As reported by Bloomberg: First in ETF history: conversion of a hedge fund into an ETF:

UPHOLDINGS Compound Kings ETF (Cboe: KNGS)

Summary:

Aims to outperform the S&P 500 by investing in about 30 US and Chinese companies that have high rates of cash reinvestment.

While appealing to the retail investor with an expense ratio of only 0.60%, KNGS will need to grow fast as it is earning only $15,000 a year in gross revenue on its current AUM.

Exchange: Cboe BZX Exchange, Inc.

Expense ratio: 0.60%

Original filing date: September 15, 2020

Effective date: November 30, 2020

Listing Date: December 30, 2020

CUSIP: 02072L854

Active: Yes

Index: N/A

Investment Objective: The UPHOLDINGS Compound Kings ETF seeks to provide long-term capital growth. Income is a secondary objective.

Benchmark: S&P 500

Investment Strategy: See below

Adviser: Empowered Funds, LLC

Sub-Adviser: Upholdings Group LLC

Holdings: 30

 

Prospectus is here.

People behind KNGS:

Robert Cantwell, Founder of Upholdings, has been primarily and jointly responsible for the day-to-day management of the Fund since its inception. Mr. Cantwell provides his recommendations to Mr. Brandon Koepke, Portfolio Manager of the Adviser, who, since the Fund's inception is also primarily and jointly responsible for the day-to-day management of the Fund.

Upholdings on LinkedIn

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From the fund's filing on SEC.gov:

The Fund is an actively-managed exchange-traded fund ("ETF") that seeks to achieve its investment objectives by investing in securities that the Fund's Adviser and Sub-Adviser (Upholdings) believe offer the most attractive risk and return potential. Upholdings selects investments for the Fund's portfolio based on its own proprietary research.

The Fund's Investment Strategy

The Fund generally invests in securities that Upholdings believes have the potential to compound at a higher rate than the S&P 500 Index over multi-year periods. In most cases, Upholdings identifies companies that have been reinvesting their own cash flow at above average rates of return. If, based on Upholding's analysis, the shares of a particular company are trading at a fair level compared to Upholding's estimate of the company's intrinsic value, Upholdings will generally recommend that the Fund purchase that company's shares. To calculate intrinsic value, Upholdings constructs long-term financial models to estimate cashflow generation and the resulting shareholder value. To do so, Upholdings uses an array of publicly available data - earnings call transcripts, publicly disclosed financials, and industry consultants. Upholdings then estimates intrinsic value by discounting the estimated future value into a current valuation.

The Fund will be considered non-diversified, which means that it may invest more of its assets in the securities of a single issuer or a smaller number of issuers than if it were a diversified fund. The Fund generally anticipates holding approximately thirty (30) securities.

The Fund may sell securities for a variety of reasons, such as to seek to secure gains, limit losses, or redeploy assets into more promising opportunities.

Additionally, the Fund may, from time to time, deviate from the foregoing investment process if Upholdings believes a particular security has the potential to increase in value based on unique circumstances.

The Fund will invest at least 60% of its total net assets in equity securities of companies of medium and large market capitalizations located in both the United States and China, primarily via Hong Kong listed securities. The Fund will also invest in other international markets, including emerging markets.

In addition to securities of operating companies, Upholdings may recommend that the Fund invest in real estate investment trusts (REITs), business development companies (BDCs), convertible securities, preferred stocks, and exchange-traded funds (ETFs). When doing so, Upholdings follows the same research process: determine how much cash the entities can generate and whether there are opportunities for management to continue to reinvest at above average rates of return. The Fund may also hold U.S. government securities, bonds, cash, and cash equivalents for defensive purposes and during periods when the Upholdings is unable to identify securities that meet its investment criteria. Absent unusual market conditions, the Fund does not intend to maintain large cash balances for prolonged periods.

REITs are pooled investment vehicles that invest primarily in income-producing real estate or real estate-related loans or interests. BDCs are registered closed-end investment companies that have elected to be regulated as "business development companies" under the Investment Company Act of 1940 (the "1940 Act"). Convertible securities are usually preferred stocks or corporate bonds that can be exchanged for a set number of shares of common stock at a predetermined price. Preferred stock is a class of stock that pays dividends before common stock dividend payments are made and may be convertible to common stock. U.S. government securities include securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. ETFs may include both actively- and passively-managed ETFs. In addition to U.S. government securities, bonds may include a broad array of short-, medium-, and long-term obligations issued by corporate and private issuers of various types. Cash equivalents may include commercial paper and short-term debt instruments.

The Fund may also invest, to a lesser extent, in privately offered securities to seek to achieve its investment objectives subject to the limitations of the Investment Company Act of 1940 (the "1940 Act") and regulations thereunder. Privately offered securities often are illiquid and may be difficult to value, as more fully described below.

JPMorgan Emerging Markets Equity Core ETF

SUMMARY

Actively-managed but aims to hug MSCI EM index. Thus, it's an EM index fund with some investment latitude.

ANALYSIS

Completes JPM's ETF lineup. Offers its distributors a complete investment solution package now. With JPM's established and captive distribution network, and at less than half the management fees of iShares' EEM (0.70%), this is sure to grab a big chunk of market share. From an investment perspective, the timing is right as established investors rebalance their portfolios, and the social media-driven retail market dips its toes into the market in general.

Ticker: JEMA

Exchange: Cboe

Expense ratio: 0.33%

Original filing date: December 18, 2020

Effective date: March 3, 2021

Listing Date: March 11, 2021

CUSIP: 46641Q266

Active: Yes

Index / Benchmark: MSCI Emerging Markets Index net of foreign withholding taxes

Investment Objective: The Fund seeks to provide long-term capital appreciation.

Investment Strategy: 

Portfolio of holdings that will outperform the Benchmark over time while maintaining similar risk characteristics, including sector and geographic risks.

Both a top down and bottom up research process as well as a combination of fundamental and quantitative inputs to allocate the Fund’s assets among a range of sectors.

Adviser: J.P. Morgan Investment Management Inc.

Sub-Adviser: None

Constituents: TBD 

Geographical scope: (by exclusion) - Countries in the world except:

• Australia
• Canada
• Japan
• New Zealand
• the United Kingdom
• the United States
• most of the countries of Western Europe
• Hong Kong

Prospectus is here.

Portfolio Managers: Anuj Arora and Joyce Weng

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Main investment strategies

Under normal circumstances, the Fund invests at least 80% of its Assets in equity securities and equity-related instruments that are tied economically to emerging markets. “Assets” means net assets, plus the amount of borrowings for investment purposes. 

Emerging markets include most countries in the world except Australia, Canada, Japan, New Zealand, the United Kingdom, the United States, most of the countries of Western Europe and Hong Kong, although the Fund may invest in securities tied to those countries as well.

The Fund’s investments represent allocations to a variety of the adviser’s actively managed emerging market equity strategies, including country, region and style strategies, among others.

The Fund will overweight or underweight countries and sectors relative to the MSCI Emerging Markets Index (net of foreign withholding taxes). 

In implementing its strategy, the Fund seeks to construct a portfolio of holdings that will outperform the Benchmark over time while maintaining similar risk characteristics, including sector and geographic risks.

The equity securities and equity-related instruments in which the Fund may invest include, but are not limited to, common stock, participation notes or other structured notes, and other instruments that provide economic exposure to one or more equity securities.

The Fund may invest in securities across all market capitalizations, although the Fund may invest a significant portion of its assets in companies of any one particular market capitalization category.

Securities and equity-related instruments tied economically to an emerging market include: 

(i) securities of issuers that are organized under the laws of an emerging markets country or that maintain their principal place of business in an emerging markets country; 

(ii) securities that are traded principally in an emerging market country; 

(iii) securities of issuers that, during their most recent fiscal year, derived at least 50% of their revenues or profits from goods produced or sold, investments made, or services performed in an emerging markets country or that have at least 50% of their assets in an emerging market country; or 

(iv) securities or other instruments that expose the Fund to the economic fortunes and risks of one or more emerging market countries.

There is no limit on the number of countries in which the Fund may invest, and the Fund may focus its investments in a single country or a small group of countries 

The Fund may use exchange-traded funds to gain exposure to particular foreign securities or markets and for the efficient management of cash flows.

The Fund may invest in securities denominated in any currency and will invest substantially in securities denominated in foreign currencies.

Derivatives, which are instruments that have a value based on another instrument, exchange rate or index, may also be used as substitutes for securities in which the Fund can invest. 

The Fund may utilize currency forwards (including nondeliverable forwards) to manage currency exposures, where practical, for the purpose of risk management, including hedging non-dollar currency exposure back to the U.S. dollar. 

The Fund may also use exchanged-traded futures for the efficient management of cash flows.

Investment Process

In managing the Fund, the adviser uses both a top down and bottom up research process as well as a combination of fundamental and quantitative inputs to allocate the Fund’s assets among a range of sectors.

In buying and selling investments for the Fund, the adviser looks for market sectors and individual securities that it believes will perform well over time. 

The adviser selects individual securities after performing a risk/reward analysis to address the Fund’s objective of providing a high total return. Research produced by the adviser includes in-depth, fundamental research into individual securities conducted by research analysts, who emphasize each issuer’s long-term prospects, and disciplined top-down macro and quantitative research using the latest technology available to the firm. 

Research analysts use their local expertise to identify, research, and rank companies according to their expected performance. As a part of this analysis, research analysts seek to assess the risks presented by certain environmental, social and governance factors. 

While these particular risks are considered, securities of issuers presenting such risks may be purchased and retained by the Fund.

WisdomTree brings the Continuous Commodity Index Fund from its own Trust under the WisdomTree umbrella.

Old name: WisdomTree Continuous Commodity Index Fund

New name: WisdomTree Enhanced Commodity Strategy Fund

New prospectus is here.

What this means for investors:
1. Index to actively-managed - performance enhanced (hopefully)
2. 28% reduction in annual expense ratio - higher net returns
3. No K-1 schedule anymore - less year-end tax paperwork
4. Increased commodities from 17 to 25 - increased diversification and exposure to more relevant metals
5. Performance history reset - Unfortunate for long-time holders of GCC since Greenhaven days

What this means for WisdomTree: 
1. Revenue neutral as the reduction in expense ratio is compensated by lower operating fee
2. Provides more investment decision flexibility
3. Much lower regulatory filing and reporting fees as lone trust eliminated
4. Eliminates index licensing and reporting fees

5. Possibly lower sub-advisor fee?

Old ticker: GCC
New ticker: GCC (unchanged)

Old index: Thomson Reuters Continuous Commodity Index
New index: N/A (Actively-managed)

Old management fee: 0.85% with 0.10% waiver to 0.75%
New management fee: 0.55%

Old CUSIP: 97718W 108
New CUSIP: 97717Y683

Old SubAdvisor: GreenHaven Advisors LLC
New SubAdvisor: Mellon Investments Corporation

Old exchange: NYSE arca

New exchange: NYSE arca (unchanged)

Effective date: December 21, 2020

GCC was originally launched in 2006 tracking index with innovative commodity rolls strategy which avoided turmoil and thus impact on returns around set roll dates.

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Defiance Next Gen H2 ETF

Ticker: HDRO
Exchange: NYSE arca
Expense ratio: TBD
Original filing date: December 22, 2020
Effective date: March 08, 2021
Listing date: TBD
CUSIP: TBD
Active: No
Index: BlueStar Global Hydrogen & NextGen Fuel Cell Index

Index provider: MV Index Solutions GmbH

Constituents: 25

Investment Objective: Track the total return performance, before fees and expenses, of the BlueStar Global Hydrogen & NextGen Fuel Cell Index.

Investment Strategy: The Fund tracks the total return performance, before fees and expenses, of the BlueStar Global Hydrogen & NextGen Fuel Cell Index.

BlueStar Global Hydrogen & NextGen Fuel Cell Index

The Index is a rules-based index that tracks the performance of a group of globally listed equity securities of companies involved in the development of hydrogen-based energy sources, fuel cell technologies, and industrial gases. 

The Index is comprised of both “core” and “non-core” companies. 

“Core” companies are those that generate at least 50% of their revenue from 

• (i) products that facilitate energy production from hydrogen, 
• (ii) fuel cells, or 
• (iii) the production of industrial gases (including hydrogen). 

“Non-core” companies are those whose business includes 

• hydrogen-based energy production, 
• fuel cells, 
• hydrogen gas production, or 
• technology and equipment that facilitates energy production from hydrogen, but do not otherwise qualify as “core” companies and are not vehicle manufacturers. 

At the time of each quarterly rebalance of the Index, Index constituents are weighted using a modified market-capitalization methodology that 

• caps the weight of the group of non-core companies to 20%, 
• limits the weight of any individual security to 10% (4% for industrial gas companies), and 
• adjusts the weight of a constituent downward based on certain liquidity criteria. 

...

Once included in the Index, companies are eligible to remain in the Index at lower investibility thresholds, and core companies will not lose their “core” designation unless they earn less than 25% of their revenue from (i) products that facilitate energy production from hydrogen, (ii) fuel cells, or (iii) the production of hydrogen gas.

The Index is rebalanced quarterly, effective after the close of trading on the third Friday of each March, June, September, and December. 

The Index is reconstituted as part of the rebalance in each June and December. 

For each rebalance and reconstitution of the Index, Index constituents and their weights are determined based on data prior to the Rebalance Date.

Adviser: Defiance ETFs, LLC
Sub-Adviser: Penserra Capital Management LLC
 
Prospectus is here.

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Some fund fees go back to partnering charity.

Impact Shares Affordable Housing MBS ETF

Ticker: OWNS
Exchange: NYSE arca
Expense ratio: 0.30%
Original filing date: December 23, 2020
Effective date: March 08, 2021
Listing Date: TBD
Active: Yes
Index: Not applicable (ACTIVELY MANAGED)

CUSIP: TBD

Adviser: Impact Shares, Corp.
Sub-Adviser: Community Capital Management, Inc.
 

Investment Objective:

The primary investment objective of the Impact Shares Affordable Housing MBS ETF is to generate a level of current income via a portfolio comprised of investment grade mortgage-backed pass-through securities issued and/or guaranteed by U.S. government agencies.

Investment Strategy: 

The Fund will invest primarily in mortgage-backed securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae. 

The Fund will invest in mortgage-backed securities backed by pools of mortgage loans made to minority families, low-income families, and/or families that live in persistent poverty areas.

At least 51% of the loans underlying the mortgage-backed securities in which the Fund invests will have been made to low- and moderate-income borrowers. 

These loans include home loans in census tracts where:

- more than 50% of the population is non-white and at least 40% of the population is living at or below the poverty line (defined as a racially or ethnically concentrated areas of poverty or “R/ECAP”)

- loans in counties where for more than 20 years 20% or more of the population has lived in poverty (defined as a persistent poverty county or “PPC”)

- loans to minority borrowers or loans originated in a census tract where more than 50% of the population is a minority (also referred to as a majority-minority census tract.)

The Fund may also invest in mortgage-backed securities backed by pools of loans sourced from non-traditional originators including Community Development Financial Institutions (CDFIs) and minority-owned banks.

Constituents: TBD

Prospectus is here.

OTHER IMPACT SHARES ETFs:

As of Dec. 30, 2020:

WOMN

Impact Shares YWCA Women's Empowerment ETF ($12.3M AUM - August 24, 2018)

NACP

Impact Shares NAACP Minority Empowerment ETF ($19.3M AUM - July 18, 2018)

SDGA

Impact Shares Sustainable Development Goals Global Equity ETF ($3.8M AUM - September 20, 2018)

DALLAS, TEXAS • 844-448-3383 • INFO@IMPACTETFS.ORG

Ethan Powell - Founder & CEO of ImpactShares

Twitter

@ImpactETFs

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Swan Hedged Equity US Large Cap ETF
Ticker: HEGD
Exchange: Cboe BZX
Expense ratio: 0.87%
Original filing date: October 2, 2020
Effective date: December 16, 2020

 
CUSIP: 53656F599
Adviser: Swan Capital Management, LLC
Sub-Adviser: Swan Global Management, LLC
 
Strategy: Swan's proprietary "Defined Risk Strategy" (DRS)
Index: N/A; Active
Strategy summary: 

• Equity portion: ETFs
• Options portion: Put and call options on S&P 500 Index

Prospectus is here.

Portfolio Managers

• Randy Swan, Lead Portfolio Manager and President of the Adviser and Sub-Adviser, 
• Robert Swan, Portfolio Manager and Chief Operating Officer of the Adviser and Sub-Adviser, 
• Micah Wakefield, CAIA, Managing Director of Research and Product Development and Portfolio Manager of the Sub-Adviser, and 
• Chris Hausman, CMT, Managing Director of Risk and Portfolio Manager of the Sub-Adviser, have each served as a Portfolio Manager of the Fund since its inception in December 2020.

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Strategy in Detail

Investment Objective

The Swan Hedged Equity US Large Cap ETF (the “Fund”) seeks long term capital appreciation while mitigating overall market risk.

Principal Investment Strategies

The Fund is an actively-managed exchange-traded fund (“ETF”) that pursues its investment objective by investing at least 80% of its net assets (plus any borrowings for investment purposes) directly and indirectly through one or more other investment companies, including ETFs, in equity securities of large capitalization U.S. companies. “Large capitalization companies” are those within the range of capitalizations of the S&P 500 Index. In seeking to achieve its investment objective, the Fund also uses exchange-traded long-term put options on the S&P 500 Index for hedging purposes and exchange-traded put and call options on the S&P 500 Index (or exchange-traded funds seeking to track the S&P 500 Index) to seek to generate additional returns.

The Fund may buy and sell put and call options. The Fund seeks to provide risk-managed growth of capital by matching or exceeding the long-term performance of the US large-cap equity market by minimizing large declines typically experienced during bear markets.

Hedging Process. The Fund utilizes the defined risk strategy (“DRS”) philosophy developed in 1997 by Randy Swan, President of Swan Capital Management, LLC (the “Adviser”), the Fund’s adviser, and Swan Global Management, LLC (the “Sub-Adviser”), the Fund’s sub-adviser. The DRS is based upon the Sub-Adviser’s research indicating that market timing and/or stock selection is extremely difficult, may produce volatile returns and that asset allocation is limited in its risk reduction. In implementing this strategy, the equity portion of the Fund’s portfolio is hedged using put options and the option portion of the Fund’s portfolio is actively-managed to seek additional return or provide risk mitigation. Specifically, the Sub-Adviser seeks to “define risk” by seeking to protect against large losses. The Sub-Adviser seeks to do so by hedging the Fund’s equity exposure through investments in protective long-term S&P 500 Index put options (referred to as paying a premium) that give the Fund the right to sell a security or index at a set (strike) price or sell the long-term put option on an option exchange. Generally, S&P 500 Index put options have an inverse relationship to the S&P 500 Index and its sector-specific constituents.

Additional Options Strategies. In addition to seeking to protect against large losses, the Sub-Adviser seeks to increase returns by buying and selling put and call options on the S&P 500 Index (or on ETFs that track the S&P 500 Index). A put option is a contract that entitles the purchaser to receive from the seller a cash payment equal to the amount of any depreciation in the value of the reference index below a fixed price as of the valuation date of the option. A call option is a contract that entitles the purchaser to receive from the seller a cash payment equal to the amount of any appreciation in the value of the reference index over a fixed price as of the valuation date of the option.

The Sub-Adviser also will regularly engage in various spread option strategies. Spread option strategies involve, for example, buying a six-month call option while simultaneously selling a further out-of-the-money six-month call option. Each spread includes a hedging element so that the Fund is not exposed to significant losses on written options. In addition, the Fund will occasionally write short-term (typically one to three months to expiration) S&P 500 Index call options on a portion of the underlying equity in the Fund, similar to a covered call strategy.

Rebalancing. The Sub-Adviser will typically rebalance the portfolio on an annual basis to maintain appropriate weighting across the components of the strategy and to avoid excessive exposure. Long-term protective put options are typically traded annually, but may be rebalanced more frequently depending on market conditions, to protect capital and/or allow for profit potential, by re-establishing a current-market strike price which depends on whether the market has increased or decreased.

The Sub-Adviser intends on having low portfolio turnover as most of the ETF portfolio will be held indefinitely. Written call options are purchased when the Sub-Adviser believes they present an unfavorable risk and reward profile. Purchased options are sold when the Sub-Adviser believes they present an unfavorable risk and reward profile or when more attractive investments are available.

The Fund is considered to be non-diversified, which means that it may invest more of its assets in the securities of a single issuer or a smaller number of issuers than if it were a diversified fund.

Amplify BlackSwan ISWN ETF
Ticker: ISWN
Exchange: NYSE Arca
Expense ratio: 0.49%

Original Filing date: July 24, 2020

Effective date: December 17, 2020

CUSIP: 32108821
Adviser: Amplify Investments LLC.
Sub-Adviser: ARGI Investment Services, LLC and Toroso Investments, LLC.

Index: S-Network BlackSwan International Index (ISWNXT)

Investment Strategy Summary

Provide 70% of upside performance of MSCI EAFE index, with protection against "Black Swan" events where market drops substantially and suddenly.

Investment portfolio to mimic index:

• 90% in U.S. Treasuries of various maturities that together have a duration matching initial duration of the U.S. 10-Year Treasury Note.
• 10% in in-the-money June and December LEAP options on iShares MSCI EAFE ETF (EFA).

Portfolio Managers

Dan Cupkovic, CFP, Director of Investments at ARGI

Dr. Indu Chhachhi, Investment Committee Member and Researcher at ARGI

Matt Westfall, CFA, Portfolio Manager at ARGI

Charles A. Ragauss, CFA, Portfolio Manager at Toroso

Michael Venuto, Chief Investment Officer of Toroso

Prospectus is here.

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Strategy in Detail

The Fund will invest at least 80% of its total assets in the securities that comprise the Index, which will primarily include U.S. Treasury securities and long-dated call options ("LEAP Options") on the iShares MSCI EAFE ETF ("EFA"). The Fund is not a money market fund. The Fund, using an indexing investment approach, attempts to replicate, before fees and expenses, the performance of the Index. The Fund's investment sub-advisers, ARGI Investment Services, LLC ("ARGI") and Toroso Investments, LLC ("Toroso," and with ARGI, the "Sub-Advisers"), manage the investment of the Fund's assets. The index provider is S-Network Global Indexes, Inc. ("S-Network" or the "Index Provider"). The Index Provider is not affiliated with the Fund, Amplify Investments LLC (the "Adviser") or either Sub-Adviser.

 

The Index is a rules-based, quantitative index that seeks to provide capital protection against the unpredictable, rare and highly disruptive events that have come to be referred to as "Black Swans." The Index's strategy is designed to allow for some participation in the investment gains experienced by EFA while providing the opportunity for a buffer against significant losses through the Index's target portfolio weighting of approximately 90% U.S. Treasury securities. The EFA tracks an index that measures the equity market performance across 21 developed markets outside of the U.S. and Canada and may include large or mid-capitalization companies.

 

The Index seeks to provide such returns by allocating approximately 10% of its index market capitalization to a portfolio of LEAP Options on EFA and approximately 90% of its index market capitalization in a portfolio of U.S. Treasury securities. The EFA LEAP Options provide the exposure to the MSCI EAFE Index. Due to the terms of these EFA LEAP Options (which are discussed in more detail below), these positions allow the equity portion of the Index to participate in approximately 70% of the upside experienced by EFA over a full market cycle. The U.S. Treasury securities portion of the portfolio is included to help mitigate against significant losses. By allocating approximately 90% of its index market capitalization to U.S. Treasury securities, the Index seeks to create a portfolio buffer that is positioned to preserve capital in the event of a "Black Swan" event. The Index is not designed to provide investment returns that correspond closely with the returns of the MSCI EAFE Index. The Fund is not an appropriate investment for investors who seek such returns.

 

The EFA LEAP Options portfolio is composed of in-the-money LEAP Options that, at the time of purchase, have expirations of at least one year and one day in the future and expire in either June or December, as applicable. The EFA LEAP Options purchased by the Fund are sold exclusively on the New York Stock Exchange and bought outright by the Fund. The EFA Leap Options are subject to customary brokerage costs in addition to the current market price for the Options (i.e. option premium). An "in-the-money" option contract is an option contract with a strike price that is below the current price of the underlying reference asset. For the EFA LEAP Options in which the Fund invests, the reference asset is EFA. The LEAP Options will generally have a delta of 70 at the time of purchase, meaning that for every $1.00 of movement in the share price of EFA, each LEAP Option will have a corresponding movement of $0.70. Therefore, while not subject to a return cap when EFA experiences gains, the Index generally only participates in approximately 70% of the gains experienced by EFA over a full market cycle. When EFA experiences losses, the EFA LEAP Options portfolio participates in approximately 70% of such losses experienced by EFA, but those losses are mitigated by the Index's approximately 90% position in U.S. Treasury securities.

 

The U.S. Treasury securities portfolio is composed of U.S. 2-, 3-, 5-, 7-, 10- and 30-Year Treasury securities that cumulatively provide a portfolio duration that matches the initial duration of the U.S. 10-Year Treasury Note. This duration was selected as the Index's target duration based upon the principle that the return on intermediate-term U.S. Treasury securities tends not to correlate with those of the U.S. equities markets. Duration is a measure of the expected price volatility of a debt security as a result of changes in market rates of interest, based on, among other factors, the weighted average timing of the debt security's expected principal and interest payments. In general, duration represents the expected percentage change in the value of a security for an immediate 1% change in interest rates. For example, the price of a security with a duration of 10 years would be expected to drop by approximately 10% in response to a 1% increase in interest rates.

 

The Index reconstitutes and rebalances every June and December. At each June reconstitution, the Index liquidates its existing June LEAP Options and purchases LEAP Options that expire the following June. The December LEAP Option positions will remain unchanged at each June reconstitution. At each December reconstitution, the Index liquidates its existing December LEAP Options and purchases LEAP Options that expire the following December. The June LEAP Options positions will remain unchanged at each December reconstitution. So as to maintain the desired allocation of the portfolio, net gains or losses derived from the reconstitutions of the LEAP Options positions are added to or subtracted from the U.S. Treasury securities portfolio at each reconstitution. The Index also rebalances the U.S. Treasury securities portfolio any time the portfolio's target duration deviates by more than 0.5 years. For more information regarding the Index methodology, please see the section entitled "Additional Information About the Fund's Strategies and Risks."

 

The Fund is classified as "non-diversified" under the Investment Company Act of 1940, as amended (the "1940 Act"). To the extent the Index concentrates (i.e., holds 25% or more of its total assets) in the securities of a particular industry or group of industries, the Fund will concentrate its investments to approximately the same extent. As of the date of the Prospectus, the Fund has significant exposure to companies in the financials sector, and companies based in Japan.