inc. | 32 | 6,548 | ||||||
Time Warner, Inc. | 89 | 6,457 | ||||||
Twenty-First Centy Fox, Inc. | 222 | 6,260 | ||||||
Walt Disney Co. | 63 | 6,257 | ||||||
Total Media | 69,138 | |||||||
Metals & Mining - 1.5% | ||||||||
Carpenter Technology Corporation | 182 | 6,230 | ||||||
Commercial Metals Co. | 381 | 6,466 | ||||||
Compass Minerals International, Inc. | 86 | 6,094 | ||||||
Hi-Crush Partners LP | 1,214 | 6,021 | ||||||
Nucor Corporation | 139 | 6,575 | ||||||
Reliance Steel & Aluminum Co. | 96 | 6,642 | ||||||
Total Metals & Mining | 38,028 | |||||||
Multiline Retail - 0.6% | ||||||||
Dollar General Corporation | 83 | 7,105 | ||||||
Dollar Tree, Inc. (a) | 82 | 6,762 | ||||||
Total Multiline Retail | 13,867 | |||||||
Multi-Utilities - 0.8% | ||||||||
CenterPoint Energy, Inc. | 316 | 6,611 | ||||||
Consolidated Edison, Inc. | 86 | 6,589 | ||||||
PG&E Corporation | 110 | 6,569 | ||||||
Total Multi-Utilities | 19,769 | |||||||
Personal Products - 0.3% | ||||||||
Estee Lauder Cos, Inc. | 68 | 6,413 | ||||||
Pharmaceuticals - 0.5% | ||||||||
Bristol-Myers Squibb Co. | 93 | 5,941 | ||||||
Zoetis, Inc. | 152 | 6,738 | ||||||
Total Pharmaceuticals | 12,679 | |||||||
Professional Services - 1.3% | ||||||||
Dun & Bradstreet Corporation | 63 | 6,494 | ||||||
Equifax, Inc. | 58 | 6,629 | ||||||
IHS, Inc. (a) | 57 | 7,076 | ||||||
Nielsen Holdings PLC | 121 | 6,372 | ||||||
Verisk Analytics, Inc. (a) | 81 | 6,474 | ||||||
Total Professional Services | 33,045 |
The accompanying notes are an integral part of these financial statements.
15
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Shares | Market Value | |||||||
Real Estate Investment Trusts (REITs) - 3.9% | ||||||||
AvalonBay Communities, Inc. | 35 | $ | 6,657 | |||||
Crown Castle International Corporation | 73 | 6,315 | ||||||
Digital Realty Trust, Inc. | 76 | 6,725 | ||||||
Equinix, Inc. | 20 | 6,614 | ||||||
Equity Residential | 87 | 6,528 | ||||||
Essex Property Trust, Inc. | 27 | 6,314 | ||||||
Extra Space Storage, Inc. | 75 | 7,009 | ||||||
Federal Realty Investment Trust | 42 | 6,554 | ||||||
Hannon Armstrong Sustainable Infrastructure Capital, Inc. | 340 | 6,535 | ||||||
Kimco Realty Corporation | 227 | 6,533 | ||||||
Prologis, Inc. | 150 | 6,627 | ||||||
Realty Income Corporation | 108 | 6,751 | ||||||
Regency Centers Corporation | 86 | 6,437 | ||||||
Simon Property Group, Inc. | 32 | 6,646 | ||||||
UDR, Inc. | 173 | 6,666 | ||||||
Total Real Estate Investment Trusts (REITs) | 98,911 | |||||||
Real Estate Management & Development - 0.8% | ||||||||
CBRE Group, Inc. (a) | 223 | 6,427 | ||||||
Jones Lang Lasalle, Inc. | 54 | 6,335 | ||||||
St. Joe Co. (a) | 383 | 6,569 | ||||||
Total Real Estate Management & Development | 19,331 | |||||||
Road & Rail - 0.5% | ||||||||
Avis Budget Group, Inc. (a) | 222 | 6,074 | ||||||
Hertz Global Holdings, Inc. (a) | 582 | 6,128 | ||||||
Total Road & Rail | 12,202 | |||||||
Semiconductors & Semiconductor Equipment - 5.6% | ||||||||
Analog Devices, Inc. | 111 | 6,570 | ||||||
Applied Materials, Inc. | 320 | 6,778 | ||||||
Atmel Corporation | 768 | 6,236 | ||||||
Cypress Semiconductor Corporation | 718 | 6,218 | ||||||
First Solar, Inc. (a) | 90 | 6,162 | ||||||
Integrated Device Technology, Inc. (a) | 301 | 6,152 | ||||||
Intel Corporation | 202 | 6,535 | ||||||
Intersil Corporation | 458 | 6,123 | ||||||
KLA-Tencor Corporation | 90 | 6,553 | ||||||
Lam Research Corporation | 83 | 6,857 | ||||||
Linear Technology Corporation | 144 | 6,417 | ||||||
Maxim Integrated Products, Inc. | 182 | 6,694 | ||||||
Microchip Technology, Inc. | 131 | 6,314 | ||||||
NVIDIA Corporation | 192 | 6,841 | ||||||
ON Semiconductor Corporation (a) | 692 | 6,636 | ||||||
Power Integrations, Inc. | 128 | 6,356 | ||||||
Rambus, Inc. (a) | 477 | 6,559 | ||||||
Skyworks Solutions, Inc. | 85 | 6,622 | ||||||
SunPower Corporation (a) | 258 | 5,764 |
The accompanying notes are an integral part of these financial statements.
16
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Shares | Market Value | |||||||
Teradyne, Inc. | 312 | $ | 6,736 | |||||
Texas Instruments, Inc. | 112 | 6,431 | ||||||
Xilinx, Inc. | 133 | 6,308 | ||||||
Total Semiconductors & Semiconductor Equipment | 141,862 | |||||||
Software - 3.4% | ||||||||
Activision Blizzard, Inc. | 202 | 6,836 | ||||||
Adobe Systems, Inc. (a) | 74 | 6,941 | ||||||
ANSYS, Inc. (a) | 72 | 6,441 | ||||||
Autodesk, Inc. (a) | 107 | 6,239 | ||||||
FireEye, Inc. (a) | 333 | 5,991 | ||||||
Intuit, Inc. | 62 | 6,449 | ||||||
NetSuite, Inc. (a) | 97 | 6,644 | ||||||
Red Hat, Inc. (a) | 94 | 7,003 | ||||||
salesforce.com, Inc. (a) | 89 | 6,571 | ||||||
ServiceNow, Inc. (a) | 108 | 6,607 | ||||||
Splunk, Inc. (a) | 133 | 6,508 | ||||||
Tableau Software, Inc. (a) | 140 | 6,422 | ||||||
Workday, Inc. (a) | 86 | 6,608 | ||||||
Total Software | 85,260 | |||||||
Specialty Retail - 3.4% | ||||||||
Advance Auto Parts, Inc. | 42 | 6,734 | ||||||
AutoZone, Inc. (a) | 9 | 7,169 | ||||||
Foot Locker, Inc. | 100 | 6,450 | ||||||
Home Depot, Inc. | 49 | 6,538 | ||||||
L Brands, Inc. | 72 | 6,322 | ||||||
Lowe’s Cos, Inc. | 89 | 6,742 | ||||||
O’Reilly Automotive, Inc. (a) | 23 | 6,294 | ||||||
Ross Stores, Inc. | 109 | 6,311 | ||||||
Tiffany & Co. | 89 | 6,531 | ||||||
TJX Cos, Inc. | 82 | 6,425 | ||||||
Tractor Supply Co. | 72 | 6,513 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc. (a) | 37 | 7,168 | ||||||
Williams-Sonoma, Inc. | 109 | 5,967 | ||||||
Total Specialty Retail | 85,164 | |||||||
Technology Hardware, Storage & Peripherals - 1.8% | ||||||||
3D Systems Corporation (a) | 488 | 7,550 | ||||||
Apple, Inc. | 61 | 6,649 | ||||||
EMC Corporation | 236 | 6,289 | ||||||
NetApp, Inc. | 232 | 6,331 | ||||||
QLogic Corporation (a) | 473 | 6,357 | ||||||
SanDisk Corporation | 81 | 6,162 | ||||||
Western Digital Corporation | 125 | 5,905 | ||||||
Total Technology Hardware, Storage & Peripherals | 45,243 | |||||||
Textiles, Apparel & Luxury Goods - 1.6% | ||||||||
Hanesbrands, Inc. | 212 | 6,008 | ||||||
lululemon athletica, Inc. (a) | 101 | 6,839 | ||||||
The accompanying notes are an integral part of these financial statements.
17
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Shares | Market Value | |||||||
NIKE, Inc. | 106 | $ | 6,516 | |||||
Ralph Lauren Corporation | 63 | 6,064 | ||||||
Under Armour, Inc. (a) | 75 | 6,362 | ||||||
VF Corporation | 94 | 6,087 | ||||||
Total Textiles, Apparel & Luxury Goods | 37,876 | |||||||
Thrifts & Mortgage Finance - 1.0% | ||||||||
Capitol Federal Financial, Inc. | 480 | 6,365 | ||||||
New York Community Bancorp, Inc. | 391 | 6,217 | ||||||
TFS Financial Corporation | 367 | 6,375 | ||||||
Washington Federal, Inc. | 276 | 6,251 | ||||||
Total Thrifts & Mortgage Finance | 25,208 | |||||||
Trading Companies & Distributors - 1.8% | ||||||||
Air Lease Corporation | 200 | 6,424 | ||||||
Fastenal Co. | 134 | 6,566 | ||||||
GATX Corporation | 123 | 5,843 | ||||||
MSC Industrial Direct Co., Inc. | 89 | 6,791 | ||||||
United Rentals, Inc. (a) | 104 | 6,468 | ||||||
WESCO International, Inc. (a) | 125 | 6,833 | ||||||
WW Grainger, Inc. | 27 | 6,303 | ||||||
Total Trading Companies & Distributors | 45,228 | |||||||
Water Utilities - 0.7% | ||||||||
American States Water Co. | 151 | 5,943 | ||||||
American Water Works Co., Inc. | 93 | 6,411 | ||||||
Aqua America, Inc. | 199 | 6,332 | ||||||
Total Water Utilities | 18,686 | |||||||
Wireless Telecommunication Services - 0.3% | ||||||||
SBA Communications Corporation (a) | 64 | 6,411 | ||||||
Total United States | 2,309,621 | |||||||
Virgin Islands (UK) - 0.2% | ||||||||
Textiles, Apparel & Luxury Goods - 0.2% | ||||||||
Michael Kors Holdings Ltd. (a) | 109 | 6,209 | ||||||
Total Virgin Islands (UK) | 6,209 | |||||||
TOTAL COMMON STOCKS (Cost $2,513,449) | 2,474,711 | |||||||
MUTUAL FUNDS - 0.5% | ||||||||
American Capital Ltd. (a) | 443 | 6,751 | ||||||
Fifth Street Finance Corporation | 1,208 | 6,064 | ||||||
TOTAL MUTUAL FUNDS (Cost $12,401) | 12,815 | |||||||
SHORT-TERM INVESTMENTS - 0.2% | ||||||||
Mount Vernon Prime Portfolio, 0.54% (b) + | 3,825 | 3,825 | ||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $3,825) | 3,825 |
The accompanying notes are an integral part of these financial statements.
18
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
March 31, 2016 (Unaudited) (Continued) |
Market Value | ||||
Total Investments (Cost $2,529,675) - 99.2% | $ | 2,491,351 | ||
Other Assets in Excess of Liabilities - 0.8% | 20,148 | |||
TOTAL NET ASSETS - 100.0% | $ | 2,511,499 |
Percentages are stated as a percent of net assets.
(a) | Non-income producing security. |
(b) | The rate quoted is the annualized seven-day yield at March 31, 2016. |
^ | A portion of this security is out on loan as of March 31, 2016. Total value of securities out on loan is $3,694. |
+ | Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $3,825 as of March 31, 2016. |
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
19
Etho Climate Leadership U.S. ETF |
As of March 31, 2016 (Unaudited) |
Etho Climate Leadership U.S. ETF | ||||
ASSETS | ||||
Investments in securities, at value* | $ | 2,491,351 | ||
Cash | 22,736 | |||
Dividends and interest receivable | 2,120 | |||
Securities Lending income receivable | 153 | |||
Total Assets | 2,516,360 | |||
LIABILITIES | ||||
Collateral received for securities loaned (Note 7) | 1,036 | |||
Management fees payable | 3,825 | |||
Total Liabilities | 4,861 | |||
Net Assets | $ | 2,511,499 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 2,479,135 | ||
Undistributed (accumulated) net investment income (loss) | 8,706 | |||
Accumulated net realized gain (loss) on investments | 61,982 | |||
Net unrealized appreciation (depreciation) on: | ||||
Investments in securities | (38,324 | ) | ||
Net Assets | $ | 2,511,499 | ||
*Identified Cost: | ||||
Investments in unaffiliated securities | $ | 2,529,675 | ||
Shares Outstanding^ | 100,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 25.11 |
^ No par value, unlimited number of shares authorized
The accompanying notes are an integral part of these financial statements.
20
Etho Climate Leadership U.S. ETF |
For the Period ended March 31, 2016 (Unaudited) |
Etho Climate Leadership U.S. ETF1 | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends from unaffiliated securities | $ | 14,007 | ||
Securities Lending Income | 336 | |||
Total Investment Income | 14,343 | |||
Expenses: | ||||
Management fees | 5,637 | |||
Total Expenses | 5,637 | |||
Net Investment Income (Loss) | 8,706 | |||
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Net Realized Gain (Loss) on: | ||||
Unaffiliated investments | 2,913 | |||
In-Kind redemptions | 59,069 | |||
Net Change in Unrealized Appreciation (Depreciation) of: | ||||
Unaffiliated investments in securities and foregin currency | (38,324 | ) | ||
Net Realized and Unrealized Gain (Loss) on Investments | 23,658 | |||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 32,364 |
1 | Fund commenced operations on November 18, 2015. The information presented is for the period from November 18, 2015 to March 31, 2016. |
The accompanying notes are an integral part of these financial statements.
21
Period ended March 31, 2016 (Unaudited)* | ||||
OPERATIONS | ||||
Net investment income (loss) | $ | 8,706 | ||
Net realized gain (loss) on investments | 61,982 | |||
Net change in unrealized appreciation (depreciation) of investments | (38,324 | ) | ||
Net increase (decrease) in net assets resulting from operations | 32,364 | |||
DISTRIBUTIONS TO SHAREHOLDERS | ||||
From net investment income | — | |||
CAPITAL SHARE TRANSACTIONS | ||||
Net increase (decrease) in net assets derived from net change in outstanding shares (a) | 2,479,135 | |||
Net increase (decrease) in net assets | $ | 2,511,499 | ||
NET ASSETS | ||||
Beginning of Period | $ | — | ||
End of Period | 2,511,499 | |||
Undistributed net investment income (loss) | $ | 8,706 |
(a) Summary of share transactions is as follows:
Period Ended March 31, 2016 (Unaudited) | ||||||||
Shares | Amount | |||||||
Shares Sold | 150,000 | $ | 3,722,765 | |||||
Reinvested Dividends | — | — | ||||||
Shares Redeemed | (50,000 | ) | (1,243,630 | ) | ||||
100,000 | $ | 2,479,135 | ||||||
Beginning Shares | — | |||||||
Ending Shares | 100,000 |
*Fund commenced operations on November 18, 2015. The information presented is for the period from November 18, 2015 to March 31, 2016.
The accompanying notes are an integral part of these financial statements.
22
Etho Climate Leadership U.S. ETF |
For a capital share outstanding throughout the period |
Period Ended March 31, 2016 (Unaudited)1 | ||||
Net Asset Value, Beginning of Period | $ | 25.00 | ||
Income (Loss) from Investment Operations: | ||||
Net investment income (loss) 2 | 0.09 | |||
Net realized and unrealized gain (loss) on investments | 0.02 | 3 | ||
Total from investment operations | 0.11 | |||
Less Distributions: | ||||
Distributions from net investment income | — | |||
Total distributions | — | |||
Net asset value, end of period | $ | 25.11 | ||
Total Return | 0.46 | % 4 | ||
Ratios/Supplemental Data: | ||||
Net assets at end of period (000’s) | $ | 2,511 | ||
Expenses to Average Net Assets (Note 4) | 0.63 | % 5 | ||
Net Investment Income (Loss) to Average Net Assets | 0.98 | % 5 | ||
Portfolio Turnover Rate | 27 | % 4 |
1 | Commencement of operations on November 18, 2015. | |
2 | Calculated based on average shares outstanding during the period. | |
3 | Realized and unrealized losses per share is the balancing amount necessary to reconcile to the change in net asset value per share, and may not reconcile with the aggregate gains and losses in the Statement of Operations. | |
4 | Not annualized. | |
5 | Annualized. |
The accompanying notes are an integral part of these financial statements.
23
NOTE 1 – ORGANIZATION
Etho Climate Leadership U.S. ETF (the “Fund”) is a series of FactorShares Trust (the “Trust”), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on July 1, 2009. The Trust is registered with the SEC under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Fund’s shares (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”). The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Etho Climate Leadership IndexTM Index. The Fund commenced operations on November 18, 2015.
The Fund currently offers one class of shares, which has no front end sales load, no deferred sales charges, and no redemption fees. The Fund may issue an unlimited number of shares of beneficial interest, with no par value. All shares of the Fund have equal rights and privileges.
Shares of the Fund are listed and traded on the NYSE Arca, Inc. Market prices for the Shares may be different from their net asset value (“NAV”). The Fund issues and redeems Shares on a continuous basis at NAV only in blocks of 50,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified Index. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in quantities less than a Creation Unit. Except when aggregated in Creation Units, Shares are not redeemable securities of a Fund. Shares of a Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the Shares directly from a Fund. Rather, most retail investors may purchase Shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
A. | Security Valuation. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on the valuation date (or at approximately 4:00 pm Eastern Time if a security’s primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. |
Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees (the “Board”). When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Fund’s Board. The use of fair value pricing by a fund may cause the net asset value of its shares to differ |
24
Etho Climate Leadership U.S. ETF |
NOTES TO FINANCIAL STATEMENTS |
March 31, 2016 (Unaudited) |
significantly from the net asset value that would be calculated without regard to such considerations. As of March 31, 2016, the Fund did not hold any fair valued securities. As described above, the Fund utilizes various methods to measure the fair value of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are: | ||
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. | |
Level 2 | Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. | |
Level 3 | Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. | |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. | ||
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety. | ||
The following is a summary of the inputs used to value the Fund’s investments as of March 31, 2016: |
Etho Climate Leadership U.S. ETF
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
Common Stocks | $ | 2,474,711 | $ | — | $ | — | $ | 2,474,711 | ||||||||||
Mutual Funds | 12,815 | — | — | 12,815 | ||||||||||||||
Short-Term Investments | 3,825 | — | — | 3,825 | ||||||||||||||
Total Investments in Securities | $ | 2,491,351 | $ | — | $ | — | $ | 2,491,351 |
^ See Schedule of Investments for classifications by sector or country.
There were no transfers between Levels 1, 2 and 3 during the period ended March 31, 2016. Transfers between levels are recognized at the end of the reporting period.
25
Etho Climate Leadership U.S. ETF |
NOTES TO FINANCIAL STATEMENTS |
March 31, 2016 (Unaudited) |
B. | Federal Income Taxes. The Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. Therefore, no provisions for federal income taxes or excise taxes have been made. |
To avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare each year as dividends, in each calendar year, at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years. | |
Net capital losses incurred after October 31, within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year. | |
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. The Fund has analyzed its tax position and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Fund’s 2016 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal, the State of New Jersey, and the State of Delaware; however the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months. | |
C. | Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Income, including gains, from investments in foreign securities received by the Fund may be subject to income, withholding or other taxes imposed by foreign countries. |
D. | Foreign Currency Translations and Transactions. The Fund may engage in foreign currency transactions. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. For financial reporting purposes, the Fund does not isolate changes in the exchange rate of investment securities from the fluctuations arising from changes in the market prices of securities for unrealized gains and losses. However, for federal income tax purposes, the Fund does isolate and treat as ordinary income the effect of changes in foreign exchange rates on realized gains or losses from the sale of investment securities and payables and receivables arising from trade-date and settlement-date differences. |
E. | Distributions to Shareholders. Distributions to shareholders from net investment income are declared and paid for the Fund on a quarterly basis. Net realized gains on securities for the Fund normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. |
26
Etho Climate Leadership U.S. ETF |
NOTES TO FINANCIAL STATEMENTS |
March 31, 2016 (Unaudited) |
F. | Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. |
G. | Share Valuation. The net asset value (“NAV”) per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for the Fund, rounded to the nearest cent. The Fund’s shares will not be priced on the days on which the NYSE is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s net asset value per share. |
H. | Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. |
NOTE 3 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The “Derivatives and Hedging” Topic of the Codification (Accounting Standards Codification 815, formerly Statement of Financial Accounting Standards (“SFAS”) 133 and SFAS 161) requires enhanced disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial position, performance and cash flows. The Fund did not use derivatives during the period ended March 31, 2016.
NOTE 4 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
Factor Advisors, LLC (the “Advisor”), serves as the investment advisor to the Fund. Pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Fund, and the Advisor, the Advisor provides investment advice to the Fund and oversees the day-to-day operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Advisor is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate.
Under the Investment Advisory Agreement with the Fund, the Advisor has overall responsibility for the general management and administration of the Fund and arranges for sub-advisory, transfer agency, custody, fund administration, securities lending, and all other non-distribution related services necessary for the Fund to operate. The Advisor bears the costs of all advisory and non-advisory services required to operate the Fund, in exchange for a single unitary fee. Beginning February 12, 2016, the Advisor had voluntarily agreed to waive a portion of its management fees of the Fund to ensure that total expenses do not exceed a 0.45% of the Fund’s annual average net assets. At a meeting of the Board held on March 17, 2016, the Board approved the reduction in management fees to ensure that total expenses do not exceed a 0.45% of the Fund’s annual average net assets. The Advisor has an agreement with, and is dependent on, a third party to pay the Fund’s expenses in excess of 0.45% of the Fund’s average daily net assets. Additionally, under the Investment Advisory Agreement, the Advisor has agreed to pay all expenses of the Fund, except for: the fee paid to the Advisor pursuant to the Investment Advisory Agreement, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of
27
Etho Climate Leadership U.S. ETF |
NOTES TO FINANCIAL STATEMENTS |
March 31, 2016 (Unaudited) |
securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses, and distribution (12b-1) fees and expenses (collectively, “Excluded Expenses”). The Advisor has entered into an Agreement with Etho Climate Leadership U.S. (the “Sponsor”), under which the Sponsor agrees to sublicense the use of the Underlying Index to the Advisor. The Sponsor also provides marketing support for the Fund, including distributing marketing materials related to the Fund. Etho Climate Leadership U.S. is a privately held business focused on bringing exchange-traded investment products to investors in the U.S. The Sponsor does not make investment decisions, provide investment advice, or otherwise act in the capacity of an investment adviser to the Fund. Additionally, the Sponsor is not involved in the maintenance of the Underlying Index and does not otherwise act in the capacity of an index provider.
US Bancorp Fund Services, LLC (the “Administrator”) provides fund accounting, fund administration, and transfer agency services to the Fund. The Advisor compensates the Administrator for these services under an administration agreement between the two entities.
The Advisor pays each independent Trustee a quarterly fee for service to the Fund. Each Trustee is also reimbursed by the Advisor for all reasonable out-of-pocket expenses incurred in connection with his duties as Trustee, including travel and related expenses incurred in attending Board meetings.
NOTE 5 – DISTRIBUTION PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may pay compensation to the Distributor or any other distributor or financial institution with which the Trust has an agreement with respect to the Fund, with the amount of such compensation not to exceed an annual rate of 0.25% of each Fund’s daily average net assets. For the period ended March 31, 2016, the Fund did not incur any 12b-1 expenses.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
The costs of purchases and sales of securities, excluding short-term securities and in-kind transactions, for the period ended March 31, 2016:
Purchases | Sales | |||||||
Etho Climate Leadership U.S. ETF | $ | 662,996 | $ | 651,336 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the period ended March 31, 2016:
Purchases In- Kind | Sales In- Kind | |||||||
Etho Climate Leadership U.S. ETF | $ | 3,720,972 | $ | 1,227,217 |
Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all proceeds from in-kind sales. Net capital gains or losses resulting from in-kind redemptions are excluded from the Fund’s taxable gains and are not distributed to shareholders.
During the period ended March 31, 2016, the Fund incurred broker commissions to affiliated broker Penserra LLC in the amount of $385.
28
Etho Climate Leadership U.S. ETF |
NOTES TO FINANCIAL STATEMENTS |
March 31, 2016 (Unaudited) |
There were no purchases or sales of U.S. Government obligations for the period ended March 31, 2016.
NOTE 7 — SECURITIES LENDING
The Fund may lend up to 331/3% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program administered by U.S. Bank N.A. (“the Custodian”). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any loaned securities at the time of the loan, plus accrued interest. The Fund receives compensation in the form of fees and earn interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss in the fair value of securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand. As of March 31, 2016, the Fund had loaned securities and received cash collateral for the loans. The cash collateral is invested by the Custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the securities lending agent.
As of March 31, 2016, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan Collateral Received
Fund | Values of Securities on Loan | Fund Collateral Received* | ||||||
Etho Climate Leadership U.S. ETF | $ | 3,694 | $ | 3,825 |
* The cash collateral received was invested in the Mount Vernon Securities Lending Prime Portfolio as shown on the Schedule of Investments, a money market fund with an overnight and continuous maturity.
Fees and interest income earned on collateral investments and recognized by the Fund during the six months ended March 31, 2016, was as follows:
Fees and Interest Income Earned
Fund | Fees and Interest Income Earned | |||
Etho Climate Leadership U.S. ETF | $ | 336 |
Offsetting Assets and Liabilities
The Fund is subject to various netting arrangements, which govern the terms of certain transactions with counterparties. The arrangements allow the Fund to close out and net its total exposure to a
29
Etho Climate Leadership U.S. ETF |
NOTES TO FINANCIAL STATEMENTS |
March 31, 2016 (Unaudited) |
counterparty in the event of a default with respect to all transactions governed under a single agreement with a counterparty. The following is a summary of the arrangements subject to offsetting as of March 31, 2016.
Fund | Description | Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Statement of Assets & Liabilities | Net Amounts Presented in the Statement of Assets & Liabilities | Collateral Received | Net Amount | ||||||||||||||||
Etho Climate Leadership U.S. ETF | Securities Lending | $ | 3,825 | $ | 3,825 | $ | — | $ | 3,825 | $ | — |
NOTE 8 – DISTRIBUTIONS TO SHAREHOLDERS
The Fund did not pay any distributions from ordinary income or capital gains during the period ended March 31, 2016.
NOTE 9 – SUBSEQUENT EVENTS
In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
At a special meeting held on May 24, 2016, the Trustees, including a majority of the Trustees who are not interested persons of the Trust (as defined in the 1940 Act), ratified the transfer of the Investment Advisory Agreement between Factor Advisors and the Trust (the “Advisory Agreement”), to, and the assumption of the Agreement by, ETF Managers Group LLC (“ETF Managers”), effective April 26, 2016. ETF Managers is an investment adviser registered with the SEC under the Investment Advisers Act of 1940, as amended, with the same ownership and identical personnel as Factor Advisors. Such transfer and assumption of the Agreement does not amount to an assignment of such Agreement under the 1940 Act. Therefore, the Agreement remains in effect with ETF Managers serving as the investment adviser to the Fund.
At the special meeting held on May 24, 2016, the Board approved changing the name of the Trust to “ETF Managers Trust,” effective June 24, 2016.
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Disclosure of Portfolio Holdings
The Fund files a Form N-Q with the Securities and Exchange Commission (the ‘‘SEC’’) no more than sixty days after the Fund’s first and third fiscal quarters. For the Fund, this would be for the fiscal quarters ending June 30 and December 31. Form N-Q includes a complete schedule of the Fund’s portfolio holdings as of the end of those fiscal quarters. The Fund’s N-Q filings can be found free of charge on the SEC’s website at http://www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (call 800-SEC-0330 for information on the operation of the Public Reference Room).
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 are available without charge, upon request, by calling 800-625-7071 or on the SEC’s website at http://www.sec.gov.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477) or by visiting www.ethoetf.com. Read the prospectus carefully before investing.
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Etho Climate Leadership U.S. ETF |
For the Period Ended March 31, 2016 (Unaudited) |
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on September 10, 2015, the Board of Trustees (the “Board”) of FactorShares Trust (the “Trust”) considered the approval of the following agreements (collectively, the “Agreements”):
• | the Advisory Agreement between Factor Advisors, LLC (the “Adviser”) and the Trust, on behalf of the Etho Climate Leadership U.S. ETF (the “Fund”); and |
• | the Sub-Advisory Agreement between the Adviser and Penserra Capital Management LLC (the “Sub-Adviser”) with respect to the Fund. |
The Agreements must be approved: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Agreements or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year after the initial two-year term, the Board will call and hold a meeting to decide whether to renew the Agreements for an additional one-year term. In preparation for such meetings, the Board requests and reviews a wide variety of information from the Adviser and the Sub-Adviser.
Prior to and at the meeting held on September 10, 2015 the Board, including the Independent Trustees, reviewed written and oral information from the Advisor and the Sub-Adviser regarding, among other things: (i) the nature, extent and quality of the services to be provided to the Fund’s shareholders by the Adviser and the Sub-Adviser; (ii) the Adviser’s and the Sub-Adviser’s cost and profits they will realize in providing their services, including any fall-out benefits enjoyed by the Adviser and the Sub-Adviser; (iii) comparative fee and expense data for the Fund and other investment companies with similar investment objectives; (iv) the extent to which economies of scale would be realized as the Fund grows and whether the proposed advisory fee for the Fund reflects these economies of scale for the benefit of the Fund; and (v) other financial benefits to the Adviser and Sub-Adviser and their affiliates resulting from services rendered to the Fund. The Board’s review included relevant information furnished to the Board throughout the year. Among other things, representatives from the Adviser and the Sub-Adviser provided overviews of their advisory businesses, including investment personnel and investment processes. The Adviser and Sub-Adviser each discussed its experience with exchange-traded funds. The representatives discussed the services to be provided by the Sub-Adviser, which would be responsible for executing purchase and sale transactions in the Fund. The representatives also discussed the rationale for launching the Fund, the Fund’s fees and fee structures of comparable investment companies. The Board then discussed the written materials that it received before the meeting and throughout the year and the Adviser and Sub-Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the approval of the Agreements in light of this information. In its deliberations, the Board did not identify any single piece of information discussed below that was all-important or controlling.
Nature, Extent and Quality of Services Provided by the Adviser and the Sub-Adviser
The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser will be providing investment management services to the Fund. In considering the nature, extent and quality of the services provided by the Adviser, the Board reviewed the quality of the Adviser’s compliance infrastructure. The Board also considered the Adviser’s experience managing ETFs, including other series of the Trust.
The Board also considered other services to be provided to the Fund, such as overseeing the activities of the Sub-Advisor, as well as the Fund’s other service providers, monitoring adherence to the Fund’s investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities regulations.
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Etho Climate Leadership U.S. ETF |
APPROVAL OF ADVISORY AGREEMENT & BOARD CONSIDERATIONS |
For the Period Ended March 31, 2016 (Unaudited) (Continued) |
The Trustees then considered the scope of services to be provided under the Sub-Advisory Agreement, noting that Sub-Adviser will be providing investment management services to the Fund. The Board discussed the responsibilities of the Sub-Adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of the Fund; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; oversight of general portfolio compliance with relevant law; responsibility for daily monitoring of tracking error and quarterly reporting to the Board; and implementation of Board directives as they relate to the Fund. In considering the nature, extent and quality of the services to be provided by the Sub-Advisor, the Board considered the history and experience Sub-Adviser has as an investment advisor, as well the experience of its personnel in managing ETFs.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services to be provided to the Fund by the Adviser and the Sub-Adviser.
Cost of Services Provided and Economies of Scale
The Board reviewed the Fund’s estimated expense ratio and the advisory fee to be paid by the Fund, considered the expense ratios of comparable Funds. The Board also took into consideration management’s discussion of the fees and other factors considered. The Board concluded that the advisory fee was reasonable and the result of arm’s length negotiations. Additionally, the Board took into consideration that the advisory fees, along with most of the Fund’s other operating expenses, would be paid by the Adviser. The Board also evaluated the compensation and benefits expected to be received by the Adviser from its relationship with the Fund.
The Board determined that the Adviser is likely to realize economies of scale in managing the Fund as assets grow in size and intends to monitor fees as the Fund grows in size and determine whether fee breakpoints may be warranted
The Board then reviewed the advisory fee to be paid by the Adviser to the Sub-Adviser for its services as Sub-Adviser to the Fund. The Board considered that the fees paid to the Sub-Adviser would be paid by the Adviser from the advisory fee the Adviser will receive and noted that the fee reflected an arms-length negotiation between the Adviser and the Sub-Adviser. The Board concluded that the sub-advisory fees were reasonable.
Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Agreements are fair and reasonable; (b) concluded that the Adviser’s and Sub- Adviser’s fees are reasonable in light of the services that the Adviser and Sub-Adviser will provide to the Fund; and (c) agreed to approve the Agreements for an initial term of two years.
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As a shareholder of Etho Climate Leadership U.S. ETF (the “Fund”) you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (November 18, 2015 to March 31, 2016).
Actual Expenses
The first line of the table provides information about actual account values based on actual returns and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
Etho Climate Leadership U.S. ETF
Beginning Account Value November 18, 2015 | Ending Account Value March 31, 2016 | Expenses Paid During the Period^ | ||||||||||
Actual | $ | 1,000.00 | $ | 1,004.60 | $ | 2.71 | ||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,015.74 | $ | 2.72 |
^ The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio multiplied by the average account value during the period, multiplied by 135/366 (to reflect the period from November 18, 2015 to March 3, 2016.
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Advisor
Factor Advisors, LLC
30 Maple Street #2, Summit, NJ 07901
Sub-Adviser
Penserra Capital Management, LLC
4 Orinda Way, Suite 100-A, Orinda, CA 94563
Distributor
ALPS Distributors, Inc.
1290 Broadway, Suite 1100, Denver, Colorado 80203
Custodian
U.S. Bank National Association
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
Transfer Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street, Milwaukee, Wisconsin 53202
Securities Lending Agent
U.S Bank, National Association
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Independent Registered Public Accounting Firm
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
35
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. Investments.
(a) | Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form. |
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) | The Registrant’s Principal Executive Officer and Treasurer have reviewed the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant’s service provider. |
(b) | There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
Item 12. Exhibits.
(a) | (1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Not applicable for semi-annual reports. |
(2) A separate certification for each principal executive and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. |
(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable to open-end investment companies. |
(b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) | FactorShares Trust |
By (Signature and Title | /s/ Samuel Masucci III |
Samuel Masucci III, Principal Executive Officer |
Date | June 3, 2016 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* | /s/ Samuel Masucci III |
Samuel Masucci III, Principal Executive Officer |
Date | June 3, 2016 |
By (Signature and Title)* | /s/ John A. Flanagan |
John A. Flanagan, Principal Financial Officer |
Date | June 3, 2016 |