Investment Management Report
Performance Report
Stock markets around the world fell sharply early in the first quarter but then rallied enough in March to recoup much of the loss. However, international markets remained generally lower than at their highs of mid-summer 2015. While this was the general environment, as seen in the table below, the range of differences between countries was quite large. Of note, the most volatile market was Canada, where the gyrations in the price of crude oil feed directly into the economy, its currency and the stock market.
 | | | | | | |
| Country and Representative ETF Price Change | | 1st Quarter
(12/31/2015 – 3/31/2016) | | 6 Months
(9/30/2015 – 3/31/2016) | | Since Inception
(6/1/2015 – 3/31/2016) |
| Australia (EWA) | | | +1.90 | % | | | +7.81 | % | | | -13.63 | % |
| Canada (EWC) | | | +10.28 | % | | | +3.09 | % | | | -14.37 | % |
| France (EWQ) | | | -0.12 | % | | | +0.46 | % | | | -9.94 | % |
| Germany (EWG) | | | -1.76 | % | | | +4.00 | % | | | -11.34 | % |
| Hong Kong (EWH) | | | -0.25 | % | | | +3.40 | % | | | -16.51 | % |
| Japan (EWJ) | | | -5.86 | % | | | -0.17 | % | | | -12.97 | % |
| The Netherlands (EWN) | | | +3.19 | % | | | +5.13 | % | | | -6.75 | % |
| South Korea (EWY) | | | +6.34 | % | | | +8.28 | % | | | -7.72 | % |
| Switzerland (EWL) | | | -4.22 | % | | | -2.81 | % | | | -15.52 | % |
| United Kingdom (EWU) | | | -2.85 | % | | | -4.33 | % | | | -18.03 | % |
The TrimTabs International Free-Cash-Flow ETF (“FCFI” or the “Fund”) also reflected the volatile nature of the markets, not only in the first quarter but since its inception on June 1, 2015. The Fund made up some lost ground in the latter half of the first quarter and from inception is close to the performance of its benchmark, the MSCI All Country World excluding the US Index (in dollars) (“MSCI Index”).
| | | | | | |
| FCFI and Benchmark | | 1st Quarter | | 6 Months | | Since Inception |
| FCFI (NAV) | | | +0.73 | % | | | +3.96 | % | | | -12.90 | % |
| MSCI Index | | | -0.38 | % | | | +2.86 | % | | | -11.90 | % |
| | | | | | |
| ETF Comparables | | 1st Quarter | | 6 Months | | Since Inception |
| iShares Int’l High Quality (IDHQ) | | | -1.84 | % | | | +3.02 | % | | | -5.35 | % |
| PowerShares Int’l Fundamentals (PXF) | | | -2.32 | % | | | -1.06 | % | | | -16.43 | % |
| PowerShares Int’l Dividend Achievers (PID) | | | +2.06 | % | | | -4.08 | % | | | -21.96 | % |
The table also shows the three ETFs that we believe have some comparable elements to FCFI, although no single other ETF uses the same philosophy and process of FCFI. What is immediately apparent from the table is the degree to which the markets prized high quality during the whole period from June. Considering that the market has experienced two corrections in excess of 12% since June, it is not a puzzle that many investors latched on to safety. On the other hand, FCFI performed well against other measures of investment process, including dividends and earnings fundamentals.
The Fund algorithm results in a relatively large commitment to the financial sector, mostly in insurance companies, but also in a group of brokers and banks. With long-term interest rates as low as they are relative to practically zero short-term rates, we believe that profitability in the financial sector will be a struggle. The Fund’s other relatively large commitment is the materials sector, including an eclectic blend of precious metals and base metals companies. Fears of a global recession have hurt the group but some of those fears subsided late in the first quarter.
Finally, while the dollar had been extremely strong in the early part of 2015, its slight weakness since June has helped our dollar-based fund outperform the local markets generally. The exception was for the UK, where the dollar continues strong against the pound sterling as that country contemplates leaving the European Union. The euro, which comprises the heaviest weight in the Fund (as three of the countries in which the Fund invests are denominated in euros), was a strong currency relative to the dollar. The Fund’s exposure to euro-denominated companies translated to slightly better performance than was experienced by the locals.
Because of currency and pricing assumptions, there will typically be small tracking differences between the Fund and its underlying index (“Underlying Index”). The Fund’s NAV trailed the first quarter’s Underlying Index performance by approximately 120 basis points and by about that same amount since inception. Thus, the tracking error was mostly confined to first quarter and, specifically, to the period after the rebalance at the end of January. While the Underlying Index does a full reconstitution at the time of rebalancing, the operating approach initially taken by the Fund management was to perform partial rebalancing, addressing only the securities entering and leaving the securities that remained in the portfolio at their weights at the time. This was deemed a way to keep portfolio turnover limited. In the current volatile market environment that kind of approach can create tracking issues. As a result, at the end of April we did a complete reconstitution, including of the securities that remained in the portfolio after the rebalance at the end of January.
Shareholder Expense Example (Unaudited)
As a shareholder of the Fund you incur two types of costs: (1) transaction costs for purchasing and selling shares; and (2) ongoing costs, including management fees and other Fund expenses. The following examples are intended to help you understand your ongoing costs (in dollars and cents) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
The expense example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (October 1, 2015 through March 31, 2016).
Actual Expenses
The first line in the table below provides information about actual account values 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 for the Fund under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line in the table below provides information about hypothetical account values 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 in the table below is useful in comparing ongoing Fund costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | Beginning
Account Value | | Ending
Account Value | | Annualized
Expense Ratio
for the Period | | Expenses Paid
During Period |
TrimTabs Intl Free-Cash-Flow ETF
| | | | | | | | | | | | | | | | |
| Actual(1) | | $ | 1,000.00 | | | $ | 1,039.60 | | | | 0.69 | % | | $ | 3.52 | |
| Hypothetical (5% return before expenses)(2) | | $ | 1,000.00 | | | $ | 1,021.55 | | | | 0.69 | % | | $ | 3.49 | |
| (1) | Actual Expenses Paid are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the period October 1, 2015 to March 31, 2016). |
| (2) | Hypothetical Expenses Paid are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the period ended March 31, 2016). |
TrimTabs Intl Free-Cash-Flow ETF
Schedule of Investments (concluded)
March 31, 2016 (Unaudited)
| | | | |
| Investments | | Shares | | Value |
COMMON STOCK (continued)
| |
Switzerland (continued)
| |
| Zurich Insurance Group AG* | | | 1,253 | | | $ | 290,983 | |
| Total Switzerland | | | | | | | 1,165,296 | |
United Kingdom – 9.8%
| |
| Aberdeen Asset Management Plc | | | 11,316 | | | | 45,085 | |
| Aviva Plc | | | 9,469 | | | | 62,029 | |
| Berkeley Group Holdings Plc | | | 1,379 | | | | 63,735 | |
| Centrica Plc | | | 18,083 | | | | 59,137 | |
| Direct Line Insurance Group Plc | | | 15,059 | | | | 80,068 | |
| Experian Plc | | | 4,508 | | | | 80,609 | |
| Glencore Plc* | | | 40,451 | | | | 91,387 | |
| Meggitt Plc | | | 10,577 | | | | 61,767 | |
| Old Mutual Plc | | | 23,191 | | | | 64,318 | |
| Prudential Plc | | | 3,061 | | | | 57,197 | |
| RELX Plc | | | 4,803 | | | | 89,264 | |
| Rio Tinto Plc | | | 1,787 | | | | 50,189 | |
| Royal Mail Plc | | | 12,152 | | | | 83,898 | |
| Schroders Plc | | | 1,620 | | | | 62,426 | |
| Shire Plc | | | 956 | | | | 54,359 | |
| Sky Plc | | | 4,875 | | | | 71,697 | |
| St James’s Place Plc | | | 5,978 | | | | 78,861 | |
| Standard Chartered Plc | | | 4,903 | | | | 33,277 | |
| WM Morrison Supermarkets Plc | | | 27,603 | | | | 78,774 | |
| Total United Kingdom | | | | | | | 1,268,077 | |
TOTAL COMMON STOCK
| | | | | | | | |
| (Cost $13,245,665) | | | | | | | 12,211,637 | |
RIGHTS – 0.7%
| |
Netherlands – 0.7%
| | | | | | | | |
| Delta Lloyd NV, 04/30/16* | | | 62,507 | | | | 86,846 | |
MONEY MARKET FUND – 4.8%
| |
Wells Fargo Advantage Government Money Market Fund – Institutional Class, 0.18%(a)
| | | | | | | | |
| (Cost $617,229) | | | 617,229 | | | | 617,229 | |
TOTAL INVESTMENTS – 99.6%
| |
| (Cost $14,005,380) | | | | | | | 12,915,712 | |
| Other Assets in excess of Liabilities – 0.4% | | | 53,769 | |
| NET ASSETS – 100.0% | | | | | | $ | 12,969,481 | |
| * | Non-income producing security. |
| (a) | Rate shown reflects the 7-day yield as of March 31, 2016. |
The following table summarizes valuation of the Fund’s investments under the fair value hierarchy levels as of March 31, 2016:
| | | | | | | | |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets:
| | | | | | | | | | | | | | | | |
Investments in Securities
| | | | | | | | | | | | | | | | |
| Common Stock | | $ | 12,211,637 | | | $ | — | | | $ | — | | | $ | 12,211,637 | |
| Rights | | | 86,846 | | | | — | | | | — | | | | 86,846 | |
| Money Market Fund | | | 617,229 | | | | — | | | | — | | | | 617,229 | |
| | | $ | 12,915,712 | | | $ | — | | | $ | — | | | $ | 12,915,712 | |
For the six-months ended March 31, 2016, there were no transfers between levels. There were no Level 3 investments held in the Fund as of March 31, 2016.
The accompanying notes are an integral part of these financial statements.
6
TrimTabs Intl Free-Cash-Flow ETF
Statement of Assets and Liabilities
March 31, 2016 (Unaudited)
| | |
Assets:
| | | | |
| Investments at value (Cost $14,005,380) | | $ | 12,915,712 | |
| Foreign currency (Cost $7,103) | | | 7,163 | |
Receivables:
| | | | |
| Dividends and interest | | | 53,032 | |
| Reclaims | | | 1,166 | |
| Other assets | | | 12 | |
| Total Assets | | | 12,977,085 | |
Liabilities:
| | | | |
Payables:
| | | | |
| Advisory fees | | | 7,604 | |
| Total Liabilities | | | 7,604 | |
| Net Assets | | $ | 12,969,481 | |
Net Assets Consists of:
| | | | |
| Paid-in capital | | $ | 15,074,567 | |
| Accumulated net investment loss | | | (42,830 | ) |
| Accumulated net realized loss on investments | | | (973,617 | ) |
| Net unrealized depreciation on investments and foreign currency translation | | | (1,088,639 | ) |
| Net Assets | | $ | 12,969,481 | |
| Shares outstanding (unlimited shares authorized) | | | 604,000 | |
| Net asset value, per share | | $ | 21.47 | |
The accompanying notes are an integral part of these financial statements.
7
TrimTabs Intl Free-Cash-Flow ETF
Statement of Operations
For the six-months ended March 31, 2016 (Unaudited)
| | |
Investment Income:
| | | | |
| Dividend income (Net of foreign taxes withheld of $12,781) | | $ | 107,263 | |
| Interest income | | | 264 | |
| Total Income | | | 107,527 | |
Expenses:
| | | | |
| Advisory fees | | | 46,966 | |
| Net Investment Income | | | 60,561 | |
Net Realized and Unrealized Gain (Loss) on Investments:
| | | | |
| Net realized gain (loss) on investments | | | (677,519 | ) |
| Net realized gain (loss) on in-kind redemptions | | | (60,607 | ) |
| Net realized gain (loss) on foreign currency transactions | | | (1,262 | ) |
| Total net realized gain (loss) | | | (739,388 | ) |
| Net change in unrealized appreciation (depreciation) on investments | | | 1,198,449 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translation | | | 1,124 | |
| Net change in unrealized appreciation (depreciation) | | | 1,199,573 | |
| Net realized and unrealized gain (loss) on investments | | | 460,185 | |
| Net Increase (Decrease) in Net Assets Resulting From Operations | | $ | 520,746 | |
The accompanying notes are an integral part of these financial statements.
8
TrimTabs Intl Free-Cash-Flow ETF
Statement of Changes in Net Assets
| | | | |
| | | Six-Months
Ended
March 31, 2016
(Unaudited) | | For the Period
June 1, 2015(1) to
September 30, 2015 |
Operations:
| | | | | | | | |
| Net investment income | | $ | 60,561 | | | $ | 86,913 | |
| Net realized gain (loss) | | | (739,388 | ) | | | (236,837 | ) |
| Net change in unrealized appreciation (depreciation) | | | 1,199,573 | | | | (2,288,212 | ) |
| Net increase (decrease) in net assets resulting from operations | | | 520,746 | | | | (2,438,136 | ) |
| Distributions to Shareholders from: | | | | | | | | |
| Net investment income | | | (117,417 | ) | | | (70,279 | ) |
| Total distributions to shareholders | | | (117,417 | ) | | | (70,279 | ) |
Shareholder Transactions:
| | | | | | | | |
| Proceeds from shares sold | | | — | | | | 16,130,717 | |
| Cost of shares redeemed | | | (1,056,150 | ) | | | — | |
| Net increase (decrease) in net assets resulting from shareholder transactions | | | (1,056,150 | ) | | | 16,130,717 | |
| Increase (Decrease) in net assets | | | (652,821 | ) | | | 13,622,302 | |
Net Assets:
| | | | | | | | |
| Beginning of period | | | 13,622,302 | | | | — | |
| End of period | | $ | 12,969,481 | | | $ | 13,622,302 | |
| Undistributed/Accumulated net investment income (loss) included in net assets at end of period | | $ | (42,830 | ) | | $ | 14,026 | |
Changes in Shares Outstanding:
| | | | | | | | |
| Shares outstanding, beginning of period | | | 654,000 | | | | — | |
| Shares sold | | | — | | | | 654,000 | |
| Shares redeemed | | | (50,000 | ) | | | — | |
| Shares outstanding, end of period | | | 604,000 | | | | 654,000 | |
| (1) | Commencement of operations. |
The accompanying notes are an integral part of these financial statements.
9
TrimTabs Intl Free-Cash-Flow ETF
Financial Highlights
| | | | |
| | | Six-Months
Ended
March 31, 2016
(Unaudited) | | For the Period
June 1, 2015(1)
Through
September 30, 2015 |
Per Share Operating Performance:
| | | | | | | | |
For a share of capital stock outstanding throughout each period
| | | | | | | | |
| Net asset value, beginning of period | | $ | 20.83 | | | $ | 25.00 | |
Income from Investment Operations
| | | | | | | | |
| Net investment income(2) | | | 0.09 | | | | 0.17 | |
| Net realized and unrealized gain (loss) on investments | | | 0.73 | | | | (4.22 | ) |
| Total gain (loss) from investment operations | | | 0.82 | | | | (4.05 | ) |
Less distributions from:
| | | | | | | | |
| Net investment income | | | (0.18 | ) | | | (0.12 | ) |
| Net asset value, end of period | | $ | 21.47 | | | $ | 20.83 | |
| Market Value, end of period | | $ | 21.52 | | | $ | 20.78 | |
| Total Return at Net Asset Value(3) | | | 3.96 | % | | | (16.22 | )% |
| Total Return at Market Value(3) | | | 4.45 | % | | | (16.44 | )% |
Ratios/Supplemental Data:
| | | | | | | | |
| Net assets, end of period (000’s) omitted | | $ | 12,969 | | | $ | 13,622 | |
Ratio to average net assets of:
| | | | | | | | |
| Expenses | | | 0.69 | %(4) | | | 0.69 | %(4) |
| Net investment income | | | 0.89 | %(4) | | | 2.24 | %(4) |
| Portfolio turnover rate(5) | | | 57 | % | | | 47 | % |
| (1) | Commencement of Operations. |
| (2) | Based on average daily shares outstanding. |
| (3) | Not Annualized for periods less than one year. |
| (5) | Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s capital shares. |
The accompanying notes are an integral part of these financial statements.
10
Notes to Financial Statements
1. ORGANIZATION
TrimTabs Intl Free-Cash-Flow ETF (the “Fund”) is a series of the TrimTabs ETF Trust (the “Trust”). The Trust was organized as a Delaware statutory trust on April 2, 2014. The Fund is classified as a diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund commenced operations on June 1, 2015 and is the date the initial creation units were established. TrimTabs Asset Management, LLC (the “Adviser”) seeded the Fund on November 26, 2014 in order to provide initial capital required by Securities and Exchange Commission rules.
The Fund seeks to track the performance (before fees and expenses) of its underlying index, the TrimTabs Intl Free-Cash-Flow Index (the “Underlying Index”).
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is an investment company that applies the accounting and reporting guidance issued in Topic 946 by the U.S. Financial Accounting Standards Board. The Fund’s financial statements have been prepared to comply with U.S. generally accepted accounting principles (“U.S. GAAP”). These principles require the Fund’s investment adviser to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The Fund follows the significant accounting policies described in this section, as well as the valuation policies described in the next section on valuation.
The following is a summary of significant accounting policies followed by the Fund in its preparation of its financial statements:
Investment Transactions and Investment Income: Investment transactions are recorded on the trade date. Realized gains and losses on sales of investment securities are calculated using specific identification basis. Dividend income, if any, is recorded on the ex-dividend date or, in the case of foreign securities, as soon as the Fund is informed of the ex-dividend dates. Interest income, including accretion of discounts and amortization of premiums, is recorded on the accrual basis.
Dividend Distributions: Distributions to shareholders are recorded on the ex-dividend date and are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. The Fund distributes all or substantially all of its net investment income to shareholders in the form of dividends.
Currency Translation: Assets and liabilities, including investment securities, denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates supplied by one or more pricing vendors on the valuation date. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. The effects of changes in exchange rates on investment securities are included with the net realized gain or loss and net unrealized appreciation or depreciation on investments in the Fund’s statement of operations. The realized gain or loss and unrealized appreciation or depreciation resulting from all other transactions denominated in currencies other than U.S. dollars are disclosed separately.
3. SECURITIES VALUATION
Investment Valuation: The Fund calculates its net asset value (“NAV”) each day the New York Stock Exchange (the “NYSE”) is open for trading as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time (the “NAV Calculation Time”).
Equity securities are valued primarily on the basis of market quotations reported on stock exchanges and other securities markets around the world. If an equity security is listed on a national securities exchange, the security is valued at the closing price or, if the closing price is not readily available, the mean of the closing bid and asked prices. Such valuations would typically be categorized as Level 1 in the fair value hierarchy described below.
Market quotations and indicative bids are obtained from outside pricing services approved and monitored pursuant to a policy approved by the Fund’s Board of Trustees (the “Board”). If a market quotation is not readily available or is deemed not to reflect market value, the Fund will determine the price of the security held by the Fund based on a determination of the security’s fair value pursuant to policies and procedures approved by the Board. In addition, the Fund may use fair valuation to price securities that trade on a foreign exchange when a significant event has occurred after the foreign exchange closes but before the time at which the Fund’s NAV is calculated. Such valuations would typically be categorized as Level 2 or Level 3 in the fair value hierarchy described below.
11
Notes to Financial Statements (continued)
Foreign exchanges typically close before the time at which Fund Share prices are calculated, and may be closed altogether on some days when the Fund is open. Significant events affecting a foreign security may include, but are not limited to: corporate actions, earnings announcements, litigation or other events impacting a single issuer; governmental action that affects securities in one sector or country; natural disasters or armed conflicts affecting a country or region; or significant domestic or foreign market fluctuations.
Fair valuations and valuations of investments that are not actively trading involve judgment and may differ materially from valuations that would have been used had greater market activity occurred.
Fair Valuation Measurement:
The Financial Accounting Standards Board established a framework for measuring fair value in accordance with U.S. GAAP. Under Fair Value Measurements and Disclosures, various inputs are used in determining the value of the exchange traded fund’s investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three Levels of inputs of the fair value hierarchy are defined as follows:
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.
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 securities, 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.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
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 hierarchy classification of inputs used to value the Fund’s investments at March 31, 2016, is disclosed at the end of the Fund’s Schedule of Investments.
4. FEES WITH RELATED PARTIES AND OTHER SERVICE PROVIDERS
Advisory Fees: The Fund pays the Adviser a fee calculated daily and payable monthly at an annual rate (stated as a percentage of the average daily net assets of the Fund) of 0.69% (“Management Fee”) in return for providing investment management and supervisory services.
Subject to the supervision of the Board, the Adviser bears all of its own costs associated with providing advisory services and all expenses of the Fund, except for the management fee, 12b1 plan fee, brokerage expense, acquired Fund fees and expenses, taxes, interest (including borrowing costs and dividend expenses on securities sold short), litigation expenses, and other extraordinary expenses.
The Adviser has agreed to pay all organizational and offering costs of the Fund. Such expenses paid by the Adviser are not subject to reimbursement.
Administrator, Custodian, Accounting Agent and Transfer Agent Services: The Bank of New York Mellon (in each capacity, the “Administrator”, “Custodian,” “Accounting Agent” or “Transfer Agent”) serves as the Fund’s Administrator, Custodian, Accounting Agent and Transfer Agent pursuant to the Fund Administration and Accounting Agreement. The Bank of New York Mellon is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Distribution and Service Fees: Foreside Fund Services, LLC (“Distributor”) serves as the Fund’s distributor. The Trust has adopted a distribution and service plan (“Rule 12b1 Plan”) pursuant to Rule 12b1 under the 1940 Act. Under the Rule 12b1 Plan, the Fund is
12
Notes to Financial Statements (continued)
authorized to pay distribution fees in connection with the sale and distribution of its shares and pay service fees in connection with the provision of ongoing services to shareholders. To date, the Rule 12b1 Plan has not been implemented for the Fund and there is no current intention to implement the Rule 12b1 Plan.
5. CREATION AND REDEMPTION TRANSACTIONS
As of March 31, 2016, there were an unlimited number of shares of beneficial interest without par value authorized by the Trust. Individual shares of the Fund may only be purchased and sold at market prices on a national securities exchange through a broker-dealer. Such transactions may be subject to customary commission rates imposed by the broker-dealer, and market prices for the Fund’s shares may be at, above or below its NAV depending on the premium or discount at which the Fund’s shares trade.
The Fund issues and redeems shares at its NAV only in a large specified number of shares each called a “Creation Unit,” or multiples thereof, and only with “authorized participants” who have entered into contractual arrangements with the Distributor. A Creation Unit consists of 50,000 shares. Except when aggregated in Creation Units, shares of the Fund are not redeemable. Transactions in shares for the Fund are disclosed in detail in the Statement of Changes in Net Assets. The consideration for a purchase of Creation Units generally consists of the in-kind deposit of specified securities and an amount of cash or, as permitted or required by the Fund, of cash. A fixed transaction fee is imposed on each creation and redemption transaction. In addition, a variable charge for certain creation and redemption transactions will be imposed.
6. INVESTMENT TRANSACTIONS
The cost of purchases and the proceeds from sales of investment securities (excluding in-kind purchases and redemptions and short-term investments) for the six-months ended March 31, 2016 were $7,325,998 and $7,468,256, respectively.
For the six-months ended March 31, 2016, the cost of in-kind purchases and the proceeds from in-kind redemptions were $0 and $952,413, respectively.
7. FEDERAL INCOME TAX MATTERS
The Fund intends to continue to qualify as a “regulated investment company” under Subchapter M of the Internal Revenue Code of 1986, as amended. If so qualified, the Fund will not be subject to Federal income tax to the extent it distributes substantially all of its net investment income and net capital gains to its shareholders. Accounting for Uncertainty in Income Taxes provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements, and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-than-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Interest and penalty related to income taxes would be recorded as income tax expense. Management of the Fund is required to analyze all open tax years (2016), as defined by IRS statute of limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of March 31, 2016, the Fund did not have a liability for any unrecognized tax benefits. The Fund has no examination in progress and is not aware of any tax positions for which it is reasonably possible that the amounts of unrecognized tax benefits will significantly change in the next twelve months.
At March 31, 2016, the approximate cost of investments net unrealized appreciation (depreciation) for federal income tax purposes was as follows:
| | | | | | | | |
| | | Cost | | Gross
Unrealized
Appreciation | | Gross
Unrealized
Depreciation | | Net Unrealized
Appreciation
Depreciation |
| Total Investments | | | $14,006,103 | | | | $684,197 | | | | $(1,774,588 | ) | | | $(1,090,391 | ) |
The differences between book and tax basis cost of investments and net unrealized appreciation (depreciation) are primarily attributable to wash sales and foreign currency gains (losses).
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Notes to Financial Statements (concluded)
8. INDEMNIFICATION OBLIGATIONS
The Fund indemnifies its officers and trustees for certain liabilities that may arise from the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties which provide general indemnities. 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 industry experience, the Fund expects this risk of loss due to these warranties and indemnities to be remote.
9. PRINCIPAL RISKS
In the normal course of business, the Fund makes investments in financial instruments where the risk of potential loss exists due to changes in the market. The following is a description of select risks of investing in the Fund.
Market conditions — The prices of, and the income generated by, the common stocks and other securities held by the Fund may decline — sometimes rapidly or unpredictably — due to various factors, including events or conditions affecting the general economy or particular industries; overall market changes; local, regional or global political, social or economic instability; governmental or governmental agency responses to economic conditions; and currency exchange rate, interest rate and commodity price fluctuations.
Investing outside the U.S. — Securities of issuers domiciled outside the U.S., or with significant operations or revenues outside the U.S., may lose value because of adverse political, social, economic or market developments (including social instability, regional conflicts, terrorism and war) in the countries or regions in which the issuers operate or generate revenue. These securities may also lose value due to changes in foreign currency exchange rates against the U.S. dollar and/or currencies of other countries. Issuers of these securities may be more susceptible to actions of foreign governments, such as the imposition of price controls or punitive taxes, that could adversely impact revenues. Securities markets in certain countries may be more volatile and/or less liquid than those in the U.S. Investments outside the U.S. may also be subject to different accounting practices and different regulatory, legal and reporting standards and practices, and may be more difficult to value, than those in the U.S. In addition, the value of investments outside the U.S. may be reduced by foreign taxes, including foreign withholding taxes on interest and dividends. Further, there may be increased risks of delayed settlement of securities purchased or sold by the fund. The risks of investing outside the U.S. may be heightened in connection with investments in emerging markets.
10. SUBSEQUENT EVENT
Subsequent events have been evaluated through May 24, 2016, which is the date that these financial statements were available to be issued. No subsequent events were identified that would materially impact the financial statement period.
14
Supplemental Information (Unaudited)
Investors should consider the investment objective and policies, risk considerations, charges and ongoing expenses of an investment carefully before investing. The prospectus contains this and other information relevant to an investment in the Fund. Please read the prospectus carefully before investing. A copy of the Prospectus may be obtained without charge by writing to the Distributor, or by calling 855-799-1509 or visiting www.trimtabsfunds.com.
Quarterly Portfolio Holdings Information
The Fund is required to file its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for its first and third quarters on Form NQ. Copies of the filings are available without charge on the SEC’s website at www.sec.gov. You can also obtain copies of Form NQ by visiting the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Proxy Voting Information
A description of the Fund’s proxy voting policies and procedures, as well as a record of how the Fund voted proxies during the most recent period ended March 31, is available without charge upon request by calling 855-ETF-INFO (383-4636). This information is also available on the SEC’s website at www.sec.gov.
Premium/Discount Information
Information about the differences between the daily market price on the secondary market for the shares of the Fund and the Fund’s net asset value may be found on the Fund’s website at www.trimtabsfunds.com.
15
Investment Advisor
TrimTabs Asset Management, LLC
1345 Avenue of the Americas, 2nd Floor
New York, NY 10105
Distributor
Foreside Fund Services, LLC
3 Canal Plaza
Portland, ME 04101
Administrator, Custodian,
Fund accountant & Transfer agent
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Suite 1200, 695 Town Center Drive
Costa Mesa, CA 92626
Legal Counsel
K&L Gates LLP
1601 K Street, N.W.
Washington, DC 20006
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