UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number (811-23793)
Tidal Trust II
(Exact name of registrant as specified in charter)
234 West Florida Street, Suite 203
Milwaukee, Wisconsin 53204
(Address of principal executive offices) (Zip code)
Eric W. Falkeis
Tidal Trust II
234 West Florida Street, Suite 203
Milwaukee, Wisconsin 53204
(Name and address of agent for service)
(844) 986-7676
Registrant’s telephone number, including area code
Date of fiscal year end: October 31, 2023
Date of reporting period: April 30, 2023
Item 1. Reports to Stockholders.
| (a) |
Senior Secured Credit Opportunities ETF
Ticker: SECD
Semi-Annual Report
April 30, 2023
Senior Secured Credit Opportunities ETF
| TABLE OF CONTENTS |
Senior Secured Credit Opportunities ETF
| PORTFOLIO ALLOCATION at April 30, 2023 (Unaudited) |
| % of Net | ||||
| Security Type/Sector | Assets | |||
| Cash Equivalents(1) | 59.2 | % | ||
| Consumer, Non-cyclical | 19.3 | |||
| Consumer, Cyclical | 13.6 | |||
| Industrial | 4.5 | |||
| Technology | 3.4 | |||
| Total | 100.0 | % | ||
(1) Represents short-term investments, and other assets in excess of liabilities.
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| Senior Secured Credit Opportunities ETF |
| SCHEDULE OF INVESTMENTS at April 30, 2023 (Unaudited) |
| Principal Amount | Value | |||||||
| Corporate Bonds - 40.8% | ||||||||
| Agriculture - 4.5% | ||||||||
| Vector Group Ltd. | ||||||||
| 5.750%, 02/01/2029 | $ | 25,000 | $ | 22,390 | ||||
| Auto Parts & Equipment - 4.5% | ||||||||
| Titan International, Inc. | ||||||||
| 7.000%, 04/30/2028 | 25,000 | 22,375 | ||||||
| Commercial Services - 4.8% | ||||||||
| Adtalem Global Education, Inc. | ||||||||
| 5.500%, 03/01/2028 | 25,000 | 23,776 | ||||||
| Computers - 3.4% | ||||||||
| Unisys Corp. | ||||||||
| 6.875%, 11/01/2027 | 25,000 | 16,676 | ||||||
| Healthcare - Products - 10.0% | ||||||||
| Varex Imaging Corp. | ||||||||
| 7.875%, 10/15/2027 | 50,000 | 49,553 | ||||||
| Home Builders - 4.9% | ||||||||
| Winnebago Industries, Inc. | ||||||||
| 6.250%, 07/15/2028 | 25,000 | 24,214 | ||||||
| Miscellaneous Manufacturers - 4.5% | ||||||||
| LSB Industries, Inc. | ||||||||
| 6.250%, 10/15/2028 | 25,000 | 22,026 | ||||||
| Retail - 4.2% | ||||||||
| BlueLinx Holdings, Inc. | ||||||||
| 6.000%, 11/15/2029 | 25,000 | 20,898 | ||||||
| Total Corporate Bonds | ||||||||
| (Cost $209,381) | 201,908 | |||||||
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| Senior Secured Credit Opportunities ETF |
| SCHEDULE OF INVESTMENTS at April 30, 2023 (Unaudited)(Continued) |
| Shares | ||||||||
| Short-Term Investments - 58.1% | ||||||||
| Money Market Funds - 58.1% | ||||||||
| First American Government Obligations Fund, Class X, 4.725%(1) | 287,702 | 287,702 | ||||||
| Total Short-Term Investments | ||||||||
| (Cost $287,702) | 287,702 | |||||||
| Total Investments in Securities - 98.9% | ||||||||
| (Cost $497,083) | 489,610 | |||||||
| Other Assets in Excess of Liabilities - 1.1% | 5,503 | |||||||
| Total Net Assets - 100.0% | $ | 495,113 | ||||||
| (1) | The rate shown is the annualized seven-day effective yield as of April 30, 2023. |
The accompanying notes are an integral part of these financial statements.
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Senior Secured Credit Opportunities ETF
| STATEMENT OF ASSETS AND LIABILITIES at April 30, 2023 (Unaudited) |
| Assets: | ||||
| Investments in securities, at value (Note 2) | $ | 489,610 | ||
| Receivables: | ||||
| Dividends and interest | 5,890 | |||
| Net realized gain (loss) | 495,500 | |||
| Change in net unrealized appreciation/depreciation | ||||
| Liabilities: | ||||
| Realized and Unrealized Gain (Loss): | ||||
| Management fees (Note 4) | 387 | |||
| Total liabilities | 387 | |||
| Net Assets | $ | 495,113 | ||
| Components of Net Assets: | ||||
| Paid-in capital | $ | 500,275 | ||
| Total distributable (accumulated) earnings (losses) | (5,162 | ) | ||
| Net assets | $ | 495,113 | ||
| Net Asset Value (unlimited shares authorized): | ||||
| Net assets | $ | 495,113 | ||
| Shares of beneficial interest issued and outstanding | 25,000 | |||
| Net asset value | $ | 19.80 | ||
| Cost of investments | $ | 497,083 | ||
The accompanying notes are an integral part of these financial statements.
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Senior Secured Credit Opportunities ETF
| STATEMENT OF OPERATIONS For the Period Ended April 30, 2023 (Unaudited)(1) |
| Investment Income: | ||||
| Interest income | $ | 13,148 | ||
| Total investment income | 13,148 | |||
| Expenses: | ||||
| Management fees (Note 4) | 1,891 | |||
| Net realized gain (loss) | 1,891 | |||
| Change in net unrealized appreciation/depreciation | 11,257 | |||
| Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments | 1,764 | |||
| Change in net unrealized appreciation/depreciation on: | ||||
| Investments | (7,473 | ) | ||
| Net realized and unrealized gain (loss) on investments | (5,709 | ) | ||
| Net increase (decrease) in net assets resulting from operations | $ | 5,548 | ||
(1) The Fund commenced operations on December 5, 2022. The information presented is from December 5, 2022 to April 30, 2023.
The accompanying notes are an integral part of these financial statements.
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Senior Secured Credit Opportunities ETF
| STATEMENT OF CHANGES IN NET ASSETS (Unaudited) |
| Period Ended | ||||
| April 30, 2023 (1) | ||||
| (Unaudited) | ||||
| Increase (Decrease) in Net Assets From: | ||||
| Operations: | ||||
| Net investment income (loss) | $ | 11,257 | ||
| Net realized gain (loss) | 1,764 | |||
| Change in net unrealized appreciation/depreciation | (7,473 | ) | ||
| Net increase (decrease) in net assets resulting from operations | 5,548 | |||
| Distributions to Shareholders: | ||||
| Net distributions to shareholders | (10,710 | ) | ||
| Capital Share Transactions: | ||||
| Net increase (decrease) in net assets derived from net change in outstanding shares(2) | 500,275 | |||
| Total increase (decrease) in net assets | 495,113 | |||
| Net Assets: | ||||
| Beginning of period | — | |||
| End of period | $ | 495,113 | ||
(1) The Fund commenced operations on December 5, 2022. The information presented is from December 5, 2022 to April 30, 2023.
(2) Summary of share transactions is as follows:
| Period Ended | ||||||||
| April 30, 2023(1) | ||||||||
| (Unaudited) | ||||||||
| Shares | Value | |||||||
| Shares sold | 50,000 | $ | 1,001,368 | |||||
| Shares redeemed | (25,000 | ) | (501,093 | ) | ||||
| Net increase (decrease) | 25,000 | $ | 500,275 | |||||
The accompanying notes are an integral part of these financial statements.
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Senior Secured Credit Opportunities ETF
| FINANCIAL HIGHLIGHTS For a capital share outstanding throughout the period |
Period Ended (Unaudited)(1) | ||||
| Net asset value, beginning of period | $ | 20.00 | ||
| Income (Loss) from Investment Operations: | ||||
| Net investment income (loss)(2) | 0.45 | |||
| Net realized and unrealized gain (loss) | (0.22 | ) | ||
| Total from investment operations | 0.23 | |||
| Less Distributions: | ||||
| From net investment income | (0.43 | ) | ||
| Total distributions | (0.43 | ) | ||
| Net asset value, end of period | $ | 19.80 | ||
| Total return(3)(4) | 1.18 | % | ||
| Ratios / Supplemental Data: | ||||
| Net assets, end of period (millions) | $ | 0.5 | ||
| Portfolio turnover rate(3) | 165 | % | ||
| Ratio of expenses to average net assets(5) | 0.95 | % | ||
| Ratio of net investment income (loss) to average net assets(5) | 5.65 | % | ||
(1) The Fund commenced operations on December 5, 2023. The information presented is from December 5, 2022 to April 30, 2023.
(2) Calculated using average shares outstanding method.
(3) Not annualized.
(4) The total return is based on the Fund’s net asset value.
(5) Annualized.
The accompanying notes are an integral part of these financial statements.
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Senior Secured Credit Opportunities ETF
| NOTES TO FINANCIAL STATEMENTS April 30, 2023 (Unaudited) |
| NOTE 1 – ORGANIZATION |
The Senior Secured Credit Opportunities ETF (the “Fund”) is a series of the Tidal Trust II (the “Trust”). The Trust was organized as a Delaware statutory trust on January 13, 2022. The Trust is registered with the Securities and Exchange Commission (“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 Fund is considered diversified under the 1940 Act. The Trust is governed by the Board of Trustees (the “Board”). Toroso Investments, LLC (“Toroso” or the “Adviser”), a Tidal Financial Group company, serves as investment adviser to the Fund. The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services – Investment Companies” including FASB Accounting Standard Update (“ASU”) 2013-08. The Fund commenced operations on December 5, 2022.
The investment objective of the Fund is to seek to preserve capital and generate consistent income.
| 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. Equity securities that are listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on the New York Stock Exchange (“NYSE”)), 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 3:00 p.m. EST 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 or mean between the most recent quoted bid and ask prices for long and short positions. For a security that trades on multiple exchanges, the primary exchange will generally be considered the exchange on which the security is generally most actively traded. For securities traded on NYSE, the NYSE Official Closing Price will be used. Prices of securities traded on the securities exchange will be obtained from recognized independent pricing agents (“Independent Pricing Agents”) each day that the Fund is open for business. |
Effective September 8, 2022, for securities for which quotations are not readily available, under Rule 2a-5 of the 1940 Act, a fair value will be determined by the Valuation Designee (as defined in Rule 2a-5) in accordance with the Pricing and Valuation Policy and Fair Value Procedures, as applicable, of the Adviser, subject to oversight by 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 Adviser’s Pricing and Valuation Policy and Fair Value Procedures, as applicable. Fair value pricing is an inherently subjective process, and no single standard exists for determining fair value. Different funds could reasonably arrive at different values for the same security. The use of fair value pricing by a funds 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 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.
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Senior Secured Credit Opportunities ETF
| NOTES TO FINANCIAL STATEMENTS April 30, 2023 (Unaudited) (Continued) |
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 April 30, 2023:
| Investments in Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Corporate Bonds(1) | $ | — | $ | 201,908 | $ | — | $ | 201,908 | ||||||||
| Short-Term Investments | 287,702 | — | — | 287,702 | ||||||||||||
| Total Investments in Securities | $ | 287,702 | $ | 201,908 | $ | — | $ | 489,610 | ||||||||
(1) See Schedule of Investments for the industry breakout.
| 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 provision for federal income taxes or excise taxes has been made. |
In order to avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare as dividends in each calendar year at least 98.0% of its net investment income (earned during the calendar year) and at least 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years.
As of April 30, 2023, the Fund did not have any tax positions that did not meet the threshold of being sustained by the applicable tax authority. Generally, tax authorities can examine all the tax returns filed for the last three years. The Fund identifies its major tax jurisdiction as U.S. Federal and the Commonwealth 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.
| C. | Securities 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. Dividends received from REITs generally are comprised of ordinary income, capital gains, and may include return of capital. Debt income is recorded on an accrual basis. Other non-cash dividends are recognized as investment income at the fair value of the property received. Withholding taxes on foreign dividends have been provided for in accordance with the Trust’s understanding of the applicable country’s tax rules and rates. |
| D. | Distributions to Shareholders. Distributions to shareholders from net investment income, if any, for the Fund are declared and paid at least annually. Distributions to shareholders from net realized gains on securities, if any, for the Fund normally are declared and paid on an monthly basis. Distributions are recorded on the ex-dividend date. |
| E. | 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 and the reported amount of revenue and expenses during the reporting period. Actual results could differ from those estimates. |
| F. | 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 or other assets, minus all liabilities 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 New York Stock Exchange (“NYSE”) is closed for trading. |
| G. | 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. |
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Senior Secured Credit Opportunities ETF |
| NOTES TO FINANCIAL STATEMENTS April 30, 2023 (Unaudited)(Continued) |
| H. | Illiquid Securities. Pursuant to Rule 22e-4 under the 1940 Act, the Fund has adopted a Board-approved Liquidity Risk Management Program (the “Program”) that requires, among other things, that the Fund limit its illiquid investments that are assets to no more than 15% of the value of the Fund’s net assets. An illiquid investment is any security that the Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. If the Fund should be in a position where the value of illiquid investments held by the Fund exceeds 15% of the Fund’s net assets, the Fund will take such steps as set forth in the Program. |
| I. | Recently Issued Accounting Pronouncements. In June 2022, the FASB issued Accounting Standards Update 2022-03, which amends Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022- 03”). ASU 2022-03 clarifies guidance for fair value measurement of an equity security subject to a contractual sale restriction and establishes new disclosure requirements for such equity securities. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023 and for interim periods within those fiscal years, with early adoption permitted. The Fund is currently evaluating the impact of these amendments on the financial statements. |
| NOTE 3 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS |
The Adviser serves as investment adviser to the Fund, and has overall responsibility for the general management and administration of the Fund pursuant to an investment advisory agreement with the Trust, on behalf of the Fund (the “Advisory Agreement”). The Adviser is also responsible for trading portfolio securities for the Fund, including selecting broker-dealers to execute purchase and sale transactions, subject to the supervision of the Board.
Pursuant to the Advisory Agreement, the Fund pays the Adviser a unitary management fee (the “Management Fee”) based on the average daily net assets of the Fund at the annualized rate of 0.95%. Out of the Management Fee, the Adviser is obligated to pay or arrange for the payment of substantially all expenses of the Fund, including the cost of transfer agency, custody, fund administration, and all other related services necessary for the Fund to operate. Under the Advisory Agreement, the Adviser has agreed to pay all expenses incurred by the Fund except for interest charges on any borrowings, dividends and other expenses on securities sold short, 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, distribution fees, and expenses paid by the Fund under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act (the “Excluded Expenses”), and the Management Fee payable to the Adviser. The Management Fees incurred are paid monthly to the Adviser. Management Fees for the period ended April 30, 2023 are disclosed in the Statement of Operations.
Tidal ETF Services LLC (“Tidal”), a Tidal Financial Group company and an affiliate of the Adviser, serves as the Fund’s administrator and, in that capacity, performs various administrative and management services for the Fund. Tidal coordinates the payment of Fund related expenses and manages the Trust’s relationships with its various service providers.
U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (“Fund Services”), serves as the Fund’s sub-administrator, fund accountant and transfer agent. In those capacities Fund Services performs various administrative and accounting services for the Fund. Fund Services prepares various federal and state regulatory filings, reports and returns for the Fund, including regulatory compliance monitoring and financial reporting; prepares reports and materials to be supplied to the Board; and monitors the activities of the Fund’s custodian U.S. Bank N.A. (the “Custodian”), an affiliate of Fund Services, serves as the Fund’s custodian.
Foreside Fund Services, LLC (the “Distributor”) acts as the Fund’s principal underwriter in a continuous public offering of the Fund’s shares.
Certain officers and a trustee of the Trust are affiliated with the Adviser. Neither the affiliated trustee nor the Trust’s officers receive compensation from the Fund.
| NOTE 4 – PURCHASES AND SALES OF SECURITIES |
For the period ended April 30, 2023, the cost of purchases and proceeds from the sales or maturities of securities, excluding short-term investments, U.S. government securities, and in-kind transactions were $651,791 and $445,060, respectively.
For the period ended April 30, 2023, there were no purchases or sales of long-term U.S. Government securities.
For the period ended April 30, 2023, there were no in-kind transactions associated with creations and redemptions.
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Senior Secured Credit Opportunities ETF
| NOTES TO FINANCIAL STATEMENTS April 30, 2023 (Unaudited)(Continued) |
| NOTE 5 – INCOME TAXES AND DISTRIBUTONS TO SHAREHOLDERS |
The Fund is subject to examination by U.S. taxing authorities for the tax periods since the commencement of operations. The amount and character of tax basis distributions and composition of net assets, including undistributed (accumulated) net investment income (loss), are finalized at the fiscal year-end; accordingly, tax basis balances have not been determined for the period ended April 30, 2023. Differences between the tax cost of investments and the cost noted in the Schedule of Investments will be determined at fiscal year-end. The tax character of distributions paid during the period ended April 30, 2023 (estimated) was as follows:
| Distributions paid from: | ||||
| Ordinary income | $ | 10,710 | ||
| NOTE 6 – SHARE TRANSACTIONS |
Shares of the Fund are listed and traded on the Exchange. Market prices for the shares may be different from their NAV. The Fund issues and redeems shares on a continuous basis at NAV generally in large blocks of shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified universe. Once created, shares generally trade in the secondary market at market prices that change throughout the day. Except when aggregated in Creation Units, shares are not redeemable securities of the Fund. Creation Units may only be purchased or redeemed by 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 Depository Trust Company 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 the 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.
The Fund currently offers one class of shares, which has no front-end sales load, no deferred sales charge, and no redemption fee. A fixed transaction fee is imposed for the transfer and other transaction costs associated with the purchase or sale of Creation Units. The standard fixed transaction fee for the Fund is $300, payable to the Custodian. The fixed transaction fee may be waived on certain orders if the Fund’s Custodian has determined to waive some or all of the costs associated with the order or another party, such as the Adviser, has agreed to pay such fee. In addition, a variable fee may be charged on all cash transactions or substitutes for Creation Units of up to a maximum of 2% and for Redemption Units of up to a maximum of 2%, respectively, of the value of the Creation Units and Redemption Units subject to the transaction. Variable fees received by the Fund, if any, are disclosed in the capital shares transactions section of the Statements of Changes in Net Assets. 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.
| NOTE 7 – RECENT MARKET EVENTS |
U.S. and international markets have experienced and may continue to experience significant periods of volatility in recent years and months due to a number of economic, political and global macro factors including rising inflation, uncertainty regarding central banks’ interest rate increases, the possibility of a national or global recession, trade tensions, political events, the war between Russia and Ukraine and the impact of the corona virus (COVID-19) global pandemic. The global recovery from COVID-19 may last for an extended period of time. As a result of continuing political tensions and armed conflicts, including the war between Ukraine and Russia, the U.S. and the European Union imposed sanctions on certain Russian individuals and companies, including certain financial institutions, and have limited certain exports and imports to and from Russia. The war has contributed to recent market volatility and may continue to do so. These developments, as well as other events, could result in further market volatility and negatively affect financial asset prices, the liquidity of certain securities and the normal operations of securities exchanges and other markets, despite government efforts to address market disruptions. Continuing market volatility as a result of recent market conditions or other events may have adverse effects on your account.
| NOTE 8 – 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 has determined the following subsequent event.
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Senior Secured Credit Opportunities ETF
| NOTES TO FINANCIAL STATEMENTS April 30, 2023 (Unaudited)(Continued) |
Pursuant to the shareholder communication that was filed on June 16, 2023, shares of the Fund will cease trading on the NYSE and will be closed to purchase by investors as of the close of regular trading on the NYSE on June 28, 2023 (the “Closing Date”). The Fund will not accept purchase orders after the Closing Date. The Adviser informed the Board of its view that the Fund should not conduct its business and operations in an economically efficient manner over the long term due to the Fund’s inability to attract sufficient investment assets to maintain a competitive operating structure and recommended the Fund’s closure and liquidation to the Board. The Board determined, after considering the Adviser’s recommendation, that it is in the best interest of the Fund and its shareholders to liquidate and terminate the Fund.
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Senior Secured Credit Opportunities ETF
EXPENSE EXAMPLE For the Period Ended April 30, 2023 (Unaudited) |
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions paid on purchases and sales of the Fund’s shares, and (2) ongoing costs, including management fees of the Fund. This example is 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 actual example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which is from December 5, 2022 (commencement of operations) to April 30, 2023. The hypothetical example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which is from November 1, 2022 to April 30, 2023.
Actual Expenses
The first line of the following table provides information about actual account values and actual expenses. The example includes, but is not limited to, unitary fees. However, the example does not include portfolio trading commissions and related 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 the Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the following table 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 the Fund’s shares. Therefore, the second line of the following 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.
Beginning | Ending | Expenses Paid During the Period December 5, 2022 – April 30, 2023 | ||||||||||
| Actual(1) | $ | 1,000.00 | $ | 1,011.80 | $ | 3.82 | ||||||
Beginning | Ending | Expenses Paid April 30, 2023 | ||||||||||
| Hypothetical (5% annual return before expenses)(2) | $ | 1,000.00 | $ | 1,020.08 | $ | 4.76 | ||||||
| (1) | The actual expenses are equal to the Fund’s annualized net expense ratio of 0.95%, multiplied by the average account value over the period, multiplied by 146/365 (to reflect the period from December 5, 2022 to April 30, 2023, the commencement of operations date to the end of the period). |
| (2) | The hypothetical expenses are equal to the Fund’s annualized net expense ratio of 0.95%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the most recent six-month period). |
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Senior Secured Credit Opportunities ETF
| APPROVAL OF ADVISORY AGREEMENT AND BOARD CONSIDERATIONS |
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on September 19, 2022, the Board of Trustees (the “Board”) of Tidal Trust II (the “Trust”) considered the approval of:
| ● | The Investment Advisory Agreement (the “Advisory Agreement”) between Toroso Investments, LLC (the “Adviser”) and the Trust, on behalf of the Senior Secured Credit Opportunities ETF (the “Fund”). |
Pursuant to Section 15 of the 1940 Act, the Agreement must be approved by the vote of a majority of the Trustees who are not parties to the Agreement 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. In preparation for such meeting, the Board requested and reviewed a wide variety of information from the Adviser.
In reaching its decision, the Board, including the Independent Trustees, considered all factors it believed relevant, including: (i) the nature, extent and quality of the services to be provided to the Fund’s shareholders by the Adviser; (ii) the costs of the services to be provided and the profits to be realized by the Adviser from services to be provided to the Fund, including any fall-out benefits; (iv) comparative fee and expense data for the Fund in relation to other investment companies with similar investment objectives; (v) the extent to which economies of scale would be realized as the Fund grows and whether the advisory fees for the Fund reflects these economies of scale for the benefit of the Fund; and (vi) other financial benefits to the Adviser and its affiliates resulting from services rendered to the Fund. The Board’s review included written and oral information furnished to the Board prior to and at the meeting held on September 19, 2022. Among other things, the Adviser provided responses to a detailed series of questions, which included information about the Adviser’s operations, service offerings, personnel, compliance program and financial condition. The Board then discussed the written and oral information that it received before the meeting, and the Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the renewal of the Agreement in light of this information.
The Independent Trustees were assisted throughout the contract review process by independent legal counsel. The Independent Trustees relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating the renewal of the Agreement, and the weight to be given to each such factor. The conclusions reached with respect to the Agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each Trustee may have placed varying emphasis on particular factors in reaching conclusions with respect to each Fund. The Independent Trustees conferred amongst themselves and independent legal counsel in executive sessions both with and without representatives of management.
Nature, Extent and Quality of Services to be Provided. The Trustees considered the scope of services to be provided under the Advisory Agreement. In considering the nature, extent and quality of the services to be provided by the Adviser, the Board reviewed the Adviser’s compliance infrastructure and its financial strength and resources. The Board also considered the experience of the personnel of the Adviser working with ETFs. The Board also considered other services to be provided to the Fund by the Adviser, such as selecting broker-dealers for executing portfolio transactions, monitoring adherence to the Fund’s investment restrictions, and monitoring compliance with various Fund policies and procedures and with applicable securities regulations. 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 based on its experience, personnel, operations and resources.
Historical Performance. The Board noted that the Fund had not yet commenced operations and that therefore there was no prior performance to review.
Cost of Services Provided, Profitability and Economies of Scale. The Board reviewed the proposed advisory fee for the Fund and compared it to the management fees and total operating expenses of its Morningstar peer group. The Board noted that the comparisons to the total expense ratios were the most relevant comparisons, given the fact that the advisory fee for the Fund is a “unified fee.” The Board took into consideration management’s discussion of the fees.
The Board noted the importance of the fact that the proposed advisory fee for the Fund is a “unified fee,” meaning that the shareholders of the Fund pay no expenses except for interest charges on any borrowings, dividends and other expenses on securities sold short, 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, distribution fees and expenses paid by the Fund under any distribution plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 Act, as amended (the “1940 Act”), litigation expenses, non-routine or extraordinary expenses, and the unitary management fee payable to the Adviser. The Board also noted that the Adviser was responsible for compensating the Trust’s other service providers and paying the Fund’s other expenses (except as noted above) out of its own fees and resources. The Board further noted that because the Fund is new, it was difficult to estimate the profitability of the Fund to the Adviser. The Board, however, considered collateral or “fall-out” benefits that the Adviser and its affiliates may derive as a result of their relationship with the Fund.
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The Board noted that because the Fund is new, it also was difficult to estimate whether the Fund would experience economies of scale. The Board noted that the Adviser will review expenses as the Fund’s assets grow. The Board determined to evaluate economies of scale on an ongoing basis if the Fund achieved asset growth.
Conclusion. No single factor was determinative to the decision of the Board. Based on the Board’s deliberations and its evaluation of the information described above and such other matters as were deemed relevant, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Advisory Agreement are fair and reasonable; (b) concluded that the Adviser’s fees are reasonable in light of the services that the Adviser will provide to the Fund; and (c) agreed to approve the Advisory Agreement for an initial term of two years.
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Senior Secured Credit Opportunities ETF
| ADDITIONAL INFORMATION (Unaudited) |
| INFORMATION ABOUT PROXY VOTING (Unaudited) |
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available upon request without charge, by calling (866) 953-4590 or by accessing the Fund’s website at www.secdetf.com. Furthermore, you can obtain the description on the SEC’s website at www.sec.gov.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-months ending June 30 is available upon request without charge by calling (866) 953-4590 or by accessing the SEC’s website at www.sec.gov.
| INFORMATION ABOUT THE PORTFOLIO HOLDINGS (Unaudited) |
The Fund’s portfolio holdings are posted on the Fund’s website daily at www.secdetf.com. The Fund files its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Part F of Form N-PORT. The Fund’s Part F of Form N-PORT is available without charge, upon request, by calling (866) 953-4590. Furthermore, you can obtain the Part F of Form N-PORT on the SEC’s website at www.sec.gov.
| FREQUENCY DISTRIBUTION OF PREMIUMS AND DISCOUNTS (Unaudited) |
Information regarding how often shares of the Fund trade on the exchange at a price above (i.e., at a premium) or below (i.e., at a discount) to its daily NAV is available, without charge, on the Fund’s website at www.secdetf.com.
| INFORMATION ABOUT THE FUND’S TRUSTEES (Unaudited) |
The Statement of Additional Information (“SAI”) includes additional information about the Fund’s Trustees and is available without charge, upon request, by calling (866) 953-4590. Furthermore, you can obtain the SAI on the SEC’s website at www.sec.gov or the Fund’s website at www.secdetf.com.
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Investment Adviser
Toroso Investments, LLC
234 West Florida Street, Suite 203
Milwaukee, Wisconsin 53204
Independent Registered Public Accounting Firm
Cohen & Company
342 North Water Street, Suite 1800
Milwaukee, Wisconsin 53202
Legal Counsel
Sullivan & Worcester LLP
1633 Broadway
New York, New York 10019
Custodian
U.S. Bank N.A.
Custody Operations
1555 North RiverCenter Drive, Suite 302
Milwaukee, Wisconsin 53212
Fund Administrator
Tidal ETF Services LLC
234 West Florida Street, Suite 203
Milwaukee, Wisconsin 53204
Transfer Agent, Fund Accountant and Fund Sub-Administrator
U.S. Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
Distributor
Foreside Fund Services, LLC
Three Canal Plaza, Suite 100
Portland, Maine 04101
Fund Information
| Fund | Ticker | CUSIP |
| Senior Secured Credit Opportunities ETF | SECD | 88634T501 |
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| (b) | Not applicable. |
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.
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Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of Trustees.
Item 11. Controls and Procedures.
| (a) | The Registrant’s President/Principal Executive Officer and Treasurer/Principal Financial Officer 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 period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
Not applicable to open-end investment companies.
Item 13. 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. |
(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.
(4) Change in the registrant’s independent public accountant. There was no change in the registrant’s independent public accountant for the period covered by this report.
| (b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. |
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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) | Tidal Trust II |
| By (Signature and Title) | /s/ Eric W. Falkeis |
| Eric W. Falkeis, President/Principal Executive Officer |
| Date | July 6, 2023 |
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/ Eric W. Falkeis |
| Eric W. Falkeis, President/Principal Executive Officer |
| Date | July 6, 2023 |
| By (Signature and Title)* | /s/ Ally L. Mueller |
| Ally L. Mueller, Treasurer/Principal Financial Officer |
| Date | July 6, 2023 |
* Print the name and title of each signing officer under his or her signature.
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