As filed with the Securities and Exchange Commission on
January 27, 2009
Securities Act File No. 333-144856
Investment Company Act File No. 811-22103
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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x
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Pre-Effective Amendment No.
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o
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Post-Effective Amendment No. 42
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x
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and/or
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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x
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Amendment No. 43
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x
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(Check appropriate box or boxes)
SPA ETF TRUST
(Exact Name of Registrant as Specified in its Charter)
Tower 49
12 East 49th Street
New York, New York 10017
(Address of Principal Executive
Offices)
1-800-772-3831
Registrant’s Telephone Number
Antony Peter Drain
SPA ETF, Inc.
Tower 49
12 East 49th Street
New York, New York 10017
(Name and Address of Agent for Service)
Copy to:
Stuart M. Strauss, Esq.
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
APPROXIMATE
DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check
appropriate box)
o
Immediately
upon filing pursuant to paragraph (b) of Rule 485.
x
On
January 28, 2009 pursuant to paragraph (b) of
Rule 485.
o
60 days
after filing pursuant to paragraph (a)(1) of Rule 485.
o
On
[date] pursuant to paragraph (a) of Rule 485.
o
75 days
after filing pursuant to paragraph (a)(2) of Rule 485.
o
On
[date] pursuant to paragraph (a) of Rule 485.
If appropriate, check the following box:
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o
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This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
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SPA
ETF TRUST
SPA MARKETGRADER 40 FUND
SPA MARKETGRADER 100 FUND
SPA MARKETGRADER 200 FUND
SPA MARKETGRADER SMALL CAP 100 FUND
SPA MARKETGRADER MID CAP 100 FUND
SPA MARKETGRADER LARGE CAP 100 FUND
PROSPECTUS
January 28, 2009
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
TABLE OF
CONTENTS
No dealer, salesperson or any other person has been authorized
to give any information or to make any representations, other
than those contained in this Prospectus, in connection with the
offer contained in this Prospectus and, if given or made, such
other information or representations must not be relied upon as
having been authorized by the Funds, SPA ETF Inc., the
Funds’ investment adviser (the “Investment
Adviser”), Esposito Partners, LLC, the Funds’
investment sub-adviser (the “Sub-Adviser”), or the
Funds’ distributor, Foreside Fund Services, LLC. This
Prospectus does not constitute an offer by the Funds or by the
Funds’ distributor to sell or a solicitation of an offer to
buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful for the Funds to make such an
offer in such jurisdiction.
i
INTRODUCTION —
SPA ETF TRUST
SPA ETF Trust (the “Trust”) is an investment company
currently consisting of six separate exchange-traded “index
funds.” The investment objective of each Fund is to
replicate as closely as possible, before fees and expenses, the
performance of a specified market index. Each specified market
index is not representative of the market as a whole. SPA ETF,
Inc. is the investment adviser for the Funds (the
“Investment Adviser”). Esposito Partners, LLC is the
investment sub-adviser for the Funds (the
“Sub-Adviser”).
This Prospectus describes the six Funds of the Trust: SPA
MarketGrader 40 Fund, SPA MarketGrader 100 Fund, SPA
MarketGrader 200 Fund, SPA MarketGrader Small Cap 100 Fund, SPA
MarketGrader Mid Cap 100 Fund, SPA MarketGrader Large Cap 100
Fund (together, the “Funds”).
The Funds’ shares (the “Shares”), are listed and
traded on the NYSE Arca, Inc. (the “NYSE Arca”). The
Funds’ Shares will trade at market prices that may differ
to some degree from the net asset value (“NAV”) of the
Shares. Unlike conventional mutual funds, the Funds issue and
redeem Shares on a continuous basis, at NAV, only in large
specified blocks of 100,000 Shares, each of which is called
a “Creation Unit.” Creation Units are issued and
redeemed principally in-kind for securities included in a
specified index.
Except when aggregated in Creation Units,
Shares are not redeemable securities of the Funds.
WHO
SHOULD INVEST
The Funds are designed for investors who seek a
“passive” approach for investing in a portfolio of
equity securities of companies in a specified index. The Funds
may be suitable for long-term investment in the market
represented by a specified index and may also be used as an
asset allocation tool or as a speculative trading instrument.
TAX-ADVANTAGED
PRODUCT STRUCTURE
Unlike interests in many conventional mutual funds, the Shares
are traded throughout the day on a national securities exchange,
whereas mutual fund interests are typically only bought and sold
at closing net asset values. The Shares have been designed to be
tradable in the secondary market on a national securities
exchange on an
intra-day
basis, and to be created and redeemed principally in-kind in
Creation Units at each day’s next calculated NAV. These
arrangements are designed to protect ongoing shareholders from
adverse effects on the Funds’ portfolios that could arise
from frequent cash creation and redemption transactions. In a
conventional mutual fund, redemptions can have an adverse tax
impact on taxable shareholders because of the mutual fund’s
need to sell portfolio securities to obtain cash to meet fund
redemptions. These sales may generate taxable gains for the
shareholders of the mutual fund, whereas the Shares’
in-kind redemption mechanism generally will not lead to a tax
event for the Funds or their ongoing shareholders.
However, based on the quarterly or semi-annual, as applicable,
reconstitutions of each Fund’s Underlying Index, there may
be a large degree of portfolio turnover as each Fund replicates
its Underlying Index. A high portfolio turnover rate could
result in increased taxable capital gains distributions to each
Fund’s shareholders. For further discussion of the
distribution requirements that apply to such Funds, see
“Taxes” in the Funds’ Statement of Additional
Information. For information concerning the tax consequences of
distributions, see “Federal Income Taxation —
Taxes on Distributions” in this Prospectus.
1
SPA
MARKETGRADER 40 FUND
Investment
Objective
The Fund seeks investment results that correspond generally to
the performance, before the Fund’s fees and expenses, of an
equity index called the MarketGrader 40 Index (the
“MarketGrader 40 Index” or “Index”). The
Fund’s investment objective is not fundamental and may be
changed by the Board of Trustees without shareholder approval.
Primary
Investment Strategies
The Fund, using a “passive” or “indexing”
investment approach, seeks to replicate, before the Fund’s
fees and expenses, the performance of the MarketGrader 40 Index.
The performance of the Index does not include fees or expenses,
but assumes reinvestment of distributions. The MarketGrader 40
Index is an equal weighted index composed of 40
U.S.-traded
stocks, including American depository receipts
(“ADRs”), rebalanced every quarter and determined by a
proprietary system developed by MarketGrader.com Corporation
(“MarketGrader” or the “Index Provider”,
with such system being the “MarketGrader System”). The
Index Provider is not affiliated with the Fund, the Investment
Adviser or the Sub-Adviser. All components are selected
exclusively on the basis of their final short term numerical
grade as scored by the MarketGrader System. The Fund will
normally invest at least 90% of its total assets in securities
that comprise the Index. The Fund has adopted a policy that
requires the Fund to provide shareholders with at least
60 days notice prior to any material change in this policy
or the Index. The Board of Trustees of the Trust may change the
Fund’s investment strategy and other policies without
shareholder approval, except as otherwise indicated.
The Sub-Adviser seeks a correlation over time of 0.95 or better
between the Fund’s performance and the performance of the
total return of the Index less any expenses or distributions. A
figure of 1.00 would represent perfect correlation.
The Fund generally invests in all of the stocks comprising the
Index in proportion to their weightings in the Index. However,
under various circumstances, it may not be possible or
practicable to purchase all of the stocks in the Index in those
weightings. In those circumstances, the Fund may purchase a
sample of the stocks in the Index in proportions expected by the
Sub-Adviser to replicate generally the performance of the Index
as a whole. There may also be instances in which the Sub-Adviser
may choose to overweight another stock in the Index, purchase
(or sell) securities not in the Index which the Sub-Adviser
believes are appropriate to substitute for one or more Index
components, or utilize various combinations of other available
investment techniques (such as exchange-traded futures
contracts, options contracts or swap agreements), in seeking to
accurately track the Index. In addition, from time to time
stocks are added to or removed from the Index. The Fund may sell
stocks that are represented in the Index or purchase stocks that
are not yet represented in the Index in anticipation of their
removal from or addition to the Index. The Fund will rebalance
its investments on a quarterly basis in accordance with the
rebalancing of the Index.
Index
Methodology
The MarketGrader System is a computer-driven analysis program
that evaluates the U.S. economy, 10 economic sectors, 130
industries and reviews approximately 5,700
U.S.-listed
companies, including virtually all securities listed on the New
York Stock Exchange, the NYSE Arca and Nasdaq (excluding all
over the counter bulletin board stocks), including over 400
ADRs. The program uses a combination of security analysis and
algorithms.
For every security it covers, the MarketGrader System performs
an analysis of quarterly and annual company-reported data, the
latest market data and company news. The company does not issue
forward looking information such as earnings estimates, price
targets or projections. The analysis, performed by the system
every day for each company, is based on a series of indicators
broken down into four categories – Growth, Value,
Profitability and Cash Flow – with each such category
having six
2
indicators (for a total of 24). Some of these indicators are
common to all industries such as long term market performance
and EBITDA margin, while others are specific to each industry
covered. For example, capital ratios and net interest margin are
indicators for banks, and the value of premiums is an indicator
for insurance companies. The individual indicators are each
separately graded for every company covered based on
mathematical formulae. The result of each indicator is a final
grade A+ to F. A precise explanation of each indicator grade as
well as the numbers relating to the formulae used is available
on MarketGrader’s website (www.marketgrader.com). The
MarketGrader System then calculates an overall grade, which
ranges between 0 and 100, for each security from the grading of
the 24 indicators. These overall grades are used by the
MarketGrader System for Index selection.
The stocks in the MarketGrader 40 Index are classified according
to the Standard & Poor’s Global Industry
Classification Standard (GICS). The Index will include companies
with capitalizations over $100 million on the day of
selection, which includes small-, mid- and large-capitalization
companies as defined by MarketGrader. The new MarketGrader 40
Index components will be selected every quarter on the third
Tuesday of each February, May, August and November at
5 p.m. U.S. Eastern Time (the “selection
date”). The Index rebalance will be effective at the close
of trading on the relevant exchange on the following Friday. The
new Index selections will be published on the MarketGrader
website (www.marketgrader.com) on the selection date at
5 p.m. U.S. Eastern time.
Index
Construction
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1.
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The 40 highest graded companies under the MarketGrader System
will be selected so long as all the other conditions below are
met. If a company qualifies based on its final grade but
violates any of the conditions below, the company with the next
highest grade will be selected instead.
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2.
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All companies in the MarketGrader 40 Index must have a market
capitalization above $100 million on the day of the
selection (including any rebalance or reconstitution date).
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3.
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At least ten companies in the MarketGrader 40 Index must have a
market capitalization above $10 billion.
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4.
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No more than ten companies in the MarketGrader 40 Index may have
a market capitalization below $1 billion.
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5.
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Stocks in the MarketGrader 40 Index are classified based on the
GICS.
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6.
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No GICS economic sector may represent more than 30% (twelve
stocks) of the MarketGrader 40 Index.
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7.
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No GICS sub-industry may represent more than 15% (six stocks) of
the MarketGrader 40 Index.
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8.
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No real estate investment trusts or utilities (as classified
under GICS) are eligible for MarketGrader 40 Index selection.
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9.
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All MarketGrader 40 Index selections must have at least met
their analyst consensus earnings estimate during the earnings
report period immediately preceding the Index selection.
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10.
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All MarketGrader 40 Index selections must have reported earnings
no later than six months prior to the selection date.
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11.
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All stocks in the MarketGrader 40 Index must have a three month
average daily trading dollar value of at least $2 million.
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Primary
Investment Risks
Investors should consider the following risk factors and
special considerations associated with investing in the Fund,
which may cause you to lose money.
3
Investment Risk.
An investment in the Fund is
subject to investment risk, including the possible loss of the
entire principal amount that you invest.
Equity Risk.
A principal risk of investing in
the Fund is equity risk, which is the risk that the value of the
securities held by the Fund will fall due to general market and
economic conditions, perceptions regarding the industries in
which the issuers of securities held by the Fund participate, or
factors relating to specific companies in which the Fund
invests. For example, an adverse event, such as an unfavorable
earnings report, may depress the value of equity securities of
an issuer held by the Fund; the price of common stock of an
issuer may be particularly sensitive to general movements in the
stock market; or a drop in the stock market may depress the
price of most or all of the common stocks and other equity
securities held by the Fund. In addition, common stock of an
issuer in the Fund’s portfolio may decline in price if the
issuer fails to make anticipated dividend payments because,
among other reasons, the issuer of the security experiences a
decline in its financial condition. Common stock is subordinated
to preferred stocks, bonds and other debt instruments in a
company’s capital structure, in terms of priority to
corporate income, and therefore will be subject to greater
dividend risk than preferred stocks or debt instruments of such
issuers. In addition, while broad market measures of common
stocks have historically generated higher average returns than
fixed income securities, common stocks have also experienced
significantly more volatility in those returns.
Foreign Investment Risk.
The Fund’s
investments in
non-U.S. issuers,
although limited to ADRs, may involve unique risks compared to
investing in securities of U.S. issuers, including, among
others, greater market volatility than U.S. securities and
less complete financial information than for U.S. issuers.
In addition, adverse political, economic or social developments
could undermine the value of the Fund’s investments or
prevent the Fund from realizing the full value of its
investments. Financial reporting standards for companies based
in foreign markets differ from those in the United States.
Finally, the value of the currency of the country in which the
Fund has invested could decline relative to the value of the
U.S. dollar, which may affect the value of the investment
to U.S. investors. In addition, the underlying issuers of
certain depositary receipts, particularly unsponsored or
unregistered depositary receipts, are under no obligation to
distribute shareholder communications to the holders of such
receipts, or to pass through to them any voting rights with
respect to the deposited securities.
Small and Medium-Sized Company Risk.
Investing
in securities of small and medium-sized companies involves
greater risk than is customarily associated with investing in
more established companies. These companies’ stocks may be
more volatile and less liquid than those of more established
companies. These stocks may have returns that vary, sometimes
significantly, from the overall stock market.
Non-Correlation Risk.
The Fund’s return
may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses not
applicable to the Index, and incurs costs in buying and selling
securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the
Index. Since the Index constituents may vary on a quarterly
basis, the Fund’s costs associated with rebalancing may be
greater than those incurred by other exchange-traded funds that
track indices whose composition changes less frequently.
The Fund may not be fully invested at times, either as a result
of cash flows into the Fund or reserves of cash held by the Fund
to meet redemptions and expenses. If the Fund utilizes a
sampling approach or futures or other derivative positions, its
return may not correlate as well with the return on the Index,
as would be the case if it purchased all of the stocks in the
Index with the same weightings as the Index.
Portfolio Turnover Risk.
The Financial
Highlights Table for the Fund at the end of this Prospectus
shows the Fund’s portfolio turnover rate during the recent
period. Based on the reconstitutions of the Underlying Index,
there may be a large degree of portfolio turnover as the Fund
replicates the Underlying Index. A high portfolio turnover rate
could result in high brokerage costs and an increase in taxable
capital gains distributions to the Fund’s shareholders.
4
Replication Management Risk.
Unlike many
investment companies, the Fund is not “actively”
managed. Therefore, it would not necessarily sell a stock
because the stock’s issuer was in financial trouble unless
that stock is removed from the Index.
Issuer-Specific Changes.
The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently
from the value of the market as a whole. The value of securities
of smaller issuers can be more volatile than that of larger
issuers.
FUND PERFORMANCE
The bar chart that follows shows the annual total returns of the
Fund. The table that follows the bar chart shows the Fund’s
average annual total returns, both before and after taxes. The
bar chart and table provide an indication of the risks of
investing in the Fund by comparing the Fund’s performance
from year to year and by showing how the Fund’s average
annual returns for one year compared with a broad measure of
market performance and the Index. All returns assume
reinvestment of dividends and distributions. The Fund’s
past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
Best and
Worst Quarter Returns (for the period reflected in the bar chart
above)
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Return
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Quarter/Year
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Highest Return
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13.48
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%
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2/2008
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Lowest Return
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(31.63
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)%
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4/2008
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Average
Annual Total Returns as of December 31, 2008
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Since
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SPA MarketGrader 40 Fund
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1 Year
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Inception
(1)
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Returns before taxes
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(50.25)
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%
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(48.51
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)%
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Returns after taxes on
distributions
(2)
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(50.25)
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%
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(48.51
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)%
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Returns after taxes on distributions and sale of Fund shares
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(50.25)
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%
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(48.51
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)%
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S&P
500
®
Index
(3)
(reflects no deduction for fees, expenses or taxes)
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(37.00)
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%
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(34.67
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)%
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MarketGrader 40 Index (reflects no deduction for fees, expenses
or taxes)
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(47.87)
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%
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(46.14
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)%
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(1)
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The Fund commenced operations on October 12, 2007.
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(2)
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After-tax returns are calculated using the highest historical
individual federal marginal income tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns
depend on your tax situation and may differ from those shown and
are not relevant if you hold your shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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5
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(3)
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The S&P
500
®
Index is generally considered representative of the U.S.
large-cap stock market.
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FEES AND
EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
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Shareholder Fees
(paid directly from your
investment)
(1)(2)
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None
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Annual Fund Operating
Expenses
(3)
(expenses that are deducted from Fund assets)
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Management Fees
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0.85
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%
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Distribution and/or service (12b-1)
fees
(4)
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—
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%
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Other expenses
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4.21
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%
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Total annual Fund operating expenses
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5.06
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%
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Expense Waiver and
Reimbursements
(5)
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1.70
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%
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Net Operating Expenses
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3.36
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%
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Example
The following example is intended to help you compare the cost
of investing in the Fund with the costs of investing in other
funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of
the
Fund.
(1)
The example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your Shares at the
end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund’s
operating expenses remain the same each year. Although your
actual costs may be higher or lower, based on these assumptions
your costs would be:
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One Year*
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Three Years*
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Five Years*
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Ten Years*
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$339
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$
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1,033
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$
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2,095
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$
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4,744
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1.
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When buying and selling Shares through a broker, you will incur
customary brokerage commissions and charges.
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2.
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Purchasers of Creation Units at NAV must pay a standard Creation
Transaction Fee of $500 per transaction (regardless of the
number of Creation Units involved). If a Creation Unit is
purchased or redeemed outside the usual process through the
National Securities Clearing Corporation or for cash, a variable
fee of up to four times the standard Creation Transaction Fee or
Redemption Transaction Fee may be charged. See the following
discussion of “Creation Transaction Fees and Redemption
Transaction Fees.”
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3.
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Expressed as a percentage of average net assets.
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4.
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The Fund has adopted a Distribution and Service
(12b-1)
Plan
pursuant to which the Fund may bear a
12b-1
fee
not to exceed 0.25% per annum of the Fund’s average daily
net assets. However, no such fee is currently paid by the Fund.
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5.
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The Fund’s Investment Adviser has contractually agreed to
waive fees
and/or
pay
Fund expenses to the extent necessary to prevent the operating
expenses of the Fund (excluding interest expenses, fees paid to
the NYSE Arca for calculating the indicative value of the Index,
offering costs, brokerage commissions and other trading
expenses, taxes and extraordinary expenses such as litigation
and other expenses not incurred in the ordinary course of the
Fund’s business from exceeding 0.85% of average net assets
per year, at least until December 31, 2011. The offering
costs excluded from the 0.85% expense cap are: (a) legal
fees pertaining to the Shares; (b) SEC registration fees in
respect of the Shares; and (c) initial fees paid for the
Fund to be listed on an exchange. The Trust and the Investment
Adviser have entered into an Expense Reimbursement Agreement
(the
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6
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“Expense Agreement”) in which the Investment Adviser
has agreed to waive its management fees
and/or
pay
certain operating expenses of the Fund in order to maintain the
expense ratio of the Fund at or below 0.85% (excluding the
expenses set forth above) (the “Expense Cap”). For a
period of five years subsequent to the Fund’s commencement
of operations, the Investment Adviser may recover from the Fund
fees and expenses waived or reimbursed during the prior three
years if the Fund’s expense ratio, including the recovered
expenses, falls below the Expense Cap.
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Creation
Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems Shares at NAV only in large blocks
of 100,000 Shares (each block of 100,000 Shares called
a “Creation Unit”) or multiples thereof. As a
practical matter, only broker-dealers or large institutional
investors with creation and redemption agreements and called
Authorized Participants (“APs”) can purchase or redeem
these Creation Units. Purchasers of Creation Units at NAV must
pay a standard Creation Transaction Fee of $500 per transaction.
An AP who holds Creation Units and wishes to redeem at NAV would
also pay a standard Redemption Transaction Fee of $500
per transaction (See “How to Buy and Sell Shares”
later in this Prospectus). APs who hold Creation Units in
inventory will also pay the Annual Fund Operating Expenses
described in the table above. Assuming the value of an
investment in a Creation Unit as of September 30, 2008 is
$1,628,000, and a 5% return each year, and assuming that the
Fund’s gross operating expenses remain the same, the total
costs would be $56,149, $169,176, $342,066 and $773,382 if the
Creation Unit is redeemed after one year, three years, five
years and ten years, respectively.*(
If a Creation Unit is purchased or redeemed outside the usual
process through the National Securities Clearing Corporation or
for cash, a variable fee of up to four times the standard
Creation or Redemption Transaction Fee may be charged to
the AP making the transaction. The Fund will charge a maximum
Creation/Redemption Transaction Fee of $2,000.
The Creation Transaction Fee, Redemption Transaction Fee and
variable fee are not expenses of the Fund and do not impact the
Fund’s expense ratio.
(* The costs for the one-year and the
three-year
examples reflect the Expense Cap that is in effect until
December 31, 2011, as set forth in the footnotes to the fee
table. The costs for the
five-year
and
ten-year
examples do not reflect the Expense Cap after such date.
7
SPA
MARKETGRADER 100 FUND
Investment
Objective
The Fund seeks investment results that correspond generally to
the performance, before the Fund’s fees and expenses, of an
index called the MarketGrader 100 Index (the “MarketGrader
100 Index” or “Index”). The Fund’s
investment objective is not fundamental and may be changed by
the Board of Trustees without shareholder approval.
Primary
Investment Strategies
The Fund, using a “passive” or “indexing”
investment approach, seeks to replicate, before the Fund’s
fees and expenses, the performance of the MarketGrader 100
Index. The performance of the Index does not include fees or
expenses, but assumes reinvestment of distributions. The
MarketGrader 100 Index is an equal weighted index composed of
100
U.S.-traded
stocks, including American depository receipts
(“ADRs”), rebalanced semi-annually and determined by a
proprietary system developed by MarketGrader.com Corporation
(“MarketGrader” or the “Index Provider”,
with such system being the “MarketGrader System”). The
Index Provider is not affiliated with the Fund, the Investment
Adviser or the Sub-Adviser. All components are selected
exclusively on the basis of their final short term numerical
grade as scored by the MarketGrader System. The Fund will
normally invest at least 90% of its total assets in securities
that comprise the Index. The Fund has adopted a policy that
requires the Fund to provide shareholders with at least
60 days notice prior to any material change in this policy
or the Index. The Board of Trustees of the Trust may change the
Fund’s investment strategy and other policies without
shareholder approval, except as otherwise indicated.
The Sub-Adviser seeks a correlation over time of 0.95 or better
between the Fund’s performance and the performance of the
Index. A figure of 1.00 would represent perfect correlation.
The Fund generally invests in all of the stocks comprising the
Index in proportion to their weightings in the Index. However,
under various circumstances, it may not be possible or
practicable to purchase all of the stocks in the Index in those
weightings. In those circumstances, the Fund may purchase a
sample of the stocks in the Index in proportions expected by the
Sub-Adviser to replicate generally the performance of the Index
as a whole. There may also be instances in which the Sub-Adviser
may choose to overweight another stock in the Index, purchase
(or sell) securities not in the Index which the Sub-Adviser
believes are appropriate to substitute for one or more Index
components, or utilize various combinations of other available
investment techniques (such as exchange-traded futures
contracts, options contracts or swap agreements), in seeking to
accurately track the Index. In addition, from time to time
stocks are added to or removed from the Index. The Fund may sell
stocks that are represented in the Index or purchase stocks that
are not yet represented in the Index in anticipation of their
removal from or addition to the Index. The Fund will rebalance
its investments on a semi-annual basis in accordance with the
rebalancing of the Index.
Index
Methodology
The MarketGrader System is a computer-driven analysis program
that evaluates the U.S. economy, 10 economic sectors, 130
industries and reviews approximately 5,700
U.S.-listed
companies, including virtually all securities listed on the New
York Stock Exchange, the NYSE Arca and Nasdaq (excluding all
over the counter bulletin board stocks), including over 400
ADRs. The program uses a combination of security analysis and
algorithms.
For every security it covers, the MarketGrader System performs
an analysis of quarterly and annual company-reported data, the
latest market data and company news. The company does not issue
forward looking information such as earnings estimates, price
targets or projections. The analysis, performed by the system
every day for each company, is based on a series of indicators
broken down into four categories – Growth, Value,
Profitability and Cash Flow – with each such category
having six indicators (for a total of 24). Some of these
indicators are common to all industries such as long term
8
market performance and EBITDA margin, while others are specific
to each industry covered. For example, capital ratios and net
interest margin are indicators for banks, and the value of
premiums is an indicator for insurance companies. The individual
indicators are each separately graded for every company covered
based on mathematical formulae. The result of each indicator is
a final grade A+ to F. A precise explanation of each indicator
grade as well as the numbers relating to the formulae used is
available on MarketGrader’s website (www.marketgrader.com).
The MarketGrader System then calculates an overall grade, which
ranges between 0 and 100, for each security from the grading of
the 24 indicators. These overall grades are used by the
MarketGrader System for Index selection.
The stocks in the MarketGrader 100 Index are classified
according to the Standard & Poor’s Global
Industry Classification Standard (GICS). The Index will include
companies with capitalizations over $100 million on the day
of selection, which includes small-, mid- and
large-capitalization companies as defined by MarketGrader. The
new MarketGrader 100 Index components will be selected every
quarter on the third Tuesday of each February and August at
5 p.m. U.S. Eastern Time (the “selection
date”). The Index rebalance will be effective at the close
of trading on the relevant exchange on the following Friday. The
new Index selections will be published on the MarketGrader
website (www.marketgrader.com) on the selection date at
5 p.m. U.S. Eastern time.
Index
Construction
|
|
|
|
|
|
1.
|
The 100 highest graded companies under the MarketGrader System
will be selected so long as all the other conditions below are
met. If a company qualifies based on its final grade but
violates any of the conditions below, the company with the next
highest grade will be selected instead.
|
|
|
|
|
|
|
2.
|
All companies in the MarketGrader 100 Index must have a total
market capitalization above $100 million on the day of the
selection (including any rebalance or reconstitution date).
|
|
|
|
|
3.
|
At least 25 companies in the MarketGrader 100 Index must
have a total market capitalization above $10 billion.
|
|
|
|
|
4.
|
No more than 25 companies in the MarketGrader 100 Index may
have a total market capitalization below $1 billion.
|
|
|
|
|
5.
|
Stocks in the MarketGrader 100 Index are classified based on the
GICS.
|
|
|
|
|
6.
|
No GICS economic sector may represent more than 25% (25 stocks)
of the MarketGrader 100 Index.
|
|
|
|
|
|
|
7.
|
No GICS sub industry may represent more than 12% (12 stocks) of
the MarketGrader 100 Index.
|
|
|
|
|
|
|
8.
|
No real estate investment trusts or utilities (as classified
under GICS) are eligible for MarketGrader 100 Index selection.
|
|
|
|
|
9.
|
All MarketGrader 100 Index selections must have at least met
their analyst consensus earnings estimate during the earnings
report period immediately preceding the Index selection.
|
|
|
|
|
10.
|
All MarketGrader 100 Index selections must have reported
earnings no later than six months prior to the selection date.
|
|
|
|
|
|
|
11.
|
All stocks in the Index must have a three month average daily
trading dollar value of at least $2 million.
|
Primary
Investment Risks
Investors should consider the following risk factors and
special considerations associated with investing in the Fund,
which may cause you to lose money.
9
Investment Risk.
An investment in the Fund is
subject to investment risk, including the possible loss of the
entire principal amount that you invest.
Equity Risk.
A principal risk of investing in
the Fund is equity risk, which is the risk that the value of the
securities held by the Fund will fall due to general market and
economic conditions, perceptions regarding the industries in
which the issuers of securities held by the Fund participate, or
factors relating to specific companies in which the Fund
invests. For example, an adverse event, such as an unfavorable
earnings report, may depress the value of equity securities of
an issuer held by the Fund; the price of common stock of an
issuer may be particularly sensitive to general movements in the
stock market; or a drop in the stock market may depress the
price of most or all of the common stocks and other equity
securities held by the Fund. In addition, common stock of an
issuer in the Fund’s portfolio may decline in price if the
issuer fails to make anticipated dividend payments because,
among other reasons, the issuer of the security experiences a
decline in its financial condition. Common stock is subordinated
to preferred stocks, bonds and other debt instruments in a
company’s capital structure, in terms of priority to
corporate income, and therefore will be subject to greater
dividend risk than preferred stocks or debt instruments of such
issuers. In addition, while broad market measures of common
stocks have historically generated higher average returns than
fixed income securities, common stocks have also experienced
significantly more volatility in those returns.
Foreign Investment Risk.
The Fund’s
investments in
non-U.S. issuers,
although limited to ADRs, may involve unique risks compared to
investing in securities of U.S. issuers, including, among
others, greater market volatility than U.S. securities and
less complete financial information than for U.S. issuers.
In addition, adverse political, economic or social developments
could undermine the value of the Fund’s investments or
prevent the Fund from realizing the full value of its
investments. Financial reporting standards for companies based
in foreign markets differ from those in the United States.
Finally, the value of the currency of the country in which the
Fund has invested could decline relative to the value of the
U.S. dollar, which may affect the value of the investment
to U.S. investors. In addition, the underlying issuers of
certain depositary receipts, particularly unsponsored or
unregistered depositary receipts, are under no obligation to
distribute shareholder communications to the holders of such
receipts, or to pass through to them any voting rights with
respect to the deposited securities.
Small and Medium-Sized Company Risk.
Investing
in securities of small and medium-sized companies involves
greater risk than is customarily associated with investing in
more established companies. These companies’ stocks may be
more volatile and less liquid than those of more established
companies. These stocks may have returns that vary, sometimes
significantly, from the overall stock market.
Non-Correlation Risk.
The Fund’s return
may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses not
applicable to the Index, and incurs costs in buying and selling
securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the
Index. Since the Index constituents may vary on a
semi-annual
basis, the Fund’s costs associated with rebalancing may be
greater than those incurred by other exchange-traded funds that
track indices whose composition changes less frequently.
The Fund may not be fully invested at times, either as a result
of cash flows into the Fund or reserves of cash held by the Fund
to meet redemptions and expenses. If the Fund utilizes a
sampling approach or futures or other derivative positions, its
return may not correlate as well with the return on the Index,
as would be the case if it purchased all of the stocks in the
Index with the same weightings as the Index.
Portfolio Turnover Risk.
The Financial
Highlights Table for the Fund at the end of this Prospectus
shows the Fund’s portfolio turnover rate during the recent
period. Based on the reconstitutions of the Underlying Index,
there may be a large degree of portfolio turnover as the Fund
replicates the Underlying Index. A high portfolio turnover rate
could result in high brokerage costs and an increase in taxable
capital gains distributions to the Fund’s shareholders.
10
Replication Management Risk.
Unlike many
investment companies, the Fund is not “actively”
managed. Therefore, it would not necessarily sell a stock
because the stock’s issuer was in financial trouble unless
that stock is removed from the Index.
Issuer-Specific Changes.
The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently
from the value of the market as a whole. The value of securities
of smaller issuers can be more volatile than that of larger
issuers.
FUND PERFORMANCE
The bar chart that follows shows the annual total returns of the
Fund. The table that follows the bar chart shows the Fund’s
average annual total returns, both before and after taxes. The
bar chart and table provide an indication of the risks of
investing in the Fund by comparing the Fund’s performance
from year to year and by showing how the Fund’s average
annual returns for one year compared with a broad measure of
market performance and the Index. All returns assume
reinvestment of dividends and distributions. The Fund’s
past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
Best and
Worst Quarter Returns (for the period reflected in the bar chart
above)
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
|
|
|
Quarter/Year
|
|
|
|
|
Highest Return
|
|
|
6.18
|
%
|
|
|
2/2008
|
|
|
Lowest Return
|
|
|
(30.09
|
)%
|
|
|
4/2008
|
|
Average
Annual Total Returns as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since
|
|
|
SPA MarketGrader 100 Fund
|
|
1 Year
|
|
|
Inception
(1)
|
|
|
|
|
Returns before taxes
|
|
|
(47.12)
|
%
|
|
|
(44.41
|
)%
|
|
Returns after taxes on
distributions
(2)
|
|
|
(47.12)
|
%
|
|
|
(44.41
|
)%
|
|
Returns after taxes on distributions and sale of Fund shares
|
|
|
(47.12)
|
%
|
|
|
(44.41
|
)%
|
|
S&P
500
®
Index
(3)
(reflects no deduction for fees, expenses or taxes)
|
|
|
(37.00)
|
%
|
|
|
(34.67
|
)%
|
|
MarketGrader 100 Index (reflects no deduction for fees, expenses
or taxes)
|
|
|
(44.69)
|
%
|
|
|
(41.60
|
)%
|
|
|
|
|
(1)
|
The Fund commenced operations on October 12, 2007.
|
11
|
|
|
|
(2)
|
After-tax returns are calculated using the highest historical
individual federal marginal income tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns
depend on your tax situation and may differ from those shown and
are not relevant if you hold your shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
|
|
|
|
|
(3)
|
The S&P
500
®
Index is generally considered representative of the U.S.
large-cap stock market.
|
FEES AND
EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
|
|
|
|
|
|
|
Shareholder Fees
(paid directly from your
investment)
(1)(2)
|
|
|
None
|
|
|
|
|
|
|
|
|
Annual Fund Operating
Expenses
(3)
(expenses that are deducted from Fund assets)
|
|
|
|
|
|
Management Fees
|
|
|
0.85
|
%
|
|
Distribution and/or service (12b-1)
fees
(4)
|
|
|
—
|
%
|
|
Other expenses
|
|
|
4.89
|
%
|
|
Total annual Fund operating expenses
|
|
|
5.74
|
%
|
|
Expense Waiver and
Reimbursements
(5)
|
|
|
2.06
|
%
|
|
Net Operating Expenses
|
|
|
3.68
|
%
|
Example
The following example is intended to help you compare the cost
of investing in the Fund with the costs of investing in other
funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of
the
Fund.
(1)
The example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund’s
operating expenses remain the same each year. Although your
actual costs may be higher or lower, based on these assumptions
your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year*
|
|
Three Years*
|
|
|
Five Years*
|
|
|
Ten Years*
|
|
|
|
|
$370
|
|
$
|
1,126
|
|
|
$
|
2,311
|
|
|
$
|
5,198
|
|
|
|
|
|
|
1.
|
|
When buying and selling Shares through a broker, you will incur
customary brokerage commissions and charges.
|
|
|
|
|
|
2.
|
|
Purchasers of Creation Units at NAV must pay a standard Creation
Transaction Fee of $500 per transaction (regardless of the
number of Creation Units involved). If a Creation Unit is
purchased or redeemed outside the usual process through the
National Securities Clearing Corporation or for cash, a variable
fee of up to four times the standard Creation Transaction Fee or
Redemption Transaction Fee may be charged. See the following
discussion of “Creation Transaction Fees and Redemption
Transaction Fees.”
|
|
|
|
|
|
3.
|
|
Expressed as a percentage of average net assets.
|
|
|
|
|
|
4.
|
|
The Fund has adopted a Distribution and Service
(12b-1)
Plan
pursuant to which the Fund may bear a
12b-1
fee
not to exceed 0.25% per annum of the Fund’s average daily
net assets. However, no such fee is currently paid by the Fund.
|
|
|
|
|
|
5.
|
|
The Fund’s Investment Adviser has contractually agreed to
waive fees
and/or
pay
Fund expenses to the extent necessary to prevent the operating
expenses of the Fund (excluding interest expenses, fees paid to
the NYSE Arca for calculating the indicative value of the Index,
offering costs, brokerage commissions and other trading
expenses, taxes and extraordinary expenses such as litigation
and other expenses not incurred in the ordinary course of the
Fund’s business from exceeding
|
12
|
|
|
|
|
|
|
0.85% of average net assets per year, at least until
December 31, 2011. The offering costs excluded from the
0.85% expense cap are: (a) legal fees pertaining to the
Shares; (b) SEC registration fees in respect of the Shares;
and (c) initial fees paid for the Fund to be listed on an
exchange. The Trust and the Investment Adviser have entered into
an Expense Reimbursement Agreement (the “Expense
Agreement”) in which the Investment Adviser has agreed to
waive its management fees
and/or
pay
certain operating expenses of the Fund in order to maintain the
expense ratio of the Fund at or below 0.85% (excluding the
expenses set forth above) (the “Expense Cap”). For a
period of five years subsequent to the Fund’s commencement
of operations, the Investment Adviser may recover from the Fund
fees and expenses waived or reimbursed during the prior three
years if the Fund’s expense ratio, including the recovered
expenses, falls below the Expense Cap.
|
Creation
Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems Shares at NAV only in large blocks
of 100,000 Shares (each block of 100,000 Shares called
a “Creation Unit”) or multiples thereof. As a
practical matter, only broker-dealers or large institutional
investors with creation and redemption agreements and called
Authorized Participants (“APs”) can purchase or redeem
these Creation Units. Purchasers of Creation Units at NAV must
pay a standard Creation Transaction Fee of $500 per transaction.
An AP who holds Creation Units and wishes to redeem at NAV would
also pay a standard Redemption Transaction Fee of $500
per transaction (See “How to Buy and Sell Shares”
later in this Prospectus). APs who hold Creation Units in
inventory will also pay the Annual Fund Operating Expenses
described in the table above. Assuming the value of an
investment in a Creation Unit as of September 30, 2008 is
$1,748,000, and a 5% return each year, and assuming that the
Fund’s gross operating expenses remain the same, the total
costs would be $65,751, $197,828, $405,009 and $909,693 if the
Creation Unit is redeemed after one year, three years. five
years and ten years, respectively.*(
If a Creation Unit is purchased or redeemed outside the usual
process through the National Securities Clearing Corporation or
for cash, a variable fee of up to four times the standard
Creation or Redemption Transaction Fee may be charged to
the AP making the transaction. The Fund will charge a maximum
Creation/Redemption Transaction Fee of $2,000.
The Creation Transaction Fee, Redemption Transaction Fee and
variable fee are not expenses of the Fund and do not impact the
Fund’s expense ratio.
(* The costs for the one-year and the
three-year
examples reflect the Expense Cap that is in effect until
December 31, 2011, as set forth in the footnotes to the fee
table. The costs for the
five-year
and
ten-year
examples do not reflect the Expense Cap after such date.
13
SPA
MARKETGRADER 200 FUND
Investment
Objective
The Fund seeks investment results that correspond generally to
the performance, before the Fund’s fees and expenses, of an
index called the MarketGrader 200 Index (the “Index”).
The Fund’s investment objective is not fundamental and may
be changed by the Board of Trustees without shareholder approval.
Primary
Investment Strategies
The Fund, using a “passive” or “indexing”
investment approach, seeks to replicate, before the Fund’s
fees and expenses, the performance of the MarketGrader 200
Index. The performance of the Index does not include fees or
expenses, but assumes reinvestment of distributions. The
MarketGrader 200 Index is an equal weighted index composed of
200
U.S.-traded
stocks, including American depository receipts
(“ADRs”), rebalanced semi-annually and determined by a
proprietary system developed by MarketGrader.com Corporation
(“MarketGrader” or the “Indexed Provider”,
with such system being the “MarketGrader System”). The
Index Provider is not affiliated with the Fund, the Investment
Adviser or the Sub-Adviser. All components are selected
exclusively on the basis of their final short term numerical
grade as scored by the MarketGrader System. The Fund will
normally invest at least 90% of its total assets in securities
that comprise the Index. The Fund has adopted a policy that
requires the Fund to provide shareholders with at least
60 days notice prior to any material change in this policy
or the Index. The Board of Trustees of the Trust may change the
Fund’s investment strategy and other policies without
shareholder approval, except as otherwise indicated.
The Sub-Adviser seeks a correlation over time of 0.95 or better
between the Fund’s performance and the performance of the
Index. A figure of 1.00 would represent perfect correlation.
The Fund generally invests in all of the stocks comprising the
Index in proportion to their weightings in the Index. However,
under various circumstances, it may not be possible or
practicable to purchase all of the stocks in the Index in those
weightings. In those circumstances, the Fund may purchase a
sample of the stocks in the Index in proportions expected by the
Sub-Adviser to replicate generally the performance of the Index
as a whole. There may also be instances in which the Sub-Adviser
may choose to overweight another stock in the Index, purchase
(or sell) securities not in the Index which the Sub-Adviser
believes are appropriate to substitute for one or more Index
components, or utilize various combinations of other available
investment techniques (such as exchange-traded futures
contracts, options contracts or swap agreements), in seeking to
accurately track the Index. In addition, from time to time
stocks are added to or removed from the Index. The Fund may sell
stocks that are represented in the Index or purchase stocks that
are not yet represented in the Index in anticipation of their
removal from or addition to the Index. The Fund will rebalance
its investments on a semi-annual basis in accordance with the
rebalancing of the Index.
Index
Methodology
The MarketGrader System is a computer-driven analysis program
that evaluates the U.S. economy, 10 economic sectors, 130
industries and reviews approximately 5,700
U.S.-listed
companies, including virtually all securities listed on the New
York Stock Exchange, the NYSE Arca and Nasdaq (excluding all
over the counter bulletin board stocks), including over 400
ADRs. The program uses a combination of security analysis and
algorithms.
For every security it covers, the MarketGrader System performs
an analysis of quarterly and annual company-reported data, the
latest market data and company news. The company does not issue
forward looking information such as earnings estimates, price
targets or projections. The analysis, performed by the system
every day for each company, is based on a series of indicators
broken down into four categories – Growth, Value,
Profitability and Cash Flow – with each such category
having six indicators (for a total of 24). Some of these
indicators are common to all industries such as long term
14
market performance and EBITDA margin, while others are specific
to each industry covered. For example, capital ratios and net
interest margin are indicators for banks, and the value of
premiums is an indicator for insurance companies. The individual
indicators are each separately graded for every company covered
based on mathematical formulae. The result of each indicator is
a final grade A+ to F. A precise explanation of each indicator
grade as well as the numbers relating to the formulae used is
available on MarketGrader’s website (www.marketgrader.com).
The MarketGrader System then calculates an overall grade, which
ranges between 0 and 100, for each security from the grading of
the 24 indicators. These overall grades are used by the
MarketGrader System for Index selection.
The stocks in the MarketGrader 200 Index are classified
according to the Standard & Poor’s Global
Industry Classification Standard (GICS). The Index will include
companies with capitalizations over $100 million on the day
of selection, which includes small-, mid- and
large-capitalization companies as defined by MarketGrader. The
new MarketGrader 200 Index components will be selected on the
third Tuesday of each February and August at
5 p.m. U.S. Eastern Time (the “selection
date”). The Index rebalance will be effective at the close
of trading on the relevant exchange on the following Friday. The
new Index selections will be published on the MarketGrader
website (www.marketgrader.com) on the selection date at
5 p.m. U.S. Eastern time.
Index
Construction
|
|
|
|
|
|
1.
|
The 200 highest graded companies under the MarketGrader System
will be selected so long as all the other conditions below are
met. If a company qualifies based on its final grade but
violates any of the conditions below, the company with the next
highest grade will be selected instead.
|
|
|
|
|
|
|
2.
|
All companies in the MarketGrader 200 Index must have a total
market capitalization above $100 million on the day of the
selection (including any rebalance or reconstitution date).
|
|
|
|
|
3.
|
At least 50 companies in the MarketGrader 200 Index must
have a total market capitalization above $3 billion.
|
|
|
|
|
4.
|
Stocks in the MarketGrader 200 Index are classified based on the
Global Industry Classification Standard (GICS).
|
|
|
|
|
5.
|
No GICS economic sector may represent more than 20% (40 stocks)
of the MarketGrader 200 Index.
|
|
|
|
|
6.
|
No real estate investment trusts are eligible for the
MarketGrader 200 Index selection.
|
|
|
|
|
|
|
7.
|
All MarketGrader 200 Index selections must have reported
earnings no later than six months prior to the selection date.
|
|
|
|
|
|
|
8.
|
All stocks in the MarketGrader 200 Index must have a three month
average daily trading dollar value of at least $2 million.
|
Primary
Investment Risks
Investors should consider the following risk factors and
special considerations associated with investing in the Fund,
which may cause you to lose money.
Investment Risk.
An investment in the Fund is
subject to investment risk, including the possible loss of the
entire principal amount that you invest.
Equity Risk.
A principal risk of investing in
the Fund is equity risk, which is the risk that the value of the
securities held by the Fund will fall due to general market and
economic conditions, perceptions regarding the industries in
which the issuers of securities held by the Fund participate, or
factors relating to specific companies in which the Fund
invests. For example, an adverse event, such as an unfavorable
earnings report, may depress the value of equity securities of
an issuer held by the Fund; the price of common stock of an
issuer may be particularly sensitive to general movements in
15
the stock market; or a drop in the stock market may depress the
price of most or all of the common stocks and other equity
securities held by the Fund. In addition, common stock of an
issuer in the Fund’s portfolio may decline in price if the
issuer fails to make anticipated dividend payments because,
among other reasons, the issuer of the security experiences a
decline in its financial condition. Common stock is subordinated
to preferred stocks, bonds and other debt instruments in a
company’s capital structure, in terms of priority to
corporate income, and therefore will be subject to greater
dividend risk than preferred stocks or debt instruments of such
issuers. In addition, while broad market measures of common
stocks have historically generated higher average returns than
fixed income securities, common stocks have also experienced
significantly more volatility in those returns.
Foreign Investment Risk.
The Fund’s
investments in
non-U.S. issuers,
although limited to ADRs, may involve unique risks compared to
investing in securities of U.S. issuers, including, among
others, greater market volatility than U.S. securities and
less complete financial information than for U.S. issuers.
In addition, adverse political, economic or social developments
could undermine the value of the Fund’s investments or
prevent the Fund from realizing the full value of its
investments. Financial reporting standards for companies based
in foreign markets differ from those in the United States.
Finally, the value of the currency of the country in which the
Fund has invested could decline relative to the value of the
U.S. dollar, which may affect the value of the investment
to U.S. investors. In addition, the underlying issuers of
certain depositary receipts, particularly unsponsored or
unregistered depositary receipts, are under no obligation to
distribute shareholder communications to the holders of such
receipts, or to pass through to them any voting rights with
respect to the deposited securities.
Small and Medium-Sized Company Risk.
Investing
in securities of medium-sized companies involves greater risk
than is customarily associated with investing in more
established companies. These companies’ stocks may be more
volatile and less liquid than those of more established
companies. These stocks may have returns that vary, sometimes
significantly, from the overall stock market.
Non-Correlation Risk.
The Fund’s return
may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses not
applicable to the Index, and incurs costs in buying and selling
securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the
Index. Since the Index constituents may vary on a
semi-annual
basis, the Fund’s costs associated with rebalancing may be
greater than those incurred by other exchange-traded funds that
track indices whose composition changes less frequently.
The Fund may not be fully invested at times, either as a result
of cash flows into the Fund or reserves of cash held by the Fund
to meet redemptions and expenses. If the Fund utilizes a
sampling approach or futures or other derivative positions, its
return may not correlate as well with the return on the Index,
as would be the case if it purchased all of the stocks in the
Index with the same weightings as the Index.
Portfolio Turnover Risk.
The Financial
Highlights Table for the Fund at the end of this Prospectus
shows the Fund’s portfolio turnover rate during the recent
period. Based on the reconstitutions of the Underlying Index,
there may be a large degree of portfolio turnover as the Fund
replicates the Underlying Index. A high portfolio turnover rate
could result in high brokerage costs and an increase in taxable
capital gains distributions to the Fund’s shareholders.
Replication Management Risk.
Unlike many
investment companies, the Fund is not “actively”
managed. Therefore, it would not necessarily sell a stock
because the stock’s issuer was in financial trouble unless
that stock is removed from the Index.
Issuer-Specific Changes.
The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently
from the value of the market as a whole. The value of securities
of smaller issuers can be more volatile than that of larger
issuers.
16
FUND PERFORMANCE
The bar chart that follows shows the annual total returns of the
Fund. The table that follows the bar chart shows the Fund’s
average annual total returns, both before and after taxes. The
bar chart and table provide an indication of the risks of
investing in the Fund by comparing the Fund’s performance
from year to year and by showing how the Fund’s average
annual returns for one year compared with a broad measure of
market performance and the Index. All returns assume
reinvestment of dividends and distributions. The Fund’s
past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
Best and
Worst Quarter Returns (for the period reflected in the bar chart
above)
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
|
|
|
Quarter/Year
|
|
|
|
|
Highest Return
|
|
|
6.33
|
%
|
|
|
2/2008
|
|
|
Lowest Return
|
|
|
(27.34
|
)%
|
|
|
4/2008
|
|
Average
Annual Total Returns as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since
|
|
|
SPA MarketGrader 200 Fund
|
|
1 Year
|
|
|
Inception
(1)
|
|
|
|
|
Returns before taxes
|
|
|
(45.62)
|
%
|
|
|
(43.70
|
)%
|
|
Returns after taxes on
distributions
(2)
|
|
|
(45.62)
|
%
|
|
|
(43.70
|
)%
|
|
Returns after taxes on distributions and sale of Fund shares
|
|
|
(45.62)
|
%
|
|
|
(43.70
|
)%
|
|
S&P
500
®
Index
(3)
(reflects no deduction for fees, expenses or taxes)
|
|
|
(37.00)
|
%
|
|
|
(34.67
|
)%
|
|
MarketGrader 200 Index (reflects no deduction for fees, expenses
or taxes)
|
|
|
(43.31)
|
%
|
|
|
(41.29
|
)%
|
|
|
|
|
(1)
|
The Fund commenced operations on October 12, 2007.
|
|
|
|
|
(2)
|
After-tax returns are calculated using the highest historical
individual federal marginal income tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns
depend on your tax situation and may differ from those shown and
are not relevant if you hold your shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
|
|
|
|
|
(3)
|
The S&P
500
®
Index is generally considered representative of the U.S.
large-cap stock market.
|
17
FEES AND
EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
|
|
|
|
|
|
|
Shareholder Fees
(paid directly from your
investment)
(1)(2)
|
|
|
None
|
|
|
|
|
|
|
|
|
Annual Fund Operating
Expenses
(3)
(expenses that are deducted from Fund assets)
|
|
|
|
|
|
Management Fees
|
|
|
0.85
|
%
|
|
Distribution and/or service (12b-1)
fees
(4)
|
|
|
—
|
%
|
|
Other expenses
|
|
|
5.83
|
%
|
|
Total annual Fund operating expenses
|
|
|
6.68
|
%
|
|
Expense Waiver and
Reimbursements
(5)
|
|
|
2.51
|
%
|
|
Net Operating Expenses
|
|
|
4.17
|
%
|
Example
The following example is intended to help you compare the cost
of investing in the Fund with the costs of investing in other
funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of
the
Fund.
(1)
The example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund’s
operating expenses remain the same each year. Although your
actual costs may be higher or lower, based on these assumptions
your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year*
|
|
Three Years*
|
|
|
Five Years*
|
|
|
Ten Years*
|
|
|
|
|
$419
|
|
$
|
1,267
|
|
|
$
|
2,613
|
|
|
$
|
5,787
|
|
|
|
|
|
|
1.
|
|
When buying and selling Shares through a broker, you will incur
customary brokerage commissions and charges.
|
|
|
|
|
|
2.
|
|
Purchasers of Creation Units at NAV must pay a standard Creation
Transaction Fee of $1,000 per transaction (regardless of the
number of Creation Units involved). If a Creation Unit is
purchased or redeemed outside the usual process through the
National Securities Clearing Corporation or for cash, a variable
fee of up to four times the standard Creation Transaction Fee or
Redemption Transaction Fee may be charged. See the following
discussion of “Creation Transaction Fees and Redemption
Transaction Fees.”
|
|
|
|
|
|
3.
|
|
Expressed as a percentage of average net assets.
|
|
|
|
|
|
4.
|
|
The Fund has adopted a Distribution and Service
(12b-1)
Plan
pursuant to which the Fund may bear a
12b-1
fee
not to exceed 0.25% per annum of the Fund’s average daily
net assets. However, no such fee is currently paid by the Fund.
|
|
|
|
|
|
5.
|
|
The Fund’s Investment Adviser has contractually agreed to
waive fees
and/or
pay
Fund expenses to the extent necessary to prevent the operating
expenses of the Fund (excluding interest expenses, fees paid to
the NYSE Arca for calculating the indicative value of the Index,
offering costs, brokerage commissions and other trading
expenses, taxes and extraordinary expenses such as litigation
and other expenses not incurred in the ordinary course of the
Fund’s business from exceeding 0.85% of average net assets
per year, at least until December 31, 2011. The offering
costs excluded from the 0.85% expense cap are: (a) legal
fees pertaining to the Shares; (b) SEC registration fees in
respect of the Shares; and (c) initial fees paid for the
Fund to be listed on an exchange. The Trust and the Investment
Adviser have entered into an Expense Reimbursement Agreement
(the “Expense Agreement”) in which the Investment
Adviser has agreed to waive its management fees
and/or
pay
certain operating expenses of the Fund in order to maintain the
expense ratio of the
|
18
|
|
|
|
|
|
|
Fund at or below 0.85% (excluding the expenses set forth above)
(the “Expense Cap”). For a period of five years
subsequent to the Fund’s commencement of operations, the
Investment Adviser may recover from the Fund fees and expenses
waived or reimbursed during the prior three years if the
Fund’s expense ratio, including the recovered expenses,
falls below the Expense Cap.
|
Creation
Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems Shares at NAV only in large blocks
of 100,000 Shares (each block of 100,000 Shares called
a “Creation Unit”) or multiples thereof. As a
practical matter, only broker- dealers or large institutional
investors with creation and redemption agreements and called
Authorized Participants (“APs”) can purchase or redeem
these Creation Units. Purchasers of Creation Units at NAV must
pay a standard Creation Transaction Fee of $1,000 per
transaction. An AP who holds Creation Units and wishes to redeem
at NAV would also pay a standard Redemption Fee of $1,000
per transaction (See “How to Buy and Sell Shares”
later in this Prospectus). APs who hold Creation Units in
inventory will also pay the Annual Fund Operating Expenses
described in the table above. Assuming the value of an
investment in a Creation Unit as of September 30, 2008 is
$1,708,000, and a 5% return each year, and assuming that the
Fund’s gross operating expenses remain the same, the total
costs would be $73,519, $218,343, $448,348 and $990,389 if the
Creation Unit is redeemed after one year, three years, five
years and ten years, respectively.*(
If a Creation Unit is purchased or redeemed outside the usual
process through the National Securities Clearing Corporation or
for cash, a variable fee of up to four times the standard
Creation or Redemption Transaction Fee may be charged to
the AP making the transaction. The Fund will charge a maximum
Creation/Redemption Transaction Fee of $4,000.
The Creation Transaction Fee, Redemption Transaction Fee and
variable fee are not expenses of the Fund and do not impact the
Fund’s expense ratio.
(* The costs for the one-year and the
three-year
examples reflect the Expense Cap that is in effect until
December 31, 2011, as set forth in the footnotes to the fee
table. The costs for the
five-year
and
ten-year
examples do not reflect the Expense Cap after such date.
19
SPA
MARKETGRADER SMALL CAP 100 FUND
Investment
Objective
The Fund seeks investment results that correspond generally to
the performance, before the Fund’s fees and expenses, of an
index called the MarketGrader Small Cap 100 Index (the
“MarketGrader Small Cap 100 Index” or
“Index”). The Fund’s investment objective is not
fundamental and may be changed by the Board of Trustees without
shareholder approval.
Primary
Investment Strategies
The Fund, using a “passive” or “indexing”
investment approach, seeks to replicate, before the Fund’s
fees and expenses, the performance of the MarketGrader Small Cap
100 Index. The performance of the Index does not include fees or
expenses, but assumes reinvestment of distributions. The
MarketGrader Small Cap 100 Index is an equal weighted index
composed of 100
U.S.-traded
stocks, including America depository receipts
(“ADRs”), rebalanced semi-annually and determined by a
proprietary system developed by MarketGrader.com Corporation
(“MarketGrader” or the “Index Provider”,
with such system being the “MarketGrader System”). The
Index Provider is not affiliated with the Fund, the Investment
Adviser or the Sub-Adviser. The Fund will normally invest at
least 90% of its total assets in securities that comprise the
Index. The Fund has adopted a policy that requires the Fund to
provide shareholders with at least 60 days notice prior to
any material change in this policy or the Index. The Board of
Trustees of the Trust may change the Fund’s investment
strategy and other policies without shareholder approval, except
as otherwise indicated.
The Sub-Adviser seeks a correlation over time of 0.95 or better
between the Fund’s performance and the performance of the
total return of the Index less any expenses or distributions. A
figure of 1.00 would represent perfect correlation.
The Fund generally invests in all of the stocks comprising the
Index in proportion to their weightings in the Index. However,
under various circumstances, it may not be possible or
practicable to purchase all of the stocks in the Index in those
weightings. In those circumstances, the Fund may purchase a
sample of the stocks in the Index in proportions expected by the
Sub-Adviser to replicate generally the performance of the Index
as a whole. There may also be instances in which the
Sub-Adviser
may choose to overweight another stock in the Index, purchase
(or sell) securities not in the Index which the Sub-Adviser
believes are appropriate to substitute for one or more Index
components, or utilize various combinations of other available
investment techniques (such as exchange-traded futures
contracts, options contracts or swap agreements), in seeking to
accurately track the Index. In addition, from time to time
stocks are added to or removed from the Index. The Fund may sell
stocks that are represented in the Index or purchase stocks that
are not yet represented in the Index in anticipation of their
removal from or addition to the Index. The Fund will rebalance
its investments on a semi-annual basis in accordance with the
rebalancing of the Index.
Index
Methodology
The MarketGrader System is a computer-driven analysis program
that evaluates the U.S. economy, 10 economic sectors, 130
industries and reviews approximately 5,700
U.S.-listed
companies, including virtually all securities listed on the New
York Stock Exchange, the NYSE Arca and Nasdaq (excluding all
over the counter bulletin board stocks), including over 400
ADRs. The program uses a combination of security analysis and
algorithms.
For every security it covers, the MarketGrader System performs
an analysis of quarterly and annual company-reported data, the
latest market data and company news. The company does not issue
forward looking information such as earnings estimates, price
targets or projections. The analysis, performed by the system
every day for each company, is based on a series of indicators
broken down into four categories – Growth, Value,
Profitability and Cash Flow – with each such category
having six indicators (for a total of 24). Some of these
indicators are common to all industries such as long term
20
market performance and EBITDA margin, while others are specific
to each industry covered. For example, capital ratios and net
interest margin are indicators for banks, and the value of
premiums is an indicator for insurance companies. The individual
indicators are each separately graded for every company covered
based on mathematical formulae. The result of each indicator is
a final grade A+ to F. A precise explanation of each indicator
grade as well as the numbers relating to the formulae used is
available on MarketGrader’s website (www.marketgrader.com).
The MarketGrader System then calculates an overall grade, which
ranges between 0 and 100, for each security from the grading of
the 24 indicators. These overall grades are used by the
MarketGrader System for Index selection.
The stocks in the MarketGrader Small Cap 100 Index are
classified according to the Standard & Poor’s
Global Industry Classification Standard (GICS). The Index will
include companies with capitalizations between $250 million
and $2 billion on the day of selection, which are small
capitalization companies as defined by MarketGrader. The new
Index components will be selected semi-annually on the third
Friday of March and September and published at
5 p.m. U.S. Eastern Time.
Index
Construction
|
|
|
|
|
|
1.
|
The 100 highest graded companies under the MarketGrader System
will be selected so long as all the other conditions below are
met. If a company qualifies based on its final grade but
violates any of the conditions below, the company with the next
highest grade will be selected instead.
|
|
|
|
|
|
|
2.
|
All companies in the Index must have a market capitalization
above $250 million and below $2 billion on the day of
the selection (including any rebalance or reconstitution date).
|
|
|
|
|
3.
|
Companies in the Index must have a public float of at least 50%
of all common shares outstanding.
|
|
|
|
|
4.
|
Stocks in the Index are classified based on the GICS.
|
|
|
|
|
5.
|
No GICS economic sector may represent more than 20% (20 stocks)
of the Index.
|
|
|
|
|
6.
|
All GICS economic sectors are eligible for Index selection.
|
|
|
|
|
|
|
7.
|
All Index selections must have reported earnings no later than
six months prior to the selection date.
|
|
|
|
|
|
|
8.
|
All stocks in the Index must have a three month average daily
trading dollar value of at least $2 million.
|
Primary
Investment Risks
Investors should consider the following risk factors and
special considerations associated with investing in the Fund,
which may cause you to lose money.
Investment Risk.
An investment in the Fund is
subject to investment risk, including the possible loss of the
entire principal amount that you invest.
Equity Risk.
A principal risk of investing in
the Fund is equity risk, which is the risk that the value of the
securities held by the Fund will fall due to general market and
economic conditions, perceptions regarding the industries in
which the issuers of securities held by the Fund participate, or
factors relating to specific companies in which the Fund
invests. For example, an adverse event, such as an unfavorable
earnings report, may depress the value of equity securities of
an issuer held by the Fund; the price of common stock of an
issuer may be particularly sensitive to general movements in the
stock market; or a drop in the stock market may depress the
price of most or all of the common stocks and other equity
securities held by the Fund. In addition, common stock of an
issuer in the Fund’s portfolio may decline in price if the
issuer fails to make anticipated dividend payments because,
among other reasons, the issuer of the security experiences a
decline in its financial condition. Common stock is subordinated
to preferred stocks, bonds and other debt instruments in a
company’s capital
21
structure, in terms of priority to corporate income, and
therefore will be subject to greater dividend risk than
preferred stocks or debt instruments of such issuers. In
addition, while broad market measures of common stocks have
historically generated higher average returns than fixed income
securities, common stocks have also experienced significantly
more volatility in those returns.
Foreign Investment Risk.
The Fund’s
investments in
non-U.S. issuers,
although limited to ADRs, may involve unique risks compared to
investing in securities of U.S. issuers, including, among
others, greater market volatility than U.S. securities and
less complete financial information than for U.S. issuers.
In addition, adverse political, economic or social developments
could undermine the value of the Fund’s investments or
prevent the Fund from realizing the full value of its
investments. Financial reporting standards for companies based
in foreign markets differ from those in the United States.
Finally, the value of the currency of the country in which the
Fund has invested could decline relative to the value of the
U.S. dollar, which may affect the value of the investment
to U.S. investors. In addition, the underlying issuers of
certain depositary receipts, particularly unsponsored or
unregistered depositary receipts, are under no obligation to
distribute shareholder communications to the holders of such
receipts, or to pass through to them any voting rights with
respect to the deposited securities.
Small Company Risk.
Investing in securities of
small companies involves greater risk than is customarily
associated with investing in more established companies. These
companies’ stocks may be more volatile and less liquid than
those of more established companies. These stocks may have
returns that vary, sometimes significantly, from the overall
stock market.
Non-Correlation Risk.
The Fund’s return
may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses not
applicable to the Index, and incurs costs in buying and selling
securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the
Index. Since the Index constituents may vary on a
semi-annual
basis, the Fund’s costs associated with rebalancing may be
greater than those incurred by other exchange-traded funds that
track indices whose composition changes less frequently.
The Fund may not be fully invested at times, either as a result
of cash flows into the Fund or reserves of cash held by the Fund
to meet redemptions and expenses. If the Fund utilizes a
sampling approach or futures or other derivative positions, its
return may not correlate as well with the return on the Index,
as would be the case if it purchased all of the stocks in the
Index with the same weightings as the Index.
Portfolio Turnover Risk.
The Financial
Highlights Table for the Fund at the end of this Prospectus
shows the Fund’s portfolio turnover rate during the recent
period. Based on the reconstitutions of the Underlying Index,
there may be a large degree of portfolio turnover as the Fund
replicates the Underlying Index. A high portfolio turnover rate
could result in high brokerage costs and an increase in taxable
capital gains distributions to the Fund’s shareholders.
Replication Management Risk.
Unlike many
investment companies, the Fund is not “actively”
managed. Therefore, it would not necessarily sell a stock
because the stock’s issuer was in financial trouble unless
that stock is removed from the Index.
Issuer-Specific Changes.
The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently
from the value of the market as a whole. The value of securities
of smaller issuers can be more volatile than that of larger
issuers.
22
FUND PERFORMANCE
The bar chart that follows shows the annual total returns of the
Fund. The table that follows the bar chart shows the Fund’s
average annual total returns, both before and after taxes. The
bar chart and table provide an indication of the risks of
investing in the Fund by comparing the Fund’s performance
from year to year and by showing how the Fund’s average
annual returns for one year compared with a broad measure of
market performance and the Index. All returns assume
reinvestment of dividends and distributions. The Fund’s
past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
Best and
Worst Quarter Returns (for the period reflected in the bar chart
above)
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
|
|
|
Quarter/Year
|
|
|
|
|
Highest Return
|
|
|
5.33
|
%
|
|
|
2/2008
|
|
|
Lowest Return
|
|
|
(30.00
|
)%
|
|
|
4/2008
|
|
Average
Annual Total Returns as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since
|
|
|
SPA MarketGrader Small Cap 100 Fund
|
|
1 Year
|
|
|
Inception
(1)
|
|
|
|
|
Returns before taxes
|
|
|
(43.37)
|
%
|
|
|
(42.99
|
)%
|
|
Returns after taxes on
distributions
(2)
|
|
|
(43.37)
|
%
|
|
|
(42.99
|
)%
|
|
Returns after taxes on distributions and sale of Fund shares
|
|
|
(43.37)
|
%
|
|
|
(42.99
|
)%
|
|
S&P SmallCap
600
®
Index
(3)
(reflects no deduction for fees, expenses or taxes)
|
|
|
(31.07)
|
%
|
|
|
(32.22
|
)%
|
|
MarketGrader Small Cap 100 Index (reflects no deduction for
fees, expenses or taxes)
|
|
|
(41.03)
|
%
|
|
|
(40.77
|
)%
|
|
|
|
|
(1)
|
The Fund commenced operations on October 12, 2007.
|
|
|
|
|
(2)
|
After-tax returns are calculated using the highest historical
individual federal marginal income tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns
depend on your tax situation and may differ from those shown and
are not relevant if you hold your shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
|
|
|
|
|
(3)
|
The S&P SmallCap
600
®
Index is generally considered representative of the U.S.
small-cap stock market.
|
23
FEES AND
EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
|
|
|
|
|
|
|
Shareholder Fees
(paid directly from your
investment)
(1)(2)
|
|
|
None
|
|
|
|
|
|
|
|
|
Annual Fund Operating
Expenses
(3)
(expenses that are deducted from Fund assets)
|
|
|
|
|
|
Management Fees
|
|
|
0.85
|
%
|
|
Distribution and/or service (12b-1)
fees
(4)
|
|
|
—
|
%
|
|
Other expenses
|
|
|
5.86
|
%
|
|
Total annual Fund operating expenses
|
|
|
6.71
|
%
|
|
Expense Waiver and
Reimbursements
(5)
|
|
|
2.38
|
%
|
|
Net Operating Expenses
|
|
|
4.33
|
%
|
Example
The following example is intended to help you compare the cost
of investing in the Fund with the costs of investing in other
funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of
the
Fund.
(1)
The example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund’s
operating expenses remain the same each year. Although your
actual costs may be higher or lower, based on these assumptions
your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year*
|
|
Three Years*
|
|
|
Five Years*
|
|
|
Ten Years*
|
|
|
|
|
$434
|
|
$
|
1,312
|
|
|
$
|
2,658
|
|
|
$
|
5,826
|
|
|
|
|
|
|
1.
|
|
When buying and selling Shares through a broker, you will incur
customary brokerage commissions and charges.
|
|
|
|
|
|
2.
|
|
Purchasers of Creation Units at NAV must pay a standard Creation
Transaction Fee of $500 per transaction (regardless of the
number of Creation Units involved). If a Creation Unit is
purchased or redeemed outside the usual process through the
National Securities Clearing Corporation or for cash, a variable
fee of up to four times the standard Creation Transaction Fee or
Redemption Transaction Fee may be charged. See the following
discussion of “Creation Transaction Fees and Redemption
Transaction Fees.”
|
|
|
|
|
|
3.
|
|
Expressed as a percentage of average net assets.
|
|
|
|
|
|
4.
|
|
The Fund has adopted a Distribution and Service (12b-1) Plan
pursuant to which the Fund may bear a 12b-1 fee not to exceed
0.25% per annum of the Fund’s average daily net assets.
However, no such fee is currently paid by the Fund.
|
|
|
|
|
|
5.
|
|
The Fund’s Investment Adviser has contractually agreed to
waive fees and/or pay Fund expenses to the extent necessary to
prevent the operating expenses of the Fund (excluding interest
expenses, fees paid to the NYSE Arca for calculating the
indicative value of the Index, offering costs, brokerage
commissions and other trading expenses, taxes and extraordinary
expenses such as litigation and other expenses not incurred in
the ordinary course of the Fund’s business from exceeding
0.85% of average net assets per year, at least until
December 31, 2011. The offering costs excluded from the
0.85% expense cap are: (a) legal fees pertaining to the
Shares; (b) SEC registration fees in respect of the Shares;
and (c) initial fees paid for the Fund to be listed on an
exchange. The Trust and the Investment Adviser have entered into
an Expense Reimbursement Agreement (the “Expense
Agreement”) in which the Investment Adviser has agreed to
waive its management fees and/or pay certain operating expenses
of the Fund in order to maintain the expense ratio of the Fund
at or below 0.85% (excluding the expenses set forth above) (the
“Expense Cap”). For a
|
24
|
|
|
|
|
|
|
period of five years subsequent to the Fund’s commencement
of operations, the Investment Adviser may recover from the Fund
fees and expenses waived or reimbursed during the prior three
years if the Fund’s expense ratio, including the recovered
expenses, falls below the Expense Cap.
|
Creation
Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems Shares at NAV only in large blocks
of 100,000 Shares (each block of 100,000 Shares called
a “Creation Unit”) or multiples thereof. As a
practical matter, only broker-dealers or large institutional
investors with creation and redemption agreements and called
Authorized Participants (“APs”) can purchase or redeem
these Creation Units. Purchasers of Creation Units at NAV must
pay a standard Creation Transaction Fee of $500 per transaction.
An AP who holds Creation Units and wishes to redeem at NAV would
also pay a standard Redemption Transaction Fee of $500 per
transaction (See “How to Buy and Sell Shares” later in
this Prospectus). APs who hold Creation Units in inventory will
also pay the Annual Fund Operating Expenses described in
the table above. Assuming the value of an investment in a
Creation Unit as of September 30, 2008 is $1,800,000, and a
5% return each year, and assuming that the Fund’s gross
operating expenses remain the same, the total costs would be
$79,201, $237,179, $479,430 and $1,049,729 if the Creation Unit
is redeemed after one year, three years, five years and ten
years, respectively.*(
If a Creation Unit is purchased or redeemed outside the usual
process through the National Securities Clearing Corporation or
for cash, a variable fee of up to four times the standard
Creation or Redemption Transaction Fee may be charged to
the AP making the transaction. The Fund will charge a maximum
Creation/Redemption Transaction Fee of $2,000.
The Creation Transaction Fee, Redemption Transaction Fee and
variable fee are not expenses of the Fund and do not impact the
Fund’s expense ratio.
(* The costs for the one-year and the
three-year
examples reflect the Expense Cap that is in effect until
December 31, 2011, as set forth in the footnotes to the fee
table. The costs for the
five-year
and
ten-year
examples do not reflect the Expense Cap after such date.
25
SPA
MARKETGRADER MID CAP 100 FUND
Investment
Objective
The Fund seeks investment results that correspond generally to
the performance, before the Fund’s fees and expenses, of an
index called the MarketGrader Mid Cap 100 Index (the
“MarketGrader Mid Cap 100 Index” or
“Index”). The Fund’s investment objective is not
fundamental and may be changed by the Board of Trustees without
shareholder approval.
Primary
Investment Strategies
The Fund, using a “passive” or “indexing”
investment approach, seeks to replicate, before the Fund’s
fees and expenses, the performance of the MarketGrader Mid Cap
100 Index. The performance of the Index does not include fees or
expenses, but assumes reinvestment of distributions. The
MarketGrader Mid Cap 100 Index is an equal weighted index
composed of 100
U.S.-traded
stocks, including American depositary receipts
(“ADRs”), rebalanced semi-annually and determined by a
proprietary system developed by MarketGrader.com Corporation
(“MarketGrader” or the “Index Provider”,
with such system being the “MarketGrader System”). The
Index Provider is not affiliated with the Fund, the Investment
Adviser or the Sub-Adviser. The Fund will normally invest at
least 90% of its total assets in securities that comprise the
Index. The Fund has adopted a policy that requires the Fund to
provide shareholders with at least 60 days notice prior to
any material change in this policy or the Index. The Board of
Trustees of the Trust may change the Fund’s investment
strategy and other policies without shareholder approval, except
as otherwise indicated.
The Sub-Adviser seeks a correlation over time of 0.95 or better
between the Fund’s performance and the performance of the
total return of the Index less any expenses or distributions. A
figure of 1.00 would represent perfect correlation.
The Fund generally invests in all of the stocks comprising the
Index in proportion to their weightings in the Index. However,
under various circumstances, it may not be possible or
practicable to purchase all of the stocks in the Index in those
weightings. In those circumstances, the Fund may purchase a
sample of the stocks in the Index in proportions expected by the
Sub-Adviser to replicate generally the performance of the Index
as a whole. There may also be instances in which the Sub-Adviser
may choose to overweight another stock in the Index, purchase
(or sell) securities not in the Index which the Sub-Adviser
believes are appropriate to substitute for one or more Index
components, or utilize various combinations of other available
investment techniques (such as exchange-traded futures
contracts, options contracts or swap agreements), in seeking to
accurately track the Index. In addition, from time to time
stocks are added to or removed from the Index. The Fund may sell
stocks that are represented in the Index or purchase stocks that
are not yet represented in the Index in anticipation of their
removal from or addition to the Index. The Fund will rebalance
its investments on a semi-annual basis in accordance with the
rebalancing of the Index.
Index
Methodology
The MarketGrader System is a computer-driven analysis program
that evaluates the U.S. economy, 10 economic sectors, 130
industries and reviews approximately 5,700
U.S.-listed
companies, including virtually all securities listed on the New
York Stock Exchange, the NYSE Arca and Nasdaq (excluding all
over the counter bulletin board stocks), including over 400
ADRs. The program uses a combination of security analysis and
algorithms.
For every security it covers, the MarketGrader System performs
an analysis of quarterly and annual company-reported data, the
latest market data and company news. The company does not issue
forward looking information such as earnings estimates, price
targets or projections. The analysis, performed by the system
every day for each company, is based on a series of indicators
broken down into four categories – Growth, Value,
Profitability and Cash Flow – with each such category
having six indicators (for a total of 24). Some of these
indicators are common to all industries such as long term
26
market performance and EBITDA margin, while others are specific
to each industry covered. For example, capital ratios and net
interest margin are indicators for banks, and the value of
premiums is an indicator for insurance companies. The individual
indicators are each separately graded for every company covered
based on mathematical formulae. The result of each indicator is
a final grade A+ to F. A precise explanation of each indicator
grade as well as the numbers relating to the formulae used is
available on MarketGrader’s website (www.marketgrader.com).
The MarketGrader System then calculates an overall grade, which
ranges between 0 and 100, for each security from the grading of
the 24 indicators. These overall grades are used by the
MarketGrader System for Index selection.
The stocks in the MarketGrader Mid Cap 100 Index are classified
according to the Standard & Poor’s Global
Industry Classification Standard (GICS). The Index will include
companies with capitalizations between $1 billion and
$10 billion on the day of selection, which are
mid-capitalization companies as defined by MarketGrader. The new
Index components will be selected semi annually on the third
Friday of March and September and published at
5 p.m. U.S. Eastern Time.
Index
Construction
|
|
|
|
|
|
1.
|
The 100 highest graded companies under the MarketGrader System
will be selected so long as all the other conditions below are
met. If a company qualifies based on its final grade but
violates any of the conditions below, the company with the next
highest grade will be selected instead.
|
|
|
|
|
|
|
2.
|
All companies in the Index must have a market capitalization
above $1 billion and below $10 billion on the day of
the selection (including any rebalance or reconstitution done).
|
|
|
|
|
3.
|
Companies in the Index must have a public float of at least 50%
of all common shares outstanding.
|
|
|
|
|
4.
|
Stocks in the Index are classified based on the GICS.
|
|
|
|
|
5.
|
No GICS economic sector may represent more than 20% (20 stocks)
of the Index.
|
|
|
|
|
6.
|
All GICS economic sectors are eligible for Index selection.
|
|
|
|
|
|
|
7.
|
All Index selections must have reported earnings no later than
six months prior to the selection date.
|
|
|
|
|
|
|
8.
|
All stocks in the Index must have a three month average daily
trading dollar value of at least $2 million.
|
Primary
Investment Risks
Investors should consider the following risk factors and
special considerations associated with investing in the Fund,
which may cause you to lose money.
Investment Risk.
An investment in the Fund is
subject to investment risk, including the possible loss of the
entire principal amount that you invest.
Equity Risk.
A principal risk of investing in
the Fund is equity risk, which is the risk that the value of the
securities held by the Fund will fall due to general market and
economic conditions, perceptions regarding the industries in
which the issuers of securities held by the Fund participate, or
factors relating to specific companies in which the Fund
invests. For example, an adverse event, such as an unfavorable
earnings report, may depress the value of equity securities of
an issuer held by the Fund; the price of common stock of an
issuer may be particularly sensitive to general movements in the
stock market; or a drop in the stock market may depress the
price of most or all of the common stocks and other equity
securities held by the Fund. In addition, common stock of an
issuer in the Fund’s portfolio may decline in price if the
issuer fails to make anticipated dividend payments because,
among other reasons, the issuer of the security experiences a
decline in its financial condition. Common stock is subordinated
to preferred stocks, bonds and other debt instruments in a
company’s capital
27
structure, in terms of priority to corporate income, and
therefore will be subject to greater dividend risk than
preferred stocks or debt instruments of such issuers. In
addition, while broad market measures of common stocks have
historically generated higher average returns than fixed income
securities, common stocks have also experienced significantly
more volatility in those returns.
Foreign Investment Risk.
The Fund’s
investments in
non-U.S. issuers,
although limited to ADRs, may involve unique risks compared to
investing in securities of U.S. issuers, including, among
others, greater market volatility than U.S. securities and
less complete financial information than for U.S. issuers.
In addition, adverse political, economic or social developments
could undermine the value of the Fund’s investments or
prevent the Fund from realizing the full value of its
investments. Financial reporting standards for companies based
in foreign markets differ from those in the United States.
Finally, the value of the currency of the country in which the
Fund has invested could decline relative to the value of the
U.S. dollar, which may affect the value of the investment
to U.S. investors. In addition, the underlying issuers of
certain depositary receipts, particularly unsponsored or
unregistered depositary receipts, are under no obligation to
distribute shareholder communications to the holders of such
receipts, or to pass through to them any voting rights with
respect to the deposited securities.
Medium-Sized Company Risk.
Investing in
securities of medium-sized companies involves greater risk than
is customarily associated with investing in more established
companies. These companies’ stocks may be more volatile and
less liquid than those of more established companies. These
stocks may have returns that vary, sometimes significantly, from
the overall stock market.
Non-Correlation Risk.
The Fund’s return
may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses not
applicable to the Index, and incurs costs in buying and selling
securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the
Index. Since the Index constituents may vary on a
semi-annual
basis, the Fund’s costs associated with rebalancing may be
greater than those incurred by other exchange-traded funds that
track indices whose composition changes less frequently.
The Fund may not be fully invested at times, either as a result
of cash flows into the Fund or reserves of cash held by the Fund
to meet redemptions and expenses. If the Fund utilizes a
sampling approach or futures or other derivative positions, its
return may not correlate as well with the return on the Index,
as would be the case if it purchased all of the stocks in the
Index with the same weightings as the Index.
Portfolio Turnover Risk.
The Financial
Highlights Table for the Fund at the end of this Prospectus
shows the Fund’s portfolio turnover rate during the recent
period. Based on the reconstitutions of the Underlying Index,
there may be a large degree of portfolio turnover as the Fund
replicates the Underlying Index. A high portfolio turnover rate
could result in high brokerage costs and an increase in taxable
capital gains distributions to the Fund’s shareholders.
Replication Management Risk.
Unlike many
investment companies, the Fund is not “actively”
managed. Therefore, it would not necessarily sell a stock
because the stock’s issuer was in financial trouble unless
that stock is removed from the Index.
Issuer-Specific Changes.
The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently
from the value of the market as a whole. The value of securities
of smaller issuers can be more volatile than that of larger
issuers.
28
FUND PERFORMANCE
The bar chart that follows shows the annual total returns of the
Fund. The table that follows the bar chart shows the Fund’s
average annual total returns, both before and after taxes. The
bar chart and table provide an indication of the risks of
investing in the Fund by comparing the Fund’s performance
from year to year and by showing how the Fund’s average
annual returns for one year compared with a broad measure of
market performance and the Index. All returns assume
reinvestment of dividends and distributions. The Fund’s
past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
Best and
Worst Quarter Returns (for the period reflected in the bar chart
above)
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
|
|
|
Quarter/Year
|
|
|
|
|
Highest Return
|
|
|
9.39
|
%
|
|
|
2/2008
|
|
|
Lowest Return
|
|
|
(32.12
|
)%
|
|
|
4/2008
|
|
Average
Annual Total Returns as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since
|
|
|
SPA MarketGrader Mid Cap 100 Fund
|
|
1 Year
|
|
|
Inception
(1)
|
|
|
|
|
Returns before taxes
|
|
|
(46.11)
|
%
|
|
|
(43.96)
|
%
|
|
Returns after taxes on
distributions
(2)
|
|
|
(46.11)
|
%
|
|
|
(43.96)
|
%
|
|
Returns after taxes on distributions and sale of Fund shares
|
|
|
(46.11)
|
%
|
|
|
(43.96)
|
%
|
|
S&P MidCap
400
®
Index
(3)
(reflects no deduction for fees, expenses or taxes)
|
|
|
(36.23)
|
%
|
|
|
(34.07)
|
%
|
|
MarketGrader Mid Cap 100 Index (reflects no deduction for fees,
expenses or taxes)
|
|
|
(43.91)
|
%
|
|
|
(41.76)
|
%
|
|
|
|
|
(1)
|
The Fund commenced operations on October 12, 2007.
|
|
|
|
|
(2)
|
After-tax returns are calculated using the highest historical
individual federal marginal income tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns
depend on your tax situation and may differ from those shown and
are not relevant if you hold your shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
|
|
|
|
|
(3)
|
The S&P MidCap
400
®
Index is generally considered representative of the U.S. mid-cap
stock market.
|
29
FEES AND
EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
|
|
|
|
|
|
|
Shareholder Fees
(paid directly from your
investment)
(1)(2)
|
|
|
None
|
|
|
|
|
|
|
|
|
Annual Fund Operating
Expenses
(3)
(expenses that are deducted from Fund assets)
|
|
|
|
|
|
Management Fees
|
|
|
0.85
|
%
|
|
Distribution and/or service (12b-1)
fees
(4)
|
|
|
—
|
%
|
|
Other expenses
|
|
|
5.03
|
%
|
|
Total annual Fund operating expenses
|
|
|
5.88
|
%
|
|
Expense Waiver and
Reimbursements
(5)
|
|
|
2.05
|
%
|
|
Net Operating Expenses
|
|
|
3.83
|
%
|
Example
The following example is intended to help you compare the cost
of investing in the Fund with the costs of investing in other
funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of
the
Fund.
(1)
The example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund’s
operating expenses remain the same each year. Although your
actual costs may be higher or lower, based on these assumptions
your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year*
|
|
Three Years*
|
|
|
Five Years*
|
|
|
Ten Years*
|
|
|
|
|
$385
|
|
$
|
1,169
|
|
|
$
|
2,376
|
|
|
$
|
5,302
|
|
|
|
|
|
|
1.
|
|
When buying and selling Shares through a broker, you will incur
customary brokerage commissions and charges.
|
|
|
|
|
|
2.
|
|
Purchasers of Creation Units at NAV must pay a standard Creation
Transaction Fee of $500 per transaction (regardless of the
number of Creation Units involved). If a Creation Unit is
purchased or redeemed outside the usual process through the
National Securities Clearing Corporation or for cash, a variable
fee of up to four times the standard Creation Transaction Fee or
Redemption Transaction Fee may be charged. See the following
discussion of “Creation Transaction Fees and Redemption
Transaction Fees.”
|
|
|
|
|
|
3.
|
|
Expressed as a percentage of average net assets.
|
|
|
|
|
|
4.
|
|
The Fund has adopted a Distribution and Service (12b-1) Plan
pursuant to which the Fund may bear a 12b-1 fee not to exceed
0.25% per annum of the Fund’s average daily net assets.
However, no such fee is currently paid by the Fund.
|
|
|
|
|
|
5.
|
|
The Fund’s Investment Adviser has contractually agreed to
waive fees and/or pay Fund expenses to the extent necessary to
prevent the operating expenses of the Fund (excluding interest
expenses, fees paid to the NYSE Arca for calculating the
indicative value of the Index, offering costs, brokerage
commissions and other trading expenses, taxes and extraordinary
expenses such as litigation and other expenses not incurred in
the ordinary course of the Fund’s business from exceeding
0.85% of average net assets per year, at least until
December 31, 2011. The offering costs excluded from the
0.85% expense cap are: (a) legal fees pertaining to the
Shares; (b) SEC registration fees in respect of the Shares;
and (c) initial fees paid for the Fund to be listed on an
exchange. The Trust and the Investment Adviser have entered into
an Expense Reimbursement Agreement (the “Expense
Agreement”) in which the Investment Adviser has agreed to
waive its management fees and/or pay certain operating expenses
of the Fund in order to maintain the expense ratio of the Fund
at or below 0.85% (excluding the expenses set forth above) (the
“Expense Cap”). For a
|
30
|
|
|
|
|
|
|
period of five years subsequent to the Fund’s commencement
of operations, the Investment Adviser may recover from the Fund
fees and expenses waived or reimbursed during the prior three
years if the Fund’s expense ratio, including the recovered
expenses, falls below the Expense Cap.
|
Creation
Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems Shares at NAV only in large blocks
of 100,000 Shares (each block of 100,000 Shares called
a “Creation Unit”) or multiples thereof. As a
practical matter, only broker-dealers or large institutional
investors with creation and redemption agreements and called
Authorized Participants (“APs”) can purchase or redeem
these Creation Units. Purchasers of Creation Units at NAV must
pay a standard Creation Transaction Fee of $500 per transaction.
An AP who holds Creation Units and wishes to redeem at NAV would
also pay a standard Redemption Transaction Fee of $500 per
transaction (See “How to Buy and Sell Shares” later in
this Prospectus). APs who hold Creation Units in inventory will
also pay the Annual Fund Operating Expenses described in
the table above. Assuming the value of an investment in a
Creation Unit as of September 30, 2008 is $1,818,000, and a
5% return each year, and assuming that the Fund’s gross
operating expenses remain the same, the total costs would be
$71,037, $213,578, $433,023 and $964,961 if the Creation Unit is
redeemed after one year, three years, five years and ten years,
respectively.*(
If a Creation Unit is purchased or redeemed outside the usual
process through the National Securities Clearing Corporation or
for cash, a variable fee of up to four times the standard
Creation or Redemption Transaction Fee may be charged to
the AP making the transaction. The Fund will charge a maximum
Creation/Redemption Transaction Fee of $2,000.
The Creation Transaction Fee, Redemption Transaction Fee and
variable fee are not expenses of the Fund and do not impact the
Fund’s expense ratio.
(* The costs for the one-year and the
three-year
examples reflect the Expense Cap that is in effect until
December 31, 2011, as set forth in the footnotes to the fee
table. The costs for the
five-year
and
ten-year
examples do not reflect the Expense Cap after such date.
31
SPA
MARKETGRADER LARGE CAP 100 FUND
Investment
Objective
The Fund seeks investment results that correspond generally to
the performance, before the Fund’s fees and expenses, of an
index called the MarketGrader Large Cap 100 Index (the
“MarketGrader Large Cap 100 Index” or
“Index”). The Fund’s investment objective is not
fundamental and may be changed by the Board of Trustees without
shareholder approval.
Primary
Investment Strategies
The Fund, using a “passive” or “indexing”
investment approach, seeks to replicate, before the Fund’s
fees and expenses, the performance of the MarketGrader Large Cap
100 Index. The performance of the Index does not include fees or
expenses, but assumes reinvestment of distributions. The
MarketGrader Large Cap 100 Index is an equal weighted index
composed of 100
U.S.-traded
stocks, including American depository receipts
(“ADRs”), rebalanced semi annually and determined by a
proprietary system developed by MarketGrader.com Corporation
(“MarketGrader” or the “Index Provider”,
with such system being the “MarketGrader System”). The
Index Provider is not affiliated with the Fund, the Investment
Adviser or the Sub-Adviser. The Fund will normally invest at
least 90% of its total assets in securities that comprise the
Index. The Fund has adopted a policy that requires the Fund to
provide shareholders with at least 60 days notice prior to
any material change in this policy or the Index. The Board of
Trustees of the Trust may change the Fund’s investment
strategy and other policies without shareholder approval, except
as otherwise indicated.
The Sub-Adviser seeks a correlation over time of 0.95 or better
between the Fund’s performance and the performance of the
total return of the Index less any expenses or distributions. A
figure of 1.00 would represent perfect correlation.
The Fund generally invests in all of the stocks comprising the
Index in proportion to their weightings in the Index. However,
under various circumstances, it may not be possible or
practicable to purchase all of the stocks in the Index in those
weightings. In those circumstances, the Fund may purchase a
sample of the stocks in the Index in proportions expected by the
Sub-Adviser to replicate generally the performance of the Index
as a whole. There may also be instances in which the Sub-Adviser
may choose to overweight another stock in the Index, purchase
(or sell) securities not in the Index which the Sub-Adviser
believes are appropriate to substitute for one or more Index
components, or utilize various combinations of other available
investment techniques (such as exchange-traded futures
contracts, options contracts or swap agreements), in seeking to
accurately track the Index. In addition, from time to time
stocks are added to or removed from the Index. The Fund may sell
stocks that are represented in the Index or purchase stocks that
are not yet represented in the Index in anticipation of their
removal from or addition to the Index. The Fund will rebalance
its investments on a semi-annual basis in accordance with the
rebalancing of the Index.
Index
Methodology
The MarketGrader System is a computer-driven analysis program
that evaluates the U.S. economy, 10 economic sectors, 130
industries and reviews approximately 5,700
U.S.-listed
companies, including virtually all securities listed on the New
York Stock Exchange, the NYSE Arca and Nasdaq (excluding all
over the counter bulletin board stocks), including over 400
ADRs. The program uses a combination of security analysis and
algorithms.
For every security it covers, the MarketGrader System performs
an analysis of quarterly and annual company-reported data, the
latest market data and company news. The company does not issue
forward looking information such as earnings estimates, price
targets or projections. The analysis, performed by the system
every day for each company, is based on a series of indicators
broken down into four categories – Growth, Value,
Profitability and Cash Flow – with each such category
having six indicators (for a total of 24). Some of these
indicators are common to all industries such as long term
32
market performance and EBITDA margin, while others are specific
to each industry covered. For example, capital ratios and net
interest margin are indicators for banks, and the value of
premiums is an indicator for insurance companies. The individual
indicators are each separately graded for every company covered
based on mathematical formulae. The result of each indicator is
a final grade A+ to F. A precise explanation of each indicator
grade as well as the numbers relating to the formulae used is
available on MarketGrader’s website (www.marketgrader.com).
The MarketGrader System then calculates an overall grade, which
ranges between 0 and 100, for each security from the grading of
the 24 indicators. These overall grades are used by the
MarketGrader System for Index selection.
The stocks in the MarketGrader Large Cap 100 Index are
classified according to their Standard & Poor’s
Global Industry Classification Standard (GICS). The Index will
include companies with capitalizations over $4 billion on
the day of selection, which are large-capitalization companies
as defined by MarketGrader. The new Index components will be
selected semi annually on the third Friday of March and
September and published at 5 p.m. U.S. Eastern
Time.
Index
Construction
|
|
|
|
|
|
1.
|
The 100 highest graded companies under the MarketGrader System
will be selected so long as all the other conditions below are
met. If a company qualifies based on its final grade but
violates any of the conditions below, the company with the next
highest grade will be selected instead.
|
|
|
|
|
|
|
2.
|
All companies in the Index must have a market capitalization
above $4 billion on the day of the selection (including any
rebalance or reconstitution date).
|
|
|
|
|
3.
|
Companies in the Index must have a public float of at least 50%
of all common shares outstanding.
|
|
|
|
|
4.
|
Stocks in the Index are classified based on the GICS.
|
|
|
|
|
5.
|
No GICS economic sector may represent more than 20% (20 stocks)
of the Index.
|
|
|
|
|
6.
|
All GICS economic sectors are eligible for Index selection.
|
|
|
|
|
|
|
7.
|
All Index selections must have reported earnings no later than
six months prior to the selection date.
|
|
|
|
|
|
|
8.
|
All stocks in the Index must have a three month average daily
trading dollar value of at least $2 million.
|
Primary
Investment Risks
Investors should consider the following risk factors and
special considerations associated with investing in the Fund,
which may cause you to lose money.
Investment Risk.
An investment in the Fund is
subject to investment risk, including the possible loss of the
entire principal amount that you invest.
Equity Risk.
A principal risk of investing in
the Fund is equity risk, which is the risk that the value of the
securities held by the Fund will fall due to general market and
economic conditions, perceptions regarding the industries in
which the issuers of securities held by the Fund participate, or
factors relating to specific companies in which the Fund
invests. For example, an adverse event, such as an unfavorable
earnings report, may depress the value of equity securities of
an issuer held by the Fund; the price of common stock of an
issuer may be particularly sensitive to general movements in the
stock market; or a drop in the stock market may depress the
price of most or all of the common stocks and other equity
securities held by the Fund. In addition, common stock of an
issuer in the Fund’s portfolio may decline in price if the
issuer fails to make anticipated dividend payments because,
among other reasons, the issuer of the security experiences a
decline in its financial condition. Common stock is subordinated
to preferred stocks, bonds and other debt instruments in a
company’s capital
33
structure, in terms of priority to corporate income, and
therefore will be subject to greater dividend risk than
preferred stocks or debt instruments of such issuers. In
addition, while broad market measures of common stocks have
historically generated higher average returns than fixed income
securities, common stocks have also experienced significantly
more volatility in those returns.
Foreign Investment Risk.
The Fund’s
investments in
non-U.S. issuers,
although limited to ADRs, may involve unique risks compared to
investing in securities of U.S. issuers, including, among
others, greater market volatility than U.S. securities and
less complete financial information than for U.S. issuers.
In addition, adverse political, economic or social developments
could undermine the value of the Fund’s investments or
prevent the Fund from realizing the full value of its
investments. Financial reporting standards for companies based
in foreign markets differ from those in the United States.
Finally, the value of the currency of the country in which the
Fund has invested could decline relative to the value of the
U.S. dollar, which may affect the value of the investment
to U.S. investors. In addition, the underlying issuers of
certain depositary receipts, particularly unsponsored or
unregistered depositary receipts, are under no obligation to
distribute shareholder communications to the holders of such
receipts, or to pass through to them any voting rights with
respect to the deposited securities.
Non-Correlation Risk.
The Fund’s return
may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses not
applicable to the Index, and incurs costs in buying and selling
securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the
Index. Since the Index constituents may vary on a
semi-annual
basis, the Fund’s costs associated with rebalancing may be
greater than those incurred by other exchange-traded funds that
track indices whose composition changes less frequently.
The Fund may not be fully invested at times, either as a result
of cash flows into the Fund or reserves of cash held by the Fund
to meet redemptions and expenses. If the Fund utilizes a
sampling approach or futures or other derivative positions, its
return may not correlate as well with the return on the Index,
as would be the case if it purchased all of the stocks in the
Index with the same weightings as the Index.
Portfolio Turnover Risk.
The Financial
Highlights Table for the Fund at the end of this Prospectus
shows the Fund’s portfolio turnover rate during the recent
period. Based on the reconstitutions of the Underlying Index,
there may be a large degree of portfolio turnover as the Fund
replicates the Underlying Index. A high portfolio turnover rate
could result in high brokerage costs and an increase in taxable
capital gains distributions to the Fund’s shareholders.
Replication Management Risk.
Unlike many
investment companies, the Fund is not “actively”
managed. Therefore, it would not necessarily sell a stock
because the stock’s issuer was in financial trouble unless
that stock is removed from the Index.
Issuer-Specific Changes.
The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently
from the value of the market as a whole. The value of securities
of smaller issuers can be more volatile than that of larger
issuers.
34
FUND PERFORMANCE
The bar chart that follows shows the annual total returns of the
Fund. The table that follows the bar chart shows the Fund’s
average annual total returns, both before and after taxes. The
bar chart and table provide an indication of the risks of
investing in the Fund by comparing the Fund’s performance
from year to year and by showing how the Fund’s average
annual returns for one year compared with a broad measure of
market performance and the Index. All returns assume
reinvestment of dividends and distributions. The Fund’s
past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
Best and
Worst Quarter Returns (for the period reflected in the bar chart
above)
|
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|
|
|
|
|
|
|
|
|
|
Return
|
|
|
Quarter/Year
|
|
|
|
|
Highest Return
|
|
|
5.64
|
%
|
|
|
2/2008
|
|
|
Lowest Return
|
|
|
(27.04
|
)%
|
|
|
4/2008
|
|
Average
Annual Total Returns as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
SPA MarketGrader Large Cap 100 Fund
|
|
1 Year
|
|
|
Since
Inception
(1)
|
|
|
|
|
Returns before taxes
|
|
|
(45.81)
|
%
|
|
|
(41.99)
|
%
|
|
Returns after taxes on
distributions
(2)
|
|
|
(45.81)
|
%
|
|
|
(41.99)
|
%
|
|
Returns after taxes on distributions and sale of Fund shares
|
|
|
(45.81)
|
%
|
|
|
(41.99)
|
%
|
|
S&P
500
®
Index
(3)
(reflects no deduction for fees, expenses or taxes)
|
|
|
(37.00)
|
%
|
|
|
(34.67)
|
%
|
|
MarketGrader Large Cap 100 Index (reflects no deduction for
fees, expenses or taxes)
|
|
|
(44.02)
|
%
|
|
|
(39.65)
|
%
|
|
|
|
|
(1)
|
The Fund commenced operations on October 12, 2007.
|
|
|
|
|
(2)
|
After-tax returns are calculated using the highest historical
individual federal marginal income tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns
depend on your tax situation and may differ from those shown and
are not relevant if you hold your shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
|
|
|
|
|
(3)
|
The S&P
500
®
Index is generally considered representative of the U.S.
large-cap stock market.
|
35
FEES AND
EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
|
|
|
|
|
|
|
Shareholder Fees
(paid directly from your
investment)
(1)(2)
|
|
|
None
|
|
|
|
|
|
|
|
|
Annual Fund Operating
Expenses
(3)
(expenses that are deducted from Fund assets)
|
|
|
|
|
|
Management Fees
|
|
|
0.85
|
%
|
|
Distribution and/or service (12b-1)
fees
(4)
|
|
|
—
|
%
|
|
Other expenses
|
|
|
4.21
|
%
|
|
Total annual Fund operating expenses
|
|
|
5.06
|
%
|
|
Expense Waiver and
Reimbursements
(5)
|
|
|
1.74
|
%
|
|
Net Operating Expenses
|
|
|
3.32
|
%
|
Example
The following example is intended to help you compare the cost
of investing in the Fund with the costs of investing in other
funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of
the
Fund.
(1)
The example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund’s
operating expenses remain the same each year. Although your
actual costs may be higher or lower, based on these assumptions
your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year*
|
|
Three Years*
|
|
|
Five Years*
|
|
|
Ten Years*
|
|
|
|
|
$335
|
|
$
|
1,021
|
|
|
$
|
2,085
|
|
|
$
|
4,737
|
|
|
|
|
|
|
1.
|
|
When buying and selling Shares through a broker, you will incur
customary brokerage commissions and charges.
|
|
|
|
|
|
2.
|
|
Purchasers of Creation Units at NAV must pay a standard Creation
Transaction Fee of $500 per transaction (regardless of the
number of Creation Units involved). If a Creation Unit is
purchased or redeemed outside the usual process through the
National Securities Clearing Corporation or for cash, a variable
fee of up to four times the standard Creation Transaction Fee or
Redemption Transaction Fee may be charged. See the following
discussion of “Creation Transaction Fees and Redemption
Transaction Fees.”
|
|
|
|
|
|
3.
|
|
Expressed as a percentage of average net assets.
|
|
|
|
|
|
4.
|
|
The Fund has adopted a Distribution and Service (12b-1) Plan
pursuant to which the Fund may bear a 12b-1 fee not to exceed
0.25% per annum of the Fund’s average daily net assets.
However, no such fee is currently paid by the Fund.
|
|
|
|
|
|
5.
|
|
The Fund’s Investment Adviser has contractually agreed to
waive fees and/or pay Fund expenses to the extent necessary to
prevent the operating expenses of the Fund (excluding interest
expenses, fees paid to the NYSE Arca for calculating the
indicative value of the Index, offering costs, brokerage
commissions and other trading expenses, taxes and extraordinary
expenses such as litigation and other expenses not incurred in
the ordinary course of the Fund’s business from exceeding
0.85% of average net assets per year, at least until
December 31, 2011. The offering costs excluded from the
0.85% expense cap are: (a) legal fees pertaining to the
Shares; (b) SEC registration fees in respect of the Shares;
and (c) initial fees paid for the Fund to be listed on an
exchange. The Trust and the Investment Adviser have entered into
an Expense Reimbursement Agreement (the “Expense
Agreement”) in which the Investment Adviser has agreed to
waive its management fees and/or pay certain operating expenses
of the Fund in order to maintain the expense ratio of the Fund
at or below 0.85% (excluding the expenses set forth above) (the
“Expense Cap”). For a
|
36
|
|
|
|
|
|
|
period of five years subsequent to the Fund’s commencement
of operations, the Investment Adviser may recover from the Fund
fees and expenses waived or reimbursed during the prior three
years if the Fund’s expense ratio, including the recovered
expenses, falls below the Expense Cap.
|
Creation
Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems Shares at NAV only in large blocks
of 100,000 Shares (each block of 100,000 Shares called
a “Creation Unit”) or multiples thereof. As a
practical matter, only broker-dealers or large institutional
investors with creation and redemption agreements and called
Authorized Participants (“APs”) can purchase or redeem
these Creation Units. Purchasers of Creation Units at NAV must
pay a standard Creation Transaction Fee of $500 per transaction.
An AP who holds Creation Units and wishes to redeem at NAV would
also pay a standard Redemption Transaction Fee of $500 per
transaction. (See “How to Buy and Sell Shares” later
in this Prospectus). APs who hold Creation Units in inventory
will also pay the Annual Fund Operating Expenses described
in the table above. Assuming the value of an investment in a
Creation Unit as of September 30, 2008 is $1,764,000, and a
5% return each year, and assuming that the Fund’s gross
operating expenses remain the same, the total costs would be
$60,057, $181,163, $368,717 and $836,617 if the Creation Unit is
redeemed after one year, three years, five years and ten years,
respectively.*(
If a Creation Unit is purchased or redeemed outside the usual
process through the National Securities Clearing Corporation or
for cash, a variable fee of up to four times the standard
Creation or Redemption Transaction Fee may be charged to
the AP making the transaction. The Fund will charge a maximum
Creation/Redemption Transaction Fee of $2,000.
The Creation Transaction Fee, Redemption Transaction Fee and
variable fee are not expenses of the Fund and do not impact the
Fund’s expense ratio.
(* The costs for the one-year and the
three-year
examples reflect the Expense Cap that is in effect until
December 31, 2011, as set forth in the footnotes to the fee
table. The costs for the
five-year
and
ten-year
examples do not reflect the Expense Cap after such date.
37
SECONDARY
INVESTMENT STRATEGIES
As a primary investment strategy, each Fund will normally invest
at least 90% of its total assets in component securities that
comprise its respective Index. As secondary investment
strategies, the Funds may invest their remaining assets in money
market instruments, including repurchase agreements or other
funds which invest exclusively in money market instruments, or
exemptions therefrom), convertible securities, structured notes
(notes on which the amount of principal repayment and interest
payments are based on the movement of one or more specified
factors, such as the movement of a particular stock or stock
index) and in swaps, options and futures contracts. Swaps,
options and futures contracts (and convertible securities and
structured notes) may be used by a Fund in seeking performance
that corresponds to its respective Index, and in managing cash
flows. The Funds will not invest in money market instruments as
part of a temporary defensive strategy to protect against
potential stock market declines. The Sub-Adviser anticipates
that it may take approximately three business days (i.e., each
day the NYSE Arca is open) for additions and deletions to each
Fund’s Index to be reflected in the portfolio composition
of the Fund.
Each Fund may borrow money from a bank up to a limit of 10% of
the value of its assets, but only for temporary or emergency
purposes.
The Funds may lend their portfolio securities to brokers,
dealers and other financial institutions desiring to borrow
securities to complete transactions and for other purposes. In
connection with such loans, the Fund receives liquid collateral
equal to at least 102% of the value of the portfolio securities
being lent. This collateral is marked to market on a daily basis.
The policies described herein constitute non-fundamental
policies that may be changed by the Board of Trustees without
shareholder approval. Certain other fundamental policies of the
Fund are set forth in the Statement of Additional Information
under “Investment Restrictions.”
ADDITIONAL
RISK CONSIDERATIONS
In addition to the risks described previously, there are certain
other risks related to investing in the Funds.
Trading Issues.
Trading in Shares on the NYSE
Arca may be halted due to market conditions or for reasons that,
in the view of the NYSE Arca, make trading in Shares
inadvisable. In addition, trading in Shares on the NYSE Arca is
subject to trading halts caused by extraordinary market
volatility pursuant to the NYSE Arca “circuit breaker”
rules. There can be no assurance that the requirements of the
NYSE Arca necessary to maintain the listing of the Funds will
continue to be met or will remain unchanged.
Fluctuation of Net Asset Value.
The NAV of a
Fund’s Shares will generally fluctuate with changes in the
market value of the Fund’s holdings. The market prices of
the Shares will generally fluctuate in accordance with changes
in NAV as well as the relative supply of and demand for the
Shares on the NYSE Arca. The Investment Adviser cannot predict
whether the Shares will trade below, at or above their NAV.
Price differences may be due, in large part, to the fact that
supply and demand forces at work in the secondary trading market
for the Shares will be closely related to, but not identical to,
the same forces influencing the prices of the stocks of the
Index trading individually or in the aggregate at any point in
time.
However, given that the Shares can be purchased and redeemed in
Creation Units (unlike shares of many closed-end funds, which
frequently trade at appreciable discounts from, and sometimes
premiums to, their NAV), the Investment Adviser believes that
large discounts or premiums to the NAV of the Shares should not
be sustained.
Securities Lending.
Although a Fund will
receive collateral in connection with all loans of its
securities holdings, the Fund would be exposed to a risk of loss
should a borrower default on its obligation to return the
borrowed securities (e.g., the loaned securities may have
appreciated beyond
38
the value of the collateral held by the Fund). In addition, the
Fund will bear the risk of loss of any cash collateral that it
invests.
Leverage.
To the extent that a Fund borrows
money, it may be leveraged. Leveraging generally exaggerates the
effect on NAV of any increase or decrease in the market value of
the Fund’s portfolio securities.
These risks are described further in the Statement of Additional
Information.
INVESTMENT
ADVISORY SERVICES
Investment
Adviser
SPA ETF Inc. acts as each Fund’s investment adviser
pursuant to an advisory agreement with the Fund (the
“Advisory Agreement”). The Investment Adviser is a
Delaware corporation with its principal offices located at Tower
49, 12 East 49th Street, New York, New York 10017. As of
December 31, 2008, the Investment Adviser and its
affiliates had approximately $12.0 million in assets under
management. Pursuant to the Advisory Agreement, the Investment
Adviser manages the investment and reinvestment of each
Fund’s assets and administers the affairs of each Fund to
the extent requested by the Board of Trustees.
Pursuant to the Advisory Agreement, each Fund pays the
Investment Adviser an advisory fee for the services and
facilities it provides payable on a monthly basis at the annual
rate of 0.85% of each Fund’s average daily net assets.
In addition to advisory fees, each Fund pays for all other costs
and expenses of its operations, including service fees,
distribution fees, custodian fees, legal and independent
registered public accounting firm fees, the costs of reports and
proxies to shareholders, compensation of Trustees (other than
those who are affiliated persons of the Investment Adviser) and
all other ordinary business expenses not specifically assumed by
the Investment Adviser.
The Investment Adviser has contractually agreed to waive fees
and/or
pay
Fund expenses to the extent necessary to prevent the operating
expenses of each Fund (excluding the fee payments under the
Advisory Agreement, interest expenses, fees paid to the NYSE
Arca for calculating the indicative value of the Index, offering
costs, brokerage commissions and other trading expenses, taxes
and extraordinary expenses such as litigation and other expenses
not incurred in the ordinary course of each Fund’s business
from exceeding 0.85% of average net assets per year, at least
until December 31, 2011. The offering costs excluded from
the 0.85% expense cap are: (a) legal fees pertaining to the
Shares; (b) SEC registration fees in respect of the Shares;
and (c) initial fees paid for each Fund to be listed on the
NYSE Arca. Pursuant to the Expense Agreement, the Investment
Adviser has agreed to waive its management fees
and/or
pay
certain operating expenses of the Fund in order to maintain the
expense ratio of each Fund at or below 0.85% (excluding the
expenses set forth above) (the “Expense Cap”). For a
period of five years subsequent to each Fund’s commencement
of operations, the Investment Adviser may recover from the Fund
fees and expenses waived or reimbursed during the prior three
years if the Fund’s expense ratio, including the recovered
expenses, falls below the Expense Cap.
Sub-Adviser
At a Special Meeting of Shareholders of the Trust, held on
November 17, 2008, each Fund’s shareholders approved
an investment sub-advisory agreement between the Investment
Adviser and Esposito Partners, LLC (“Esposito” or
“Sub-Adviser”) (the “Sub-Advisory
Agreement”) pursuant to which Esposito acts as each
Fund’s investment sub-adviser. Esposito is an investment
management firm specializing in sub-advisory practices for
exchange-traded funds with its principal offices located at
300 Crescent Court, Suite 650, Dallas, Texas 75201. As
of December 31, 2008, Esposito had assets of approximately
$30 million under management. Pursuant to the Sub-Advisory
Agreement, the
39
Sub-Adviser
manages the investment and reinvestment of each Fund’s
assets on an ongoing basis under the supervision of the
Investment Adviser.
Pursuant to the Sub-Advisory Agreement, in consideration for the
services provided by Esposito, the Investment Adviser pays
Esposito on a monthly basis a portion of the net advisory fees
it received from each Fund, at an annual rate of 0.05% of the
average net assets up to $100 million; 0.04% of the average
net assets from $100 million to $200 million; and
0.03% of the average net assets over $200 million. In
addition, the Investment Adviser pays Esposito a minimum
relationship fee per year (computed quarterly) of $2,500 per
Fund, prorated across each Fund based upon the average net
assets of such Fund.
From July 1, 2008 until November 17, 2008, Esposito
served as interim investment sub-adviser to each Fund pursuant
to an interim investment sub-advisory agreement between the
Investment Adviser and Esposito (the “Interim Sub-Advisory
Agreement”), which was approved by the Board of Trustees.
The Interim Sub-Advisory Agreement was effective as of
July 1, 2008.
Pursuant to the Interim Sub-Advisory Agreement, Esposito
provided investment sub-advisory services to each Fund under
substantially similar terms as the terminated sub-advisory
agreement between the Investment Adviser and BNY Investment
Advisors (“BNYIA”) described below. Under the Interim
Sub-Advisory Agreement, the Investment Adviser paid Esposito on
a monthly basis a portion of the net advisory fees it received
from each Fund, at the annual rate of 0.02% of each Fund’s
average daily net assets. In addition, pursuant to the Interim
Sub-Advisory Agreement, the Investment Adviser paid to Esposito
a one-time initial relationship payment of $25,000.
Prior to July 1, 2008, BNYIA served as the investment
sub-adviser to each Fund of the Trust. Pursuant to the prior
sub-advisory agreement with BNYIA, the Investment Adviser paid
BNYIA on a monthly basis a portion of the net advisory fees it
received from each Fund, at the annual rate of 0.02% of each
Fund’s average daily net assets.
Approval
of Advisory Agreement and Sub-Advisory Agreement
A discussion regarding the basis for the Board of Trustees’
approval of the Advisory Agreement and Sub-Advisory Agreement is
available in each Fund’s semi-annual report to shareholders
for the period ended March 31, 2008. A discussion regarding
the basis for the Board of Trustees’ approval of the
Sub-Advisory Agreement is available in each Fund’s annual
report to shareholders for the fiscal year ended
September 30, 2008.
Portfolio
Management
Esposito takes a team approach to managing each Fund’s
portfolio. The four members of the Team with the responsibility
for the day-to-day management of the Funds’ portfolios are:
William D. Martin, Wade A. Rogers, Marcus Talbert and Benjamin
Deweese. Each of the portfolio managers has been with Esposito
for one year. Prior to joining the firm, Mr. Rogers was
with UBS for five years and Martin was with the firm for six
months. Prior to UBS, Mr. Martin spent three years with
Southwest Securities and two years with Stanford Group.
Mr. Talber, prior to joining the firm, was a portfolio
manager at Broadway Investment Group for two years and with USAA
for two years. Mr. Deweese was with the Bank of American
for five years prior to joining Esposito.
Each Portfolio Manager is responsible for various functions
related to portfolio management, including, but not limited to,
investing cash inflows, implementing investment strategy,
researching and reviewing investment strategy, and overseeing
members of his or her portfolio management team with more
limited responsibilities. Each Portfolio Manager is authorized
to make investment decisions for all portfolios managed by the
team. Each Portfolio Manager has appropriate limitations on his
or her authority for risk management and compliance purposes. No
member of the portfolio team manages assets outside of the team.
40
The Statement of Additional Information provides additional
information about the Portfolio Managers’ compensation,
other accounts managed by the Portfolio Managers, and the
Portfolio Managers’ ownership of shares in the Funds for
which they are Portfolio Managers.
PURCHASE
AND REDEMPTION OF SHARES
General
The Shares will be issued or redeemed by the Funds at net asset
value per Share only in Creation Unit size. See “Creations,
Redemptions and Transaction Fees.”
Most investors will buy and sell Shares of the Funds in
secondary market transactions through brokers. Shares of the
Funds will be listed for trading on the secondary market on the
NYSE Arca. Shares can be bought and sold throughout the trading
day like other publicly traded shares. There is no minimum
investment. Although Shares are generally purchased and sold in
“round lots” of 100 Shares, brokerage firms
typically permit investors to purchase or sell Shares in smaller
“odd lots,” at no per-share price differential. When
buying or selling Shares through a broker, you will incur
customary brokerage commissions and charges, and you may pay
some or all of the spread between the bid and the offered price
in the secondary market on each leg of a round trip (purchase
and sale) transaction. The Funds will trade on the NYSE Arca at
prices that may differ to varying degrees from the daily NAV of
the Shares. Given that each Fund’s Shares can be issued and
redeemed in Creation Units, the Sub-Adviser believes that large
discounts and premiums to NAV should not be sustained for long.
The Funds trade under the NYSE Arca symbols set forth in the
chart below.
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Name of Fund
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NYSE Arca Ticker Symbol
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SPA MarketGrader 40 Fund
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SFV
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SPA MarketGrader 100 Fund
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SIH
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SPA MarketGrader 200 Fund
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SNB
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SPA MarketGrader Small Cap 100 Fund
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SSK
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SPA MarketGrader Mid Cap 100 Fund
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SVD
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SPA MarketGrader Large Cap 100 Fund
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SZG
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Share prices are reported in dollars and cents per Share.
Investors may acquire Shares directly from the Funds, and
shareholders may tender their Shares for redemption directly to
the Funds, only in Creation Units of 100,000 Shares, as
discussed in the “Creations, Redemptions and Transaction
Fees” section, which follows.
Book
Entry
Shares are held in book-entry form, which means that no stock
certificates are issued. The Depository Trust Company
(“DTC”) or its nominee is the record owner of all
outstanding Shares of the Funds and is recognized as the owner
of all Shares for all purposes.
Investors owning Shares are beneficial owners as shown on the
records of DTC or its participants. DTC serves as the securities
depository for all Shares. Participants in DTC include
securities brokers and dealers, banks, trust companies, clearing
corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial
owner of Shares, you are not entitled to receive physical
delivery of stock certificates or to have Shares registered in
your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares,
you must rely upon the procedures of DTC and its participants.
These procedures are the same as those that apply to any other
stocks that you may hold in book entry or “street
name” form.
41
HOW TO
BUY AND SELL SHARES
Pricing
Fund Shares
The trading price of each Fund’s shares on the NYSE Arca
may differ from the Fund’s daily net asset value and can be
affected by market forces of supply and demand, economic
conditions and other factors.
The approximate value of Shares of the Funds will be
disseminated every 15 seconds. This approximate value should not
be viewed as a “real-time” update of the NAV per Share
of the Funds because the approximate value may not be calculated
in the same manner as the NAV, which is computed once a day,
generally at the end of the business day. The Funds are not
involved in, or responsible for, the calculation or
dissemination of the approximate value and the Funds do not make
any warranty as to its accuracy.
Determination
of Net Asset Value
The net asset value per Share for each Fund is determined once
daily as of the close of the NYSE, usually
4:00 p.m. Eastern time, each day the NYSE is open for
trading. NAV per Share is determined by dividing the value of
the Fund’s portfolio securities, cash and other assets
(including accrued interest), less all liabilities (including
accrued expenses), by the total number of shares outstanding.
Equity securities are valued at the last reported sale price on
the principal exchange or on the principal OTC market on which
such securities are traded, as of the close of regular trading
on the NYSE on the day the securities are being valued or, if
there are no sales, at the mean of the most recent bid and asked
prices. Equity securities that are traded primarily on the
NASDAQ Stock Market are valued at the NASDAQ Official Closing
Price. Debt securities are valued at the mean between the last
available bid and asked prices for such securities or, if such
prices are not available, at prices for securities of comparable
maturity, quality, and type. Securities for which market
quotations are not readily available, including restricted
securities, are valued by a method that the Trustees believe
accurately reflects fair value. Securities will be valued at
fair value when market quotations are not readily available or
are deemed unreliable, such as when a security’s value or
meaningful portion of a Fund’s portfolio is believed to
have been materially affected by a significant event. Such
events may include a natural disaster, an economic event like a
bankruptcy filing, a trading halt in a security, an unscheduled
early market close or a substantial fluctuation in domestic and
foreign markets that has occurred between the close of the
principal exchange and the NYSE. In such a case, the value for a
security is likely to be different from the last quoted market
price. In addition, due to the subjective and variable nature of
fair market value pricing, it is possible that the value
determined for a particular asset may be materially different
from the value realized upon such asset’s sale.
Creation
Units
Investors such as market makers, large investors and
institutions who wish to deal in Creation Units directly with
the Funds must have entered into an authorized participant
agreement with the distributor and the transfer agent, or
purchase through a dealer that has entered into such an
agreement. Set forth below is a brief description of the
procedures applicable to purchase and redemption of Creation
Units. For more detailed information, see “Creation and
Redemption of Creation Unit Aggregations” in the Statement
of Additional Information.
How to
Buy Shares
In order to purchase Creation Units of a Fund, an investor must
generally deposit a designated portfolio of equity securities
constituting a substantial replication, or a representation, of
the stocks included in the Index (the “Deposit
Securities”) and generally make a small cash payment
referred to as the “Cash Component.” For those
Authorized Participants that are not eligible for trading a
Deposit Security, custom orders are available. The list of the
names and the numbers of shares of the Deposit
42
Securities is made available by the Funds’ custodian
through the facilities of the National Securities Clearing
Corporation, commonly referred to as NSCC, immediately prior to
the opening of business each day of the NYSE Arca. The Cash
Component represents the difference between the net asset value
of a Creation Unit and the market value of the Deposit
Securities. In the case of custom orders,
cash-in-lieu
may be added to the Cash Component to replace any Deposit
Securities that the Authorized Participant may not be eligible
to trade.
Orders must be placed in proper form by or through either
(i) a “Participating Party” i.e., a broker-dealer
or other participant in the Clearing Process of the Continuous
Net Settlement System of the NSCC (the “Clearing
Process”) or (ii) a participant of The Depository
Trust Company (“DTC Participant”) that has
entered into an agreement with the Trust, the distributor and
the transfer agent, with respect to purchases and redemptions of
Creation Units (collectively, “Authorized Participant”
or “AP”). All standard orders must be placed for one
or more whole Creation Units of Shares of each Fund and must be
received by the distributor in proper form no later than the
close of regular trading on the NYSE Arca (ordinarily
4:00 p.m. Eastern time) (“Closing Time”) in
order to receive that day’s closing NAV per Share. In the
case of custom orders, as further described in the Statement of
Additional Information, the order must be received by the
distributor no later than one hour prior to Closing Time in
order to receive that day’s closing NAV per Share. A custom
order may be placed by an Authorized Participant in the event
that the Trust permits or requires the substitution of an amount
of cash to be added to the Cash Component to replace any Deposit
Security which may not be available in sufficient quantity for
delivery or which may not be eligible for trading by such
Authorized Participant or the investor for which it is acting or
any other relevant reason. See “Creation and Redemption of
Creation Unit Aggregations” in the Statement of Additional
Information.
A fixed creation transaction fee of $500 per transaction
(assuming 100 or fewer stocks in each Creation Unit; Creation
Units that have
101-200
stocks are subject to a fee of $1,000 (the “Creation
Transaction Fee”)) is applicable to each transaction
regardless of the number of Creation Units purchased in the
transaction. An additional charge of up to four times the
Creation Transaction Fee may be imposed with respect to
transactions effected outside of the Clearing Process (through a
DTC Participant) or to the extent that cash is used in lieu of
securities to purchase Creation Units. See “Creation and
Redemption of Creation Unit Aggregations” in the Statement
of Additional Information. The price for each Creation Unit will
equal the daily NAV per Share times the number of Shares in a
Creation Unit plus the fees described above and, if applicable,
any transfer taxes.
Shares of each Fund may be issued in advance of receipt of all
Deposit Securities subject to various conditions, including a
requirement to maintain on deposit with the Trust cash at least
equal to 115% of the market value of the missing Deposit
Securities. Any such transaction effected must be effected
outside the Clearing Process. See “Creation and Redemption
of Creation Unit Aggregations” in the Statement of
Additional Information.
Legal
Restrictions on Transactions in Certain Stocks
An investor subject to a legal restriction with respect to a
particular stock required to be deposited in connection with the
purchase of a Creation Unit may, at a Fund’s discretion, be
permitted to deposit an equivalent amount of cash in
substitution for any stock which would otherwise be included in
the Deposit Securities applicable to the purchase of a Creation
Unit. For more details, see “Creation and Redemption of
Creation Unit Aggregations” in the Statement of Additional
Information.
Redemption
of Shares
Shares may be redeemed only in Creation Units at their NAV and
only on a day the NYSE Arca is open for business. The
Funds’ custodian makes available immediately prior to the
opening of business each day of the NYSE Arca, through the
facilities of the NSCC, the list of the names and the numbers of
shares of the Funds’ portfolio securities that will be
applicable that day to redemption requests in proper form
(“Fund Securities”). Fund Securities
received on redemption may not be
43
identical to Deposit Securities which are applicable to
purchases of Creation Units. Unless cash redemptions are
available or specified for the Funds, the redemption proceeds
consist of the Fund Securities, plus cash in an amount
equal to the difference between the NAV of Shares being redeemed
as next determined after receipt by the transfer agent of a
redemption request in proper form, and the value of the
Fund Securities (the “Cash
Redemption Amount”), less the applicable redemption
fee and, if applicable, any transfer taxes. Should the
Fund Securities have a value greater than the NAV of Shares
being redeemed, a compensating cash payment to the Trust equal
to the differential, plus the applicable redemption fee and, if
applicable, any transfer taxes will be required to be arranged
for by or on behalf of the redeeming shareholder. For more
details, see “Creation and Redemption of Creation Unit
Aggregations” in the Statement of Additional Information.
An order to redeem Creation Units of the Fund may only be
effected by or through an Authorized Participant. An order to
redeem must be placed for one or more whole Creation Units and
must be received by the transfer agent in proper form no later
than the close of regular trading on the NYSE Arca (normally
4:00 p.m. Eastern time) in order to receive that
day’s closing NAV per Share. In the case of custom orders,
as further described in the Statement of Additional Information,
the order must be received by the transfer agent no later than
3:00 p.m. Eastern time.
A fixed redemption transaction fee of $500 per transaction
(assuming 100 or fewer stocks in each Creation Unit; Creation
Units that have
101-200
stocks are subject to a fee of $1,000 (the
“Redemption Transaction Fee”)) is applicable to
each redemption transaction regardless of the number of Creation
Units redeemed in the transaction. An additional charge of up to
four times the Redemption Transaction Fee may be charged to
approximate additional expenses incurred by the Trust with
respect to redemptions effected outside of the Clearing Process
or to the extent that redemptions are for cash. The Funds
reserve the right to effect redemptions in cash. A shareholder
may request a cash redemption in lieu of securities, however, a
Fund may, in its discretion, reject any such request. See
“Creation and Redemption of Creation Unit
Aggregations” in the Statement of Additional Information.
Distributions
Dividends and Capital Gains. Fund shareholders are entitled to
their share of a Fund’s income and net realized gains on
its investments. Each Fund pays out substantially all of its net
earnings to its shareholders as “distributions.”
Each Fund typically earns income dividends from stocks and
interest from debt securities. These amounts, net of expenses,
are passed along to Fund shareholders as “income dividend
distributions.” Each Fund realizes capital gains or losses
whenever it sells securities. Net long-term capital gains are
distributed to shareholders as “capital gain
distributions.”
Income dividends, if any, are distributed to shareholders
annually. Net capital gains are distributed at least annually.
Dividends may be declared and paid more frequently to improve
Index tracking or to comply with the distribution requirements
of the Internal Revenue Code. In addition, each Fund intends to
distribute at least annually amounts representing the full
dividend yield net of expenses on the underlying investment
securities as if the Fund owned the underlying investment
securities for the entire dividend period. As a result, some
portion of each distribution may result in a return of capital.
Fund shareholders will be notified regarding the portion of the
distribution that represents a return of capital.
Distributions in cash may be reinvested automatically in
additional whole Shares only if the broker through which the
Shares were purchased makes such option available.
Distribution
Plan and Service Plan
The Board of Trustees of the Trust has adopted a distribution
and services plan (the “Plan”) pursuant to
Rule 12b-1
under the 1940 Act. Under the Plan, each Fund is authorized to
pay
44
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 of each class and
the maintenance of shareholder accounts in an amount up to 0.25%
of its average daily net assets each year.
No
12b-1
fees are currently paid by the Funds, and there are no current
plans to impose these fees. However, in the event
12b-1
fees
are charged in the future, because these fees are paid out of a
Fund’s assets on an ongoing basis, these fees will increase
the cost of your investment in the Fund. By purchasing shares
subject to distribution fees and service fees, you may pay more
over time than you would by purchasing shares with other types
of sales charge arrangements. Long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales
charge permitted by the rules of the Financial Industry
Regulatory Authority, Inc. (“FINRA”). The net income
attributable to the Shares will be reduced by the amount of
distribution fees and service fees and other expenses of the
Funds.
FREQUENT
PURCHASES AND REDEMPTIONS
The Funds impose no restrictions on the frequency of purchases
and redemptions. The Board of Trustees evaluated the risks of
market timing activities by the Funds’ shareholders when
they considered that no restriction or policy was necessary. The
Board considered that, unlike traditional mutual funds, each
Fund issues and redeems its shares at NAV for a basket of
securities intended to mirror the Fund’s portfolio, plus a
small amount of cash, and a Fund’s Shares may be purchased
and sold on the exchange at prevailing market prices. Given this
structure, the Board determined that it is unlikely that
(a) market timing would be attempted by each Fund’s
shareholders or (b) any attempts to market time a Fund by
its shareholders would result in negative impact to the Fund or
its shareholders.
FUND SERVICE
PROVIDERS
Foreside Fund Services, LLC is the principal underwriter
and distributor of each Fund’s Shares. The Distributor will
not distribute Shares in less than whole Creation Units, and it
does not maintain a secondary market in the Shares. As noted in
the section entitled “Purchase and Redemption of
Shares – General,” individual Shares are traded
only in the secondary market and are not redeemable. The
Distributor is a broker-dealer registered under the Exchange Act
and a member of FINRA.
The Bank of New York Mellon (“BNYM”) is the
administrator of the Funds.
BNYM is also the custodian and fund accounting and transfer
agent for the Funds.
Clifford Chance US LLP serves as legal counsel to the Funds.
WithumSmith+Brown, P.C. serves as the Funds’
independent registered public accounting firm. The independent
registered public accounting firm is responsible for auditing
the annual financial statements of the Funds. Prior to the
appointment of WithumSmith+Brown, P.C., the independent
registered public accounting firm to the Funds was
Deloitte & Touche LLP.
Foreside Compliance Services, LLC (“FCS”), an
affiliate of the Distributor, provides an Anti-Money Laundering
Officer and Chief Compliance Officer as well as certain
additional compliance support functions to the Funds. Foreside
Management Services, LLC (“FMS”), an affiliate of the
Distributor, provides a Principal Financial Officer to the
Funds. The Distributor, FCS and FMS are not affiliated with the
Investment Adviser, the Sub-Adviser, BONY or their affiliates.
INDEX
PROVIDER
MarketGrader.com Corporation is the Index Provider for each
Fund. MarketGrader is not affiliated with the Trust, the
Investment Adviser or the Distributor. The Investment
Adviser’s parent company, London & Capital Group
Limited (“London & Capital”), loaned
approximately $800,000 to MarketGrader in 2005 (which was prior
to the formation of the Investment Adviser or London &
45
Capital’s plans to launch, directly or indirectly, funds
that would track MarketGrader indices) pursuant to which Daniel
Freedman, a managing director of London & Capital
became a non-executive director of MarketGrader. None of
Mr. Freedman, London & Capital or the Investment
Adviser have access to any non-public information relating to
any Index. The Investment Adviser has entered into a license
agreement with MarketGrader to use each Index. Each Fund is
entitled to use its respective Index pursuant to a sub-licensing
arrangement with the Investment Adviser.
DISCLAIMERS
“MarketGrader 40 Index,” “MarketGrader 100
Index,” “MarketGrader 200 Index,”
“MarketGrader Small Cap 100 Index,” “MarketGrader
Mid Cap 100 Index,” and “MarketGrader Large Cap 100
Index” are trademarks of MarketGrader and have been
licensed for use for certain purposes by the Investment Adviser.
The Funds are not sponsored, endorsed, sold or promoted by
MarketGrader and MarketGrader makes no representation regarding
the advisability of investing in Shares of the Fund.
Each Fund and its Shares are not sponsored, endorsed, sold or
promoted by MarketGrader. MarketGrader makes no representation
or warranty, express or implied, to the shareholders of the
Funds or any member of the public regarding the advisability of
investing in securities generally or in the Funds particularly
or the ability of any data supplied by MarketGrader to track
general stock market performance. MarketGrader’s only
relationship to the Investment Adviser is the licensing of
certain trademarks and trade names of MarketGrader and of the
data supplied by MarketGrader, which is determined, composed and
calculated by MarketGrader without regard to the Funds or their
Shares. MarketGrader has no obligation to take the needs of the
Investment Adviser or the shareholders of the Funds into
consideration in determining, composing or calculating the data
supplied by MarketGrader. MarketGrader is not responsible for
and has not participated in the determination of the prices of
the Shares of the Funds or the timing of the issuance or sale of
such Shares. MarketGrader has no obligation or liability in
connection with the administration, marketing or trading of the
Funds or their Shares.
The Investment Adviser does not guarantee the accuracy
and/or
the
completeness of the Index or any data included therein, and the
Investment Adviser shall have no liability for any errors,
omissions or interruptions therein. The Investment Adviser makes
no warranty, express or implied, as to results to be obtained by
the Funds, owners of the Shares of the Funds or any other person
or entity from the use of the Index or any data included
therein. The Investment Adviser makes no express or implied
warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein. Without
limiting any of the foregoing, in no event shall the Investment
Adviser have any liability for any special, punitive, direct,
indirect or consequential damages (including lost profits)
arising out of matters relating to the use of the Index even if
notified of the possibility of such damages.
The Sub-Adviser does not guarantee the accuracy
and/or
the
completeness of the Index or any data included therein, and the
Sub-Adviser shall have no liability for any errors, omissions or
interruptions therein. The Sub-Adviser makes no warranty,
express or implied, as to results to be obtained by the Funds,
owners of the Shares of the Funds or any other person or entity
from the use of the Index or any data included therein. The
Sub-Adviser makes no express or implied warranties, and
expressly disclaims all warranties of merchantability or fitness
for a particular purpose or use with respect to the Index or any
data included therein. Without limiting any of the foregoing, in
no event shall the Sub-Adviser have any liability for any
special, punitive, direct, indirect or consequential damages
(including lost profits) arising out of matters relating to the
use of the Index even if notified of the possibility of such
damages.
46
FEDERAL
INCOME TAXATION
As with any investment, you should consider how your investment
in Shares will be taxed. The tax information in this Prospectus
is provided as general information. You should consult your own
tax professional about the tax consequences of an investment in
Shares.
Unless your investment in Shares is made through a tax-exempt
entity or tax-deferred retirement account, such as an IRA plan,
you need to be aware of the possible tax consequences when:
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Your Fund makes distributions,
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You sell your Shares listed on the NYSE Arca, and
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You purchase or redeem Creation Units.
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Taxes on
Distributions
Dividends from net investment income, if any, are declared and
paid annually. Each Fund may also pay a special distribution at
the end of the calendar year to comply with federal tax
requirements. In general, your distributions are subject to
federal income tax when they are paid, whether you take them in
cash or reinvest them in a Fund. Dividends paid out of a
Fund’s income and net short-term gains, if any, are taxable
as ordinary income. Distributions of net long-term capital
gains, if any, in excess of net short-term capital losses are
taxable as long-term capital gains, regardless of how long you
have held the Shares.
Long-term capital gains of non-corporate taxpayers are generally
taxed at a maximum rate of 15% for taxable years beginning
before January 1, 2011. In addition, for these taxable
years some ordinary dividends declared and paid by a Fund to
non-corporate shareholders may qualify for taxation at the
reduced tax rates applicable to long-term capital gains,
provided that the holding period and other requirements are met
by the Fund and the shareholder.
Distributions in excess of a Fund’s current and accumulated
earnings and profits are treated as a tax-free return of capital
to the extent of your basis in the Shares, and as capital gain
thereafter. A distribution will reduce a Fund’s net asset
value per Share and may be taxable to you as ordinary income or
capital gain even though, from an investment standpoint, the
distribution may constitute a return of capital.
Each Fund may be required withhold a percentage of your
distributions and proceeds if you have not provided a taxpayer
identification number or social security number. The backup
withholding rate for individuals is currently 28%.
Taxes on
Exchange-Listed Shares Sales
Currently, any capital gain or loss realized upon a sale of
Shares is generally treated as long-term capital gain or loss if
the Shares have been held for more than one year and as
short-term capital gain or loss if the Shares have been held for
one year or less. The ability to deduct capital losses may be
limited.
Taxes on
Purchase and Redemption of Creation Units
An authorized purchaser who exchanges equity securities for
Creation Units generally will recognize a gain or a loss. The
gain or loss will be equal to the difference between the market
value of the Creation Units at the time and the exchanger’s
aggregate basis in the securities surrendered and the Cash
Component paid. A person who exchanges Creation Units for equity
securities will generally recognize a gain or loss equal to the
difference between the exchanger’s basis in the Creation
Units and the aggregate market value of the securities received
and the Cash Redemption Amount. The Internal Revenue
Service, however, may assert that a loss realized upon an
exchange of securities for Creation Units cannot be deducted
under the rules governing “wash sales” on the basis
that there has
47
been no significant change in economic position. Persons
exchanging securities should consult their own tax advisor with
respect to whether the wash sale rules apply and when a loss
might be deductible.
Under current federal tax laws, any capital gain or loss
realized upon redemption of Creation Units is generally treated
as long-term capital gain or loss if the Shares have been held
for more than one year and as a short-term capital gain or loss
if the Shares have been held for one year or less.
If you purchase or redeem Creation Units, you will be sent a
confirmation statement showing how many and at what price you
purchased or sold Shares.
The foregoing discussion summarizes some of the possible
consequences under current federal tax law of an investment in a
Fund. It is not a substitute for personal tax advice. You may
also be subject to state and local taxation on Fund
distributions and sales of Fund Shares. You are advised to
consult your personal tax advisor about the potential tax
consequences of an investment in Fund Shares under all
applicable tax laws.
PREMIUM/DISCOUNT
INFORMATION
The tables below present information about the differences
between the closing price of Shares of each Fund and each
Fund’s NAV. NAV is the price per share at which each Fund
issues and redeems its Shares. It is calculated in the same way
that mutual fund shares are valued. The “market price”
of each Fund is determined using the closing price of a Share of
each Fund. Each Fund’s market price may be at, above or
below its NAV. The NAV of each Fund will fluctuate with changes
in the market value of its portfolio holdings. The market price
of each Fund will fluctuate in accordance with changes in its
NAV, as well as market supply and demand. Premiums or discounts
are the differences (generally expressed as a percentage)
between the NAV and market price of each Fund on a given day,
generally at the time NAV is calculated. A premium is the amount
that each Fund is trading above the reported NAV, expressed as a
percentage of the NAV. A discount is the amount that each Fund
is trading below the reported NAV, expressed as a percentage of
the NAV.
Each line in the table shows the number of trading days in which
the Fund traded within the premium/discount range indicated. The
number of trading days in each premium/discount range is also
shown as a percentage of the total number of trading days in the
period covered by the table.
48
The following information shows the frequency distributions of
premiums and discounts for each Fund. All data presented here
represents past performance, which is not indicative of future
results.
SPA
MarketGrader 40 Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Premium/Discount Range
|
|
9/30/2008
|
|
|
12/31/2008
|
|
|
9/30/2008
|
|
|
6/30/2008
|
|
|
3/31/2008
|
|
|
|
|
Greater than -11.0% and less than -10.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -10.0% and less than -9.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -9.0% and less than -8.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -8.0% and less than -7.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -7.0% and less than -6.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -6.0% and less than -5.0%
|
|
|
0.00
|
%
|
|
|
4.35
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -5.0% and less than -4.0%
|
|
|
0.28
|
%
|
|
|
2.17
|
%
|
|
|
0.00
|
%
|
|
|
1.10
|
%
|
|
|
0.00
|
%
|
|
Greater than -4.0% and less than -3.0%
|
|
|
0.85
|
%
|
|
|
3.26
|
%
|
|
|
3.26
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -3.0% and less than -2.0%
|
|
|
1.97
|
%
|
|
|
2.17
|
%
|
|
|
0.00
|
%
|
|
|
7.69
|
%
|
|
|
0.00
|
%
|
|
Greater than -2.0% and less than -1.0%
|
|
|
2.82
|
%
|
|
|
2.17
|
%
|
|
|
2.17
|
%
|
|
|
7.69
|
%
|
|
|
0.00
|
%
|
|
Greater than -1.0% and less than 0.0%
|
|
|
46.48
|
%
|
|
|
34.78
|
%
|
|
|
45.65
|
%
|
|
|
41.76
|
%
|
|
|
49.45
|
%
|
|
Greater than 0.0% and less than 1.0%
|
|
|
37.75
|
%
|
|
|
23.91
|
%
|
|
|
26.09
|
%
|
|
|
30.77
|
%
|
|
|
50.55
|
%
|
|
Greater than 1.0% and less than 2.0%
|
|
|
3.66
|
%
|
|
|
7.61
|
%
|
|
|
4.35
|
%
|
|
|
5.49
|
%
|
|
|
0.00
|
%
|
|
Greater than 2.0% and less than 3.0%
|
|
|
1.69
|
%
|
|
|
2.17
|
%
|
|
|
1.09
|
%
|
|
|
5.49
|
%
|
|
|
0.00
|
%
|
|
Greater than 3.0% and less than 4.0%
|
|
|
0.28
|
%
|
|
|
4.35
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 4.0% and less than 5.0%
|
|
|
1.97
|
%
|
|
|
1.09
|
%
|
|
|
7.61
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 5.0% and less than 6.0%
|
|
|
0.56
|
%
|
|
|
1.09
|
%
|
|
|
2.17
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 6.0% and less than 7.0%
|
|
|
0.28
|
%
|
|
|
7.61
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 7.0% and less than 8.0%
|
|
|
0.28
|
%
|
|
|
1.09
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 8.0% and less than 9.0%
|
|
|
1.13
|
%
|
|
|
0.00
|
%
|
|
|
4.35
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPA
MarketGrader 100 Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Premium/Discount Range
|
|
9/30/2008
|
|
|
12/31/2008
|
|
|
9/30/2008
|
|
|
6/30/2008
|
|
|
3/31/2008
|
|
|
|
|
Greater than -10.0% and less than -9.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -9.0% and less than -8.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -8.0% and less than -7.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -7.0% and less than -6.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -6.0% and less than -5.0%
|
|
|
0.00
|
%
|
|
|
5.43
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -5.0% and less than -4.0%
|
|
|
2.25
|
%
|
|
|
2.17
|
%
|
|
|
0.00
|
%
|
|
|
4.40
|
%
|
|
|
4.40
|
%
|
|
Greater than -4.0% and less than -3.0%
|
|
|
0.28
|
%
|
|
|
3.26
|
%
|
|
|
0.00
|
%
|
|
|
1.10
|
%
|
|
|
0.00
|
%
|
|
Greater than -3.0% and less than -2.0%
|
|
|
0.28
|
%
|
|
|
6.52
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -2.0% and less than -1.0%
|
|
|
2.82
|
%
|
|
|
5.43
|
%
|
|
|
3.26
|
%
|
|
|
6.59
|
%
|
|
|
1.10
|
%
|
|
Greater than -1.0% and less than 0.0%
|
|
|
42.81
|
%
|
|
|
16.30
|
%
|
|
|
33.69
|
%
|
|
|
54.94
|
%
|
|
|
42.85
|
%
|
|
Greater than 0.0% and less than 1.0%
|
|
|
25.35
|
%
|
|
|
14.13
|
%
|
|
|
18.48
|
%
|
|
|
19.78
|
%
|
|
|
26.37
|
%
|
|
Greater than 1.0% and less than 2.0%
|
|
|
14.08
|
%
|
|
|
7.61
|
%
|
|
|
9.78
|
%
|
|
|
5.49
|
%
|
|
|
21.98
|
%
|
|
Greater than 2.0% and less than 3.0%
|
|
|
4.23
|
%
|
|
|
13.04
|
%
|
|
|
13.04
|
%
|
|
|
1.10
|
%
|
|
|
1.10
|
%
|
|
Greater than 3.0% and less than 4.0%
|
|
|
0.85
|
%
|
|
|
1.09
|
%
|
|
|
2.17
|
%
|
|
|
0.00
|
%
|
|
|
1.10
|
%
|
|
Greater than 4.0% and less than 5.0%
|
|
|
3.66
|
%
|
|
|
4.35
|
%
|
|
|
7.61
|
%
|
|
|
6.59
|
%
|
|
|
0.00
|
%
|
|
Greater than 5.0% and less than 6.0%
|
|
|
0.85
|
%
|
|
|
7.61
|
%
|
|
|
2.17
|
%
|
|
|
0.00
|
%
|
|
|
1.10
|
%
|
|
Greater than 6.0% and less than 7.0%
|
|
|
1.41
|
%
|
|
|
5.43
|
%
|
|
|
5.43
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 7.0% and less than 8.0%
|
|
|
0.85
|
%
|
|
|
1.09
|
%
|
|
|
3.26
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 8.0% and less than 9.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 9.0% and less than 10.0%
|
|
|
0.28
|
%
|
|
|
4.35
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
SPA
MarketGrader 200 Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Premium/Discount Range
|
|
9/30/2008
|
|
|
12/31/2008
|
|
|
9/30/2008
|
|
|
6/30/2008
|
|
|
3/31/2008
|
|
|
|
|
Greater than -11.0% and less than -10.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -10.0% and less than -9.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -9.0% and less than -8.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -8.0% and less than -7.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -7.0% and less than -6.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -6.0% and less than -5.0%
|
|
|
0.00
|
%
|
|
|
4.35
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -5.0% and less than -4.0%
|
|
|
0.28
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
1.10
|
%
|
|
|
0.00
|
%
|
|
Greater than -4.0% and less than -3.0%
|
|
|
0.00
|
%
|
|
|
3.26
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -3.0% and less than -2.0%
|
|
|
0.85
|
%
|
|
|
2.17
|
%
|
|
|
0.00
|
%
|
|
|
3.30
|
%
|
|
|
0.00
|
%
|
|
Greater than -2.0% and less than -1.0%
|
|
|
2.82
|
%
|
|
|
5.43
|
%
|
|
|
3.26
|
%
|
|
|
4.40
|
%
|
|
|
0.00
|
%
|
|
Greater than -1.0% and less than 0.0%
|
|
|
44.79
|
%
|
|
|
32.61
|
%
|
|
|
39.13
|
%
|
|
|
42.86
|
%
|
|
|
43.96
|
%
|
|
Greater than 0.0% and less than 1.0%
|
|
|
40.00
|
%
|
|
|
17.39
|
%
|
|
|
31.52
|
%
|
|
|
37.36
|
%
|
|
|
56.04
|
%
|
|
Greater than 1.0% and less than 2.0%
|
|
|
6.47
|
%
|
|
|
13.04
|
%
|
|
|
11.95
|
%
|
|
|
6.59
|
%
|
|
|
0.00
|
%
|
|
Greater than 2.0% and less than 3.0%
|
|
|
1.41
|
%
|
|
|
5.43
|
%
|
|
|
5.43
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 3.0% and less than 4.0%
|
|
|
1.69
|
%
|
|
|
2.17
|
%
|
|
|
2.17
|
%
|
|
|
4.40
|
%
|
|
|
0.00
|
%
|
|
Greater than 4.0% and less than 5.0%
|
|
|
0.28
|
%
|
|
|
1.09
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 5.0% and less than 6.0%
|
|
|
1.13
|
%
|
|
|
3.26
|
%
|
|
|
4.35
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 6.0% and less than 7.0%
|
|
|
0.28
|
%
|
|
|
4.35
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 7.0% and less than 8.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPA
MarketGrader Small Cap 100 Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Premium/Discount Range
|
|
9/30/2008
|
|
|
12/31/2008
|
|
|
9/30/2008
|
|
|
6/30/2008
|
|
|
3/31/2008
|
|
|
|
|
Greater than -11.0% and less than -10.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -10.0% and less than -9.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -9.0% and less than -8.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -8.0% and less than -7.0%
|
|
|
0.00
|
%
|
|
|
4.35
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -7.0% and less than -6.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -6.0% and less than -5.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -5.0% and less than -4.0%
|
|
|
0.28
|
%
|
|
|
4.35
|
%
|
|
|
0.00
|
%
|
|
|
1.10
|
%
|
|
|
0.00
|
%
|
|
Greater than -4.0% and less than -3.0%
|
|
|
0.56
|
%
|
|
|
5.43
|
%
|
|
|
2.17
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -3.0% and less than -2.0%
|
|
|
1.13
|
%
|
|
|
2.17
|
%
|
|
|
1.09
|
%
|
|
|
3.30
|
%
|
|
|
0.00
|
%
|
|
Greater than -2.0% and less than -1.0%
|
|
|
2.25
|
%
|
|
|
4.35
|
%
|
|
|
0.00
|
%
|
|
|
5.49
|
%
|
|
|
0.00
|
%
|
|
Greater than -1.0% and less than 0.0%
|
|
|
44.79
|
%
|
|
|
32.61
|
%
|
|
|
46.74
|
%
|
|
|
32.97
|
%
|
|
|
39.56
|
%
|
|
Greater than 0.0% and less than 1.0%
|
|
|
41.69
|
%
|
|
|
13.04
|
%
|
|
|
26.09
|
%
|
|
|
47.25
|
%
|
|
|
60.44
|
%
|
|
Greater than 1.0% and less than 2.0%
|
|
|
4.51
|
%
|
|
|
9.78
|
%
|
|
|
11.96
|
%
|
|
|
3.30
|
%
|
|
|
0.00
|
%
|
|
Greater than 2.0% and less than 3.0%
|
|
|
1.69
|
%
|
|
|
8.70
|
%
|
|
|
4.35
|
%
|
|
|
2.20
|
%
|
|
|
0.00
|
%
|
|
Greater than 3.0% and less than 4.0%
|
|
|
1.41
|
%
|
|
|
1.09
|
%
|
|
|
1.09
|
%
|
|
|
4.40
|
%
|
|
|
0.00
|
%
|
|
Greater than 4.0% and less than 5.0%
|
|
|
1.41
|
%
|
|
|
2.17
|
%
|
|
|
5.43
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 5.0% and less than 6.0%
|
|
|
0.00
|
%
|
|
|
6.52
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 6.0% and less than 7.0%
|
|
|
0.28
|
%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 7.0% and less than 8.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 8.0% and less than 9.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 9.0% and less than 10.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
SPA
MarketGrader Mid Cap 100 Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Premium/Discount Range
|
|
9/30/2008
|
|
|
12/31/2008
|
|
|
9/30/2008
|
|
|
6/30/2008
|
|
|
3/31/2008
|
|
|
|
|
Greater than -18.0% and less than -17.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -10.0% and less than -9.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -9.0% and less than -8.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -8.0% and less than -7.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -7.0% and less than -6.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -6.0% and less than -5.0%
|
|
|
0.28
|
%
|
|
|
4.35
|
%
|
|
|
0.00
|
%
|
|
|
1.10
|
%
|
|
|
0.00
|
%
|
|
$Greater than -5.0% and less than -4.0%
|
|
|
2.25
|
%
|
|
|
2.17
|
%
|
|
|
2.17
|
%
|
|
|
3.30
|
%
|
|
|
3.30
|
%
|
|
Greater than -4.0% and less than -3.0%
|
|
|
0.85
|
%
|
|
|
5.43
|
%
|
|
|
1.09
|
%
|
|
|
2.20
|
%
|
|
|
0.00
|
%
|
|
Greater than -3.0% and less than -2.0%
|
|
|
0.28
|
%
|
|
|
5.43
|
%
|
|
|
0.00
|
%
|
|
|
1.10
|
%
|
|
|
0.00
|
%
|
|
Greater than -2.0% and less than -1.0%
|
|
|
3.66
|
%
|
|
|
10.87
|
%
|
|
|
0.00
|
%
|
|
|
12.09
|
%
|
|
|
1.10
|
%
|
|
Greater than -1.0% and less than 0.0%
|
|
|
37.46
|
%
|
|
|
15.22
|
%
|
|
|
39.13
|
%
|
|
|
20.88
|
%
|
|
|
47.25
|
%
|
|
Greater than 0.0% and less than 1.0%
|
|
|
43.38
|
%
|
|
|
13.04
|
%
|
|
|
33.70
|
%
|
|
|
48.35
|
%
|
|
|
41.76
|
%
|
|
Greater than 1.0% and less than 2.0%
|
|
|
4.23
|
%
|
|
|
9.78
|
%
|
|
|
4.35
|
%
|
|
|
6.59
|
%
|
|
|
1.10
|
%
|
|
Greater than 2.0% and less than 3.0%
|
|
|
1.41
|
%
|
|
|
6.52
|
%
|
|
|
5.43
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 3.0% and less than 4.0%
|
|
|
1.69
|
%
|
|
|
2.17
|
%
|
|
|
2.17
|
%
|
|
|
4.40
|
%
|
|
|
0.00
|
%
|
|
Greater than 4.0% and less than 5.0%
|
|
|
1.69
|
%
|
|
|
7.61
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
5.49
|
%
|
|
Greater than 5.0% and less than 6.0%
|
|
|
1.69
|
%
|
|
|
4.35
|
%
|
|
|
6.52
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 6.0% and less than 7.0%
|
|
|
0.85
|
%
|
|
|
4.35
|
%
|
|
|
3.26
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 7.0% and less than 8.0%
|
|
|
0.28
|
%
|
|
|
2.17
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 8.0% and less than 9.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 9.0% and less than 10.0%
|
|
|
0.00
|
%
|
|
|
3.26
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPA
MarketGrader Large Cap 100 Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Premium/Discount Range
|
|
9/30/2008
|
|
|
12/31/2008
|
|
|
9/30/2008
|
|
|
6/30/2008
|
|
|
3/31/2008
|
|
|
|
|
Greater than -10.0% and less than -9.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -9.0% and less than -8.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -8.0% and less than -7.0%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -7.0% and less than -6.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -6.0% and less than -5.0%
|
|
|
0.00
|
%
|
|
|
6.52
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than -5.0% and less than -4.0%
|
|
|
1.69
|
%
|
|
|
2.17
|
%
|
|
|
0.00
|
%
|
|
|
6.59
|
%
|
|
|
0.00
|
%
|
|
Greater than -4.0% and less than -3.0%
|
|
|
0.56
|
%
|
|
|
4.35
|
%
|
|
|
0.00
|
%
|
|
|
1.10
|
%
|
|
|
1.10
|
%
|
|
Greater than -3.0% and less than -2.0%
|
|
|
0.85
|
%
|
|
|
2.17
|
%
|
|
|
1.09
|
%
|
|
|
2.20
|
%
|
|
|
0.00
|
%
|
|
Greater than -2.0% and less than -1.0%
|
|
|
2.25
|
%
|
|
|
6.52
|
%
|
|
|
3.26
|
%
|
|
|
3.30
|
%
|
|
|
1.10
|
%
|
|
Greater than -1.0% and less than 0.0%
|
|
|
42.54
|
%
|
|
|
15.22
|
%
|
|
|
44.57
|
%
|
|
|
20.88
|
%
|
|
|
57.14
|
%
|
|
Greater than 0.0% and less than 1.0%
|
|
|
32.96
|
%
|
|
|
20.65
|
%
|
|
|
20.65
|
%
|
|
|
45.05
|
%
|
|
|
27.47
|
%
|
|
Greater than 1.0% and less than 2.0%
|
|
|
7.89
|
%
|
|
|
3.26
|
%
|
|
|
4.35
|
%
|
|
|
14.29
|
%
|
|
|
2.20
|
%
|
|
Greater than 2.0% and less than 3.0%
|
|
|
3.38
|
%
|
|
|
7.61
|
%
|
|
|
3.26
|
%
|
|
|
1.10
|
%
|
|
|
8.79
|
%
|
|
Greater than 3.0% and less than 4.0%
|
|
|
0.56
|
%
|
|
|
6.52
|
%
|
|
|
2.17
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 4.0% and less than 5.0%
|
|
|
1.97
|
%
|
|
|
9.78
|
%
|
|
|
1.09
|
%
|
|
|
5.49
|
%
|
|
|
1.10
|
%
|
|
Greater than 5.0% and less than 6.0%
|
|
|
2.54
|
%
|
|
|
2.17
|
%
|
|
|
8.70
|
%
|
|
|
0.00
|
%
|
|
|
1.10
|
%
|
|
Greater than 6.0% and less than 7.0%
|
|
|
2.25
|
%
|
|
|
1.09
|
%
|
|
|
8.70
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 7.0% and less than 8.0%
|
|
|
0.56
|
%
|
|
|
4.35
|
%
|
|
|
2.17
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 8.0% and less than 9.0%
|
|
|
0.00
|
%
|
|
|
1.09
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Greater than 9.0% and less than 10.0%
|
|
|
0.00
|
%
|
|
|
3.26
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
RETURN INFORMATION
The table below presents information about the total return of
each Index in comparison to the total return of the Funds. The
information shown for the Funds is for the fiscal year ended
September 30, 2008.
“Cumulative total returns” represent the total change
in value of an investment over the period indicated. Each
Fund’s per Share NAV is the value of one Share of the Fund
as calculated in
51
accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of each Fund, and the
market return is based on the market price per Share of each
Fund. The price used to calculate market return (“Market
Price”) is determined by using the midpoint between the
highest bid and the lowest offer on the exchange on which each
Fund is listed for trading, as of the time that the Fund’s
NAV is calculated. Since each Fund’s Shares typically do
not trade in the secondary market until several days after the
Fund’s inception, for the period from inception to the
first day of secondary market trading in Fund shares, the NAV of
the Fund is used as a proxy for secondary market trading price
to calculate market returns. Market and NAV returns assume that
dividends and capital gain distributions have been reinvested in
a Fund at Market Price and NAV, respectively. An Index is a
statistical composite that tracks a specified financial market
or sector. Unlike the Funds, an Index does not actually hold a
portfolio of securities and therefore does not incur the
expenses incurred by the Funds. These expenses negatively impact
the performance of each Fund. Also, market returns do not
include brokerage commissions that may be payable on secondary
market transactions. If brokerage commissions were included,
market returns would be lower. The returns shown in the table
below do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption or sale of
Shares of the Funds. The investment return and principal value
of Shares of a Fund will vary with changes in market conditions.
Shares of the Fund may be worth more or less than their original
cost when they are redeemed or sold in the market. All data
presented here represents past performance, which is not
indicative of future results.
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Total Returns
|
|
|
|
|
|
|
|
Since Inception
|
|
|
|
|
|
|
|
through September 30, 2008
|
|
|
|
|
|
|
|
SPA MarketGrader 40 Fund (At NAV)
|
|
|
(34.88
|
)%
|
|
|
|
|
|
SPA MarketGrader 40 Fund (At Market)
|
|
|
(34.22
|
)%
|
|
|
|
|
|
MarketGrader 40 Index
|
|
|
(32.44
|
)%
|
|
|
|
|
|
SPA MarketGrader 100 Fund (At NAV)
|
|
|
(30.08
|
)%
|
|
|
|
|
|
SPA MarketGrader 100 Fund (At Market)
|
|
|
(25.72
|
)%
|
|
|
|
|
|
MarketGrader 100 Index
|
|
|
(26.83
|
)%
|
|
|
|
|
|
SPA MarketGrader 200 Fund (At NAV)
|
|
|
(31.68
|
)%
|
|
|
|
|
|
SPA MarketGrader 200 Fund (At Market)
|
|
|
(30.92
|
)%
|
|
|
|
|
|
MarketGrader 200 Index
|
|
|
(28.66
|
)%
|
|
|
|
|
|
SPA MarketGrader Small Cap 100 Fund (At NAV)
|
|
|
(28.00
|
)%
|
|
|
|
|
|
SPA MarketGrader Small Cap 100 Fund (At Market)
|
|
|
(27.18
|
)%
|
|
|
|
|
|
MarketGrader Small Cap 100 Index
|
|
|
(25.01
|
)%
|
|
|
|
|
|
SPA MarketGrader Mid Cap 100 Fund (At NAV)
|
|
|
(27.28
|
)%
|
|
|
|
|
|
SPA MarketGrader Mid Cap 100 Fund F (At Market)
|
|
|
(22.22
|
)%
|
|
|
|
|
|
MarketGrader Mid Cap 100 Index
|
|
|
(26.75
|
)%
|
|
|
|
|
|
SPA MarketGrader Large Cap 100 Fund (At NAV)
|
|
|
(29.44
|
)%
|
|
|
|
|
|
SPA MarketGrader Large Cap 100 Fund F (At Market)
|
|
|
(27.12
|
)%
|
|
|
|
|
|
MarketGrader Large Cap 100 Index
|
|
|
(24.51
|
)%
|
|
|
|
|
OTHER
INFORMATION
For purposes of the 1940 Act, each Fund is treated as a
registered investment company and the acquisition of Shares by
other investment companies is subject to restrictions of
Section 12(d)(1) of the 1940 Act.
Disclosure
of Portfolio Holdings
A description of the Trust’s policies and procedures with
respect to the disclosure of the Fund’s portfolio
securities is available in the Fund’s Statement of
Additional Information.
52
FINANCIAL
HIGHLIGHTS
The financial highlights table is intended to help you
understand the Funds’ financial performance since
inception. The total return in the table represents the rate
that an investor would have earned (or lost) on an investment in
the respective Fund (assuming reinvestment of all dividends and
distributions). This information has been derived from the
financial statements audited by WithumSmith+Brown, P.C., an
independent registered public accounting firm, whose report,
along with the Funds’ financial statements, are included in
the Funds’ Annual Report, which is available upon request.
Financial
Highlights
For the Period October 12,
2007
1
through September 30, 2008
These financial highlights reflect selected per share data and
ratios for a share outstanding of each Fund throughout the
period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPA
|
|
|
SPA
|
|
|
SPA
|
|
|
|
|
SPA
|
|
|
SPA
|
|
|
SPA
|
|
|
MarketGrader
|
|
|
MarketGrader
|
|
|
MarketGrader
|
|
|
|
|
MarketGrader
|
|
|
MarketGrader
|
|
|
MarketGrader
|
|
|
Small Cap
|
|
|
Mid Cap
|
|
|
Large Cap
|
|
|
|
|
40 Fund
|
|
|
100 Fund
|
|
|
200 Fund
|
|
|
100 Fund
|
|
|
100 Fund
|
|
|
100 Fund
|
|
|
|
|
Per Share Operating Performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
25.00
|
|
|
$
|
25.00
|
|
|
$
|
25.00
|
|
|
$
|
25.00
|
|
|
$
|
25.00
|
|
|
$
|
25.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment
loss
2
|
|
|
(0.45
|
)
|
|
|
(0.49
|
)
|
|
|
(0.58
|
)
|
|
|
(0.66
|
)
|
|
|
(0.50
|
)
|
|
|
(0.45
|
)
|
|
Net realized and unrealized loss on investments
|
|
|
(8.27
|
)
|
|
|
(7.03
|
)
|
|
|
(7.34
|
)
|
|
|
(6.34
|
)
|
|
|
(6.32
|
)
|
|
|
(6.91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
(8.72
|
)
|
|
|
(7.52
|
)
|
|
|
(7.92
|
)
|
|
|
(7.00
|
)
|
|
|
(6.82
|
)
|
|
|
(7.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
16.28
|
|
|
$
|
17.48
|
|
|
$
|
17.08
|
|
|
$
|
18.00
|
|
|
$
|
18.18
|
|
|
$
|
17.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Return
3
|
|
|
(34.88
|
)%
|
|
|
(30.08
|
)%
|
|
|
(31.68
|
)%
|
|
|
(28.00
|
)%
|
|
|
(27.28
|
)%
|
|
|
(29.44
|
)%
|
|
Ratios/Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000’s omitted)
|
|
$
|
6,529
|
|
|
$
|
3,507
|
|
|
$
|
1,718
|
|
|
$
|
1,811
|
|
|
$
|
3,646
|
|
|
$
|
5,302
|
|
|
Ratio to average net assets of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses, net of expense
waivers
4
|
|
|
3.36
|
%
|
|
|
3.68
|
%
|
|
|
4.17
|
%
|
|
|
4.33
|
%
|
|
|
3.83
|
%
|
|
|
3.32
|
%
|
|
Expenses, prior to expense
waivers
4
|
|
|
5.06
|
%
|
|
|
5.74
|
%
|
|
|
6.68
|
%
|
|
|
6.71
|
%
|
|
|
5.88
|
%
|
|
|
5.06
|
%
|
|
Net investment loss, net of
waivers
4
|
|
|
(2.35
|
)%
|
|
|
(2.53
|
)%
|
|
|
(2.91
|
)%
|
|
|
(3.32
|
)%
|
|
|
(2.46
|
)%
|
|
|
(2.25
|
)%
|
|
Portfolio turnover
rate
5
|
|
|
279
|
%
|
|
|
194
|
%
|
|
|
105
|
%
|
|
|
131
|
%
|
|
|
139
|
%
|
|
|
120
|
%
|
|
|
|
|
|
1
|
|
Commencement of operations.
|
|
|
|
|
|
2
|
|
Based on average shares outstanding.
|
|
|
|
|
|
3
|
|
Total return is calculated assuming
an initial investment made at the net asset value at the
beginning of the period, reinvestment of all dividends and
distributions at net asset value during the period and
redemption on the last day of the period. Total return
calculated for a period of less than one year is not annualized.
The total return would have been lower if certain expenses had
not been reimbursed/waived by the investment advisor.
|
|
|
|
|
|
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.
|
53
FOR MORE
INFORMATION
Existing
Shareholders or Prospective Investors
|
|
|
|
|
|
•
|
Call your broker
|
|
|
|
|
•
|
www.spa-etf.com
|
Dealers
|
|
|
|
|
|
•
|
www.foresides.com
|
|
|
|
|
•
|
Distributor Telephone:
207-553-7110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Adviser
|
|
Sub-Adviser
|
|
|
|
|
|
|
|
SPA ETF, Inc.
|
|
|
|
|
|
Esposito Partners, LLC
|
|
|
|
|
|
Tower 49
|
|
|
|
|
|
300 Crescent Court
|
|
|
|
|
|
12 East 49th Street
|
|
|
|
|
|
Suite 650
|
|
|
|
|
|
New York, New York 10017
|
|
|
|
|
|
Dallas, Texas 75201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributor
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreside Fund Services, LLC
|
|
|
|
|
|
|
|
|
|
|
|
3 Canal Plaza, Suite 100
|
|
|
|
|
|
|
|
|
|
|
|
Portland, Maine 04101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Custodian
|
|
Transfer Agent
|
|
|
|
|
|
|
|
The Bank of New York Mellon
|
|
|
|
|
|
The Bank of New York Mellon
|
|
|
|
|
|
101 Barclay Street
|
|
|
|
|
|
101 Barclay Street
|
|
|
|
|
|
New York, New York 10286
|
|
|
|
|
|
New York, New York 10286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal Counsel
|
|
Independent Registered Public
Accounting Firm
|
|
|
|
|
|
|
|
Clifford Chance US LLP
|
|
|
|
|
|
WithumSmith+Brown, P.C.
|
|
|
|
|
|
31 West
52
nd
Street
|
|
|
|
|
|
One Spring Street
|
|
|
|
|
|
New York, New York 10019
|
|
|
|
|
|
New Brunswick, New Jersey 08901
|
54
A Statement of Additional Information dated January 28,
2009, which contains more details about the Funds, is
incorporated by reference in its entirety into this Prospectus,
which means that it is legally part of this Prospectus.
You will find additional information about each Fund in its
annual and semi-annual reports to shareholders, when available.
The annual report will explain the market conditions and
investment strategies affecting each Fund’s performance
during its last fiscal year.
You can ask questions or obtain a free copy of the Funds’
shareholder reports or the Statement of Additional Information
by calling
1-800-772-3831.
Free copies of the Funds’ shareholder reports and the
Statement of Additional Information are available from our
website at www.spa-etf.com.
Information about each Fund, including its reports and the
Statement of Additional Information, has been filed with the
SEC. It can be reviewed and copied at the SEC’s Public
Reference Room in Washington, DC or on the EDGAR database on the
SEC’s internet site
(http://www.sec.gov).
Information on the operation of the SEC’s Public Reference
Room may be obtained by calling the SEC at
(202) 551-8090.
You can also request copies of these materials, upon payment of
a duplicating fee, by electronic request at the SEC’s
e-mail
address (publicinfo@sec.gov) or by writing the Public Reference
section of the SEC, 100 F Street NE, Room 1580,
Washington, DC 20549.
PROSPECTUS
Distributor
Foreside Fund Services, LLC
3 Canal Plaza, Suite 100
Portland, Maine 04101
January 28, 2009
Investment Company Act File
No. 811-22103
55
SPA ETF
Trust
Statement of Additional Information
Dated January 28, 2009
This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Prospectus dated
January 28, 2009 for the SPA MarketGrader 40 Fund, SPA
MarketGrader 100 Fund, SPA MarketGrader 200 Fund, SPA
MarketGrader Small Cap 100 Fund, SPA MarketGrader Mid Cap 100
Fund and SPA MarketGrader Large Cap 100 Fund, each a series of
the SPA ETF Trust (the “Trust”), as it may be revised
from time to time. Capitalized terms used herein that are not
defined have the same meaning as in the Prospectus, unless
otherwise noted. A copy of the Prospectus may be obtained
without charge by writing to the Trust’s Distributor,
Foreside Fund Services, LLC, or by calling toll free
1-800-772-3831.
Table of
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GENERAL
DESCRIPTION OF THE TRUST AND THE FUNDS
The Trust was organized as a Delaware statutory trust on
March 13, 2007 and is authorized to have multiple series or
portfolios. The Trust is an open-end management investment
company, registered under the Investment Company Act of 1940, as
amended (the “1940 Act”). The Trust currently consists
of six investment portfolios. This Statement of Additional
Information relates to the following six investment portfolios:
SPA MarketGrader 40 Fund, SPA MarketGrader 100 Fund, SPA
MarketGrader 200 Fund, SPA MarketGrader Small Cap 100 Fund, SPA
MarketGrader Mid Cap 100 Fund and SPA MarketGrader Large Cap 100
Fund (each a “Fund” and together, the
“Funds”). Each Fund is a “diversified” fund
under the 1940 Act. The shares of the Funds are referred to
herein as “Shares” or “Fund Shares.”
The Funds are managed by SPA ETF Inc. (the “Investment
Adviser”) and Esposito Partners, LLC (the
“Sub-Adviser”).
The Funds offer and issue Shares at net asset value
(“NAV”) only in aggregations of a specified number of
Shares (each a “Creation Unit” or a “Creation
Unit Aggregation”), generally in exchange for a basket of
equity securities included in the relevant Underlying Indices
(the “Deposit Securities”), together with the deposit
of a specified cash payment (the “Cash Component”).
The Funds, Shares are listed and traded on the NYSE Arca, Inc.
(the “NYSE Arca”). Fund Shares will trade on the
NYSE Arca at market prices that may be below, at or above NAV.
Shares are redeemable only in Creation Unit Aggregations and,
generally, in exchange for portfolio securities and a specified
cash payment. Creation Units are aggregations of
100,000 Shares. In the event of the liquidation of a Fund,
the Trust may lower the number of Shares in a Creation Unit.
The Trust reserves the right to offer a “cash” option
for creations and redemptions of Fund Shares.
Fund Shares may be issued in advance of receipt of Deposit
Securities subject to various conditions including a requirement
to maintain on deposit with the Trust cash at least equal to
115% of the market value of the missing Deposit Securities. See
the “Creation and Redemption of Creation Unit
Aggregations” section. In each instance of such cash
creations or redemptions, transaction fees may be imposed that
will be higher than the transaction fees associated with in-kind
creations or redemptions. In all cases, such fees will be
limited in accordance with the requirements of the Securities
and Exchange Commission (the “SEC”) applicable to
management investment companies offering redeemable securities.
EXCHANGE
LISTING AND TRADING
There can be no assurance that the requirements of the NYSE Arca
necessary to maintain the listing of Shares of each Fund will
continue to be met. The NYSE Arca may, but is not required to,
remove the Shares of a Fund from listing if (i) following
the initial
12-month
period beginning at the commencement of trading of a Fund, there
are fewer than 50 beneficial owners of the Shares of the Fund
for 30 or more consecutive trading days; (ii) the value of
the Underlying Indices is no longer calculated or available; or
(iii) such other event shall occur or condition exist that,
in the opinion of the NYSE Arca, makes further dealings on the
NYSE Arca inadvisable. The NYSE Arca will remove the Shares of a
Fund from listing and trading upon termination of such Fund.
As in the case of other stocks traded on the NYSE Arca,
broker’s commissions on transactions will be based on
negotiated commission rates at customary levels.
The Trust reserves the right to adjust the price levels of the
Shares in the future to help maintain convenient trading ranges
for investors. Any adjustments would be accomplished through
stock splits or reverse stock splits, which would have no effect
on the net assets of each Fund.
1
INVESTMENT
RESTRICTIONS AND POLICIES
Investment
Objectives
The investment objective of the SPA MarketGrader 40 Fund is to
provide investment results that correspond generally to the
performance (before the Fund’s fees and expenses) of an
equity index called the “MarketGrader 40 Index” (the
“MarketGrader 40 Index” or the “Underlying
Index”).
The investment objective of the SPA MarketGrader 100 Fund is to
provide investment results that correspond generally to the
performance (before the Fund’s fees and expenses) of an
equity index called the “MarketGrader 100 Index” (the
“MarketGrader 100 Index” or the “Underlying
Index”).
The investment objective of the SPA MarketGrader 200 Fund is to
provide investment results that correspond generally to the
performance (before the Fund’s fees and expenses) of an
equity index called the “MarketGrader 200 Index” (the
“MarketGrader 200 Index” or the “Underlying
Index”).
The investment objective of the SPA MarketGrader Small Cap 100
Fund is to provide investment results that correspond generally
to the performance (before the Fund’s fees and expenses) of
an equity index called the “MarketGrader Small Cap 100
Index” (the “MarketGrader Small Cap 100 Index” or
the “Underlying Index”).
The investment objective of the SPA MarketGrader Mid Cap 100
Fund is to provide investment results that correspond generally
to the performance (before the Fund’s fees and expenses) of
an equity index called the “MarketGrader Mid Cap 100
Index” (the “MarketGrader Mid Cap 100 Index” or
the “Underlying Index”).
The investment objective of the SPA MarketGrader Large Cap 100
Fund is to provide investment results that correspond generally
to the performance (before the Fund’s fees and expenses) of
an equity index called the “MarketGrader Large Cap 100
Index” (the “MarketGrader Large Cap 100 Index” or
the “Underlying Index”).
Investment
Restrictions
The Board of Trustees of the Trust (the “Board” or the
“Trustees”) has adopted as fundamental policies the
Funds’ respective investment restrictions, numbered
(1) through (7) below. Each Fund, as a fundamental
policy, may not:
(1) Invest in a manner inconsistent with its
classification as a “diversified company” as provided
by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under
the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief applicable to the Fund from the
provisions of the 1940 Act, as amended from time to time.
(2) Invest 25% or more of the value of its total
assets in securities of issuers in any one industry or group of
industries, except to the extent that the Underlying Index that
the Fund replicates concentrates in an industry or group of
industries. This restriction does not apply to obligations
issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.
(3) Borrow money, except that the Fund may
(i) borrow money from banks for temporary or emergency
purposes (but not for leverage or the purchase of investments)
up to 10% of its total assets and (ii) make other
investments or engage in other transactions permissible under
the 1940 Act that may involve a borrowing, provided that the
combination of (i) and (ii) shall not exceed
33
1
/
3
%
of the value of the Fund’s total assets (including the
amount borrowed), less the Fund’s liabilities (other than
borrowings).
(4) Act as an underwriter of another issuer’s
securities, except to the extent that the Fund may be deemed to
be an underwriter within the meaning of the Securities Act of
1933 in connection with the purchase and sale of portfolio
securities.
2
(5) Make loans to other persons, except through
(i) the purchase of debt securities permissible under the
Fund’s investment policies, (ii) repurchase agreements
or (iii) the lending of portfolio securities, provided that
no such loan of portfolio securities may be made by the Fund if,
as a result, the aggregate of such loans would exceed
33
1
/
3
%
of the value of the Fund’s total assets.
(6) Purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments (but this shall not prevent the Fund (i) from
purchasing or selling options, futures contracts or other
derivative instruments, or (ii) from investing in
securities or other instruments backed by physical commodities).
(7) Purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but this
shall not prohibit the Fund from purchasing or selling
securities or other instruments backed by real estate or of
issuers engaged in real estate activities).
(8) Issue senior securities, except as permitted
under the 1940 Act.
Except for restriction (3), if a percentage restriction is
adhered to at the time of investment, a later increase in
percentage resulting from a change in market value of the
investment or the total assets, or the sale of a security out of
the portfolio, will not constitute a violation of that
restriction.
The foregoing fundamental investment policies cannot be changed
as to a Fund without approval by holders of a “majority of
the Fund’s outstanding voting shares.” As defined in
the 1940 Act, this means the vote of (i) 67% or more of the
Fund’s shares present at a meeting, if the holders of more
than 50% of the Fund’s shares are present or represented by
proxy, or (ii) more than 50% of the Fund’s shares,
whichever is less.
In addition to the foregoing fundamental investment policies,
each Fund is also subject to the following non-fundamental
restrictions and policies, which may be changed by the Board of
Trustees. Each Fund may not:
(1) Sell securities short, unless the Fund owns or
has the right to obtain securities equivalent in kind and amount
to the securities sold short at no added cost, and provided that
transactions in options, futures contracts, options on futures
contracts or other derivative instruments are not deemed to
constitute selling securities short.
(2) Purchase securities on margin, except that the
Fund may obtain such short-term credits as are necessary for the
clearance of transactions; and provided that margin deposits in
connection with futures contracts, options on futures contracts
or other derivative instruments shall not constitute purchasing
securities on margin.
(3) Purchase securities of open-end or closed-end
investment companies except in compliance with the 1940 Act.
(4) Invest in direct interests in oil, gas or other
mineral exploration programs or leases; however, the Fund may
invest in the securities of issuers that engage in these
activities.
(5) Invest in illiquid securities if, as a result of
such investment, more than 15% of the Fund’s net assets
would be invested in illiquid securities.
The investment objective of each Fund is a non-fundamental
policy that can be changed by the Board of Trustees without
approval by shareholders.
INVESTMENT
POLICIES AND RISKS
A discussion of each Fund’s investment policies is
contained in the Prospectus in the subsection “Principal
Investment Strategies” applicable to each Fund and the
“Secondary Investment Strategies” section of the
Prospectus. The discussion below regarding supplements, and
should be read in conjunction with, these sections of the
Prospectus.
3
Loans of Portfolio Securities
. Each Fund may
lend its investment securities to approved borrowers. Any gain
or loss on the market price of the securities loaned that might
occur during the term of the loan would be for the account of
the Fund. These loans cannot exceed
33
1
/
3
%
of each Fund’s total assets.
Approved borrowers are brokers, dealers, domestic and foreign
banks, or other financial institutions that meet credit or other
requirements as established by, and subject to the review of,
the Trust’s Board, so long as the terms, the structure and
the aggregate amount of such loans are not inconsistent with the
1940 Act and the rules and regulations thereunder or
interpretations of the SEC, which require that (a) the
borrowers pledge and maintain with the Fund collateral
consisting of cash, an irrevocable letter of credit issued by a
bank, or securities issued or guaranteed by the
U.S. Government having a value at all times of not less
than 102% of the value of the securities loaned (on a
“mark-to-market” basis); (b) the loan be made
subject to termination by the Fund at any time; and (c) the
Fund receives reasonable interest on the loan. From time to
time, a Fund may return a part of the interest earned from the
investment of collateral received from securities loaned to the
borrower
and/or
a
third party that is unaffiliated with the Fund and that is
acting as a finder.
Repurchase Agreements
. Each Fund may enter
into repurchase agreements, which are agreements pursuant to
which securities are acquired by the Fund from a third party
with the understanding that they will be repurchased by the
seller at a fixed price on an agreed date. These agreements may
be made with respect to any of the portfolio securities in which
the Fund is authorized to invest. Repurchase agreements may be
characterized as loans secured by the underlying securities.
Each Fund may enter into repurchase agreements with
(i) member banks of the Federal Reserve System having total
assets in excess of $500 million and (ii) securities
dealers (“Qualified Institutions”). The Investment
Adviser will monitor the continued creditworthiness of Qualified
Institutions.
The use of repurchase agreements involves certain risks. For
example, if the seller of securities under a repurchase
agreement defaults on its obligation to repurchase the
underlying securities, as a result of its bankruptcy or
otherwise, the Fund will seek to dispose of such securities,
which action could involve costs or delays. If the seller
becomes insolvent and subject to liquidation or reorganization
under applicable bankruptcy or other laws, the Fund’s
ability to dispose of the underlying securities may be
restricted. Finally, it is possible that the Fund may not be
able to substantiate its interest in the underlying securities.
To minimize this risk, the securities underlying the repurchase
agreement will be held by the custodian at all times in an
amount at least equal to the repurchase price, including accrued
interest. If the seller fails to repurchase the securities, the
Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase price.
The resale price reflects the purchase price plus an agreed upon
market rate of interest. The collateral is marked to market
daily.
Reverse Repurchase Agreements
. Each Fund may
enter into reverse repurchase agreements, which involve the sale
of securities with an agreement to repurchase the securities at
an
agreed-upon
price, date and interest payment and have the characteristics of
borrowing. The securities purchased with the funds obtained from
the agreement and securities collateralizing the agreement will
have maturity dates no later than the repayment date. Generally
the effect of such transactions is that the Fund can recover all
or most of the cash invested in the portfolio securities
involved during the term of the reverse repurchase agreement,
while in many cases the Fund is able to keep some of the
interest income associated with those securities. Such
transactions are only advantageous if the Fund has an
opportunity to earn a greater rate of return on the cash derived
from these transactions than the interest cost of obtaining the
same amount of cash. Opportunities to realize earnings from the
use of the proceeds equal to or greater than the interest
required to be paid may not always be available and the Fund
intends to use the reverse repurchase technique only when the
Investment Adviser believes it will be advantageous to the Fund.
The use of reverse repurchase agreements may exaggerate any
interim increase or decrease in the value of the Fund’s
assets. The custodian bank will maintain a
4
separate account for the Fund with securities having a value
equal to or greater than such commitments. Under the 1940 Act,
reverse repurchase agreements are considered loans.
Money Market Instruments
. Each Fund may invest
a portion of its assets in high-quality money market instruments
on an ongoing basis to provide liquidity. The instruments in
which each Fund may invest include: (i) short-term
obligations issued by the U.S. Government;
(ii) negotiable certificates of deposit (“CDs”),
fixed time deposits and bankers’ acceptances of
U.S. and foreign banks and similar institutions;
(iii) commercial paper rated at the date of purchase
“Prime-1” by Moody’s Investors Service, Inc. or
“A-1+”
or
“A-1”
by Standard & Poor’s or, if unrated, of
comparable quality as determined by the Investment Adviser;
(iv) repurchase agreements; and (v) money market
mutual funds. CDs are short-term negotiable obligations of
commercial banks. Time deposits are non-negotiable deposits
maintained in banking institutions for specified periods of time
at stated interest rates. Banker’s acceptances are time
drafts drawn on commercial banks by borrowers, usually in
connection with international transactions.
Investment Companies
. Each Fund may invest in
the securities of other investment companies (including money
market funds). Under the 1940 Act, each Fund’s investment
in investment companies is limited to, subject to certain
exceptions, (i) 3% of the total outstanding voting stock of
any one investment company, (ii) 5% of the Fund’s
total assets with respect to any one investment company and
(iii) 10% of the Fund’s total assets of investment
companies in the aggregate.
Real Estate Investment Trusts
(“REITs”)
. Each Fund may invest in the
securities of real estate investment trusts to the extent
allowed by law, which pool investors’ funds for investments
primarily in commercial real estate properties. Investment in
REITs may be the most practical available means for the Fund to
invest in the real estate industry. As a shareholder in a REIT,
the Fund would bear its ratable share of the REIT’s
expenses, including its advisory and administration fees. At the
same time, the Fund would continue to pay its own investment
advisory fees and other expenses, as a result of which the Fund
and its shareholders in effect will be absorbing duplicate
levels of fees with respect to investments in REITs.
Illiquid Securities
. Each Fund may invest up
to an aggregate amount of 15% of its net assets in illiquid
securities. Illiquid securities include securities subject to
contractual or other restrictions on resale and other
instruments that lack readily available markets.
Futures and Options
. Each Fund may utilize
exchange-traded futures and options contracts and swap
agreements.
Futures contracts generally provide for the future sale by one
party and purchase by another party of a specified commodity at
a specified future time and at a specified price. Stock index
futures contracts are settled daily with a payment by one party
to the other of a cash amount based on the difference between
the level of the stock index specified in the contract from one
day to the next. Futures contracts are standardized as to
maturity date and underlying instrument and are traded on
futures exchanges.
Futures traders are required to make a good faith margin deposit
in cash or U.S. government securities with a broker or
custodian to initiate and maintain open positions in futures
contracts. A margin deposit is intended to assure completion of
the contract (delivery or acceptance of the underlying commodity
or payment of the cash settlement amount) if it is not
terminated prior to the specified delivery date. Brokers may
establish deposit requirements which are higher than the
exchange minimums. Futures contracts are customarily purchased
and sold on margin deposits which may range upward from less
than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the
contract is marked to market daily. If the futures contract
price changes to the extent that the margin on deposit does not
satisfy margin requirements, payment of additional
“variation” margin will be required. Conversely,
change in the contract value may reduce the required margin,
resulting in a repayment of excess margin to the contract
holder. Variation margin payments are made to and from the
futures broker for as long as the
5
contract remains open. In such case, a Fund would expect to earn
interest income on its margin deposits. Closing out an open
futures position is done by taking an opposite position
(“buying” a contract which has previously been
“sold,” or “selling” a contract previously
“purchased”) in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures
contract position is opened or closed.
Each Fund may use exchange-traded futures and options, together
with positions in cash and money market instruments, to simulate
full investment in its Underlying Index. Under such
circumstances, the Investment Adviser may seek to utilize other
instruments that it believes to be correlated to the underlying
index components or a subset of the components.
An option on a futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in
return for the premium paid, to assume a position in the
underlying futures contract at a specified exercise price at any
time prior to the expiration date of the option. Upon exercise
of an option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer’s futures
margin account that represents the amount by which the market
price of the futures contract exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the
option on the futures contract. The potential for loss related
to the purchase of an option on a futures contract is limited to
the premium paid for the option plus transaction costs. Because
the value of the option is fixed at the point of purchase, there
are no daily cash payments by the purchaser to reflect changes
in the value of the underlying contract; however, the value of
the option changes daily and that change would be reflected in
the NAV of each Fund. The potential for loss related to writing
call options on equity securities or indices is unlimited. The
potential for loss related to writing put options is limited
only by the aggregate strike price of the put option less the
premium received.
Each Fund may purchase and write put and call options on futures
contracts that are traded on a U.S. exchange as a hedge
against changes in value of its portfolio securities, or in
anticipation of the purchase of securities, and may enter into
closing transactions with respect to such options to terminate
existing positions. There is no guarantee that such closing
transactions can be effected.
Restrictions on the Use of Futures Contracts and Options on
Futures Contracts
. The Commodity Futures Trading
Commission has eliminated limitations on futures trading by
certain regulated entities, including registered investment
companies, and consequently registered investment companies may
engage in unlimited futures transactions and options thereon
provided that the investment adviser to the company claims an
exclusion from regulation as a commodity pool operator. In
connection with its management of the Trust, each of the
Investment Adviser and Sub-Adviser has claimed such an exclusion
from registration as a commodity pool operator under the
Commodity Exchange Act (the “CEA”). Therefore, it is
not subject to the registration and regulatory requirements of
the CEA. Therefore, there are no limitations on the extent to
which each Fund may engage in non-hedging transactions involving
futures and options thereon, except as set forth in the
Funds’ Prospectus and this Statement of Additional
Information.
Swap Agreements
. Swap agreements are contracts
between parties in which one party agrees to make periodic
payments to the other party (the “Counterparty”) based
on the change in market value or level of a specified rate,
index or asset. In return, the Counterparty agrees to make
periodic payments to the first party based on the return of a
different specified rate, index or asset. Swap agreements will
usually be done on a net basis, each Fund receiving or paying
only the net amount of the two payments. The net amount of the
excess, if any, of each Fund’s obligations over its
entitlements with respect to each swap is accrued on a daily
basis and an amount of cash or highly liquid securities having
an aggregate value at least equal to the accrued excess is
maintained in an account at the Trust’s custodian bank.
The use of interest-rate and index swaps is a highly specialized
activity that involves investment techniques and risks different
from those associated with ordinary portfolio security
transactions. These transactions generally do not involve the
delivery of securities or other underlying assets or principal.
6
The use of swap agreements involves certain risks. For example,
if the Counterparty under a swap agreement defaults on its
obligation to make payments due from it, as a result of its
bankruptcy or otherwise, each Fund may lose such payments
altogether, or collect only a portion thereof, which collection
could involve costs or delays.
GENERAL
CONSIDERATIONS AND RISKS
A discussion of the risks associated with an investment in the
Funds is contained in the Prospectus in the “Principal
Risks of Investing in the Funds” and “Additional
Risks” sections. The discussion below supplements, and
should be read in conjunction with, these sections of the
Prospectus.
An investment in a Fund should be made with an understanding
that the value of the Fund’s portfolio securities may
fluctuate in accordance with changes in the financial condition
of the issuers of the portfolio securities, the value of common
stocks in general and other factors that affect the market.
An investment in a Fund should also be made with an
understanding of the risks inherent in an investment in equity
securities, including the risk that the financial condition of
issuers may become impaired or that the general condition of the
stock market may deteriorate (either of which may cause a
decrease in the value of the portfolio securities and thus in
the value of Fund Shares). Common stocks are susceptible to
general stock market fluctuations and to volatile increases and
decreases in value as market confidence and perceptions of their
issuers’ change. These investor perceptions are based on
various and unpredictable factors, including expectations
regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction,
and global or regional political, economic or banking crises.
Holders of common stocks incur more risk than holders of
preferred stocks and debt obligations because common
stockholders, as owners of the issuer, have generally inferior
rights to receive payments from the issuer in comparison with
the rights of creditors, or holders of debt obligations or
preferred stocks. Further, unlike debt securities which
typically have a stated principal amount payable at maturity
(whose value, however, is subject to market fluctuations prior
thereto), or preferred stocks, which typically have a
liquidation preference and which may have stated optional or
mandatory redemption provisions, common stocks have neither a
fixed principal amount nor a maturity.
The existence of a liquid trading market for certain securities
may depend on whether dealers will make a market in such
securities. There can be no assurance that a market will be made
or maintained or that any such market will be or remain liquid.
The price at which securities may be sold and the value of a
Fund’s Shares will be adversely affected if trading markets
for the Fund’s portfolio securities are limited or absent,
or if bid/ask spreads are wide.
Risks of Futures and Options
Transactions
. There are several risks
accompanying the utilization of futures contracts and options on
futures contracts. First, while each Fund plans to utilize
futures contracts only if an active market exists for such
contracts, there is no guarantee that a liquid market will exist
for the contract at a specified time.
Furthermore, because, by definition, futures contracts project
price levels in the future and not current levels of valuation,
market circumstances may result in a discrepancy between the
price of the stock index future and the movement in the
Underlying Index. In the event of adverse price movements, each
Fund would continue to be required to make daily cash payments
to maintain its required margin. In such situations, if the Fund
has insufficient cash, it may have to sell portfolio securities
to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, each Fund may be required
to deliver the instruments underlying futures contracts it has
sold.
The risk of loss in trading futures contracts or uncovered call
options in some strategies (e.g., selling uncovered stock index
futures contracts) is potentially unlimited. Each Fund does not
plan to use futures and options contracts in this way. The risk
of a futures position may still be large as traditionally
measured due to the low margin deposits required. In many cases,
a relatively small price
7
movement in a futures contract may result in immediate and
substantial loss or gain to the investor relative to the size of
a required margin deposit. Each Fund, however, intends to
utilize futures and options contracts in a manner designed to
limit their risk exposure to levels comparable to direct
investment in stocks.
Utilization of futures and options on futures by the Funds
involves the risk of imperfect or even negative correlation to
the Underlying Index if the index underlying the futures
contract differs from the Underlying Index. There is also the
risk of loss by a Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position
in the futures contract or option; however, this risk is
substantially minimized because (a) of the regulatory
requirement that the broker has to “segregate”
customer funds from its corporate funds, and (b) in the
case of regulated exchanges in the United States, the clearing
corporation stands behind the broker to make good losses in such
a situation. The purchase of put or call options could be based
upon predictions by the Investment Adviser as to anticipated
trends, which predictions could prove to be incorrect and a part
or all of the premium paid therefore could be lost.
Because the futures market imposes less burdensome margin
requirements than the securities market, an increased amount of
participation by speculators in the futures market could result
in price fluctuations. Certain financial futures exchanges limit
the amount of fluctuation permitted in futures contract prices
during a single trading day. The daily limit establishes the
maximum amount by which the price of a futures contract may vary
either up or down from the previous day’s settlement price
at the end of a trading session. Once the daily limit has been
reached in a particular type of contract, no trades may be made
on that day at a price beyond that limit. It is possible that
futures contract prices could move to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and
subjecting the Fund to substantial losses. In the event of
adverse price movements, the Fund would be required to make
daily cash payments of variation margin.
Although each Fund intends to enter into futures contracts only
if there is an active market for such contracts, there is no
assurance that an active market will exist for the contracts at
any particular time.
Risks of Swap Agreements
. The risk of loss
with respect to swaps generally is limited to the net amount of
payments that each Fund is contractually obligated to make. Swap
agreements are also subject to the risk that the swap
counterparty will default on its obligations. If such a default
were to occur, each Fund will have contractual remedies pursuant
to the agreements related to the transaction. However, such
remedies may be subject to bankruptcy and insolvency laws which
could affect the Fund’s rights as a creditor –
(e.g., the Fund may not receive the net amount of payments that
it contractually is entitled to receive). Each Fund, however,
intends to utilize swaps in a manner designed to limit its risk
exposure to levels comparable to direct investments in stocks.
8
MANAGEMENT
The general supervision of the duties performed by the
Investment Adviser and the Sub-Adviser for the Fund under the
Investment Advisory Agreement and the Sub-Advisory Agreement,
respectively, is the responsibility of the Board of Trustees.
The Trust currently has three Trustees. Two Trustees have no
affiliation or business connection with the Investment Adviser,
the Sub-Adviser or any of their affiliated persons and do not
own any stock or other securities issued by the Investment
Adviser or the Sub-Adviser. These are the
“non-interested” or “independent” Trustees
(“Independent Trustees”). The other Trustee (the
“Management Trustee”) is affiliated with the
Investment Adviser.
The Independent Trustees of the Trust, their term of office and
length of time served, their principal business occupations
during the past five years, the number of portfolios in the
Fund Complex (defined below) overseen by each Independent
Trustee, and other directorships, if any, held by the Trustee
are shown below. The Fund Complex includes all open- and
closed-end funds (including all of their portfolios) advised by
the Investment Adviser and any funds that have an investment
adviser that is an affiliated person of the Investment Adviser.
As of the date of this SAI, the Fund Complex consists of
the Trust’s six funds.
|
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Term of
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Number of
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Office and
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Portfolios in
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Position(s)
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Length of
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Principal
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Fund Complex
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Name, Address and Age of
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Held with
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Time
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Occupation(s) During
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Overseen by
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Other Directorships
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Independent Trustees*
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Trust
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Served**
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Past 5 Years
|
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Trustees
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Held by Trustees
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Joseph Stefanelli
Year of Birth: 1938
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Trustee
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Since 2007
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Retired; formerly, served in various senior positions at the
AMEX (1984-2002), and director of the Options Clearing
Corporation
(1995-2002).
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6
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Director of International Securities Exchange Holdings, Inc.
(operator of securities markets) since May 2007.
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Robert Tull
Year of Birth: 1952
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Trustee
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Since 2007
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Managing Director at MacroMarkets, LLC (developer of financial
products) (2005-present); Vice President of New Product
Development and Executive Director of Exchange-Traded Fund
Services at the AMEX (2000-2005); formerly served in various
senior positions at Deutsche Bank (1996-2000) and Morgan Stanley
(1982-1996).
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6
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None.
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*
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The business address of each Trustee is
c/o SPA
ETF, Inc., Tower 49, 12 East 49th Street, New York, New
York 10017.
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**
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This is the period for which the Trustee began serving the
Trust. Each Trustee serves an indefinite term, until his
successor is elected.
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9
The Trustee who is affiliated with the Investment Adviser or
affiliates of the Investment Adviser and executive officers of
the Trust, his term of office and length of time served, his
principal business occupations during the past five years, the
number of portfolios in the Fund Complex overseen by the
Management Trustee and the other directorships, if any, held by
the Trustee, are shown below.
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Term of
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Number of
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Office and
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Portfolios in
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Position(s)
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Length of
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Principal
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Fund Complex
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Name, Address and Age of
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Held with
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Time
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Occupation(s) During
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Overseen by
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Other Directorships
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Management Trustees*
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Trust
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Served**
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Past 5 Years
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Trustees
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Held by Trustees
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Antony Peter Drain***
Year of birth: 1960
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Trustee;
and
President
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Trustee
since 2007
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Director, London & Capital Group Limited (since 1999)
(affiliate of the Investment Adviser); and the Investment
Adviser; formerly, Director of ie Group plc (financial services)
(1997-1999).
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6
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None.
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*
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The business address of each Trustee is
c/o SPA
ETF, Inc., Tower 49, 12 East 49th Street, New York, New
York 10017.
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**
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This is the period for which the Trustee began serving the
Trust. Each Trustee serves an indefinite term, until his
successor is elected.
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***
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Mr. Drain is an interested person of the Trust because of
his position as a director of each of the Investment Adviser and
London & Capital Group Limited, which is affiliated
with the Investment Adviser.
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Name, Address and Age of
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Position(s) Held
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Length of
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Executive Officer
|
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with Trust
|
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Time Served*
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Principal Occupation(s) During Past 5 Years
|
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Christopher Lanza
Year of birth: 1961
|
|
Chief Financial
Officer and Treasurer
|
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Since 2007
|
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Director of Exchange-Traded Fund Services at Foreside Financial
Group since October 2007; formerly served in various senior
positions in accounting, treasurer and compliance services at
Citigroup Global Fund Services (June 2004 – September
2007) and Mitsubishi Bank of California – Global
Solutions (November 2000 – May 2004).
|
Patrick J. Keniston
Year of birth: 1964
|
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Chief Compliance
Officer
|
|
Since 2008
|
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Director, Foreside Compliance Services, since October 2008; Vice
President, Citi Fund Services Ohio, Inc. (March 2005 –
October 2008); Attorney, Citigroup Global Transaction Services
(October 2001 – March 2005).
|
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|
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*
|
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The business address of each Officer is
c/o SPA
ETF, Inc., Foreside Fund Services, LLC, 3 Canal Plaza, Suite
100, Portland Maine 04101.
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**
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|
This is the period for which the Officer began serving the
Trust. Each Officer serves an indefinite term, until his
successor is elected.
|
As of the date of this SAI, no Trustee owned any equity
securities in the Trust or in all registered investment
companies overseen by the Trustee in the “family of
investment companies” (which consists of the Trust).
As to each Independent Trustee and his immediate family members,
no person owned beneficially or of record securities in an
investment adviser or principal underwriter of the Fund, or a
person (other than a registered investment company) directly or
indirectly controlling, controlled by or under common control
with an investment adviser or principal underwriter of the Fund.
10
Messrs. Stefanelli and Tull, who are not “interested
persons” of the Trust, as defined in the 1940 Act, serve on
the Trust’s Nominating and Governance Committee. The
Nominating and Governance Committee is responsible for
recommending qualified candidates to the Board in the event that
a position is vacated or created. The Nominating and Governance
Committee would consider recommendations by shareholders if a
vacancy were to exist. Such recommendations should be forwarded
to the Secretary of the Trust. The Trust does not have a
standing compensation committee.
Messrs. Stefanelli and Tull, who are not “interested
persons” of the Trust, as defined in the 1940 Act, serve on
the Trust’s Audit Committee. The Audit Committee is
generally responsible for reviewing and evaluating issues
related to the accounting and financial reporting policies and
internal controls of the Trust and, as appropriate, the internal
controls of certain service providers, overseeing the quality
and objectivity of the Trust’s financial statements and the
audit thereof and acting as a liaison between the Board of
Trustees and the Trust’s independent registered public
accounting firm.
Remuneration of Trustees and Officers.
The Trust pays each Independent Trustee a fee of $20,000 per
year, together with each Trustee’s actual out-of-pocket
expenses relating to attendance at such meetings.
Officers who are employed by the Investment Adviser receive no
compensation or expense reimbursements from the Trust.
The table below shows the compensation paid to Trustees for the
Fund’s fiscal year ended September 30, 2008:
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Aggregate
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Pension or Retirement
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Compensation
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Benefits accrued as part of
|
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Total Compensation Paid
|
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Name of Trustee
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From Trust
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Fund Expenses
|
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From Fund Complex
|
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|
INDEPENDENT TRUSTEES
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Joseph Stefanelli
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$
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20,000
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N/A
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$
|
20,000
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|
Robert Tull
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$
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20,000
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N/A
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$
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20,000
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|
INTERESTED TRUSTEE
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Antony Peter Drain
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N/A
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N/A
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N/A
|
|
Investment Adviser
. The Investment Adviser
manages the investment and reinvestment of each Fund’s
assets and administers the affairs of each Fund to the extent
requested by the Board of Trustees.
Sub-Adviser
. Esposito Partners, LLC
(“Esposito”), a Delaware limited liability company,
specializes in sub-advisory practices for exchange traded funds.
The Sub-Adviser manages the investment and reinvestment of each
Fund’s assets on an ongoing basis under the supervision of
the Investment Adviser. Esposito, formed in Delaware, is
majority owned by Mark A. Esposito. As of December 31,
2008, Esposito had approximately $30 million in assets
under management.
Portfolio Managers
. Investment decisions for
the Funds are made by a team of portfolio managers and
operations specialists. The four members of the Team with the
responsibility for the day-to-day management of the Funds’
portfolios are: William D. Martin, Wade A. Rogers, Marcus
Talbert and Benjamin Deweese.
11
Other Accounts Managed by the Portfolio
Managers
. Information regarding the other
accounts managed by each Portfolio Manager is set forth below:
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Accounts with respect to
|
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which the advisory fee is
|
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|
|
based on the performance
|
|
|
|
|
Accounts Managed
|
|
|
of the account
|
|
Name of
|
|
|
|
Number of
|
|
|
Total Assets
|
|
|
Number of
|
|
|
Total Assets
|
|
Portfolio
|
|
Category of
|
|
Accounts in
|
|
|
in Accounts
|
|
|
Accounts in
|
|
|
in Accounts
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|
Manager
|
|
Account
|
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Category
|
|
|
in Category
|
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|
Category
|
|
|
in Category
|
|
|
|
|
William D. Martin
|
|
Registered investment companies
|
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|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
Other pooled
investment vehicles
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
Other accounts
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
Although the Funds in the Trust that are managed by the
Portfolio Managers may have different investment strategies,
each has a portfolio objective of replicating its underlying
index. The Investment Adviser and Sub-Adviser do not believe
that management of the different Funds of the Trust presents a
material conflict of interest for the Portfolio Managers, the
Investment Adviser or the Sub-Adviser.
Portfolio Manager Compensation
. The
Sub-Adviser’s Portfolio Managers’ fixed compensation
is generally determined by employee performance. No compensation
is directly related to the performance of the underlying assets
and no stock options are granted. Any discretionary compensation
paid to the Portfolio Managers is based on the determination of
management to pay such compensation.
Securities Ownership of the Portfolio
Manager
. As of September 30, 2008, the
Portfolio Managers did not own shares of any Fund.
Investment Advisory Agreement
. Pursuant to an
Investment Advisory Agreement between the Investment Adviser and
the Trust, each Fund has agreed to pay an annual management fee
equal to a percentage of its average daily net assets set forth
in the chart below.
|
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|
|
|
|
Fund
|
|
Fee
|
|
|
|
SPA MarketGrader 40 Fund
|
|
|
0.85
|
%
|
|
SPA MarketGrader 100 Fund
|
|
|
0.85
|
%
|
|
SPA MarketGrader 200 Fund
|
|
|
0.85
|
%
|
|
SPA MarketGrader Small Cap 100 Fund
|
|
|
0.85
|
%
|
|
SPA MarketGrader Mid Cap 100 Fund
|
|
|
0.85
|
%
|
|
SPA MarketGrader Large Cap 100 Fund
|
|
|
0.85
|
%
|
Each Fund is responsible for all its expenses, including the
investment advisory fees, costs of transfer agency, custody,
fund administration, legal, audit and other services, interest,
taxes, brokerage commissions and other expenses connected with
executions of portfolio transactions, any distribution fees or
expenses and extraordinary expenses. The Funds’ Investment
Adviser has contractually agreed to waive fees
and/or
pay
Fund expenses to the extent necessary to prevent the operating
expenses of each Fund (excluding interest expenses, fees paid to
the NYSE Arca for calculating the indicative value of the Index,
offering costs, brokerage commissions and other trading
expenses, taxes and extraordinary expenses such as litigation
and other expenses not incurred in the ordinary course of the
Fund’s business) from exceeding the percentage of its
average net assets set forth in the chart below. The offering
costs excluded from the expense cap are: (a) legal fees
pertaining to the Shares; (b) SEC registration fees in
respect of the Shares; and (c) initial fees paid for the
Fund to be listed on an exchange. The Trust and the Investment
Adviser have entered into the Expense Reimbursement Agreement in
which the Investment Adviser has agreed to waive its management
fees
and/or
pay certain other operating expenses of each Fund in order to
maintain the expense ratio of each Fund at or below the expense
cap listed below (the “Expense Cap”). For a period of
five years subsequent to the Funds’ commencement of
operations, the Investment Adviser may recover from the Fund
fees and
12
expenses waived or reimbursed during the prior three years if
the Fund’s expenses ratio, including the recovered
expenses, falls below the Expense Cap.
The aggregate amount of the management fee paid be each Fund
from each Fund’s commencement of operations as
October 17, 2007 until the end of the Fund’s fiscal
year ended September 30, 2008, and the aggregate amount of
fees waived by the Investment Adviser (net of expenses
reimbursed to the Investment Adviser under the contractual
agreement described above) during that period are set forth in
the chart below with respect to each Fund.
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Management Fees Paid
|
|
|
Net Management Fees Waived
|
|
|
|
|
SPA MarketGrader 40 Fund
|
|
$
|
32,847
|
|
|
$
|
65,388
|
|
|
SPA MarketGrader 100 Fund
|
|
|
24,646
|
|
|
|
59,428
|
|
|
SPA MarketGrader 200 Fund
|
|
|
18,463
|
|
|
|
54,331
|
|
|
SPA MarketGrader Small Cap 100 Fund
|
|
|
16,952
|
|
|
|
47,264
|
|
|
SPA MarketGrader Mid Cap 100 Fund
|
|
|
21,513
|
|
|
|
51,799
|
|
|
SPA MarketGrader Large Cap 100 Fund
|
|
|
35,441
|
|
|
|
72,519
|
|
Under the Investment Advisory Agreement, the Investment Adviser
will not be liable for any error of judgment or mistake of law
or for any loss suffered by a Fund in connection with the
performance of the Investment Advisory Agreement, except a loss
resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the
performance of its duties or from reckless disregard of its
duties and obligations thereunder. The Investment Advisory
Agreement continues until October 4, 2009, and thereafter
only if approved annually by the Board, including a majority of
the Independent Trustees. The Agreement terminates automatically
upon assignment and is terminable at any time without penalty as
to a Fund by the Board, including a majority of the Independent
Trustees, or by vote of the holders of a majority of that
Fund’s outstanding voting securities on 60 day written
notice to the Investment Adviser, or by the Investment Adviser
on 60 day written notice to the Fund.
The Investment Adviser is located at Tower 49, 12 East
49th Street, New York, New York 10017.
Sub-Advisory Agreement.
Esposito Partners, LLC
(“Esposito” or the “Sub-Adviser”)
,
acts as each Fund’s investment sub-adviser pursuant to
a sub-advisory agreement with the Funds that became effective on
November 17, 2008 (the “Sub-Advisory Agreement”)
when it was approved by each Fund’s shareholders at a
Special Meeting of Shareholders. Pursuant to the Sub-Advisory
Agreement, the Sub-Adviser manages the investment and
reinvestment of each Fund’s assets on an ongoing basis
under the supervision of the Investment Adviser.
Pursuant to the Sub-Advisory Agreement, in consideration for the
services provided by Esposito, the Investment Adviser pays
Esposito on a monthly basis a portion of the net advisory fees
it received from each Fund, at an annual rate of 0.05% of the
average net assets up to $100 million; 0.04% of the average
net assets from $100 million to $200 million; and
0.03% of the average net assets over $200 million. In
addition, the Investment Adviser pays Esposito a minimum
relationship fee per year (computed quarterly) of $2,500 per
Fund, prorated across each Fund based upon the average net
assets of such Fund.
From July 1, 2008 until November 17, 2008, Esposito
served as interim investment sub-adviser to each Fund pursuant
to an interim investment sub-advisory agreement between the
Investment Adviser and Esposito (the “Interim Sub-Advisory
Agreement”), which was approved by the Board of Trustees.
The Interim Sub-Advisory Agreement was effective as of
July 1, 2008.
Pursuant to the Interim Sub-Advisory Agreement, Esposito
provided investment sub-advisory services to each Fund under
substantially similar terms as the terminated sub-advisory
agreement between the Investment Adviser and BNY Investment
Advisors (“BNYIA”) described below. Under the Interim
Sub-Advisory Agreement, the Investment Adviser paid Esposito on
a monthly basis a portion of the net advisory fees it received
from each Fund, at the annual rate of 0.02% of each Fund’s
13
average daily net assets. In addition, pursuant to the Interim
Sub-Advisory Agreement, the Investment Adviser paid to Esposito
a one-time initial relationship payment of $25,000.
The Sub-Adviser is located at 300 Crescent Court,
Suite 650, Dallas, Texas 75201.
Prior to July 1, 2008, BNYIA had previously served as the
investment sub-adviser to each Fund of the Trust. Pursuant to
the prior sub-advisory agreement with BNYIA, the Investment
Adviser paid BNYIA on a monthly basis a portion of the net
advisory fees it receives from each Fund, at the annual rate of
0.02% of each Fund’s average daily net assets.
For the fiscal year ended September 30, 2008, the
Investment Adviser paid the following amounts to BNYIA and
Esposito, respectively, with respect to each Fund:
|
|
|
|
|
|
|
|
|
|
|
Name of Fund
|
|
Amount Paid to BNYIA
|
|
|
Amount Paid to Esposito
|
|
|
|
|
SPA MarketGrader 40 Fund
|
|
$
|
480.34
|
|
|
$
|
303.31
|
|
|
SPA MarketGrader 100 Fund
|
|
$
|
390.19
|
|
|
$
|
207.80
|
|
|
SPA MarketGrader 200 Fund
|
|
$
|
346.37
|
|
|
$
|
100.24
|
|
|
SPA MarketGrader Small Cap 100 Fund
|
|
$
|
307.34
|
|
|
$
|
102.53
|
|
|
SPA MarketGrader Mid Cap 100 Fund
|
|
$
|
324.04
|
|
|
$
|
213.37
|
|
|
SPA MarketGrader Large Cap 100 Fund
|
|
$
|
554.52
|
|
|
$
|
313.44
|
|
Administrator
. The Bank of New York, Mellon
(“BNYM”), located at 101 Barclay Street, New York, New
York 10286, serves as the Trust’s administrator. Pursuant
to an Administration Agreement, BONY provides certain
administrative, bookkeeping and accounting services to the
Trust. For the services, the Trust pays BNYM a fee, accrued
daily and paid monthly, at the annualized rate of the
Trust’s average daily net assets as follows:
|
|
|
|
|
|
|
First $1 billion
|
|
|
0.030
|
%
|
|
Next $2 billion
|
|
|
0.020
|
%
|
|
Next $2 billion
|
|
|
0.015
|
%
|
|
Over $5 billion
|
|
|
0.010
|
%
|
For the fiscal year ended September 30, 2008, the Trust paid to
BNYM a total of $20,875 in fees pursuant to the Administration
Agreement.
Custodian and Transfer Agent
. BNYM also serves
as custodian for the Funds pursuant to a Custodian Agreement. As
custodian, BNYM holds the Funds’ assets, calculates the net
asset value of Shares and calculates net income and realized
capital gains or losses. BNYM also serves as transfer agent of
the Funds pursuant to a Transfer Agency Agreement. BNYM may be
reimbursed by the Funds for its out of pocket expenses.
Pursuant to the Custodian Agreement, each between BNYM and the
Trust, the Trust has agreed to pay an annual fee for custodial
services at the annualized rate of 0.0075% of the Trust’s
average daily net assets. For the fiscal year ended
September 30, 2008, the Trust paid to BNYM a total of
$2,011 pursuant to the Custodian Agreement. Pursuant to the
Transfer Agency Agreement, the Trust has agreed to pay a monthly
fee in the annual fee in the annual amount of $2,400 per Fund.
For the fiscal year ended September 30, 2008, the Trust
paid to BNYM a total of $13,860 pursuant to the Transfer Agency
Agreement.
Distributor
. Foreside Fund Services, LLC
(the “Distributor”) is the principal underwriter and
distributor of shares of the Trust. Its principal address is 2
Portland Square – 1st Floor, Portland, Maine
04101. The Distributor has entered into agreement with the Trust
pursuant to which it distributes shares of each Fund (the
“Distribution Agreement”). The Distributor continually
distributes shares of the Fund on a best effort basis. The
Distributor has no obligation to sell any specific quantity of
Fund shares. The Distribution Agreement will continue for two
years from its effective date and is renewable annually. Shares
are continuously offered for sale by the Funds through the
Distributor only in Creation Units, as described in the
Prospectus and below under “Creation and Redemption of
Creation
14
Units.” Shares in less than Creation Units are not
distributed by the Distributor. The Distributor will deliver the
applicable Prospectus and, upon request, this SAI to persons
purchasing Creation Units and will maintain records of both
orders placed with it and confirmations of acceptance furnished
by it. The Distributor is a broker-dealer registered under the
1934 Act and a member of the Financial Industry Regulatory
Authority (“FINRA”) (the successor organization to the
National Association of Securities Dealers, Inc.). The
Distributor, its affiliates and officers have no role in
determining the investment policies or which securities are to
be purchased or sold by the Trust or its Funds. The Distributor
is not affiliated with the Trust, the Investment Adviser, the
Sub-Adviser or any stock exchange.
The Distribution Agreement for each Fund will provide that it
may be terminated at any time, without the payment of any
penalty, on at least sixty (60) days prior written notice
to the other party (i) by vote of a majority of the
Independent Trustees or (ii) by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of
the relevant Fund. The Distribution Agreement will terminate
automatically in the event of its “assignment” (as
defined in the 1940 Act).
The Distributor may also enter into sales and investor services
agreements with broker-dealers or other persons that are
Participating Parties and DTC Participants (as defined below) to
provide distribution assistance, including broker-dealer and
shareholder support and educational and promotional services.
Other Service Providers
: Under a Compliance
Services Agreement (the “Compliance Agreement”) with
the Trust, Foreside Compliance Services, LLC (“FCS”),
an affiliate of the Distributor, provides a Chief Compliance
Officer (“CCO”) and an Anti-Money Laundering Officer
as well as certain additional compliance support functions
(“Compliance Services”). Under a PFO/Treasurer
Agreement (the “PFO Agreement”) with the Trust,
Foreside Management Services, LLC (“FMS”), an
affiliate of the Distributor, provides a Principal Financial
Officer to the Trust. As compensation for the foregoing
services, FCS and FMS receive certain out of pocket costs, fixed
and asset-based fees which are accrued daily and paid monthly by
the Trust, which are paid by the Trust from the Trust’s
custody account with BONY. For the fiscal year ended
September 30, 2008, the Trust paid to (a) FCS a total of
$95,565 pursuant to the Compliance Agreement and (b) FMS a total
of $34,456 pursuant to the PFO/Treasurer Agreement.
The Compliance and PFO Agreements with respect to the Funds
continue in effect until terminated. The Compliance and PFO
Agreements are terminable with or without cause and without
penalty by the Board of the Trust or by FCS or FMS with respect
to the Fund on 60 days’ written notice to the other
party. Notwithstanding the foregoing, the provisions of the
Compliance Agreement related to CCO services, may be terminated
at any time by the Board, effective upon written notice to the
CCO, without the payment of any penalty.
Under the Compliance and PFO Agreements, FCS and FMS,
respectively, are not liable to the Trust or the Trust’s
shareholders for any act or omission, except for willful
misfeasance, bad faith or gross negligence in the performance of
its duties or by reason of reckless disregard of its obligations
and duties under the Compliance and PFO Agreements. In addition,
FCS and FMS and certain related parties (such as officers of
FCS, FMS or certain officers of the Distributor and persons who
control FCS, FMS or the Distributor) are indemnified by the
Trust against any and all claims and expenses related to
FCS’s or FMS’s actions or omissions, except for any
act or omission resulting from FCS’s or FMS’s willful
misfeasance, bad faith or negligence in the performance of its
duties or by reason of reckless disregard of its obligations and
duties under the Compliance and PFO Agreements.
15
12b-1
Plan.
The Trust has adopted a Distribution and
Service Plan pursuant to
Rule 12b-1
under the 1940 Act (the “Plan”) pursuant to which each
Fund may reimburse the Distributor up to a maximum annual rate
of the percentage of its average daily net assets as set forth
in chart below:
|
|
|
|
|
|
|
Fund
|
|
Fee
|
|
|
|
SPA MarketGrader 40 Fund
|
|
|
0.25
|
%
|
|
SPA MarketGrader 100 Fund
|
|
|
0.25
|
%
|
|
SPA MarketGrader 200 Fund
|
|
|
0.25
|
%
|
|
SPA MarketGrader Small Cap 100 Fund
|
|
|
0.25
|
%
|
|
SPA MarketGrader Mid Cap 100 Fund
|
|
|
0.25
|
%
|
|
SPA MarketGrader Large Cap 100 Fund
|
|
|
0.25
|
%
|
Under the Plan and as required by
Rule 12b-1,
the Trustees will receive and review after the end of each
calendar quarter a written report provided by the Distributor of
the amounts expended under the Plan and the purpose for which
such expenditures were made.
The Plan was adopted in order to permit the implementation of
each Fund’s method of distribution. However, no such fee is
currently charged to the Funds, and there are no plans in place
to impose such a fee.
Aggregations.
Fund Shares in less than
Creation Unit Aggregations are not distributed by the
Distributor. The Distributor will deliver the Prospectus and,
upon request, this SAI to persons purchasing Creation Unit
Aggregations and will maintain records of both orders placed
with it and confirmations of acceptance furnished by it. The
Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934 (the “Exchange Act”) and a member
of FINRA.
The Distribution Agreement for the Funds provides that it may be
terminated as to a Fund at any time, without the payment of any
penalty, on at least 60 days written notice by the Trust to
the Distributor (i) by vote of a majority of the
Independent Trustees or (ii) by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of
the Fund. The Distribution Agreement will terminate
automatically in the event of its assignment (as defined in the
1940 Act).
The Distributor may also enter into agreements with securities
dealers (“Soliciting Dealers”) who will solicit
purchases of Creation Unit Aggregations of Fund Shares.
Such Soliciting Dealers may also be Participating Parties (as
defined in “Procedures for Creation of Creation Unit
Aggregations” below) and Morningstar DTC Participants (as
defined in “DTC Acts as Securities Depository” below).
Index Providers.
Set forth below is a list of
each Fund and the Underlying Index upon which it is based. Each
Underlying Index is compiled by MarketGrader.com Corporation
(“MarketGrader”).
|
|
|
|
|
Fund
|
|
Underlying Index
|
|
|
|
SPA MarketGrader 40 Fund
|
|
MarketGrader 40 Index
|
|
SPA MarketGrader 100 Fund
|
|
MarketGrader 100 Index
|
|
SPA MarketGrader 200 Fund
|
|
MarketGrader 200 Index
|
|
SPA MarketGrader Small Cap 100 Fund
|
|
MarketGrader Small Cap 100 Index
|
|
SPA MarketGrader Mid Cap 100 Fund
|
|
MarketGrader Mid Cap 100
|
|
SPA MarketGrader Large Cap 100 Fund
|
|
MarketGrader Large Cap 100 Index
|
MarketGrader is not affiliated with the Funds or with the
Investment Adviser or the Sub-Adviser. The Investment
Adviser’s parent company, London & Capital Group
Limited (“London & Capital”), loaned
approximately $800,000 to MarketGrader in 2005 (which was prior
to the formation of the Investment Adviser or London &
Capital’s plans to launch, directly or indirectly, funds
that would track MarketGrader indices) pursuant to which Daniel
Freedman, a managing director of London & Capital
became a non-executive director of MarketGrader. None of
Mr. Freedman, London & Capital or the Investment
Adviser have access to any non-public information relating to
any Index. Each Fund is entitled to use its respective
Underlying Index pursuant to a sub-licensing arrangement with
the
16
Investment Adviser, which in turn has a licensing agreement with
the Index Provider. The Funds reimburse the Investment Adviser
for the licensing fee payable to the Index Provider.
The only relationships that MarketGrader has with the Investment
Adviser, the Sub-Adviser or Distributor of the Funds in
connection with the Funds are that MarketGrader has licensed
certain of its intellectual property, including the
determination of the component stocks of the Underlying Indices
and the names of the Underlying Indices. The Underlying Indices
are selected and calculated without regard to the Investment
Adviser, Sub-Adviser, Distributor or owners of the Funds.
MarketGrader has no obligation to take the specific needs of the
Investment Adviser, Distributor or owners of the Funds into
consideration in the determination and calculation of the
Underlying Indices. MarketGrader is not responsible for and has
not participated in the determination of pricing or the timing
of the issuance or sale of the Shares of the Funds or in the
determination or calculation of the net asset value of the
Funds. MarketGrader has no obligation or liability in connection
with the administration, marketing or trading of the Funds.
MARKETGRADER SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS,
OR INTERRUPTIONS RELATED TO THE FUNDS OR UNDERLYING INDICES.
MARKETGRADER MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY THE INVESTMENT ADVISER, SUB-ADVISER,
DISTRIBUTOR OR OWNERS OF THE FUNDS, OR ANY OTHER PERSON OR
ENTITY, FROM THE USE OF THE UNDERLYING INDICES OR ANY DATA
INCLUDED THEREIN. MARKETGRADER MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, WITH
RESPECT TO THE FUNDS OR TO UNDERLYING INDICES OR TO ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT SHALL MARKETGRADER HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS) IN CONNECTION WITH THE FUNDS OR THE UNDERLYING INDICES,
EVEN IF MARKETGRADER IS NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
BROKERAGE
TRANSACTIONS
The policy of the Trust regarding purchases and sales of
securities is that primary consideration will be given to
obtaining the most favorable prices and efficient executions of
transactions. Consistent with this policy, when securities
transactions are effected on a stock exchange, the Trust’s
policy is to pay commissions that are considered fair and
reasonable without necessarily determining that the lowest
possible commissions are paid in all circumstances. In seeking
to determine the reasonableness of brokerage commissions paid in
any transaction, the Sub-Adviser relies upon its experience and
knowledge regarding commissions generally charged by various
brokers. The sale of Fund Shares by a broker-dealer is not
a factor in the selection of broker-dealers.
In seeking to implement the Trust’s policies, the
Sub-Adviser effects transactions with those brokers and dealers
that the Sub-Adviser believes provide the most favorable prices
and are capable of providing efficient executions. The
Sub-Adviser and its affiliates do not currently participate in
soft dollar transactions.
The Sub-Adviser assumes general supervision over placing orders
on behalf of the Funds for the purchase or sale of portfolio
securities. If purchases or sales of portfolio securities by the
Funds and one or more other investment companies or clients
supervised by the Sub-Adviser are considered at or about the
same time, transactions in such securities are allocated among
the Funds, the several investment companies and clients in a
manner deemed equitable to all by the Sub-Adviser. In some
cases, this procedure could have a detrimental effect on the
price or volume of the security as far as the Funds are
concerned. However, in other cases, it is possible that the
ability to participate in volume transactions and to negotiate
lower brokerage commissions will be beneficial to the Funds. The
primary consideration is prompt execution of orders at the most
favorable net price.
17
The aggregate brokerage commissions paid by each Fund since the
commencement of operations of that Fund are set forth in the
chart below.
|
|
|
|
|
|
|
|
|
Brokerage Commissions
|
|
|
|
|
Paid During the Fiscal Year Ended
|
|
|
Fund
|
|
September 30, 2008
|
|
|
|
|
SPA MarketGrader 40 Fund
|
|
$
|
6,735
|
|
|
SPA MarketGrader 100 Fund
|
|
$
|
4,647
|
|
|
SPA MarketGrader 200 Fund
|
|
$
|
2,830
|
|
|
SPA MarketGrader Small Cap 100 Fund
|
|
$
|
2,072
|
|
|
SPA MarketGrader Mid Cap 100 Fund
|
|
$
|
2,301
|
|
|
SPA MarketGrader Large Cap 100 Fund
|
|
$
|
2,143
|
|
18
ADDITIONAL
INFORMATION CONCERNING THE TRUST
The Trust is an open-end management investment company
registered under the 1940 Act. The Trust was organized as a
Delaware statutory trust on March 13, 2007.
The Trust is authorized to issue an unlimited number of shares
in one or more series or “funds.” The Trust currently
is comprised of six funds. The Board of Trustees of the Trust
has the right to establish additional series in the future, to
determine the preferences, voting powers, rights and privileges
thereof and to modify such preferences, voting powers, rights
and privileges without shareholder approval.
Each Share issued by a Fund has a pro rata interest in the
assets of the Fund. Fund Shares have no preemptive,
exchange, subscription or conversion rights and are freely
transferable. Each Share is entitled to participate equally in
dividends and distributions declared by the Board with respect
to the Fund, and in the net distributable assets of the Fund on
liquidation.
Each Share has one vote with respect to matters upon which a
shareholder vote is required consistent with the requirements of
the 1940 Act and the rules promulgated thereunder. Shares of all
funds, including the Funds, of the Trust vote together as a
single class except as otherwise required by the 1940 Act, or if
the matter being voted on affects only a particular fund, and,
if a matter affects a particular fund differently from other
funds, the shares of that fund will vote separately on such
matter.
The Declaration of Trust may, except in limited circumstances,
be amended or supplemented by the Trustees without shareholder
vote. The holders of Fund shares are required to disclose
information on direct or indirect ownership of Fund shares as
may be required to comply with various laws applicable to the
Fund, and ownership of Fund shares may be disclosed by the Fund
if so required by law or regulation.
The Trust is not required and does not intend to hold annual
meetings of shareholders. Shareholders owning more than 51% of
the outstanding shares of the Trust have the right to call a
special meeting to remove one or more Trustees or for any other
purpose.
The Trust does not have information concerning the beneficial
ownership of Shares held by DTC Participants (as defined below).
Shareholders may make inquiries by writing to the Trust,
c/o the
Distributor, 3 Canal Plaza, Suite 100, Portland, Maine 04101.
Control Persons and Principal Holders of
Securities
. Although the Trust does not have
information concerning the beneficial ownership of shares held
in the names of Depository Trust Company participants
(“DTC Participants”), as of December 31, 2008,
the name and percentage ownership of each DTC Participant that
owned of record 5% or more of the outstanding shares of a Fund
is set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
Name
|
|
DTC Participant Name
|
|
Ownership
|
|
|
|
|
SPA MARKETGRADER 40 FUND
|
|
PICTET
ROUTE DES AGACIAS 60
CH–1211 GENEVA 73
|
|
|
13.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
BROWN BROS
140 BROADWAY
NEW YORK, N.Y. 10005
|
|
|
16.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
SCOTTRADE
9946 KENNERLY RD.
SAINT LOUIS, MO 63128
|
|
|
59.90
|
%
|
|
|
|
|
|
|
|
|
|
SPA MARKETGRADER 100 FUND
|
|
BROWN BROS
140 BROADWAY
NEW YORK, N.Y. 10005
|
|
|
24.14
|
%
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
Name
|
|
DTC Participant Name
|
|
Ownership
|
|
|
|
|
|
|
MERRILL LYNCH
101 HUDSON ST, 9TH FL
JERSEY CITY NJ 07302
|
|
|
30.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
TIMBER HIL
1 PICKWICK PLAZA
GREENWICH CT 06830
|
|
|
6.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
NFS LLC
200 LIBERTY STREET
NEW YORK CITY NY 10281
|
|
|
22.88
|
%
|
|
|
|
|
|
|
|
|
|
SPA MARKETGRADER 200 FUND
|
|
BROWN BROS
140 BROADWAY
NEW YORK, N.Y. 10005
|
|
|
45.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
MERRILL LYNCH
101 HUDSON ST, 9TH FL
JERSEY CITY NJ 07302
|
|
|
19.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
TIMBER HIL
1 PICKWICK PLAZA
GREENWICH CT 06830
|
|
|
21.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
GOLDMAN LP
30 HUDSON ST
JERSEY CITY NJ 07302
|
|
|
10.88
|
%
|
|
|
|
|
|
|
|
|
|
SPA MARKETGRADER SMALL CAP 100 FUND
|
|
MERRILL LYNCH
101 HUDSON ST, 9TH FL
JERSEY CITY NJ 07302
|
|
|
24.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
GOLDMAN LP
30 HUDSON ST
JERSEY CITY NJ 07302
|
|
|
29.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
TIMBER HIL
1 PICKWICK PLAZA
GREENWICH CT 06830
|
|
|
40.23
|
%
|
|
|
|
|
|
|
|
|
|
SPA MARKETGRADER MID CAP 100 FUND
|
|
BROWN BROS
140 BROADWAY
NEW YORK, N.Y. 10005
|
|
|
23.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
MERRILL LYNCH
101 HUDSON ST, 9TH FL
JERSEY CITY NJ 07302
|
|
|
5.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
TIMBER HIL
1 PICKWICK PLAZA
GREENWICH CT 06830
|
|
|
49.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
CHARLES SCHWAB
ATTN PROXY DEPARTMENT
211 MAIN STREET
SAN FRANCISCO CA 94105
|
|
|
9.29
|
%
|
|
|
|
|
|
|
|
|
|
SPA MARKETGRADER LARGE CAP 100 FUND
|
|
GOLDMAN LP
30 HUDSON ST
JERSEY CITY NJ 07302
|
|
|
5.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
BROWN BROS
140 BROADWAY
NEW YORK, N.Y. 10005
|
|
|
24.79
|
%
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
Name
|
|
DTC Participant Name
|
|
Ownership
|
|
|
|
|
|
|
NFS LLC
200 LIBERTY STREET
NEW YORK CITY NY 10281
|
|
|
7.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
MERRILL LYNCH
101 HUDSON ST, 9TH FL
JERSEY CITY NJ 07302
|
|
|
26.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
PENSON FINANCIAL
1700 PACIFIC AVENUE
SUITE 1400
DALLAS TX 75201
|
|
|
7.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
ML SFKPG
101 HUDSON ST, 9TH FL
JERSEY CITY NJ 07302
|
|
|
17.18
|
%
|
Book Entry Only System
. The following
information supplements and should be read in conjunction with
the section in the Prospectus entitled “Book Entry.”
DTC Acts as Securities Depository for
Fund Shares
. Shares of the Funds are
represented by securities registered in the name of DTC or its
nominee and deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold
securities of its participants (the “DTC
Participants”) and to facilitate the clearance and
settlement of securities transactions among the DTC Participants
in such securities through electronic book-entry changes in
accounts of the DTC Participants, thereby eliminating the need
for physical movement of securities certificates. DTC
Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own
DTC. More specifically, DTC is owned by a number of its DTC
Participants and by the NYSE, and FINRA. Access to the DTC
system is also available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly
or indirectly (the “Indirect Participants”).
Beneficial ownership of Shares is limited to DTC Participants,
Indirect Participants and persons holding interests through DTC
Participants and Indirect Participants. Ownership of beneficial
interests in Shares (owners of such beneficial interests are
referred to herein as “Beneficial Owners”) is shown
on, and the transfer of ownership is effected only through,
records maintained by DTC (with respect to DTC Participants) and
on the records of DTC Participants (with respect to Indirect
Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through
the DTC Participant a written confirmation relating to their
purchase and sale of Shares.
Conveyance of all notices, statements and other communications
to Beneficial Owners is effected as follows. Pursuant to the
Depositary Agreement between the Trust and DTC, DTC is required
to make available to the Trust upon request and for a fee to be
charged to the Trust a listing of the Shares of the Funds held
by each DTC Participant. The Trust shall inquire of each such
DTC Participant as to the number of Beneficial Owners holding
Shares, directly or indirectly, through such DTC Participant.
The Trust shall provide each such DTC Participant with copies of
such notice, statement or other communication, in such form,
number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication
may be transmitted by such DTC Participant, directly or
indirectly, to such Beneficial Owners. In addition, the Trust
shall pay to each such DTC Participant a fair and reasonable
amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory
requirements.
Fund distributions shall be made to DTC or its nominee,
Cede & Co., as the registered holder of all
Fund Shares. DTC or its nominee, upon receipt of any such
distributions, shall immediately credit DTC Participants’
accounts with payments in amounts proportionate to their
respective beneficial interests in Shares of the Fund as shown
on the records of DTC or its nominee. Payments by DTC
21
Participants to Indirect Participants and Beneficial Owners of
Shares held through such DTC Participants will be governed by
standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in
bearer form or registered in a “street name,” and will
be the responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspect of
the records relating to or notices to Beneficial Owners, or
payments made on account of beneficial ownership interests in
such Shares, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests, or for
any other aspect of the relationship between DTC and the DTC
Participants or the relationship between such DTC Participants
and the Indirect Participants and Beneficial Owners owning
through such DTC Participants.
DTC may decide to discontinue providing its service with respect
to Shares at any time by giving reasonable notice to the Trust
and discharging its responsibilities with respect thereto under
applicable law. Under such circumstances, the Trust shall take
action to find a replacement for DTC to perform its functions at
a comparable cost.
Proxy Voting
. The Board of Trustees of the
Trust has delegated responsibility for decisions regarding proxy
voting for securities held by each Fund to the Investment
Adviser. The Investment Adviser has in turn delegated such
responsibilities to the Sub-Adviser. The Sub-Adviser will vote
such proxies in accordance with its proxy policies and
procedures, which are included in Appendix A to this
Statement of Additional Information. The Board of Trustees will
periodically review each Fund’s proxy voting record.
The Trust is required to disclose annually the Funds’
complete proxy voting record on
Form N-PX
covering the period July 1 through June 30 and file it with the
SEC no later than August 31.
Form N-PX
for the Funds also will be available at no charge upon request
by calling
1-800-772-3831
or by writing to SPA ETF at Tower 49, 12 East 49th Street,
New York, New York 10017. The Funds’
Form N-PX
will also be available on the SEC’s website at www.sec.gov.
Quarterly Portfolio Schedule
. The Trust is
required to disclose, after its first and third fiscal quarters,
the complete schedule of each Fund’s portfolio holdings
with the SEC on
Form N-Q.
The Trust will also disclose a complete schedule of each
Fund’s portfolio holdings with the SEC on
Form N-CSR
after its second and fourth quarters.
Form N-Q
and
Form N-CSR
for the Funds will be available on the SEC’s website at
http://www.sec.gov.
The Funds’
Form N-Q
and
Form N-CSR
may also be reviewed and copied at the SEC’s Public
Reference Room in Washington, D.C. and information on the
operation of the Public Reference Room may be obtained by
calling 1-202-551-8090. The Funds’
Form N-Q
and
Form N-CSR
will be available without charge, upon request, by calling
1-800-772-3831
or by writing to SPA ETF Trust at Tower 49, 12 East
49th Street, New York, New York 10017.
Portfolio Holdings Policy
. The Trust has
adopted a policy regarding the disclosure of information about
the Trust’s portfolio holdings. The Funds and their service
providers may not receive compensation or any other
consideration (which includes any agreement to maintain assets
in the Funds or in other investment companies or accounts
managed by the Investment Adviser or any affiliated person of
the Investment Adviser) in connection with the disclosure of
portfolio holdings information of the Funds. The Trust’s
Policy is implemented and overseen by the Chief Compliance
Officer of the Funds, subject to the oversight of the Board of
Trustees. Periodic reports regarding these procedures will be
provided to the Board of Trustees of the Trust. The Board of
Trustees of the Trust must approve all material amendments to
this policy. The Funds’ complete portfolio holdings are
publicly disseminated each day the Funds are open for business
through financial reporting and news services, including
publicly accessible Internet web sites. In addition, a basket
composition file, which includes the security names and share
quantities to deliver in exchange for Fund shares, together with
estimates and actual cash components, is publicly disseminated
daily prior to the opening of the NYSE Arca via the National
Securities Clearing Corporation (NSCC). The basket represents
one Creation Unit of each Fund. The Trust, the Investment
Adviser and the Distributor will not disseminate non-public
information concerning the Trust.
22
Codes of Ethics
. Pursuant to
Rule 17j-1
under the 1940 Act, the Board of Trustees has adopted a Code of
Ethics for the Trust and approved Codes of Ethics adopted by the
Investment Adviser and the Distributor (collectively the
“Codes”). The Codes are intended to ensure that the
interests of shareholders and other clients are placed ahead of
any personal interest, that no undue personal benefit is
obtained from the person’s employment activities and that
actual and potential conflicts of interest are avoided.
The Codes apply to the personal investing activities of Trustees
and officers of the Trust, the Investment Adviser and the
Distributor (“Access Persons”).
Rule 17j-1
and the Codes are designed to prevent unlawful practices in
connection with the purchase or sale of securities by Access
Persons. Under the Codes, Access Persons are permitted to engage
in personal securities transactions, but are required to report
their personal securities transactions for monitoring purposes.
The Codes permit personnel subject to the Codes to invest in
securities subject to certain limitations, including securities
that may be purchased or held by a Fund. In addition, Access
Persons are required to obtain approval before investing in
initial public offerings or private placements. The Codes are on
file with the SEC, and are available to the public.
CREATION
AND REDEMPTION OF CREATION UNIT AGGREGATIONS
Creation
. The Trust issues and sells Shares of
each Fund only in Creation Unit Aggregations on a continuous
basis through the Distributor, without a sales load, at their
NAVs next determined after receipt, on any Business Day (as
defined below), of an order in proper form.
A “Business Day” is any day on which the NYSE is open
for business. As of the date of this SAI, the NYSE observes the
following holidays: New Year’s Day, Martin Luther
King, Jr. Day, Washington’s Birthday, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Deposit of Securities and Deposit or Delivery of
Cash
. The consideration for purchase of Creation
Unit Aggregations of a Fund generally consists of the in-kind
deposit of a designated portfolio of equity
securities – the “Deposit
Securities” – per each Creation Unit Aggregation
constituting a substantial replication of the stocks included in
the Underlying Index (“Fund Securities”) and an
amount of cash – the “Cash
Component” – computed as described below.
Together, the Deposit Securities and the Cash Component
constitute the “Fund Deposit,” which represents
the minimum initial and subsequent investment amount for a
Creation Unit Aggregation of a Fund.
The Cash Component
is sometimes also referred to as the
Balancing Amount. The Cash Component serves the function of
compensating for any differences between the NAV per Creation
Unit Aggregation and the Deposit Amount (as defined below). The
Cash Component is an amount equal to the difference between the
NAV of the Fund Shares (per Creation Unit Aggregation) and
the “Deposit Amount” – an amount equal to
the market value of the Deposit Securities. If the Cash
Component is a positive number (i.e., the NAV per Creation Unit
Aggregation exceeds the Deposit Amount), the creator will
deliver the Cash Component. If the Cash Component is a negative
number (i.e., the NAV per Creation Unit Aggregation is less than
the Deposit Amount), the creator will receive the Cash Component.
The Custodian, through the National Securities Clearing
Corporation (“NSCC”) (discussed below), makes
available on each Business Day, prior to the opening of business
on the NYSE Arca (currently 9:30 a.m., Eastern time), the
list of the names and the required number of shares of each
Deposit Security to be included in the current Fund Deposit
(based on information at the end of the previous Business Day)
for each Fund.
Such Fund Deposit is applicable, subject to any adjustments
as described below, in order to effect creations of Creation
Unit Aggregations of the Fund until such time as the
next-announced composition of the Deposit Securities is made
available.
23
The identity and number of shares of the Deposit Securities
required for a Fund Deposit for a Fund changes as
rebalancing adjustments and corporate action events are
reflected within the Fund from time to time by the Investment
Adviser with a view to the investment objective of the Fund. The
composition of the Deposit Securities may also change in
response to adjustments to the weighting or composition of the
Component Stocks of the Underlying Index. In addition, the Trust
reserves the right to permit or require the substitution of an
amount of cash – i.e., a “cash in lieu”
amount – to be added to the Cash Component to replace
any Deposit Security that may not be available in sufficient
quantity for delivery or that may not be eligible for transfer
through the systems of DTC or the Clearing Process (discussed
below), or which might not be eligible for trading by an
Authorized Participant (as defined below) or the investor for
which it is acting or other relevant reason. Brokerage
commissions incurred in connection with the acquisition of
Deposit Securities not eligible for transfer through the systems
of DTC and hence not eligible for transfer through the Clearing
Process (discussed below) will be at the expense of the Fund and
will affect the value of all Shares; but the Investment Adviser,
subject to the approval of the Board of Trustees, may adjust the
transaction fee within the parameters described above to protect
ongoing shareholders. The adjustments described above will
reflect changes known to the Investment Adviser on the date of
announcement to be in effect by the time of delivery of the
Fund Deposit, in the composition of the Underlying Index or
resulting from certain corporate actions.
In addition to the list of names and numbers of securities
constituting the current Deposit Securities of a
Fund Deposit, the Custodian, through the NSCC, also makes
available on each Business Day, the estimated Cash Component,
effective through and including the previous Business Day, per
outstanding Creation Unit Aggregation of the Fund.
Procedures for Creation of Creation Unit
Aggregations
. To be eligible to place orders with
the Distributor and to create a Creation Unit Aggregation of a
Fund, an entity must be (i) a “Participating
Party,” i.e., a broker-dealer or other participant in the
clearing process through the Continuous Net Settlement System of
the NSCC (the “Clearing Process”), a clearing agency
that is registered with the SEC; or (ii) a DTC Participant
(see the Book Entry Only System section), and, in each case,
must have executed an agreement with the Distributor, with
respect to creations and redemptions of Creation Unit
Aggregations (“Participant Agreement”) (discussed
below). A Participating Party and DTC Participant are
collectively referred to as an “Authorized
Participant.” Investors should contact the Distributor for
the names of Authorized Participants that have signed a
Participant Agreement. All Fund Shares, however created,
will be entered on the records of DTC in the name of
Cede & Co. for the account of a DTC Participant.
All orders to create Creation Unit Aggregations, whether through
the Clearing Process (through a Participating Party) or outside
the Clearing Process (through a DTC Participant), must be
received by the Transfer Agent no later than the closing time of
the regular trading session on the NYSE Arca (“Closing
Time”) (ordinarily 4:00 p.m., Eastern time) in each
case on the date such order is placed in order for creation of
Creation Unit Aggregations to be effected based on the NAV of
Shares of a Fund as next determined on such date after receipt
of the order in proper form. In the case of custom orders, the
order must be received by the Transfer Agent no later than
3:00 p.m. Eastern time on the trade date. A custom
order may be placed by an Authorized Participant in the event
that the Trust permits or requires the substitution of an amount
of cash to be added to the Cash Component to replace any Deposit
Security which may not be available in sufficient quantity for
delivery or which may not be eligible for trading by such
Authorized Participant or the investor for which it is acting or
other relevant reason. The date on which an order to create
Creation Unit Aggregations (or an order to redeem Creation Unit
Aggregations, as discussed below) is placed is referred to as
the “Transmittal Date.” Orders must be transmitted by
an Authorized Participant by telephone or other transmission
method acceptable to the Distributor pursuant to procedures set
forth in the Participant Agreement, as described below (see the
“Placement of Creation Orders Using Clearing Process”
and the “Placement of Creation Orders Outside Clearing
Process” sections). Severe economic or market disruptions
or
24
changes, or telephone or other communication failure may impede
the ability to reach the Distributor or an Authorized
Participant.
All orders from investors who are not Authorized Participants to
create Creation Unit Aggregations shall be placed with an
Authorized Participant, as applicable, in the form required by
such Authorized Participant. In addition, the Authorized
Participant may request the investor to make certain
representations or enter into agreements with respect to the
order, e.g., to provide for payments of cash, when required.
Investors should be aware that their particular broker may not
have executed a Participant Agreement and that, therefore,
orders to create Creation Unit Aggregations of a Fund have to be
placed by the investor’s broker through an Authorized
Participant that has executed a Participant Agreement. In such
cases there may be additional charges to such investor. At any
given time, there may be only a limited number of broker-dealers
that have executed a Participant Agreement. Those placing orders
for Creation Unit Aggregations through the Clearing Process
should afford sufficient time to permit proper submission of the
order to the Distributor prior to the Closing Time on the
Transmittal Date. Orders for Creation Unit Aggregations that are
effected outside the Clearing Process are likely to require
transmittal by the DTC Participant earlier on the Transmittal
Date than orders effected using the Clearing Process. Those
persons placing orders outside the Clearing Process should
ascertain the deadlines applicable to DTC and the Federal
Reserve Bank wire system by contacting the operations department
of the broker or depository institution effectuating such
transfer of Deposit Securities and Cash Component.
Placement of Creation Orders Using Clearing
Process
. The Clearing Process is the process of
creating or redeeming Creation Unit Aggregations through the
Continuous Net Settlement System of the NSCC. Fund Deposits
made through the Clearing Process must be delivered through a
Participating Party that has executed a Participant Agreement.
The Participant Agreement authorizes the Distributor to transmit
through the Custodian to NSCC, on behalf of the Participating
Party, such trade instructions as are necessary to effect the
Participating Party’s creation order. Pursuant to such
trade instructions to NSCC, the Participating Party agrees to
deliver the requisite Deposit Securities and the Cash Component
to the Trust, together with such additional information as may
be required by the Distributor. An order to create Creation Unit
Aggregations through the Clearing Process is deemed received by
the Distributor on the Transmittal Date if (i) such order
is received by the Distributor not later than the Closing Time
on such Transmittal Date and (ii) all other procedures set
forth in the Participant Agreement are properly followed.
Placement of Creation Orders Outside Clearing
Process
. Fund Deposits made outside the
Clearing Process must be delivered through a DTC Participant
that has executed a Participant Agreement pre-approved by the
Investment Adviser and the Distributor. A DTC Participant who
wishes to place an order creating Creation Unit Aggregations to
be effected outside the Clearing Process does not need to be a
Participating Party, but such orders must state that the DTC
Participant is not using the Clearing Process and that the
creation of Creation Unit Aggregations will instead be effected
through a transfer of securities and cash directly through DTC.
The Fund Deposit transfer must be ordered by the DTC
Participant on the Transmittal Date in a timely fashion so as to
ensure the delivery of the requisite number of Deposit
Securities through DTC to the account of a Fund by no later than
11:00 a.m., Eastern time, of the next Business Day
immediately following the Transmittal Date.
All questions as to the number of Deposit Securities to be
delivered, and the validity, form and eligibility (including
time of receipt) for the deposit of any tendered securities,
will be determined by the Trust, whose determination shall be
final and binding. The amount of cash equal to the Cash
Component must be transferred directly to the Custodian through
the Federal Reserve Bank wire transfer system in a timely manner
so as to be received by the Custodian no later than
2:00 p.m., Eastern time, on the next Business Day
immediately following such Transmittal Date. An order to create
Creation Unit Aggregations outside the Clearing Process is
deemed received by the Distributor on the Transmittal Date if
(i) such order is received by the Distributor not later
than the Closing Time on such Transmittal Date; and
(ii) all other procedures set forth in the Participant
Agreement are
25
properly followed. However, if the Custodian does not receive
both the required Deposit Securities and the Cash Component by
11:00 a.m. and 2:00 p.m., respectively, on the next
Business Day immediately following the Transmittal Date, such
order will be canceled. Upon written notice to the Distributor,
such canceled order may be resubmitted the following Business
Day using a Fund Deposit as newly constituted to reflect
the then current Deposit Securities and Cash Component. The
delivery of Creation Unit Aggregations so created will occur no
later than the third (3rd) Business Day following the day on
which the purchase order is deemed received by the Distributor.
Additional transaction fees may be imposed with respect to
transactions effected outside the Clearing Process (through a
DTC participant) and in the limited circumstances in which any
cash can be used in lieu of Deposit Securities to create
Creation Units. (See Creation Transaction Fee section below).
Creation Unit Aggregations may be created in advance of receipt
by the Trust of all or a portion of the applicable Deposit
Securities as described below. In these circumstances, the
initial deposit will have a value greater than the NAV of the
Fund Shares on the date the order is placed in proper form
since, in addition to available Deposit Securities, cash must be
deposited in an amount equal to the sum of (i) the Cash
Component, plus (ii) 115% of the market value of the
undelivered Deposit Securities (the “Additional Cash
Deposit”). The order shall be deemed to be received on the
Business Day on which the order is placed provided that the
order is placed in proper form prior to 4:00 p.m., Eastern
time, on such date, and federal funds in the appropriate amount
are deposited with the Custodian by 11:00 a.m., Eastern
time, the following Business Day. If the order is not placed in
proper form by 4:00 p.m. or federal funds in the
appropriate amount are not received by 11:00 a.m. the next
Business Day, then the order may be deemed to be canceled and
the Authorized Participant shall be liable to the Fund for
losses, if any, resulting therefrom. An additional amount of
cash shall be required to be deposited with the Trust, pending
delivery of the missing Deposit Securities to the extent
necessary to maintain the Additional Cash Deposit with the Trust
in an amount at least equal to 115% of the daily marked to
market value of the missing Deposit Securities. To the extent
that missing Deposit Securities are not received by
1:00 p.m., Eastern time, on the third Business Day
following the day on which the purchase order is deemed received
by the Distributor or in the event a marked-to-market payment is
not made within one Business Day following notification by the
Distributor that such a payment is required, the Trust may use
the cash on deposit to purchase the missing Deposit Securities.
Authorized Participants will be liable to the Trust and the Fund
for the costs incurred by the Trust in connection with any such
purchases. These costs will be deemed to include the amount by
which the actual purchase price of the Deposit Securities
exceeds the market value of such Deposit Securities on the day
the purchase order was deemed received by the Distributor plus
the brokerage and related transaction costs associated with such
purchases. The Trust will return any unused portion of the
Additional Cash Deposit once all of the missing Deposit
Securities have been properly received by the Custodian or
purchased by the Trust and deposited into the Trust. In
addition, a transaction fee, as listed below, will be charged in
all cases. The delivery of Creation Unit Aggregations so created
will occur no later than the third Business Day following the
day on which the purchase order is deemed received by the
Distributor.
Acceptance of Orders for Creation Unit
Aggregations
. The Trust reserves the absolute
right to reject a creation order transmitted to it by the
Distributor in respect of a Fund if: (i) the order is not
in proper form; (ii) the investor(s), upon obtaining the
Fund Shares ordered, would own 80% or more of the currently
outstanding shares of any Fund; (iii) the Deposit
Securities delivered are not as disseminated for that date by
the Custodian, as described above; (iv) acceptance of the
Deposit Securities would have certain adverse tax consequences
to the Fund; (v) acceptance of the Fund Deposit would,
in the opinion of counsel, be unlawful; (vi) acceptance of
the Fund Deposit would otherwise, in the discretion of the
Trust or the Investment Adviser, have an adverse effect on the
Trust or the rights of beneficial owners; or (vii) in the
event that circumstances outside the control of the Trust, the
Custodian, the Distributor and the Investment Adviser make it
for all practical purposes impossible to process creation
orders. Examples of such circumstances include acts of God;
public
26
service or utility problems such as fires, floods, extreme
weather conditions and power outages resulting in telephone,
telecopy and computer failures; market conditions or activities
causing trading halts; systems failures involving computer or
other information systems affecting the Trust, the Investment
Adviser, the Sub-Adviser, the Distributor, DTC, NSCC, the
Custodian or sub-custodian or any other participant in the
creation process, and similar extraordinary events. The
Distributor shall notify a prospective creator of a Creation
Unit
and/or
the Authorized Participant acting on behalf of such prospective
creator of its rejection of the order of such person. The Trust,
the Custodian, any sub-custodian and the Distributor are under
no duty, however, to give notification of any defects or
irregularities in the delivery of Fund Deposits nor shall
any of them incur any liability for the failure to give any such
notification.
All questions as to the number of shares of each security in the
Deposit Securities and the validity, form, eligibility, and
acceptance for deposit of any securities to be delivered shall
be determined by the Trust, and the Trust’s determination
shall be final and binding.
Creation Transaction Fee
. Investors will be
required to pay a fixed creation transaction fee, described
below, payable to the Distributor regardless of the number of
creations made each day. An additional charge of up to four
times the fixed transaction fee (expressed as a percentage of
the value of the Deposit Securities) may be imposed for
(i) creations effected outside the Clearing Process; and
(ii) cash creations (to offset the Trust’s brokerage
and other transaction costs associated with using cash to
purchase the requisite Deposit Securities). Investors are
responsible for the costs of transferring the securities
constituting the Deposit Securities to the account of the Trust.
The Standard Creation/Redemption Transaction Fee for each
Fund will be $500 (assuming 100 or fewer stocks in each Creation
Unit; Creation Units that have 101 – 200 stocks are
subject to a fee of $1,000). The Maximum
Creation/Redemption Transaction Fee for each Fund will be
$2,000 ($4,000 with respect to SPA MarketGrader 200 Fund).
Redemption of Fund Shares in Creation Units
Aggregations
. Fund Shares may be redeemed
only in Creation Unit Aggregations at their NAV next determined
after receipt of a redemption request in proper form by a Fund
through the Transfer Agent and only on a Business Day. A Fund
will not redeem Shares in amounts less than Creation Unit
Aggregations. Beneficial owners must accumulate enough Shares in
the secondary market to constitute a Creation Unit Aggregation
in order to have such Shares redeemed by the Trust. There can be
no assurance, however, that there will be sufficient liquidity
in the public trading market at any time to permit assembly of a
Creation Unit Aggregation. Investors should expect to incur
brokerage and other costs in connection with assembling a
sufficient number of Fund Shares to constitute a redeemable
Creation Unit Aggregation.
With respect to a Fund, the Custodian, through the NSCC, makes
available prior to the opening of business on the NYSE Arca
(currently 9:30 a.m., Eastern time) on each Business Day,
the identity of the Fund Securities that will be applicable
(subject to possible amendment or correction) to redemption
requests received in proper form (as described below) on that
day. Fund Securities received on redemption may not be
identical to Deposit Securities that are applicable to creations
of Creation Unit Aggregations.
Unless cash redemptions are available or specified for a Fund,
the redemption proceeds for a Creation Unit Aggregation
generally consist of Fund Securities – as
announced on the Business Day of the request for redemption
received in proper form – plus or minus cash in an
amount equal to the difference between the NAV of the
Fund Shares being redeemed, as next determined after a
receipt of a request in proper form, and the value of the
Fund Securities (the “Cash
Redemption Amount”), less a redemption transaction fee
as listed below. In the event that the Fund Securities have
a value greater than the NAV of the Fund Shares, a
compensating cash payment equal to the difference is required to
be made by or through an Authorized Participant by the redeeming
shareholder.
The right of redemption may be suspended or the date of payment
postponed (i) for any period during which the NYSE is
closed (other than customary weekend and holiday closings);
(ii) for any
27
period during which trading on the NYSE is suspended or
restricted; (iii) for any period during which an emergency
exists as a result of which disposal of the Shares of the Fund
or determination of a Fund’s NAV is not reasonably
practicable; or (iv) in such other circumstances as is
permitted by the SEC.
Redemption Transaction Fee
. A redemption
transaction fee is imposed to offset transfer and other
transaction costs that may be incurred by a Fund. An additional
variable charge for cash redemptions (when cash redemptions are
available or specified) for a Fund may be imposed. Investors
will also bear the costs of transferring the
Fund Securities from the Trust to their account or on their
order. Investors who use the services of a broker or other such
intermediary in addition to an Authorized Participant to effect
a redemption of a Creation Unit Aggregation may be charged an
additional fee of up to four times the fixed transaction fee for
such services. The redemption transaction fees for a Fund are
the same as the creation fees set forth above.
Placement of Redemption Orders Using Clearing
Process
. Orders to redeem Creation Unit
Aggregations through the Clearing Process must be delivered
through a Participating Party that has executed the Participant
Agreement. An order to redeem Creation Unit Aggregations using
the Clearing Process is deemed received by the Trust on the
Transmittal Date if (i) such order is received by the
Transfer Agent not later than 4:00 p.m., Eastern time, on
such Transmittal Date, and (ii) all other procedures set
forth in the Participant Agreement are properly followed; such
order will be effected based on the NAV of the relevant Fund as
next determined. An order to redeem Creation Unit Aggregations
using the Clearing Process made in proper form but received by
the Trust after 4:00 p.m., Eastern time, will be deemed
received on the next Business Day immediately following the
Transmittal Date and will be effected at the NAV next determined
on such next Business Day. The requisite Fund Securities
and the Cash Redemption Amount will be transferred by the
third NSCC Business Day following the date on which such request
for redemption is deemed received.
Placement of Redemption Orders Outside Clearing
Process
. Orders to redeem Creation Unit
Aggregations outside the Clearing Process must be delivered
through a DTC Participant that has executed the Participant
Agreement. A DTC Participant who wishes to place an order for
redemption of Creation Unit Aggregations to be effected outside
the Clearing Process does not need to be a Participating Party,
but such orders must state that the DTC Participant is not using
the Clearing Process and that redemption of Creation Unit
Aggregations will instead be effected through transfer of
Fund Shares directly through DTC. An order to redeem
Creation Unit Aggregations outside the Clearing Process is
deemed received by the Trust on the Transmittal Date if
(i) such order is received by the Transfer Agent not later
than 4:00 p.m., Eastern time on such Transmittal Date;
(ii) such order is accompanied or followed by the requisite
number of Shares of the Fund, which delivery must be made
through DTC to the Custodian no later than 11:00 a.m.,
Eastern time (for the Fund Shares), on the next Business
Day immediately following such Transmittal Date (the “DTC
Cut-Off-Time”) and 2:00 p.m., Eastern Time for any
Cash Component, if any owed to a Fund; and (iii) all other
procedures set forth in the Participant Agreement are properly
followed. After the Trust has deemed an order for redemption
outside the Clearing Process received, the Trust will initiate
procedures to transfer the requisite Fund Securities which
are expected to be delivered within three Business Days and the
Cash Redemption Amount, if any owed to the redeeming
Beneficial Owner to the Authorized Participant on behalf of the
redeeming Beneficial Owner by the third Business Day following
the Transmittal Date on which such redemption order is deemed
received by the Trust.
The calculation of the value of the Fund Securities and the
Cash Redemption Amount to be delivered/received upon
redemption will be made by the Custodian according to the
procedures set forth under Determination of NAV computed on the
Business Day on which a redemption order is deemed received by
the Trust. Therefore, if a redemption order in proper form is
submitted to the Transfer Agent by a DTC Participant not later
than Closing Time on the Transmittal Date, and the requisite
number of Shares of the Fund are delivered to the Custodian
prior to the DTC Cut-Off-Time, then the value of the
Fund Securities and the Cash Redemption Amount to be
delivered/received will be determined by the Custodian on such
Transmittal Date. If, however, either (i) the requisite
number
28
of Shares of the relevant Fund are not delivered by the DTC
Cut-Off-Time, as described above, or (ii) the redemption
order is not submitted in proper form, then the redemption order
will not be deemed received as of the Transmittal Date. In such
case, the value of the Fund Securities and the Cash
Redemption Amount to be delivered/received will be computed
on the Business Day following the Transmittal Date provided that
the Fund Shares of the relevant Fund are delivered through
DTC to the Custodian by 11:00 a.m. the following Business
Day pursuant to a properly submitted redemption order.
If it is not possible to effect deliveries of the
Fund Securities, the Trust may in its discretion exercise
its option to redeem such Fund Shares in cash, and the
redeeming Beneficial Owner will be required to receive its
redemption proceeds in cash. In addition, an investor may
request a redemption in cash that a Fund may, in its sole
discretion, permit. In either case, the investor will receive a
cash payment equal to the NAV of its Fund Shares based on
the NAV of Shares of the relevant Fund next determined after the
redemption request is received in proper form (minus a
redemption transaction fee and additional charge for requested
cash redemptions specified above, to offset the Fund’s
brokerage and other transaction costs associated with the
disposition of Fund Securities). A Fund may also, in its
sole discretion, upon request of a shareholder, provide such
redeemer a portfolio of securities that differs from the exact
composition of the Fund Securities, or cash in lieu of some
securities added to the Cash Component, but in no event will the
total value of the securities delivered and the cash transmitted
differ from the NAV. Redemptions of Fund Shares for
Fund Securities will be subject to compliance with
applicable federal and state securities laws and the Fund
(whether or not it otherwise permits cash redemptions) reserves
the right to redeem Creation Unit Aggregations for cash to the
extent that the Trust could not lawfully deliver specific
Fund Securities upon redemptions or could not do so without
first registering the Fund Securities under such laws. An
Authorized Participant or an investor for which it is acting
subject to a legal restriction with respect to a particular
stock included in the Fund Securities applicable to the
redemption of a Creation Unit Aggregation may be paid an
equivalent amount of cash. The Authorized Participant may
request the redeeming Beneficial Owner of the Fund Shares
to complete an order form or to enter into agreements with
respect to such matters as compensating cash payment, beneficial
ownership of shares or delivery instructions.
The chart below describes in further detail the placement of
redemption orders outside the clearing process.
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|
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|
|
Transmittal
|
|
Next Business
|
|
Second Business
|
|
Third Business
|
|
|
|
Date (T)
|
|
Day (T+1)
|
|
Day (T+2)
|
|
Day (T+3)
|
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|
Creation through NSCC
|
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Standard Orders
|
|
4:00 p.m. (ET)
Order must be received by the Transfer Agent.
|
|
No action.
|
|
No action.
|
|
Creation Unit Aggregations will be delivered.
|
|
Custom Orders
|
|
3:00 p.m. (ET) Order must be received by the Transfer
Agent. Orders received after 3:00 p.m. (ET) will be treated
as standard orders.
|
|
No action.
|
|
No action.
|
|
Creation Unit Aggregations will be delivered.
|
29
|
|
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|
|
|
|
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|
Transmittal
|
|
Next Business
|
|
Second Business
|
|
Third Business
|
|
|
|
Date (T)
|
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Day (T+1)
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|
Day (T+2)
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Day (T+3)
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Creation Outside NSCC
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Standard Orders
|
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4:00 p.m. (ET) Order in proper form must be received by the
Transfer Agent.
|
|
11:00 a.m. (ET) Deposit Securities must be received by the
Fund’s account through DTC. 2:00 p.m. (ET) Cash
Component must be received by the Custodian.
|
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No action.
|
|
Creation Unit Aggregations will be delivered.
|
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Standard Orders created in advance of receipt by the Trust of
all or a portion of the Deposit
|
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|
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Securities
|
|
4:00 p.m. (ET) Order in proper form must be received by the
Transfer Agent.
|
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11:00 a.m. (ET) Available Deposit Securities. Cash in an
amount equal to the sum of (i) the Cash Component, plus (ii)
115% of the market value of the undelivered Deposit Securities.
|
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No action.
|
|
1:00 p.m. (ET) Missing Deposit Securities are due to the
Trust or the Trust may use cash on deposit to purchase missing
Deposit Securities. Creation Unit Aggregations will be delivered.
|
|
Custom Orders
|
|
3:00 p.m. (ET) Order in proper form must be received by the
Transfer Agent. Orders received after 3:00 p.m. (ET) will
be treated as standard orders.
|
|
11:00 a.m. (ET) Deposit Securities must be received by the
Fund’s account through DTC. 2:00 p.m. (ET) Cash
Component must be received by the Orders Custodian.
|
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No action.
|
|
Creation Unit Aggregations will be delivered.
|
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Redemption Through NSCC
|
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|
|
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|
|
|
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Standard Orders
|
|
4:00 p.m. (ET) Order must be received by the Transfer
Agent. Orders received after 4:00 p.m. (ET) will be deemed
received on the next business day (T+1).
|
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No action.
|
|
No action.
|
|
Fund Securities and Cash Redemption Amount will be transferred.
|
30
|
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|
|
|
Transmittal
|
|
Next Business
|
|
Second Business
|
|
Third Business
|
|
|
|
Date (T)
|
|
Day (T+1)
|
|
Day (T+2)
|
|
Day (T+3)
|
|
|
|
Custom Orders
|
|
3:00 p.m. (ET) Order must be received by the Transfer
Agent. Orders received after 3:00 p.m. (ET) will be treated
as standard orders.
|
|
No action.
|
|
No action.
|
|
Fund Securities and Cash Redemption Amount will be transferred.
|
|
Redemption Outside of NSCC
|
|
|
|
|
|
|
|
|
|
Standard Orders
|
|
4:00 p.m. (ET) Order must be received by the Transfer
Agent. Orders received after 4:00 p.m. (ET) will be deemed
received on the next business day (T+1).
|
|
11:00 a.m. (ET) Fund Shares must be delivered through DTC
to the Custodian. 2:00 p.m. (ET) Cash Component, if any, is
due.
*If the order is not in proper form or the Fund Shares are not
delivered, then the order will not be deemed received as of T.
|
|
No action.
|
|
Fund Securities and Cash Redemption Amount is delivered to the
redeeming beneficial owner.
|
|
Custom Orders
|
|
3:00 p.m. (ET) Order must be received by the Transfer
Agent. Orders received after 3:00 p.m. (ET) will be treated
as standard orders.
|
|
11:00 a.m. (ET) Fund Shares must be delivered through DTC
to the Custodian. 2:00 p.m. (ET) Cash Component, if any, is
due.
*If the order is not in proper form or the Fund Shares are not
delivered, then the order will not be deemed received as of T.
|
|
No action.
|
|
Fund Securities and Cash Redemption Amount is delivered to the
redeeming beneficial owner.
|
TAXES
Each Fund intends to qualify for and to elect to be treated as a
separate regulated investment company (a “RIC”) under
Subchapter M of the Internal Revenue Code (the
“Code”). To qualify for treatment as a RIC, a company
must annually distribute at least 90% of its net investment
company taxable income (which includes dividends, interest and
net capital gains) and meet several other requirements relating
to the nature of its income and the diversification of its
assets. If a Fund fails to qualify for any taxable year as a
regulated investment company, all of its taxable income will be
subject to tax at regular corporate income tax rates without any
deduction for distributions to shareholders,
31
and such distributions generally will be taxable to
shareholders as ordinary dividends to the extent of the
Fund’s current and accumulated earnings and profits.
Each Fund is treated as a separate corporation for federal
income tax purposes. Each Fund therefore is considered to be a
separate entity in determining its treatment under the rules for
RICs described herein and in the Prospectus. Losses in one fund
do not offset gains in another fund and the requirements (other
than certain organizational requirements) for qualifying RIC
status are determined at the Fund level rather than at the Trust
level.
Each Fund will be subject to a 4% excise tax on certain
undistributed income if it does not distribute to its
shareholders in each calendar year at least 98% of its ordinary
income for the calendar year plus 98% of its net capital gains
for twelve months ended October 31 of such year. Each Fund
intends to declare and distribute dividends and distributions in
the amounts and at the times necessary to avoid the application
of this 4% excise tax.
As a result of tax requirements, the Trust on behalf of each
Fund has the right to reject an order to purchase Shares if the
purchaser (or group of purchasers) would, upon obtaining the
Shares so ordered, own 80% or more of the outstanding Shares of
the Fund and if, pursuant to section 351 of the Code, the
Fund would have a basis in the Deposit Securities different from
the market value of such securities on the date of deposit. The
Trust also has the right to require information necessary to
determine beneficial Share ownership for purposes of the 80%
determination.
Long-term capital gains of non-corporate taxpayers are generally
taxed at a maximum rate of 15% for taxable years beginning
before January 1, 2011. Thereafter, without further
Congressional action, that rate will return to 20%. In addition,
some ordinary dividends declared and paid by a Fund to
non-corporate shareholders may qualify for taxation at the lower
reduced tax rates applicable to long-term capital gains,
provided that the holding period and other requirements are met
by the Fund and the shareholder. Each Fund will report to
shareholders annually the amounts of dividends received from
ordinary income, the amount of distributions received from
capital gains and the portion of dividends which may qualify for
the dividends received deduction. In addition, each Fund will
report the amount of dividends to individual shareholders
eligible for taxation at the lower reduced tax rates applicable
to long-term capital gains.
The sale, exchange or redemption of Shares may give rise to a
gain or loss. In general, any gain or loss realized upon a
taxable disposition of Shares will be treated as long-term
capital gain or loss if the Shares have been held for more than
one year. Otherwise, the gain or loss on the taxable disposition
of Shares will be treated as short-term capital gain or loss. A
loss realized on a sale or exchange of Shares of a Fund may be
disallowed if other substantially identical Shares are acquired
(whether through the automatic reinvestment of dividends or
otherwise) within a sixty-one (61) day period beginning
thirty (30) days before and ending thirty (30) days
after the date on which the Shares are disposed. In such a case,
the basis of the Shares acquired must be adjusted to reflect the
disallowed loss. Any loss upon the sale or exchange of Shares
held for six (6) months or less is treated as long-term
capital loss to the extent of any capital gain dividends
received by the shareholders (including undistributed capital
gain included in income). Distribution of ordinary income and
capital gains may also be subject to state and local taxes.
Distributions reinvested in additional Shares of a Fund through
the means of the dividend reinvestment service (see below) will
nevertheless be taxable dividends to shareholders acquiring such
additional Shares to the same extent as if such dividends had
been received in cash.
Distributions of ordinary income paid to shareholders who are
nonresident aliens or foreign entities that are not effectively
connected to the conduct of a trade or business within the
U.S. will generally be subject to a 30%
U.S. withholding tax unless a reduced rate of withholding
or a withholding exemption is provided under applicable treaty
law. However, shareholders who are nonresident aliens or foreign
entities will generally not be subject to U.S. withholding
or income tax on gains realized on the sale of Shares or on
dividends from capital gains unless (i) such gain or
capital
32
gain dividend is effectively connected with the conduct of a
trade or business within the U.S., or (ii) in the case of
an individual shareholder, the shareholder is present in the
U.S. for a period or periods aggregating 183 day or
more during the year of the sale or capital gain dividend and
certain other conditions are met. Gains on the sale of Shares
and dividends that are effectively connected with the conduct of
a trade or business within the U.S. will generally be
subject to U.S. federal net income taxation at regular
income tax rates with respect to taxable years beginning before
January 1, 2010. Dividends paid by a Fund to shareholders
who are nonresident aliens or foreign entities that are derived
from short-term capital gains and qualifying net interest income
(including income from original issue discount and market
discount), and that are properly designated by a Fund as
“interest-related dividends” or “short-term
capital gain dividends,” will generally not be subject to
U.S. withholding tax, provided that the income would not be
subject to federal income tax if earned directly by the foreign
shareholder. Nonresident shareholders are urged to consult their
own tax advisors concerning the applicability of the
U.S. withholding tax.
Some shareholders may be subject to a withholding tax on
distributions of ordinary income, capital gains and any cash
received on redemption of Creation Units (“backup
withholding”). Generally, shareholders subject to backup
withholding will be those for whom no certified taxpayer
identification number is on file with a Fund or who, to the
Fund’s knowledge, have furnished an incorrect number. When
establishing an account, an investor must certify under penalty
of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Dividends and interest received by a Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may
reduce or eliminate such taxes.
The foregoing discussion is a summary only and is not intended
as a substitute for careful tax planning. Purchasers of Shares
should consult their own tax advisors as to the tax consequences
of investing in such Shares, including under federal, state,
local and other tax laws. Finally, the foregoing discussion is
based on applicable provisions of the Code, regulations,
judicial authority and administrative interpretations in effect
on the date hereof. Changes in applicable authority could
materially affect the conclusions discussed above, and such
changes often occur.
FEDERAL
TAX TREATMENT OF FUTURES AND OPTIONS CONTRACTS
Each Fund is required for federal income tax purposes to mark to
market and recognize as income for each taxable year its net
unrealized gains and losses on certain futures contracts as of
the end of the year as well as those actually realized during
the year. Gain or loss from futures and options contracts on
broad-based indices required to be marked to market will be 60%
long-term and 40% short-term capital gain or loss. Application
of this rule may alter the timing and character of distributions
to shareholders. Each Fund may be required to defer the
recognition of losses on futures contracts, options contracts
and swaps to the extent of any unrecognized gains on offsetting
positions held by the Fund.
In order for a Fund to continue to qualify for federal income
tax treatment as a RIC, at least 90% of its gross income for a
taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans or securities,
gains from the sale of securities or of foreign currencies or
other income derived with respect to the Fund’s business of
investing in securities (including net income derived from an
interest in certain “qualified publicly traded
partnerships”). It is anticipated that any net gain
realized from the closing out of futures or options contracts
will be considered gain from the sale of securities or derived
with respect to each Fund’s business of investing in
securities and therefore will be qualifying income for purposes
of the 90% gross income requirement.
Each Fund distributes to shareholders at least annually any net
capital gains which have been recognized for federal income tax
purposes, including unrealized gains at the end of the
Fund’s fiscal year on futures or options transactions. Such
distributions are combined with distributions of capital
33
gains realized on a Fund’s other investments and
shareholders are advised on the nature of the distributions.
DETERMINATION
OF NAV
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled
“Net Asset Value.”
The NAV per Share of each Fund is computed by dividing the value
of the net assets of the Fund (i.e., the value of its total
assets less total liabilities) by the total number of Shares of
the Fund outstanding, rounded to the nearest cent. Expenses and
fees, including without limitation, the management and
administration fees, are accrued daily and taken into account
for purposes of determining NAV. The NAV per Share is calculated
by the Custodian and determined as of the close of the regular
trading session on the NYSE (ordinarily 4:00 p.m., Eastern
time) on each day that such exchange is open.
In computing each Fund’s NAV, the Fund’s securities
holdings traded on a national securities exchange are valued
based on their last sale price. Price information on listed
securities is taken from the exchange where the security is
primarily traded. Securities regularly traded in an
over-the-counter market are valued at the latest quoted sale
price in such market or in the case of the NASDAQ, at the NASDAQ
official closing price. Other portfolio securities and assets
for which market quotations are not readily available are valued
based on fair value as determined in good faith in accordance
with procedures adopted by the Board.
DIVIDENDS
AND DISTRIBUTIONS
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled
“Dividends, Distributions and Taxes.”
General Policies
. Dividends from net
investment income, if any, are declared and paid annually.
Distributions of net realized securities gains, if any,
generally are declared and paid once a year, but the Trust may
make distributions on a more frequent basis. The Trust reserves
the right to declare special distributions if, in its reasonable
discretion, such action is necessary or advisable to preserve
the status of each Fund as a RIC or to avoid imposition of
income or excise taxes on undistributed income.
Dividends and other distributions on Fund Shares are
distributed, as described below, on a pro rata basis to
Beneficial Owners of such Shares. Dividend payments are made
through DTC Participants and Indirect Participants to Beneficial
Owners then of record with proceeds received from a Fund.
Dividend Reinvestment Service
. No reinvestment
service is provided by the Trust. Broker-dealers may make
available the DTC book-entry Dividend Reinvestment Service for
use by Beneficial Owners of the Fund for reinvestment of their
dividend distributions. Beneficial Owners should contact their
broker to determine the availability and costs of the service
and the details of participation therein. Brokers may require
Beneficial Owners to adhere to specific procedures and
timetables.
FINANCIAL
STATEMENTS
The Funds’ audited financial statements including the
financial highlights appearing in the Trust’s Annual Report
to Shareholders for the fiscal year ended September 30,
2008 and filed electronically with the Securities and Exchange
Commission are incorporated by reference and made part of this
SAI. You may obtain a copy of the Funds’ Annual Report at
no charge by writing to the Fund at c/o SPA ETF, Inc, 12 East
49th Street, New York, NY, 10019 or by calling
1-800-772-3831.
34
MISCELLANEOUS
INFORMATION
Counsel
. Clifford Chance US LLP, 31 West
52nd Street, New York, NY 10019, is counsel to the Trust.
Independent Registered Public Accounting
Firm.
WithumSmith+Brown, P.C., One Spring
Street New Brunswick, New Jersey 08901 serves as the Funds’
independent registered public accounting firm. The independent
registered public accounting firm is responsible for auditing
the annual financial statements of the Funds. Prior to the
appointment of WithumSmith+Brown, P.C., the independent
registered public accounting firm to the Funds was
Deloitte & Touche LLP.
35
APPENDIX A
ESPOSITO PARTNERS, LLC
PROXY VOTING PROCEDURES
INTRODUCTION
An investment adviser generally has the authority to vote
proxies relating to such securities on behalf of its clients.
Pursuant to
Rule 206(4)-6
under the Investment Advisers Act, registered investment
advisers that exercise voting authority over securities held in
client portfolios are required to implement proxy voting
policies and describe those policies to their clients. The
policies and procedures must be reasonably designed to ensure
that the adviser votes client securities in a manner consistent
with the best interests of such client.
POLICIES
As a general policy, Esposito Partners, LLC
(“Esposito”) will vote proxy proposals, consents or
resolutions relating to client securities (collectively,
“proxies”), in a manner that serves the best interests
of the client accounts it manages. Best interest will be
determined by the adviser in its discretion, taking into account
relevant factors, including, but not limited to:
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•
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the impact on the value of the securities;
|
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•
|
the anticipated costs and benefits associated with the proposal;
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•
|
the effect on liquidity; and
|
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•
|
customary industry and business practices.
|
In voting proxies, Esposito will not consider the interests the
adviser, its management or affiliates might have in a particular
voting matter.
Investment company clients are subject to further requirements
under the 1940 Act regarding the disclosure of actual proxy
voting records to shareholders, and the process by which proxies
are voted on shareholder’s behalf. As a general matter of
policy, Esposito will assist its investment company clients and
their respective fund administration agents with respect to the
fund clients’ annual
Form N-PX
filings.
Polices adopted by Esposito with respect to specific proxy
voting matters include the following:
Routine matters are typically proposed by management (as defined
below) of a company and meet the following criteria:
(i) they do not measurably change the structure,
management, control or operation of the company; (ii) they
do not measurably change the terms of, or fees or expenses
associated with, an investment in the company; and
(iii) they are consistent with customary industry standards
and practices, as well as the laws of the state of incorporation
applicable to the company.
For routine matters, Esposito will vote in accordance with the
recommendation of the company’s management or directors
(collectively, the “Management”), as applicable,
unless, in Esposito’ opinion, such recommendation is not in
the best interests of the client.
36
Examples of routine matters are set forth below:
General
Matters
Esposito will generally vote
for
the following proposals:
a. to set time and location of annual meeting;
b. to change the fiscal year of the company; and
c. to change the name of a company.
Board
Members
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a.
|
Election or Re-Election. Esposito will generally vote
for
Management proposals to elect or re-elect Board members.
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b.
|
Fees to Board Members. Esposito will generally vote
for
proposals to increase fees paid to Board members, unless it
determines that the compensation exceeds market standards.
|
Capital
Structure
Esposito will generally vote
for
proposals to change
capitalization, including to increase authorized common shares
or to increase authorized preferred shares, as long as the
proposal does not either: (i) establish a class or classes
of shares or interests with terms that may disadvantage the
class held by any of Esposito’s clients or (ii) result
in disproportionate voting rights for preferred shares or other
classes of shares or interests.
Appointment
of Auditors
Esposito will generally vote for the approval of auditors and
proposals authorizing the Board to fix auditor fees, unless
Esposito has serious concerns about the audit procedures used,
or feels that the auditors are being charged without explanation.
Non-routine matters involve a variety of issues and may be
proposed by a company’s Management or beneficial owners
(i.e.,
shareholders, members, partners, etc.
(collectively, the “Owners”)). These proxies may
involve one or more of the following: (i) a measurable
change in the structure, management, control or operation of the
company; (ii) a measurable change in the terms of, or fees
or expenses associated with, an investment in the company; or
(iii) a change that is inconsistent with industry standards
and/or
the
laws of the state of incorporation applicable to the company.
Examples of routine matters are set forth below:
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a.
|
Term Limits.
Esposito will generally vote for
proposals to require a reasonable retirement age
(e.g.
72) for Board members, and will vote on a
case-by-case
basis on proposals to attempt to limit
tenure.
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b.
|
Replacement.
Esposito will generally vote
against
proposals that make it more difficult to replace
Board members, including the following proposals:
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•
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to stagger the Board;
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•
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to overweight company Management on the Board;
|
37
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•
|
to introduce cumulative voting (cumulative voting allows the
Owners to “stack” votes behind one or a few
individuals for a position on the Board, thereby giving minority
Owners a greater chance of electing the Board member(s));
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•
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to introduce unequal voting rights;
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•
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to create supermajority voting; or
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•
|
to establish pre-emptive rights.
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c.
|
Liability and Indemnification.
In order to
promote accountability, the Adviser will generally vote
against
proposals to limit the personal liability of
Board members for any breach of fiduciary duty or failure to act
in good faith.
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d.
|
Ownership Issues.
Esposito will generally vote
for proposals that require Management to own a minimum interest
in the company. The purpose of this policy is to encourage the
alignment of Management’s interests with the interests of
the company’s Owners. However, Esposito will generally vote
against
proposals for stock options or other compensation
that grant an ownership interest for Management if such
proposals offer greater than 15% of the outstanding securities
of a company because such options may dilute the voting rights
of other Owners of the company.
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2.
|
Compensation,
Fees and Expenses
|
In general, Esposito will vote
against
proposals to
increase compensation, fees or expenses applicable to the
company’s Owners, unless Esposito determines that the
benefits resulting to the company and its Owners justifies the
increased compensation, fees or expenses.
Esposito will generally vote
against
the following
proposals:
a. to introduce unequal voting or dividend rights
among the classes;
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b.
|
to change the amendment provisions of a company’s charter
documents by removing Owner approval requirements;
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c.
|
to require supermajority (two-thirds of outstanding votes)
approval for votes rather than a simple majority (half of
outstanding votes);
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d.
|
to restrict the Owners’ right to act by written
consent; or
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e.
|
to restrict the Owners’ right to call meetings, propose
amendments to the articles of incorporation or other governing
documents of the company or nominate Board members;
|
Esposito will generally vote
for
proposals that eliminate
any of the foregoing rights or requirements.
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4.
|
Takeover
Defenses and Related Actions
|
Esposito will generally vote
against
any proposal to
create any plan or procedure designed primarily to discourage a
takeover or other similar action, including “poison
pills”. Examples of “poison pills” include:
a. large increases in the amount of stock authorized
but not issued;
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b.
|
blank check preferred stock (stock with a fixed dividend and a
preferential claim on company assets relative to common shares,
the terms of which are set by the Board at a future date without
further action by the Owners);
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38
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c.
|
compensation that would act to reward Management as a result of
a takeover attempt, whether successful or not, such as revaluing
purchase price of stock options, or “golden
parachutes”;
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d.
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fixed price amendments that require a certain price to be
offered to all Owners based on a fixed formula; and
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e.
|
greenmail provisions that allow a company to make payments to a
bidder in order to persuade the bidder to abandon its takeover
plans.
|
Esposito will generally vote
for
proposals that eliminate
any of the foregoing rights or requirements, as well as
proposals to:
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|
|
|
a.
|
require that golden parachutes or golden handcuffs be submitted
for ratification by the Owners;
|
|
|
|
|
b.
|
to opt out of state anti-takeover laws deemed by the Adviser to
be detrimental.
|
Esposito will generally vote on a
case-by-case
basis
regarding other proposals that may be used to prevent takeovers,
such as the establishment of employee stock purchase or
ownership plans.
Esposito will generally vote
for
a change in the state of
incorporation if the change is for valid business reasons (such
as reincorporating in the same state as the headquarters of the
controlling company).
|
|
|
|
6.
|
Debt
Issuance and Pledging of Assets for Debt
|
Esposito will generally vote proxies relating to the issuance of
debt, the pledging of assets for debt, and an increase in
borrowing powers on a
case-by-case
basis, taking into
consideration relevant factors, including, for example:
|
|
|
|
|
|
a.
|
the potential increase in the company’s outstanding
interests or shares, if any
(e.g
convertible
bonds); and
|
|
|
|
|
b.
|
the potential increase in the company’s capital, if any,
over the current outstanding capital.
|
|
|
|
|
7.
|
Mergers
or Acquisitions
|
Esposito will vote proxies relating to mergers or acquisitions
on a
case-by-case
basis, but will generally vote
for
any proposals that Esposito believes will offer fair
value to its clients.
|
|
|
|
8.
|
Termination
or Liquidation of the Company
|
Esposito will vote proxies relating to the termination or
liquidation of a company on a
case-by-case
basis, taking
into consideration one or more of the following factors:
a. terms of liquidation;
b. past performance of the company; and
c. strategies employed to save the company.
9.
Social &
Environmental Issues and Corporate Responsibility
Esposito will vote proxies relating to social and environmental
issues on a
case-by
-case basis, but will generally vote
for
any proposals that will reduce discrimination and
pollution, improve protections to minorities and disadvantaged
classes, and increase conservation of resources and wildlife.
39
Esposito will generally vote
against
any proposals that
place arbitrary restrictions on the company’s ability to
invest, market, enter into contractual arrangements or conduct
other activities. The Adviser will also generally vote
against
proposals:
a. to bar or restrict charitable
contributions; or
b. to limit corporate political activities.
All other decisions regarding proxies will be determined on a
case-by-case
basis taking into account the general
policy, as set forth above.
|
|
|
|
C.
|
Abstaining
from Voting or Affirmatively Not Voting
|
Esposito may abstain from voting (which generally requires
submission of a proxy voting card) or affirmatively decide not
to vote if it determines that abstaining or not voting is in the
best interests of its clients. In making such a determination,
Esposito will consider various factors, including, but not
limited to; (i) the costs associated with exercising the
proxy
(e.g.,
translation or travel costs); and
(ii) any legal restrictions on trading resulting from the
exercise of a proxy. Furthermore, Esposito will not abstain from
voting or affirmatively decide not to vote merely to avoid a
conflict of interest.
PROCEDURES
Esposito’ chief compliance officer or designee is
responsible for the implementation, monitoring and review of
Esposito’ proxy voting policies and procedures.
To implement its policies, Esposito has adopted the following
procedures:
|
|
|
|
|
|
•
|
designated Esposito personnel, e.g., analyst will be responsible
for voting each proxy. Such personnel will obtain a
determination from Esposito management as to how to vote the
proxies in accordance with the policies. Upon making a decision,
the proxy will be executed and returned to the analyst for
submission to the company. The analysts are responsible for the
actual voting of all proxies in a timely manner.
|
|
|
|
|
•
|
In the event Esposito determines that the client should rely on
the advice of an independent third party or a committee
regarding the voting of a proxy, Esposito will submit the proxy
to such third party or committee for a decision. The proxy will
be executed in accordance with such third party’s or
committee’s decision.
|
|
|
|
|
•
|
Upon receipt of an executed proxy, the analyst will update the
clients’ proxy voting record.
|
|
|
|
|
•
|
Esposito shall retain written or electronic copies of each proxy
statement received and of each executed proxy. Records relating
to each proxy must include (i) the voting decision with
regard to each proxy; and (iii) any documents created by
the analyst, management or third party, that were material to
making the voting decision. These records will be reviewed by
Esposito’ chief compliance officer.
|
|
|
|
|
•
|
Such records shall be retained in Esposito’ offices for two
years from the end of the fiscal year during which the record
was created, and for an additional three years in an easily
accessible place.
|
Esposito will maintain a record of each written request from a
client for proxy voting information and Esposito’ written
response to any request (oral or written) from a client for
proxy voting information. All such communications will be
reviewed by Esposito’ chief compliance officer.
40
Conflicts
of
Interest
:
At times, conflicts may arise between the interests of one or
more of the Esposito’ clients, on the one hand, and the
interests of Esposito or its affiliates, on the other hand. If
Esposito determines that it has, or may be perceived to have, a
conflict of interest when voting a proxy, the Esposito will
address matters involving such conflicts of interest as follows:
If a proposal is addressed by the specific policies herein,
Esposito will vote in accordance with such policies;
|
|
|
|
|
|
A.
|
Esposito believes it is in the best interest of its clients to
depart from the specific policies provided for herein, Esposito
will be subject to the requirements of C or D below, as
applicable;
|
|
|
|
|
|
|
B.
|
If the proxy proposal is (1) not addressed by the specific
policies or (2) requires a
case-by-case
determination by Esposito, Esposito may vote such proxy as it
determines to be in the best interest of the clients, without
taking any action described in D below, provided that such vote
would be against Esposito’ own interest in the matter
(i.e.,
against the perceived or actual conflict).
Esposito will memorialize the rationale of such vote in
writing; and
|
|
|
|
|
C.
|
If the proxy proposal is (1) not addressed by the specific
policies or (2) requires a
case-by-case
determination by Esposito, and Esposito believes it should vote
in a way that may also benefit, or be perceived to benefit, its
own interest, then Esposito must take one of the following
actions in voting such proxy: (a) delegate the voting
decision for such proxy proposal to an independent third party;
or (b) obtain approval of the decision from Esposito senior
management or the chief compliance officer.
|
|
|
|
|
|
|
D.
|
If Esposito determines that it has a conflict of interest with
respect to voting proxies on behalf of a fund, then Esposito
shall contact the chairman of the fund’s Board of Trustees
and the fund’s chief compliance officer. In the event that
such parties determine that a conflict of interest exists, the
chairman shall submit the matter for determination to another
member of the board who is not an “interested person”
of the fund, as defined in the Investment Company Act of 1940,
as amended. In making a determination, the chairman will
consider the best interests of the fund’s shareholders and
may consider the recommendations of the adviser or independent
third parties that evaluate proxy proposals. Esposito will vote
the proposal according the determination and maintain records
relating to this process.
|
41
PART C: OTHER INFORMATION
ITEM 23. Exhibits:
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|
|
|
|
(a)(1)
|
|
Certificate of Trust.*
|
|
|
|
|
|
(a)(2)
|
|
Agreement and Declaration of Trust.**
|
|
|
|
|
|
(b)
|
|
Bylaws of the Trust.**
|
|
|
|
|
|
(c)
|
|
Not applicable.
|
|
|
|
|
|
(d)(1)
|
|
Investment Advisory Agreement between the Trust and SPA ETF, Inc.**
|
|
|
|
|
|
(d)(2)
|
|
Investment Sub-Advisory Agreement
between the Trust and Esposito Partners, LLC.****
|
|
|
|
|
|
(d)(3)
|
|
Expense Reimbursement Agreement between the Trust and SPA ETF, Inc.**
|
|
|
|
|
|
(e)(1)
|
|
Distribution Agreement between the Trust and Foreside Fund Services, LLC.**
|
|
|
|
|
|
(e)(2)
|
|
Form of Participant Agreement.**
|
|
|
|
|
|
(f)
|
|
Not applicable.
|
|
|
|
|
|
(g)
|
|
Custody Agreement between the Trust and The Bank of New York.**
|
|
|
|
|
|
(h)(1)
|
|
Fund Administration and Accounting Agreement between the Trust and The Bank of New York.**
|
|
|
|
|
|
(h)(2)
|
|
Transfer Agency Services Agreement between the Trust and The Bank of New York.**
|
|
|
|
|
|
(h)(3)
|
|
Compliance Services Agreement between the Trust and Foreside Compliance Services, LLC.**
|
|
|
|
|
|
(h)(4)
|
|
PFO/Treasurer Services Agreement between the Trust and Foreside Management Services, LLC.**
|
|
|
|
|
|
|
|
(i)(1)
|
|
Opinion and consent of Clifford Chance US LLP.**
|
|
|
|
|
|
|
|
|
|
(i)(2)
|
|
Consent of Clifford Chance US LLP.†
|
|
|
|
|
|
|
|
|
|
(j)
|
|
Consent of WithumSmith+Brown, P.C., independent registered public accounting firm.†
|
|
|
|
|
|
|
|
(k)
|
|
Not applicable.
|
|
|
|
|
|
(l)
|
|
Not applicable.
|
|
|
|
|
|
(m)
|
|
Distribution and Service Plan.**
|
|
|
|
|
|
(n)
|
|
Not applicable.
|
|
|
|
|
|
(o)
|
|
Not applicable
|
|
|
|
|
|
(p)
|
|
Code of Ethics of the Trust and the Adviser.**
Other
|
|
|
|
|
|
(1)
|
|
Powers of Attorney.***
|
|
|
|
|
|
|
|
*
|
|
Previously filed as an exhibit to the Trust’s Registration Statement on Form N-1A (File Nos.
333-144856; 811-22103), filed with the Securities and Exchange Commission (the “SEC”) on July 25, 2007.
|
|
|
|
|
|
|
|
**
|
|
Previously filed as an exhibit to Pre-Effective Amendment No.
2 to the Trust’s Registration Statement on Form N-1A (File Nos.
33-144856; 811-22103), filed with the SEC on October 12, 2007.
|
|
|
|
|
|
***
|
|
Previously filed as an exhibit to Post-Effective Amendment No.
5 to the Trust’s Registration Statement on Form N-1A (File Nos.
33-144856; 811-22103), filed with the Securities and Exchange
Commission on March 7, 2008.
|
|
|
|
|
|
****
|
|
Previously filed as an exhibit to Post-Effective Amendment No. 37 to the Trust’s Registration Statement on Form N-1A
(File Nos.
33-144856; 811-22103), filed with the SEC on November 28, 2008.
|
|
|
|
|
|
|
|
†
|
|
Filed herewith.
|
|
|
ITEM 24. Persons Controlled By or Under Common Control with Registrant
Immediately prior to the contemplated public offering of each Fund’s Shares, the following
persons may be deemed individually to control a Fund or the Trust:
SPA ETF, Inc. will be the only shareholder immediately prior to the contemplated public
offering of each Fund.
ITEM 25. Indemnification
Pursuant to Article VI of the Registrant’s Agreement and Declaration of Trust, the Trust has
agreed to indemnify each person who at any time serves as a Trustee or officer of the Trust (each
such person being an ‘‘indemnitee’’) against any liabilities and expenses, including amounts paid
in satisfaction of judgments, in compromise or as fines and penalties, and reasonable counsel fees
reasonably incurred by such indemnitee in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any court or administrative or
investigative body in which he may be or may have been involved as a party or otherwise or with
which he may be or may have been threatened, while acting in any capacity set forth therein by
reason of his having acted in any such capacity, except with respect to any matter as to which he
shall not have acted in good faith in the reasonable belief that his action was in the best
interest of the Trust or, in the case of any criminal proceeding, as to which he shall have had
reasonable cause to believe that the conduct was unlawful, provided, however, that no indemnitee
shall be indemnified hereunder against any liability to any person or any expense of such
indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith, (iii) gross negligence, or
(iv) reckless disregard of the duties involved in the conduct of his position (the conduct referred
to in such clauses (i) through (iv) being sometimes referred to herein as ‘‘disabling conduct’’).
Notwithstanding the foregoing, with respect to any action, suit or other proceeding voluntarily
prosecuted by any indemnitee as plaintiff, indemnification shall be mandatory only if the
prosecution of such action, suit or other proceeding by such indemnitee (1) was authorized by a
majority of the Trustees or (2) was instituted by the indemnitee to enforce his or her rights to
indemnification hereunder in a case in which the indemnitee is found to be entitled to such
indemnification. The rights to indemnification set forth in the Declaration of Trust shall continue
as to a person who has ceased to be a Trustee or officer of the Trust and shall inure to the
benefit of his or her heirs, executors and personal and legal representatives. No amendment or
restatement of the Declaration of Trust or repeal of any of its provisions shall limit or eliminate
any of the benefits provided to any person who at any time is or was a Trustee or officer of the
Trust or otherwise entitled to indemnification hereunder in respect of any act or omission that
occurred prior to such amendment, restatement or repeal.
Notwithstanding the foregoing, no indemnification shall be made hereunder unless there has
been a determination (i) by a final decision on the merits by a court or other body of competent
jurisdiction before whom the issue of entitlement to indemnification hereunder was brought that
such indemnitee is entitled to indemnification hereunder or, (ii) in the absence of such a
decision, by (1) a majority vote of a quorum of those Trustees who are neither ‘‘interested
persons’’ of the Trust (as defined in Section 2(a)(19) of the 1940 Act) nor parties to the
proceeding (‘‘Disinterested Non-Party Trustees’’), that the indemnitee is entitled to
indemnification hereunder, or (2) if such quorum is not obtainable or even if obtainable, if such
majority so directs, independent legal counsel in a written opinion concludes that the indemnitee
should be entitled to indemnification hereunder.
ITEM 26. Business and Other Connections of Investment Manager
See ‘‘Management’’ in the Statement of Additional Information. Information as to the directors
and officers of the Adviser is included in its Form ADV filed with the SEC and is incorporated
herein by reference thereto.
ITEM 27. Principal Underwriters
|
|
(a)
|
|
Foreside Fund Services, LLC, Registrant’s underwriter, serves as underwriter for the
following investment companies registered under the Investment Company Act of 1940, as
amended:
|
|
|
|
|
|
|
|
|
|
|
|
American Beacon Funds
|
|
Wintergreen Fund, Inc.
|
|
Ironwood Series Trust
|
|
|
|
American Beacon Mileage Funds
|
|
Henderson Global Funds
|
|
The CNL Funds
|
|
|
|
American Beacon Select Funds
|
|
Monarch Funds
|
|
SPA ETF Trust
|
|
|
|
Bridgeway Funds
|
|
Sound Shore Fund, Inc.
|
|
Focus Shares Trust
|
|
|
|
Century Capital Management Trust
|
|
Hirtle Callahan Trust
|
|
The Japan Fund, Inc.
|
|
|
|
Forum Funds
|
|
PMC Funds, Series of the Trust for Professional
Managers
|
|
NETS Trust
|
|
|
|
Central Park Group Multi-Event Fund
|
|
|
|
|
|
(b)
|
|
The following are officers of Foreside Fund Services, LLC, the Registrant’s
underwriter. Their business address is 3 Canal Plaza, Suite 100, Portland, Maine 04101.
|
|
|
|
|
|
|
|
|
|
|
|
NAME
|
|
POSITION WITH UNDERWRITER
|
|
POSITION WITH REGISTRANT
|
|
|
|
Mark S. Redman
|
|
President
|
|
None
|
|
|
|
Nanette K. Chern
|
|
Vice President, & Chief Compliance Officer
|
|
AMLCO
|
|
|
|
Richard J. Berthy
|
|
Vice President & Treasurer
|
|
None
|
|
|
|
Jennifer E. Hoopes
|
|
Secretary
|
|
None
|
|
|
|
Mark A. Fairbanks
|
|
Vice President & Deputy Chief Compliance Officer
|
|
None
|
ITEM 28. Location of Accounts and Records
The accounts, books and other documents of the Registrant required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, and the rules promulgated thereunder, are
maintained in part at the office of SPA ETF Inc. at Tower 49, 12 East 49th Street New York, New
York 10017 , and in part at the offices of the Transfer Agent at 101 Barclay Street, New York, New
York 10286.
ITEM 29. Management Services
Not applicable.
ITEM 30. Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 as amended, and the Investment Company Act of
1940, as amended the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement under Rule 485(b) under the Securities Act of 1933, as amended, and
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New York on the
27th day
of January, 2009.
|
|
|
|
|
|
|
|
SPA ETF TRUST
|
|
|
|
By:
|
/s/ Antony Peter Drain
|
|
|
|
|
Antony Peter Drain
|
|
|
|
|
President
|
|
|
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has
been signed below by the following persons in the capacities and on the date indicated.
|
|
|
|
|
|
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Joseph Stefanelli*
Joseph Stefanelli
|
|
Trustee
|
|
January 27, 2009
|
|
|
|
|
|
|
/s/ Robert Tull*
Robert Tull
|
|
Trustee
|
|
January 27, 2009
|
|
|
|
|
|
|
/s/ Antony Peter Drain
Antony Peter Drain
|
|
Trustee and President
|
|
January 27, 2009
|
|
|
|
|
|
|
/s/ Christopher Lanza*
Christopher Lanza
|
|
Chief Financial Officer and Treasurer
|
|
January 27, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* By:
|
/s/
Antony Peter Drain
Antony Peter Drain
Attorney-in-Fact
|
|
|
|
|
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
|
|
|
(i)(2)
|
|
Consent of Clifford Chance US LLP.
|
|
|
|
(j)
|
|
Consent of WithumSmith+Brown, P.C.
|
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